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: 04/30/05
Date of reporting period: 05/01/04 - 10/31/04
Item 1 - Report to Stockholders
(BULL LOGO)
Merrill Lynch Investment Managers
www.mlim.ml.com
MuniHoldings Fund, Inc.
Semi-Annual Report
October 31, 2004
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.
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-MER-FUND (1-800-637-3863); (2) at www.mutualfunds.ml.com;
and (3) on the Securities and Exchange Commission's Web site at
http://www.sec.gov. Information about how the Fund voted proxies
relating to securities held in the Fund's portfolio during the
most recent 12-month period ended June 30 is available (1) at
www.mutualfunds.ml.com; and (2) on the Securities and Exchange
Commission's Web site at http://www.sec.gov.
MuniHoldings Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
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MuniHoldings Fund, Inc.
The Benefits and Risks of Leveraging
MuniHoldings 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 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, 2004, the percentage of the Fund's total net assets
invested in inverse floaters was 1.31%, before the deduction of
Preferred Stock.
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 agreement 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.
MUNIHOLDINGS FUND, INC., OCTOBER 31, 2004
A Letter From the President
Dear Shareholder
As we ended the current reporting period, the financial markets were
facing a number of uncertainties. At the top of investors' minds
were questions about economic expansion, corporate earnings,
interest rates and inflation, politics, oil prices and terrorism.
After benefiting from aggressive monetary and fiscal policy
stimulus, some fear the U.S. economy has hit a "soft patch." In
fact, economic expansion has slowed somewhat in recent months, but
we believe it is easing into a pace of growth that is sustainable
and healthy. The favorable economic environment has served to
benefit American corporations, which have continued to post strong
earnings. Although the most impressive results were seen earlier in
the year, solid productivity, improved revenue growth and cost
discipline all point to a vital corporate sector.
In terms of inflation and interest rates, the Federal Reserve Board
(the Fed) has signaled its confidence in the economic recovery by
increasing the Federal Funds target rate four times in the past
several months, from 1% to 2% as of the November 10 Federal Open
Market Committee meeting. Inflation, for its part, has remained in
check. Investors and economists are focused on how quickly Fed
policy will move from here.
With the presidential election now behind us, any politically
provoked market angst should subside to some extent. The effect of
oil prices, however, is more difficult to predict. At around $50 per
barrel, the price of oil is clearly a concern. However, on an
inflation-adjusted basis and considering modern usage levels, the
situation is far from the crisis proportions we saw in the 1980s.
Finally, although terrorism and geopolitical tensions are realities
we are forced to live with today, history has shown us that the
financial effects of any single event tend to be short-lived.
Amid the uncertainty, the Lehman Brothers Municipal Bond Index
posted a 12-month return of +6.03% and a six-month return of +4.79%
as of October 31, 2004. Long-term bond yields were slightly lower at
October 31, 2004 than they were a year earlier. As always, our
investment professionals are closely monitoring the markets, the
economy and the overall environment in an effort to make well-
informed decisions for the portfolios they manage. For the
individual investor, the key during uncertain times is to remain
focused on the big picture. Investment success comes not from
reacting to short-term volatility, but from maintaining a long-term
perspective and adhering to the disciplines of asset allocation,
diversification and rebalancing. We encourage you to work with your
financial advisor to ensure these time-tested techniques are
incorporated into your investment plan.
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, 2004
A Discussion With Your Fund's Portfolio Manager
The Fund outperformed its comparable Lipper category average and was
effectively able to enhance yield while preserving net asset value
in a volatile interest rate environment.
Describe the recent market environment relative to municipal bonds.
Long-term bond yields declined sharply during the past six months,
while bond prices, which move in the opposite direction, rose.
Somewhat surprisingly, these gains came as the U.S. economy
continued to improve.
In June, the Federal Reserve Board (the Fed) raised its short-term
interest rate target to 1.25%, its first rate increase in more than
four years. In an accompanying statement, however, the Fed made it
clear that it planned to pursue a "measured" series of interest rate
hikes. The prospect for a moderate sequence of interest rate hikes
supported higher bond prices (and lower yields) for the remainder of
the six-month period, despite additional Fed interest rate increases
in August and September. By October 31, 2004, the 30-year Treasury
bond yield stood at 4.79%, 50 basis points (.50%) lower than six
months earlier. The yield on the 10-year U.S. Treasury note was
4.02%, 48 basis points lower.
In the tax-exempt market, yields on long-term revenue bonds, as
measured by the Bond Buyer Revenue Bond Index, fell 31 basis points
during the past six months. According to Municipal Market Data,
yields on AAA-rated issues maturing in 30 years declined 33 basis
points to 4.60%. Yields on 10-year AAA-rated issues fell 56 basis
points to 3.40%.
More than $190 billion in new long-term tax-exempt bonds was issued
in the past six months, a decline of nearly 8% compared to the same
period a year ago. The declining supply amid favorable demand
allowed tax-exempt bond prices to register significant gains in the
past six months, performing in line with their taxable counterparts.
We expect new municipal issuance to be manageable for the rest of
2004, which should continue to support the tax-exempt market's
favorable technical position. Long-term tax-exempt bond yields
have continued to be between 88% and 93% of equivalent Treasury
bond yields, above their recent historic average of 85% to 88%.
These attractive yield ratios should continue to attract traditional
and non-traditional investors to the municipal market, and allow tax-
exempt bonds to outperform their taxable counterparts in the coming
months.
How did the Fund perform during the period in light of the existing
market conditions?
For the six-month period ended October 31, 2004, the Common Stock of
MuniHoldings Fund, Inc. had net annualized yields of 7.11% and
7.14%, based on a period-end per share net asset value of $16.07 and
a per share market price of $16.00, respectively, and $.576 per
share income dividends. Over the same period, the total investment
return on the Fund's Common Stock was +7.38%, based on a change in
per share net asset value from $15.54 to $16.07, and assuming
reinvestment of ordinary income dividends.
The Fund's total return, based on net asset value, surpassed its
comparable Lipper category of General Municipal Debt Funds
(Leveraged), which had an average return of +6.58% for the six-month
period. (Funds in this Lipper category invest primarily in municipal
debt issues rated in the top four credit-rating categories.
These funds can be leveraged via use of debt, preferred equity
and/or reverse repurchase agreements.) We attribute the Fund's
outperformance to our focus on enhancing the portfolio's yield, with
credit selection driven by our team of 12 full-time credit analysts.
In addition, we maintained the Fund's exposure to the high-yield
portion of the market, that being credit spreads, which enjoyed
strong performance during the period as investors became
increasingly comfortable assuming risk. Owning these higher-yielding
bonds helped boost the portfolio's yield and total return as
municipal credit spreads tightened.
MUNIHOLDINGS FUND, INC., OCTOBER 31, 2004
For a description of the Fund's total investment return based on a
change in the per share market value of the Fund's Common Stock (as
measured by the trading price of the Fund's shares on the New York
Stock Exchange), and assuming reinvestment of dividends, please
refer to the Financial Highlights section of this report. As a
closed-end fund, the Fund's shares may trade in the secondary market
at a premium or discount to the Fund's net asset value. As a result,
total investment returns based on changes in the market value of the
Fund's Common Stock can vary significantly from total investment
returns based on changes in the Fund's net asset value.
What changes were made to the portfolio during the period?
During the past six months, we reduced the portfolio's exposure to
spread product, generally lower-rated securities with higher yields.
Securities rated BBB and below significantly outperformed the
broader municipal market during the past 18 months, and we took the
opportunity to realize gains and reduce the portfolio's exposure to
these bonds by nearly 5%. We reinvested proceeds from these sales
into higher-grade securities, which appear to offer better relative
value in our view.
New purchases during the past six months concentrated on California
and New Jersey bonds, both of which we found could be purchased at
relatively inexpensive levels. In California, we favored insured
unified school district bonds that have the potential to be
refunded. When a bond is refunded, the price will increase
significantly as the effective maturity is reduced to the first call
date. In New Jersey, an increase in the supply of municipal bonds
caused a temporarily weak technical market, offering us a favorable
buying opportunity.
For the six-month period ended October 31, 2004, the Fund's Auction
Market Preferred Stock (AMPS) had an average yield of 1.13% for
Series A and 1.13% for Series B. These attractive funding levels,
in combination with a positively sloped yield curve, continued to
provide a generous income benefit to the Common Stock shareholder
from the leveraging of Preferred Stock. While the Fed is likely
to continue raising short-term interest rates, the increases are
expected to be gradual and should not have an immediate material
impact on the positive advantage leverage has had on the Fund's
Common Stock yield. However, should the spread between short-term
and long-term interest rates narrow, the benefits of leveraging
will decline and, as a result, reduce the yield on the Fund's Common
Stock. At the end of the period, the Fund's leverage amount, due
to AMPS, was 33.16% of total net assets. (For a more complete
explanation of the benefits and risks of leveraging, see page 2 of
this report to shareholders.)
How would you characterize the Fund's position at the close of the
period?
At period end, our primary focus was on maintaining the portfolio's
current yield and protecting the Fund's net asset value in case of a
future rise in interest rates. We expect the economy to continue to
strengthen over the next several quarters, pushing rates slightly
higher. Against this backdrop, we will continue to reduce our
exposure to spread product and, within three months to six months,
expect to have established a neutral portfolio weighting in this
area of the market.
Robert A. DiMella, CFA
Vice President and Portfolio Manager
November 11, 2004
MUNIHOLDINGS FUND, INC., OCTOBER 31, 2004
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 $ 1,887
Arizona--2.9% NR* Ba1 2,300 Maricopa County, Arizona, IDA, Education Revenue Bonds
(Arizona Charter Schools Project 1), Series A, 6.75% due
7/01/2029 2,283
BBB- Baa3 1,200 Maricopa County, Arizona, Pollution Control Corporation,
PCR, Refunding (El Paso Electric Company Project), Series A,
6.25% due 5/01/2037 1,229
NR* Caa2 3,000 Phoenix, Arizona, IDA, Airport Facility Revenue Refunding
Bonds (America West Airlines Inc. Project), AMT, 6.30% due
4/01/2023 2,211
NR* NR* 760 Show Low, Arizona, Improvement District No. 5, Special
Assessment Bonds, 6.375% due 1/01/2015 798
Arkansas--1.4% University of Arkansas, University Construction Revenue
Bonds (UAMS Campus), Series B (h):
NR* Aaa 2,000 5% due 11/01/2023 2,112
NR* Aaa 1,000 5% due 11/01/2034 1,024
California--21.6% NR* NR* 875 Agua Caliente Band of Cahuilla Indians, California, Casino
Revenue Bonds, 5.60% due 7/01/2013 892
AAA Aaa 2,965 California Infrastructure and Economic Development Bank,
Insured Revenue Bonds (Rand Corporation), Series A, 5.50%
due 4/01/2032 (a) 3,203
BBB+ A2 7,000 California State Department of Water Resources, Power Supply
Revenue Bonds, Series A, 5.25% due 5/01/2020 7,567
A A3 3,000 California State, GO, Refunding, 5.375% due 10/01/2027 3,194
A- Baa1 6,800 California State Public Works Board, Lease Revenue Bonds
(Department of Corrections), Series C, 5.25% due 6/01/2028 7,092
A A3 2,500 California State, Various Purpose, GO, 5.50% due 4/01/2028 2,702
A A3 3,870 California Statewide Communities Development Authority,
Health Facility Revenue Bonds (Memorial Health Services),
Series A, 6% due 10/01/2023 4,173
Golden State Tobacco Securitization Corporation of California,
Tobacco Settlement Revenue Bonds:
BBB Baa3 1,165 Series A-3, 7.875% due 6/01/2042 1,256
A- Baa1 3,000 Series B, 5.75% due 6/01/2021 3,183
A- Baa1 1,670 Series B, 5.625% due 6/01/2033 1,789
AAA Aaa 4,255 Los Angeles, California, Unified School District, GO, Series A,
5% due 1/01/2028 (h) 4,403
Montebello, California, Unified School District, GO (b):
AAA Aaa 2,405 5.61%** due 8/01/2022 1,016
AAA Aaa 2,455 5.61%** due 8/01/2023 970
AAA Aaa 2,095 Oceanside, California, Unified School District, GO
(Election of 2000), Series C, 5.25% due 8/01/2032 (h) 2,206
AA Aa3 3,950 Sacramento County, California, Sanitation District Financing
Authority, Revenue Refunding Bonds, RIB, Series 366, 9.692%
due 12/01/2027 (f) 4,349
Colorado--2.7% NR* NR* 2,645 Elk Valley, Colorado, Public Improvement Revenue Bonds
(Public Improvement Fee), Series A, 7.35% due 9/01/2031 2,769
AA NR* 3,000 Interlocken, Colorado, GO, Refunding (Metropolitan District),
Series A, 5.75% due 12/15/2019 (c) 3,291
Connecticut--2.4% BBB- Baa3 2,165 Connecticut State Development Authority, Airport Facility
Revenue Bonds (LearJet Inc. Project), AMT, 7.95% due 4/01/2026 2,466
NR* NR* 2,735 Connecticut State Development Authority, IDR (AFCO Cargo
BDL-LLC Project), AMT, 8% due 4/01/2030 2,856
Florida--5.2% BBB- Baa3 1,430 Broward County, Florida, Airport Exempt Facility Revenue
Bonds (Learjet Inc. Project), AMT, 7.50% due 11/01/2020 1,585
Midtown Miami, Florida, Community Development District,
Special Assessment Revenue Bonds:
NR* NR* 2,250 Series A, 6.25% due 5/01/2037 2,329
NR* NR* 1,300 Series B, 6.50% due 5/01/2037 1,358
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
IDA Industrial Development Authority
IDB Industrial Development Board
IDR Industrial Development Revenue Bonds
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
VRDN Variable Rate Demand Notes
MUNIHOLDINGS FUND, INC., OCTOBER 31, 2004
Schedule of Investments (continued) (In Thousands)
S&P Moody's Face
State Ratings Ratings Amount Municipal Bonds Value
Florida A A2 $ 3,225 Orange County, Florida, Health Facilities Authority,
(concluded) Hospital Revenue Bonds (Orlando Regional Healthcare),
6% due 12/01/2028 $ 3,471
NR* NR* 1,000 Orlando, Florida, Urban Community Development District,
Capital Improvement Special Assessment Bonds, Series A,
6.95% due 5/01/2033 1,062
NR* NR* 1,700 Preserve at Wilderness Lake, Florida, Community Development
District, Capital Improvement Bonds, Series A, 5.90% due
5/01/2034 1,708
Georgia--0.9% NR* NR* 1,750 Atlanta, Georgia, Tax Allocation Revenue Bonds (Atlantic
Station Project), 7.90% due 12/01/2024 1,898
Illinois--3.3% NR* B2 790 Beardstown, Illinois, IDR (Jefferson Smurfit Corp. Project),
8% due 10/01/2016 839
CCC Caa2 1,000 Chicago, Illinois, O'Hare International Airport, Special
Facility Revenue Refunding Bonds (American Airlines Inc. Project),
8.20% due 12/01/2024 730
NR* NR* 1,200 Chicago, Illinois, Special Assessment Bonds (Lake Shore East),
6.75% due 12/01/2032 1,245
AA Aa2 4,000 Illinois HDA, Homeowner Mortgage Revenue Bonds, AMT, Sub-Series
C-2, 5.35% due 2/01/2027 4,104
A-1+ VMIG-1++ 500 Illinois Health Facilities Authority, Revenue Refunding Bonds
(Resurrection Health Care), VRDN, Series A, 1.75% due
5/15/2029 (e)(g) 500
Indiana--4.3% NR* NR* 8,985 Allen County, Indiana, Redevelopment District Tax Increment
Revenue Bonds (General Motors Development Area), 7%** due
11/15/2013 5,448
AAA Aaa 3,750 Indiana Transportation Finance Authority, Highway Revenue
Bonds, Series A, 5.25% due 6/01/2029 (b) 3,979
Kentucky--1.0% AAA Aaa 2,000 Louisville and Jefferson Counties, Kentucky, Metropolitan
Sewer District, Sewer and Drain System Revenue Bonds, Series A,
5.50% due 5/15/2034 (h) 2,176
Maryland--4.9% AAA NR* 1,875 Anne Arundel County, Maryland, Special Obligation Revenue Bonds
(Arundel Mills Project), 7.10% due 7/01/2009 (i) 2,264
Maryland State Economic Development Corporation, Student Housing
Revenue Bonds (University of Maryland College Park Project):
NR* Baa3 1,760 6% due 6/01/2021 1,916
NR* Baa3 1,700 6.50% due 6/01/2027 1,855
NR* NR* 2,750 Maryland State Energy Financing Administration, Limited
Obligation Revenue Bonds (Cogeneration--AES Warrior Run),
AMT, 7.40% due 9/01/2019 2,814
NR* A2 2,000 Maryland State Health and Higher Educational Facilities
Authority Revenue Bonds (Calvert Health System), 5.50% due
7/01/2036 2,079
Massachusetts-- BB+ NR* 1,000 Massachusetts State Development Finance Agency, Revenue
0.4% Refunding Bonds (Eastern Nazarene College), 5.625% due 4/01/2029 861
Michigan--2.1% A NR* 1,400 Flint, Michigan, Hospital Building Authority, Revenue Refunding
Bonds (Hurley Medical Center), Series A, 6% due 7/01/2020 1,537
A- A3 3,055 Michigan State Strategic Fund, Limited Obligation Revenue
Refunding Bonds (Detroit Edison Pollution Control), AMT, Series B,
5.65% due 9/01/2029 3,163
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 3,662
Mississippi--4.6% BBB- Ba1 7,675 Claiborne County, Mississippi, PCR, Refunding (System Energy
Resources Inc. Project), 6.20% due 2/01/2026 7,676
BBB- Ba1 2,500 Mississippi Business Finance Corporation, Mississippi, PCR,
Refunding (System Energy Resources Inc. Project), 5.90% due
5/01/2022 2,526
Missouri--1.6% NR* NR* 2,000 Fenton, Missouri, Tax Increment Revenue Refunding and
Improvement Bonds (Gravois Bluffs), 7% due 10/01/2021 2,164
BBB+ Baa1 1,400 Missouri State Development Finance Board, Infrastructure
Facilities Revenue Refunding Bonds (Branson), Series A,
5.50% due 12/01/2032 1,446
Nevada--1.4% AAA Aaa 3,000 Clark County, Nevada, IDR (Power Company Project), AMT,
Series A, 6.70% due 6/01/2022 (b) 3,104
New Jersey--10.0% New Jersey EDA, Cigarette Tax Revenue Bonds:
BBB Baa2 5,385 5.75% due 6/15/2029 5,522
BBB Baa2 2,280 5.75% due 6/15/2034 2,340
New Jersey EDA, Retirement Community Revenue Bonds, Series A:
NR* NR* 1,475 (Cedar Crest Village Inc. Facility), 7.25% due 11/15/2031 1,510
NR* NR* 3,600 (Seabrook Village Inc.), 8.25% due 11/15/2030 3,897
New Jersey EDA, Special Facility Revenue Bonds (Continental
Airlines Inc. Project), AMT:
B Caa2 1,000 6.625% due 9/15/2012 886
B Caa2 2,950 6.25% due 9/15/2029 2,137
MUNIHOLDINGS FUND, INC., OCTOBER 31, 2004
Schedule of Investments (continued) (In Thousands)
S&P Moody's Face
State Ratings Ratings Amount Municipal Bonds Value
New Jersey NR* Baa1 $ 3,325 New Jersey Health Care Facilities Financing Authority
(concluded) Revenue Bonds (South Jersey Hospital), 6% due 7/01/2026 $ 3,520
BBB Baa3 2,315 Tobacco Settlement Financing Corporation of New Jersey
Revenue Bonds, 7% due 6/01/2041 2,312
New Mexico--1.0% BBB Baa2 2,000 Farmington, New Mexico, PCR, Refunding (Public Service
Company-San Juan Project), Series A, 6.30% due 12/01/2016 2,178
New York--22.3% NR* NR* 1,320 Dutchess County, New York, IDA, Civic Facility Revenue
Refunding Bonds (Saint Francis Hospital), Series A, 7.50%
due 3/01/2029 1,311
NR* NR* 535 New York City, New York, City IDA, Civic Facility Revenue
Bonds, Series C, 6.80% due 6/01/2028 554
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 1,103
AAA Aaa 11,000 New York City, New York, GO, Refunding, Series G, 5.75% due
2/01/2006 (b)(i) 11,648
New York City, New York, GO, Series F (h):
AAA A2 7,635 6% due 8/01/2006 (i) 8,295
AAA A2 2,365 6% due 8/01/2016 2,563
New York City, New York, Sales Tax Asset Receivable Corporation
Revenue Bonds, Series A (a):
AAA Aaa 3,970 5.25% due 10/15/2027 4,266
AAA Aaa 2,500 5% due 10/15/2029 2,591
AAA Aaa 2,715 New York State Dormitory Authority Revenue Bonds (School
Districts Financing Program), Series D, 5.25% due 10/01/2023 (h) 2,919
Tobacco Settlement Financing Corporation of New York Revenue
Bonds:
AA- A3 3,150 Series A-1, 5.50% due 6/01/2018 3,465
AAA Aaa 3,000 Series A-1, 5.25% due 6/01/2022 (a) 3,230
AA- A3 3,500 Series C-1, 5.50% due 6/01/2017 3,831
AA- A3 1,400 Series C-1, 5.50% due 6/01/2022 1,522
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 2,118
North Carolina-- NR* Baa1 1,000 North Carolina Medical Care Commission, Health Care Housing
0.5% Revenue Bonds (The ARC of North Carolina Projects), Series A,
5.80% due 10/01/2034 1,013
Oklahoma--0.9% Tulsa, Oklahoma, Municipal Airport Trust, Revenue Refunding
Bonds (AMR Corporation), AMT, Series A:
B- Caa2 570 5.80% due 6/01/2035 570
B- Caa2 1,425 5.375% due 12/01/2035 1,359
Oregon--0.9% NR* NR* 2,050 Western Generation Agency, Oregon, Cogeneration Project Revenue
Bonds (Wauna Cogeneration Project), AMT, Series B, 7.40% due
1/01/2016 2,087
Pennsylvania-- NR* NR* 3,500 Pennsylvania Economic Development Financing Authority, Exempt
7.2% Facilities Revenue Bonds (National Gypsum Company), AMT,
Series B, 6.125% due 11/01/2027 3,631
NR* NR* 725 Philadelphia, Pennsylvania, Authority for IDR, Commercial
Development, 7.75% due 12/01/2017 741
NR* NR* 4,000 Philadelphia, Pennsylvania, Authority for IDR, Refunding,
Commercial Development (Days Inn), Series B, 6.50% due
10/01/2027 4,071
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 1,071
NR* Baa2 1,245 (Saligman House Project), Series C, 6.10% due 7/01/2033 1,208
A-1+ VMIG-1++ 1,100 Philadelphia, Pennsylvania, Water and Wastewater Revenue
Refunding Bonds, VRDN, .75% due 6/15/2023 (e)(g) 1,100
A- NR* 3,500 Sayre, Pennsylvania, Health Care Facilities Authority Revenue
Bonds (Guthrie Health Issue), Series B, 7.125% due 12/01/2031 4,112
Rhode Island-- BBB Baa2 2,820 Rhode Island State Health and Educational Building Corporation,
1.4% Hospital Financing Revenue Bonds (Lifespan Obligation Group),
6.50% due 8/15/2032 2,999
South Carolina-- BBB+ Baa2 3,020 Medical University, South Carolina, Hospital Authority,
1.4% Hospital Facilities Revenue Refunding Bonds, Series A,
6.375% due 8/15/2027 3,206
Tennessee--6.2% NR* NR* 4,500 Hardeman County, Tennessee, Correctional Facilities Corporation
Revenue Bonds, 7.75% due 8/01/2017 4,713
Shelby County, Tennessee, Health, Educational and Housing
Facility Board, Hospital Revenue Refunding Bonds (Methodist
Healthcare):
A- A3 2,730 6.50% due 9/01/2012 (i) 3,330
A- A3 1,845 6.50% due 9/01/2026 (j) 2,233
NR* Aa2 3,400 Tennessee Educational Loan Revenue Bonds (Educational
Funding South Inc.), AMT, Senior Series B, 6.20% due 12/01/2021 3,538
MUNIHOLDINGS FUND, INC., OCTOBER 31, 2004
Schedule of Investments (continued) (In Thousands)
S&P Moody's Face
State Ratings Ratings Amount Municipal Bonds Value
Texas--21.4% BBB- Baa3 $ 4,000 Austin, Texas, Convention Center Revenue Bonds (Convention
Enterprises Inc.), First Tier, Series A, 6.70% due 1/01/2028 $ 4,252
A-1+ VMIG-1++ 2,000 Bell County, Texas, Health Facilities Development Corporation,
Hospital Revenue Bonds (Scott & White Memorial Hospital),
VRDN, Series 2001-1, 1.74% due 8/15/2031 (g)(h) 2,000
Brazos River Authority, Texas, PCR, Refunding (TXU Energy
Company LLC Project):
BBB Baa2 900 AMT, Series C, 6.75% due 10/01/2038 960
BBB- Baa2 1,000 Series B, 4.75% due 5/01/2029 1,032
BBB- NR* 2,340 Brazos River Authority, Texas, Revenue Refunding Bonds (Reliant
Energy Inc. Project), Series B, 7.75% due 12/01/2018 2,562
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 4,281
A-1+ NR* 8,500 Harris County, Texas, Health Facilities Development Corporation,
Revenue Refunding Bonds (Methodist Hospital), VRDN, 1.74% due
12/01/2032 (g) 8,500
NR* NR* 1,800 Houston, Texas, Health Facilities Development Corporation,
Retirement Facility Revenue Bonds (Buckingham Senior Living
Community), Series A, 7.125% due 2/15/2034 1,863
A- A3 3,000 Lower Colorado River Authority, Texas, PCR (Samsung Austin
Semiconductor), AMT, 6.375% due 4/01/2027 3,246
BBB- Ba2 1,485 Matagorda County, Texas, Navigation District Number 1, Revenue
Refunding Bonds (Reliant Energy Inc.), Series C, 8% due 5/01/2029 1,649
BB Ba2 1,425 Port Corpus Christi, Texas, Individual Development Corporation,
Environmental Facilities Revenue Bonds (Citgo Petroleum
Corporation Project), AMT, 8.25% due 11/01/2031 1,524
B- Ba3 5,000 Port Corpus Christi, Texas, Revenue Refunding Bonds (Celanese
Project), Series A, 6.45% due 11/01/2030 4,841
AAA Aaa 7,020 Texas State Department of Housing and Community Affairs,
Residential Mortgage Revenue Bonds, AMT, Series A, 5.70% due
1/01/2033 (d) 7,370
AAA Aaa 3,140 Texas State Department of Housing and Community Affairs,
Residential Mortgage Revenue Refunding Bonds, AMT, Series B,
5.25% due 7/01/2022 (d) 3,265
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 2,480
Virginia--8.2% BBB+ A3 1,150 Chesterfield County, Virginia, IDA, PCR (Virginia Electric
and Power Company), Series A, 5.875% due 6/01/2017 1,273
AAA Aaa 7,000 Fairfax County, Virginia, EDA, Resource Recovery Revenue
Refunding Bonds, AMT, Series A, 6.10% due 2/01/2011 (a) 8,012
Pocahontas Parkway Association, Virginia, Toll Road Revenue
Bonds:
NR* B1 5,700 First Tier, Sub-Series C, 6.25%** due 8/15/2029 770
BB Ba2 4,250 Senior-Series A, 5.50% due 8/15/2028 3,857
BB Ba2 1,500 Senior-Series B, 8.40%** due 8/15/2029 293
BB Ba2 300 Senior-Series B, 8.80%** due 8/15/2030 55
AAA Aaa 3,905 Virginia State, HDA, Commonwealth Mortgage Revenue Bonds,
Series J, Sub-Series J-1, 5.20% due 7/01/2019 (h) 4,055
Washington--0.6% NR* NR* 1,415 Seattle, Washington, Housing Authority Revenue Bonds (Replacement
Housing Project), 6.125% due 12/01/2032 1,401
West Virginia-- B- B2 1,000 Princeton, West Virginia, Hospital Revenue Refunding Bonds
0.4% (Community Hospital Association Inc. Project), 6% due 5/01/2019 787
Wisconsin--2.2% AAA Aaa 2,000 Evansville, Wisconsin, Community School District, GO, Refunding,
5.50% due 4/01/2020 (b) 2,234
Wisconsin State Health and Educational Facilities Authority
Revenue Bonds:
NR* NR* 825 (New Castle Place Project), Series A, 7% due 12/01/2031 838
BBB+ NR* 1,755 (Synergyhealth Inc.), 6% due 11/15/2032 1,846
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 3,049
Virgin Islands-- BBB- Baa3 4,650 Virgin Islands Government Refinery Facilities, Revenue Refunding
2.3% Bonds (Hovensa Coker Project), AMT, 6.50% due 7/01/2021 5,080
Total Municipal Bonds (Cost--$322,708)--152.7% 338,495
MUNIHOLDINGS FUND, INC., OCTOBER 31, 2004
Schedule of Investments (concluded) (In Thousands)
Shares
Held Short-Term Securities Value
9 Merrill Lynch Institutional Tax-Exempt Fund (k) $ 9
Total Short-Term Securities (Cost--$9)--0.0% 9
Total Investments (Cost--$322,717***)--152.7% 338,504
Liabilities in Excess of Other Assets--(3.1%) (6,768)
Preferred Stock, at Redemption Value--(49.6%) (110,000)
----------
Net Assets Applicable to Common Stock--100.0% $ 221,736
==========
(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, 2004.
(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, 2004.
(h) MBIA Insured.
(i) Prerefunded.
(j) Escrowed to maturity.
(k) Investments in companies considered to be an affiliate of the Fund
(such companies are defined as "Affiliated Companies" in Section
2(a)(3) of the Investment Company Act of 1940) were as follows:
(in Thousands)
Net Dividend
Affiliate Activity Income
Merrill Lynch Institutional
Tax-Exempt Fund -- $10
* Not Rated.
** Represents a zero coupon bond; the interest rate shown reflects the
effective yield at the time of purchase by the Fund.
*** The cost and unrealized appreciation/depreciation of investments as
of October 31, 2004, as computed for federal income tax purposes,
were as follows:
(in Thousands)
Aggregate cost $ 322,515
=============
Gross unrealized appreciation $ 18,220
Gross unrealized depreciation (2,231)
-------------
Net unrealized appreciation $ 15,989
=============
++ Highest short-term rating by Moody's Investors Service, Inc.
See Notes to Financial Statements.
Quality Profile
The quality ratings of securities in the Fund as of October 31, 2004
were as follows:
Percent of
Total
S&P Rating/Moody's Rating Investments
AAA/Aaa 25.7%
AA/Aa 7.1
A/A 21.9
BBB/Baa 20.4
BB/Ba 5.3
B/B 2.2
CCC/Caa 0.9
NR (Not Rated) 16.5
Other* --**
* Includes portfolio holdings in short-term investments.
** Amount is less than 0.1%.
MUNIHOLDINGS FUND, INC., OCTOBER 31, 2004
Statement of Net Assets
As of October 31, 2004
Assets
Investments in unaffiliated securities, at value
(identified cost--$322,708,482) $ 338,494,937
Investments in affiliated securities, at value (identified cost--$8,893) 8,893
Receivables:
Interest $ 5,657,856
Dividends from affiliates 11 5,657,867
---------------
Prepaid expenses 1,911
---------------
Total assets 344,163,608
---------------
Liabilities
Payables:
Securities purchased 12,143,156
Investment adviser 174,406
Dividends to Common Stock shareholders 79,107
Other affiliates 2,283 12,398,952
---------------
Accrued expenses 28,245
---------------
Total liabilities 12,427,197
---------------
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* authorized,
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 $ 221,736,411
===============
Analysis of Net Assets Applicable to Common Stock
Common Stock, par value $.10 per share (13,801,895 shares issued and
outstanding) $ 1,380,190
Paid-in capital in excess of par 204,253,016
Undistributed investment income--net $ 5,170,500
Accumulated realized capital losses--net (4,853,750)
Unrealized appreciation--net 15,786,455
---------------
Total accumulated earnings--net 16,103,205
---------------
Total--Equivalent to $16.07 net asset value per share of Common Stock
(market price--$16.00) $ 221,736,411
===============
* Auction Market Preferred Stock.
See Notes to Financial Statements.
MUNIHOLDINGS FUND, INC., OCTOBER 31, 2004
Statement of Operations
For the Six Months Ended October 31, 2004
Investment Income
Interest $ 9,594,205
Dividends from affiliates 9,522
---------------
Total income 9,603,727
---------------
Expenses
Investment advisory fees $ 892,317
Commission fees 138,978
Accounting services 58,672
Professional fees 27,863
Transfer agent fees 24,733
Printing and shareholder reports 19,371
Directors' fees and expenses 16,502
Listing fees 10,133
Custodian fees 9,620
Pricing fees 8,041
Other 16,807
---------------
Total expenses before reimbursement 1,223,037
Reimbursement of expenses (1,962)
---------------
Total expenses after reimbursement 1,221,075
---------------
Investment income--net 8,382,652
---------------
Realized & Unrealized Gain--Net
Realized gain on investments--net 1,646,090
Change in unrealized appreciation on investments--net 5,806,647
---------------
Total realized and unrealized gain--net 7,452,737
---------------
Dividends to Preferred Stock Shareholders
Investment income--net (621,808)
---------------
Net Increase in Net Assets Resulting from Operations $ 15,213,581
===============
See Notes to Financial Statements.
MUNIHOLDINGS FUND, INC., OCTOBER 31, 2004
Statements of Changes in Net Assets
For the Six For the
Months Ended Year Ended
October 31, April 30,
Increase (Decrease) in Net Assets: 2004 2004
Operations
Investment income--net $ 8,382,652 $ 17,258,888
Realized gain--net 1,646,090 2,349,989
Change in unrealized appreciation--net 5,806,647 3,059,319
Dividends to Preferred Stock shareholders (621,808) (973,764)
--------------- ---------------
Net increase in net assets resulting from operations 15,213,581 21,694,432
--------------- ---------------
Dividends to Common Stock Shareholders
Investment income--net (7,949,891) (15,287,032)
--------------- ---------------
Net decrease in net assets resulting from dividends to Common Stock
shareholders (7,949,891) (15,287,032)
--------------- ---------------
Capital Stock Transactions
Value of shares issued to Common Stock shareholders in reinvestment
of dividends -- 105,221
--------------- ---------------
Net Assets Applicable to Common Stock
Total increase in net assets applicable to Common Stock 7,263,690 6,512,621
Beginning of period 214,472,721 207,960,100
--------------- ---------------
End of period* $ 221,736,411 $ 214,472,721
=============== ===============
* Undistributed investment income--net $ 5,170,500 $ 5,359,547
=============== ===============
See Notes to Financial Statements.
MUNIHOLDINGS FUND, INC., OCTOBER 31, 2004
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: 2004 2004 2003 2002 2001
Per Share Operating Performance
Net asset value, beginning of period $ 15.54 $ 15.07 $ 14.50 $ 13.76 $ 13.16
---------- ---------- ---------- ---------- ----------
Investment income--net .61++++ 1.25++++ 1.25++++ 1.17 1.10
Realized and unrealized gain--net .54 .40 .40 .66 .65
Dividends to Preferred Stock
shareholders from investment income--net (.04) (.07) (.10) (.16) (.32)
---------- ---------- ---------- ---------- ----------
Total from investment operations 1.11 1.58 1.55 1.67 1.43
---------- ---------- ---------- ---------- ----------
Less dividends to Common Stock shareholders
from investment income--net (.58) (1.11) (.98) (.93) (.83)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 16.07 $ 15.54 $ 15.07 $ 14.50 $ 13.76
========== ========== ========== ========== ==========
Market price per share, end of period $ 16.00 $ 14.43 $ 14.43 $ 13.38 $ 13.18
========== ========== ========== ========== ==========
Total Investment Return++
Based on net asset value per share 7.38%+++ 10.94% 11.54% 12.64% 11.71%
========== ========== ========== ========== ==========
Based on market price per share 15.13%+++ 7.58% 15.75% 8.51% 12.09%
========== ========== ========== ========== ==========
Ratios Based on Average Net Assets of Common Stock
Total expenses, net of reimbursement** 1.14%* 1.14% 1.18% 1.21% 1.27%
========== ========== ========== ========== ==========
Total expenses** 1.14%* 1.15% 1.18% 1.21% 1.27%
========== ========== ========== ========== ==========
Total investment income--net** 7.81%* 7.98% 8.40% 8.03% 8.08%
========== ========== ========== ========== ==========
Amount of dividends to Preferred Stock
shareholders .58%* .45% .66% 1.08% 2.32%
========== ========== ========== ========== ==========
Investment income--net, to Common Stock
shareholders 7.23%* 7.53% 7.74% 6.95% 5.76%
========== ========== ========== ========== ==========
Ratios Based on Average Net Assets of Common & Preferred Stock**
Total expenses, net of reimbursement .75%* .76% .77% .78% .80%
========== ========== ========== ========== ==========
Total expenses .75%* .76% .77% .78% .80%
========== ========== ========== ========== ==========
Total investment income--net 5.17%* 5.28% 5.47% 5.17% 5.10%
========== ========== ========== ========== ==========
MUNIHOLDINGS FUND, INC., OCTOBER 31, 2004
Financial Highlights (concluded)
For the Six
Months Ended
The following per share data and ratios have been derived October 31, For the Year Ended April 30,
from information provided in the financial statements. 2004 2004 2003 2002 2001
Ratios Based on Average Net Assets of Preferred Stock
Dividends to Preferred Stock shareholders 1.13%* .88% 1.23% 1.96% 3.97%
========== ========== ========== ========== ==========
Supplemental Data
Net assets applicable to Common Stock,
end of period (in thousands) $ 221,736 $ 214,473 $ 207,960 $ 200,091 $ 189,787
========== ========== ========== ========== ==========
Preferred Stock outstanding, end of period
(in thousands) $ 110,000 $ 110,000 $ 110,000 $ 110,000 $ 110,000
========== ========== ========== ========== ==========
Portfolio turnover 20.77% 42.89% 50.68% 62.94% 91.25%
========== ========== ========== ========== ==========
Leverage
Asset coverage per $1,000 $ 3,016 $ 2,950 $ 2,891 $ 2,819 $ 2,725
========== ========== ========== ========== ==========
Dividends Per Share on Preferred Stock Outstanding
Series A--Investment income--net $ 141 $ 220 $ 315 $ 492 $ 1,016
========== ========== ========== ========== ==========
Series B--Investment income--net $ 141 $ 223 $ 302 $ 490 $ 968
========== ========== ========== ========== ==========
* 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 effects of sales charges. If applicable, the Fund's Investment Adviser waived a portion of its
management fee. Without such waiver, the Fund's performance would have been lower.
++++ Based on average shares outstanding.
+++ Aggregate total investment return.
See Notes to Financial Statements.
MUNIHOLDINGS FUND, INC., OCTOBER 31, 2004
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 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 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 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 will be reviewed periodically by the Board of Directors
of the Fund. Financial futures contracts and options thereon, which
are traded on exchanges, are valued at their closing prices as of
the close of such exchanges. Options written or purchased are valued
at the last sale price in the case of exchange-traded options. In
the case of options traded in the 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'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-ended investment companies are valued at their net asset value
each business day. 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.
(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 may write covered call options and purchase call
and put options. When the Fund writes an option, an amount equal to
the premium received by the Fund is reflected as an asset and an
equivalent liability. The amount of the liability is subsequently
marked-to- market to reflect the current market value of the option
written. When a security is purchased or sold through an exercise of
an option, the related premium paid (or received) is added to (or
deducted from) the basis of the security acquired or deducted from
(or added to) the proceeds of the security sold. When an option
expires (or the Fund enters into a closing transaction), the Fund
realizes a gain or loss on the option to the extent of the premiums
received or paid (or gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
* Forward interest rate swaps--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.
MUNIHOLDINGS FUND, INC., OCTOBER 31, 2004
Notes to Financial Statements (concluded)
(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. The Investment Adviser has agreed to
reimburse its management fee by the amount of management fees the
Fund pays to FAM indirectly through its investment in Merrill Lynch
Institutional Tax-Exempt Fund. For the six months ended October 31,
2004, FAM reimbursed the Fund in the amount of $1,962.
For the six months ended October 31, 2004, the Fund reimbursed FAM
$3,401 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, 2004 were $66,309,469 and
$67,490,876, respectively.
4. Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of stock,
including Preferred Stock, par value $.10 per share, all of which
were initially classified as Common Stock. The Board of Directors is
authorized, however, to reclassify any unissued shares of stock
without approval of holders of Common Stock.
Common Stock
Shares issued and outstanding during the six month period ended
October 31, 2004 remained constant and during the year ended April
30, 2004 increased by 6,668 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, 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, 2004 were as follows: Series A, 1.60% and
Series B, 1.45%.
The Fund pays commissions to certain broker-dealers at the end of
each auction at an annual rate ranging from .25% to .375%,
calculated on the proceeds of each auction. For the six months ended
October 31, 2004, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, an affiliate of FAM, earned $79,706 as commissions.
5. Capital Loss Carryforward:
On April 30, 2004, the Fund had a net capital loss carryforward of
$6,374,791, all of which 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 $.096000 per share on November 29, 2004 to
shareholders of record on November 12, 2004.
MUNIHOLDINGS FUND, INC., OCTOBER 31, 2004
Proxy Results
During the six-month period ended October 31, 2004, MuniHoldings
Fund, Inc.'s Common Stock shareholders voted on the following
proposal. The proposal was approved at a shareholders' meeting on
August 25, 2004. 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 13,065,619 249,869
Cynthia A. Montgomery 13,066,730 248,758
Kevin A. Ryan 13,052,183 263,305
Roscoe S. Suddarth 13,058,150 257,338
Edward D. Zinbarg 13,054,133 261,355
During the six-month period ended October 31, 2004, 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, 2004. 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, Kevin A. Ryan,
Roscoe S. Suddarth, Richard R. West and Edward D. Zinbarg 4,295 0
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, 2004
Officers and Directors
Terry K. Glenn, President and Director
Ronald W. Forbes, Director
Cynthia A. Montgomery, Director
Jean Margo Reid, 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
Jeffrey Hiller, Chief Compliance Officer
Alice A. Pellegrino, Secretary
Custodian
The Bank of New York
100 Church Street
New York, NY 10286
Transfer Agents
Common Stock:
The Bank of New York
101 Barclay Street - 11 East
New York, NY 10286
Preferred Stock:
The Bank of New York
101 Barclay Street - 7 West
New York, NY 10286
NYSE Symbol
MHD
Availability of Quarterly Schedule of Investments
The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission ("SEC") for the first and third
quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q are
available on the SEC's Web site at http://www.sec.gov. The Fund's
Forms N-Q may also be reviewed and copied at the SEC's Public
Reference Room in Washington, DC. Information on the operation of
the Public Reference Room may be obtained by calling 1-800-SEC-0330.
Electronic Delivery
The Fund offers electronic delivery of communications to its
shareholders. In order to receive this service, you must
register your account and provide us with e-mail information.
To sign up for this service, simply access this Web site
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, 2004
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 - Purchases of Equity Securities by Closed-End Management
Investment Company and Affiliated Purchasers - Not Applicable
Item 9 - Submission of Matters to a Vote of Security Holders - Not
Applicable
Item 10 - Controls and Procedures
10(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.
10(b) - There were no changes in the registrant's internal control
over financial reporting (as defined in Rule 30a-3(d) under the Act
(17 CFR 270.30a-3(d)) that occurred during the last fiscal half-year
of the period covered by this report that has materially affected,
or is reasonably likely to materially affect, the registrant's
internal control over financial reporting.
Item 11 - Exhibits attached hereto
11(a)(1) - Code of Ethics - Not Applicable to this semi-annual
report
11(a)(2) - Certifications - Attached hereto
11(a)(3) - Not Applicable
11(b) - Certifications - Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
MuniHoldings Fund, Inc.
By: _/s/ Terry K. Glenn_______
Terry K. Glenn,
President of
MuniHoldings Fund, Inc.
Date: December 13, 2004
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 13, 2004
By: _/s/ Donald C. Burke________
Donald C. Burke,
Chief Financial Officer of
MuniHoldings Fund, Inc.
Date: December 13, 2004