N-CSR 1 ml7073.txt MUNIHOLDINGS UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSRS CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-8081 Name of Fund: MuniHoldings Fund, Inc. Fund Address: P.O. Box 9011 Princeton, NJ 08543-9011 Name and address of agent for service: Terry K. Glenn, President, MuniHoldings Fund, Inc., 800 Scudders Mill Road, Plainsboro, NJ, 08536. Mailing address: P.O. Box 9011, Princeton, NJ, 08543-9011 Registrant's telephone number, including area code: (609) 282-2800 Date of fiscal year end: 04/30/04 Date of reporting period: 05/01/03 - 10/31/03 Item 1 - Attach shareholder report (BULL LOGO) Merrill Lynch Investment Managers www.mlim.ml.com MuniHoldings Fund, Inc. Semi-Annual Report October 31, 2003 MuniHoldings Fund, Inc. seeks to provide shareholders with current income exempt from Federal income taxes by investing primarily in a portfolio of long-term, investment-grade municipal obligations the interest on which, in the opinion of bond counsel to the issuer, is exempt from Federal income taxes. This report, including the financial information herein, is transmitted to shareholders of MuniHoldings Fund, Inc. for their information. It is not a prospectus. Past performance results shown in this report should not be considered a representation of future performance. The Fund has leveraged its Common Stock and intends to remain leveraged by issuing Preferred Stock to provide the Common Stock shareholders with a potentially higher rate of return. Leverage creates risks for Common Stock shareholders, including the likelihood of greater volatility of net asset value and market price of shares of the Common Stock, and the risk that fluctuations in the short-term dividend rates of the Preferred Stock may affect the yield to Common Stock shareholders. Statements and other information herein are as dated and are subject to change. MuniHoldings Fund, Inc. Box 9011 Princeton, NJ 08543-9011 MuniHoldings Fund, Inc. The Benefits and Risks of Leveraging MuniHoldings Fund, Inc. has the ability to leverage to seek to enhance the yield and net asset value of its Common Stock. However, these objectives cannot be achieved in all interest rate environments. To leverage, the Fund issues Preferred Stock, which pays dividends at prevailing short-term interest rates, and invests the proceeds in long-term municipal bonds. The interest earned on these investments, net of dividends to Preferred Stock, is paid to Common Stock shareholders in the form of dividends, and the value of these portfolio holdings is reflected in the per share net asset value of the Fund's Common Stock. However, in order to benefit Common Stock shareholders, the yield curve must be positively sloped; that is, short-term interest rates must be lower than long- term interest rates. At the same time, a period of generally declining interest rates will benefit Common Stock shareholders. If either of these conditions change, then the risks of leveraging will begin to outweigh the benefits. To illustrate these concepts, assume a fund's Common Stock capitalization of $100 million and the issue of Preferred Stock for an additional $50 million, creating a total value of $150 million available for investment in long-term municipal bonds. If prevailing short-term interest rates are approximately 3% and long-term interest rates are approximately 6%, the yield curve has a strongly positive slope. The fund pays dividends on the $50 million of Preferred Stock based on the lower short-term interest rates. At the same time, the fund's total portfolio of $150 million earns the income based on long-term interest rates. Of course, increases in short-term interest rates would reduce (and even eliminate) the dividends on the Common Stock. In this case, the dividends paid to Preferred Stock shareholders are significantly lower than the income earned on the fund's long-term investments, and therefore the Common Stock shareholders are the beneficiaries of the incremental yield. However, if short-term interest rates rise, narrowing the differential between short-term and long-term interest rates, the incremental yield pickup on the Common Stock will be reduced or eliminated completely. At the same time, the market value on the fund's Common Stock (that is, its price as listed on the New York Stock Exchange), may, as a result, decline. Furthermore, if long-term interest rates rise, the Common Stock's net asset value will reflect the full decline in the price of the portfolio's investments, since the value of the fund's Preferred Stock does not fluctuate. In addition to the decline in net asset value, the market value of the fund's Common Stock may also decline. As a part of its investment strategy, the Fund may invest in certain securities whose potential income return is inversely related to changes in a floating interest rate ("inverse floaters"). In general, income on inverse floaters will decrease when short-term interest rates increase and increase when short-term interest rates decrease. Investments in inverse floaters may be characterized as derivative securities and may subject the Fund to the risks of reduced or eliminated interest payments and losses of invested principal. In addition, inverse floaters have the effect of providing investment leverage and, as a result, the market value of such securities will generally be more volatile than that of fixed- rate, tax-exempt securities. To the extent the Fund invests in inverse floaters, the market value of the Fund's portfolio and the net asset value of the Fund's shares may also be more volatile than if the Fund did not invest in these securities. As of October 31, 2003, the percentage of the Fund's total net assets invested in inverse floaters was 5.19%. Swap Agreements The Fund may also invest in swap agreements, which are over-the- counter contracts in which one party agrees to make periodic payments based on the change in market value of a specified bond, basket of bonds, or index in return for periodic payments based on a fixed or variable interest rate or the change in market value of a different bond, basket of bonds or index. Swap agreements may be used to obtain exposure to a bond or market without owning or taking physical custody of securities. MUNIHOLDINGS FUND, INC., OCTOBER 31, 2003 A Letter From the President Dear Shareholder As 2003 draws to a close, it seems appropriate to reflect on what has been a meaningful year in many respects. We saw the beginning and the end of all-out war in Iraq, equity market uncertainty turned to strength and sub par gross domestic product growth of 1.4% in the first quarter of 2003 grew to an extraordinary 8.2% in the third quarter. Amid the good news, fixed income investments, which had become the asset class of choice during the preceding three-year equity market decline, faced new challenges. During 2003, municipal bond yields rose and fell in reaction to geopolitical events, equity market performance, economic activity and employment figures. By the end of October, long-term municipal revenue bond yields were slightly higher than they were one year earlier, at 5.24% as measured by the Bond Buyer Revenue Bond Index. With many state deficits at record levels, municipalities issued nearly $400 billion in new long-term tax-exempt bonds during the 12-month period ended October 31, 2003. The availability of bonds, together with attractive yield ratios relative to U.S. Treasury issues, made municipal bonds a popular fixed income investment alternative. Throughout the year, our portfolio managers continued to work diligently to deliver on our commitment to provide superior performance within reasonable expectations for risk and return. This included striving to outperform our peers and the market indexes. With that said, remember that the advice and guidance of a skilled financial advisor often can mean the difference between successful and unsuccessful investing. A financial professional can help you choose those investments that will best serve you as you plan for your financial future. Finally, I am proud to premiere a new look to our shareholder communications. Our portfolio manager commentaries have been trimmed and organized in such a way that you can get the information you need at a glance, in plain language. Today's markets are confusing enough. We want to help you put it all in perspective. The report's new size also allows us certain mailing efficiencies. Any cost savings in production or postage are passed on to the Fund and, ultimately, to Fund shareholders. We thank you for trusting Merrill Lynch Investment Managers with your investment assets, and we look forward to serving you in the months and years ahead. Sincerely, (Terry K. Glenn) Terry K. Glenn President and Director MUNIHOLDINGS FUND, INC., OCTOBER 31, 2003 A Discussion With Your Fund's Portfolio Manager The Fund outperformed its comparable Lipper category for the period and was effectively able to enhance yield while preserving net asset value in a volatile interest rate environment. Describe the market environment relative to municipal bonds during the period. At the end of October, long-term tax-exempt bond yields were 90% - 95% of comparable U.S. Treasury securities, substantially exceeding their historical average of 85% - 88%. Considering their tax-free status, this made long-term municipal bonds an attractive investment alternative during the past six months. Long-term U.S. Treasury bond yields moved higher over the period, supported by generally stronger economic activity. Gross domestic product growth in the third quarter of 2003 was revised to 8.2%, the fastest rate seen in more than 20 years and well above the 1.4% registered in the first quarter of the year. Also responding to the overall more positive financial environment, the Standard & Poor's 500 Index rose almost 15% during the period, putting considerable pressure on interest rates. Long-term U.S. Treasury bond yields stood at 5.13% at the end of October 2003, an increase of 37 basis points (.37%) over the past six months. Tax-exempt bond yields generally followed their taxable counterparts higher during the period. As reported by Municipal Market Data, Aaa-rated issues maturing in 30 years rose approximately 20 basis points over the six months to 4.82%. Long-term tax-exempt revenue bond yields, as measured by the Bond Buyer Revenue Bond Index, increased 15 basis points to 5.24% over the same period. With tax-exempt money market rates below 1% and generally low municipal bond yields, many investors opted to move further out on the municipal yield curve to generate the desired level of tax-exempt income. This maturity extension has supported the strong demand and performance shown by tax-exempt products in recent months. The municipal market's outperformance of the U.S. Treasury market during the period has been especially impressive given the dramatic increase in new bond issuance. Historically low interest rates over the past year have been used by state and local governments as an opportunity to finance existing infrastructure needs and refinance outstanding, higher-couponed issues. During the past 12 months, municipalities issued nearly $400 billion in new securities, an increase of more than 12% compared to last year's issuance. More recently, new municipal bond issuance has slowed largely in response to the recent rise in tax-exempt bond yields. Over the past three months, less than $90 billion in long-term tax-exempt bonds was under-written, a decline of nearly 10% versus the same three months of 2002. This recent decline in supply has helped support the tax- exempt market's positive technical position and recent performance. How did the Fund perform during the period in light of the existing market conditions? For the six-month period ended October 31, 2003, the Common Stock of MuniHoldings Fund, Inc. had a net annualized yield of 6.99%, based on a period-end per share net asset value of $15.50 and $.546 per share income dividends. Over the same period, the total investment return on the Fund's Common Stock was +6.70%, based on a change in per share net asset value from $15.07 to $15.50, and assuming reinvestment of $.544 per share ordinary income dividends. For the six-month period ended October 31, 2003, the Fund's Auction Market Preferred Stock had an average yield of .86% for Series A and .84% for Series B. MUNIHOLDINGS FUND, INC., OCTOBER 31, 2003 For a description of the Fund's total investment return based on a change in the per share market value of the Fund's Common Stock (as measured by the trading price of the Fund's shares on the New York Stock Exchange), and assuming reinvestment of dividends, please refer to the Financial Highlights section of the Financial Statements included in this report. As a closed-end fund, the Fund's shares may trade in the secondary market at a premium or discount to the Fund's net asset value. As a result, total investment returns based on changes in the market value of the Fund's Common Stock can vary significantly from total investment return based on changes in the Fund's net asset value. The Fund's return, based on net asset value, significantly outperformed its comparable Lipper category of General Municipal Debt Funds (Leveraged), which had an average return of +2.68% for the six-month period ended October 31, 2003. The Fund's strong relative performance is attributed to our focus on yield. During the period, we increased the portfolio's exposure to the high-yield portion of the market, that being credit spreads. Municipal credit spreads tightened significantly over the past six months, and this shift helped enhance the Fund's yield and total return. What changes were made to the portfolio during the period? At the beginning of the period, we increased our exposure to corporate-backed bonds in the tax-exempt market. These included utility companies, such as TXU Electric Company, CenterPoint Energy, Inc., Tucson Electric Power, Public Service New Mexico and Tampa Electric Company, as well as paper companies and airline credits. These purchases increased the Fund's competitive yield and positioned the portfolio to perform well in the event of narrowing credit spreads. Later in the period, we began reducing the Fund's exposure to these credits as they rallied considerably more than the general municipal market. During the period, the Fund's borrowing costs remained in the .85% - 1.25% range. These attractive funding levels, in combination with a steep tax-exempt yield curve, have generated a significant income benefit to the Fund's Common Stock shareholders. Further declines in the Fund's borrowing costs would require significant easing of monetary policy by the Federal Reserve Board. While such action is not expected, neither is an imminent increase in short- term interest rates. We expect short-term borrowing costs to remain near current attractive levels for the coming months. However, should the spread between short-term and long-term interest rates narrow, the benefits of leverage will decline, and as a result, reduce the yield on the Fund's Common Stock. (For a more complete explanation of the benefits and risks of leveraging, see page 2 of this report to shareholders.) How would you characterize the portfolio's position at the close of the period? Our primary focus is to maintain the portfolio's current yield and protect the Fund's net asset value should interest rates rise in the future. We expect the economy to slowly gain strength over the next several quarters, pushing interest rates slightly higher. Under this scenario, credit spreads should continue to narrow as corporate earnings grow. Robert A. DiMella Vice President and Portfolio Manager December 1, 2003 MUNIHOLDINGS FUND, INC., OCTOBER 31, 2003 Proxy Results
During the six-month period ended October 31, 2003, MuniHoldings Fund, Inc.'s Common Stock shareholders voted on the following proposal. The proposal was approved at a shareholders' meeting on August 25, 2003. A description of the proposal and number of shares voted are as follows: Shares Voted Shares Withheld For From Voting 1. To elect the Fund's Directors: Terry K. Glenn 12,926,610 376,613 Ronald W. Forbes 12,935,981 367,242 Cynthia A. Montgomery 12,297,056 376,167 Kevin A. Ryan 12,912,327 390,896 Roscoe S. Suddarth 12,918,598 387,625 Edward D. Zinbarg 12,918,664 384,559 During the six-month period ended October 31, 2003, MuniHoldings Fund, Inc.'s Preferred Stock shareholders (Series A & B) voted on the following proposal. The proposal was approved at a shareholders' meeting on August 25, 2003. A description of the proposal and number of shares voted are as follows: Shares Voted Shares Withheld For From Voting 1. To elect the Fund's Board of Directors: Terry K. Glenn, Ronald W. Forbes, Cynthia A. Montgomery, Charles C. Reilly, Kevin A. Ryan, Roscoe S. Suddarth, Richard R. West and Edward D. Zinbarg 3,154 4
MUNIHOLDINGS FUND, INC., OCTOBER 31, 2003 Quality Profile The quality ratings of securities in the Fund as of October 31, 2003 were as follows: Percent of Total S&P Rating/Moody's Rating Investments AAA/Aaa 21.7% AA/Aa 8.1 A/A 11.9 BBB/Baa 26.7 BB/Ba 5.1 B/B 1.5 CCC/Caa 1.0 NR (Not Rated) 5.4 Other++ 18.6 ++Temporary investments in short-term variable rate municipal securities. MUNIHOLDINGS FUND, INC., OCTOBER 31, 2003 Schedule of Investments (In Thousands)
S&P Moody's Face State Ratings Ratings Amount Municipal Bonds Value Alabama--0.9% BBB NR* $ 1,750 Camden, Alabama, IDB, Exempt Facilities Revenue Bonds (Weyerhaeuser Company), Series A, 6.125% due 12/01/2024 $ 1,832 Arizona--2.1% BB+ Ba1 1,200 Maricopa County, Arizona, Pollution Control Corporation, PCR, Refunding (El Paso Electric Company Project), Series A, 6.25% due 5/01/2037 1,245 NR* Caa3 3,000 Phoenix, Arizona, IDA, Airport Facility Revenue Refunding Bonds (America West Airlines Inc. Project), AMT, 6.30% due 4/01/2023 2,315 NR* NR* 835 Show Low, Arizona, Improvement District No. 5, Special Assessment Bonds, 6.375% due 1/01/2015 874 California--16.3% Agua Caliente Band of Cahuilla Indians, California, Casino Revenue Bonds: NR* NR* 810 4.60% due 7/01/2008 810 NR* NR* 875 5.60% due 7/01/2013 878 A1+ VMIG1++ 3,000 California State Department of Water Resources, Power Supply Revenue Bonds, VRDN, Series B-1, 1.05% due 5/01/2022 (g) 3,000 BBB A3 3,900 California State, GO, Refunding, 5.25% due 2/01/2033 3,837 BBB A3 2,000 California State, Various Purpose, GO, 5.25% due 11/01/2021 2,039 A- A3 3,870 California Statewide Communities Development Authority, Health Facility Revenue Bonds (Memorial Health Services), Series A, 6% due 10/01/2023 4,092 A- A2 3,000 Chula Vista, California, IDR, Refunding (San Diego Gas & Electric Co.), AMT, Series A, 6.75% due 3/01/2023 3,026 Golden State Tobacco Securitization Corporation of California, Tobacco Settlement Revenue Bonds: BBB Baa2 1,165 Series A-3, 7.875% due 6/01/2042 1,197 BBB- Baa1 3,000 Series B, 5.75% due 6/01/2021 3,149 BBB- Baa1 5,060 Series B, 5.50% due 6/01/2043 4,803 Montebello, California, Unified School District, GO (b): AAA Aaa 2,405 5.61%** due 8/01/2022 904 AAA Aaa 2,455 5.61%** due 8/01/2023 859 Sacramento County, California, Sanitation District, Financing Authority Revenue Refunding Bonds: AA Aa3 3,950 RIB, Series 366, 10.422% due 12/01/2027 (f) 4,634 AA Aa3 1,550 Series A, 5.875% due 12/01/2027 1,684 Colorado--4.6% NR* NR* 2,645 Elk Valley, Colorado, Public Improvement Revenue Bonds (Public Improvement Fee), Series A, 7.35% due 9/01/2031 2,710 AA NR* 3,000 Interlocken, Colorado, GO, Refunding (Metropolitan District), Series A, 5.75% due 12/15/2019 (c) 3,210 A1 VMIG1++ 2,100 Moffat County, Colorado, PCR, Refunding (Pacificorp Projects), VRDN, 1.10% due 5/01/2013 (a)(g) 2,100 BB+ Ba1 1,840 Northwest Parkway, Colorado, Public Highway Authority Revenue Bonds, First Tier, Sub-Series D, 7.125% due 6/15/2041 1,871 Connecticut--1.3% NR* NR* 2,735 Connecticut State Development Authority, IDR (AFCO Cargo BDL-LLC Project), AMT, 8% due 4/01/2030 2,839
Portfolio Abbreviations To simplify the listings of MuniHoldings Fund, Inc.'s portfolio holdings in the Schedule of Investments, we have abbreviated the names of many of the securities according to the list at right. AMT Alternative Minimum Tax (subject to) EDA Economic Development Authority GO General Obligation Bonds HDA Housing Development Authority HFA Housing Finance Agency IDA Industrial Development Authority IDB Industrial Development Board IDR Industrial Development Revenue Bonds M/F Multi-Family PCR Pollution Control Revenue Bonds RIB Residual Interest Bonds RITR Residual Interest Trust Receipts VRDN Variable Rate Demand Notes MUNIHOLDINGS FUND, INC., OCTOBER 31, 2003 Schedule of Investments (continued) (In Thousands)
S&P Moody's Face State Ratings Ratings Amount Municipal Bonds Value Florida--4.7% NR* NR* $ 350 Bonnet Creek Resort, Florida, Community Development District, Special Assessment Revenue Bonds, 7.50% due 5/01/2034 $ 366 BBB- Baa1 2,520 Hillsborough County, Florida, IDA, PCR, Refunding (Tampa Electric Company Project), 5.10% due 10/01/2013 2,493 A- A2 4,725 Orange County, Florida, Health Facilities Authority, Hospital Revenue Bonds (Orlando Regional Healthcare), 6% due 12/01/2028 4,957 NR* NR* 1,000 Orlando, Florida, Urban Community Development District, Capital Improvement Special Assessment Bonds, Series A, 6.95% due 5/01/2033 1,043 NR* NR* 1,400 Palm Beach County, Florida, HFA, M/F Housing Revenue Bonds (Lake Delray Apartment Project), AMT, Series A, 6.40% due 1/01/2031 1,273 Georgia--0.8% NR* NR* 1,750 Atlanta, Georgia, Tax Allocation Revenue Bonds (Atlantic Station Project), 7.90% due 12/01/2024 1,800 Idaho--1.3% BB+ Ba3 3,000 Power County, Idaho, Industrial Development Corporation, Solid Waste Disposal Revenue Bonds (FMC Corporation Project), AMT, 6.45% due 8/01/2032 2,800 Illinois--2.8% NR* B2 815 Beardstown, Illinois, IDR (Jefferson Smurfit Corp. Project), 8% due 10/01/2016 853 NR* NR* 1,200 Chicago, Illinois, Special Assessment Bonds (Lake Shore East), 6.75% due 12/01/2032 1,191 AA Aa2 4,000 Illinois HDA, Homeowner Mortgage Revenue Bonds, AMT, Sub-Series C-2, 5.35% due 2/01/2027 4,046 Indiana--2.4% NR* NR* 8,985 Allen County, Indiana, Redevelopment District Tax Increment Revenue Bonds (General Motors Development Area), 7%** due 11/15/2013 5,079 Louisiana--0.4% NR* NR* 800 Hodge, Louisiana, Utility Revenue Bonds (Stone Container Corporation), AMT, 9% due 3/01/2010 822 Maryland--4.0% NR* NR* 1,875 Anne Arundel County, Maryland, Special Obligation Revenue Bonds (Arundel Mills Project), 7.10% due 7/01/2029 2,026 Maryland State Economic Development Corporation, Student Housing Revenue Bonds (University of Maryland College Park Project): NR* Baa3 1,760 6% due 6/01/2021 1,839 NR* Baa3 1,700 6.50% due 6/01/2027 1,820 NR* NR* 2,750 Maryland State Energy Financing Administration, Limited Obligation Revenue Bonds (Cogeneration-AES Warrior Run), AMT, 7.40% due 9/01/2019 2,787 Massachusetts-- BB+ NR* 1,000 Massachusetts State Development Finance Agency Revenue Refunding 0.3% Bonds (Eastern Nazarine College), 5.625% due 4/01/2029 750 Michigan--2.3% BBB Baa2 3,505 Delta County, Michigan, Economic Development Corporation, Environmental Improvement Revenue Refunding Bonds (Mead Westvaco-Escanaba), Series A, 6.25% due 4/15/2027 3,633 BBB- Baa3 1,400 Flint, Michigan, Hospital Building Authority Revenue Refunding Bonds (Hurley Medical Center), 6% due 7/01/2020 1,303 Minnesota--1.7% A- NR* 3,500 Minneapolis, Minnesota, Community Development Agency, Supported Development Revenue Refunding Bonds, Series G-3, 5.45% due 12/01/2031 3,599 Mississippi-- BBB- Ba1 7,675 Claiborne County, Mississippi, PCR, Refunding (System Energy 5.0% Resources Inc. Project), 6.20% due 2/01/2026 7,675 BBB- Ba1 3,000 Mississippi Business Finance Corporation, Mississippi, PCR, Refunding (System Energy Resources Inc. Project), 5.90% due 5/01/2022 2,990 Missouri--1.7% NR* NR* 2,000 Fenton, Missouri, Tax Increment Revenue Refunding and Improvement Bonds (Gravois Bluffs), 7% due 10/01/2021 2,150 BBB+ Baa1 1,400 Missouri State Development Finance Board, Infrastructure Facilities Revenue Bonds (Branson), Series A, 5.50% due 12/01/2032 1,403 Nevada--1.4% AAA Aaa 3,000 Clark County, Nevada, IDR (Power Company Project), AMT, Series A, 6.70% due 6/01/2022 (b) 3,096 New Jersey--11.2% New Jersey EDA, Retirement Community Revenue Bonds, Series A: NR* NR* 1,475 (Cedar Crest Village Inc. Facility), 7.25% due 11/15/2031 1,499 NR* NR* 3,600 (Seabrook Village Inc.), 8.25% due 11/15/2030 3,759 New Jersey EDA, Special Facility Revenue Bonds (Continental Airlines Inc. Project), AMT: B Caa2 1,000 6.625% due 9/15/2012 942 B Caa2 1,250 6.25% due 9/15/2029 1,063
MUNIHOLDINGS FUND, INC., OCTOBER 31, 2003 Schedule of Investments (continued) (In Thousands)
S&P Moody's Face State Ratings Ratings Amount Municipal Bonds Value New Jersey New Jersey Health Care Facilities Financing Authority (concluded) Revenue Bonds: BB+ NR* $ 1,625 (Pascack Valley Hospital Association), 6.625% due 7/01/2036 $ 1,628 NR* Baa1 3,325 (South Jersey Hospital), 6% due 7/01/2026 3,401 AA- Aa3 3,300 New Jersey State Transportation Trust Fund Authority, Transportation System Revenue Bonds, Series C, 5.50% due 6/15/2015 3,684 AAA Aaa 4,425 Salem County, New Jersey, Industrial Pollution Control Financing Authority, Revenue Refunding Bonds (Public Service Electric & Gas), RIB, Series 380, 11.17% due 6/01/2031 (f)(h) 4,836 BBB Baa2 3,455 Tobacco Settlement Financing Corporation of New Jersey Revenue Bonds, 7% due 6/01/2041 3,239 New Mexico--1.5% BBB- Baa3 2,000 Farmington, New Mexico, PCR, Refunding (Public Service Company-San Juan Project), Series A, 6.30% due 12/01/2016 2,079 AAA Aaa 1,000 Los Alamos County, New Mexico, Utility System Revenue Refunding Bonds, Series A, 6% due 7/01/2015 (e) 1,050 New York--18.2% NR* NR* 535 New York City, New York, City IDA, Civic Facility Revenue Bonds, Series C, 6.80% due 6/01/2028 553 BB+ Ba2 1,110 New York City, New York, City IDA, Special Facility Revenue Bonds (British Airways PLC Project), AMT, 7.625% due 12/01/2032 1,091 AAA Aaa 6,000 New York City, New York, City Municipal Water Finance Authority, Water and Sewer System Revenue Bonds, RITR, Series 11, 10.27% due 6/15/2026 (e)(f) 7,330 AAA Aaa 11,000 New York City, New York, GO, Refunding, Series G, 5.75% due 2/01/2014 (b) 11,966 AAA Aaa 10,000 New York City, New York, GO, Series F, 6% due 8/01/2016 (h) 11,092 Tobacco Settlement Financing Corporation of New York, Revenue Bonds, Series A-1: AA- NR* 1,400 5.50% due 6/01/2014 1,495 AA- NR* 3,150 5.50% due 6/01/2018 3,331 NR* NR* 2,080 Westchester County, New York, IDA, Continuing Care Retirement, Mortgage Revenue Bonds (Kendal on Hudson Project), Series A, 6.50% due 1/01/2034 2,060 Oklahoma--0.8% Tulsa, Oklahoma, Municipal Airport Trust Revenue Refunding Bonds (AMR Corporation), AMT, Series A: B- Caa2 570 5.80% due 6/01/2035 547 B- Caa2 1,425 5.375% due 12/01/2035 1,242 Oregon--1.0% NR* NR* 2,050 Western Generation Agency, Oregon, Cogeneration Project Revenue Bonds (Wauna Cogeneration Project), AMT, Series B, 7.40% due 1/01/2016 2,104 Pennsylvania-- A1+ VMIG1++ 3,700 Geisinger Authority, Pennsylvania, Health System Revenue 10.4% Refunding Bonds (Geisinger Health Systems), VRDN, 1.10% due 8/01/2028 (g) 3,700 Pennsylvania Economic Development Financing Authority, Exempt Facilities Revenue Bonds (National Gypsum Company), AMT: NR* NR* 2,750 Series A, 6.25% due 11/01/2027 2,740 NR* NR* 6,000 Series B, 6.125% due 11/01/2027 5,893 NR* NR* 725 Philadelphia, Pennsylvania, Authority for IDR, Commercial Development, 7.75% due 12/01/2017 735 NR* NR* 4,000 Philadelphia, Pennsylvania, Authority for IDR, Refunding, Commercial Development (Days Inn), Series B, 6.50% due 10/01/2027 3,898 Philadelphia, Pennsylvania, Authority for Industrial Development, Senior Living Revenue Bonds: NR* Baa2 1,105 (Arbor House Inc. Project), Series E, 6.10% due 7/01/2033 1,058 NR* Baa2 1,245 (Saligman House Project), Series C, 6.10% due 7/01/2033 1,192 A- NR* 2,900 Sayre, Pennsylvania, Health Care Facilities Authority Revenue Bonds (Guthrie Health), Series A, 5.875% due 12/01/2031 2,960 Rhode Island-- Rhode Island State Health and Educational Building Corporation, 1.4% Hospital Financing Revenue Bonds (Lifespan Obligation Group): BBB Baa2 1,500 6.375% due 8/15/2021 1,547 BBB Baa2 1,460 6.50% due 8/15/2032 1,485
MUNIHOLDINGS FUND, INC., OCTOBER 31, 2003 Schedule of Investments (continued) (In Thousands)
S&P Moody's Face State Ratings Ratings Amount Municipal Bonds Value South Carolina-- BBB+ Baa2 $ 3,020 Medical University, South Carolina, Hospital Authority, 3.1% Hospital Facilities Revenue Refunding Bonds, Series A, 6.375% due 8/15/2027 $ 3,132 Tobacco Settlement Revenue Management Authority of South Carolina, Tobacco Settlement Revenue Bonds, Series B: BBB Baa2 2,300 6.375% due 5/15/2028 2,023 BBB Baa2 1,775 6.375% due 5/15/2030 1,546 Tennessee--6.5% Hardeman County, Tennessee, Correctional Facilities Corporation Revenue Bonds: NR* NR* 680 7% due 8/01/2004 697 NR* NR* 4,500 7.75% due 8/01/2017 4,652 A- Baa1 4,575 Shelby County, Tennessee, Health, Educational and Housing Facility Board, Hospital Revenue Refunding Bonds (Methodist Healthcare), 6.50% due 9/01/2026 4,944 NR* Aa2 3,400 Tennessee Educational Loan Revenue Bonds (Educational Funding South Inc.), AMT, Senior Series B, 6.20% due 12/01/2021 3,557 Texas--22.0% BBB- Baa3 4,000 Austin, Texas, Convention Center Revenue Bonds (Convention Enterprises Inc.), First Tier, Series A, 6.70% due 1/01/2028 4,225 A1+ VMIG1++ 4,300 Bell County, Texas, Health Facilities Development Corporation, Hospital Revenue Bonds (Scott & White Memorial Hospital), VRDN, Series 2001-1, 1.10% due 8/15/2031 (g)(h) 4,300 Brazos River Authority, Texas, PCR, Refunding: BBB Baa2 1,000 (TXU Electric Company Project), Series B, 4.75% due 5/01/2029 1,047 BBB Baa2 1,300 (TXU Energy Company LLC Project), AMT, Series C, 6.75% due 10/01/2038 1,355 BBB- Ba1 2,340 Brazos River Authority, Texas, Revenue Refunding Bonds (Reliant Energy Inc. Project), Series B, 7.75% due 12/01/2018 2,532 A- A3 3,875 Brazos River, Texas, Harbor Navigation District, Brazoria County Environmental Revenue Refunding Bonds (Dow Chemical Company Project), AMT, Series A-7, 6.625% due 5/15/2033 4,095 CCC Caa2 1,355 Dallas-Fort Worth, Texas, International Airport Facility Improvement Corporation Revenue Bonds (American Airlines Inc.), 6% due 11/01/2014 896 BBB Baa2 2,315 Gulf Coast, Texas, Waste Disposal Authority, Revenue Refunding Bonds (International Paper Company), AMT, Series A, 6.10% due 8/01/2024 2,347 A1+ NR* 300 Harris County, Texas, Health Facilities Development Corporation Revenue Refunding Bonds (Methodist Hospital), VRDN, 1.10% due 12/01/2032 (g) 300 A1+ VMIG1++ 1,200 Harris County, Texas, Industrial Development Corporation, Solid Waste Disposal Revenue Bonds (Exxon Project), VRDN, AMT, 1.10% due 4/01/2032 (g) 1,200 A- A3 3,000 Lower Colorado River Authority, Texas, PCR (Samsung Austin Semiconductor), AMT, 6.375% due 4/01/2027 3,150 BBB- Ba1 1,485 Matagorda County, Texas, Navigation District Number 1 Revenue Refunding Bonds (Reliant Energy Inc.), Series C, 8% due 5/01/2029 1,612 BB Ba3 1,425 Port Corpus Christi, Texas, Individual Development Corporation, Environmental Facilities Revenue Bonds (Citgo Petroleum Corporation Project), AMT, 8.25% due 11/01/2031 1,459 BBB Baa2 5,000 Port Corpus Christi, Texas, Revenue Refunding Bonds (Celanese Project), Series A, 6.45% due 11/01/2030 5,229 AAA Aaa 7,860 Texas State Department of Housing and Community Affairs, Residential Mortgage Revenue Bonds, AMT, Series A, 5.70% due 1/01/2033 (d) 8,412 AAA Aaa 3,385 Texas State Department of Housing and Community Affairs, Residential Mortgage Revenue Refunding Bonds, AMT, Series B, 5.25% due 7/01/2022 (d) 3,429 NR* Baa3 1,500 Texas State Student Housing Corporation, Student Housing Revenue Bonds (Midwestern State University Project), 6.50% due 9/01/2034 1,431 Utah--1.3% A1 VMIG1++ 2,700 Emery County, Utah, PCR, Refunding (Pacificorp Projects), VRDN, 1.10% due 11/01/2024 (a)(g) 2,700 Vermont--1.1% BBB+ NR* 2,370 Vermont Educational and Health Buildings, Financing Agency Revenue Bonds (Developmental and Mental Health), Series A, 6% due 6/15/2017 2,434 Virginia--8.4% BBB+ A3 1,150 Chesterfield County, Virginia, IDA, PCR (Virginia Electric and Power Company), Series A, 5.875% due 6/01/2017 1,222 AAA Aaa 7,000 Fairfax County, Virginia, EDA, Resource Recovery Revenue Refunding Bonds, AMT, Series A, 6.10% due 2/01/2011 (a) 7,961 BBB- Baa3 1,450 Mecklenburg County, Virginia, IDA, Exempt Facility Revenue Refunding Bonds (UAE LP Project), 6.50% due 10/15/2017 1,474
MUNIHOLDINGS FUND, INC., OCTOBER 31, 2003 Schedule of Investments (concluded) (In Thousands)
S&P Moody's Face State Ratings Ratings Amount Municipal Bonds Value Virginia Pocahontas Parkway Association, Virginia, Toll Road (concluded) Revenue Bonds: NR* Ba1 $ 5,600 First Tier, Sub-Series C, 6.25%** due 8/15/2028 $ 284 NR* Ba1 5,700 First Tier, Sub-Series C, 6.25%** due 8/15/2029 257 BB NR* 750 Senior-Series A, 5.50%** due 8/15/2028 579 BB NR* 1,500 Senior-Series B, 8.40%** due 8/15/2029 192 BB NR* 300 Senior-Series B, 8.80%** due 8/15/2030 35 AAA Aaa 5,730 Virginia State, HDA, Commonwealth Mortgage Revenue Bonds, Series J, Sub-Series J-1, 5.20% due 7/01/2019 (h) 5,920 Washington--1.4% NR* NR* 1,700 Port Seattle, Washington, Special Facilities Revenue Bonds (Northwest Airlines Project), AMT, 7.25% due 4/01/2030 1,587 NR* NR* 1,425 Seattle, Washington, Housing Authority, Housing Revenue Bonds (Replacement Housing Project), 6.125% due 12/01/2032 1,403 West Virginia-- B+ Ba3 1,000 Princeton, West Virginia, Hospital Revenue Refunding Bonds 0.4% (Community Hospital Association Inc. Project), 6% due 5/01/2019 773 Wisconsin--2.2% AAA Aaa 2,000 Evansville, Wisconsin, Community School District, GO, Refunding, 5.50% due 4/01/2020 (b) 2,179 Wisconsin State Health and Educational Facilities Authority Revenue Bonds: NR* NR* 825 (New Castle Place Project), Series A, 7% due 12/01/2031 822 BBB+ NR* 1,755 (Synergyhealth Inc.), 6% due 11/15/2032 1,757 Wyoming--1.4% BB+ Ba3 3,000 Sweetwater County, Wyoming, Solid Waste Disposal Revenue Bonds (FMC Corporation Project), AMT, Series B, 6.90% due 9/01/2024 2,970 Virgin Islands-- BBB- Baa3 4,650 Virgin Islands Government Refinery Facilities Revenue Bonds 2.2% (Hovensa Coker Project), AMT, 6.50% due 7/01/2021 4,685 Total Municipal Bonds (Cost--$307,550)--148.5% 317,705 Beneficial Interest Short-Term Securities 9 Merrill Lynch Institutional Tax-Exempt Fund (i) 9 Total Short-Term Securities (Cost--$9)--0.0% 9 Total Investments (Cost--$307,559)--148.5% 317,714 Other Assets Less Liabilities--2.9% 6,159 Preferred Stock, at Redemption Value--(51.4)% (110,000) --------- Net Assets Applicable to Common Stock--100.0% $ 213,873 ========= (a)AMBAC Insured. (b)FGIC Insured. (c)Radian Insured. (d)FNMA/GNMA Collateralized. (e)FSA Insured. (f)The interest rate is subject to change periodically and inversely based upon prevailing market rates. The interest rate shown is the rate in effect at October 31, 2003. (g)The interest rate is subject to change periodically based upon prevailing market rates. The interest rate shown is the rate in effect at October 31, 2003. (h)MBIA Insured. (i)Investments in companies considered to be an affiliate of the Fund (such companies are defined as "Affiliated Companies" in Section 2(a)(3) of the Investment Company Act of 1940) are as follows: (in Thousands) Net Dividend Affiliate Activity Income Merrill Lynch Institutional Tax-Exempt Fund (3,200) $2 *Not Rated. **Represents a zero coupon bond; the interest rate shown reflects the effective yield at the time of purchase by the Fund. ++Highest short-term rating by Moody's Investors Service, Inc. See Notes to Financial Statements.
MUNIHOLDINGS FUND, INC., OCTOBER 31, 2003 Statement of Net Assets
As of October 31, 2003 Assets Investments, at value (identified cost--$307,558,806) $ 317,714,454 Cash 26,196 Receivables: Interest $ 5,801,329 Securities sold 2,655,146 8,456,475 --------------- Prepaid expenses 1,645 --------------- Total assets 326,198,770 --------------- Liabilities Payables: Securities purchased 2,037,600 Investment adviser 169,735 Dividends to Common Stock shareholders 101,286 Other affiliates 6,872 2,315,493 --------------- Accrued expenses and other liabilities 10,210 --------------- Total liabilities 2,325,703 --------------- Preferred Stock Preferred Stock, at redemption value, par value $.10 per share (2,200 Series A shares and 2,200 Series B shares of AMPS* issued and outstanding at $25,000 per share liquidation preference) 110,000,000 --------------- Net Assets Applicable to Common Stock Net assets applicable to Common Stock $ 213,873,067 =============== Analysis of Net Assets Applicable to Common Stock Common Stock, par value $.10 per share (13,795,227 shares issued and outstanding) $ 1,379,523 Paid-in capital in excess of par 204,148,463 Undistributed investment income--net $ 5,295,109 Accumulated realized capital losses on investments--net (7,105,676) Unrealized appreciation on investments--net 10,155,648 --------------- Total accumulated earnings--net 8,345,081 --------------- Total--Equivalent to $15.50 net asset value per share of Common Stock (market price--$15.00) $ 213,873,067 =============== *Auction Market Preferred Stock. See Notes to Financial Statements.
MUNIHOLDINGS FUND, INC., OCTOBER 31, 2003 Statement of Operations
For the Six Months Ended October 31, 2003 Investment Income Interest $ 10,129,702 Dividends from affiliates 1,541 --------------- Total income 10,131,243 --------------- Expenses Investment advisory fees $ 897,595 Commission fees 140,123 Accounting services 58,489 Professional fees 32,008 Transfer agent fees 25,876 Printing and shareholder reports 18,638 Directors' fees and expenses 17,791 Listing fees 14,540 Custodian fees 9,926 Pricing fees 9,298 Other 15,561 --------------- Total expenses before reimbursement 1,239,845 Reimbursement of expenses (286) --------------- Total expenses after reimbursement 1,239,559 --------------- Investment income--net 8,891,684 --------------- Realized & Unrealized Gain on Investments--Net Realized gain on investments--net 1,766,829 Change in unrealized appreciation on investments--net 3,235,159 --------------- Total realized and unrealized gain on investments--net 5,001,988 --------------- Dividends to Preferred Stock Shareholders Investment income--net (476,102) --------------- Net Increase in Net Assets Resulting from Operations $ 13,417,570 =============== See Notes to Financial Statements.
MUNIHOLDINGS FUND, INC., OCTOBER 31, 2003 Statements of Changes in Net Assets
For the Six For the Months Ended Year Ended October 31, April 30, Increase (Decrease) in Net Assets: 2003 2003 Operations Investment income--net $ 8,891,684 $ 17,213,749 Realized gain on investments--net 1,766,829 2,818,349 Change in unrealized appreciation on investments--net 3,235,159 2,755,933 Dividends to Preferred Stock shareholders (476,102) (1,358,346) --------------- --------------- Net increase in net assets resulting from operations 13,417,570 21,429,685 --------------- --------------- Dividends to Common Stock Shareholders Investment income--net (7,504,603) (13,560,708) --------------- --------------- Net decrease in net assets resulting from dividends to Common Stock shareholders (7,504,603) (13,560,708) --------------- --------------- Net Assets Applicable to Common Stock Total increase in net assets applicable to Common Stock 5,912,967 7,868,977 Beginning of period 207,960,100 200,091,123 --------------- --------------- End of period* $ 213,873,067 $ 207,960,100 =============== =============== *Undistributed investment income--net $ 5,295,109 $ 4,384,130 =============== =============== See Notes to Financial Statements.
MUNIHOLDINGS FUND, INC., OCTOBER 31, 2003 Financial Highlights
The following per share data and ratios have been derived For the Six from information provided in the financial statements. Months Ended October 31, For the Year Ended April 30, Increase (Decrease) in Net Asset Value: 2003 2003 2002 2001+++++ 2000+++++ Per Share Operating Performance Net asset value, beginning of period $ 15.07 $ 14.50 $ 13.76 $ 13.16 $ 16.05 ---------- ---------- ---------- ---------- ---------- Investment income--net .64++ 1.25++ 1.17 1.10 1.18 Realized and unrealized gain (loss) on investments--net .36 .40 .66 .65 (2.66) Dividends and distributions to Preferred Stock shareholders: Investment income--net (.03) (.10) (.16) (.32) (.26) In excess of realized gain on investments--net -- -- -- -- (.04) ---------- ---------- ---------- ---------- ---------- Total from investment operations .97 1.55 1.67 1.43 (1.78) ---------- ---------- ---------- ---------- ---------- Less dividends and distributions to Common Stock shareholders: Investment income--net (.54) (.98) (.93) (.83) (.94) In excess of realized gain on investments--net -- -- -- -- (.17) ---------- ---------- ---------- ---------- ---------- Total dividends and distributions to Common Stock shareholders (.54) (.98) (.93) (.83) (1.11) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 15.50 $ 15.07 $ 14.50 $ 13.76 $ 13.16 ========== ========== ========== ========== ========== Market price per share, end of period $ 15.00 $ 14.43 $ 13.38 $ 13.18 $ 12.5625 ========== ========== ========== ========== ========== Total Investment Return** Based on market price per share 7.83%+++ 15.75% 8.51% 12.09% (10.47%) ========== ========== ========== ========== ========== Based on net asset value per share 6.70%+++ 11.54% 12.64% 11.71% (10.89%) ========== ========== ========== ========== ========== Ratios Based on Average Net Assets of Common Stock Total expenses, net of reimbursement++++ 1.15%* 1.18% 1.21% 1.27% 1.16% ========== ========== ========== ========== ========== Total expenses++++ 1.15%* 1.18% 1.21% 1.27% 1.16% ========== ========== ========== ========== ========== Total investment income--net++++ 8.27%* 8.40% 8.03% 8.08% 8.34% ========== ========== ========== ========== ========== Amount of dividends to Preferred Stock shareholders .44%* .66% 1.08% 2.32% 1.83% ========== ========== ========== ========== ========== Investment income--net, to Common Stock shareholders 7.83%* 7.74% 6.95% 5.76% 6.51% ========== ========== ========== ========== ========== Ratios Based on Average Net Assets of Common & Preferred Stock++++ Total expenses, net of reimbursement .76%* .77% .78% .80% .74% ========== ========== ========== ========== ========== Total expenses .76%* .77% .78% .80% .74% ========== ========== ========== ========== ========== Total investment income--net 5.44%* 5.47% 5.17% 5.10% 5.35% ========== ========== ========== ========== ==========
MUNIHOLDINGS FUND, INC., OCTOBER 31, 2003 Financial Highlights (concluded)
The following per share data and ratios have been derived For the Six from information provided in the financial statements. Months Ended October 31, For the Year Ended April 30, Increase (Decrease) in Net Asset Value: 2003 2003 2002 2001+++++ 2000+++++ Ratios Based on Average Net Assets of Preferred Stock Dividends to Preferred Stock shareholders .85%* 1.23% 1.96% 3.97% 3.27% ========== ========== ========== ========== ========== Supplemental Data Net assets applicable to Common Stock, end of period (in thousands) $ 213,873 $ 207,960 $ 200,091 $ 189,787 $ 181,324 ========== ========== ========== ========== ========== Preferred Stock outstanding, end of period (in thousands) $ 110,000 $ 110,000 $ 110,000 $ 110,000 $ 110,000 ========== ========== ========== ========== ========== Portfolio turnover 23.12% 50.68% 62.94% 91.25% 137.69% ========== ========== ========== ========== ========== Leverage Asset coverage per $1,000 $ 2,944 $ 2,891 $ 2,819 $ 2,725 $ 2,648 ========== ========== ========== ========== ========== Dividends Per Share on Preferred Stock Outstanding Series A--Investment income--net $ 110 $ 315 $ 492 $ 1,016 $ 820 ========== ========== ========== ========== ========== Series B--Investment income--net $ 107 $ 302 $ 490 $ 968 $ 813 ========== ========== ========== ========== ========== *Annualized. **Total investment returns based on market value, which can be significantly greater or lesser than the net asset value, may result in substantially different returns. Total investment returns exclude the effects of sales charges. If applicable, the Fund's Investment Adviser voluntarily waived a portion of its management fee. Without such waiver, the Fund's performance would have been lower. ++Based on average shares outstanding. ++++Do not reflect the effect of dividends to Preferred Stock shareholders. +++Aggregate total investment return. +++++Certain prior year amounts have been reclassified to conform to current period presentation. See Notes to Financial Statements.
MUNIHOLDINGS FUND, INC., OCTOBER 31, 2003 Notes to Financial Statements 1. Significant Accounting Policies: MuniHoldings Fund, Inc. (the "Fund") is registered under the Investment Company Act of 1940, as amended, as a non-diversified, closed-end management investment company. The Fund's financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, which may require the use of management accruals and estimates. These unaudited financial statements reflect all adjustments, which are, in the opinion of management, necessary to a fair statement of the results for the interim period presented. All such adjustments are of a normal, recurring nature. The Fund determines and makes available for publication the net asset value of its Common Stock on a weekly basis. The Fund's Common Stock is listed on the New York Stock Exchange under the symbol MHD. The following is a summary of significant accounting policies followed by the Fund. (a) Valuation of investments--Municipal bonds are traded primarily in the over-the-counter markets and are valued at the last available bid price in the over-the-counter market or on the basis of yield equivalents as obtained by the Fund's pricing service from one or more dealers that make markets in such securities. Financial futures contracts and options thereon, which are traded on exchanges, are valued at their closing prices as of the close of such exchanges. Options written or purchased are valued at the last sale price in the case of exchange-traded options. In the case of options traded in the over-the-counter market, valuation is the last asked price (options written) or the last bid price (options purchased). Swap agreements are valued by quoted fair values received daily by the Fund from the counterparty. Short-term investments with a remaining maturity of sixty days or less are valued at amortized cost, which approximates market value. Securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith by or under the direction of the Board of Directors of the Fund, including valuations furnished by a pricing service retained by the Fund, which may utilize a matrix system for valuations. The procedures of the pricing service and its valuations are reviewed by the officers of the Fund under the general supervision of the Board of Directors. (b) Derivative financial instruments--The Fund may engage in various portfolio investment strategies both to increase the return of the Fund and to hedge, or protect, its exposure to interest rate movements and movements in the securities markets. Losses may arise due to changes in the value of the contract or if the counterparty does not perform under the contract. * Financial futures contracts--The Fund may purchase or sell financial futures contracts and options on such futures contracts. Futures contracts are contracts for delayed delivery of securities at a specific future date and at a specific price or yield. Upon entering into a contract, the Fund deposits and maintains as collateral such initial margin as required by the exchange on which the transaction is effected. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as variation margin and are recorded by the Fund as unrealized gains or losses. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. * Options--The Fund is authorized to write covered call options and purchase call and put options. When the Fund writes an option, an amount equal to the premium received by the Fund is reflected as an asset and an equivalent liability. The amount of the liability is subsequently marked to market to reflect the current market value of the option written. When a security is purchased or sold through an exercise of an option, the related premium paid (or received) is added to (or deducted from) the basis of the security acquired or deducted from (or added to) the proceeds of the security sold. When an option expires (or the Fund enters into a closing transaction), the Fund realizes a gain or loss on the option to the extent of the premiums received or paid (or gain or loss to the extent the cost of the closing transaction exceeds the premium paid or received). MUNIHOLDINGS FUND, INC., OCTOBER 31, 2003 Notes to Financial Statements (continued) Written and purchased options are non-income producing investments. * Forward interest rate swaps--The Fund may enter into forward interest rate swaps. In a forward interest rate swap, the Fund and the counterparty agree to make periodic net payments on a specified notional contract amount, commencing on a specified future effective date, unless terminated earlier. When the agreement is closed, the Fund records a realized gain or loss in an amount equal to the value of the agreement. (c) Income taxes--It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no Federal income tax provision is required. (d) Security transactions and investment income--Security transactions are recorded on the dates the transactions are entered into (the trade dates). Realized gains and losses on security transactions are determined on the identified cost basis. Dividend income is recorded on the ex-dividend dates. Interest income is recognized on the accrual basis. The Fund amortizes all premiums and discounts on debt securities. (e) Dividends and distributions--Dividends from net investment income are declared and paid monthly. Distributions of capital gains are recorded on the ex-dividend dates. 2. Investment Advisory Agreement and Transactions with Affiliates: The Fund has entered into an Investment Advisory Agreement with Fund Asset Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc. ("PSI"), an indirect, wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the limited partner. FAM is responsible for the management of the Fund's portfolio and provides the necessary personnel, facilities, equipment and certain other services necessary to the operations of the Fund. For such services, the Fund pays a monthly fee at an annual rate of .55% of the Fund's average weekly net assets, including proceeds from the issuance of Preferred Stock. For the six months ended October 31, 2003, FAM reimbursed the Fund in the amount of $286. For the six months ended October 31, 2003, the Fund reimbursed FAM $3,450 for certain accounting services. Certain officers and/or directors of the Fund are officers and/or directors of FAM, PSI, and/or ML & Co. 3. Investments: Purchases and sales of investments, excluding short-term securities, for the six months ended October 31, 2003 were $71,946,947 and $89,898,427, respectively. Net realized gains for the six months ended October 31, 2003 and net unrealized gains as of October 31, 2003 were as follows: Realized Unrealized Gains Gains Long-term investments $ 1,766,829 $ 10,155,648 -------------- -------------- Total $ 1,766,829 $ 10,155,648 ============== ============== As of October 31, 2003, net unrealized appreciation for Federal income tax purposes aggregated $10,321,141, of which $13,982,584 related to appreciated securities and $3,661,443 related to depreciated securities. The aggregate cost of investments at October 31, 2003 for Federal income tax purposes was $307,393,313. 4. Stock Transactions: The Fund is authorized to issue 200,000,000 shares of stock, including Preferred Stock, par value $.10 per share, all of which were initially classified as Common Stock. The Board of Directors is authorized, however, to reclassify any unissued shares of stock without approval of holders of Common Stock. Preferred Stock Auction Market Preferred Stock ("AMPS") are shares of Preferred Stock of the Fund, with a par value of $.10 per share and a liquidation preference of $25,000 per share, plus accrued and unpaid dividends, that entitle their holders to receive cash dividends at an annual rate that may vary for the successive dividend periods. The yields in effect at October 31, 2003 were as follows: Series A, .729% and Series B, .67%. MUNIHOLDINGS FUND, INC., OCTOBER 31, 2003 Notes to Financial Statements (concluded) The Fund pays commissions to certain broker-dealers at the end of each auction at an annual rate ranging from .25% to .375%, calculated on the proceeds of each auction. For the six months ended October 31, 2003, Merrill Lynch, Pierce, Fenner & Smith Incorporated, an affiliate of FAM, earned $72,176 as commissions. 5. Capital Loss Carryforward: On April 30, 2003, the Fund had a net capital loss carryforward of $8,747,456, of which $1,675,186 expires in 2008 and $7,072,270 expires in 2009. This amount will be available to offset like amounts of any future taxable gains. 6. Subsequent Event: The Fund paid a tax-exempt income dividend to holders of Common Stock in the amount of $.092000 per share on November 26, 2003 to shareholders of record on November 14, 2003. MUNIHOLDINGS FUND, INC., OCTOBER 31, 2003 Officers and Directors Terry K. Glenn, President and Director Ronald W. Forbes, Director Cynthia A. Montgomery, Director Charles C. Reilly, Director Kevin A. Ryan, Director Roscoe S. Suddarth, Director Richard R. West, Director Edward D. Zinbarg, Director Kenneth A. Jacob, Senior Vice President John M. Loffredo, Senior Vice President Robert A. DiMella, Vice President Donald C. Burke, Vice President and Treasurer Brian D. Stewart, Secretary Custodian The Bank of New York 100 Church Street New York, NY 10286 Transfer Agents Common Stock: The Bank of New York 101 Barclay Street New York, NY 10286 Preferred Stock: The Bank of New York 100 Church Street New York, NY 10286 NYSE Symbol MHD MUNIHOLDINGS FUND, INC., OCTOBER 31, 2003 Dividend Policy The Fund's dividend policy is to distribute all or a portion of its net investment income to its shareholders on a monthly basis. In order to provide shareholders with a more stable level of dividend distributions, the Fund may at times pay out less than the entire amount of net investment income earned in any particular month and may at times in any particular month pay out such accumulated but undistributed income in addition to net investment income earned in that month. As a result, the dividends paid by the Fund for any particular month may be more or less than the amount of net investment income earned by the Fund during such month. The Fund's current accumulated but undistributed net investment income, if any, is disclosed in the Statement of Net Assets, which comprises part of the financial information included in this report. MUNIHOLDINGS FUND, INC., OCTOBER 31, 2003 Electronic Delivery The Fund is now offering electronic delivery of communications to its shareholders. In order to receive this service, you must register your account and provide us with e-mail information. To sign up for this service, simply access this website http://www.icsdelivery.com/live and follow the instructions. When you visit this site, you will obtain a personal identification number (PIN). You will need this PIN should you wish to update your e-mail address, choose to discontinue this service and/or make any other changes to the service. This service is not available for certain retirement accounts at this time. MUNIHOLDINGS FUND, INC., OCTOBER 31, 2003 Item 2 - Did registrant adopt a code of ethics, as of the end of the period covered by this report, that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party? If not, why not? Briefly describe any amendments or waivers that occurred during the period. State here if code of ethics/amendments/waivers are on website and give website address-. State here if fund will send code of ethics to shareholders without charge upon request--N/A (annual requirement only) Item 3 - Did the registrant's board of directors determine that the registrant either: (i) has at least one audit committee financial expert serving on its audit committee; or (ii) does not have an audit committee financial expert serving on its audit committee? If yes, disclose name of financial expert and whether he/she is "independent," (fund may, but is not required, to disclose name/ independence of more than one financial expert) If no, explain why not. - N/A (annual requirement only) Item 4 - Disclose annually only (not answered until December 15, 2003) (a) Audit Fees - Disclose aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of the registrant's annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years. N/A. (b) Audit-Related Fees - Disclose aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant's financial statements and are not reported under paragraph (a) of this Item. Registrants shall describe the nature of the services comprising the fees disclosed under this category. N/A. (c) Tax Fees - Disclose aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning. Registrants shall describe the nature of the services comprising the fees disclosed under this category. N/A. (d) All Other Fees - Disclose aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant, other than the services reported in paragraphs (a) through (c) of this Item. Registrants shall describe the nature of the services comprising the fees disclosed under this category. N/A. (e)(1) Disclose the audit committee's pre-approval policies and procedures described in paragraph (c)(7) of Rule 2-01 of Regulation S-X. N/A. (e)(2) Disclose the percentage of services described in each of paragraphs (b) through (d) of this Item that were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. N/A. (f) If greater than 50%, disclose the percentage of hours expended on the principal accountant's engagement to audit the registrant's financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant's full-time, permanent employees. N/A. (g) Disclose the aggregate non-audit fees billed by the registrant's accountant for services rendered to the registrant, and rendered to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant for each of the last two fiscal years of the registrant. N/A. (h) Disclose whether the registrant's audit committee has considered whether the provision of non-audit services that were rendered to the registrant's investment adviser (not including any subadviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant's independence. N/A. Item 5 - If the registrant is a listed issuer as defined in Rule 10A-3 under the Exchange Act, state whether or not the registrant has a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Exchange Act. If the registrant has such a committee, however designated, identify each committee member. If the entire board of directors is acting as the registrant's audit committee in Section 3(a)(58)(B) of the Exchange Act, so state. If applicable, provide the disclosure required by Rule 10A-3(d) under the Exchange Act regarding an exemption from the listing standards for audit committees. N/A (Listed issuers must be in compliance with the new listing rules by the earlier of their first annual shareholders meeting after January 2004, or October 31, 2004 (annual requirement)) Item 6 - Reserved Item 7 - For closed-end funds that contain voting securities in their portfolio, describe the policies and procedures that it uses to determine how to vote proxies relating to those portfolio securities. Proxy Voting Policies and Procedures Each Fund's Board of Directors/Trustees has delegated to Merrill Lynch Investment Managers, L.P. and/or Fund Asset Management, L.P. (the "Investment Adviser") authority to vote all proxies relating to the Fund's portfolio securities. The Investment Adviser has adopted policies and procedures ("Proxy Voting Procedures") with respect to the voting of proxies related to the portfolio securities held in the account of one or more of its clients, including a Fund. Pursuant to these Proxy Voting Procedures, the Investment Adviser's primary objective when voting proxies is to make proxy voting decisions solely in the best interests of each Fund and its shareholders, and to act in a manner that the Investment Adviser believes is most likely to enhance the economic value of the securities held by the Fund. The Proxy Voting Procedures are designed to ensure that that the Investment Adviser considers the interests of its clients, including the Funds, and not the interests of the Investment Adviser, when voting proxies and that real (or perceived) material conflicts that may arise between the Investment Adviser's interest and those of the Investment Adviser's clients are properly addressed and resolved. In order to implement the Proxy Voting Procedures, the Investment Adviser has formed a Proxy Voting Committee (the "Committee"). The Committee is comprised of the Investment Adviser's Chief Investment Officer (the "CIO"), one or more other senior investment professionals appointed by the CIO, portfolio managers and investment analysts appointed by the CIO and any other personnel the CIO deems appropriate. The Committee will also include two non- voting representatives from the Investment Adviser's Legal department appointed by the Investment Adviser's General Counsel. The Committee's membership shall be limited to full-time employees of the Investment Adviser. No person with any investment banking, trading, retail brokerage or research responsibilities for the Investment Adviser's affiliates may serve as a member of the Committee or participate in its decision making (except to the extent such person is asked by the Committee to present information to the Committee, on the same basis as other interested knowledgeable parties not affiliated with the Investment Adviser might be asked to do so). The Committee determines how to vote the proxies of all clients, including a Fund, that have delegated proxy voting authority to the Investment Adviser and seeks to ensure that all votes are consistent with the best interests of those clients and are free from unwarranted and inappropriate influences. The Committee establishes general proxy voting policies for the Investment Adviser and is responsible for determining how those policies are applied to specific proxy votes, in light of each issuer's unique structure, management, strategic options and, in certain circumstances, probable economic and other anticipated consequences of alternate actions. In so doing, the Committee may determine to vote a particular proxy in a manner contrary to its generally stated policies. In addition, the Committee will be responsible for ensuring that all reporting and recordkeeping requirements related to proxy voting are fulfilled. The Committee may determine that the subject matter of a recurring proxy issue is not suitable for general voting policies and requires a case-by-case determination. In such cases, the Committee may elect not to adopt a specific voting policy applicable to that issue. The Investment Adviser believes that certain proxy voting issues require investment analysis - such as approval of mergers and other significant corporate transactions - akin to investment decisions, and are, therefore, not suitable for general guidelines. The Committee may elect to adopt a common position for the Investment Adviser on certain proxy votes that are akin to investment decisions, or determine to permit the portfolio manager to make individual decisions on how best to maximize economic value for a Fund (similar to normal buy/sell investment decisions made by such portfolio managers). While it is expected that the Investment Adviser will generally seek to vote proxies over which the Investment Adviser exercises voting authority in a uniform manner for all the Investment Adviser's clients, the Committee, in conjunction with a Fund's portfolio manager, may determine that the Fund's specific circumstances require that its proxies be voted differently. To assist the Investment Adviser in voting proxies, the Committee has retained Institutional Shareholder Services ("ISS"). ISS is an independent adviser that specializes in providing a variety of fiduciary-level proxy-related services to institutional investment managers, plan sponsors, custodians, consultants, and other institutional investors. The services provided to the Investment Adviser by ISS include in-depth research, voting recommendations (although the Investment Adviser is not obligated to follow such recommendations), vote execution, and recordkeeping. ISS will also assist the Fund in fulfilling its reporting and recordkeeping obligations under the Investment Company Act. The Investment Adviser's Proxy Voting Procedures also address special circumstances that can arise in connection with proxy voting. For instance, under the Proxy Voting Procedures, the Investment Adviser generally will not seek to vote proxies related to portfolio securities that are on loan, although it may do so under certain circumstances. In addition, the Investment Adviser will vote proxies related to securities of foreign issuers only on a best efforts basis and may elect not to vote at all in certain countries where the Committee determines that the costs associated with voting generally outweigh the benefits. The Committee may at any time override these general policies if it determines that such action is in the best interests of a Fund. From time to time, the Investment Adviser may be required to vote proxies in respect of an issuer where an affiliate of the Investment Adviser (each, an "Affiliate"), or a money management or other client of the Investment Adviser (each, a "Client") is involved. The Proxy Voting Procedures and the Investment Adviser's adherence to those procedures are designed to address such conflicts of interest. The Committee intends to strictly adhere to the Proxy Voting Procedures in all proxy matters, including matters involving Affiliates and Clients. If, however, an issue representing a non- routine matter that is material to an Affiliate or a widely known Client is involved such that the Committee does not reasonably believe it is able to follow its guidelines (or if the particular proxy matter is not addressed by the guidelines) and vote impartially, the Committee may, in its discretion for the purposes of ensuring that an independent determination is reached, retain an independent fiduciary to advise the Committee on how to vote or to cast votes on behalf of the Investment Adviser's clients. In the event that the Committee determines not to retain an independent fiduciary, or it does not follow the advice of such an independent fiduciary, the powers of the Committee shall pass to a subcommittee, appointed by the CIO (with advice from the Secretary of the Committee), consisting solely of Committee members selected by the CIO. The CIO shall appoint to the subcommittee, where appropriate, only persons whose job responsibilities do not include contact with the Client and whose job evaluations would not be affected by the Investment Adviser's relationship with the Client (or failure to retain such relationship). The subcommittee shall determine whether and how to vote all proxies on behalf of the Investment Adviser's clients or, if the proxy matter is, in their judgment, akin to an investment decision, to defer to the applicable portfolio managers, provided that, if the subcommittee determines to alter the Investment Adviser's normal voting guidelines or, on matters where the Investment Adviser's policy is case-by-case, does not follow the voting recommendation of any proxy voting service or other independent fiduciary that may be retained to provide research or advice to the Investment Adviser on that matter, no proxies relating to the Client may be voted unless the Secretary, or in the Secretary's absence, the Assistant Secretary of the Committee concurs that the subcommittee's determination is consistent with the Investment Adviser's fiduciary duties In addition to the general principles outlined above, the Investment Adviser has adopted voting guidelines with respect to certain recurring proxy issues that are not expected to involve unusual circumstances. These policies are guidelines only, and the Investment Adviser may elect to vote differently from the recommendation set forth in a voting guideline if the Committee determines that it is in a Fund's best interest to do so. In addition, the guidelines may be reviewed at any time upon the request of a Committee member and may be amended or deleted upon the vote of a majority of Committee members present at a Committee meeting at which there is a quorum. The Investment Adviser has adopted specific voting guidelines with respect to the following proxy issues: * Proposals related to the composition of the Board of Directors of issuers other than investment companies. As a general matter, the Committee believes that a company's Board of Directors (rather than shareholders) is most likely to have access to important, nonpublic information regarding a company's business and prospects, and is therefore best-positioned to set corporate policy and oversee management. The Committee, therefore, believes that the foundation of good corporate governance is the election of qualified, independent corporate directors who are likely to diligently represent the interests of shareholders and oversee management of the corporation in a manner that will seek to maximize shareholder value over time. In individual cases, the Committee may look at a nominee's history of representing shareholder interests as a director of other companies or other factors, to the extent the Committee deems relevant. * Proposals related to the selection of an issuer's independent auditors. As a general matter, the Committee believes that corporate auditors have a responsibility to represent the interests of shareholders and provide an independent view on the propriety of financial reporting decisions of corporate management. While the Committee will generally defer to a corporation's choice of auditor, in individual cases, the Committee may look at an auditors' history of representing shareholder interests as auditor of other companies, to the extent the Committee deems relevant. * Proposals related to management compensation and employee benefits. As a general matter, the Committee favors disclosure of an issuer's compensation and benefit policies and opposes excessive compensation, but believes that compensation matters are normally best determined by an issuer's board of directors, rather than shareholders. Proposals to "micro-manage" an issuer's compensation practices or to set arbitrary restrictions on compensation or benefits will, therefore, generally not be supported. * Proposals related to requests, principally from management, for approval of amendments that would alter an issuer's capital structure. As a general matter, the Committee will support requests that enhance the rights of common shareholders and oppose requests that appear to be unreasonably dilutive. * Proposals related to requests for approval of amendments to an issuer's charter or by-laws. As a general matter, the Committee opposes poison pill provisions. * Routine proposals related to requests regarding the formalities of corporate meetings. * Proposals related to proxy issues associated solely with holdings of investment company shares. As with other types of companies, the Committee believes that a fund's Board of Directors (rather than its shareholders) is best-positioned to set fund policy and oversee management. However, the Committee opposes granting Boards of Directors authority over certain matters, such as changes to a fund's investment objective, that the Investment Company Act envisions will be approved directly by shareholders. * Proposals related to limiting corporate conduct in some manner that relates to the shareholder's environmental or social concerns. The Committee generally believes that annual shareholder meetings are inappropriate forums for discussion of larger social issues, and opposes shareholder resolutions "micromanaging" corporate conduct or requesting release of information that would not help a shareholder evaluate an investment in the corporation as an economic matter. While the Committee is generally supportive of proposals to require corporate disclosure of matters that seem relevant and material to the economic interests of shareholders, the Committee is generally not supportive of proposals to require disclosure of corporate matters for other purposes. Item 8--Reserved Item 9(a) - The registrant's certifying officers have reasonably designed such disclosure controls and procedures to ensure material information relating to the registrant is made known to us by others particularly during the period in which this report is being prepared. The registrant's certifying officers have determined that the registrant's disclosure controls and procedures are effective based on our evaluation of these controls and procedures as of a date within 90 days prior to the filing date of this report. Item 9(b)--There were no significant changes in the registrant's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Item 10 - Exhibits 10(a) - Attach code of ethics or amendments/waivers, unless code of ethics or amendments/waivers is on website or offered to shareholders upon request without charge. N/A. 10(b) - Attach certifications pursuant to Section 302 of the Sarbanes-Oxley Act. Attached hereto. Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MuniHoldings Fund, Inc. By: _/s/ Terry K. Glenn_______ Terry K. Glenn, President of MuniHoldings Fund, Inc. Date: December 22, 2003 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: _/s/ Terry K. Glenn________ Terry K. Glenn, President of MuniHoldings Fund, Inc. Date: December 22, 2003 By: _/s/ Donald C. Burke________ Donald C. Burke, Chief Financial Officer of MuniHoldings Fund, Inc. Date: December 22, 2003 Attached hereto as a furnished exhibit are the certifications pursuant to Section 906 of the Sarbanes-Oxley Act.