MUNIHOLDINGS
FUND, INC.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Annual Report
April 30, 1998
<PAGE>
MUNIHOLDINGS FUND, INC.
The Benefits and
Risks of
Leveraging
MuniHoldings Fund, Inc. has the ability to leverage to seek to enhance the yield
and net asset value of its Common Stock. However, these objectives cannot be
achieved in all interest rate environments. To leverage, the Fund issues
Preferred Stock, which pays dividends at prevailing short-term interest rates,
and invests the proceeds in long-term municipal bonds. The interest earned on
these investments is paid to Common Stock shareholders in the form of dividends,
and the value of these portfolio holdings is reflected in the per share net
asset value of the Fund's Common Stock. However, in order to benefit Common
Stock shareholders, the yield curve must be positively sloped; that is,
short-term interest rates must be lower than long-term interest rates. At the
same time, a period of generally declining interest rates will benefit Common
Stock shareholders. If either of these conditions change, then the risks of
leveraging will begin to outweigh the benefits.
To illustrate these concepts, assume a fund's Common Stock capitalization of
$100 million and the issuance of Preferred Stock for an additional $50 million,
creating a total value of $150 million available for investment in long-term
municipal bonds. If prevailing short-term interest rates are approximately 3%
and long-term interest rates are approximately 6%, the yield curve has a
strongly positive slope. The fund pays dividends on the $50 million of Preferred
Stock based on the lower short-term interest rates. At the same time, the fund's
total portfolio of $150 million earns the income based on long-term interest
rates. Of course, increases in short-term interest rates would reduce (and even
eliminate) the dividends on the Common Stock.
In this case, the dividends paid to Preferred Stock shareholders are
significantly lower than the income earned on the fund's long-term investments,
and therefore the Common Stock shareholders are the beneficiaries of the
incremental yield. However, if short-term interest rates rise, narrowing the
differential between short-term and long-term interest rates, the incremental
yield pickup on the Common Stock will be reduced or eliminated completely. At
the same time, the market value 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.
Managed Dividend
Policy
The Fund's dividend policy is to distribute substantially all of its net
investment income to its shareholders on a monthly basis. However, in order to
provide shareholders with a more consistent yield to the current trading price
of shares of Common Stock of the Fund, 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 Assets, Liabilities and Capital, which comprises
part of the financial information included in this report.
2
<PAGE>
MuniHoldings Fund, Inc., April 30, 1998
DEAR SHAREHOLDER
Since inception (May 2, 1997) through April 30, 1998, the Common Stock of
MuniHoldings Fund, Inc. earned $0.946 per share income dividends, which included
earned and unpaid dividends of $0.071. This represents a net annualized yield of
5.93%, based on a month-end net asset value of $16.00 per share. Over the same
period, the total investment return on the Fund's Common Stock was +12.83%,
based on a change in per share net asset value from $15.00 to $16.00, and
assuming reinvestment of $0.875 per share income dividends.
Since inception (May 2, 1997) through April 30, 1998, the Fund's Auction Market
Preferred Stock had an average yield of 3.58% for Series A and 3.61% for Series
B.
The Municipal Market Environment
During the six months ended April 30, 1998, bond yields generally moved lower,
and by mid-January 1998 had declined to recent historic lows. Long-term US
Treasury bond yields declined 20 basis points (0.20%) during the same period and
stood at 5.95% by April 30, 1998. Similarly, long-term uninsured tax-exempt bond
yields, as measured by the Bond Buyer Revenue Bond Index, fell approximately 35
basis points to 5.25%, a level not seen since the mid-1970s. While low inflation
has supported lower interest rates, much of the decline in bond yields in late
1997 and early 1998 was driven more by the turmoil in Asian financial markets
than by domestic economic fundamentals. Weak economic conditions in Asia were
expected to negatively impact US growth through reduced export demand.
Additionally, inflation in the United States was also expected to decline in
response to lower prices on goods imported from Asian manufacturers.
However, in recent months, many investors have become increasingly concerned
that most of the downturn in Asia, especially in Japan, has already occurred and
any future deterioration will not be severe enough to constrain US economic
growth and inflationary pressures. These concerns served to push interest rates
higher in the latter part of the period, causing fixed-income yields to retrace
much of their earlier gains.
Thus far in 1998, the municipal bond market has experienced unexpectedly strong
supply pressures. These supply pressures have prevented tax-exempt bond yields
from declining as much as US Treasury bond yields. Over the last six months,
more than $135 billion in new tax-exempt bonds were underwritten, an increase of
over 40% compared to the same period a year ago. During the last three months,
municipalities issued over $72 billion in new securities, an increase of more
than 60% compared to the same three-month period in 1997. Additionally,
corporate issuers have also viewed current interest rate levels as an
opportunity to issue significant amounts of taxable securities. Thus far in
1998, over $100 billion in investment-grade corporate bonds have been
underwritten, an increase of more than 60% relative to the comparable period a
year ago. This sizeable corporate bond issuance has tended to support generally
higher fixed-income yields and reduce the demand for tax-exempt bonds.
However, the recent pace of new municipal bond issuance is unlikely to be
maintained. Continued increases in bond issuance will require lower and lower
tax-exempt bond yields to generate the economic savings necessary for additional
municipal bond refinancings. Preliminary estimates for 1998 total municipal bond
issuance are presently in the $200 billion-$225 billion range. These estimates
suggest that recent sup ply pressures are likely to abate later in the year.
Municipal bond investors received approximately $30 billion earlier this year in
coupon payments, bond maturities and proceeds from early redemptions. The demand
generated by these assets has helped offset the increase in supply seen thus far
this year. Furthermore, looking ahead, June and July have also tended to be
periods of strong investor demand as seasonal factors are likely to generate
strong income flows similar to those seen earlier this year.
It is also possible that at least some of the recent economic strength seen in
the United States will be reversed in the coming months. A particularly mild
winter has been partially responsible for a strong housing sector, as well as
other construction industries. This recent strong trend may not be sustained and
may lead to weaker construction growth later this year. Additionally, strong
economic growth in 1997 and the increased use of electronic tax filing have
resulted in larger and earlier Federal and state income tax refunds to many
individuals. These refunds appear to have supported strong consumer spending in
recent months, but may be borrowing against weaker spending later this year. In
addition, the continued impact of the Asian financial crisis on the US domestic
economy's future growth remains unclear. Barring a dramatic and unexpected
resurgence of domestic inflation, we do not believe that the Federal Reserve
Board will be willing to raise interest rates until the full impact of the Asian
situation can be established.
All these factors suggest that over the near term, tax-exempt as well as taxable
bond yields are unlikely to rise by any appreciable amount. Recent supply
pressures have caused municipal bond yield ratios to rise relative to US
Treasury bond yields. At April 30, 1998, long-term tax-exempt bond yields were
at attractive yield ratios relative to comparable US Treasury securities (over
90%), and well in excess of their expected range of 85%-88%. Any further
pressure upon the municipal market may well represent a very attractive
investment opportunity.
Portfolio Strategy
During the six months ended April 30, 1998, we shifted from our defensive
position to a more constructive investment outlook. We expected economic growth
to slow along with a continued reduction in inflation as a result of the
declines in Asian equity markets. As of April 30, 1998, only one of these
expectations had been met. Inflation has continued to fall but economic growth
has not slowed. Looking forward to the balance of 1998, we expect to maintain a
constructive outlook. We believe the continued instability of the Asian equity
markets will have a negative impact on the US economy, allowing inflation and
interest rates to decline further.
The Fund began auctioning its Auction Market Preferred Stock (AMPS) during the
first week of June 1997. Since that time, the yield on the AMPS has been trading
between 3.40%-4.05%. Leverage continues to benefit the Common Stock shareholders
by significantly augmenting their yield. However, should the spread between
short-term and long-term tax-exempt rates narrow, the benefits of leverage will
decline and, as a result, reduce the yield to the Common Stock. (For a complete
explanation of the benefits and risks of leveraging, see page 1 of this report
to shareholders.)
In Conclusion
We thank you for your support of MuniHoldings Fund, Inc., and we look forward to
serving your investment needs in the months and years ahead.
Sincerely,
/s/ Arthur Zeikel
Arthur Zeikel
President
/s/ Vincent R. Giordano
Vincent R. Giordano
Senior Vice President
/s/ Robert A. DiMella
Robert A. DiMella
Vice President and Portfolio Manager
/s/ John M. Loffredo
John M. Loffredo
Vice President and Portfolio Manager
June 5, 1998
3 & 4
<PAGE>
MuniHoldings Fund, Inc., April 30, 1998
SCHEDULE OF INVESTMENTS (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Alabama--1.0% BBB- Baa3 $ 3,250 Fairfield, Alabama, IDB, Environmental
Improvement Revenue Refunding Bonds
(USX Corp. Project), 5.45% due 9/01/2014 $ 3,201
====================================================================================================================================
Alaska--0.1% A1+ P1 200 Valdez, Alaska, Marine Terminal Revenue Refunding
Bonds (Exxon Pipeline Company Project),
VRDN, Series B, 4.10% due 12/01/2033 (a) 200
====================================================================================================================================
Arizona--3.8% B B2 5,000 Apache County, Arizona, IDA, IDR (Tucson Electric
Power Company Project), Series C, 5.85%
due 3/01/2026 5,027
BB+ Ba1 3,500 Maricopa County, Arizona, Pollution Control
Corporation, PCR, Refunding (Public Service
Company), Series A, 5.75% due 11/01/2022 3,559
NR* B1 3,000 Phoenix, Arizona, IDA, Airport Facilities Revenue
Refunding Bonds (America West Airlines Inc.),
AMT, 6.30% due 4/01/2023 3,012
NR* NR* 1,000 Show-Low, Arizona, Improvement District No. 5,
6.375% due 1/01/2015 1,036
====================================================================================================================================
California--4.9% AAA Aaa 11,090 Anaheim, California, Public Financing Authority,
Lease Revenue Bonds (Public Improvement
Projects), Sub-Series C, 5.68%** due 9/01/2028 (e) 2,142
NR* Baa2 1,340 California Educational Facilities Authority
Revenue Bonds (Pooled College and University
Projects), Series B, 6.125% due 4/01/2013 1,416
Riverside County, California, Asset Leasing
Corporation, Leasehold Revenue Bonds
(Riverside County Hospital Project) (d):
AAA Aaa 7,500 6.04%** due 6/01/2022 2,042
AAA Aaa 8,255 6.07%** due 6/01/2026 1,803
AAA Aaa 7,500 San Diego, California, IDR, RITR, 7.785% due 9/01/2018 (b) 8,588
====================================================================================================================================
Colorado--2.8% NR* Aa2 4,000 Colorado HFA, S/F Program, AMT, Senior Series
B-2, 7% due 5/01/2026 4,428
AAA Aaa 5,000 Denver, Colorado, City and County Airport,
Revenue Refunding Bonds, Series D, 5.50% due
11/15/2025 (d) 5,060
====================================================================================================================================
Connecticut--2.1% AA Aa2 3,500 Connecticut State HFA, Housing Mortgage Finance
Program, Sub-Series D-1, 6% due 5/15/2027 3,669
BBB- Ba2 3,000 Connecticut State Health and Educational
Facilities Authority, Revenue Refunding Bonds
(University of Hartford), Series D, 6.80% due 7/01/2022 3,168
====================================================================================================================================
Florida--6.3% AAA Aaa 5,000 Charlotte County, Florida, Health Care Facilities
Revenue Bonds (Bon Secours Health System),
RIB, 8.015% due 8/26/2027 (b)(e) 5,656
AAA Aaa 5,000 Florida State Turnpike Authority, Turnpike Revenue
Bonds, Series A, 4.50% due 7/01/2027 4,362
AA+ Aa2 2,195 Jacksonville, Florida, Health Facilities Authority,
Hospital Revenue Bonds (Charity Obligation
Group), Series B, 5.25% due 8/15/2027 2,140
AAA Aaa 2,000 Lee County, Florida, Hospital Board of Directors,
Hospital Revenue Bonds, INFLOS, 9.316%
due 4/01/2001 (b)(d)(g) 2,330
AAA Aaa 25,895 Miami, Florida, Dade County, Special Obligation,
Series B, 5.55%** due 10/01/2029 (d) 4,603
NR* NR* 1,625 North Springs Improvement District, Florida,
Special Assessment Revenue Bonds (Parkland
Isles Project), Series B, 6.25% due 5/01/2005 1,646
====================================================================================================================================
Georgia--0.5% AA+ P1 1,500 Hapeville, Georgia, Development Authority, IDR
(Hapeville Hotel Ltd.), VRDN, 4.10% due
11/01/2015 (a) 1,500
====================================================================================================================================
Illinois--7.7% NR* NR* 975 Beardstown, Illinois, IDR (Jefferson Smurfit
Corp. Project), 8% due 10/01/2016 1,124
AAA Aaa 7,200 Chicago, Illinois, Board of Education (School
Reform), UT, Series A, 5.25% due 12/01/2027 (c) 7,031
AAA Aaa 3,230 Illinois Development Finance Authority, PCR,
Refunding (Illinois Power Company Project),
Series B, 5.40% due 3/01/2028 (d) 3,195
BBB NR* 5,000 Illinois Development Finance Authority, Revenue
Refunding Bonds (Community Rehabilitation
Providers), Series A, 6.05% due 7/01/2019 5,172
Illinois Health Facilities Authority Revenue Bonds, Series A:
AAA Aaa 1,050 (Highland Park Hospital Project), 5.75% due 10/01/2026 (d) 1,080
AAA Aaa 1,710 Refunding (Advocate Healthcare), 5.875% due 8/15/2022 (d) 1,776
A A3 2,880 Refunding (Riverside Health Systems), 6% due 11/15/2015 3,008
NR* NR* 3,000 Round Lake Beach, Illinois, Tax Increment Revenue
Refunding Bonds, 7.50% due 12/01/2013 3,269
====================================================================================================================================
Indiana--2.6% NR* NR* 8,985 Allen County, Indiana, Redevelopment District,
Tax Increment Revenue Bonds (General Motors
Development Area), 7%** due 11/15/2013 3,378
BBB+ NR* 1,000 Indiana Health Facilities Financing Authority,
Hospital Revenue Refunding Bonds (Jackson
County--Scheck Memorial), 5.25% due 2/15/2022 957
NR* Aaa 3,930 Indiana State Housing Finance Authority, S/F
Mortgage Revenue Bonds, Series A-1, 6.25%
due 1/01/2017 4,143
====================================================================================================================================
Kentucky--1.0% NR* NR* 3,150 Perry County, Kentucky, Solid Waste Disposal
Revenue Bonds (TJ International Project), AMT,
6.55% due 4/15/2027 3,445
====================================================================================================================================
Louisiana--0.2% A1+ VMIG1+ 500 Louisiana State Offshore Terminal Authority,
Deepwater Port Revenue Refunding Bonds
(Loop Inc.--First Stage), VRDN, Series A, 4.10% due 9/01/2008 (a) 500
====================================================================================================================================
Maryland--1.5% NR* NR* 4,550 Maryland State Energy Financing Administration,
Limited Obligation Revenue Bonds
(Cogeneration--AES Warrior Run), AMT, 7.40% due 9/01/2019 5,017
====================================================================================================================================
Massachusetts-- AAA Aaa 1,000 Massachusetts State, HFA, Housing Revenue Bonds
2.4% (Rental-Mortgage), AMT, Series B, 6.40%
due 7/01/2038 (c) 1,067
AAA Aaa 7,000 Massachusetts State, HFA, RITR, Series 29,
6.42% due 12/01/2028 (b)(d) 6,974
====================================================================================================================================
Michigan--1.0% AAA Aaa 2,500 Michigan State, HDA, Rental Housing Revenue
Refunding Bonds, Series A, 5.875% due 10/01/2017 (c) 2,592
A1+ VMIG1+ 600 Royal Oak, Michigan, Hospital Finance Authority
Revenue Bonds (William Beaumont Hospital),
VRDN, Series L, 4.15% due 1/01/2027 (a) 600
====================================================================================================================================
Mississippi--3.1% BBB- Ba1 7,675 Claiborne County, Mississippi, PCR, Refunding (System
Energy Resources Inc. Project), 6.20% due 2/01/2026 7,866
NR* NR* 2,375 Mississippi Development Bank, Special Obligation
Refunding Bonds (Diamond Lakes Utilities),
Series A, 6.25% due 12/01/2017 2,415
====================================================================================================================================
Missouri--0.3% BB NR* 755 Missouri State Health and Educational Facilities
Authority Revenue Bonds (Southwest Baptist
University Project), 9.50% due 10/01/2001 (h) 812
====================================================================================================================================
Nebraska--0.6% AAA NR* 1,980 Nebraska Investment Finance Authority, S/F
Housing Revenue Bonds, AMT, Series C, 6.30%
due 9/01/2028 2,104
====================================================================================================================================
</TABLE>
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
HDA Housing Development Authority
HFA Housing Finance Agency
IDA Industrial Development Authority
IDB Industrial Development Board
IDR Industrial Development Revenue Bonds
INFLOS Inverse Floating Rate Municipal Bonds
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
RITR Residual Interest Trust Receipts
S/F Single-Family
UT Unlimited Tax
VRDN Variable Rate Demand Notes
5 & 6
<PAGE>
MuniHoldings Fund, Inc., April 30, 1998
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Nevada--4.3% Nevada Housing Division, S/F Program:
NR* Aaa $ 4,315 Senior Series D-1, 6.15% due 10/01/2017 $ 4,547
NR* Aaa 1,890 Senior Series D-2, 6.35% due 4/01/2028 1,991
Nevada Housing Division, Senior Bonds, AMT, Series B-1:
NR* Aaa 4,335 6.05% due 10/01/2018 4,521
NR* Aaa 2,810 6.15% due 4/01/2029 2,930
====================================================================================================================================
New Hampshire-- NR* Aa3 5,145 New Hampshire State Housing Finance Authority,
1.6% S/F Revenue Bonds (Mortgage Acquisition),
AMT, Series G, 6.30% due 1/01/2026 5,393
====================================================================================================================================
New Jersey--2.3% NR* NR* 1,700 New Jersey EDA, Revenue Bonds (Leisure Park
Project), Series A, 5.875% due 12/01/2027 1,713
BB- Ba2 2,500 New Jersey EDA, Special Facility Revenue Bonds
(Continental Airlines Inc. Project), AMT,
5.50% due 4/01/2028 2,457
BBB Baa2 3,425 New Jersey Health Care Facilities Financing
Authority, Revenue Refunding Bonds
(Saint Elizabeth Hospital Obligation Group), 6% due 7/01/2020 3,569
====================================================================================================================================
New Mexico--4.7% Farmington, New Mexico, PCR, Refunding (Public Service Company):
BB+ Ba1 2,000 (San Juan Project), Series A, 6.30% due 12/01/2016 2,126
BB+ Ba1 2,500 (San Juan Project), Series B, 6.30% due 12/01/2016 2,658
BB+ Ba1 7,750 Series C, 5.80% due 4/01/2022 7,784
AAA Aaa 1,000 Los Alamos County, New Mexico, Utility System
Revenue Refunding Bonds, Series A, 6%
due 7/01/2015 (e) 1,064
AAA NR* 2,000 New Mexico Mortgage Finance Authority, S/F
Mortgage Program, AMT, Series B-2, 6.30%
due 7/01/2028 2,106
====================================================================================================================================
New York--14.8% AAA Aaa 5,000 Metropolitan Transportation Authority, New York,
Dedicated Tax Fund, Series A, 5.25%
due 4/01/2026 (d) 4,928
New York City, New York, Municipal Water
Finance Authority, Water and Sewer System
Revenue Bonds, RITR (b):
AAA Aaa 6,000 Series 11, 7.27% due 6/15/2026 (e) 6,540
AAA Aaa 1,065 Series 1997-6, 6.995% due 6/15/2026 (d) 1,140
New York City, New York, UT:
BBB+ A3 10,000 Refunding, Series F, 6% due 8/01/2016 10,572
BBB+ A3 7,035 Series E, 6% due 8/01/2016 7,437
A- A3 13,145 New York State Dormitory Authority, Revenue
Refunding Bonds (Mental Health Service Facilities),
Series B, 5.50% due 8/15/2017 13,240
New York State Urban Development Corporation Revenue Bonds, Series A:
AAA Aaa 4,000 Refunding (Correctional Capital), 5.25% due 1/01/2021 (e) 3,937
AAA Aaa 1,030 (Sports Facilities Assistance Program), 5.50% due 4/01/2019 (d) 1,044
====================================================================================================================================
Ohio--2.3% AAA Aaa 5,000 Ohio HFA, Mortgage Revenue Bonds, RITR, AMT,
Series 15, 6.12% due 9/01/2019 (b)(e) 4,906
NR* NR* 2,500 Ohio State Water Development Authority,
Solid Waste Disposal Revenue Bonds (Bay Shore
Power Project), AMT, Series A, 5.875% due 9/01/2020 2,505
====================================================================================================================================
Oklahoma--2.0% BBB NR* 985 Blaine County, Oklahoma, Industrial
Authority, IDR (US Gypsum Co. Project), 7.25%
due 10/01/2010 1,102
BBB- Baa2 5,400 Tulsa, Oklahoma, Municipal Airport Trust,
Revenue Refunding Bonds (American Airlines
Project), 6.25% due 6/01/2020 5,708
====================================================================================================================================
Oregon--0.4% NR* NR* 1,300 Western Generation Agency, Oregon, Cogeneration
Project Revenue Bonds (Wauna Cogeneration
Project), AMT, Series B, 7.40% due 1/01/2016 1,424
====================================================================================================================================
Pennsylvania--4.6% Beaver County, Pennsylvania, IDA, PCR,
Refunding (Cleveland Electric Project):
BB+ Ba2 1,600 7.625% due 5/01/2025 1,810
BB+ Ba2 1,500 Series A, 7.75% due 7/15/2025 1,721
NR* NR* 4,970 Pennsylvania State Higher Educational Facilities
Authority, College and University Revenue
Bonds (Eastern College), Series B, 8% due 10/15/2025 5,728
NR* NR* 4,000 Philadelphia, Pennsylvania, Authority for
IDR, Refunding (Commercial Development--Days Inn),
Series B, 6.50% due 10/01/2027 4,272
A1+ VMIG1+ 1,700 Philadelphia, Pennsylvania, Hospitals and
Higher Education Facilities Authority, Hospital
Revenue Bonds (Children's Hospital of Philadelphia
Project), VRDN, 4.15% due 3/01/2027 (a) 1,700
====================================================================================================================================
Tennessee--7.0% AA Aa 3,400 Educational Funding South, Inc., Tennessee,
Educational Loan Revenue Bonds, AMT, Senior
Sub-Series B, 6.20% due 12/01/2021 3,571
Hardeman County, Tennessee, Correctional
Facilities Corporation Revenue Bonds:
NR* NR* 680 7% due 8/01/2004 722
NR* NR* 4,500 7.75% due 8/01/2017 5,035
AA Aa2 8,500 Tennessee Housing Development Agency, Homeowner
Program, AMT, Series 3, 6% due 1/01/2028 8,800
A+ A1 4,750 Tennessee Housing Development Agency, Mortgage
Finance Refunding Bonds, Series A, 5.95%
due 7/01/2028 4,886
====================================================================================================================================
Texas--6.7% Harris County, Texas, Health Facilities Development
Corporation, Hospital Revenue Bonds:
A1+ NR* 200 (Methodist Hospital), VRDN, 4.15% due 12/01/2025 (a) 200
AAA Aaa 4,000 RITR, Series 12, 8.27% due 10/01/2004 (b)(d)(g) 4,890
BB Ba2 5,000 Houston, Texas, Airport System Revenue Bonds
(Special Facilities--Continental Airlines Terminal
Improvement), AMT, Series B, 6.125% due 7/15/2017 5,208
BB- Ba1 3,500 Lower Colorado River Authority, Texas, PCR
(Samsung Austin Semiconductor), AMT, 6.375%
due 4/01/2027 3,609
AAA NR* 1,825 Lubbock, Texas, Housing Finance Corporation,
S/F Mortgage Revenue Refunding Bonds
(Mortgage-Backed Securities Program),
Series A, 6.125% due 12/01/2017 (f) 1,923
BB Ba2 5,000 Odessa, Texas, Junior College District, Revenue
Refunding Bonds, Series A, 8.125% due 12/01/2018 5,757
====================================================================================================================================
Utah--3.3% AA Aa 7,200 Salt Lake City, Utah, Hospital Revenue Refunding
Bonds (IHC Hospitals Inc.), 6.25% due 2/15/2023 7,717
NR* NR* 3,000 Tooele County, Utah, PCR, Refunding (Laidlaw
Environmental), AMT, Series A, 7.55% due 7/01/2027 3,303
====================================================================================================================================
Virginia--0.5% AAA NR* 1,500 Prince William County, Virginia, IDR, Revenue
Refunding Bonds (Potomac Place), Series A, 6.25%
due 12/20/2027 (f) 1,600
====================================================================================================================================
Washington--1.6% Washington State Public Power Supply Systems, Revenue
Refunding Bonds
(Nuclear Project No. 1), Series A (d):
AAA Aaa 620 6.25% due 7/01/2002 (g) 673
AAA Aaa 4,380 6.25% due 7/01/2017 4,706
====================================================================================================================================
</TABLE>
7 & 8
<PAGE>
MuniHoldings Fund, Inc., April 30, 1998
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Wisconsin--0.9% AA Aa2 $ 2,800 Wisconsin Housing and Economic Development
Authority, Home Ownership Revenue Refunding
Bonds, AMT, Series B, 6.25% due 9/01/2027 $ 2,937
====================================================================================================================================
Total Investments (Cost--$314,808)--98.9% 326,223
Other Assets Less Liabilities--1.1% 3,494
--------
Net Assets--100.0% $329,717
========
====================================================================================================================================
</TABLE>
(a) 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,
1998.
(b) 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, 1998.
(c) AMBAC Insured.
(d) MBIA Insured.
(e) FSA Insured.
(f) GNMA Collateralized.
(g) Prerefunded.
(h) Escrowed to maturity.
+ Highest short-term rating by Moody's Investors Service, Inc.
* Not Rated.
** Represents a zero coupon bond; the interest rate shown is the effective
yield at the time of purchase by the Fund.
Ratings of issues shown have not been audited by Ernst & Young llp.
See Notes to Financial Statements.
Quality Profile
The quality ratings of securities in the Fund as of April 30, 1998 were as
follows:
- ------------------------------------------
Percent of
S&P Rating/Moody's Rating Net Assets
- ------------------------------------------
AAA/Aaa........................... 36.4%
AA/Aa............................. 11.7
A/A............................... 11.9
BBB/Baa........................... 9.7
BB/Ba............................. 11.4
B/B............................... 2.4
NR (Not Rated).................... 14.0
Other+............................ 1.4
- ------------------------------------------
+ Temporary investments in short-term municipal securities.
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<TABLE>
<CAPTION>
As of April 30, 1998
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<S> <C> <C>
Assets: Investments, at value (identified cost--$314,808,100) (Note 1a) .. $326,222,556
Cash ............................................................. 61,670
Receivables:
Interest ....................................................... $ 4,682,906
Securities sold ................................................ 3,530,760 8,213,666
------------
Prepaid expenses and other assets ................................ 16,173
------------
Total assets ..................................................... 334,514,065
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Liabilities: Payables:
Securities purchased ........................................... 4,374,150
Investment adviser (Note 2) .................................... 150,799
Dividends to shareholders (Note 1f) ............................ 128,167 4,653,116
------------
Accrued expenses and other liabilities ........................... 143,737
------------
Total liabilities ................................................ 4,796,853
------------
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Net Assets: Net assets ....................................................... $329,717,212
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Capital: Capital Stock (200,000,000 shares authorized) (Note 4):
Preferred Stock, par value $.10 per share (4,400 shares
of AMPS* issued and outstanding at $25,000 per share
liquidation preference) ........................................ $110,000,000
Common Stock, par value $.10 per share (13,728,989 shares
issued and outstanding) ........................................ $ 1,372,899
Paid-in capital in excess of par ................................. 203,133,104
Undistributed investment income--net ............................. 1,068,618
Undistributed realized capital gains on investments--net ......... 2,728,135
Unrealized appreciation on investments--net ...................... 11,414,456
------------
Total--Equivalent to $16.00 net asset value per share of
Common Stock (market price--$14.75) .............................. 219,717,212
------------
Total capital .................................................... $329,717,212
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</TABLE>
* Auction Market Preferred Stock.
See Notes to Financial Statements.
9 & 10
<PAGE>
MuniHoldings Fund, Inc., April 30, 1998
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Period May 2, 1997+ to April 30, 1998
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<S> <C> <C>
Investment Interest and amortization of premium and discount earned . $ 18,471,728
Income (Note 1d):
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Expenses: Investment advisory fees (Note 2) ........................ $ 1,742,970
Commission fees (Note 4) ................................. 246,884
Accounting services (Note 2) ............................. 67,133
Professional fees ........................................ 47,577
Transfer agent fees ...................................... 27,607
Custodian fees ........................................... 25,332
Directors' fees and expenses ............................. 23,991
Listing fees ............................................. 23,967
Pricing fees ............................................. 9,936
Printing and shareholder reports ......................... 9,265
Organization expenses .................................... 4,367
Other .................................................... 20,579
-----------
Total expenses ........................................... 2,249,608
Reimbursement of expenses (Note 2) ....................... (435,241)
-----------
Total expenses after reimbursement ....................... 1,814,367
------------
Investment income--net ................................... 16,657,361
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Realized & Realized gain on investments--net ........................ 2,728,135
Unrealized Gain On Unrealized appreciation on investments--net .............. 11,414,456
Investments--Net ------------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations ..... $ 30,799,952
============
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</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Period
May 2, 1997+ to
Increase (Decrease) in Net Assets: April 30, 1998
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<S> <C> <C>
Operations: Investment income--net ....................................................... $ 16,657,361
Realized gain on investments--net ............................................ 2,728,135
Unrealized appreciation on investments--net .................................. 11,414,456
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Net increase in net assets resulting from operations ......................... 30,799,952
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Dividends to Investment income--net:
Shareholders Common Stock ................................................................ (12,011,191)
(Note 1f): Preferred Stock ............................................................. (3,577,552)
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Net decrease in net assets resulting from dividends to shareholders .......... (15,588,743)
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Capital Stock Net proceeds from issuance of Common Stock ................................... 205,834,830
Transactions Proceeds from issuance of Preferred Stock .................................... 110,000,000
(Notes 1e & 4): Offering and underwriting costs resulting from the issuance of Common Stock .. (396,392)
Offering and underwriting costs resulting from the issuance of Preferred Stock (1,032,440)
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Net increase in net assets derived from capital stock transactions ........... 314,405,998
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Net Assets: Total increase in net assets ................................................. 329,617,207
Beginning of period .......................................................... 100,005
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End of period* ............................................................... $ 329,717,212
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* Undistributed investment income--net ......................................... $ 1,068,618
=============
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</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
11 & 12
<PAGE>
MuniHoldings Fund, Inc., April 30, 1998
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. For the Period
May 2, 1997+ to
Increase (Decrease) in Net Asset Value: April 30, 1998
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<S> <C> <C>
Per Share Net asset value, beginning of period ....................... $ 15.00
Operating ---------
Performance: Investment income--net ..................................... 1.21
Realized and unrealized gain on investments--net ........... 1.03
---------
Total from investment operations ........................... 2.24
---------
Less dividends to Common Stock shareholders:
Investment income--net ................................... (.87)
---------
Capital charge resulting from issuance of Common Stock ..... (.03)
---------
Effect of Preferred Stock activity:++
Dividends to Preferred Stock shareholders:
Investment income--net ................................. (.26)
Capital charge resulting from issuance of Preferred Stock (.08)
---------
Total effect of Preferred Stock activity ................... (.34)
---------
Net asset value, end of period ............................. $ 16.00
=========
Market price per share, end of period ...................... $ 14.75
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Total Investment Based on market price per share ............................ 4.01%+++
Return:** =========
Based on net asset value per share ......................... 12.83%+++
=========
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Ratios to Average Expenses, net of reimbursement ............................. .58%*
Net Assets:*** =========
Expenses ................................................... .72%*
=========
Investment income--net ..................................... 5.31%*
=========
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Supplemental Data: Net assets, net of Preferred Stock, end of period (in thousands) $ 219,717
=========
Preferred Stock outstanding, end of period (in thousands) .. $ 110,000
=========
Portfolio turnover ......................................... 106.16%
=========
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Leverage: Asset coverage per $1,000 .................................. $ 2,997
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Dividends Per Series A--Investment income--net ........................... $ 810
Share on Preferred =========
Series B--Investment income--net ........................... $ 816
=========
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</TABLE>
* Annualized.
** Total investment returns based on market value, which can be significantly
greater or lesser than the net asset value, may result in substantially
different returns. Total investment returns exclude the effects of sales
loads.
*** Do not reflect the effect of dividends to Preferred Stock shareholders.
+ Commencement of operations.
++ The Fund's Preferred Stock was issued on June 5, 1997.
+++ Aggregate total investment return.
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniHoldings Fund, Inc. (the "Fund") is registered under the Investment Company
Act of 1940 as a non-diversified, closed-end management investment company.
Prior to commencement of operations on May 2, 1997 the Fund had no operations
other than those relating to organizational matters and the sale of 6,667 shares
of Common Stock on April 25, 1997, to Fund Asset Management, L.P. ("FAM") for
$100,005. 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 most recent bid price or yield
equivalent as obtained by the Fund's pricing service from dealers that make
markets in such securities. Financial futures contracts and options thereon,
which are traded on exchanges, are valued at their closing prices as of the
close of such exchanges. Options, which are traded on exchanges, are valued at
their last sale price as of the close of such exchanges or, lacking any sales,
at the last available bid price. Securities with remaining maturities 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
strategies to seek to increase its return by hedging its portfolio against
adverse movements in the debt markets. Losses may arise due to changes in the
value of the contract or if the counterparty does not perform under the
contract.
o Financial futures contracts--The Fund may purchase or sell financial futures
contracts and options on such futures contracts for the purpose of hedging the
market risk on existing securities or the intended purchase of securities.
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.
o Options--The Fund is authorized to write covered call options and purchase
call and put options. When the Fund writes an option, an amount equal to the
premium received by the Fund is reflected as an asset and an equivalent
liability. The amount of the liability is subsequently marked to market to
reflect the current market value of the option written.
When a security is purchased or sold through an exercise of an option, the
related premium paid (or received) is added to (or deducted from) the basis of
the security acquired or deducted from (or added to) the proceeds of the
security sold. When an option expires (or the Fund enters into a closing
transaction), the Fund realizes a gain or loss on the option to the extent of
the premiums received or paid (or gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(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).
Interest income is recognized on the accrual basis. Discounts and market
premiums are amortized into interest income. Realized gains and losses on
security transactions are determined on the identified cost basis.
13 & 14
<PAGE>
MuniHoldings Fund, Inc., April 30, 1998
NOTES TO FINANCIAL STATEMENTS (concluded)
(e) Offering expenses--Direct expenses relating to the public offering of the
Fund's Shares were charged to capital at the time of issuance of the shares.
(f) Dividends and distributions--Dividends from net investment income are
declared and paid monthly. Distributions of capital gains are recorded on the
ex-dividend dates.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with 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 0.55% of the Fund's average weekly net assets, including
issuance of Preferred Stock. For the period May 2, 1997 to April 30, 1998, FAM
earned fees of $1,742,970, of which $398,261 was voluntarily waived. FAM also
reimbursed the Fund additional expenses of $36,980.
Accounting services are provided to the Fund by FAM at cost.
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
period May 2, 1997 to April 30, 1998 were $575,111,230 and $316,145,501,
respectively.
Net realized gains (losses) for the period May 2, 1997 to April 30, 1998 and net
unrealized gains as of April 30, 1998 were as follows:
- ---------------------------------------------------------
Realized
Gains Unrealized
(Losses) Gains
- ---------------------------------------------------------
Long-term investments ....... $ 6,397,402 $11,414,456
Financial futures contracts . (3,669,267) --
----------- -----------
Total ....................... $ 2,728,135 $11,414,456
=========== ===========
- ---------------------------------------------------------
As of April 30, 1998, net unrealized appreciation for Federal income tax
purposes aggregated $11,414,456, of which $12,497,113 related to appreciated
securities and $1,082,657 related to depreciated securities. The aggregate cost
of investments at April 30, 1998 for Federal income tax purposes was
$314,808,100.
4. Capital Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of capital 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 capital stock without approval of holders of
Common Stock.
Common Stock
During the period May 2, 1997 to April 30, 1998, 13,722,322 shares were sold.
Prior to May 2, 1997 (commencement of operations), the Fund issued 6,667 shares
to FAM for $100,005.
Preferred Stock
Auction Market Preferred Stock ("AMPS") are shares of Preferred Stock of the
Fund 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,
1998 were as follows: Series A, 4.00% and Series B, 3.75%.
In connection with the offering of AMPS, the Board of Directors reclassified
4,400 shares of unissued capital stock as AMPS. During the period May 2, 1997 to
April 30, 1998, 4,400 AMPS shares were sold. As a result, as of April 30, 1998,
there were 4,400 AMPS shares authorized, issued and outstanding, with a
liquidation preference of $25,000 per share.
The Fund pays commissions to certain broker-dealers at the end of each auction
at an annual rate ranging from 0.25% to 0.375%, calculated on the proceeds of
each auction. For the period May 2, 1997 to April 30, 1998, Merrill Lynch,
Pierce, Fenner & Smith Inc., an affiliate of FAM, earned $125,450 as
commissions.
5. Subsequent Event:
On May 7, 1998, the Fund's Board of Directors declared an ordinary income
dividend to Common Stock shareholders in the amount of $.071032 per share,
payable on May 28, 1998 to shareholders of record as of May 21, 1998.
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors,
MuniHoldings Fund, Inc.:
We have audited the accompanying statement of assets, liabilities and capital of
MuniHoldings Fund, Inc., including the schedule of investments, as of April 30,
1998, and the related statements of operations and changes in net assets, and
financial highlights for the period from May 2, 1997 (commencement of
operations) to April 30, 1998. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
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, 1998, by correspondence with the custodian and brokers. 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 audit provides 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. as of April 30, 1998 and the results of its operations,
the changes in its net assets, and the financial highlights for the period from
May 2, 1997 to April 30, 1998, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Princeton, New Jersey
May 29, 1998
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid by MuniHoldings Fund, Inc.
during its taxable year ended April 30, 1998 qualify as tax-exempt interest
dividends for Federal income tax purposes. Additionally, there were no capital
gains distributed by the Fund during the year.
Please retain this information for your records.
15 & 16
<PAGE>
Officers and Directors
Arthur Zeikel, President and Director
Ronald W. Forbes, Director
Cynthia A. Montgomery, Director
Charles C. Reilly, Director
Kevin A. Ryan, Director
Richard R. West, Director
Terry K. Glenn, Executive Vice President
Vincent R. Giordano, Senior Vice President
Donald C. Burke, Vice President
Robert A. DiMella, Vice President
Kenneth A. Jacob, Vice President
John M. Loffredo, Vice President
Gerald M. Richard, Treasurer
Patrick D. Sweeney, Secretary
Custodian
The Bank of New York
90 Washington Street
New York, NY 10286
Transfer Agents
Common Stock:
The Bank of New York
101 Barclay Street
New York, NY 10286
Preferred Stock:
IBJ Schroder Bank & Trust Company
One State Street
New York, NY 10004
NYSE Symbol
MHD
This report, including the financial information herein, is transmitted to the
shareholders of MuniHoldings Fund, Inc. for their information. It is not a
prospectus, circular or representation intended for use in the purchase of
shares of the Fund or any securities mentioned in the report. Past performance
results shown in this report should not be considered a representation of future
performance. The Fund has the ability to leverage its Common Stock by issuing
Preferred Stock to provide the Common Stock shareholders with a potentially
higher rate of return. Leverage creates risks for Common Stock shareholders,
including the likelihood of greater volatility of net asset value and market
price of shares of the Common Stock, and the risk that fluctuations in the
short-term dividend rates of the Preferred Stock may affect the yield to Common
Stock shareholders. Statements and other information herein are as dated and are
subject to change.
MuniHoldings Fund, Inc.
Box 9011
Princeton, NJ
08543-9011 #HOLD01--4/98
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