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 811-08215
Name of Fund: MuniHoldings Fund II, Inc.
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Robert C. Doll, Jr., Chief
Executive Officer, MuniHoldings Fund II, 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: 07/31/05
Date of reporting period: 08/01/04 - 01/31/05
Item 1 - Report to Stockholders
BULL LOGO
Merrill Lynch Investment Managers
www.mlim.ml.com
MuniHoldings Fund II, Inc.
Semi-Annual Report
January 31, 2005
MuniHoldings Fund II, 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 II, 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 II, Inc.
Box 9011
Princeton, NJ 08543-9011
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MuniHoldings Fund II, Inc.
The Benefits and Risks of Leveraging
MuniHoldings Fund II, Inc. utilizes leveraging to seek to enhance
the yield and net asset value of its Common Stock. However, these
objectives cannot be achieved in all interest rate environments. To
leverage, the Fund issues Preferred Stock, which pays dividends at
prevailing short-term interest rates, and invests the proceeds in
long-term municipal bonds. The interest earned on these investments,
net of dividends to Preferred Stock, is paid to Common Stock
shareholders in the form of dividends, and the value of these
portfolio holdings is reflected in the per share net asset value of
the Fund's Common Stock. However, in order to benefit Common Stock
shareholders, the yield curve must be positively sloped; that is,
short-term interest rates must be lower than long-term interest
rates. At the same time, a period of generally declining interest
rates will benefit Common Stock shareholders. If either of these
conditions change, then the risks of leveraging will begin to
outweigh the benefits.
To illustrate these concepts, assume a fund's Common Stock
capitalization of $100 million and the issuance of Preferred Stock
for an additional $50 million, creating a total value of $150
million available for investment in long-term municipal bonds. If
prevailing short-term interest rates are approximately 3% and long-
term interest rates are approximately 6%, the yield curve has a
strongly positive slope. The fund pays dividends on the $50 million
of Preferred Stock based on the lower short-term interest rates. At
the same time, the fund's total portfolio of $150 million earns the
income based on long-term interest rates. 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 of the fund's Common Stock (that is, its
price as listed on the New York Stock Exchange) may, as a result,
decline. Furthermore, if long-term interest rates rise, the Common
Stock's net asset value will reflect the full decline in the price
of the portfolio's investments, since the value of the fund's
Preferred Stock does not fluctuate. In addition to the decline in
net asset value, the market value of the fund's Common Stock may
also decline.
As a part of its investment strategy, the Fund may invest in certain
securities whose potential income return is inversely related to
changes in a floating interest rate ("inverse floaters"). In
general, income on inverse floaters will decrease when short-term
interest rates increase and increase when short-term interest rates
decrease. Investments in inverse floaters may be characterized as
derivative securities and may subject the Fund to the risks of
reduced or eliminated interest payments and losses of invested
principal. In addition, inverse floaters have the effect of
providing investment leverage and, as a result, the market value of
such securities will generally be more volatile than that of fixed
rate, tax-exempt securities. To the extent the Fund invests in
inverse floaters, the market value of the Fund's portfolio and the
net asset value of the Fund's shares may also be more volatile than
if the Fund did not invest in these securities. As of January 31,
2005, the percentage of the Fund's total net assets invested in
inverse floaters was 1.49%, 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 agreements may be
used to obtain exposure to a bond or market without owning or taking
physical custody of securities. Swap agreements involve the risk
that the party with whom the Fund has entered into the swap will
default on its obligation to pay the Fund and the risk that the Fund
will not be able to meet its obligations to pay the other party to
the agreement.
MUNIHOLDINGS FUND II, INC.
JANUARY 31, 2005
A Letter From the President
Dear Shareholder
The U.S. equity market ended the current reporting period in
positive territory, although not without some suspense along the
way. Fixed income markets also performed well, with high yield bond
investors enjoying some of the best returns.
Total Returns as of January 31, 2005 6-month 12-month
Equities (Standard & Poor's 500 Index) +8.16% +6.23%
Fixed income
(Lehman Brothers Aggregate Bond Index) +3.81 +4.16
Tax-exempt fixed income
(Lehman Brothers Municipal Bond Index) +4.80 +4.86
High yield bonds
(Credit Suisse First Boston High Yield Index) +7.85 +9.81
Over the past year, the U.S. economy transitioned from dependence on
record monetary and fiscal stimulus to a broad-based, high-
productivity, high-profit-margin growth engine. The year also marked
the end of one of the most aggressive Federal Reserve Board (Fed)
policy periods in history as deflation concerns, prevalent at the
beginning of 2004, gave way to modest inflation scares - notably,
food prices in the spring and energy prices in the fall.
The Fed more than doubled the federal funds rate, increasing it from
1% to 2.25% in five separate moves between June and December 2004.
Yet, even as the Fed raised its target short-term interest rate,
long-term bond yields were little changed year over year as buying
interest on the part of foreign central banks remained strong. The
yield on the 10-year Treasury note stood at 4.14% on January 31,
2005. Despite very strong earnings growth, stocks remained in a
narrow trading range for most of 2004, but rebounded nicely in the
fourth quarter as election uncertainties and energy price concerns
dissipated. January, the first month of the new year and the final
month of the current reporting period, was a challenging one for
equities as reflected in the -2.44% return of the S&P 500 Index for
the month.
As we ended the current reporting period, the economy and earnings
growth were beginning to slow and the Fed appeared poised to
continue moving interest rates higher (and, in fact, raised the
federal funds rate another 25 basispoints on February 2, 2005).
Progress was being monitored on many fronts in Washington, although
concerns remained about the structural problems of debt and
deficits, as reflected by a significant decline in the U.S. dollar.
Looking ahead, the environment is likely to be a challenging one for
investors. At the start of the new year, we encourage you to meet
with your financial advisor to review your goals and asset
allocation and to rebalance your portfolio, as necessary, to ensure
it remains aligned with your objectives and risk tolerance. As
always, we thank youfor trusting Merrill Lynch Investment Managers
with your investment assets, and we look forward to serving you in
the months and years ahead.
Sincerely,
Robert C. Doll, Jr.
President and Director
MUNIHOLDINGS FUND II, INC.
JANUARY 31, 2005
A Discussion With Your Fund's Portfolio Manager
The Fund provided an attractive yield and above-average total
return, benefiting from an overweight exposure to the higher-
yielding, lower-quality portion of the municipal market.
Discuss the recent market environment relative to municipal bonds.
Long-term bond yields exhibited significant declines over the past
six months, even as the Federal Reserve Board (the Fed) continued to
raise short-term interest rates. The associated rise in long-term
bond prices, which move opposite to yields, came as somewhat of a
surprise given the generally positive economic environment. Gross
domestic product (GDP) in the United States grew at a rate of 4% in
the third quarter of 2004 and was recently estimated at a 3.1% rate
for the fourth quarter. During all of 2004, real GDP expanded at a
rate of 4%, well above the 3% growth rate registered in 2003.
Nevertheless, recent improvements in domestic business activity have
been offset by inflationary measures remaining in the 1.5% - 2%
range. The Fed's measured program of interest rate increases, which
brought the federal funds rate to 2.25% by period-end, had limited
market impact as monthly U.S. employment gains remained modest.
(Notably, the Fed increased its target interest rate another 25
basis points (.25%) shortly after the close of the period, on
February 2.) In addition, strong currency-related demand for U.S.
Treasury issues from many foreign governments has helped bolster
fixed income bond prices. By the end of January, long-term U.S.
Treasury bond yields stood at 4.59%, a decline of 70 basis points
over the past six months. The 10-year U.S. Treasury note yield was
4.14% at period-end, representing a decline of 45 basis points
during the reporting period.
While tax-exempt bond yields followed the same pattern as their
taxable counterparts, yield volatility in the municipal market was
generally more subdued. Long-term revenue bond yields, as measured
by the Bond Buyer Revenue Bond Index, fell 44 basis points over the
past six months. According to Municipal Market Data, AAA-rated
issues maturing in 30 years saw their yields decline 59 basis points
to 4.43% while yields on AAA-rated issues maturing in 10 years
declined 47 basis points to 3.48%.
Declining supply trends allowed tax-exempt bond prices to register
significant gains over the past six months. During this time, more
than $165 billion in new long-term tax-exempt bonds was
underwritten, a decline of nearly 2% versus the same period a year
ago. New-issue municipal volume is expected to be easily manageable
in early 2005 and should continue to support the tax-exempt market's
favorable technical position.
Finally, long-term tax-exempt bond yield ratios (relative to their
taxable counterparts) have remained in the 89% - 96% range, at or
above their recent historic average of 85% - 88%. These attractive
yield ratios should continue to draw both traditional and non-
traditional investors to the municipal market. The positive
technical position should allow the municipal market to continue to
outperform the taxable market 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 January 31, 2005, the Common Stock of
MuniHoldings Fund II, Inc. had net annualized yields of 6.96% and
7.04%, based on a period-end per share net asset value of $14.87 and
a per share market price of $14.70, respectively, and $.522 per
share income dividends. Over the same period, the total investment
return on the Fund's Common Stock was +10.28%, based on a change in
per share net asset value from $13.98 to $14.87, and assuming
reinvestment of all distributions.
The Fund's total return, based on net asset value, significantly
exceeded the +7.87% average return of the Lipper General Municipal
Debt Funds (Leveraged) category 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.) The Fund's outperformance is attributed to
its overweight exposure to spread product - lower-quality issues that
traditionally offer higher yields than higher-quality issues with
comparable maturities. These securities benefited from a continued
narrowing of credit spreads during the period. In terms of specific
issues, several of the same credits that contributed to the Fund's
outperformance in previous periods continued to experience above-
average price appreciation during the past six months. We held
capital appreciation bonds (zero coupon bonds) associated with the
Pocahontas Parkway Association, a toll-road in Virginia, which
benefited following increases in both toll rates and traffic flow.
This caused the bonds to increase in price by 8.5% to 13% during the
period. Spreads on National Gypsum Company, a producer of wallboard
for the building industry, continued to narrow on positive earnings
releases derived from the strong housing market. Credit spreads on
another corporate-backed credit, the chemical company Celanese,
narrowed in the second half of the period on news of an equity IPO
(initial public offering) coming to market to help reduce debt on
the company's balance sheet. Also contributing to performance during
the period was the pre-refunding of a holding that represented 1% of
the Fund's net assets. The pre-refunding generated a price move in
excess of 12%.
MUNIHOLDINGS FUND II, INC.
JANUARY 31, 2005
For a description of the Fund's total investment return based on a
change in the per share market value of the Fund's Common Stock (as
measured by the trading price of the Fund's shares on the New York
Stock Exchange), and assuming reinvestment of dividends, please
refer to the Financial Highlights section of this report. As a
closed-end fund, the Fund's shares may trade in the secondary market
at a premium or discount to the Fund's net asset value. As a result,
total investment returns based on changes in the market value of the
Fund's Common Stock can vary significantly from total investment
returns based on changes in the Fund's net asset value.
What changes were made to the portfolio during the period?
Portfolio activity during the past six months was concentrated
primarily on reducing the Fund's exposure to spread product and
reinvesting the proceeds into the high-grade market, where we
believe relative value exists. In particular, we reduced the
portfolio's position in credits rated BBB and lower. These
securities significantly outperformed the broader market over the
past 20 months, and we took the opportunity to realize gains and
reduce the portfolio's exposure to these bonds.
In making purchases during the past six months, we sought to take
advantage of the relative inexpensiveness of New York and New Jersey
tax-exempt bonds. An increase in new-issue supply during the period
caused a temporarily weak technical market in both states,
presenting an attractive buying opportunity.
For the six-month period ended January 31, 2005, the Fund's Auction
Market Preferred Stock (AMPS) had average yields of 1.47% for Series
A and 1.57% for Series B. Although the Fed's interest rate
tightening program has resulted in increases in borrowing costs,
funding levels still remain quite favorable. This, in combination
with continued steepness at the long end of the municipal yield
curve, continued to provide a significant income benefit to the
Fund's Common Stock shareholders from the leveraging of Preferred
Stock. However, should the yield curve continue to flatten and 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 34.44% 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 interest rates
slightly higher. Against this backdrop, we will continue to reduce
our exposure to spread product and, within three 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
February 18, 2005
MUNIHOLDINGS FUND II, INC.
JANUARY 31, 2005
Schedule of Investments (In Thousands)
Face
State Amount Municipal Bonds Value
Alabama--3.9% $ 2,150 Jefferson County, Alabama, Limited Obligation School Warrants,
Series A, 5% due 1/01/2024 $ 2,247
4,000 Jefferson County, Alabama, Sewer Revenue Bonds, Series D, 5.70%
due 2/01/2007 (b)(h) 4,292
Arizona--4.2% 1,000 Arizona Health Facilities Authority Revenue Bonds (Catholic
Healthcare West), Series A, 6.625% due 7/01/2020 1,121
2,800 Phoenix, Arizona, IDA, Airport Facility Revenue Refunding Bonds
(America West Airlines Inc. Project), AMT, 6.30% due 4/01/2023 2,107
1,000 Pima County, Arizona, IDA, Education Revenue Bonds (Arizona
Charter Schools Project), Series C, 6.75% due 7/01/2031 1,035
Pima County, Arizona, IDA, M/F Housing Revenue Bonds
(Columbus Village), Series A (f):
585 6% due 10/20/2031 588
770 6.05% due 10/20/2041 774
1,210 Show Low, Arizona, Improvement District No. 5, Special Assessment
Bonds, 6.375% due 1/01/2015 1,268
Arkansas--1.7% University of Arkansas, University Construction Revenue Bonds
(UAMS Campus), Series B (d):
1,000 5% due 11/01/2022 1,082
1,600 5% due 11/01/2034 1,675
California-- 2,000 Benicia, California, Unified School District, GO, Refunding,
26.7% Series A, 5.615%** due 8/01/2020 (b) 987
5,000 California State Department of Water Resources, Power Supply Revenue
Bonds, Series A, 5.25% due 5/01/2020 5,437
2,250 California State, GO, Refunding, 5.375% due 10/01/2027 2,440
5,200 California State Public Works Board, Lease Revenue Bonds
(Department of Corrections), Series C, 5.25% due 6/01/2028 5,485
Golden State Tobacco Securitization Corporation of California,
Tobacco Settlement Revenue Bonds:
870 Series A-3, 7.875% due 6/01/2042 971
2,000 Series B, 5.75% due 6/01/2021 2,139
1,330 Series B, 5.625% due 6/01/2033 1,439
5,030 Los Angeles, California, Unified School District, GO, Series A,
5% due 1/01/2028 (d) 5,283
1,750 Poway, California, Unified School District, Special Tax (Community
Facilities District Number 6 Area), Series A, 6.125% due 9/01/2033 1,841
Sacramento County, California, Sanitation District, Financing Authority,
Revenue Refunding Bonds (e):
1,000 RIB, Series 366, 9.612% due 12/01/2027 1,076
2,500 Trust Receipts, Class R, Series A, 9.811% due 12/01/2019 2,699
5,400 San Diego, California, Unified Port District, Revenue Refunding Bonds,
AMT, Series A, 5.25% due 9/01/2019 (d) 5,919
San Marino, California, Unified School District, GO, Series A (d):
1,820 5.50%** due 7/01/2017 1,056
1,945 5.55%** due 7/01/2018 1,069
2,070 5.60%** due 7/01/2019 1,079
5,000 Tracy, California, Area Public Facilities Financing Agency, Special
Tax Refunding Bonds (Community Facilities District Number 87-1),
Series H, 5.875% due 10/01/2019 (d) 5,375
Colorado--1.2% 1,890 Elk Valley, Colorado, Public Improvement Revenue Bonds
(Public Improvement Fee), Series A, 7.10% due 9/01/2014 2,045
Portfolio Abbreviations
To simplify the listings of MuniHoldings Fund II, 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
IDR Industrial Development Revenue Bonds
M/F Multi-Family
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
VRDN Variable Rate Demand Note
MUNIHOLDINGS FUND II, INC.
JANUARY 31, 2005
Schedule of Investments (continued) (In Thousands)
Face
State Amount Municipal Bonds Value
Florida--6.3% $ 1,700 Ballantrae, Florida, Community Development District, Capital
Improvement Revenue Bonds, 6% due 5/01/2035 $ 1,728
1,000 Broward County, Florida, Airport Exempt Facility Revenue Bonds
(Learjet Inc. Project), AMT, 7.50% due 11/01/2020 1,130
1,025 Broward County, Florida, Resource Recovery Revenue Refunding Bonds
(Wheelabrator South Broward), Series A, 5.375% due 12/01/2009 1,113
2,450 Midtown Miami, Florida, Community Development District, Special
Assessment Revenue Bonds, Series A, 6.25% due 5/01/2037 2,545
2,400 Orange County, Florida, Health Facilities Authority, Hospital
Revenue Bonds (Orlando Regional Healthcare), 6% due 12/01/2028 2,616
1,300 Preserve at Wilderness Lake, Florida, Community Development District,
Capital Improvement Bonds, Series A, 5.90% due 5/01/2034 1,312
Georgia--2.4% 1,250 Atlanta, Georgia, Tax Allocation Revenue Bonds (Atlantic Station
Project), 7.90% due 12/01/2024 1,364
1,315 Brunswick & Glynn County, Georgia, Development Authority, First
Mortgage Revenue Bonds (Coastal Community Retirement Corporation
Project), Series A, 7.25% due 1/01/2035 1,316
1,250 Milledgeville-Baldwin County, Georgia, Development Authority
Revenue Bonds (Georgia College and State University
Foundation), 5.50% due 9/01/2024 1,329
Idaho--1.2% 2,000 Power County, Idaho, Industrial Development Corporation, Solid Waste
Disposal Revenue Bonds (FMC Corporation Project), AMT, 6.45%
due 8/01/2032 2,055
Illinois--2.4% 1,000 Chicago, Illinois, O'Hare International Airport, Special Facility
Revenue Refunding Bonds (American Airlines Inc. Project),
8.20% due 12/01/2024 854
1,000 Chicago, Illinois, Special Assessment Bonds (Lake Shore East),
6.75% due 12/01/2032 1,038
2,000 Illinois HDA, Homeowner Mortgage Revenue Bonds, AMT, Sub-Series
C-2, 5.25% due 8/01/2022 2,087
Kentucky--1.4% 1,165 Kenton County, Kentucky, Airport Board, Special Facilities Revenue
Bonds (Mesaba Aviation Inc. Project), AMT, Series A, 6.625% due 7/01/2019 980
1,200 Kentucky Economic Development Finance Authority, Health System
Revenue Bonds (Norton Healthcare Inc.), Series A, 6.50% due 10/01/2020 1,313
Louisiana--1.5% 2,375 Louisiana Public Facilities Authority, Mortgage Revenue Refunding Bonds
(Baton Rouge General Medical Center Project), 5.25% due 7/01/2033 (d)(m) 2,523
Maine--2.2% 3,455 Maine State Housing Authority, Mortgage Purchase Revenue Refunding Bonds,
Series B, 5.30% due 11/15/2023 3,650
Maryland--2.5% 1,250 Maryland State Economic Development Corporation, Student Housing Revenue
Bonds (University of Maryland College Park Project), 6.50% due 6/01/2027 1,369
1,050 Maryland State Energy Financing Administration, Limited Obligation
Revenue Bonds (Cogeneration--AES Warrior Run), AMT, 7.40% due 9/01/2019 1,074
1,600 Maryland State Health and Higher Educational Facilities Authority
Revenue Bonds (Calvert Health System), 5.50% due 7/01/2036 1,687
Massachusetts-- Massachusetts State Development Finance Agency Revenue Bonds
2.6% (Neville Communities Home), Series A (f):
600 5.75% due 6/20/2022 683
1,500 6% due 6/20/2044 1,669
1,000 Massachusetts State Development Finance Agency, Revenue Refunding
Bonds (Eastern Nazarene College), 5.625% due 4/01/2029 901
1,000 Massachusetts State HFA, Housing Revenue Bonds (Rental Mortgage),
AMT, Series C, 5.625% due 7/01/2040 (a) 1,032
Michigan--4.7% 1,200 Detroit, Michigan, Sewer Disposal Revenue Bonds, Senior Lien, VRDN,
Series A, 1.84% due 7/01/2033 (c)(j) 1,200
1,100 Flint, Michigan, Hospital Building Authority, Revenue Refunding
Bonds (Hurley Medical Center), Series A, 6% due 7/01/2020 (k) 1,210
5,000 Michigan State Strategic Fund, Limited Obligation Revenue Refunding
Bonds (Detroit Edison Company Project), AMT, Series C,
5.65% due 9/01/2029 (i) 5,347
Minnesota--4.6% 1,680 Minneapolis, Minnesota, Community Development Agency, Supported
Development Revenue Refunding Bonds (Common Bond), Series G-3,
5.35% due 12/01/2021 1,799
Rockford, Minnesota, Independent School District Number 883, GO (c):
2,870 5.60% due 2/01/2019 3,183
2,390 5.60% due 2/01/2020 2,638
Mississippi-- Mississippi Business Finance Corporation, Mississippi, PCR, Refunding
1.8% (System Energy Resources Inc. Project):
2,500 5.875% due 4/01/2022 2,507
500 5.90% due 5/01/2022 505
MUNIHOLDINGS FUND II, INC.
JANUARY 31, 2005
Schedule of Investments (continued) (In Thousands)
Face
State Amount Municipal Bonds Value
Missouri--2.4% Fenton, Missouri, Tax Increment Revenue Refunding and
Improvement Bonds (Gravois Bluffs):
$ 730 6.75% due 10/01/2015 $ 741
1,000 7% due 10/01/2021 1,081
1,000 Kansas City, Missouri, IDA, First Mortgage Health Facilities
Revenue Bonds (Bishop Spencer Place), Series A, 6.50% due 1/01/2035 1,023
1,000 Missouri State Development Finance Board, Infrastructure Facilities
Revenue Refunding Bonds (Branson), Series A, 5.50% due 12/01/2032 1,046
New Jersey--9.5% New Jersey EDA, Cigarette Tax Revenue Bonds:
4,050 5.75% due 6/15/2029 4,300
1,890 5.50% due 6/15/2031 1,966
New Jersey EDA, Retirement Community Revenue Bonds, Series A:
1,000 (Cedar Crest Village Inc. Facility), 7.25% due 11/15/2031 1,054
2,000 (Seabrook Village Inc.), 8.125% due 11/15/2023 2,162
2,000 New Jersey EDA, Special Facility Revenue Bonds (Continental Airlines
Inc. Project), AMT, 6.625% due 9/15/2012 1,840
2,375 New Jersey Health Care Facilities Financing Authority Revenue
Bonds (South Jersey Hospital), 6% due 7/01/2026 2,553
1,725 Tobacco Settlement Financing Corporation of New Jersey Revenue
Bonds, 7% due 6/01/2041 1,783
New Mexico--2.3% 3,675 Farmington, New Mexico, PCR, Refunding (Public Service Company--San
Juan Project), Series A, 5.80% due 4/01/2022 3,769
New York--10.9% 1,000 Dutchess County, New York, IDA, Civic Facility Revenue Refunding
Bonds (Saint Francis Hospital), Series A, 7.50% due 3/01/2029 999
415 New York City, New York, City IDA, Civic Facility Revenue
Bonds, Series C, 6.80% due 6/01/2028 431
825 New York City, New York, City IDA, Special Facility Revenue
Bonds (British Airways Plc Project), AMT, 7.625% due 12/01/2032 867
2,635 New York City, New York, Sales Tax Asset Receivable Corporation
Revenue Bonds, Series A, 5.25% due 10/15/2027 (a) 2,878
New York State Dormitory Authority Revenue Bonds (d):
2,550 (Mental Health Services), Series B, 5.75% due 2/15/2010 (h) 2,882
950 (Mental Health Services), Series B, 5.75% due 2/15/2020 1,056
2,030 (School Districts Financing Program), Series D, 5.25% due 10/01/2023 2,242
55 Suffolk County, New York, IDA, Civic Facility Revenue Bonds (Special
Needs Facilities Pooled Program), Series D-1, 5.50% due 7/01/2007 56
Tobacco Settlement Financing Corporation of New York Revenue Bonds:
1,100 Series A-1, 5.50% due 6/01/2015 1,208
2,400 Series A-1, 5.50% due 6/01/2018 2,669
1,100 Series C-1, 5.50% due 6/01/2022 1,209
1,575 Westchester County, New York, IDA, Continuing Care Retirement,
Mortgage Revenue Bonds (Kendal on Hudson Project),
Series A, 6.50% due 1/01/2034 1,608
North Carolina-- 2,000 North Carolina Eastern Municipal Power Agency, Power System Revenue
2.0% Bonds, Series D, 6.75% due 1/01/2026 2,239
1,000 North Carolina Medical Care Commission, Health Care Housing
Revenue Bonds (The ARC of North Carolina Projects),
Series A, 5.80% due 10/01/2034 1,016
Ohio--6.1% 10,000 Ohio State Air Quality Development Authority, Revenue Refunding Bonds
(Dayton Power & Light Company), Series B, 6.40% due 8/15/2027 (d) 10,028
Oklahoma--0.6% 1,075 Tulsa, Oklahoma, Municipal Airport Trust Revenue Refunding
Bonds (AMR Corporation), AMT, Series A, 5.375% due 12/01/2035 1,041
Pennsylvania-- 510 Montgomery County, Pennsylvania, IDA Revenue Bonds (Whitemarsh
4.3% Continuing Care Project), 6.25% due 2/01/2035 516
2,750 Pennsylvania Economic Development Financing Authority, Exempt Facilities
Revenue Bonds (National Gypsum Company), AMT, Series A, 6.25% due
11/01/2027 2,914
540 Philadelphia, Pennsylvania, Authority for IDR, Commercial Development,
7.75% due 12/01/2017 552
2,630 Sayre, Pennsylvania, Health Care Facilities Authority Revenue Bonds
(Guthrie Health Issue), Series B, 7.125% due 12/01/2031 3,121
MUNIHOLDINGS FUND II, INC.
JANUARY 31, 2005
Schedule of Investments (continued) (In Thousands)
Face
State Amount Municipal Bonds Value
Rhode Island-- $ 2,190 Rhode Island State Health and Educational Building Corporation,
1.4% Hospital Financing Revenue Bonds (Lifespan Obligation Group),
6.50% due 8/15/2032 $ 2,384
South Carolina-- 2,080 Medical University Hospital Authority, South Carolina, Hospital
2.8% Facilities Revenue Refunding Bonds, Series A, 6.375% due 8/15/2012 (h) 2,502
2,000 South Carolina Jobs, EDA, Economic Development Revenue Bonds
(Westminster Presbyterian Center), 7.75% due 11/15/2030 2,135
Tennessee--4.2% 2,200 Hardeman County, Tennessee, Correctional Facilities Corporation
Revenue Bonds, Series B, 7.375% due 8/01/2017 2,277
500 Sevier County, Tennessee, Public Building Authority Revenue Bonds,
Local Government Public Improvement IV, VRDN, Series E-5, 1.84%
due 6/01/2020 (a)(j) 500
Shelby County, Tennessee, Health, Educational and Housing Facility
Board, Hospital Revenue Refunding Bonds (Methodist Healthcare):
2,170 6.50% due 9/01/2012 (h) 2,621
1,280 6.50% due 9/01/2026 (l) 1,547
Texas--11.6% 2,665 Austin, Texas, Convention Center Revenue Bonds (Convention
Enterprises Inc.), First Tier, Series A, 6.70% due 1/01/2028 2,855
Brazos River Authority, Texas, PCR, Refunding:
1,000 (TXU Electric Company LLC Project), Series B, 4.75% due 5/01/2029 1,029
750 (TXU Energy Company LLC Project), AMT, Series C, 6.75% due 10/01/2038 821
2,875 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 3,178
1,965 Dallas-Fort Worth, Texas, International Airport Facility, Improvement
Corporation Revenue Bonds (Learjet Inc.), AMT,
Series 2001-A-1, 6.15% due 1/01/2016 1,965
1,000 Dallas-Fort Worth, Texas, International Airport Facility, Improvement
Corporation Revenue Refunding Bonds (American Airlines), AMT,
Series B, 6.05% due 5/01/2029 971
1,300 Houston, Texas, Health Facilities Development Corporation, Retirement
Facility Revenue Bonds (Buckingham Senior Living Community),
Series A, 7.125% due 2/15/2034 1,373
2,965 Matagorda County, Texas, Navigation District Number 1, Revenue
Refunding Bonds (Reliant Energy Inc.), Series C, 8% due 5/01/2029 3,285
1,100 Port Corpus Christi, Texas, Individual Development Corporation,
Environmental Facilities Revenue Bonds (Citgo Petroleum Corporation
Project), AMT, 8.25% due 11/01/2031 1,186
2,495 Red River Authority, Texas, PCR, Refunding (Celanese Project),
Series A, 6.45% due 11/01/2030 2,537
Vermont--0.6% 1,000 Vermont Educational and Health Buildings, Financing Agency
Revenue Bonds (Developmental and Mental Health), Series A, 6.50%
due 6/15/2032 1,048
Virginia--16.0% Chesterfield County, Virginia, IDA, PCR (Virginia Electric and
Power Company):
425 Series A, 5.875% due 6/01/2017 472
575 Series B, 5.875% due 6/01/2017 638
10,000 Fairfax County, Virginia, EDA, Resource Recovery Revenue Refunding
Bonds, AMT, Series A, 6.10% due 2/01/2011 (a) 11,400
Pocahontas Parkway Association, Virginia, Toll Road Revenue Bonds:
4,310 Senior-Series A, 5.50% due 8/15/2028 4,129
18,400 Senior-Series B, 7.35%** due 8/15/2030 3,855
1,455 Virginia State, HDA, Commonwealth Mortgage Revenue Bonds, Series J,
Sub-Series J-1, 5.20% due 7/01/2019 (d) 1,482
1,095 Virginia State, HDA, Rental Housing Revenue Bonds, AMT, Series B,
5.625% due 8/01/2011 1,155
3,200 Virginia State, HDA, Revenue Bonds, AMT, Series D, 6% due 4/01/2024 3,408
Washington--0.6% 1,050 Seattle, Washington, Housing Authority Revenue Bonds (Replacement
Housing Project), 6.125% due 12/01/2032 1,045
Wisconsin--0.9% 1,360 Wisconsin State Health and Educational Facilities Authority Revenue
Bonds (Synergyhealth Inc.), 6% due 11/15/2032 1,431
Puerto Rico--1,550 Puerto Rico Industrial, Medical and Environmental Pollution Control
0.7% Facilities Financing Authority, Special Facilities Revenue Bonds
(American Airlines Inc.), Series A, 6.45% due 12/01/2025 1,093
U.S. Virgin 3,600 Virgin Islands Government Refinery Facilities, Revenue Refunding
Islands--2.4% Bonds (Hovensa Coker Project), AMT, 6.50% due 7/01/2021 3,948
Total Municipal Bonds (Cost--$234,384)--150.6% 249,406
MUNIHOLDINGS FUND II, INC.
JANUARY 31, 2005
Schedule of Investments (concluded) (In Thousands)
Shares
Held Short-Term Securities Value
12 Merrill Lynch Institutional Tax-Exempt Fund (g) $ 12
Total Short-Term Securities (Cost--$12)--0.0% 12
Total Investments (Cost--$234,396*)--150.6% 249,418
Other Assets Less Liabilities--1.9% 3,204
Preferred Stock, at Redemption Value--(52.5%) (87,015)
---------
Net Assets Applicable to Common Stock--100.0% $ 165,607
=========
*The cost and unrealized appreciation (depreciation) of investments
as of January 31, 2005, as computed for federal income tax purposes,
were as follows:
(in Thousands)
Aggregate cost $ 234,079
============
Gross unrealized appreciation $ 16,453
Gross unrealized depreciation (1,114)
------------
Net unrealized appreciation $ 15,339
============
**Represents a zero coupon bond; the interest rate shown reflects
the effective yield at the time of purchase by the Fund.
(a)AMBAC Insured.
(b)FGIC Insured.
(c)FSA Insured.
(d)MBIA Insured.
(e)The rate disclosed is that currently in effect. This rate changes
periodically and inversely based upon prevailing market rates.
(f)GNMA Collateralized.
(g)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 -- $3
(h)Prerefunded.
(i)XL Capital Insured.
(j)Security has a maturity of more than one year, but has variable
rate and demand features which qualify it as a short-term security.
The rate disclosed is that currently in effect. This rate changes
periodically based upon prevailing market rates.
(k)ACA Insured.
(l)Escrowed to maturity.
(m)FHA Insured.
See Notes to Financial Statements.
Portfolio Information as of January 31, 2005
Percent of
Total
Quality Ratings by S&P/Moody's Investments
AAA/Aaa 31.8%
AA/Aa 8.1
A/A 15.3
BBB/Baa 20.9
BB/Ba 6.2
B/B 1.2
CCC/Caa 2.0
NR (Not Rated) 14.5
Other* --**
*Includes portfolio holdings in short-term investments.
**Amount is less than 0.1%.
MUNIHOLDINGS FUND II, INC.
JANUARY 31, 2005
Statement of Net Assets
As of January 31, 2005
Assets
Investments in unaffiliated securities, at value
(identified cost--$234,383,951) $ 249,406,372
Investments in affiliated securities, at value
(identified cost--$11,703) 11,703
Cash 40,132
Interest receivable 3,895,145
Prepaid expenses 54,084
---------------
Total assets 253,407,436
---------------
Liabilities
Payables:
Securities purchased $ 502,045
Investment adviser 109,968
Dividends to Common Stock shareholders 83,145
Other affiliates 1,768 696,926
---------------
Accrued expenses 88,329
---------------
Total liabilities 785,255
---------------
Preferred Stock
Preferred Stock, at redemption value, par value $.10 per share
(1,740 Series A Shares and 1,740 Series B
Shares of AMPS* authorized, issued and outstanding at $25,000
per share liquidation preference) 87,014,842
---------------
Net Assets Applicable to Common Stock
Net assets applicable to Common Stock $ 165,607,339
===============
Analysis of Net Assets Applicable to Common Stock
Common Stock, par value $.10 per share (11,135,606 shares
issued and outstanding) $ 1,113,561
Paid-in capital in excess of par 164,732,576
Undistributed investment income--net $ 3,575,669
Accumulated realized capital losses--net (18,836,888)
Unrealized appreciation--net 15,022,421
---------------
Total accumulated losses--net (238,798)
---------------
Total--Equivalent to $14.87 net asset value per share of
Common Stock (market price--$14.70) $ 165,607,339
===============
*Auction Market Preferred Stock.
See Notes to Financial Statements.
MUNIHOLDINGS FUND II, INC.
JANUARY 31, 2005
Statement of Operations
For the Six Months Ended January 31, 2005
Investment Income
Interest $ 7,152,967
Dividends from affiliates 3,467
---------------
Total income 7,156,434
---------------
Expenses
Investment advisory fees $ 685,023
Commission fees 106,498
Accounting services 50,009
Professional fees 27,187
Transfer agent fees 21,087
Directors' fees and expenses 16,397
Printing and shareholder reports 16,373
Listing fees 10,388
Pricing fees 8,016
Custodian fees 7,779
Other 16,844
---------------
Total expenses before reimbursement 965,601
Reimbursement of expenses (671)
---------------
Total expenses after reimbursement 964,930
---------------
Investment income--net 6,191,504
---------------
Realized & Unrealized Gain (Loss)--Net
Realized loss on investments--net (104,066)
Change in unrealized appreciation on investments--net 10,315,301
---------------
Total realized and unrealized gain--net 10,211,235
---------------
Dividends to Preferred Stock Shareholders
Investment income--net (662,714)
---------------
Net Increase in Net Assets Resulting from Operations $ 15,740,025
===============
See Notes to Financial Statements.
MUNIHOLDINGS FUND II, INC.
JANUARY 31, 2005
Statements of Changes in Net Assets
For the Six For the
Months Ended Year Ended
January 31, July 31,
Increase (Decrease) in Net Assets: 2005 2004
Operations
Investment income--net $ 6,191,504 $ 12,730,739
Realized gain (loss)--net (104,066) 1,473,299
Change in unrealized appreciation--net 10,315,301 4,093,131
Dividends to Preferred Stock shareholders (662,714) (1,075,425)
-------------- --------------
Net increase in net assets resulting from operations 15,740,025 17,221,744
-------------- --------------
Dividends to Common Stock Shareholders
Investment income--net (5,812,197) (11,454,921)
-------------- --------------
Net decrease in net assets resulting from dividends to
Common Stock shareholders (5,812,197) (11,454,921)
-------------- --------------
Common Stock Transactions
Value of shares issued to Common Stock shareholders
in reinvestment of dividends 96,247 554,819
-------------- --------------
Net Assets Applicable to Common Stock
Total increase in net assets applicable to Common Stock 10,924,075 6,321,642
Beginning of period 155,583,264 149,261,622
-------------- --------------
End of period* $ 165,607,339 $ 155,583,264
============== ==============
*Undistributed investment income--net $ 3,575,669 $ 3,859,076
============== ==============
See Notes to Financial Statements.
MUNIHOLDINGS FUND II, INC.
JANUARY 31, 2005
Financial Highlights
For the Six
Months Ended
The following per share data and ratios have been derived January 31, For the Year Ended July 31,
from information provided in the financial statements. 2005 2004 2003 2002 2001
Per Share Operating Performance
Net asset value, beginning of period $ 13.98 $ 13.46 $ 13.51 $ 13.42 $ 12.45
-------- -------- -------- -------- --------
Investment income--net .56++ 1.15++ 1.16++ 1.10 1.06
Realized and unrealized gain (loss)--net .91 .50 (.15) (.04) .95
Dividends to Preferred Stock shareholders from
investment income--net (.06) (.10) (.10) (.13) (.28)
-------- -------- -------- -------- --------
Total from investment operations 1.41 1.55 .91 .93 1.73
-------- -------- -------- -------- --------
Less dividends to Common Stock shareholders
from investment income--net (.52) (1.03) (.96) (.84) (.76)
-------- -------- -------- -------- --------
Net asset value, end of period $ 14.87 $ 13.98 $ 13.46 $ 13.51 $ 13.42
-------- -------- -------- -------- --------
Market price per share, end of period $ 14.70 $ 13.53 $ 13.16 $ 12.96 $ 12.35
======== ======== ======== ======== ========
Total Investment Return***
Based on net asset value per share 10.28%+++ 11.88% 7.15% 7.56% 14.86%
======== ======== ======== ======== ========
Based on market price per share 12.65%+++ 10.75% 9.21% 12.12% 15.06%
======== ======== ======== ======== ========
Ratios Based on Average Net Assets of Common Stock
Total expenses, net of reimbursement** 1.19%* 1.21% 1.26% 1.29% 1.28%
======== ======== ======== ======== ========
Total expenses** 1.19%* 1.22% 1.26% 1.29% 1.28%
======== ======== ======== ======== ========
Total investment income--net** 7.65%* 8.13% 8.48% 8.27% 8.29%
======== ======== ======== ======== ========
Amount of dividends to Preferred Stock
shareholders .82%* .69% .74% .95% 2.20%
======== ======== ======== ======== ========
Investment income--net, to Common Stock
shareholders 6.83%* 7.44% 7.74% 7.32% 6.09%
======== ======== ======== ======== ========
Ratios Based on Average Net Assets of Common & Preferred Stock**
Total expenses, net of reimbursement .77%* .78% .80% .81% .79%
======== ======== ======== ======== ========
Total expenses .78%* .78% .80% .81% .79%
======== ======== ======== ======== ========
Total investment income--net 4.97%* 5.22% 5.38% 5.19% 5.14%
======== ======== ======== ======== ========
Ratios Based on Average Net Assets of Preferred Stock
Dividends to Preferred Stock shareholders 1.52%* 1.23% 1.28% 1.60% 3.59%
======== ======== ======== ======== ========
Supplemental Data
Net assets applicable to Common Stock,
end of period (in thousands) $165,607 $155,583 $149,262 $149,633 $148,618
======== ======== ======== ======== ========
Preferred Stock outstanding, end of period
(in thousands) $ 87,000 $ 87,000 $ 87,000 $ 87,000 $ 87,000
======== ======== ======== ======== ========
Portfolio turnover 18.85% 31.03% 44.03% 46.31% 57.57%
======== ======== ======== ======== ========
Leverage
Asset coverage per $1,000 $ 2,904 $ 2,788 $ 2,716 $ 2,720 $ 2,708
======== ======== ======== ======== ========
Dividends Per Share on Preferred Stock Outstanding
Series A--Investment income--net $ 184 $ 223 $ 279 $ 409 $ 908
======== ======== ======== ======== ========
Series B--Investment income--net $ 197 $ 395 $ 363 $ 394 $ 890
======== ======== ======== ======== ========
*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. The Fund's Investment Adviser agreed
to reimburse a portion of its fees. Without such reimbursement, the
Fund's performance would have been lower.
++Based on average shares outstanding.
+++Aggregate total investment return.
See Notes to Financial Statements.
MUNIHOLDINGS FUND II, INC.
JANUARY 31, 2005
Notes to Financial Statements
1. Significant Accounting Policies:
MuniHoldings Fund II, 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 MUH. 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-end investment companies are valued at their net asset value
each business day. Securities and other assets for which market
quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Board of
Directors of the Fund.
(b) Derivative financial instruments--The Fund may engage in various
portfolio investment strategies both to increase the return of the
Fund and to hedge, or protect, its exposure to interest rate
movements and movements in the securities markets. Losses may arise
due to changes in the value of the contract or if the counterparty
does not perform under the contract.
* 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.
MUNIHOLDINGS FUND II, INC.
JANUARY 31, 2005
Notes to Financial Statements (continued)
* Forward interest rate swaps--The Fund may enter into forward
interest rate swaps. In a forward interest rateswap, 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 daily net assets, including proceeds from the
issuance of Preferred Stock. The Investment Adviser agreed to waive
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 January 31, 2005, FAM
reimbursed the Fund in the amount of $671.
In addition, Merrill Lynch, Pierce, Fenner & Smith Incorporated
("MLPF&S"), an affiliate of FAM, received $1,000 in commissions on
the execution of portfolio securities transactions for the Fund for
the six months ended January 31, 2005.
For the six months ended January 31, 2005, the Fund reimbursed FAM
$2,623 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 January 31, 2005 were $45,653,129 and
$48,090,170, respectively.
4. Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of stock,
including Preferred Stock, par value $.10 per share, all of which
were initially classified as Common Stock. The Board of Directors is
authorized, however, to reclassify any unissued shares of stock
without approval of holders of Common Stock.
Common Stock
Shares issued and outstanding during the six months ended January
31, 2005 and the year ended July 31, 2004 increased by 6,777 and
38,841, respectively, as a result of dividend reinvestment.
Preferred Stock
Auction Market Preferred Stock are shares of Preferred Stock of the
Fund, with a par value of $.10 per share and a liquidation
preference of $25,000 per share, 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 January 31, 2005 were as follows: Series A, 1.78% and
Series B, 1.83%.
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
January 31, 2005, MLPF&S earned $31,219 as commissions.
MUNIHOLDINGS FUND II, INC.
JANUARY 31, 2005
Notes to Financial Statements (concluded)
5. Capital Loss Carryforward:
On July 31, 2004, the Fund had a net carryforward of $18,732,822, of
which $5,746,228 expires in 2008, $12,107,981 expires in 2009,
$689,205 expires in 2010 and $189,408 expires in 2011. This amount
will be available to offset like amounts of any future taxable
gains.
6. Subsequent Event:
The Fund paid a tax-exempt dividend to holders of Common Stock in
the amount of $.087000 per share on February 25, 2005 to
shareholders of record on February 15, 2005.
Proxy Results
During the six-month period ended January 31, 2005, MuniHoldings
Fund II, Inc.'s Common Stock shareholders voted on the following
proposal. The proposal was approved at a shareholders' meeting on
January 27, 2005. 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: Robert C. Doll, Jr. 10,495,872 338,647
Cynthia A. Montgomery 10,532,920 301,599
Jean Margo Reid 10,534,658 299,861
Roscoe S. Suddarth 10,533,630 300,889
Edward D. Zinbarg 10,531,130 303,389
During the six-month period ended January 31, 2005, MuniHoldings
Fund, II Inc.'s Preferred Stock (Series A & B) shareholders voted on
the following proposal. The proposal was approved at a shareholders'
meeting on January 27, 2005. 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: Robert C. Doll, Jr.,
Ronald W. Forbes, Cynthia A. Montgomery, Jean Margo Reid,
Roscoe S. Suddarth, Richard R. West and Edward D. Zinbarg 3,295 8
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 II, INC.
JANUARY 31, 2005
Officers and Directors
Robert C. Doll, Jr., President and Director
Ronald W. Forbes, Director
Cynthia A. Montgomery, Director
Jean Margo Reid, 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
MUH
Effective January 1, 2005, Terry K. Glenn, President and Director
and Kevin A. Ryan, Director of MuniHoldings Fund II, Inc. retired.
The Fund's Board of Directors wishes Messrs. Glenn and Ryan well in
their retirements.
Effective January 1, 2005, Robert C. Doll, Jr. became President and
Director of the Fund.
Availability of Quarterly Schedule of Investments
The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission ("SEC") for the first and third
quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q are
available on the SEC's Web site at http://www.sec.gov. The Fund's
Forms N-Q may also be reviewed and copied at the SEC's Public
Reference Room in Washington, DC. Information on the operation of
the Public Reference Room may be obtained by calling 1-800-SEC-0330.
Electronic Delivery
The Fund offers electronic delivery of communications to its
shareholders. In order to receive this service, you must register
your account and provide us with e-mail information. To sign up for
this service, simply access this Web site at
http://www.icsdelivery.com/live and follow the instructions. When
you visit this site, you will obtain a personal identification
number (PIN). You will need this PIN should you wish to update your
e-mail address, choose to discontinue this service and/or make any
other changes to the service. This service is not available for
certain retirement accounts at this time.
MUNIHOLDINGS FUND II, INC.
JANUARY 31, 2005
Item 2 -Code of Ethics - Not Applicable to this semi-annual report
Item 3 -Audit Committee Financial Expert - Not Applicable to this
semi-annual report
Item 4 -Principal Accountant Fees and Services - Not Applicable to
this semi-annual report
Item 5 -Audit Committee of Listed Registrants - Not Applicable to
this semi-annual report
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for
Closed-End Management Investment Companies - Not Applicable to this
semi-annual report
Item 8 - Portfolio Managers of Closed-End Management Investment
Companies - Not Applicable to this semi-annual report
Item 9 - Purchases of Equity Securities by Closed-End Management
Investment Company and Affiliated Purchasers - Not Applicable
Item 10 - Submission of Matters to a Vote of Security Holders - Not
Applicable
Item 11 - Controls and Procedures
11(a) - The registrant's certifying officers have reasonably
designed such disclosure controls and procedures to ensure material
information relating to the registrant is made known to us by others
particularly during the period in which this report is being
prepared. The registrant's certifying officers have determined that
the registrant's disclosure controls and procedures are effective
based on our evaluation of these controls and procedures as of a
date within 90 days prior to the filing date of this report.
11(b) - There were no changes in the registrant's internal control
over financial reporting (as defined in Rule 30a-3(d) under the Act
(17 CFR 270.30a-3(d)) that occurred during the last fiscal half-year
of the period covered by this report that has materially affected,
or is reasonably likely to materially affect, the registrant's
internal control over financial reporting.
Item 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - Not Applicable to this semi-annual
report
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(b) - Certifications - Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
MuniHoldings Fund II, Inc.
By: _/s/ Robert C. Doll, Jr._______
Robert C. Doll, Jr.,
Chief Executive Officer of
MuniHoldings Fund II, Inc.
Date: March 21, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By: _/s/ Robert C. Doll, Jr.________
Robert C. Doll, Jr.,
Chief Executive Officer of
MuniHoldings Fund II, Inc.
Date: March 21, 2005
By: _/s/ Donald C. Burke________
Donald C. Burke,
Chief Financial Officer of
MuniHoldings Fund II, Inc.
Date: March 21, 2005