-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H+BwFDxjYtZtUFAvBrl1wCw0j1p3r5kWpg9qMjQ453CoYxtV+jivFwA+g4/7fg2e ZLcuMEQXY7VvriU9e5YZNg== 0000900092-04-000077.txt : 20040629 0000900092-04-000077.hdr.sgml : 20040629 20040629095453 ACCESSION NUMBER: 0000900092-04-000077 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20040430 FILED AS OF DATE: 20040629 EFFECTIVENESS DATE: 20040629 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MUNIHOLDINGS FUND INC CENTRAL INDEX KEY: 0001034665 IRS NUMBER: 223508039 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-08081 FILM NUMBER: 04887005 BUSINESS ADDRESS: STREET 1: 800 SCUDDERS MILL RD STREET 2: C/O MERRILL LYNCH ASSET MANAGEMENT CITY: PLAINSBORO STATE: NJ ZIP: 08536 BUSINESS PHONE: 6092823087 MAIL ADDRESS: STREET 1: MERRILL LYNCH ASSET MANAGEMENT STREET 2: INFO SYSTEMS SECT 2-B PO BOX 9011 CITY: PRINCETON STATE: NJ ZIP: 08543-9011 N-CSR 1 ml7136.txt MUNIHOLDINGS UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR 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 - 04/30/04 Item 1 - Report to Stockholders (BULL LOGO) Merrill Lynch Investment Managers www.mlim.ml.com MuniHoldings Fund, Inc. Annual Report April 30, 2004 MuniHoldings Fund, Inc. seeks to provide shareholders with current income exempt from Federal income taxes by investing primarily in a portfolio of long-term, investment grade municipal obligations the interest on which, in the opinion of bond counsel to the issuer, is exempt from Federal income taxes. This report, including the financial information herein, is transmitted to shareholders of MuniHoldings Fund, Inc. for their information. It is not a prospectus. Past performance results shown in this report should not be considered a representation of future performance. The Fund has leveraged its Common Stock and intends to remain leveraged by issuing Preferred Stock to provide the Common Stock shareholders with a potentially higher rate of return. Leverage creates risks for Common Stock shareholders, including the likelihood of greater volatility of net asset value and market price of shares of the Common Stock, and the risk that fluctuations in the short-term dividend rates of the Preferred Stock may affect the yield to Common Stock shareholders. Statements and other information herein are as dated and are subject to change. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available (1) without charge, upon request, by calling toll-free 1-800-MER-FUND (1-800-637-3863); (2) on www.mutualfunds.ml.com; and (3) on the Securities and Exchange Commission's website at http://www.sec.gov. MuniHoldings Fund, Inc. Box 9011 Princeton, NJ 08543-9011 (GO PAPERLESS LOGO) It's Fast, Convenient, & Timely! To sign up today, go to www.icsdelivery.com/live. MuniHoldings Fund, Inc. The Benefits and Risks of Leveraging MuniHoldings Fund, Inc. utilizes leveraging to seek to enhance the yield and net asset value of its Common Stock. However, these objectives cannot be achieved in all interest rate environments. To leverage, the Fund issues Preferred Stock, which pays dividends at prevailing short-term interest rates, and invests the proceeds in long-term municipal bonds. The interest earned on these investments, net of dividends to Preferred Stock, is paid to Common Stock shareholders in the form of dividends, and the value of these portfolio holdings is reflected in the per share net asset value of the Fund's Common Stock. However, in order to benefit Common Stock shareholders, the yield curve must be positively sloped; that is, short-term interest rates must be lower than long-term interest rates. At the same time, a period of generally declining interest rates will benefit Common Stock shareholders. If either of these conditions change, then the risks of leveraging will begin to outweigh the benefits. To illustrate these concepts, assume a fund's Common Stock capitalization of $100 million and the issue of Preferred Stock for an additional $50 million, creating a total value of $150 million available for investment in long-term municipal bonds. If prevailing short-term interest rates are approximately 3% and long-term interest rates are approximately 6%, the yield curve has a strongly positive slope. The fund pays dividends on the $50 million of Preferred Stock based on the lower short-term interest rates. At the same time, the fund's total portfolio of $150 million earns the income based on long-term interest rates. Of course, increases in short-term interest rates would reduce (and even eliminate) the dividends on the Common Stock. In this case, the dividends paid to Preferred Stock shareholders are significantly lower than the income earned on the fund's long-term investments, and therefore the Common Stock shareholders are the beneficiaries of the incremental yield. However, if short-term interest rates rise, narrowing the differential between short-term and long-term interest rates, the incremental yield pickup on the Common Stock will be reduced or eliminated completely. At the same time, the market value on the fund's Common Stock (that is, its price as listed on the New York Stock Exchange), may, as a result, decline. Furthermore, if long-term interest rates rise, the Common Stock's net asset value will reflect the full decline in the price of the portfolio's investments, since the value of the fund's Preferred Stock does not fluctuate. In addition to the decline in net asset value, the market value of the fund's Common Stock may also decline. As a part of its investment strategy, the Fund may invest in certain securities whose potential income return is inversely related to changes in a floating interest rate ("inverse floaters"). In general, income on inverse floaters will decrease when short-term interest rates increase and increase when short-term interest rates decrease. Investments in inverse floaters may be characterized as derivative securities and may subject the Fund to the risks of reduced or eliminated interest payments and losses of invested principal. In addition, inverse floaters have the effect of providing investment leverage and, as a result, the market value of such securities will generally be more volatile than that of fixed- rate, tax-exempt securities. To the extent the Fund invests in inverse floaters, the market value of the Fund's portfolio and the net asset value of the Fund's shares may also be more volatile than if the Fund did not invest in these securities. As of April 30, 2004, the percentage of the Fund's total net assets invested in inverse floaters was 4.96%. 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., APRIL 30, 2004 A Letter From the President Dear Shareholder For the six-month and 12-month periods ended April 30, 2004, the Lehman Brothers Municipal Bond Index posted returns of +1.19% and +2.68%, respectively. Its taxable counterpart, the Lehman Brothers Aggregate Bond Index, had returns of +1.25% and +1.82% for the same periods. Amid considerable month-to-month volatility, tax-exempt bond yields rose over the past year, although not to the same extent as 10-year U.S. Treasury yields. In all, tax-exempt securities continued to be an attractive fixed income investment alternative. As of April month-end, the Federal Reserve Board maintained its accommodative policy stance, although a better-than-expected employment report for the month of March prompted speculation that an interest rate increase could come sooner than many had expected. On April 2, 2004, the good news on the employment front - previously the one dim spot in an otherwise bright economic picture - helped prompt the yield on the 10-year Treasury bond to spike nearly 25 basis points (.25%), from 3.91% to 4.15%. Market watchers continue to monitor the economic data and Federal Reserve Board language for indications of interest rate direction. If economic growth maintains its recent pace and employment figures continue to improve, many believe it is just a matter of time before interest rates move upward. Equity markets, in the meantime, gleaned support from the improving economic environment and provided attractive returns. For the six-month and 12-month periods ended April 30, 2004, the Standard & Poor's 500 Index returned +6.27% and +22.88%, respectively. Significant fiscal and monetary stimulus in 2003, including low interest rates and tax cuts, has opened the door to consumer spending, capital spending, increases in exports and long-awaited job growth. As expected, these developments have led the way to improvements in corporate earnings - a positive for stock markets. The events and efforts of the past year leave us with a much stronger economy today. Of course, markets will always fluctuate, and there are many uncertainties - not the least of which are geopolitical in nature - which can translate into negative market movements. Keeping this in mind, we encourage you to revisit your portfolio and your asset allocation strategy to ensure you are well positioned to take advantage of the opportunities that lie ahead. Importantly, your financial advisor can help you develop a strategy most suitable for your circumstances through all types of market and economic cycles. 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., APRIL 30, 2004 A Discussion With Your Fund's Portfolio Manager The Fund significantly outperformed its peer group for the fiscal year and was effectively able to enhance yield while preserving net asset value in a volatile interest rate environment. Describe the recent market environment relative to municipal bonds. Amid considerable volatility, yields on long-term fixed income securities moved higher over the past 12 months as bond prices, which typically move opposite of yields, declined. Movements in bond yields were largely driven by the market's perception of and response to economic activity, Federal Reserve Board language and employment data. Early in the period, bond yields declined (and prices rose) as the Federal Reserve Board lowered short-term interest rates in order to bolster the then-sputtering U.S. economic activity. By mid-June 2003, long-term U.S. Treasury bond yields had fallen to their recent historic low of 4.17%. As economic growth gained steam, yields rose (and prices declined) dramatically until again turning downward on continued reports of lackluster job growth. The trend reversed once more in early April 2004 when a surprisingly strong monthly employment report triggered fears that the long-accommodative Federal Reserve Board might raise interest rates sooner than many had expected. As a result, bond yields rose (prices fell) for the remainder of the period. At the end of April, long-term Treasury bond yields had risen to nearly 5.30%, an increase of more than 50 basis points (.50%) over the 12-month period. Ten-year U.S. Treasury note yields ended April at 4.30%, an increase of more than 65 basis points during the past year. Tax-exempt bond yields generally mimicked the movement of their taxable counterparts, although volatility in the municipal market was more subdued. Long-term revenue bond yields, as measured by the Bond Buyer Revenue Bond Index, rose less than 20 basis points over the past 12 months. For the same period, yields on AAA-rated issues maturing in 30 years rose approximately 30 basis points to 4.93% while yields on 10-year, AAA-rated issues increased more than 40 basis points to nearly 4%, according to Municipal Market Data. The more marked increase in 10-year bond yields may be attributed to the fact that recent issuance has been heavily concentrated in the 10-year - 20-year range. The resulting supply imbalance prompted higher intermediate bond yields (and lower prices). Longer-maturity and lower-rated issues continued to benefit from more favorable supply/demand factors and, therefore, have seen less price depreciation. Overall, in the past 12 months, nearly $380 billion in long-term tax-exempt bonds was issued, a decline of approximately 2% versus the year prior. In more recent months, however, the pace of underwriting has quickened. More than $92 billion in long-term municipal obligations was marketed in the past three months, an increase of nearly 5% compared to the same period a year ago. While investor enthusiasm for stocks has taken some attention away from fixed income markets, overall demand for tax-exempt municipal bonds has remained positive. Recent Federal Reserve Board statistics showed that U.S. household holdings of municipal securities increased by more than $25 billion during the fourth quarter of 2003 to approximately $680 billion. In addition, data from the Investment Company Institute indicates that, in just the first three months of 2004, tax-exempt bond funds have seen net new cash flows of almost $640 million. How did the Fund perform during the fiscal year in light of the existing market conditions? For the 12-month period ended April 30, 2004, the Common Stock of MuniHoldings Fund, Inc. had net annualized yields of 7.17% and 7.72%, based on a year-end per share net asset value of $15.54 and a per share market price of $14.43, respectively, and $1.114 per share income dividends. Over the same period, the total investment return on the Fund's Common Stock was +10.94%, based on a change in per share net asset value from $15.07 to $15.54, and assuming reinvestment of $1.108 per share ordinary income dividends. MUNIHOLDINGS FUND, INC., APRIL 30, 2004 For the six-month period ended April 30, 2004, the total investment return on the Fund's Common Stock was +3.97%, based on a change in per share net asset value from $15.50 to $15.54, and assuming reinvestment of $.564 per share income dividends. For the six-month period ended April 30, 2004, the Fund's Auction Market Preferred Stock (AMPS) had an average yield of .88% for Series A and .93% for Series B. 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 +4.96% for the 12-month period ended April 30, 2004. (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 of its peer group is attributed to our focus on yield. Throughout the period, we maintained the Fund's exposure to the high-yield portion of the market - that being credit spreads. Municipal credit spreads tightened significantly over the past 12 months, helping to enhance the Fund's yield and total return. 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 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. What changes were made to the portfolio during the fiscal year? 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 Corporation, CenterPoint Energy, Inc., Tucson Electric Power Company, Public Service of 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. We have since started reducing our exposure to these credits, which rallied considerably more than the broader municipal market. We believe credit spreads will narrow only modestly in the near future, and eventually will widen over the next 12-month period. During the period, the Fund's borrowing costs remained in the ..85% - 1.25% range. These attractive funding levels, in combination with the steep municipal yield curve, continued to generate significant income to the Fund's Common Stock shareholders. The Federal Reserve Board appears poised to begin raising short-term interest rates, most likely later in 2004. The increase, however, is expected to be gradual and should not have a material impact on the positive advantage leverage has had on the Fund's Common Stock yield. However, should the spread between short-term and long-term interest rates narrow, the benefits of leveraging will decline and, as a result, reduce the yield on the Fund's Common Stock. At the end of the period, the Fund's leverage amount, due to AMPS, was 33.90% of total 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? Our primary focus is on maintaining the portfolio's current yield and protecting the Fund's net asset value should interest rates rise in the future. We expect the economy to continue to gain strength during the next several quarters, pushing interest rates slightly higher. Under this scenario, credit spreads should continue to narrow, albeit at a slower pace than witnessed over the past 12 months, as corporate earnings grow. Robert A. DiMella Vice President and Portfolio Manager May 21, 2004 MUNIHOLDINGS FUND, INC., APRIL 30, 2004 Schedule of Investments (In Thousands)
S&P Moody's Face State Ratings+++ Ratings+++ Amount Municipal Bonds Value Alabama--0.9% BBB NR* $ 1,750 Camden, Alabama, IDB, Exempt Facilities Revenue Bonds (Weyerhaeuser Company), Series A, 6.125% due 12/01/2024 $ 1,837 Arizona--3.1% NR* Baa3 2,300 Maricopa County, Arizona, IDA, Education Revenue Bonds (Arizona Charter Schools Project 1), Series A, 6.75% due 7/01/2029 2,297 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 1,247 NR* Caa2 3,000 Phoenix, Arizona, IDA, Airport Facility Revenue Refunding Bonds (America West Airlines Inc. Project), AMT, 6.30% due 4/01/2023 2,327 NR* NR* 760 Show Low, Arizona, Improvement District No. 5, Special Assessment Bonds, 6.375% due 1/01/2015 790 California-- Agua Caliente Band of Cahuilla Indians, California, Casino 21.2% Revenue Bonds: NR* NR* 810 4.60% due 7/01/2008 806 NR* NR* 875 5.60% due 7/01/2013 869 BBB+ A3 7,000 California State Department of Water Resources, Power Supply Revenue Bonds, Series A, 5.25% due 5/01/2020 7,155 BBB Baa1 4,000 California State, GO, Refunding, 5.375% due 10/01/2027 4,019 BBB- Baa2 6,800 California State Public Works Board, Lease Revenue Bonds (Department of Corrections), Series C, 5.25% due 6/01/2028 6,659 California State, Various Purpose, GO: BBB Baa1 2,000 5.25% due 11/01/2021 2,024 BBB Aaa 2,500 5.50% due 4/01/2028 2,552 A A3 3,870 California Statewide Communities Development Authority, Health Facility Revenue Bonds (Memorial Health Services), Series A, 6% due 10/01/2023 4,097 Golden State Tobacco Securitization Corporation of California, Tobacco Settlement Revenue Bonds: BBB Baa3 1,165 Series A-3, 7.875% due 6/01/2042 1,237 BBB- Baa2 3,000 Series B, 5.75% due 6/01/2021 3,090 BBB- Baa2 1,670 Series B, 5.625% due 6/01/2033 1,666 Montebello, California, Unified School District, GO (b): AAA Aaa 2,405 5.61%** due 8/01/2022 916 AAA Aaa 2,455 5.61%** due 8/01/2023 875 Sacramento County, California, Sanitation District, Financing Authority, Revenue Refunding Bonds: AA Aa3 3,950 RIB, Series 366, 10.362% due 12/01/2027 (f) 4,436 AA Aa3 1,550 Series A, 5.875% due 12/01/2027 1,645 AAA Aaa 3,500 University of California Hospital Revenue Bonds (UCLA Medical Center), Series A, 5% due 5/15/2039 (a) 3,424
Portfolio Abbreviations To simplify the listings of MuniHoldings Fund, Inc.'s portfolio holdings in the Schedule of Investments, we have abbreviated the names of many of the securities according to the list at right. AMT Alternative Minimum Tax (subject to) EDA Economic Development Authority GO General Obligation Bonds HDA Housing Development Authority IDA Industrial Development Authority IDB Industrial Development Board IDR Industrial Development Revenue Bonds PCR Pollution Control Revenue Bonds RIB Residual Interest Bonds RITR Residual Interest Trust Receipts VRDN Variable Rate Demand Notes MUNIHOLDINGS FUND, INC., APRIL 30, 2004 Schedule of Investments (continued) (In Thousands)
S&P Moody's Face State Ratings+++ Ratings+++ Amount Municipal Bonds Value Colorado--3.2% NR* NR* $ 2,645 Elk Valley, Colorado, Public Improvement Revenue Bonds (Public Improvement Fee), Series A, 7.35% due 9/01/2031 $ 2,722 AA NR* 3,000 Interlocken, Colorado, GO, Refunding (Metropolitan District), Series A, 5.75% due 12/15/2019 (c) 3,185 BB+ Ba1 920 Northwest Parkway, Colorado, Public Highway Authority Revenue Bonds, First Tier, Sub-Series D, 7.125% due 6/15/2041 948 Connecticut-- NR* NR* 2,735 Connecticut State Development Authority, IDR (AFCO Cargo 1.3% BDL-LLC Project), AMT, 8% due 4/01/2030 2,829 Florida--3.7% NR* NR* 350 Bonnet Creek Resort, Florida, Community Development District, Special Assessment Revenue Bonds, 7.50% due 5/01/2034 367 A- A2 4,725 Orange County, Florida, Health Facilities Authority, Hospital Revenue Bonds (Orlando Regional Healthcare), 6% due 12/01/2028 4,944 NR* NR* 1,000 Orlando, Florida, Urban Community Development District, Capital Improvement Special Assessment Bonds, Series A, 6.95% due 5/01/2033 1,045 NR* NR* 1,700 Preserve at Wilderness Lake, Florida, Community Development District, Capital Improvement Bonds, Series A, 5.90% due 5/01/2034 1,638 Georgia--0.8% NR* NR* 1,750 Atlanta, Georgia, Tax Allocation Revenue Bonds (Atlantic Station Project), 7.90% due 12/01/2024 1,816 Idaho--1.4% 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 3,006 Illinois--3.2% NR* B2 815 Beardstown, Illinois, IDR (Jefferson Smurfit Corp. Project), 8% due 10/01/2016 847 CCC Caa2 1,000 Chicago, Illinois, O'Hare International Airport, Special Facility Revenue Refunding Bonds (American Airlines Inc. Project), 8.20% due 12/01/2024 839 NR* NR* 1,200 Chicago, Illinois, Special Assessment Bonds (Lake Shore East), 6.75% due 12/01/2032 1,225 AA Aa2 4,000 Illinois HDA, Homeowner Mortgage Revenue Bonds, AMT, Sub-Series C-2, 5.35% due 2/01/2027 4,036 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 5,213 Louisiana-- B NR* 1,610 Hodge, Louisiana, Utility Revenue Refunding Bonds (Stone 0.8% Container Corporation), AMT, 7.45% due 3/01/2024 1,626 Maryland--4.1% NR* NR* 1,875 Anne Arundel County, Maryland, Special Obligation Revenue Bonds (Arundel Mills Project), 7.10% due 7/01/2009 (i) 2,265 Maryland State Economic Development Corporation, Student Housing Revenue Bonds (University of Maryland College Park Project): NR* Baa3 1,760 6% due 6/01/2021 1,862 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 2,783 Massachusetts-- BB+ NR* 1,000 Massachusetts State Development Finance Agency, Revenue 0.4% Refunding Bonds (Eastern Nazarene College), 5.625% due 4/01/2029 834 Michigan--2.4% 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 3,647 A NR* 1,400 Flint, Michigan, Hospital Building Authority, Revenue Refunding Bonds (Hurley Medical Center), Series A, 6% due 7/01/2020 1,472 Minnesota-- A- NR* 3,500 Minneapolis, Minnesota, Community Development Agency, Supported 1.7% Development Revenue Refunding Bonds, Series G-3, 5.45% due 12/01/2031 3,571 Mississippi-- BBB- Ba1 7,675 Claiborne County, Mississippi, PCR, Refunding (System Energy 5.0% Resources Inc. Project), 6.20% due 2/01/2026 7,692 BBB- Ba1 3,000 Mississippi Business Finance Corporation, Mississippi, PCR, Refunding (System Energy Resources Inc. Project), 5.90% due 5/01/2022 3,015 Missouri--1.7% NR* NR* 2,000 Fenton, Missouri, Tax Increment Revenue Refunding and Improvement Bonds (Gravois Bluffs), 7% due 10/01/2021 2,142 BBB+ Baa1 1,400 Missouri State Development Finance Board, Infrastructure Facilities Revenue Refunding Bonds (Branson), Series A, 5.50% due 12/01/2032 1,406
MUNIHOLDINGS FUND, INC., APRIL 30, 2004 Schedule of Investments (continued) (In Thousands)
S&P Moody's Face State Ratings+++ Ratings+++ Amount Municipal Bonds Value Nevada--1.4% AAA Aaa $ 3,000 Clark County, Nevada, IDR (Power Company Project), AMT, Series A, 6.70% due 6/01/2022 (b) $ 3,075 New Jersey-- New Jersey EDA, Retirement Community Revenue Bonds, Series A: 8.8% NR* NR* 1,475 (Cedar Crest Village Inc. Facility), 7.25% due 11/15/2031 1,497 NR* NR* 3,600 (Seabrook Village Inc.), 8.25% due 11/15/2030 3,857 New Jersey EDA, Special Facility Revenue Bonds (Continental Airlines Inc. Project), AMT: B Caa2 1,000 6.625% due 9/15/2012 897 B Caa2 2,950 6.25% due 9/15/2029 2,306 NR* Baa1 3,325 New Jersey Health Care Facilities Financing Authority Revenue Bonds (South Jersey Hospital), 6% due 7/01/2026 3,435 NR* Aaa 4,425 Salem County, New Jersey, Industrial Pollution Control Financing Authority, Revenue Refunding Bonds (Public Service Electric & Gas), RIB, Series 380, 11.13% due 6/01/2031 (f)(h) 4,633 BBB Baa3 2,315 Tobacco Settlement Financing Corporation of New Jersey Revenue Bonds, 7% due 6/01/2041 2,270 New Mexico-- BBB Baa2 2,000 Farmington, New Mexico, PCR, Refunding (Public Service 1.4% Company-San Juan Project), Series A, 6.30% due 12/01/2016 2,078 AAA Aaa 1,000 Los Alamos County, New Mexico, Utility System Revenue Refunding Bonds, Series A, 6% due 7/01/2015 (e) 1,027 New York-- NR* NR* 1,320 Dutchess County, New York, IDA, Civic Facility Revenue Refunding 25.5% Bonds (Saint Francis Hospital), Series A, 7.50% due 3/01/2029 1,281 NR* NR* 535 New York City, New York, City IDA, Civic Facility Revenue Bonds, Series C, 6.80% due 6/01/2028 548 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 1,090 AAA Aaa 6,000 New York City, New York, City Municipal Water Finance Authority, Water and Sewer System Revenue Bonds, RITR, Series 11, 10.30% due 6/15/2026 (e)(f) 7,035 AAA Aaa 11,000 New York City, New York, GO, Refunding, Series G, 5.75% due 2/01/2014 (b) 11,807 AAA Aaa 10,000 New York City, New York, GO, Series F, 6% due 8/01/2016 (h) 10,927 AA NR* 1,875 New York State Dormitory Authority, State Personal Income Tax Revenue Bonds, Series A, 5% due 3/15/2021 (h) 1,923 A+ NR* 6,100 New York State Municipal Bond Bank Agency, Special School Purpose Revenue Bonds, Series C, 5.25% due 12/01/2019 6,323 Tobacco Settlement Financing Corporation of New York Revenue Bonds: AA- A3 1,400 Series A-1, 5.50% due 6/01/2014 1,501 AA- A3 3,150 Series A-1, 5.50% due 6/01/2018 3,361 AAA Aaa 3,000 Series A-1, 5.25% due 6/01/2020 (a) 3,148 AA- A3 3,500 Series C-1, 5.50% due 6/01/2017 3,721 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 2,057 Oklahoma--0.9% Tulsa, Oklahoma, Municipal Airport Trust Revenue Refunding Bonds (AMR Corporation), Series A, AMT: B- Caa2 570 5.80% due 6/01/2035 558 B- Caa2 1,425 5.375% due 12/01/2035 1,348 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 2,091 Pennsylvania-- NR* NR* 6,000 Pennsylvania Economic Development Financing Authority, Exempt 7.5% Facilities Revenue Bonds (National Gypsum Company), AMT, Series B, 6.125% due 11/01/2027 6,032 NR* NR* 725 Philadelphia, Pennsylvania, Authority for IDR, Commercial Development, 7.75% due 12/01/2017 731 NR* NR* 4,000 Philadelphia, Pennsylvania, Authority for IDR, Refunding, Commercial Development (Days Inn), Series B, 6.50% due 10/01/2027 4,038 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 1,045 NR* Baa2 1,245 (Saligman House Project), Series C, 6.10% due 7/01/2033 1,177 A- NR* 2,900 Sayre, Pennsylvania, Health Care Facilities Authority, Revenue Refunding Bonds (Guthrie Health), Series A, 5.875% due 12/01/2031 2,976 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 1,563 BBB Baa2 1,460 6.50% due 8/15/2032 1,512
MUNIHOLDINGS FUND, INC., APRIL 30, 2004 Schedule of Investments (continued) (In Thousands)
S&P Moody's Face State Ratings+++ Ratings+++ Amount Municipal Bonds Value South BBB+ Baa2 $ 3,020 Medical University, South Carolina, Hospital Authority, Carolina--2.4% Hospital Facilities Revenue Refunding Bonds, Series A, 6.375% due 8/15/2027 $ 3,125 BBB Baa3 2,300 Tobacco Settlement Revenue Management Authority of South Carolina, Tobacco Settlement Revenue Bonds, Series B, 6.375% due 5/15/2028 2,094 Tennessee--6.5% Hardeman County, Tennessee, Correctional Facilities Corporation Revenue Bonds: NR* NR* 680 7% due 8/01/2004 686 NR* NR* 4,500 7.75% due 8/01/2017 4,673 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 4,931 NR* Aa2 3,400 Tennessee Educational Loan Revenue Bonds (Educational Funding South Inc.), AMT, Senior Series B, 6.20% due 12/01/2021 3,539 Texas--20.4% BBB- Baa3 4,000 Austin, Texas, Convention Center Revenue Bonds (Convention Enterprises Inc.), First Tier, Series A, 6.70% due 1/01/2028 4,204 A1+ VMIG1++ 100 Bell County, Texas, Health Facilities Development Corporation, Hospital Revenue Bonds (Scott & White Memorial Hospital), VRDN, Series B-2, 1.07% due 8/15/2029 (g)(h) 100 Brazos River Authority, Texas, PCR, Refunding (TXU Energy Company LLC Project): BBB Baa2 1,300 AMT, Series C, 6.75% due 10/01/2038 1,374 BBB- Baa2 1,000 Series B, 4.75% due 5/01/2029 1,038 BBB- NR* 2,340 Brazos River Authority, Texas, Revenue Refunding Bonds (Reliant Energy Inc. Project), Series B, 7.75% due 12/01/2018 2,544 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 4,167 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 2,392 A1+ NR* 3,300 Harris County, Texas, Health Facilities Development Corporation, Revenue Refunding Bonds (Methodist Hospital), VRDN, 1.07% due 12/01/2032 (g) 3,300 NR* NR* 1,800 Houston, Texas, Health Facilities Development Corporation, Retirement Facility Revenue Bonds (Buckingham Senior Living Community), Series A, 7.125% due 2/15/2034 1,787 A- A3 3,000 Lower Colorado River Authority, Texas, PCR (Samsung Austin Semiconductor), AMT, 6.375% due 4/01/2027 3,213 BBB- Ba2 1,485 Matagorda County, Texas, Navigation District Number 1 Revenue Refunding Bonds (Reliant Energy Inc.), Series C, 8% due 5/01/2029 1,611 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 1,484 BBB Baa2 5,000 Port Corpus Christi, Texas, Revenue Refunding Bonds (Celanese Project), Series A, 6.45% due 11/01/2030 5,135 AAA Aaa 7,570 Texas State Department of Housing and Community Affairs, Residential Mortgage Revenue Bonds, AMT, Series A, 5.70% due 1/01/2033 (d) 7,973 AAA Aaa 3,280 Texas State Department of Housing and Community Affairs, Residential Mortgage Revenue Refunding Bonds, AMT, Series B, 5.25% due 7/01/2022 (d) 3,335 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 2,429 Virginia--8.3% BBB+ A3 1,150 Chesterfield County, Virginia, IDA, PCR (Virginia Electric and Power Company), Series A, 5.875% due 6/01/2017 1,226 AAA Aaa 7,000 Fairfax County, Virginia, EDA, Resource Recovery Revenue Refunding Bonds, AMT, Series A, 6.10% due 2/01/2011 (a) 7,816 Pocahontas Parkway Association, Virginia, Toll Road Revenue Bonds: NR* B1 5,600 First Tier, Sub-Series C, 6.25%** due 8/15/2028 456 NR* B1 5,700 First Tier, Sub-Series C, 6.25%** due 8/15/2029 444 BB NR* 4,250 Senior Series A, 5.50% due 8/15/2028 3,502 BB NR* 1,500 Senior Series B, 8.40%** due 8/15/2029 214 BB NR* 300 Senior Series B, 8.80%** due 8/15/2030 40 AAA Aaa 4,015 Virginia State, HDA, Commonwealth Mortgage Revenue Bonds, Series J, Sub-Series J-1, 5.20% due 7/01/2019 (h) 4,073
MUNIHOLDINGS FUND, INC., APRIL 30, 2004 Schedule of Investments (concluded) (In Thousands)
S&P Moody's Face State Ratings+++ Ratings+++ Amount Municipal Bonds Value Washington-- NR* NR* $ 1,415 Seattle, Washington, Housing Authority Revenue Bonds 0.6% (Replacement Housing Project), 6.125% due 12/01/2032 $ 1,366 West B- B2 1,000 Princeton, West Virginia, Hospital Revenue Refunding Bonds Virginia--0.4% (Community Hospital Association Inc. Project), 6% due 5/01/2019 763 Wisconsin-- AAA Aaa 2,000 Evansville, Wisconsin, Community School District, GO, Refunding, 2.2% 5.50% due 4/01/2020 (b) 2,150 Wisconsin State Health and Educational Facilities Authority Revenue Bonds: NR* NR* 825 (New Castle Place Project), Series A, 7% due 12/01/2031 832 BBB+ NR* 1,755 (Synergyhealth Inc.), 6% due 11/15/2032 1,767 Wyoming--1.4% BB+ Ba3 3,000 Sweetwater County, Wyoming, Solid Waste Disposal Revenue Bonds (FMC Corporation Project), AMT, Series B, 6.90% due 9/01/2024 3,028 Virgin BBB- Baa3 4,650 Virgin Islands Government Refinery Facilities Revenue Refunding Islands--2.3% Bonds (Hovensa Coker Project), AMT, 6.50% due 7/01/2021 4,949 Total Municipal Bonds (Cost--$313,411)--150.8% 323,391 Shares Held Short-Term Securities 9 Merrill Lynch Institutional Tax-Exempt Fund (j) 9 Total Short-Term Securities (Cost--$9)--0.0% 9 Total Investments (Cost--$313,420)--150.8% 323,400 Other Assets Less Liabilities--0.5% 1,073 Preferred Stock, at Redemption Value--(51.3%) (110,000) --------- Net Assets Applicable to Common Stock--100.0% $ 214,473 ========= (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 April 30, 2004. (g)The interest rate is subject to change periodically based upon prevailing market rates. The interest rate shown is the rate in effect at April 30, 2004. (h)MBIA Insured. (i)Prerefunded. (j)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) $24 *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. +++Ratings of issues shown are unaudited. See Notes to Financial Statements.
MUNIHOLDINGS FUND, INC., APRIL 30, 2004 Statement of Net Assets
As of April 30, 2004 Assets Investments in unaffiliated securities, at value (identified cost--$313,410,750) $ 323,390,558 Investments in affiliated securities, at value (identified cost--$8,893) 8,893 Cash 47,230 Receivables: Interest $ 6,457,155 Securities sold 905,427 7,362,582 --------------- Prepaid expenses 1,911 --------------- Total assets 330,811,174 --------------- Liabilities Payables: Securities purchased 6,003,404 Investment adviser 171,758 Dividends to Common Stock shareholders 105,693 Other affiliates 2,250 6,283,105 --------------- Accrued expenses 55,348 --------------- Total liabilities 6,338,453 --------------- 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 $ 214,472,721 =============== Analysis of Net Assets Applicable to Common Stock Common Stock, par value $.10 per share (13,801,895 shares issued and outstanding) $ 1,380,190 Paid-in capital in excess of par 204,253,016 Undistributed investment income--net $ 5,359,547 Accumulated realized capital losses on investments--net (6,499,840) Unrealized appreciation on investments--net 9,979,808 --------------- Total accumulated earnings--net 8,839,515 --------------- Total--Equivalent to $15.54 net asset value per share of Common Stock (market price--$14.43) $ 214,472,721 =============== *Auction Market Preferred Stock. See Notes to Financial Statements.
MUNIHOLDINGS FUND, INC., APRIL 30, 2004 Statement of Operations
For the Year Ended April 30, 2004 Investment Income Interest $ 19,706,657 Dividends from affiliates 24,423 --------------- Total income 19,731,080 --------------- Expenses Investment advisory fees $ 1,795,371 Commission fees 279,092 Accounting services 117,679 Professional fees 72,331 Transfer agent fees 51,072 Printing and shareholder reports 35,376 Directors' fees and expenses 35,302 Listing fees 21,250 Custodian fees 19,168 Pricing fees 17,008 Other 34,360 --------------- Total expenses before reimbursement 2,478,009 Reimbursement of expenses (5,817) --------------- Total expenses after reimbursement 2,472,192 --------------- Investment income--net 17,258,888 --------------- Realized & Unrealized Gain on Investments--Net Realized gain on investments--net 2,349,989 Change in unrealized appreciation on investments--net 3,059,319 --------------- Total realized and unrealized gain on investments--net 5,409,308 --------------- Dividends to Preferred Stock Shareholders Investment income--net (973,764) --------------- Net Increase in Net Assets Resulting from Operations $ 21,694,432 =============== See Notes to Financial Statements.
MUNIHOLDINGS FUND, INC., APRIL 30, 2004 Statements of Changes in Net Assets
For the Year Ended April 30, Increase (Decrease) in Net Assets: 2004 2003 Operations Investment income--net $ 17,258,888 $ 17,213,749 Realized gain on investments--net 2,349,989 2,818,349 Change in unrealized appreciation on investments--net 3,059,319 2,755,933 Dividends to Preferred Stock shareholders (973,764) (1,358,346) --------------- --------------- Net increase in net assets resulting from operations 21,694,432 21,429,685 --------------- --------------- Dividends to Common Stock Shareholders Investment income--net (15,287,032) (13,560,708) --------------- --------------- Net decrease in net assets resulting from dividends to Common Stock shareholders (15,287,032) (13,560,708) --------------- --------------- Capital Stock Transactions Value of shares issued to Common Stock shareholders in reinvestment of dividends 105,221 -- --------------- --------------- Net Assets Applicable to Common Stock Total increase in net assets applicable to Common Stock 6,512,621 7,868,977 Beginning of year 207,960,100 200,091,123 --------------- --------------- End of year* $ 214,472,721 $ 207,960,100 =============== =============== *Undistributed investment income--net $ 5,359,547 $ 4,384,130 =============== =============== See Notes to Financial Statements.
MUNIHOLDINGS FUND, INC., APRIL 30, 2004 Financial Highlights
The following per share data and ratios have been derived from information provided in the financial statements. For the Year Ended April 30, Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001+++++ 2000+++++ Per Share Operating Performance Net asset value, beginning of year $ 15.07 $ 14.50 $ 13.76 $ 13.16 $ 16.05 ---------- ---------- ---------- ---------- ---------- Investment income--net 1.25++ 1.25++ 1.17 1.10 1.18 Realized and unrealized gain (loss) on investments--net .40 .40 .66 .65 (2.66) Dividends and distributions to Preferred Stock shareholders: Investment income--net (.07) (.10) (.16) (.32) (.26) In excess of realized gain on investments--net -- -- -- -- (.04) ---------- ---------- ---------- ---------- ---------- Total from investment operations 1.58 1.55 1.67 1.43 (1.78) ---------- ---------- ---------- ---------- ---------- Less dividends and distributions to Common Stock shareholders from investment income--net: Investment income--net (1.11) (.98) (.93) (.83) (.94) In excess of realized gain on investments--net -- -- -- -- (.17) ---------- ---------- ---------- ---------- ---------- Total dividends and distributions to Common Stock shareholders (1.11) (.98) (.93) (.83) (1.11) ---------- ---------- ---------- ---------- ---------- Net asset value, end of year $ 15.54 $ 15.07 $ 14.50 $ 13.76 $ 13.16 ========== ========== ========== ========== ========== Market price per share, end of year $ 14.43 $ 14.43 $ 13.38 $ 13.18 $ 12.5625 ========== ========== ========== ========== ========== Total Investment Return* Based on market price per share 7.58% 15.75% 8.51% 12.09% (10.47%) ========== ========== ========== ========== ========== Based on net asset value per share 10.94% 11.54% 12.64% 11.71% (10.89%) ========== ========== ========== ========== ========== Ratios Based on Average Net Assets of Common Stock Total expenses, net of reimbursement** 1.14% 1.18% 1.21% 1.27% 1.16% ========== ========== ========== ========== ========== Total expenses** 1.15% 1.18% 1.21% 1.27% 1.16% ========== ========== ========== ========== ========== Total investment income--net** 7.98% 8.40% 8.03% 8.08% 8.34% ========== ========== ========== ========== ========== Amount of dividends to Preferred Stock shareholders .45% .66% 1.08% 2.32% 1.83% ========== ========== ========== ========== ========== Investment income--net, to Common Stock shareholders 7.53% 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 5.28% 5.47% 5.17% 5.10% 5.35% ========== ========== ========== ========== ==========
MUNIHOLDINGS FUND, INC., APRIL 30, 2004 Financial Highlights (concluded)
The following per share data and ratios have been derived For the Year Ended April 30, from information provided in the financial statements. 2004 2003 2002 2001+++++ 2000+++++ Ratios Based on Average Net Assets of Preferred Stock Dividends to Preferred Stock shareholders .88% 1.23% 1.96% 3.97% 3.27% ========== ========== ========== ========== ========== Supplemental Data Net assets applicable to Common Stock, end of year (in thousands) $ 214,473 $ 207,960 $ 200,091 $ 189,787 $ 181,324 ========== ========== ========== ========== ========== Preferred Stock outstanding, end of year (in thousands) $ 110,000 $ 110,000 $ 110,000 $ 110,000 $ 110,000 ========== ========== ========== ========== ========== Portfolio turnover 42.89% 50.68% 62.94% 91.25% 137.69% ========== ========== ========== ========== ========== Leverage Asset coverage per $1,000 $ 2,950 $ 2,891 $ 2,819 $ 2,725 $ 2,648 ========== ========== ========== ========== ========== Dividends Per Share on Preferred Stock Outstanding Series A--Investment income--net $ 220 $ 315 $ 492 $ 1,016 $ 820 ========== ========== ========== ========== ========== Series B--Investment income--net $ 223 $ 302 $ 490 $ 968 $ 813 ========== ========== ========== ========== ========== *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. **Do not reflect the effect of dividends to Preferred Stock shareholders. ++Based on average shares outstanding. +++++Certain prior year amounts have been reclassified to conform to current period presentation. See Notes to Financial Statements.
MUNIHOLDINGS FUND, INC., APRIL 30, 2004 Notes to Financial Statements 1. Significant Accounting Policies: MuniHoldings Fund, Inc. (the "Fund") is registered under the Investment Company Act of 1940, as amended, as a non-diversified, closed-end management investment company. The Fund's financial statements are prepared in conformity with U.S. generally accepted accounting principles, which may require the use of management accruals and estimates. Actual results may differ from these estimates. 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 the 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 may write covered call options and purchase call and put options. When the Fund writes an option, an amount equal to the premium received by the Fund is reflected as an asset and an equivalent liability. The amount of the liability is subsequently marked to market to reflect the current market value of the option written. When a security is purchased or sold through an exercise of an option, the related premium paid (or received) is added to (or deducted from) the basis of the security acquired or deducted from (or added to) the proceeds of the security sold. When an option expires (or the Fund enters into a closing transaction), the Fund realizes a gain or loss on the option to the extent of the premiums received or paid (or gain or loss to the extent the cost of the closing transaction exceeds the premium paid or received). Written and purchased options are non-income producing investments. * Forward interest rate swaps--The Fund may enter into forward interest rate swaps. In a forward interest rate swap, the Fund and the counterparty agree to make periodic net payments on a specified notional contract amount, commencing on a specified future effective date, unless terminated earlier. When the agreement is closed, the Fund records a realized gain or loss in an amount equal to the value of the agreement. MUNIHOLDINGS FUND, INC., APRIL 30, 2004 Notes to Financial Statements (continued) (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. (f) Reclassification--U.S. generally accepted accounting principles require that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. Accordingly, during the current year, $22,676 has been reclassified between undistributed net investment income and accumulated net realized capital losses on investments as a result of permanent differences attributable to amortization methods on fixed income securities. These reclassifications have no effect on net assets or net asset values per share. 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 year ended April 30, 2004, FAM reimbursed the Fund in the amount of $5,817. For the year ended April 30, 2004, the Fund reimbursed FAM $6,487 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 year ended April 30, 2004 were $135,045,885 and $133,998,959, respectively. Net realized gains for the year ended April 30, 2004 and net unrealized appreciation as of April 30, 2004 were as follows: Realized Unrealized Gains Appreciation Long-term investments $ 2,349,989 $ 9,979,808 ------------- ------------- Total $ 2,349,989 $ 9,979,808 ============= ============= As of April 30, 2004, net unrealized appreciation for Federal income tax purposes aggregated $10,171,088, of which $13,960,869 related to appreciated securities and $3,789,781 related to depreciated securities. The aggregate cost of investments at April 30, 2004 for Federal income tax purposes was $313,228,363. 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 year ended April 30, 2004 increased by 6,668 as a result of dividend reinvestment and for the year ended April 30, 2003 remained constant. 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 April 30, 2004 were as follows: Series A, .97% and Series B, 1.00%. MUNIHOLDINGS FUND, INC., APRIL 30, 2004 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 year ended April 30, 2004, Merrill Lynch, Pierce, Fenner & Smith Incorporated, an affiliate of FAM, earned $145,785 as commissions. 5. Distributions to Shareholders: The Fund paid a tax-exempt income dividend to holders of Common Stock in the amount of $.096000 per share on May 27, 2004 to shareholders of record on May 14, 2004. The tax character of distributions paid during the fiscal years ended April 30, 2004 and April 30, 2003 was as follows: 4/30/2004 4/30/2003 Distributions paid from: Tax-exempt income $ 16,260,796 $ 14,919,054 ------------- ------------- Total distributions $ 16,260,796 $ 14,919,054 ============= ============= As of April 30, 2004, the components of accumulated earnings on a tax basis were as follows: Undistributed tax-exempt income--net $ 5,168,268 Undistributed long-term capital gains--net -- ------------- Total undistributed earnings--net 5,168,268 Capital loss carryforward (6,374,791)* Unrealized gains--net 10,046,038** ------------- Total accumulated earnings--net $ 8,839,515 ============= *On April 30, 2004, the Fund had a net capital loss carryforward of $6,374,791, all of which expires in 2009. This amount will be available to offset like amounts of any future taxable gains. **The difference between book-basis and tax-basis net unrealized gains is attributable primarily to the tax deferral of losses on straddles and the difference between book and tax amortization methods for premiums and discounts on fixed income securities. MUNIHOLDINGS FUND, INC., APRIL 30, 2004 Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors of MuniHoldings Fund, Inc.: We have audited the accompanying statement of net assets of MuniHoldings Fund, Inc., including the schedule of investments, as of April 30, 2004, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of April 30, 2004, by correspondence with the custodian and others. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of MuniHoldings Fund, Inc. at April 30, 2004, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the indicated periods in conformity with U.S. generally accepted accounting principles. (Ernst & Young LLP) MetroPark, New Jersey June 9, 2004 Important Tax Information (unaudited) All of the net investment income distributions paid by MuniHoldings Fund, Inc. during its taxable year ended April 30, 2004 qualify as tax-exempt interest dividends for Federal income tax purposes. Please retain this information for your records. MUNIHOLDINGS FUND, INC., APRIL 30, 2004 Automatic Dividend Reinvestment Plan (unaudited) The following description of the Fund's Automatic Dividend Reinvestment Plan (the "Plan") is sent to you annually as required by Federal securities laws. Pursuant to the Fund's Plan, unless a holder of Common Stock otherwise elects, all dividend and capital gains distributions will be automatically reinvested by The Bank of New York (the "Plan Agent"), as agent for shareholders in administering the Plan, in additional shares of Common Stock of the Fund. Holders of Common Stock who elect not to participate in the Plan will receive all distributions in cash paid by check mailed directly to the shareholder of record (or, if the shares are held in street or other nominee name then to such nominee) by The Bank of New York, as dividend paying agent. Such participants may elect not to participate in the Plan and to receive all distributions of dividends and capital gains in cash by sending written instructions to The Bank of New York, as dividend paying agent, at the address set forth below. Participation in the Plan is completely voluntary and may be terminated or resumed at any time without penalty by written notice if received by the Plan Agent not less than ten days prior to any dividend record date; otherwise such termination will be effective with respect to any subsequently declared dividend or distribution. Whenever the Fund declares an income dividend or capital gains distribution (collectively referred to as "dividends") payable either in shares or in cash, non-participants in the Plan will receive cash and participants in the Plan will receive the equivalent in shares of Common Stock. The shares will be acquired by the Plan Agent for the participant's account, depending upon the circumstances described below, either (i) through receipt of additional unissued but authorized shares of Common Stock from the Fund ("newly issued shares") or (ii) by purchase of outstanding shares of Common Stock on the open market ("open-market purchases") on the New York Stock Exchange or elsewhere. If on the payment date for the dividend, the net asset value per share of the Common Stock is equal to or less than the market price per share of the Common Stock plus estimated brokerage commissions (such conditions being referred to herein as "market premium"), the Plan Agent will invest the dividend amount in newly issued shares on behalf of the participant. The number of newly issued shares of Common Stock to be credited to the participant's account will be determined by dividing the dollar amount of the dividend by the net asset value per share on the date the shares are issued, provided that the maximum discount from the then current market price per share on the date of issuance may not exceed 5%. If on the dividend payment date the net asset value per share is greater than the market value (such condition being referred to herein as "market discount"), the Plan Agent will invest the dividend amount in shares acquired on behalf of the participant in open-market purchases. In the event of a market discount on the dividend payment date, the Plan Agent will have until the last business day before the next date on which the shares trade on an "ex-dividend" basis or in no event more than 30 days after the dividend payment date (the "last purchase date") to invest the dividend amount in shares acquired in open-market purchases. It is contemplated that the Fund will pay monthly income dividends. Therefore, the period during which open- market purchases can be made will exist only from the payment date on the dividend through the date before the next "ex-dividend" date, which typically will be approximately ten days. If, before the Plan Agent has completed its open-market purchases, the market price of a share of Common Stock exceeds the net asset value per share, the average per share purchase price paid by the Plan Agent may exceed the net asset value of the Fund's shares, resulting in the acquisitions of fewer shares than if the dividend had been paid in newly issued shares on the dividend payment date. Because of the foregoing difficulty with respect to open-market purchases, the Plan provides that if the Plan Agent is unable to invest the full dividend amount in open-market purchases during the purchase period or if the market discount shifts to a market premium during the purchase period, the Plan Agent will cease making open-market purchases and will invest the uninvested portion of the dividend amount in newly issued shares at the close of business on the last purchase date determined by dividing the uninvested portion of the dividend by the net asset value per share. MUNIHOLDINGS FUND, INC., APRIL 30, 2004 The Plan Agent maintains all shareholders' accounts in the Plan and furnishes written confirmation of all transactions in the account, including information needed by shareholders for tax records. Shares in the account of each Plan participant will be held by the Plan Agent in non-certificated form in the name of the participant, and each shareholder's proxy will include those shares purchased or received pursuant to the Plan. The Plan Agent will forward all proxy solicitation materials to participants and vote proxies for shares held pursuant to the Plan in accordance with the instructions of the participants. In the case of shareholders such as banks, brokers or nominees which hold shares of others who are the beneficial owners, the Plan Agent will administer the Plan on the basis of the number of shares certified from time to time by the record shareholders as representing the total amount registered in the record shareholder's name and held for the account of beneficial owners who are to participate in the Plan. There will be no brokerage charges with respect to shares issued directly by the Fund as a result of dividends or capital gains distributions payable either in shares or in cash. However, each participant will pay a pro rata share of brokerage commissions incurred with respect to the Plan Agent's open-market purchases in connection with the reinvestment of dividends. The automatic reinvestment of dividends and distributions will not relieve participants of any Federal, state or local income tax that may be payable (or required to be withheld) on such dividends. Shareholders participating in the Plan may receive benefits not available to shareholders not participating in the Plan. If the market price plus commissions of the Fund's shares is above the net asset value, participants in the Plan will receive shares of the Fund at less than they could otherwise purchase them and will have shares with a cash value greater than the value of any cash distribution they would have received on their shares. If the market price plus commissions is below the net asset value, participants will receive distributions in shares with a net asset value greater than the value of any cash distribution they would have received on their shares. However, there may be insufficient shares available in the market to make distributions in shares at prices below the net asset value. Also, since the Fund does not redeem shares, the price on resale may be more or less than the net asset value. The value of shares acquired pursuant to the Plan will generally be excluded from gross income to the extent that the cash amount reinvested would be excluded from gross income. If, when the Fund's shares are trading at a premium over net asset value, the Fund issues shares pursuant to the Plan that have a greater fair market value than the amount of cash reinvested, it is possible that all or a portion of such discount (which may not exceed 5% of the fair market value of the Fund's shares) could be viewed as a taxable distribution. If the discount is viewed as a taxable distribution, it is also possible that the taxable character of this discount would be allocable to all the shareholders, including shareholders who do not participate in the Plan. Thus, shareholders who do not participate in the Plan might be required to report as ordinary income a portion of their distributions equal to their allocable share of the discount. Experience under the Plan may indicate that changes are desirable. Accordingly, the Fund reserves the right to amend or terminate the Plan. There is no direct service charge to participants in the Plan; however, the Fund reserves the right to amend the Plan to include a service charge payable by the participants. All correspondence concerning the Plan should be directed to the Plan Agent at The Bank of New York, Church Street Station, P.O. Box 11258, New York, NY 10286-1258, Telephone: 800-432-8224. MUNIHOLDINGS FUND, INC., APRIL 30, 2004 Quality Profile (unaudited) The quality ratings of securities in the Fund as of April 30, 2004 were as follows: Percent of Total S&P Rating/Moody's Rating Investments AAA/Aaa 23.1% AA/Aa 8.5 A/A 13.6 BBB/Baa 27.2 BB/Ba 4.8 B/B 2.9 CCC/Caa 1.0 NR (Not Rated) 17.9 Other* 1.0 *Temporary investments in short-term variable rate municipal securities. 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., APRIL 30, 2004 Officers and Directors (unaudited)
Number of Portfolios in Other Public Position(s) Length of Fund Complex Directorships Held with Time Overseen by Held by Name, Address & Age Fund Served Principal Occupation(s) During Past 5 Years Director Director Interested Director Terry K. Glenn* President 1999 to President of Merrill Lynch Investment 122 Funds None P.O. Box 9011 and present Managers, L.P. ("MLIM")/Fund Asset 161 Portfolios Princeton, Director and Management, L.P. ("FAM")--Advised Funds NJ 08543-9011 1987 to since 1999; Chairman (Americas Region) Age: 63 present of MLIM from 2000 to 2002; Executive Vice President of MLIM and FAM (which terms as used herein include their corporate predecessors) from 1983 to 2002; President of FAM Distributors, Inc. ("FAMD") from 1986 to 2002 and Director thereof from 1991 to 2002; Executive Vice President and Director of Princeton Services, Inc. ("Princeton Services") from 1993 to 2002; President of Princeton Administrators, L.P. from 1989 to 2002; Director of Financial Data Services, Inc. since 1985. * Mr. Glenn is a director, trustee or member of an advisory board of certain other investment companies for which MLIM or FAM acts as investment adviser. Mr. Glenn is an "interested person," as described in the Investment Company Act, of the Fund based on his former positions with MLIM, FAM, FAMD, Princeton Services and Princeton Administrators, L.P. The Director's term is unlimited. Directors serve until their resignation, removal or death, or until December 31 of the year in which they turn 72. As Fund President, Mr. Glenn serves at the pleasure of the Board of Directors.
MUNIHOLDINGS FUND, INC., APRIL 30, 2004 Officers and Directors (unaudited)(continued)
Number of Portfolios in Other Public Position(s) Length of Fund Complex Directorships Held with Time Overseen by Held by Name, Address & Age Fund Served Principal Occupation(s) During Past 5 Years Director Director Independent Directors* Ronald W. Forbes Director 1997 to Professor Emeritus of Finance, School of 49 Funds None P.O. Box 9095 present Business, State University of New York at 49 Portfolios Princeton, Albany since 2000 and Professor thereof NJ 08543-9095 from 1989 to 2000; International Consultant Age: 63 at the Urban Institute, Washington, D.C. from 1995 to 1999. Cynthia A. Montgomery Director 1997 to Professor of Harvard Business School since 49 Funds Newell P.O. Box 9095 present 1989; Associate Professor of J.L. Kellogg 49 Portfolios Rubbermaid, Inc. Princeton, Graduate School of Management, Northwestern NJ 08543-9095 University from 1985 to 1989; Associate Age: 51 Professor of the Graduate School of Business Administration, University of Michigan from 1979 to 1985. Kevin A. Ryan Director 1997 to Founder and Director of the Boston 49 Funds None P.O. Box 9095 present University Center for the Advancement 49 Portfolios Princeton, of Ethics and Character from 1989 to NJ 08543-9095 1999 and Director Emeritus thereof Age: 71 since 1999; Professor of Education of Boston University from 1982 to 1999 and Professor Emeritus thereof since 1999; formerly on the faculties of The University of Chicago, Stanford University and Ohio State University. Roscoe S. Suddarth Director 2000 to President of Middle East Institute from 49 Funds None P.O. Box 9095 present 1995 to 2001; Foreign Service Officer of 49 Portfolios Princeton, United States Foreign Service from 1961 to NJ 08543-9095 1995 and Career Minister thereof from 1989 Age: 68 to 1995; Deputy Inspector General of U.S. Department of State from 1991 to 1994; U.S. Ambassador to the Hashemite Kingdom of Jordan from 1987 to 1990. Richard R. West Director 1997 to Dean of New York University, Leonard N. 49 Funds Bowne & Co., P.O. Box 9095 present Stern School of Business Administration 49 Portfolios Inc.; Vornado Princeton, from 1984 to 1993, Professor of Finance Operating NJ 08543-9095 thereof since 1984 and currently Dean Company; Age: 66 Emeritus. Vornado Realty Trust and Alexander's, Inc. Edward D. Zinbarg Director 2000 to Self-employed financial consultant since 49 Funds None P.O. Box 9095 present 1994; Executive Vice President of the 49 Portfolios Princeton, Prudential Insurance Company of America NJ 08543-9095 from 1988 to 1994; Former Director of Age: 69 Prudential Reinsurance Company and former Trustee of The Prudential Foundation. * The Director's term is unlimited. Directors serve until their resignation, removal or death, or until December 31 of the year in which they turn 72.
MUNIHOLDINGS FUND, INC., APRIL 30, 2004 Officers and Directors (unaudited)(concluded)
Position(s) Length of Held with Time Name, Address & Age Fund Served* Principal Occupation(s) During Past 5 Years Fund Officers Donald C. Burke Vice 1997 to First Vice President of MLIM and FAM since 1997 and Treasurer thereof since P.O. Box 9011 President present 1999; Senior Vice President and Treasurer of Princeton Services since 1999; Princeton, and and Vice President of FAMD since 1999; Director of MLIM Taxation since 1990. NJ 08543-9011 Treasurer 1999 to Age: 43 present Kenneth A. Jacob Senior 2002 to Managing Director of MLIM since 2000; Director (Tax-Exempt Fund Management) P.O. Box 9011 Vice present of MLIM from 1997 to 2000. Princeton, President NJ 08543-9011 Age: 53 John M. Loffredo Senior 2002 to Managing Director of MLIM since 2000; Director (Tax-Exempt Fund Management) P.O. Box 9011 Vice present of MLIM from 1998 to 2000. Princeton, President NJ 08543-9011 Age: 40 Robert A. DiMella Vice 1997 to Director (Tax-Exempt Fund Management) of MLIM since 2002; Vice President of P.O. Box 9011 President present MLIM from 1996 to 2001. Princeton, NJ 08543-9011 Age: 37 Phillip S. Gillespie Secretary 2000 to First Vice President of MLIM since 2001; Director (Legal Advisory) from 2000 P.O. Box 9011 present to 2001; Vice President from 1999 to 2000; Attorney associated with MLIM Princeton, since 1998. NJ 08543-9011 Age: 40 * Officers of the Fund serve at the pleasure of the Board of Directors.
Further information about the Fund's Officers and Directors is available in the Fund's Statement of Additional Information, which can be obtained without charge by calling 1-800-MER-FUND. 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 101 Barclay Street-7 West New York, NY 10286 NYSE Symbol MHD Charles C. Reilly, Director of MuniHoldings Fund Inc., has recently retired. The Fund's Board of Directors wishes Mr. Reilly well in his retirement. MUNIHOLDINGS FUND, INC., APRIL 30, 2004 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 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., APRIL 30, 2004 Item 2 - Code of Ethics - The registrant has adopted 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 and principal accounting officer, or persons performing similar functions. A copy of the code of ethics is available without charge upon request by calling toll-free 1-800-MER-FUND (1-800-637-3863). Item 3 - Audit Committee Financial Expert - The registrant's board of directors has determined that (i) the registrant has the following audit committee financial experts serving on its audit committee and (ii) each audit committee financial expert is independent: (1) Ronald W. Forbes, (2) Richard R. West, and (3) Edward D. Zinbarg. Item 4 - Principal Accountant Fees and Services (a) Audit Fees - Fiscal Year Ending April 30, 2004 - $31,500 Fiscal Year Ending April 30, 2003 - $30,550 (b) Audit-Related Fees - Fiscal Year Ending April 30, 2004 - $3,000 Fiscal Year Ending April 30, 2003 - $3,000 The nature of the services include assurance and related services reasonably related to the performance of the audit of financial statements not included in Audit Fees. (c) Tax Fees - Fiscal Year Ending April 30, 2004 - $5,200 Fiscal Year Ending April 30, 2003 - $5,000 The nature of the services include tax compliance, tax advice and tax planning. (d) All Other Fees - Fiscal Year Ending April 30, 2004 - $0 Fiscal Year Ending April 30, 2003 - $0 (e)(1) The registrant's audit committee (the "Committee") has adopted policies and procedures with regard to the pre-approval of services. Audit, audit-related and tax compliance services provided to the registrant on an annual basis require specific pre-approval by the Committee. The Committee also must approve other non-audit services provided to the registrant and those non-audit services provided to the registrant's affiliated service providers that relate directly to the operations and the financial reporting of the registrant. Certain of these non-audit services that the Committee believes are a) consistent with the SEC's auditor independence rules and b) routine and recurring services that will not impair the independence of the independent accountants may be approved by the Committee without consideration on a specific case-by-case basis ("general pre-approval"). However, such services will only be deemed pre-approved provided that any individual project does not exceed $5,000 attributable to the registrant or $50,000 for the project as a whole. Any proposed services exceeding the pre- approved cost levels will require specific pre-approval by the Committee, as will any other services not subject to general pre- approval (e.g., unanticipated but permissible services). The Committee is informed of each service approved subject to general pre-approval at the next regularly scheduled in-person board meeting. (e)(2) 0% (f) Not Applicable (g) Fiscal Year Ending April 30, 2004 - $8,200 Fiscal Year Ending April 30, 2003 - $108,000 (h) The registrant's audit committee has considered and determined that the provision of non-audit services that were rendered to the registrant's 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. Regulation S-X Rule 2-01(c)(7)(ii) - $541,640, 0% Item 5 - Audit Committee of Listed Registrants - The following individuals are members of the registrant's separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Exchange Act (15 U.S.C. 78c(a)(58)(A)): Ronald W. Forbes Cynthia A. Montgomery Charles C. Reilly (retired as of December 31, 2003) Kevin A. Ryan Roscoe S. Suddarth Richard R. West Edward D. Zinbarg Item 6 - Schedule of Investments - Not Applicable Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies - 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 - Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers - Not Applicable Item 9 - Submission of Matters to a Vote of Security Holders - Not Applicable Item 10 - Controls and Procedures 10(a) - The registrant's certifying officers have reasonably designed such disclosure controls and procedures to ensure material information relating to the registrant is made known to us by others particularly during the period in which this report is being prepared. The registrant's certifying officers have determined that the registrant's disclosure controls and procedures are effective based on our evaluation of these controls and procedures as of a date within 90 days prior to the filing date of this report. 10(b) - There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR 270.30a-3(d)) that occurred during the second fiscal half- year of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 11 - Exhibits attached hereto 11(a)(1) - Code of Ethics - See Item 2 11(a)(2) - Certifications - Attached hereto 11(a)(3) - Not Applicable 11(b) - Certifications - Attached hereto Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MuniHoldings Fund, Inc. By: _/s/ Terry K. Glenn_______ Terry K. Glenn, President of MuniHoldings Fund, Inc. Date: June 18, 2004 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: _/s/ Terry K. Glenn________ Terry K. Glenn, President of MuniHoldings Fund, Inc. Date: June 18, 2004 By: _/s/ Donald C. Burke________ Donald C. Burke, Chief Financial Officer of MuniHoldings Fund, Inc. Date: June 18, 2004 EX-99.CERT 2 ex99cert.txt EX-99 CERT EX-99. CERT CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Terry K. Glenn, President of MuniHoldings Fund, Inc., certify that: 1. I have reviewed this report on Form N-CSR of MuniHoldings Fund, Inc. (the "Fund"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the Fund as of, and for, the periods presented in this report; 4. The Fund's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the Fund and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Fund, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the Fund's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and c) disclosed in this report any change in the Fund's internal control over financial reporting that occurred during the Fund's most recent fiscal half-year (the Fund's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Fund's internal control over financial reporting; and 5. The Fund's other certifying officer(s) and I have disclosed to the Fund's auditors and the audit committee of the Fund's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Fund's ability to record, process, summarize, and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Fund's internal control over financial reporting. Date: June 18, 2004 /s/ Terry K. Glenn Terry K. Glenn, President of MuniHoldings Fund, Inc. EX-99. CERT CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Donald C. Burke, Chief Financial Officer of MuniHoldings Fund, Inc., certify that: 1. I have reviewed this report on Form N-CSR of MuniHoldings Fund, Inc. (the "Fund"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the Fund as of, and for, the periods presented in this report; 4. The Fund's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the Fund and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Fund, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the Fund's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and c) disclosed in this report any change in the Fund's internal control over financial reporting that occurred during the Fund's most recent fiscal half-year (the Fund's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Fund's internal control over financial reporting; and 5. The Fund's other certifying officer(s) and I have disclosed to the Fund's auditors and the audit committee of the Fund's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Fund's ability to record, process, summarize, and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Fund's internal control over financial reporting. Date: June 18, 2004 /s/ Donald C. Burke Donald C. Burke, Chief Financial Officer of MuniHoldings Fund, Inc. Exhibit 99.1350CERT Certification Pursuant to Section 906 of the Sarbanes Oxley Act I, Terry K. Glenn, President of MuniHoldings Fund, Inc. (the "Fund"), certify that: 1. The N-CSR of the Fund (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Fund. Dated: June 18, 2004 /s/ Terry K. Glenn Terry K. Glenn, President of MuniHoldings Fund, Inc. A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to MuniHoldings Fund, Inc. and will be retained by MuniHoldings Fund, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. Exhibit 99.1350CERT Certification Pursuant to Section 906 of the Sarbanes Oxley Act I, Donald C. Burke, Chief Financial Officer of MuniHoldings Fund, Inc. (the "Fund"), certify that: 1. The N-CSR of the Fund (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Fund. Dated: June 18, 2004 /s/ Donald C. Burke Donald C. Burke, Chief Financial Officer of MuniHoldings Fund, Inc. A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to MuniHoldings Fund, Inc. and will be retained by MuniHoldings Fund, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----