MUNIHOLDINGS
FUND, INC.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Semi-Annual Report
October 31, 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.
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, interest rates 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 such securities.
<PAGE>
MuniHoldings Fund, Inc., October 31, 1998
DEAR SHAREHOLDER
For the six months ended October 31, 1998, the Common Stock of MuniHoldings
Fund, Inc. earned $0.485 per share income dividends, which included earned and
unpaid dividends of $0.093. This represents a net annualized yield of 5.81%,
based on a month-end net asset value of $16.56 per share. Over the same period,
the total investment return on the Fund's Common Stock was +6.58%, based on a
change in per share net asset value from $16.00 to $16.56, and assuming
reinvestment of $0.463 per share income dividends.
For the six months ended October 31, 1998, the Fund's Auction Market Preferred
Stock had an average yield of 3.76% for Series A and 3.85% for Series B.
The Municipal Market Environment
During the six months ended October 31, 1998, long-term bond yields declined
significantly. The near absence of any inflationary pressures in the United
States continued to support historic low interest rates. Additionally, foreign
economic factors have continued to outweigh US domestic fundamentals, as they
have for much of 1998. The economic crisis that began in Asia over a year ago
has spread both to Russia and South America. However, economic factors in these
countries have begun to negatively impact US growth. For example, employment in
the US manufacturing sector declined in recent months as a result of reduced
demand for export goods. Concern that the modest decline in US economic growth
seen thus far would spread and intensify led the Federal Reserve Board to lower
short-term interest rates in late September, in mid-October and in mid-November.
These actions were taken to offset the drag of foreign economies on future US
growth.
US Treasury bond yields continued to benefit from a strong "flight to quality"
as foreign investors were drawn to the relative safe haven of US Government
securities. Additionally, the sharp equity market correction, which began at the
end of August, triggered a further flight into US Treasury securities. Long-term
US Treasury bond yields fell over 90 basis points (0.90%) to approximately 5% by
the end of September. This is the lowest level since the US Treasury
reintroduced 30-year maturity bond auctions in 1977.
By early October, worldwide investor confidence began to rise, reducing the
demand for the safety and liquidity of US Treasury securities. Investor
confidence was restored by the belief that major world governments, as well as
the International Monetary Fund, would take the necessary action to support weak
domestic economies in Asia and Latin America. Additionally, rapid recovery in US
and world equity markets caused some investors to reallocate funds from US debt
instruments back to various world equity markets. US Treasury security yields
rose for the remainder of the month to end October at 5.15%. During the
six-month period ended October 31, 1998, long-term Treasury security yields
declined approximately 80 basis points.
During the past 12 months, the tax-exempt bond market has contended with
significant new-issue supply pressures. Over the past year, more than $277
billion in new long-term tax-exempt bonds were underwritten, an increase of
almost 30% compared to the same period a year ago. During the most recent
six-month period, approximately $140 billion in new long-term municipal bonds
were underwritten, representing an increase of more than 15% over the same
six-month period last year. This increased supply, coupled with the high returns
the US equity market generated for much of 1998, was one of the major reasons
municipal bond yields declined less than their taxable counterparts during the
period.
The continued increase in new bond issuance has required ever-lower tax-exempt
bond yields to generate the economic savings necessary for additional municipal
bond financings. Consequently, the pace of new bond issuance has slowed in
recent months. In fact, the trend may be reversing. During the three months
ended October 31, 1998, just over $60 billion in new long-term municipal bonds
were underwritten, a decline of 4% compared to the same quarter a year ago.
During the month of October, there were less than $20 billion in new municipal
bond securities issued, a decline of over 10% compared to October 1997. We will
monitor this trend closely in the coming months to determine if the supply
pressures exerted thus far in 1998 are abating and fostering a more balanced
supply/demand environment.
Throughout the six-month period ended October 31, 1998, municipal bond yields
followed a pattern that was similar to US Treasury securities, although the
yield declines were more muted. As measured by the unmanaged Bond Buyer Revenue
Bond Index, long-term, uninsured tax-exempt revenue bond yields declined over 40
basis points to 5.09% by the end of September, their lowest level since the
early 1970s. Municipal bond yields rose during October to end the period at
5.24%. Over the past six months, long-term tax-exempt bond yields declined
almost 30 basis points.
Although municipal bond yields declined during the six-month period, recent
supply pressures and the absence of the safe haven status enjoyed by US
securities caused municipal bond yields to rise relative to US Treasury bond
yields. At October 31, 1998, long-term tax-exempt bond yield spreads were
attractive relative to US Treasury securities of comparable maturities (over
100%), well in excess of their historic range of 85%-88%. Tax-exempt bond yield
ratios have rarely exceeded 90% in the 1980s and 1990s. Historically, yield
spreads have been wider than these levels when there have been potential changes
in Federal tax codes that would have adversely affected the tax-favored status
of municipal bonds.
Currently, municipal bond investors find themselves in a unique investment
environment. Previous opportunities to purchase tax-exempt bonds with yields
exceeding that of comparable US Treasury issues have been limited to relatively
brief episodes and then further limited to a few municipal credits undergoing
specific financial pressures. At present, almost the entire municipal bond
universe, across nearly all maturity and credit sectors, can be purchased at
yields greater than their taxable counterparts. However, the current opportunity
may quickly disappear should tax-exempt bond supply pressures diminish or the
safe-haven status of US Treasury securities become less desirable. Under these
conditions, municipal bond ratios should quickly revert to more normal historic
percentages, certainly well below their presently attractive levels.
Portfolio Strategy
During the six-month period ended October 31, 1998, we maintained the Fund's
constructive strategy. Equity markets throughout the world entered a very
volatile stage, triggered by the currency crisis in Asia and followed by turmoil
in Russia and Latin America. We believed a continuation of equity market
declines would have a negative impact on economic growth, further constraining
global inflation and allowing for further declines in long-term interest rates.
This proved to be true as the increase in financial market volatility caused a
flight to quality into US Treasury bonds, pushing interest rates to historic
lows. Our constructive strategy enabled the Fund to fully participate in the
bond market rally and realize an attractive total return.
We believe that interest rates are likely to continue to trend lower in the
months ahead. Global economic growth appears to be slowing substantially.
Central banks throughout the world, including the US Federal Reserve Board, are
trying to stimulate economic growth by easing monetary policy. However, these
actions are likely to have a delayed impact. Consequently, our investment
outlook will remain constructive until there are signs that the economy has
started responding to the monetary stimulus.
During the six-month period ended October 31, 1998, the yield on the Fund's
Auction Market Preferred Stock traded between 3.15% and 4.00%. 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 Fund's 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
December 4, 1998
2 & 3
<PAGE>
MuniHoldings Fund, Inc., October 31, 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- Baa2 $ 3,250 Fairfield, Alabama, IDB, Environmental Improvement Revenue
Refunding Bonds (USX Corporation Projects), 5.45%
due 9/01/2014 $ 3,260
- ------------------------------------------------------------------------------------------------------------------------------------
Alaska--0.8% A1 P1 2,600 Valdez, Alaska, Marine Terminal Revenue Refunding Bonds
(Exxon Pipeline Company Project), Series A, 3.70% due
12/01/2033 2,600
- ------------------------------------------------------------------------------------------------------------------------------------
Arizona--3.8% B B2 5,000 Apache County, Arizona, IDA, PCR, Refunding (Tucson
Electric Power Co. Project), Series B, 5.875% due
3/01/2033 4,978
Maricopa County, Arizona, Pollution Control Corporation,
PCR, Refunding (Arizona Public Service Company), Series A:
BB+ Ba1 3,500 5.75% due 11/01/2022 3,565
A1+ P1 100 VRDN, 3.70% due 5/01/2029 (j) 100
NR* B1 3,000 Phoenix, Arizona, IDA, Airport Facility Revenue Refunding
Bonds (America West Airlines Inc.), AMT, 6.30% due 4/01/2023 3,110
NR* NR* 1,000 Show-Low, Arizona, Improvement District No. 5, 6.375%
due 1/01/2015 1,068
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California--3.8% 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) 2,418
NR* Baa2 1,340 California Educational Facilities Authority Revenue Bonds
(Pooled College and University Projects), Series B, 6.125%
due 4/01/2013 1,454
AAA Aaa 7,500 San Diego, California, IDR, RITR, Series 97-1, 8.435%
due 9/01/2018 (i) 8,881
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Colorado--3.8% NR* Aa2 4,000 Colorado HFA, S/F Program, Revenue Bonds, AMT, Senior
Series B-2, 7% due 5/01/2026 4,487
AAA Aaa 5,000 Denver, Colorado, City and County Airport Revenue
Refunding Bonds, Series D, 5.50% due 11/15/2025 (g) 5,279
AAA Aaa 7,250 E-470 Public Highway Authority, Colorado, Revenue
Refunding Bonds, Capital Appreciation, Senior Series B,
4.99%** due 9/01/2016 (g) 2,994
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Connecticut--3.7% B+ Ba3 5,500 Connecticut State Development Authority, PCR Refunding
(Connecticut Light & Power Company), Series A, 5.85% due
9/01/2028 5,521
AA Aa2 3,500 Connecticut State HFA, Housing Mortgage Finance Program,
Sub-Series D-1, 6% due 5/15/2027 3,727
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 3,187
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Florida--7.8% AAA Aaa 5,000 Charlotte County, Florida, Health Care Facilities Revenue
Bonds (Bon Secours Health System) RIB, 7.863% due
8/26/2027 (e)(i) 5,738
AAA Aaa 7,500 Florida State Board of Education, Public Education
(Capital Outlay), Series B, 4.50% due 6/01/2028 (g) 6,935
AAA Aaa 5,000 Florida State Turnpike Authority, Turnpike Revenue Bonds,
Department of Transportation, Series A, 4.50% due
7/01/2027 (b) 4,643
AAA Aaa 2,000 Lee County, Florida, Hospital Board of Directors, Hospital
Revenue Bonds, INFLOS, 9.468% due 4/01/2001 (g)(h)(i) 2,348
AAA Aaa 25,895 Miami--Dade County, Florida, Special Obligation Revenue
Bonds, Sub-Series B, 5.547%** due 10/01/2029 (g) 4,962
NR* NR* 1,625 North Springs, Florida, Improvement District, Special
Assessment Revenue Bonds (Parkland Isles Project),
Series B, 6.25% due 5/01/2005 1,670
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Illinois--6.4% NR* NR* 945 Beardstown, Illinois, IDR (Jefferson Smurfit Corp.
Project), 8% due 10/01/2016 1,095
AAA Aaa 2,500 Chicago, Illinois, Board of Education, Chicago School
Reform, GO, UT, Series A, 5.25% due 12/01/2022 (a) 2,534
AAA Aaa 3,230 Illinois Development Finance Authority, PCR, Refunding
(Illinois Power Company Project), Series B, 5.40% due
3/01/2028 (g) 3,293
BBB NR* 5,000 Illinois Development Finance Authority, Revenue Refunding
Bonds (Community Rehab Providers), Series A, 6.05% due
7/01/2019 5,248
Illinois Health Facilities Authority, Revenue Bonds,
Series A:
AAA Aaa 1,050 (Highland Park Hospital Project), 5.75% due
10/01/2026 (g) 1,123
AAA Aaa 1,710 Refunding (Advocate Healthcare), 5.875% due
8/15/2022 (g) 1,845
A A3 2,880 Refunding (Riverside Health System), 6% due
11/15/2015 3,110
NR* NR* 3,000 Round Lake Beach, Illinois, Tax Increment Revenue
Refunding Bonds, 7.50% due 12/01/2013 3,289
- ------------------------------------------------------------------------------------------------------------------------------------
Indiana--2.3% NR* NR* 8,985 Allen County, Indiana, Redevelopment District Tax
Increment Revenue Bonds, Capital Appreciation (General
Motors Development Area), 7%** due 11/15/2013 3,611
NR* Aaa 3,930 Indiana State Housing Finance Authority, S/F Mortgage
Revenue Bonds, Series A-1, 6.25% due 1/01/2017 (c) 4,201
- ------------------------------------------------------------------------------------------------------------------------------------
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 3,474
- ------------------------------------------------------------------------------------------------------------------------------------
Maryland--1.4% NR* NR* 4,550 Maryland State Energy Financing Administration, Limited
Obligation Revenue Bonds (Cogeneration-AES Warrior Run),
AMT, 7.40% due 9/01/2019 4,727
- ------------------------------------------------------------------------------------------------------------------------------------
Massachusetts--2.5% AAA Aaa 1,000 Massachusetts State, HFA, Housing Revenue Bonds (Rental
Mortgage), AMT, Series B, 6.40% due 7/01/2038 (a) 1,089
AAA Aaa 7,000 Massachusetts State, HFA, RITR, 7.07% due
12/01/2028 (g)(i) 7,351
- ------------------------------------------------------------------------------------------------------------------------------------
Michigan--1.5% BB- NR* 2,880 Detroit, Michigan, Local Development Finance Authority,
Sub-Tax Increment, Series A, 5.50% due 5/01/2021 2,840
AAA Aaa 2,040 Michigan State, HDA, Rental Housing, Revenue Refunding
Bonds, Series A, 5.875% due 10/01/2017 (a) 2,147
- ------------------------------------------------------------------------------------------------------------------------------------
Mississippi--3.0% BBB- Ba1 7,675 Claiborne County, Mississippi, PCR, Refunding (System
Energy Resources Inc. Project), 6.20% due 2/01/2026 7,900
NR* NR* 2,375 Mississippi Development Bank, Special Obligation Revenue
Refunding Bonds (Diamond Lakes Utilities), Series A, 6.25%
due 12/01/2017 2,448
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</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)
COP Certificates of Participation
GO General Obligation Bonds
HDA Housing Development Authority
HFA Housing Finance Agency
IDA Industrial Development Authority
IDB Industrial Development Board
IDR Industrial Development Revenue Bonds
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
4 & 5
<PAGE>
MuniHoldings Fund, Inc., October 31, 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>
Missouri--0.2% NR* NR* $ 590 Missouri State Health and Educational Facilities
Authority Revenue Bonds (Southwest Baptist University
Project), 9.50% due 10/01/2001 (k) $ 633
- ------------------------------------------------------------------------------------------------------------------------------------
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 (d) 2,135
- ------------------------------------------------------------------------------------------------------------------------------------
Nevada--4.2% Nevada Housing Division Revenue Bonds, S/F Mortgage:
NR* Aaa 4,310 AMT, Series B-1, 6.05% due 10/01/2018 4,573
NR* Aaa 2,790 AMT, Series B-1, 6.15% due 4/01/2029 2,960
NR* Aaa 1,890 AMT, Series D-2, 6.35% due 4/01/2028 2,021
NR* Aaa 4,315 Senior Series D-1, 6.15% due 10/01/2017 4,617
- ------------------------------------------------------------------------------------------------------------------------------------
New Hampshire--3.1% NR* Aaa 5,000 New Hampshire, Higher Educational and Health Facilities
Authority Revenue Bonds (Dartmouth Educational Loan),
AMT, Series A, 5.55% due 6/01/2023 5,111
NR* Aa3 4,950 New Hampshire State Housing Finance Authority, S/F
Mortgage Acquisition, Revenue Bonds, AMT, Series G, 6.30%
due 1/01/2026 5,262
- ------------------------------------------------------------------------------------------------------------------------------------
New Jersey--1.1% BBB Baa2 3,425 New Jersey Health Care Facilities Financing Authority,
Revenue Refunding Bonds (Saint Elizabeth Hospital
Obligation Group), 6% due 7/01/2020 3,631
- ------------------------------------------------------------------------------------------------------------------------------------
New Mexico--4.9% Farmington, New Mexico, PCR, Refunding:
A1 P1+ 500 (Arizona Public Service Co.), VRDN, Series B, 3.70%
due 9/01/2024 (j) 500
BB+ Ba1 2,000 (Public Service Company--San Juan Project), Series A,
6.30% due 12/01/2016 2,136
BB+ Ba1 2,500 (Public Service Company--San Juan Project), Series B,
6.30% due 12/01/2016 2,689
AA+ Ba1 7,750 (Public Service Company), Series C, 5.80% due
4/01/2022 7,885
AAA Aaa 1,000 Los Alamos County, New Mexico, Utility System, Revenue
Refunding Bonds, Series A, 6% due 7/01/2015 (e) 1,090
AAA NR* 2,000 New Mexico Mortgage Finance Authority (S/F Mortgage
Program), AMT, Series B-2, 6.30% due 7/01/2028 (d) 2,143
- ------------------------------------------------------------------------------------------------------------------------------------
New York--14.7% New York City, New York, GO, UT:
A- A3 10,000 Refunding Bonds, Series F, 6% due 8/01/2016 10,859
A- A3 5,000 Refunding Bonds, Series G, 5.25% due 8/01/2016 5,093
A- A3 7,035 Series E, 6% due 8/01/2016 7,639
New York City, New York, Municipal Water Finance
Authority, Water and Sewer System Revenue Bonds, RITR (i):
AAA Aaa 1,065 7.745% due 6/15/2026 (g) 1,223
AAA Aaa 6,000 Series 11, 8.02% due 6/15/2026 (e) 7,019
A- A3 13,145 New York State Dormitory Authority, Revenue Refunding
Bonds (Mental Health Service Facilities), Series B, 5.50%
due 8/15/2017 13,711
AAA Aaa 4,000 New York State Urban Development Corp., Revenue Refunding
Bonds (Correctional Capital Project), Series A, 5.25%
due 1/01/2021 (e) 4,062
- ------------------------------------------------------------------------------------------------------------------------------------
Ohio--3.2% AAA Aaa 4,000 Cleveland, Ohio, COP (Cleveland Stadium Project), 5.25%
due 11/15/2022 (a) 4,067
AAA Aaa 5,000 Ohio State, HFA Mortgage Revenue Bonds, RITR, AMT,
Series 15, 6.82% due 9/01/2019 (e)(f)(i) 5,170
NR* NR* 1,500 Ohio State Water Development Authority, Solid Waste
Disposal Revenue Bonds (Bay Shore Power Project), AMT,
Series A, 5.875% due 9/01/2020 1,513
- ------------------------------------------------------------------------------------------------------------------------------------
Oklahoma--2.0% BB+ NR* 985 Blaine County, Oklahoma, Industrial Authority, IDR
(US Gypsum Co. Project), 7.25% due 10/01/2010 1,102
BBB- Baa1 5,400 Tulsa, Oklahoma, Municipal Airport Trust, Revenue
Refunding Bonds (American Airlines Project), 6.25%
due 6/01/2020 5,758
- ------------------------------------------------------------------------------------------------------------------------------------
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 1,427
- ------------------------------------------------------------------------------------------------------------------------------------
Pennsylvania--4.4% Beaver County, Pennsylvania, IDA, PCR, Refunding
(Cleveland Electric Project):
BB+ Ba1 1,600 7.625% due 5/01/2025 1,809
BB+ Ba1 1,500 Series A, 7.75% due 7/15/2025 1,710
NR* NR* 1,000 Lehigh County, Pennsylvania, General Purpose Authority,
Revenue Refunding Bonds (Kidspeace Obligation Group), 6%
due 11/01/2018 1,007
NR* NR* 4,970 Pennsylvania State Higher Educational Facilities Authority,
College and University Revenue Bonds (Eastern College),
Series B, 8% due 10/15/2025 5,962
NR* NR* 4,000 Philadelphia, Pennsylvania, Authority for IDR, Refunding
(Commercial Development--Days Inn), Series B, 6.50% due
10/01/2027 4,323
- ------------------------------------------------------------------------------------------------------------------------------------
Tennessee--6.0% Hardeman County, Tennessee, Correctional Facilities
Corporation Revenue Bonds:
NR* NR* 680 7% due 8/01/2004 736
NR* NR* 4,500 7.75% due 8/01/2017 5,074
NR* Aa2 3,400 Tennessee Educational Loan Revenue Bonds (Educational
Funding South Inc.), AMT, Senior Series B, 6.20% due
12/01/2021 3,649
AA Aa2 5,660 Tennessee Housing Development Agency (Homeowners Program),
AMT, Series 3, 6% due 1/01/2028 5,993
A+ A1 4,750 Tennessee Housing Development Agency, Mortgage Finance
Revenue Refunding Bonds, Series A, 5.95% due 7/01/2028 4,943
- ------------------------------------------------------------------------------------------------------------------------------------
Texas--6.5% NR* Aaa 4,000 Harris County, Texas, Health Facilities Development Corp.,
Hospital Revenue Bonds, RITR, Series 12, 9.02% due
10/01/2004 (g)(h)(i) 5,072
BB Ba1 5,000 Houston, Texas, Airport System Revenue Bonds (Special
Facilities--Continental Airline Terminal Improvement),
AMT, Series B, 6.125% due 7/15/2017 5,144
BB- Ba1 3,500 Lower Colorado River Authority, Texas, PCR (Samsung Austin
Semiconductor), AMT, 6.375% due 4/01/2027 3,636
AAA NR* 1,825 Lubbock, Texas, Housing Finance Corporation, Revenue
Refunding Bonds (Mortgage Backed Securities Program),
S/F, Series A, 6.125% due 12/01/2017 (f) 1,956
AAA Aaa 5,000 Odessa, Texas, Junior College District, Revenue Refunding
Bonds, Series A, 8.125% due 6/01/2005 (h) 6,214
- ------------------------------------------------------------------------------------------------------------------------------------
Utah--3.3% AA Aa2 7,200 Salt Lake City, Utah, Hospital Revenue Refunding Bonds
(IHC Hospitals Inc.), 6.25% due 2/15/2023 7,848
NR* NR* 3,000 Tooele County, Utah, PCR, Refunding (Laidlaw Environmental),
AMT, Series A, 7.55% due 7/01/2027 3,331
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
6 & 7
<PAGE>
MuniHoldings Fund, Inc., October 31, 1998
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Virginia--0.5% Pocahontas Parkway Associates, Virginia, Toll Road
Revenue Bonds, First Tier, Sub-Series C:
NR* Ba1 $ 5,600 6.25%** due 8/15/2028 $ 896
NR* Ba1 5,700 6.25%** due 8/15/2029 858
- ------------------------------------------------------------------------------------------------------------------------------------
Washington--1.6% Washington State Public Power Supply System, Revenue
Refunding Bonds (Nuclear Project Number 1), Series A (g):
AAA Aaa 620 6.25% due 7/01/2002 (h) 684
AAA Aaa 4,380 6.25% due 7/01/2017 4,781
- ------------------------------------------------------------------------------------------------------------------------------------
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 2,998
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investments (Cost--$320,710)--100.4% 338,903
Liabilities in Excess of Other Assets--(0.4%) (1,412)
--------
Net Assets--100.0% $337,491
========
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) AMBAC Insured.
(b) FGIC Insured.
(c) FHA Insured.
(d) FNMA/GNMA Collateralized.
(e) FSA Insured.
(f) GNMA Collateralized.
(g) MBIA Insured.
(h) Prerefunded.
(i) The interest rate is subject to change
periodically and inversely based upon
prevailing market rates. The interest rate
shown is the rate in effect at October 31,
1998.
(j) The interest rate is subject to change
periodically based upon prevailing market
rates. The interest rate shown is the rate in
effect at October 31, 1998.
(k) Escrowed to maturity.
* Not Rated.
** Represents a zero coupon bond; the interest
rate shown is the effective yield at time of
purchase by the Fund.
See Notes to Financial Statements.
Quality Profile
The quality ratings of securities in the Fund as of October 31, 1998 were as
follows:
- --------------------------------------------------------------------------------
Percent of
S&P Rating/Moody's Rating Net Assets
- --------------------------------------------------------------------------------
AAA/Aaa ............................................................. 37.3%
AA/Aa ............................................................... 14.4
A/A ................................................................. 11.1
BBB/Baa ............................................................. 9.3
BB/Ba ............................................................... 11.5
B/B ................................................................. 2.4
NR (Not Rated) ...................................................... 13.4
Other+ .............................................................. 1.0
- --------------------------------------------------------------------------------
+ Temporary investments in short-term securities.
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<TABLE>
As of October 31, 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$320,710,430) (Note 1a) ....................... $338,903,281
Cash .................................................................................. 463,981
Receivables:
Interest ............................................................................ $ 4,920,363
Securities sold ..................................................................... 463,378 5,383,741
-----------
Prepaid expenses ...................................................................... 16,173
------------
Total assets .......................................................................... 344,767,176
------------
- -----------------------------------------------------------------------------------------------------------------------------------
Liabilities: Payables:
Securities purchased ................................................................ 6,960,562
Investment adviser (Note 2) ......................................................... 163,666 7,124,228
-----------
Accrued expenses and other liabilities ................................................ 152,184
------------
Total liabilities ..................................................................... 7,276,412
------------
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets: Net assets ............................................................................ $337,490,764
============
- -----------------------------------------------------------------------------------------------------------------------------------
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 (13,734,417 shares issued and outstanding) ... $ 1,373,442
Paid-in capital in excess of par ...................................................... 203,222,506
Undistributed investment income--net .................................................. 1,616,962
Undistributed realized capital gains on investments--net .............................. 3,085,003
Unrealized appreciation on investments--net ........................................... 18,192,851
------------
Total--Equivalent to $16.56 net asset value per share of Common Stock
(market price--$16.625) ............................................................... 227,490,764
------------
Total capital ......................................................................... $337,490,764
============
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Auction Market Preferred Stock.
See Notes to Financial Statements.
8 & 9
<PAGE>
MuniHoldings Fund, Inc., October 31, 1998
STATEMENT OF OPERATIONS
<TABLE>
For the Six Months Ended October 31, 1998
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Interest and amortization of premium and discount earned .................... $ 9,760,270
Income (Note 1d):
- -------------------------------------------------------------------------------------------------------------------------------
Expenses: Investment advisory fees (Note 2) ........................................... $ 935,977
Commission fees (Note 4) .................................................... 152,158
Professional fees ........................................................... 44,037
Accounting services (Note 2) ................................................ 34,644
Listing fees ................................................................ 22,042
Transfer agent fees ......................................................... 17,823
Printing and shareholder reports ............................................ 15,184
Custodian fees .............................................................. 12,994
Directors' fees and expenses ................................................ 12,533
Pricing fees ................................................................ 8,861
----------
Total expenses .............................................................. 1,256,253
------------
Investment income--net ...................................................... 8,504,017
------------
- -------------------------------------------------------------------------------------------------------------------------------
Realized Realized gain on investments--net ........................................... 879,522
Unrealized Gain on Change in unrealized appreciation on investments--net ....................... 6,778,395
Investements--Net ------------
(Notes 1b, 1d & 3) Net Increase in Net Assets Resulting from Operations ........................ $ 16,161,934
============
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Six For the Period
Months Ended May 2, 1997+ to
Increase (Decrease) in Net Assets: Oct. 31, 1998 April 30, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations: Investment income--net ........................................................ $ 8,504,017 $ 16,657,361
Realized gain on investments--net ............................................. 879,522 2,728,135
Change in unrealized appreciation on investments--net ......................... 6,778,395 11,414,456
------------- -------------
Net increase in net assets resulting from operations .......................... 16,161,934 30,799,952
------------- -------------
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends & Investment income--net:
Distributions to Common Stock ................................................................ (6,359,089) (12,011,191)
Shareholders Preferred Stock ............................................................. (1,596,584) (3,577,552)
(Note 1f): Realized gain on investments--net:
Preferred Stock ............................................................. (522,654) --
------------- -------------
Net decrease in net assets resulting from dividends and distributions to
shareholders .................................................................. (8,478,327) (15,588,743)
------------- -------------
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Stock Net proceeds from issuance of Common Stock .................................... 89,945 205,834,830
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)
------------- -------------
Net increase in net assets derived from capital stock transactions ............ 89,945 314,405,998
------------- -------------
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets: Total increase in net assets .................................................. 7,773,552 329,617,207
Beginning of period ........................................................... 329,717,212 100,005
------------- -------------
End of period* ................................................................ $ 337,490,764 $ 329,717,212
============= =============
- ------------------------------------------------------------------------------------------------------------------------------------
*Undistributed investment income--net ......................................... $ 1,616,962 $ 1,068,618
============= =============
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
10 & 11
<PAGE>
MuniHoldings Fund, Inc., October 31, 1998
FINANCIAL HIGHLIGHTS
The following per share data and ratios have been derived
from information provided in the financial statements.
<TABLE>
<CAPTION>
For the Six For the Period
Months Ended May 2, 1997+ to
Increase (Decrease) in Net Asset Value: Oct. 31, 1998 April 30, 1998
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share Net asset value, beginning of period ........................... $ 16.00 $ 15.00
Operating ------------ ------------
Performance: Investment income--net ......................................... .62 1.21
Realized and unrealized gain on investments--net ............... .56 1.03
------------ ------------
Total from investment operations ............................... 1.18 2.24
------------ ------------
Less dividends to Common Stock shareholders:
Investment income--net ....................................... (.46) (.87)
------------ ------------
Capital charge resulting from issuance of Common Stock ......... -- (.03)
------------ ------------
Effect of Preferred Stock activity:++
Dividends to Preferred Stock shareholders:
Investment income--net ..................................... (.12) (.26)
Realized gain on investments--net .......................... (.04) --
Capital charge resulting from issuance of Preferred Stock .... -- (.08)
------------ ------------
Total effect of Preferred Stock activity ....................... (.16) (.34)
------------ ------------
Net asset value, end of period ................................. $ 16.56 $ 16.00
============ ============
Market price per share, end of period .......................... $ 16.625 $ 14.75
============ ============
- -------------------------------------------------------------------------------------------------------------------------
Total Investment Based on market price per share ................................ 16.07%+++ 4.01%+++
Return:** ============ ============
Based on net asset value per share ............................. 6.58%+++ 12.83%+++
============ ============
- -------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses, net of reimbursement ................................. .74%* .58%*
Net Assets:*** ============ ============
Expenses ....................................................... .74%* .72%*
============ ============
Investment income--net ......................................... 5.00%* 5.31%*
============ ============
- -------------------------------------------------------------------------------------------------------------------------
Supplemental Data: Net assets, net of Preferred Stock, end of period (in thousands) $ 227,491 $ 219,717
============ ============
Preferred Stock outstanding, end of period (in thousands) ...... $ 110,000 $ 110,000
============ ============
Portfolio turnover ............................................. 17.97% 106.16%
============ ============
- -------------------------------------------------------------------------------------------------------------------------
Leverage: Asset coverage per $1,000 ...................................... $ 3,068 $ 2,997
============ ============
- -------------------------------------------------------------------------------------------------------------------------
Dividends Per Series A--Investment income--net ............................... $ 370 $ 810
Share on Preferred ============ ============
Stock Outstanding: Series B--Investment income--net ............................... $ 356 $ 816
============ ============
- -------------------------------------------------------------------------------------------------------------------------
</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.
These unaudited financial statements reflect all adjustments which are, in the
opinion of management, necessary to a fair statement of the results for the
interim period presented. All such adjustments are of a normal recurring nature.
The Fund'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 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). 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
12 & 13
<PAGE>
MuniHoldings Fund, Inc., October 31, 1998
NOTES TO FINANCIAL STATEMENTS (concluded)
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.
(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 Agree-ment 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
proceeds from the issuance of Preferred Stock.
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 six
months ended October 31, 1998 were $64,767,257 and $58,440,622, respectively.
Net realized gains for the six months October 31, 1998 and net unrealized gains
as of October 31, 1998 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains Gains
- --------------------------------------------------------------------------------
Long-term investments .................. $ 879,522 $18,192,851
----------- -----------
Total .................................. $ 879,522 $18,192,851
=========== ===========
- --------------------------------------------------------------------------------
As of October 31, 1998, net unrealized appreciation for Federal income tax
purposes aggregated $18,192,851, of which $18,571,865 related to appreciated
securities and $379,014 related to depreciated securities. The aggregate cost of
investments at October 31, 1998 for Federal income tax purposes was
$320,710,430.
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
Shares issued and outstanding during the six months ended October 31, 1998
increased by 5,428 as a result of shares sold and during the period May 2, 1997
to April 30, 1998 increased by 13,722,322 as a result of shares sold.
Preferred Stock
Auction Market Preferred Stock ("AMPS") are shares of Preferred Stock of the
Fund, with a par value of $.10 per share and a liquidation preference of $25,000
per share, that entitle their holders to receive cash dividends at an annual
rate that may vary for the successive dividend periods. The yields in effect at
October 31, 1998 were as follows: Series A, 3.23% and Series B, 3.23%.
Shares issued and outstanding during the six months ended October 31, 1998
remained constant and during the period May 2, 1997 to April 30, 1998 shares
increased by 4,400 as a result of the AMPS offering.
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 six months ended October 31, 1998, Merrill Lynch, Pierce,
Fenner & Smith Inc., an affiliate of FAM, earned $126,642 as commissions.
5. Subsequent Event:
On November 5, 1998, the Fund's Board of Directors declared an ordinary income
dividend to Common Stock shareholders in the amount of $.093039 per share,
payable on November 27, 1998 to shareholders of record as of November 20, 1998.
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.
14 & 15
<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--10/98
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