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 811-8081
Name of Fund: MuniHoldings Fund, Inc.
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Terry K. Glenn, President,
MuniHoldings Fund, Inc., 800 Scudders Mill Road, Plainsboro, NJ,
08536. Mailing address: P.O. Box 9011, Princeton, NJ, 08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 04/30/04
Date of reporting period: 05/01/03 - 10/31/03
Item 1 - Attach shareholder report
(BULL LOGO)
Merrill Lynch Investment Managers
www.mlim.ml.com
MuniHoldings Fund, Inc.
Semi-Annual Report
October 31, 2003
MuniHoldings Fund, Inc. seeks to provide shareholders with current
income exempt from Federal income taxes 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 income taxes.
This report, including the financial information herein, is
transmitted to shareholders of MuniHoldings 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.
MuniHoldings Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
MuniHoldings Fund, Inc.
The Benefits and Risks of Leveraging
MuniHoldings Fund, Inc. has the ability to leverage to seek to
enhance the yield and net asset value of its Common Stock.
However, these objectives cannot be achieved in all interest rate
environments. To leverage, the Fund issues Preferred Stock, which
pays dividends at prevailing short-term interest rates, and invests
the proceeds in long-term municipal bonds. The interest earned on
these investments, net of dividends to Preferred Stock, is paid to
Common Stock shareholders in the form of dividends, and the value of
these portfolio holdings is reflected in the per share net asset
value of the Fund's Common Stock. However, in order to benefit
Common Stock shareholders, the yield curve must be positively
sloped; that is, short-term interest rates must be lower than long-
term interest rates. At the same time, a period of generally
declining interest rates will benefit Common Stock shareholders. If
either of these conditions change, then the risks of leveraging will
begin to outweigh the benefits.
To illustrate these concepts, assume a fund's Common Stock
capitalization of $100 million and the issue of Preferred Stock for
an additional $50 million, creating a total value of $150 million
available for investment in long-term municipal bonds. If prevailing
short-term interest rates are approximately 3% and long-term
interest rates are approximately 6%, the yield curve has a strongly
positive slope. The fund pays dividends on the $50 million of
Preferred Stock based on the lower short-term interest rates. At the
same time, the fund's total portfolio of $150 million earns the
income based on long-term interest rates. Of course, increases in
short-term interest rates would reduce (and even eliminate) the
dividends on the Common Stock.
In this case, the dividends paid to Preferred Stock shareholders are
significantly lower than the income earned on the fund's long-term
investments, and therefore the Common Stock shareholders are the
beneficiaries of the incremental yield. However, if short-term
interest rates rise, narrowing the differential between short-term
and long-term interest rates, the incremental yield pickup on the
Common Stock will be reduced or eliminated completely. At the same
time, the market value on the fund's Common Stock (that is, its
price as listed on the New York Stock Exchange), may, as a result,
decline. Furthermore, if long-term interest rates rise, the Common
Stock's net asset value will reflect the full decline in the price
of the portfolio's investments, since the value of the fund's
Preferred Stock does not fluctuate. In addition to the decline in
net asset value, the market value of the fund's Common Stock may
also decline.
As a part of its investment strategy, the Fund may invest in certain
securities whose potential income return is inversely related to
changes in a floating interest rate ("inverse floaters"). In
general, income on inverse floaters will decrease when short-term
interest rates increase and increase when short-term interest rates
decrease. Investments in inverse floaters may be characterized as
derivative securities and may subject the Fund to the risks of
reduced or eliminated interest payments and losses of invested
principal. In addition, inverse floaters have the effect of
providing investment leverage and, as a result, the market value of
such securities will generally be more volatile than that of fixed-
rate, tax-exempt securities. To the extent the Fund invests in
inverse floaters, the market value of the Fund's portfolio and the
net asset value of the Fund's shares may also be more volatile than
if the Fund did not invest in these securities. As of October 31,
2003, the percentage of the Fund's total net assets invested in
inverse floaters was 5.19%.
Swap Agreements
The Fund may also invest in swap agreements, which are over-the-
counter contracts in which one party agrees to make periodic
payments based on the change in market value of a specified bond,
basket of bonds, or index in return for periodic payments based on a
fixed or variable interest rate or the change in market value of a
different bond, basket of bonds or index. Swap agreements may be
used to obtain exposure to a bond or market without owning or taking
physical custody of securities.
MUNIHOLDINGS FUND, INC., OCTOBER 31, 2003
A Letter From the President
Dear Shareholder
As 2003 draws to a close, it seems appropriate to reflect on what
has been a meaningful year in many respects. We saw the beginning
and the end of all-out war in Iraq, equity market uncertainty turned
to strength and sub par gross domestic product growth of 1.4% in the
first quarter of 2003 grew to an extraordinary 8.2% in the third
quarter. Amid the good news, fixed income investments, which had
become the asset class of choice during the preceding three-year
equity market decline, faced new challenges.
During 2003, municipal bond yields rose and fell in reaction to
geopolitical events, equity market performance, economic activity
and employment figures. By the end of October, long-term municipal
revenue bond yields were slightly higher than they were one year
earlier, at 5.24% as measured by the Bond Buyer Revenue Bond Index.
With many state deficits at record levels, municipalities issued
nearly $400 billion in new long-term tax-exempt bonds during the
12-month period ended October 31, 2003. The availability of bonds,
together with attractive yield ratios relative to U.S. Treasury
issues, made municipal bonds a popular fixed income investment
alternative.
Throughout the year, our portfolio managers continued to work
diligently to deliver on our commitment to provide superior
performance within reasonable expectations for risk and return. This
included striving to outperform our peers and the market indexes.
With that said, remember that the advice and guidance of a skilled
financial advisor often can mean the difference between successful
and unsuccessful investing. A financial professional can help you
choose those investments that will best serve you as you plan for
your financial future.
Finally, I am proud to premiere a new look to our shareholder
communications. Our portfolio manager commentaries have been trimmed
and organized in such a way that you can get the information you
need at a glance, in plain language. Today's markets are confusing
enough. We want to help you put it all in perspective. The report's
new size also allows us certain mailing efficiencies. Any cost
savings in production or postage are passed on to the Fund and,
ultimately, to Fund shareholders.
We thank you for trusting Merrill Lynch Investment Managers with
your investment assets, and we look forward to serving you in the
months and years ahead.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President and Director
MUNIHOLDINGS FUND, INC., OCTOBER 31, 2003
A Discussion With Your Fund's Portfolio Manager
The Fund outperformed its comparable Lipper category for the period
and was effectively able to enhance yield while preserving net asset
value in a volatile interest rate environment.
Describe the market environment relative to municipal bonds during
the period.
At the end of October, long-term tax-exempt bond yields were
90% - 95% of comparable U.S. Treasury securities, substantially
exceeding their historical average of 85% - 88%. Considering their
tax-free status, this made long-term municipal bonds an attractive
investment alternative during the past six months.
Long-term U.S. Treasury bond yields moved higher over the period,
supported by generally stronger economic activity. Gross domestic
product growth in the third quarter of 2003 was revised to 8.2%, the
fastest rate seen in more than 20 years and well above the 1.4%
registered in the first quarter of the year. Also responding to the
overall more positive financial environment, the Standard & Poor's
500 Index rose almost 15% during the period, putting considerable
pressure on interest rates. Long-term U.S. Treasury bond yields
stood at 5.13% at the end of October 2003, an increase of 37 basis
points (.37%) over the past six months.
Tax-exempt bond yields generally followed their taxable counterparts
higher during the period. As reported by Municipal Market Data,
Aaa-rated issues maturing in 30 years rose approximately 20 basis points
over the six months to 4.82%. Long-term tax-exempt revenue bond
yields, as measured by the Bond Buyer Revenue Bond Index, increased
15 basis points to 5.24% over the same period. With tax-exempt money
market rates below 1% and generally low municipal bond yields, many
investors opted to move further out on the municipal yield curve to
generate the desired level of tax-exempt income. This maturity
extension has supported the strong demand and performance shown by
tax-exempt products in recent months.
The municipal market's outperformance of the U.S. Treasury market
during the period has been especially impressive given the dramatic
increase in new bond issuance. Historically low interest rates over
the past year have been used by state and local governments as an
opportunity to finance existing infrastructure needs and refinance
outstanding, higher-couponed issues. During the past 12 months,
municipalities issued nearly $400 billion in new securities, an
increase of more than 12% compared to last year's issuance. More
recently, new municipal bond issuance has slowed largely in response
to the recent rise in tax-exempt bond yields. Over the past three
months, less than $90 billion in long-term tax-exempt bonds was
under-written, a decline of nearly 10% versus the same three months
of 2002. This recent decline in supply has helped support the tax-
exempt market's positive technical position and recent performance.
How did the Fund perform during the period in light of the existing
market conditions?
For the six-month period ended October 31, 2003, the Common Stock of
MuniHoldings Fund, Inc. had a net annualized yield of 6.99%, based
on a period-end per share net asset value of $15.50 and $.546 per
share income dividends. Over the same period, the total investment
return on the Fund's Common Stock was +6.70%, based on a change in
per share net asset value from $15.07 to $15.50, and assuming
reinvestment of $.544 per share ordinary income dividends.
For the six-month period ended October 31, 2003, the Fund's Auction
Market Preferred Stock had an average yield of .86% for Series A and
..84% for Series B.
MUNIHOLDINGS FUND, INC., OCTOBER 31, 2003
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 the Financial
Statements included in this report. As a closed-end fund, the Fund's
shares may trade in the secondary market at a premium or discount to
the Fund's net asset value. As a result, total investment returns
based on changes in the market value of the Fund's Common Stock can
vary significantly from total investment return based on changes in
the Fund's net asset value.
The Fund's return, based on net asset value, significantly
outperformed its comparable Lipper category of General Municipal
Debt Funds (Leveraged), which had an average return of +2.68% for
the six-month period ended October 31, 2003. The Fund's strong
relative performance is attributed to our focus on yield. During the
period, we increased the portfolio's exposure to the high-yield
portion of the market, that being credit spreads. Municipal credit
spreads tightened significantly over the past six months, and this
shift helped enhance the Fund's yield and total return.
What changes were made to the portfolio during the period?
At the beginning of the period, we increased our exposure to
corporate-backed bonds in the tax-exempt market. These included
utility companies, such as TXU Electric Company, CenterPoint Energy,
Inc., Tucson Electric Power, Public Service New Mexico and Tampa
Electric Company, as well as paper companies and airline credits.
These purchases increased the Fund's competitive yield and
positioned the portfolio to perform well in the event of narrowing
credit spreads. Later in the period, we began reducing the Fund's
exposure to these credits as they rallied considerably more than the
general municipal market.
During the period, the Fund's borrowing costs remained in the
..85% - 1.25% range. These attractive funding levels, in combination
with a steep tax-exempt yield curve, have generated a significant
income benefit to the Fund's Common Stock shareholders. Further
declines in the Fund's borrowing costs would require significant
easing of monetary policy by the Federal Reserve Board. While such
action is not expected, neither is an imminent increase in short-
term interest rates. We expect short-term borrowing costs to remain
near current attractive levels for the coming months. However,
should the spread between short-term and long-term interest rates
narrow, the benefits of leverage 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 2 of
this report to shareholders.)
How would you characterize the portfolio's position at the close of
the period?
Our primary focus is to maintain the portfolio's current yield and
protect the Fund's net asset value should interest rates rise in the
future. We expect the economy to slowly gain strength over the next
several quarters, pushing interest rates slightly higher. Under this
scenario, credit spreads should continue to narrow as corporate
earnings grow.
Robert A. DiMella
Vice President and Portfolio Manager
December 1, 2003
MUNIHOLDINGS FUND, INC., OCTOBER 31, 2003
Proxy Results
During the six-month period ended October 31, 2003, MuniHoldings
Fund, Inc.'s Common Stock shareholders voted on the following
proposal. The proposal was approved at a shareholders' meeting on
August 25, 2003. A description of the proposal and number of shares
voted are as follows:
Shares Voted Shares Withheld
For From Voting
1. To elect the Fund's Directors: Terry K. Glenn 12,926,610 376,613
Ronald W. Forbes 12,935,981 367,242
Cynthia A. Montgomery 12,297,056 376,167
Kevin A. Ryan 12,912,327 390,896
Roscoe S. Suddarth 12,918,598 387,625
Edward D. Zinbarg 12,918,664 384,559
During the six-month period ended October 31, 2003, MuniHoldings
Fund, Inc.'s Preferred Stock shareholders (Series A & B) voted on
the following proposal. The proposal was approved at a shareholders'
meeting on August 25, 2003. A description of the proposal and number
of shares voted are as follows:
Shares Voted Shares Withheld
For From Voting
1. To elect the Fund's Board of Directors: Terry K. Glenn, Ronald W. Forbes,
Cynthia A. Montgomery, Charles C. Reilly, Kevin A. Ryan, Roscoe S. Suddarth,
Richard R. West and Edward D. Zinbarg 3,154 4
MUNIHOLDINGS FUND, INC., OCTOBER 31, 2003
Quality Profile
The quality ratings of securities in the Fund as of October 31, 2003
were as follows:
Percent of
Total
S&P Rating/Moody's Rating Investments
AAA/Aaa 21.7%
AA/Aa 8.1
A/A 11.9
BBB/Baa 26.7
BB/Ba 5.1
B/B 1.5
CCC/Caa 1.0
NR (Not Rated) 5.4
Other++ 18.6
++Temporary investments in short-term variable rate municipal
securities.
MUNIHOLDINGS FUND, INC., OCTOBER 31, 2003
Schedule of Investments (In Thousands)
S&P Moody's Face
State Ratings Ratings Amount Municipal Bonds Value
Alabama--0.9% BBB NR* $ 1,750 Camden, Alabama, IDB, Exempt Facilities Revenue Bonds
(Weyerhaeuser Company), Series A, 6.125% due 12/01/2024 $ 1,832
Arizona--2.1% BB+ Ba1 1,200 Maricopa County, Arizona, Pollution Control Corporation,
PCR, Refunding (El Paso Electric Company Project), Series A,
6.25% due 5/01/2037 1,245
NR* Caa3 3,000 Phoenix, Arizona, IDA, Airport Facility Revenue Refunding
Bonds (America West Airlines Inc. Project), AMT, 6.30% due
4/01/2023 2,315
NR* NR* 835 Show Low, Arizona, Improvement District No. 5, Special
Assessment Bonds, 6.375% due 1/01/2015 874
California--16.3% Agua Caliente Band of Cahuilla Indians, California, Casino
Revenue Bonds:
NR* NR* 810 4.60% due 7/01/2008 810
NR* NR* 875 5.60% due 7/01/2013 878
A1+ VMIG1++ 3,000 California State Department of Water Resources, Power Supply
Revenue Bonds, VRDN, Series B-1, 1.05% due 5/01/2022 (g) 3,000
BBB A3 3,900 California State, GO, Refunding, 5.25% due 2/01/2033 3,837
BBB A3 2,000 California State, Various Purpose, GO, 5.25% due 11/01/2021 2,039
A- A3 3,870 California Statewide Communities Development Authority, Health
Facility Revenue Bonds (Memorial Health Services), Series A,
6% due 10/01/2023 4,092
A- A2 3,000 Chula Vista, California, IDR, Refunding (San Diego Gas &
Electric Co.), AMT, Series A, 6.75% due 3/01/2023 3,026
Golden State Tobacco Securitization Corporation of California,
Tobacco Settlement Revenue Bonds:
BBB Baa2 1,165 Series A-3, 7.875% due 6/01/2042 1,197
BBB- Baa1 3,000 Series B, 5.75% due 6/01/2021 3,149
BBB- Baa1 5,060 Series B, 5.50% due 6/01/2043 4,803
Montebello, California, Unified School District, GO (b):
AAA Aaa 2,405 5.61%** due 8/01/2022 904
AAA Aaa 2,455 5.61%** due 8/01/2023 859
Sacramento County, California, Sanitation District, Financing
Authority Revenue Refunding Bonds:
AA Aa3 3,950 RIB, Series 366, 10.422% due 12/01/2027 (f) 4,634
AA Aa3 1,550 Series A, 5.875% due 12/01/2027 1,684
Colorado--4.6% NR* NR* 2,645 Elk Valley, Colorado, Public Improvement Revenue Bonds
(Public Improvement Fee), Series A, 7.35% due 9/01/2031 2,710
AA NR* 3,000 Interlocken, Colorado, GO, Refunding (Metropolitan District),
Series A, 5.75% due 12/15/2019 (c) 3,210
A1 VMIG1++ 2,100 Moffat County, Colorado, PCR, Refunding (Pacificorp Projects),
VRDN, 1.10% due 5/01/2013 (a)(g) 2,100
BB+ Ba1 1,840 Northwest Parkway, Colorado, Public Highway Authority Revenue
Bonds, First Tier, Sub-Series D, 7.125% due 6/15/2041 1,871
Connecticut--1.3% NR* NR* 2,735 Connecticut State Development Authority, IDR (AFCO Cargo
BDL-LLC Project), AMT, 8% due 4/01/2030 2,839
Portfolio Abbreviations
To simplify the listings of MuniHoldings Fund, Inc.'s portfolio
holdings in the Schedule of Investments, we have abbreviated the
names of many of the securities according to the list at right.
AMT Alternative Minimum Tax (subject to)
EDA Economic Development Authority
GO General Obligation Bonds
HDA Housing Development Authority
HFA Housing Finance Agency
IDA Industrial Development Authority
IDB Industrial Development Board
IDR Industrial Development Revenue Bonds
M/F Multi-Family
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
RITR Residual Interest Trust Receipts
VRDN Variable Rate Demand Notes
MUNIHOLDINGS FUND, INC., OCTOBER 31, 2003
Schedule of Investments (continued) (In Thousands)
S&P Moody's Face
State Ratings Ratings Amount Municipal Bonds Value
Florida--4.7% NR* NR* $ 350 Bonnet Creek Resort, Florida, Community Development
District, Special Assessment Revenue Bonds, 7.50%
due 5/01/2034 $ 366
BBB- Baa1 2,520 Hillsborough County, Florida, IDA, PCR, Refunding
(Tampa Electric Company Project), 5.10% due 10/01/2013 2,493
A- A2 4,725 Orange County, Florida, Health Facilities Authority,
Hospital Revenue Bonds (Orlando Regional Healthcare), 6%
due 12/01/2028 4,957
NR* NR* 1,000 Orlando, Florida, Urban Community Development District,
Capital Improvement Special Assessment Bonds, Series A, 6.95%
due 5/01/2033 1,043
NR* NR* 1,400 Palm Beach County, Florida, HFA, M/F Housing Revenue Bonds
(Lake Delray Apartment Project), AMT, Series A, 6.40% due
1/01/2031 1,273
Georgia--0.8% NR* NR* 1,750 Atlanta, Georgia, Tax Allocation Revenue Bonds (Atlantic
Station Project), 7.90% due 12/01/2024 1,800
Idaho--1.3% BB+ Ba3 3,000 Power County, Idaho, Industrial Development Corporation,
Solid Waste Disposal Revenue Bonds (FMC Corporation Project),
AMT, 6.45% due 8/01/2032 2,800
Illinois--2.8% NR* B2 815 Beardstown, Illinois, IDR (Jefferson Smurfit Corp. Project), 8%
due 10/01/2016 853
NR* NR* 1,200 Chicago, Illinois, Special Assessment Bonds (Lake Shore East),
6.75% due 12/01/2032 1,191
AA Aa2 4,000 Illinois HDA, Homeowner Mortgage Revenue Bonds, AMT,
Sub-Series C-2, 5.35% due 2/01/2027 4,046
Indiana--2.4% NR* NR* 8,985 Allen County, Indiana, Redevelopment District Tax Increment
Revenue Bonds (General Motors Development Area), 7%** due
11/15/2013 5,079
Louisiana--0.4% NR* NR* 800 Hodge, Louisiana, Utility Revenue Bonds (Stone Container
Corporation), AMT, 9% due 3/01/2010 822
Maryland--4.0% NR* NR* 1,875 Anne Arundel County, Maryland, Special Obligation Revenue Bonds
(Arundel Mills Project), 7.10% due 7/01/2029 2,026
Maryland State Economic Development Corporation, Student Housing
Revenue Bonds (University of Maryland College Park Project):
NR* Baa3 1,760 6% due 6/01/2021 1,839
NR* Baa3 1,700 6.50% due 6/01/2027 1,820
NR* NR* 2,750 Maryland State Energy Financing Administration, Limited
Obligation Revenue Bonds (Cogeneration-AES Warrior Run), AMT,
7.40% due 9/01/2019 2,787
Massachusetts-- BB+ NR* 1,000 Massachusetts State Development Finance Agency Revenue Refunding
0.3% Bonds (Eastern Nazarine College), 5.625% due 4/01/2029 750
Michigan--2.3% BBB Baa2 3,505 Delta County, Michigan, Economic Development Corporation,
Environmental Improvement Revenue Refunding Bonds (Mead
Westvaco-Escanaba), Series A, 6.25% due 4/15/2027 3,633
BBB- Baa3 1,400 Flint, Michigan, Hospital Building Authority Revenue
Refunding Bonds (Hurley Medical Center), 6% due 7/01/2020 1,303
Minnesota--1.7% A- NR* 3,500 Minneapolis, Minnesota, Community Development Agency, Supported
Development Revenue Refunding Bonds, Series G-3, 5.45% due
12/01/2031 3,599
Mississippi-- BBB- Ba1 7,675 Claiborne County, Mississippi, PCR, Refunding (System Energy
5.0% Resources Inc. Project), 6.20% due 2/01/2026 7,675
BBB- Ba1 3,000 Mississippi Business Finance Corporation, Mississippi, PCR,
Refunding (System Energy Resources Inc. Project), 5.90% due
5/01/2022 2,990
Missouri--1.7% NR* NR* 2,000 Fenton, Missouri, Tax Increment Revenue Refunding and Improvement
Bonds (Gravois Bluffs), 7% due 10/01/2021 2,150
BBB+ Baa1 1,400 Missouri State Development Finance Board, Infrastructure
Facilities Revenue Bonds (Branson), Series A, 5.50% due
12/01/2032 1,403
Nevada--1.4% AAA Aaa 3,000 Clark County, Nevada, IDR (Power Company Project), AMT,
Series A, 6.70% due 6/01/2022 (b) 3,096
New Jersey--11.2% New Jersey EDA, Retirement Community Revenue Bonds, Series A:
NR* NR* 1,475 (Cedar Crest Village Inc. Facility), 7.25% due 11/15/2031 1,499
NR* NR* 3,600 (Seabrook Village Inc.), 8.25% due 11/15/2030 3,759
New Jersey EDA, Special Facility Revenue Bonds (Continental
Airlines Inc. Project), AMT:
B Caa2 1,000 6.625% due 9/15/2012 942
B Caa2 1,250 6.25% due 9/15/2029 1,063
MUNIHOLDINGS FUND, INC., OCTOBER 31, 2003
Schedule of Investments (continued) (In Thousands)
S&P Moody's Face
State Ratings Ratings Amount Municipal Bonds Value
New Jersey New Jersey Health Care Facilities Financing Authority
(concluded) Revenue Bonds:
BB+ NR* $ 1,625 (Pascack Valley Hospital Association), 6.625% due
7/01/2036 $ 1,628
NR* Baa1 3,325 (South Jersey Hospital), 6% due 7/01/2026 3,401
AA- Aa3 3,300 New Jersey State Transportation Trust Fund Authority,
Transportation System Revenue Bonds, Series C, 5.50%
due 6/15/2015 3,684
AAA Aaa 4,425 Salem County, New Jersey, Industrial Pollution Control
Financing Authority, Revenue Refunding Bonds (Public Service
Electric & Gas), RIB, Series 380, 11.17% due 6/01/2031 (f)(h) 4,836
BBB Baa2 3,455 Tobacco Settlement Financing Corporation of New Jersey Revenue
Bonds, 7% due 6/01/2041 3,239
New Mexico--1.5% BBB- Baa3 2,000 Farmington, New Mexico, PCR, Refunding (Public Service
Company-San Juan Project), Series A, 6.30% due 12/01/2016 2,079
AAA Aaa 1,000 Los Alamos County, New Mexico, Utility System Revenue Refunding
Bonds, Series A, 6% due 7/01/2015 (e) 1,050
New York--18.2% NR* NR* 535 New York City, New York, City IDA, Civic Facility Revenue Bonds,
Series C, 6.80% due 6/01/2028 553
BB+ Ba2 1,110 New York City, New York, City IDA, Special Facility Revenue
Bonds (British Airways PLC Project), AMT, 7.625% due 12/01/2032 1,091
AAA Aaa 6,000 New York City, New York, City Municipal Water Finance Authority,
Water and Sewer System Revenue Bonds, RITR, Series 11, 10.27%
due 6/15/2026 (e)(f) 7,330
AAA Aaa 11,000 New York City, New York, GO, Refunding, Series G, 5.75% due
2/01/2014 (b) 11,966
AAA Aaa 10,000 New York City, New York, GO, Series F, 6% due 8/01/2016 (h) 11,092
Tobacco Settlement Financing Corporation of New York, Revenue
Bonds, Series A-1:
AA- NR* 1,400 5.50% due 6/01/2014 1,495
AA- NR* 3,150 5.50% due 6/01/2018 3,331
NR* NR* 2,080 Westchester County, New York, IDA, Continuing Care Retirement,
Mortgage Revenue Bonds (Kendal on Hudson Project), Series A,
6.50% due 1/01/2034 2,060
Oklahoma--0.8% Tulsa, Oklahoma, Municipal Airport Trust Revenue Refunding
Bonds (AMR Corporation), AMT, Series A:
B- Caa2 570 5.80% due 6/01/2035 547
B- Caa2 1,425 5.375% due 12/01/2035 1,242
Oregon--1.0% NR* NR* 2,050 Western Generation Agency, Oregon, Cogeneration Project
Revenue Bonds (Wauna Cogeneration Project), AMT, Series B,
7.40% due 1/01/2016 2,104
Pennsylvania-- A1+ VMIG1++ 3,700 Geisinger Authority, Pennsylvania, Health System Revenue
10.4% Refunding Bonds (Geisinger Health Systems), VRDN, 1.10%
due 8/01/2028 (g) 3,700
Pennsylvania Economic Development Financing Authority, Exempt
Facilities Revenue Bonds (National Gypsum Company), AMT:
NR* NR* 2,750 Series A, 6.25% due 11/01/2027 2,740
NR* NR* 6,000 Series B, 6.125% due 11/01/2027 5,893
NR* NR* 725 Philadelphia, Pennsylvania, Authority for IDR, Commercial
Development, 7.75% due 12/01/2017 735
NR* NR* 4,000 Philadelphia, Pennsylvania, Authority for IDR, Refunding,
Commercial Development (Days Inn), Series B, 6.50% due 10/01/2027 3,898
Philadelphia, Pennsylvania, Authority for Industrial
Development, Senior Living Revenue Bonds:
NR* Baa2 1,105 (Arbor House Inc. Project), Series E, 6.10% due 7/01/2033 1,058
NR* Baa2 1,245 (Saligman House Project), Series C, 6.10% due 7/01/2033 1,192
A- NR* 2,900 Sayre, Pennsylvania, Health Care Facilities Authority
Revenue Bonds (Guthrie Health), Series A, 5.875% due 12/01/2031 2,960
Rhode Island-- Rhode Island State Health and Educational Building Corporation,
1.4% Hospital Financing Revenue Bonds (Lifespan Obligation Group):
BBB Baa2 1,500 6.375% due 8/15/2021 1,547
BBB Baa2 1,460 6.50% due 8/15/2032 1,485
MUNIHOLDINGS FUND, INC., OCTOBER 31, 2003
Schedule of Investments (continued) (In Thousands)
S&P Moody's Face
State Ratings Ratings Amount Municipal Bonds Value
South Carolina-- BBB+ Baa2 $ 3,020 Medical University, South Carolina, Hospital Authority,
3.1% Hospital Facilities Revenue Refunding Bonds, Series A,
6.375% due 8/15/2027 $ 3,132
Tobacco Settlement Revenue Management Authority of South
Carolina, Tobacco Settlement Revenue Bonds, Series B:
BBB Baa2 2,300 6.375% due 5/15/2028 2,023
BBB Baa2 1,775 6.375% due 5/15/2030 1,546
Tennessee--6.5% Hardeman County, Tennessee, Correctional Facilities Corporation
Revenue Bonds:
NR* NR* 680 7% due 8/01/2004 697
NR* NR* 4,500 7.75% due 8/01/2017 4,652
A- Baa1 4,575 Shelby County, Tennessee, Health, Educational and Housing
Facility Board, Hospital Revenue Refunding Bonds (Methodist
Healthcare), 6.50% due 9/01/2026 4,944
NR* Aa2 3,400 Tennessee Educational Loan Revenue Bonds (Educational Funding
South Inc.), AMT, Senior Series B, 6.20% due 12/01/2021 3,557
Texas--22.0% BBB- Baa3 4,000 Austin, Texas, Convention Center Revenue Bonds (Convention
Enterprises Inc.), First Tier, Series A, 6.70% due 1/01/2028 4,225
A1+ VMIG1++ 4,300 Bell County, Texas, Health Facilities Development Corporation,
Hospital Revenue Bonds (Scott & White Memorial Hospital), VRDN,
Series 2001-1, 1.10% due 8/15/2031 (g)(h) 4,300
Brazos River Authority, Texas, PCR, Refunding:
BBB Baa2 1,000 (TXU Electric Company Project), Series B, 4.75% due 5/01/2029 1,047
BBB Baa2 1,300 (TXU Energy Company LLC Project), AMT, Series C, 6.75% due
10/01/2038 1,355
BBB- Ba1 2,340 Brazos River Authority, Texas, Revenue Refunding Bonds
(Reliant Energy Inc. Project), Series B, 7.75% due 12/01/2018 2,532
A- A3 3,875 Brazos River, Texas, Harbor Navigation District, Brazoria
County Environmental Revenue Refunding Bonds (Dow Chemical
Company Project), AMT, Series A-7, 6.625% due 5/15/2033 4,095
CCC Caa2 1,355 Dallas-Fort Worth, Texas, International Airport Facility
Improvement Corporation Revenue Bonds (American Airlines Inc.),
6% due 11/01/2014 896
BBB Baa2 2,315 Gulf Coast, Texas, Waste Disposal Authority, Revenue Refunding
Bonds (International Paper Company), AMT, Series A, 6.10% due
8/01/2024 2,347
A1+ NR* 300 Harris County, Texas, Health Facilities Development Corporation
Revenue Refunding Bonds (Methodist Hospital), VRDN, 1.10% due
12/01/2032 (g) 300
A1+ VMIG1++ 1,200 Harris County, Texas, Industrial Development Corporation, Solid
Waste Disposal Revenue Bonds (Exxon Project), VRDN, AMT, 1.10%
due 4/01/2032 (g) 1,200
A- A3 3,000 Lower Colorado River Authority, Texas, PCR (Samsung Austin
Semiconductor), AMT, 6.375% due 4/01/2027 3,150
BBB- Ba1 1,485 Matagorda County, Texas, Navigation District Number 1 Revenue
Refunding Bonds (Reliant Energy Inc.), Series C, 8% due 5/01/2029 1,612
BB Ba3 1,425 Port Corpus Christi, Texas, Individual Development Corporation,
Environmental Facilities Revenue Bonds (Citgo Petroleum
Corporation Project), AMT, 8.25% due 11/01/2031 1,459
BBB Baa2 5,000 Port Corpus Christi, Texas, Revenue Refunding Bonds
(Celanese Project), Series A, 6.45% due 11/01/2030 5,229
AAA Aaa 7,860 Texas State Department of Housing and Community Affairs,
Residential Mortgage Revenue Bonds, AMT, Series A, 5.70% due
1/01/2033 (d) 8,412
AAA Aaa 3,385 Texas State Department of Housing and Community Affairs,
Residential Mortgage Revenue Refunding Bonds, AMT, Series B,
5.25% due 7/01/2022 (d) 3,429
NR* Baa3 1,500 Texas State Student Housing Corporation, Student Housing
Revenue Bonds (Midwestern State University Project), 6.50%
due 9/01/2034 1,431
Utah--1.3% A1 VMIG1++ 2,700 Emery County, Utah, PCR, Refunding (Pacificorp Projects),
VRDN, 1.10% due 11/01/2024 (a)(g) 2,700
Vermont--1.1% BBB+ NR* 2,370 Vermont Educational and Health Buildings, Financing Agency
Revenue Bonds (Developmental and Mental Health), Series A, 6%
due 6/15/2017 2,434
Virginia--8.4% BBB+ A3 1,150 Chesterfield County, Virginia, IDA, PCR (Virginia Electric and
Power Company), Series A, 5.875% due 6/01/2017 1,222
AAA Aaa 7,000 Fairfax County, Virginia, EDA, Resource Recovery Revenue
Refunding Bonds, AMT, Series A, 6.10% due 2/01/2011 (a) 7,961
BBB- Baa3 1,450 Mecklenburg County, Virginia, IDA, Exempt Facility Revenue
Refunding Bonds (UAE LP Project), 6.50% due 10/15/2017 1,474
MUNIHOLDINGS FUND, INC., OCTOBER 31, 2003
Schedule of Investments (concluded) (In Thousands)
S&P Moody's Face
State Ratings Ratings Amount Municipal Bonds Value
Virginia Pocahontas Parkway Association, Virginia, Toll Road
(concluded) Revenue Bonds:
NR* Ba1 $ 5,600 First Tier, Sub-Series C, 6.25%** due 8/15/2028 $ 284
NR* Ba1 5,700 First Tier, Sub-Series C, 6.25%** due 8/15/2029 257
BB NR* 750 Senior-Series A, 5.50%** due 8/15/2028 579
BB NR* 1,500 Senior-Series B, 8.40%** due 8/15/2029 192
BB NR* 300 Senior-Series B, 8.80%** due 8/15/2030 35
AAA Aaa 5,730 Virginia State, HDA, Commonwealth Mortgage Revenue Bonds,
Series J, Sub-Series J-1, 5.20% due 7/01/2019 (h) 5,920
Washington--1.4% NR* NR* 1,700 Port Seattle, Washington, Special Facilities Revenue Bonds
(Northwest Airlines Project), AMT, 7.25% due 4/01/2030 1,587
NR* NR* 1,425 Seattle, Washington, Housing Authority, Housing Revenue
Bonds (Replacement Housing Project), 6.125% due 12/01/2032 1,403
West Virginia-- B+ Ba3 1,000 Princeton, West Virginia, Hospital Revenue Refunding Bonds
0.4% (Community Hospital Association Inc. Project), 6% due 5/01/2019 773
Wisconsin--2.2% AAA Aaa 2,000 Evansville, Wisconsin, Community School District, GO, Refunding,
5.50% due 4/01/2020 (b) 2,179
Wisconsin State Health and Educational Facilities Authority
Revenue Bonds:
NR* NR* 825 (New Castle Place Project), Series A, 7% due 12/01/2031 822
BBB+ NR* 1,755 (Synergyhealth Inc.), 6% due 11/15/2032 1,757
Wyoming--1.4% BB+ Ba3 3,000 Sweetwater County, Wyoming, Solid Waste Disposal Revenue Bonds
(FMC Corporation Project), AMT, Series B, 6.90% due 9/01/2024 2,970
Virgin Islands-- BBB- Baa3 4,650 Virgin Islands Government Refinery Facilities Revenue Bonds
2.2% (Hovensa Coker Project), AMT, 6.50% due 7/01/2021 4,685
Total Municipal Bonds (Cost--$307,550)--148.5% 317,705
Beneficial
Interest Short-Term Securities
9 Merrill Lynch Institutional Tax-Exempt Fund (i) 9
Total Short-Term Securities (Cost--$9)--0.0% 9
Total Investments (Cost--$307,559)--148.5% 317,714
Other Assets Less Liabilities--2.9% 6,159
Preferred Stock, at Redemption Value--(51.4)% (110,000)
---------
Net Assets Applicable to Common Stock--100.0% $ 213,873
=========
(a)AMBAC Insured.
(b)FGIC Insured.
(c)Radian Insured.
(d)FNMA/GNMA Collateralized.
(e)FSA Insured.
(f)The interest rate is subject to change periodically and inversely
based upon prevailing market rates. The interest rate shown is the
rate in effect at October 31, 2003.
(g)The interest rate is subject to change periodically based upon
prevailing market rates. The interest rate shown is the rate in
effect at October 31, 2003.
(h)MBIA Insured.
(i)Investments in companies considered to be an affiliate of the
Fund (such companies are defined as "Affiliated Companies" in
Section 2(a)(3) of the Investment Company Act of 1940) are as
follows:
(in Thousands)
Net Dividend
Affiliate Activity Income
Merrill Lynch Institutional
Tax-Exempt Fund (3,200) $2
*Not Rated.
**Represents a zero coupon bond; the interest rate shown reflects
the effective yield at the time of purchase by the Fund.
++Highest short-term rating by Moody's Investors Service, Inc.
See Notes to Financial Statements.
MUNIHOLDINGS FUND, INC., OCTOBER 31, 2003
Statement of Net Assets
As of October 31, 2003
Assets
Investments, at value (identified cost--$307,558,806) $ 317,714,454
Cash 26,196
Receivables:
Interest $ 5,801,329
Securities sold 2,655,146 8,456,475
---------------
Prepaid expenses 1,645
---------------
Total assets 326,198,770
---------------
Liabilities
Payables:
Securities purchased 2,037,600
Investment adviser 169,735
Dividends to Common Stock shareholders 101,286
Other affiliates 6,872 2,315,493
---------------
Accrued expenses and other liabilities 10,210
---------------
Total liabilities 2,325,703
---------------
Preferred Stock
Preferred Stock, at redemption value, par value $.10 per share
(2,200 Series A shares and 2,200 Series B shares of AMPS* issued
and outstanding at $25,000 per share liquidation preference) 110,000,000
---------------
Net Assets Applicable to Common Stock
Net assets applicable to Common Stock $ 213,873,067
===============
Analysis of Net Assets Applicable to Common Stock
Common Stock, par value $.10 per share (13,795,227 shares issued and
outstanding) $ 1,379,523
Paid-in capital in excess of par 204,148,463
Undistributed investment income--net $ 5,295,109
Accumulated realized capital losses on investments--net (7,105,676)
Unrealized appreciation on investments--net 10,155,648
---------------
Total accumulated earnings--net 8,345,081
---------------
Total--Equivalent to $15.50 net asset value per share of Common Stock
(market price--$15.00) $ 213,873,067
===============
*Auction Market Preferred Stock.
See Notes to Financial Statements.
MUNIHOLDINGS FUND, INC., OCTOBER 31, 2003
Statement of Operations
For the Six Months Ended October 31, 2003
Investment Income
Interest $ 10,129,702
Dividends from affiliates 1,541
---------------
Total income 10,131,243
---------------
Expenses
Investment advisory fees $ 897,595
Commission fees 140,123
Accounting services 58,489
Professional fees 32,008
Transfer agent fees 25,876
Printing and shareholder reports 18,638
Directors' fees and expenses 17,791
Listing fees 14,540
Custodian fees 9,926
Pricing fees 9,298
Other 15,561
---------------
Total expenses before reimbursement 1,239,845
Reimbursement of expenses (286)
---------------
Total expenses after reimbursement 1,239,559
---------------
Investment income--net 8,891,684
---------------
Realized & Unrealized Gain on Investments--Net
Realized gain on investments--net 1,766,829
Change in unrealized appreciation on investments--net 3,235,159
---------------
Total realized and unrealized gain on investments--net 5,001,988
---------------
Dividends to Preferred Stock Shareholders
Investment income--net (476,102)
---------------
Net Increase in Net Assets Resulting from Operations $ 13,417,570
===============
See Notes to Financial Statements.
MUNIHOLDINGS FUND, INC., OCTOBER 31, 2003
Statements of Changes in Net Assets
For the Six For the
Months Ended Year Ended
October 31, April 30,
Increase (Decrease) in Net Assets: 2003 2003
Operations
Investment income--net $ 8,891,684 $ 17,213,749
Realized gain on investments--net 1,766,829 2,818,349
Change in unrealized appreciation on investments--net 3,235,159 2,755,933
Dividends to Preferred Stock shareholders (476,102) (1,358,346)
--------------- ---------------
Net increase in net assets resulting from operations 13,417,570 21,429,685
--------------- ---------------
Dividends to Common Stock Shareholders
Investment income--net (7,504,603) (13,560,708)
--------------- ---------------
Net decrease in net assets resulting from dividends to Common Stock
shareholders (7,504,603) (13,560,708)
--------------- ---------------
Net Assets Applicable to Common Stock
Total increase in net assets applicable to Common Stock 5,912,967 7,868,977
Beginning of period 207,960,100 200,091,123
--------------- ---------------
End of period* $ 213,873,067 $ 207,960,100
=============== ===============
*Undistributed investment income--net $ 5,295,109 $ 4,384,130
=============== ===============
See Notes to Financial Statements.
MUNIHOLDINGS FUND, INC., OCTOBER 31, 2003
Financial Highlights
The following per share data and ratios have been derived For the Six
from information provided in the financial statements. Months Ended
October 31, For the Year Ended April 30,
Increase (Decrease) in Net Asset Value: 2003 2003 2002 2001+++++ 2000+++++
Per Share Operating Performance
Net asset value, beginning of period $ 15.07 $ 14.50 $ 13.76 $ 13.16 $ 16.05
---------- ---------- ---------- ---------- ----------
Investment income--net .64++ 1.25++ 1.17 1.10 1.18
Realized and unrealized gain (loss)
on investments--net .36 .40 .66 .65 (2.66)
Dividends and distributions to Preferred
Stock shareholders:
Investment income--net (.03) (.10) (.16) (.32) (.26)
In excess of realized gain on
investments--net -- -- -- -- (.04)
---------- ---------- ---------- ---------- ----------
Total from investment operations .97 1.55 1.67 1.43 (1.78)
---------- ---------- ---------- ---------- ----------
Less dividends and distributions to
Common Stock shareholders:
Investment income--net (.54) (.98) (.93) (.83) (.94)
In excess of realized gain on
investments--net -- -- -- -- (.17)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions to
Common Stock shareholders (.54) (.98) (.93) (.83) (1.11)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 15.50 $ 15.07 $ 14.50 $ 13.76 $ 13.16
========== ========== ========== ========== ==========
Market price per share, end of period $ 15.00 $ 14.43 $ 13.38 $ 13.18 $ 12.5625
========== ========== ========== ========== ==========
Total Investment Return**
Based on market price per share 7.83%+++ 15.75% 8.51% 12.09% (10.47%)
========== ========== ========== ========== ==========
Based on net asset value per share 6.70%+++ 11.54% 12.64% 11.71% (10.89%)
========== ========== ========== ========== ==========
Ratios Based on Average Net Assets of Common Stock
Total expenses, net of reimbursement++++ 1.15%* 1.18% 1.21% 1.27% 1.16%
========== ========== ========== ========== ==========
Total expenses++++ 1.15%* 1.18% 1.21% 1.27% 1.16%
========== ========== ========== ========== ==========
Total investment income--net++++ 8.27%* 8.40% 8.03% 8.08% 8.34%
========== ========== ========== ========== ==========
Amount of dividends to Preferred Stock
shareholders .44%* .66% 1.08% 2.32% 1.83%
========== ========== ========== ========== ==========
Investment income--net, to Common Stock
shareholders 7.83%* 7.74% 6.95% 5.76% 6.51%
========== ========== ========== ========== ==========
Ratios Based on Average Net Assets of Common & Preferred Stock++++
Total expenses, net of reimbursement .76%* .77% .78% .80% .74%
========== ========== ========== ========== ==========
Total expenses .76%* .77% .78% .80% .74%
========== ========== ========== ========== ==========
Total investment income--net 5.44%* 5.47% 5.17% 5.10% 5.35%
========== ========== ========== ========== ==========
MUNIHOLDINGS FUND, INC., OCTOBER 31, 2003
Financial Highlights (concluded)
The following per share data and ratios have been derived For the Six
from information provided in the financial statements. Months Ended
October 31, For the Year Ended April 30,
Increase (Decrease) in Net Asset Value: 2003 2003 2002 2001+++++ 2000+++++
Ratios Based on Average Net Assets of Preferred Stock
Dividends to Preferred Stock shareholders .85%* 1.23% 1.96% 3.97% 3.27%
========== ========== ========== ========== ==========
Supplemental Data
Net assets applicable to Common Stock,
end of period (in thousands) $ 213,873 $ 207,960 $ 200,091 $ 189,787 $ 181,324
========== ========== ========== ========== ==========
Preferred Stock outstanding, end of period
(in thousands) $ 110,000 $ 110,000 $ 110,000 $ 110,000 $ 110,000
========== ========== ========== ========== ==========
Portfolio turnover 23.12% 50.68% 62.94% 91.25% 137.69%
========== ========== ========== ========== ==========
Leverage
Asset coverage per $1,000 $ 2,944 $ 2,891 $ 2,819 $ 2,725 $ 2,648
========== ========== ========== ========== ==========
Dividends Per Share on Preferred Stock Outstanding
Series A--Investment income--net $ 110 $ 315 $ 492 $ 1,016 $ 820
========== ========== ========== ========== ==========
Series B--Investment income--net $ 107 $ 302 $ 490 $ 968 $ 813
========== ========== ========== ========== ==========
*Annualized.
**Total investment returns based on market value, which can be
significantly greater or lesser than the net asset value, may result
in substantially different returns. Total investment returns exclude
the effects of sales charges. If applicable, the Fund's Investment
Adviser voluntarily waived a portion of its management fee. Without
such waiver, the Fund's performance would have been lower.
++Based on average shares outstanding.
++++Do not reflect the effect of dividends to Preferred Stock
shareholders.
+++Aggregate total investment return.
+++++Certain prior year amounts have been reclassified to conform to
current period presentation.
See Notes to Financial Statements.
MUNIHOLDINGS FUND, INC., OCTOBER 31, 2003
Notes to Financial Statements
1. Significant Accounting Policies:
MuniHoldings Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended, as a non-diversified,
closed-end management investment company. The Fund's financial
statements are prepared in conformity with accounting principles
generally accepted in the United States of America, which may
require the use of management accruals and estimates. These
unaudited financial statements reflect all adjustments, which are,
in the opinion of management, necessary to a fair statement of the
results for the interim period presented. 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 weekly basis. The Fund's Common Stock is listed on the New York
Stock Exchange under the symbol MHD. The following is a summary of
significant accounting policies followed by the Fund.
(a) Valuation of investments--Municipal bonds are traded primarily
in the over-the-counter markets and are valued at the last available
bid price in the over-the-counter market or on the basis of yield
equivalents as obtained by the Fund's pricing service from one or
more dealers that make markets in such securities. Financial futures
contracts and options thereon, which are traded on exchanges, are
valued at their closing prices as of the close of such exchanges.
Options written or purchased are valued at the last sale price in
the case of exchange-traded options. In the case of options traded
in the over-the-counter market, valuation is the last asked price
(options written) or the last bid price (options purchased). Swap
agreements are valued by quoted fair values received daily by the
Fund from the counterparty. Short-term investments with a remaining
maturity of sixty days or less are valued at amortized cost, which
approximates market value. Securities and assets for which market
quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Board of
Directors of the Fund, including valuations furnished by a pricing
service retained by the Fund, which may utilize a matrix system for
valuations. The procedures of the pricing service and its valuations
are reviewed by the officers of the Fund under the general
supervision of the Board of Directors.
(b) Derivative financial instruments--The Fund may engage in various
portfolio investment strategies both to increase the return of the
Fund and to hedge, or protect, its exposure to interest rate
movements and movements in the securities markets. Losses may arise
due to changes in the value of the contract or if the counterparty
does not perform under the contract.
* Financial futures contracts--The Fund may purchase or sell
financial futures contracts and options on such futures contracts.
Futures contracts are contracts for delayed delivery of securities
at a specific future date and at a specific price or yield. Upon
entering into a contract, the Fund deposits and maintains as
collateral such initial margin as required by the exchange on which
the transaction is effected. Pursuant to the contract, the Fund
agrees to receive from or pay to the broker an amount of cash equal
to the daily fluctuation in value of the contract. Such receipts or
payments are known as variation margin and are recorded by the Fund
as unrealized gains or losses. When the contract is closed, the Fund
records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the
time it was closed.
* Options--The Fund is authorized to write covered call options and
purchase call and put options. When the Fund writes an option, an
amount equal to the premium received by the Fund is reflected as an
asset and an equivalent liability. The amount of the liability is
subsequently marked to market to reflect the current market value of
the option written.
When a security is purchased or sold through an exercise of an
option, the related premium paid (or received) is added to (or
deducted from) the basis of the security acquired or deducted from
(or added to) the proceeds of the security sold. When an option
expires (or the Fund enters into a closing transaction), the Fund
realizes a gain or loss on the option to the extent of the premiums
received or paid (or gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).
MUNIHOLDINGS FUND, INC., OCTOBER 31, 2003
Notes to Financial Statements (continued)
Written and purchased options are non-income producing investments.
* 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 periodic net payments on a specified
notional contract amount, commencing on a specified future effective
date, unless terminated earlier. When the agreement is closed, the
Fund records a realized gain or loss in an amount equal to the value
of the agreement.
(c) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required.
(d) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Realized gains and losses on security
transactions are determined on the identified cost basis. Dividend
income is recorded on the ex-dividend dates. Interest income is
recognized on the accrual basis. The Fund amortizes all premiums and
discounts on debt securities.
(e) Dividends and distributions--Dividends from net investment
income are declared and paid monthly. Distributions of capital gains
are recorded on the ex-dividend dates.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect, wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee at an annual rate of .55% of
the Fund's average weekly net assets, including proceeds from the
issuance of Preferred Stock. For the six months ended October 31,
2003, FAM reimbursed the Fund in the amount of $286.
For the six months ended October 31, 2003, the Fund reimbursed FAM
$3,450 for certain accounting services.
Certain officers and/or directors of the Fund are officers and/or
directors of FAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended October 31, 2003 were $71,946,947 and
$89,898,427, respectively.
Net realized gains for the six months ended October 31, 2003 and net
unrealized gains as of October 31, 2003 were as follows:
Realized Unrealized
Gains Gains
Long-term investments $ 1,766,829 $ 10,155,648
-------------- --------------
Total $ 1,766,829 $ 10,155,648
============== ==============
As of October 31, 2003, net unrealized appreciation for Federal
income tax purposes aggregated $10,321,141, of which $13,982,584
related to appreciated securities and $3,661,443 related to
depreciated securities. The aggregate cost of investments at
October 31, 2003 for Federal income tax purposes was $307,393,313.
4. Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of stock,
including Preferred Stock, par value $.10 per share, all of which
were initially classified as Common Stock. The Board of Directors is
authorized, however, to reclassify any unissued shares of stock
without approval of holders of Common Stock.
Preferred Stock
Auction Market Preferred Stock ("AMPS") 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, plus accrued and unpaid
dividends, that entitle their holders to receive cash dividends at
an annual rate that may vary for the successive dividend periods.
The yields in effect at October 31, 2003 were as follows: Series A,
..729% and Series B, .67%.
MUNIHOLDINGS FUND, INC., OCTOBER 31, 2003
Notes to Financial Statements (concluded)
The Fund pays commissions to certain broker-dealers at the end of
each auction at an annual rate ranging from .25% to .375%,
calculated on the proceeds of each auction. For the six months
ended October 31, 2003, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, an affiliate of FAM, earned $72,176 as commissions.
5. Capital Loss Carryforward:
On April 30, 2003, the Fund had a net capital loss carryforward of
$8,747,456, of which $1,675,186 expires in 2008 and $7,072,270
expires in 2009. 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 $.092000 per share on November 26, 2003 to
shareholders of record on November 14, 2003.
MUNIHOLDINGS FUND, INC., OCTOBER 31, 2003
Officers and Directors
Terry K. Glenn, President and Director
Ronald W. Forbes, Director
Cynthia A. Montgomery, Director
Charles C. Reilly, Director
Kevin A. Ryan, Director
Roscoe S. Suddarth, Director
Richard R. West, Director
Edward D. Zinbarg, Director
Kenneth A. Jacob, Senior Vice President
John M. Loffredo, Senior Vice President
Robert A. DiMella, Vice President
Donald C. Burke, Vice President and Treasurer
Brian D. Stewart, 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
New York, NY 10286
Preferred Stock:
The Bank of New York
100 Church Street
New York, NY 10286
NYSE Symbol
MHD
MUNIHOLDINGS FUND, INC., OCTOBER 31, 2003
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. 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.
MUNIHOLDINGS FUND, INC., OCTOBER 31, 2003
Electronic Delivery
The Fund is now offering electronic delivery of communications to
its shareholders. In order to receive this service, you must
register your account and provide us with e-mail information.
To sign up for this service, simply access this website
http://www.icsdelivery.com/live and follow the instructions.
When you visit this site, you will obtain a personal identification
number (PIN). You will need this PIN should you wish to update your
e-mail address, choose to discontinue this service and/or make any
other changes to the service. This service is not available for
certain retirement accounts at this time.
MUNIHOLDINGS FUND, INC., OCTOBER 31, 2003
Item 2 - Did registrant adopt a code of ethics, as of the end of the
period covered by this report, that applies to the registrant's
principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar
functions, regardless of whether these individuals are employed by
the registrant or a third party? If not, why not? Briefly describe
any amendments or waivers that occurred during the period. State
here if code of ethics/amendments/waivers are on website and give
website address-. State here if fund will send code of ethics to
shareholders without charge upon request--N/A (annual requirement
only)
Item 3 - Did the registrant's board of directors determine that the
registrant either: (i) has at least one audit committee financial
expert serving on its audit committee; or (ii) does not have an
audit committee financial expert serving on its audit committee? If
yes, disclose name of financial expert and whether he/she is
"independent," (fund may, but is not required, to disclose name/
independence of more than one financial expert) If no, explain why
not. - N/A (annual requirement only)
Item 4 - Disclose annually only (not answered until December 15,
2003)
(a) Audit Fees - Disclose aggregate fees billed for each of the last
two fiscal years for professional services rendered by the principal
accountant for the audit of the registrant's annual financial
statements or services that are normally provided by the accountant
in connection with statutory and regulatory filings or engagements
for those fiscal years. N/A.
(b) Audit-Related Fees - Disclose aggregate fees billed in each of
the last two fiscal years for assurance and related services by the
principal accountant that are reasonably related to the performance
of the audit of the registrant's financial statements and are not
reported under paragraph (a) of this Item. Registrants shall
describe the nature of the services comprising the fees disclosed
under this category. N/A.
(c) Tax Fees - Disclose aggregate fees billed in each of the last
two fiscal years for professional services rendered by the principal
accountant for tax compliance, tax advice, and tax planning.
Registrants shall describe the nature of the services comprising the
fees disclosed under this category. N/A.
(d) All Other Fees - Disclose aggregate fees billed in each of the
last two fiscal years for products and services provided by the
principal accountant, other than the services reported in paragraphs
(a) through (c) of this Item. Registrants shall describe the nature
of the services comprising the fees disclosed under this category.
N/A.
(e)(1) Disclose the audit committee's pre-approval policies and
procedures described in paragraph (c)(7) of Rule 2-01 of Regulation
S-X. N/A.
(e)(2) Disclose the percentage of services described in each of
paragraphs (b) through (d) of this Item that were approved by the
audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of
Regulation S-X. N/A.
(f) If greater than 50%, disclose the percentage of hours expended
on the principal accountant's engagement to audit the registrant's
financial statements for the most recent fiscal year that were
attributed to work performed by persons other than the principal
accountant's full-time, permanent employees. N/A.
(g) Disclose the aggregate non-audit fees billed by the registrant's
accountant for services rendered to the registrant, and rendered to
the registrant's investment adviser (not including any sub-adviser
whose role is primarily portfolio management and is subcontracted
with or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the adviser
that provides ongoing services to the registrant for each of the
last two fiscal years of the registrant. N/A.
(h) Disclose whether the registrant's audit committee has considered
whether the provision of non-audit services that were rendered to
the registrant's investment adviser (not including any subadviser
whose role is primarily portfolio management and is subcontracted
with or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the registrant
that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X is compatible with maintaining the principal
accountant's independence. N/A.
Item 5 - If the registrant is a listed issuer as defined in Rule
10A-3 under the Exchange Act, state whether or not the registrant
has a separately-designated standing audit committee established in
accordance with Section 3(a)(58)(A) of the Exchange Act. If the
registrant has such a committee, however designated, identify each
committee member. If the entire board of directors is acting as the
registrant's audit committee in Section 3(a)(58)(B) of the Exchange
Act, so state.
If applicable, provide the disclosure required by Rule 10A-3(d)
under the Exchange Act regarding an exemption from the listing
standards for audit committees. N/A
(Listed issuers must be in compliance with the new listing rules by
the earlier of their first annual shareholders meeting after January
2004, or October 31, 2004 (annual requirement))
Item 6 - Reserved
Item 7 - For closed-end funds that contain voting securities in
their portfolio, describe the policies and procedures that it uses
to determine how to vote proxies relating to those portfolio
securities.
Proxy Voting Policies and Procedures
Each Fund's Board of Directors/Trustees has delegated to Merrill
Lynch Investment Managers, L.P. and/or Fund Asset Management, L.P.
(the "Investment Adviser") authority to vote all proxies relating to
the Fund's portfolio securities. The Investment Adviser has adopted
policies and procedures ("Proxy Voting Procedures") with respect to
the voting of proxies related to the portfolio securities held in
the account of one or more of its clients, including a Fund.
Pursuant to these Proxy Voting Procedures, the Investment Adviser's
primary objective when voting proxies is to make proxy voting
decisions solely in the best interests of each Fund and its
shareholders, and to act in a manner that the Investment Adviser
believes is most likely to enhance the economic value of the
securities held by the Fund. The Proxy Voting Procedures are
designed to ensure that that the Investment Adviser considers the
interests of its clients, including the Funds, and not the interests
of the Investment Adviser, when voting proxies and that real (or
perceived) material conflicts that may arise between the Investment
Adviser's interest and those of the Investment Adviser's clients are
properly addressed and resolved.
In order to implement the Proxy Voting Procedures, the Investment
Adviser has formed a Proxy Voting Committee (the "Committee").
The Committee is comprised of the Investment Adviser's Chief
Investment Officer (the "CIO"), one or more other senior investment
professionals appointed by the CIO, portfolio managers and
investment analysts appointed by the CIO and any other personnel the
CIO deems appropriate. The Committee will also include two non-
voting representatives from the Investment Adviser's Legal
department appointed by the Investment Adviser's General Counsel.
The Committee's membership shall be limited to full-time employees
of the Investment Adviser. No person with any investment banking,
trading, retail brokerage or research responsibilities for the
Investment Adviser's affiliates may serve as a member of the
Committee or participate in its decision making (except to the
extent such person is asked by the Committee to present information
to the Committee, on the same basis as other interested
knowledgeable parties not affiliated with the Investment Adviser
might be asked to do so). The Committee determines how to vote the
proxies of all clients, including a Fund, that have delegated proxy
voting authority to the Investment Adviser and seeks to ensure that
all votes are consistent with the best interests of those clients
and are free from unwarranted and inappropriate influences. The
Committee establishes general proxy voting policies for the
Investment Adviser and is responsible for determining how those
policies are applied to specific proxy votes, in light of each
issuer's unique structure, management, strategic options and, in
certain circumstances, probable economic and other anticipated
consequences of alternate actions. In so doing, the Committee may
determine to vote a particular proxy in a manner contrary to its
generally stated policies. In addition, the Committee will be
responsible for ensuring that all reporting and recordkeeping
requirements related to proxy voting are fulfilled.
The Committee may determine that the subject matter of a recurring
proxy issue is not suitable for general voting policies and requires
a case-by-case determination. In such cases, the Committee may
elect not to adopt a specific voting policy applicable to that
issue. The Investment Adviser believes that certain proxy voting
issues require investment analysis - such as approval of mergers and
other significant corporate transactions - akin to investment
decisions, and are, therefore, not suitable for general guidelines.
The Committee may elect to adopt a common position for the
Investment Adviser on certain proxy votes that are akin to
investment decisions, or determine to permit the portfolio manager
to make individual decisions on how best to maximize economic value
for a Fund (similar to normal buy/sell investment decisions made by
such portfolio managers). While it is expected that the Investment
Adviser will generally seek to vote proxies over which the
Investment Adviser exercises voting authority in a uniform manner
for all the Investment Adviser's clients, the Committee, in
conjunction with a Fund's portfolio manager, may determine that the
Fund's specific circumstances require that its proxies be voted
differently.
To assist the Investment Adviser in voting proxies, the Committee
has retained Institutional Shareholder Services ("ISS"). ISS is an
independent adviser that specializes in providing a variety of
fiduciary-level proxy-related services to institutional investment
managers, plan sponsors, custodians, consultants, and other
institutional investors. The services provided to the Investment
Adviser by ISS include in-depth research, voting recommendations
(although the Investment Adviser is not obligated to follow such
recommendations), vote execution, and recordkeeping. ISS will also
assist the Fund in fulfilling its reporting and recordkeeping
obligations under the Investment Company Act.
The Investment Adviser's Proxy Voting Procedures also address
special circumstances that can arise in connection with proxy
voting. For instance, under the Proxy Voting Procedures, the
Investment Adviser generally will not seek to vote proxies related
to portfolio securities that are on loan, although it may do so
under certain circumstances. In addition, the Investment Adviser
will vote proxies related to securities of foreign issuers only on a
best efforts basis and may elect not to vote at all in certain
countries where the Committee determines that the costs associated
with voting generally outweigh the benefits. The Committee may at
any time override these general policies if it determines that such
action is in the best interests of a Fund.
From time to time, the Investment Adviser may be required to vote
proxies in respect of an issuer where an affiliate of the Investment
Adviser (each, an "Affiliate"), or a money management or other
client of the Investment Adviser (each, a "Client") is involved.
The Proxy Voting Procedures and the Investment Adviser's adherence
to those procedures are designed to address such conflicts of
interest. The Committee intends to strictly adhere to the Proxy
Voting Procedures in all proxy matters, including matters involving
Affiliates and Clients. If, however, an issue representing a non-
routine matter that is material to an Affiliate or a widely known
Client is involved such that the Committee does not reasonably
believe it is able to follow its guidelines (or if the particular
proxy matter is not addressed by the guidelines) and vote
impartially, the Committee may, in its discretion for the purposes
of ensuring that an independent determination is reached, retain an
independent fiduciary to advise the Committee on how to vote or to
cast votes on behalf of the Investment Adviser's clients.
In the event that the Committee determines not to retain an
independent fiduciary, or it does not follow the advice of such an
independent fiduciary, the powers of the Committee shall pass to a
subcommittee, appointed by the CIO (with advice from the Secretary
of the Committee), consisting solely of Committee members selected
by the CIO. The CIO shall appoint to the subcommittee, where
appropriate, only persons whose job responsibilities do not include
contact with the Client and whose job evaluations would not be
affected by the Investment Adviser's relationship with the Client
(or failure to retain such relationship). The subcommittee shall
determine whether and how to vote all proxies on behalf of the
Investment Adviser's clients or, if the proxy matter is, in their
judgment, akin to an investment decision, to defer to the applicable
portfolio managers, provided that, if the subcommittee determines to
alter the Investment Adviser's normal voting guidelines or, on
matters where the Investment Adviser's policy is case-by-case, does
not follow the voting recommendation of any proxy voting service or
other independent fiduciary that may be retained to provide research
or advice to the Investment Adviser on that matter, no proxies
relating to the Client may be voted unless the Secretary, or in the
Secretary's absence, the Assistant Secretary of the Committee
concurs that the subcommittee's determination is consistent with the
Investment Adviser's fiduciary duties
In addition to the general principles outlined above, the Investment
Adviser has adopted voting guidelines with respect to certain
recurring proxy issues that are not expected to involve unusual
circumstances. These policies are guidelines only, and the
Investment Adviser may elect to vote differently from the
recommendation set forth in a voting guideline if the Committee
determines that it is in a Fund's best interest to do so. In
addition, the guidelines may be reviewed at any time upon the
request of a Committee member and may be amended or deleted upon the
vote of a majority of Committee members present at a Committee
meeting at which there is a quorum.
The Investment Adviser has adopted specific voting guidelines with
respect to the following proxy issues:
* Proposals related to the composition of the Board of Directors of
issuers other than investment companies. As a general matter, the
Committee believes that a company's Board of Directors (rather than
shareholders) is most likely to have access to important, nonpublic
information regarding a company's business and prospects, and is
therefore best-positioned to set corporate policy and oversee
management. The Committee, therefore, believes that the foundation
of good corporate governance is the election of qualified,
independent corporate directors who are likely to diligently
represent the interests of shareholders and oversee management of
the corporation in a manner that will seek to maximize shareholder
value over time. In individual cases, the Committee may look at a
nominee's history of representing shareholder interests as a
director of other companies or other factors, to the extent the
Committee deems relevant.
* Proposals related to the selection of an issuer's independent
auditors. As a general matter, the Committee believes that
corporate auditors have a responsibility to represent the interests
of shareholders and provide an independent view on the propriety of
financial reporting decisions of corporate management. While the
Committee will generally defer to a corporation's choice of auditor,
in individual cases, the Committee may look at an auditors' history
of representing shareholder interests as auditor of other companies,
to the extent the Committee deems relevant.
* Proposals related to management compensation and employee
benefits. As a general matter, the Committee favors disclosure of
an issuer's compensation and benefit policies and opposes excessive
compensation, but believes that compensation matters are normally
best determined by an issuer's board of directors, rather than
shareholders. Proposals to "micro-manage" an issuer's compensation
practices or to set arbitrary restrictions on compensation or
benefits will, therefore, generally not be supported.
* Proposals related to requests, principally from management, for
approval of amendments that would alter an issuer's capital
structure. As a general matter, the Committee will support requests
that enhance the rights of common shareholders and oppose requests
that appear to be unreasonably dilutive.
* Proposals related to requests for approval of amendments to an
issuer's charter or by-laws. As a general matter, the Committee
opposes poison pill provisions.
* Routine proposals related to requests regarding the formalities of
corporate meetings.
* Proposals related to proxy issues associated solely with holdings
of investment company shares. As with other types of companies, the
Committee believes that a fund's Board of Directors (rather than its
shareholders) is best-positioned to set fund policy and oversee
management. However, the Committee opposes granting Boards of
Directors authority over certain matters, such as changes to a
fund's investment objective, that the Investment Company Act
envisions will be approved directly by shareholders.
* Proposals related to limiting corporate conduct in some manner
that relates to the shareholder's environmental or social concerns.
The Committee generally believes that annual shareholder meetings
are inappropriate forums for discussion of larger social issues, and
opposes shareholder resolutions "micromanaging" corporate conduct or
requesting release of information that would not help a shareholder
evaluate an investment in the corporation as an economic matter.
While the Committee is generally supportive of proposals to require
corporate disclosure of matters that seem relevant and material to
the economic interests of shareholders, the Committee is generally
not supportive of proposals to require disclosure of corporate
matters for other purposes.
Item 8--Reserved
Item 9(a) - The registrant's certifying officers have reasonably
designed such disclosure controls and procedures to ensure material
information relating to the registrant is made known to us by others
particularly during the period in which this report is being
prepared. The registrant's certifying officers have determined that
the registrant's disclosure controls and procedures are effective
based on our evaluation of these controls and procedures as of a
date within 90 days prior to the filing date of this report.
Item 9(b)--There were no significant changes in the registrant's
internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Item 10 - Exhibits
10(a) - Attach code of ethics or amendments/waivers, unless code of
ethics or amendments/waivers is on website or offered to
shareholders upon request without charge. N/A.
10(b) - Attach certifications pursuant to Section 302 of the
Sarbanes-Oxley Act. Attached hereto.
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
MuniHoldings Fund, Inc.
By: _/s/ Terry K. Glenn_______
Terry K. Glenn,
President of
MuniHoldings Fund, Inc.
Date: December 22, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By: _/s/ Terry K. Glenn________
Terry K. Glenn,
President of
MuniHoldings Fund, Inc.
Date: December 22, 2003
By: _/s/ Donald C. Burke________
Donald C. Burke,
Chief Financial Officer of
MuniHoldings Fund, Inc.
Date: December 22, 2003
Attached hereto as a furnished exhibit are the certifications
pursuant to Section 906 of the Sarbanes-Oxley Act.