MUNIHOLDINGS
FUND, INC.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Semi-Annual Report
October 31, 1999
<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, income on inverse floaters will
decrease when short-term interest rates increase and increase when short-term
interest rates decrease. Investments in inverse floaters may be characterized as
derivative securities and may subject the Fund to the risks of reduced or
eliminated interest payments and losses of invested principal. In addition,
inverse floaters have the effect of providing investment leverage and, as a
result, the market value of such securities will generally be more volatile than
that of fixed-rate, tax-exempt securities. To the extent the Fund invests in
inverse floaters, the market value of the Fund's portfolio and the net asset
value of the Fund's shares may also be more volatile than if the Fund did not
invest in these securities.
<PAGE>
MuniHoldings Fund, Inc., October 31, 1999
DEAR SHAREHOLDER
For the six months ended October 31, 1999, the Common Stock of MuniHoldings
Fund, Inc. earned $0.467 per share income dividends, which included earned and
unpaid dividends of $0.077. This represents a net annualized yield of 6.71%,
based on a month-end net asset value of $13.81 per share. Over the same period,
the total investment return on the Fund's Common Stock was--11.06%, based on a
change in per share net asset value from $16.05 to $13.81, and assuming
reinvestment of $0.467 per share income dividends.
For the six months ended October 31, 1999, the Fund's Auction Market Preferred
Stock had an average yield of 3.29% for Series A and 3.26% for Series B.
The Municipal Market Environment
The combination of steady strong domestic economic growth, improvement in
foreign economies (most notably in Japan) and increasing investor concerns
regarding potential increases in US inflation put upward pressure on bond yields
throughout the six-month period ended October 31, 1999. Continued strong US
employment growth, particularly the decline in the US unemployment rate to 4.2%
in early June, was among the reasons the Federal Reserve Board cited for raising
short-term interest rates in late June and again in late August. US Treasury
bond yields reacted by climbing above 6.375% by late October. However, at
October month-end, economic indicators were released suggesting that, despite
strong economic and employment growth in the third quarter, inflationary
pressures have remained extremely well contained. This resulted in a significant
rally in the US Treasury bond market, pushing US Treasury bond yields downward
to end the six-month period at approximately 6.15%. During the period, yields on
30-year US Treasury bonds increased over 50 basis points (0.50%).
Long-term tax-exempt bond yields also rose during the six months ended October
31, 1999. Until early May, the municipal bond market was able to withstand much
of the upward pressure on bond yields. However, investor concerns of additional
moves by the Federal Reserve Board to moderate US economic growth and, more
importantly, the loss of the strong technical support that the tax-exempt market
enjoyed in early 1999 helped push municipal bond yields significantly higher for
the remainder of the period. The yields on long-term tax-exempt revenue bonds
rose nearly 90 basis points to 6.18% by October 31, 1999, as measured by the
Bond Buyer Revenue Bond Index.
In recent months, the significant decline in new tax-exempt bond issuance has
remained a positive factor within the municipal bond market, as it had been for
much of the past year. During the last six months, more than $110 billion in
long-term municipal bonds was issued, a decline of nearly 20% compared to the
same period a year ago. During the past three months, $55 billion in municipal
bonds was underwritten, representing a decline of nearly 10% compared to the
corresponding period in 1998. Additionally, in June and July, investors received
more than $40 billion in coupon income and proceeds from bond maturities and
early bond redemptions. These proceeds have generated considerable retail
investor interest, which has helped absorb the recent diminished supply.
Although tax-exempt bond yields are at their highest level in over two years and
have attracted significant retail investor interest, institutional demand has
declined sharply. Long-term municipal mutual funds have seen consistent outflows
in recent months as the yields of individual securities have risen faster than
those of larger, more diverse mutual funds. In addition, the demand from
property/casualty insurance companies has weakened as a result of the losses,
and anticipated losses, incurred as a result of the series of damaging storms
across much of the eastern United States. Additionally, many institutional
investors who were attracted to the municipal bond market in recent years by
historically attractive tax-exempt bond yield ratios of over 90% have found
other asset classes even more attractive. Even with a reduced supply position,
tax-exempt issuers have been forced to repeatedly raise municipal bond yields in
the attempt to attract adequate demand.
The recent relative underperformance of the municipal bond market has resulted
in an opportunity for long-term investors to purchase tax-exempt issues whose
yields are nearly identical with taxable US Treasury securities. At October 31,
1999, long-term uninsured municipal revenue bond yields were 100% of comparable
US Treasury securities. In recent months, many taxable asset classes, such as
corporate bonds, mortgage-backed securities and US agency debt, have all
accelerated debt issuance. This acceleration was initiated largely to avoid
issuing securities at year-end and to minimize any associated Year 2000 (Y2K)
problems that may develop. However, this increased issuance has also resulted in
higher yield levels in the various asset classes as lower bond prices became
necessary to attract sufficient investor demand. Going forward, it is believed
that the pace of non-US government debt issuance is likely to slow
significantly. As the supply of this debt declines, we would expect many
institutional investors to return to the municipal bond market and the
attractive yield ratios available.
Looking ahead, it appears to us that long-term tax-exempt bond yields will
remain under pressure, trading in a broad range centered near current levels.
Investors are likely to remain concerned about future action by the Federal
Reserve Board in November. Y2K considerations may prohibit any further Federal
Reserve Board moves through the end of the year and the beginning of 2000. Any
improvement in bond prices will probably be contingent upon weakening in both US
employment growth and consumer spending. The 100 basis point rise in US Treasury
bond yields seen thus far this year may negatively impact US economic growth.
The US housing market will be among the first sectors likely to be affected, as
some declines have already been evidenced in response to higher mortgage rates.
We believe that it is also unrealistic to expect double-digit returns in US
equity markets to continue indefinitely. Much of the US consumer's wealth is
tied to recent stock market appreciation. Any slowing in these incredible growth
rates is likely to reduce consumer spending. We believe that these factors
suggest that the worst of the recent increase in bond yields has passed and
stable, if not slightly improving, bond prices may be expected.
Portfolio Strategy
At the start of the six-month period ended October 31, 1999, we were neutral on
interest rates. We adopted this stance based on expectations of slower US
economic growth, continuing weakness in global economies and little perceived
threat of an upturn in inflationary expectations. We believed tax-exempt
interest rates would trade in a narrow range around then-current levels.
However, interest rates increased substantially over the period as it appeared
the US economy was not going to slow and most economies around the world,
including Japan and Europe, showed a quick recovery soon after the turmoil of
last fall.
In addition to the general increase in interest rates during the past six
months, volatility in the municipal market increased substantially relative to
the Treasury market. Historically, long-term tax-exempt bond yield ratios
relative to US Treasury securities of comparable maturity have been
approximately in the range of 84%--86%. However, tax-exempt yield ratios began
1999 at 100% of US Treasury yields. Since then, the ratio of municipal bond
yields to Treasury bond yields has fluctuated between 90%--100%. This has been
in response to greatly diminished institutional demand and the absence of
crossover buyers who have historically purchased municipal bonds whenever yield
ratios exceed 88%--90%. Rising yields in corporate and mortgage-backed markets
allowed these crossover accounts to remain in taxable issues. The tax-exempt
bond market has not exhibited such underperformance since late 1994.
At October 31, 1999, MuniHoldings Fund, Inc. was positioned positively. We
believe that we are approaching the highs in yields. Recent interest rate
increases as well as an anticipated tightening in mid-November have largely
restored investor confidence that the Federal Reserve Board will not allow
inflation to rise significantly. Some decline in economic growth, particularly
in the housing and retail sales sectors, can already be seen in response to
interest rate increases in recent months. Additionally, history suggests that
whenever tax-exempt bond yields rise close to
2 & 3
<PAGE>
or above US Treasury bond yields for an extended period of time, municipal bond
portfolios generate significant total returns in the following six months-twelve
months.
Short-term tax-exempt bond yields averaged approximately 3.375% throughout most
of the six-month period ended October 31, 1999. Short-term municipal bond yields
have been much more stable than those associated with 25-year-30-year maturity
issues. This has resulted in a significant incremental yield being paid to
Common Stock shareholders. Since the Federal Reserve Board is believed to be
near the end of its current interest rate tightening cycle, short-term
tax-exempt bond interest rates are expected to remain near their current levels.
However, should the spread between short-term and long-term interest rates
narrow, the benefits of the leverage will decline and, as a result, reduce the
yield on the Fund's Common Stock. (For a complete explanation of the benefits
and risks of leverage, see page 1 of this report to shareholders.)
In Conclusion
We appreciate your ongoing interest in MuniHoldings Fund, Inc., and we look
forward to serving your investment needs in the months and years ahead.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
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
December 7, 1999
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 $ 2,932
====================================================================================================================================
Arizona--3.7% B B2 5,000 Apache County, Arizona, IDA, PCR, Refunding (Tucson
Electric Power Co. Project), Series B, 5.875% due 3/01/2033 4,403
BBB- Baa3 3,500 Maricopa County, Arizona, Pollution Control
Corporation, PCR, Refunding (Public Service
Company of New Mexico), Series A, 5.75% due 11/01/2022 3,111
NR* B1 3,000 Phoenix, Arizona, IDA, Airport Facility Revenue
Refunding Bonds (America West Airlines Inc. Project),
AMT, 6.30% due 4/01/2023 2,765
NR* NR* 1,000 Show Low, Arizona, Improvement District No. 5,
Special Assessment Bonds, 6.375% due 1/01/2015 985
====================================================================================================================================
California--3.1% Los Angeles, California, Unified School District, GO (c):
AAA Aaa 3,680 Series A, 5% due 7/01/2021 3,245
AAA Aaa 3,000 Series B, 5% due 7/01/2023 2,627
Montebello, California, Unified School District, GO (c):
AAA Aaa 2,350 5.61%** due 8/01/2021 632
AAA Aaa 2,405 5.61%** due 8/01/2022 607
AAA Aaa 2,455 5.61%** due 8/01/2023 584
AAA Aaa 4,325 San Diego, California, Unified School District, GO,
Series A, 5.50%** due 7/01/2017 1,516
====================================================================================================================================
Colorado--9.6% AA Aa2 10,000 Colorado Springs, Colorado, Utilities Revenue Bonds,
Sub-Lien Improvement, Series A, 5.75% due 11/15/2028 9,711
NR* Aaa 22,235 Denver, Colorado, City and County Airport
Revenue Refunding Bonds, RIB, Series 136, 7.17%
due 11/15/2025 (i)(k) 19,048
====================================================================================================================================
Connecticut--4.2% BB- Ba1 10,500 Connecticut State Development Authority, PCR,
Refunding (Connecticut Light & Power Company), Series A,
5.85% due 9/01/2028 9,596
BBB- Ba1 3,000 Connecticut State Health and Educational Facilities
Authority, Revenue Refunding Bonds (University of Hartford),
Series D, 6.80% due 7/01/2022 3,050
====================================================================================================================================
District of District of Columbia, GO, Refunding, Series B (h):
Columbia--3.2% AAA Aaa 5,000 5.50% due 6/01/2013 4,901
AAA Aaa 5,000 5.50% due 6/01/2014 4,839
====================================================================================================================================
Florida--2.2% AAA Aaa 3,000 Florida State Turnpike Authority, Turnpike Revenue
Bonds (Department of Transportation), Series A,
4.50% due 7/01/2027 (c) 2,365
AAA Aaa 5,000 Jacksonville, Florida, Capital Improvement Revenue
Refunding Bonds (Stadium Project), 4.75% due 10/01/2025 (a) 4,143
====================================================================================================================================
Illinois--6.2% NR* NR* 930 Beardstown, Illinois, IDR (Jefferson Smurfit Corp.
Project), 8% due 10/01/2016 1,013
AAA Aaa 2,250 Chicago, Illinois, Board of Education, GO (Chicago
School Reform Project), Series A, 5.25%
due 12/01/2022 (a) 2,010
BBB NR* 5,000 Illinois Development Finance Authority, Revenue
Refunding Bonds (Community Rehab Providers), Series A,
6.05% due 7/01/2019 4,683
A A3 2,880 Illinois Health Facilities Authority, Revenue
Refunding Bonds (Riverside Health System), Series A, 6%
due 11/15/2015 2,774
AAA Aaa 9,200 Metropolitan Pier and Exposition Authority,
Illinois, Dedicated State Tax Revenue Refunding Bonds
(McCormick Place Expansion Project), Series A, 5.25%
due 6/15/2027 (a) 8,083
====================================================================================================================================
Indiana--1.2% NR* NR* 8,985 Allen County, Indiana, Redevelopment District Tax
Increment Revenue Bonds (General Motors Development Area),
7%** due 11/15/2013 3,463
====================================================================================================================================
Kentucky--1.1% NR* NR* 3,150 Perry County, Kentucky, Solid Waste Disposal
Revenue Bonds (TJ International Project), AMT,
6.55% due 4/15/2027 3,169
====================================================================================================================================
====================================================================================================================================
</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
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
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
RITR Residual Interest Trust Receipts
S/F Single-Family
VRDN Variable Rate Demand Notes
4 & 5
<PAGE>
MuniHoldings Fund, Inc., October 31, 1999
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>
Maryland--2.3% NR* NR* $ 6,550 Maryland State Energy Financing Administration,
Limited Obligation Revenue Bonds (Cogeneration-AES
Warrior Run), AMT, 7.40% due 9/01/2019 $ 6,835
====================================================================================================================================
Massachusetts--3.0% AA NR* 3,895 Massachusetts State Development Finance Agency,
Revenue Refunding Bonds (May Institute Issue),
5.75% due 9/01/2029 3,608
NR* Aaa 7,000 Massachusetts State, HFA, Revenue Refunding
Bonds, RITR, Series 29, 6.82% due 12/01/2028 (i)(k) 5,420
====================================================================================================================================
Michigan--2.6% AAA Aaa 7,000 Detroit, Michigan, Downtown Development Authority,
Tax Increment Revenue Refunding Bonds (Development
Area Number 1 Projects), Series A, 4.75% due 7/01/2025 (i) 5,758
AAA Aaa 2,040 Michigan State, HDA, Rental Housing Revenue
Refunding Bonds, Series A, 5.875% due 10/01/2017 (a) 2,032
====================================================================================================================================
Minnesota--1.6% AAA Aaa 5,000 Minnesota State, GO, Refunding, Various Purpose, 5%
due 6/01/2014 4,684
====================================================================================================================================
Mississippi--3.5% BBB- Ba1 7,675 Claiborne County, Mississippi, PCR, Refunding
(System Energy Resources Inc. Project), 6.20% due 2/01/2026 7,109
NR* NR* 3,625 Mississippi Development Bank, Special Obligation
Revenue Refunding Bonds (Diamond Lakes Utilities),
Series A, 6.25% due 12/01/2017 3,512
====================================================================================================================================
Missouri--0.1% NR* NR* 410 Missouri State Health and Educational Facilities
Authority Revenue Bonds (Southwest Baptist University
Project), 9.50% due 10/01/2001 (b) 430
====================================================================================================================================
Nebraska--0.7% AAA NR* 1,980 Nebraska Investment Finance Authority, S/F Housing
Revenue Bonds, AMT, Series C, 6.30% due 9/01/2028 (e)(f) 2,005
====================================================================================================================================
Nevada--2.6% Nevada Housing Division Revenue Bonds, S/F Mortgage,
AMT:
NR* Aaa 3,535 Series B-1, 6.05% due 10/01/2018 3,537
NR* Aaa 2,360 Series B-1, 6.15% due 4/01/2029 2,365
NR* Aaa 1,840 Series D-2, 6.35% due 4/01/2028 (d) 1,865
====================================================================================================================================
New Hampshire-- NR* Aa3 4,600 New Hampshire State Housing Finance Authority, S/F
Mortgage Acquisition Revenue Bonds, 1.5%
AMT, Series G, 6.30% due 1/01/2026 4,650
====================================================================================================================================
New Jersey--3.4% BB Ba2 7,500 New Jersey EDA, Special Facility Revenue Bonds
(Continental Airlines Inc. Project), AMT, 6.25% due 9/15/2029 6,984
BBB Baa2 3,425 New Jersey Health Care Facilities Financing
Authority, Revenue Refunding Bonds (Saint Elizabeth
Hospital Obligation Group), 6% due 7/01/2020 3,128
====================================================================================================================================
New Mexico--4.1% Farmington, New Mexico, PCR, Refunding (Public
Service Company--San Juan Project):
BBB- Baa3 2,000 Series A, 6.30% due 12/01/2016 1,918
BBB- Baa3 2,500 Series B, 6.30% due 12/01/2016 2,430
NR* Baa3 7,750 Series C, 5.80% due 4/01/2022 6,901
AAA Aaa 1,000 Los Alamos County, New Mexico, Utility System
Revenue Refunding Bonds, Series A, 6% due 7/01/2015 (h) 1,028
====================================================================================================================================
New York--12.8% AAA Aaa 10,000 Metropolitan Transportation Authority, New York,
Dedicated Tax Fund Revenue Bonds, Series A, 4.75%
due 4/01/2028 (c) 8,142
AAA Aaa 3,250 Nassau County, New York, IDA, Civic Facilities
Revenue Refunding Bonds (Hofstra University Project),
4.75% due 7/01/2028 (i) 2,644
A- A3 10,000 New York City, New York, GO, Refunding, Series F, 6%
due 8/01/2016 9,978
A- A3 7,035 New York City, New York, GO, Series E, 6% due
8/01/2016 7,020
New York City, New York, Municipal Water Finance
Authority, Water and Sewer System Revenue Bonds, RITR (k):
NR* Aaa 6,000 Series 11, 7.77% due 6/15/2026 (h) 5,770
A1 Aaa 1,065 Series FR-5, 7.495% due 6/15/2026 (i) 989
AAA Aaa 5,000 New York State Dormitory Authority Revenue Bonds
(State University Educational Facilities), Series B, 4.75%
due 5/15/2028 (i) 4,069
====================================================================================================================================
Ohio--1.3% NR* NR* 5,000 Ohio State, HFA, Mortgage Revenue Refunding Bonds,
RITR, AMT, Series 15, 6.57% due 9/01/2019 (g)(h)(k) 4,017
====================================================================================================================================
Oklahoma--1.8% BBB- Baa1 5,400 Tulsa, Oklahoma, Municipal Airport Trust, Revenue
Refunding Bonds (American Airlines Project), 6.25% due 6/01/2020 5,255
====================================================================================================================================
Oregon--1.4% NR* NR* 3,000 Klamath Falls, Oregon, Electric Revenue Refunding
Bonds (Klamath Cogeneration), Senior Lien, 5.875% due 1/01/2016 2,774
NR* NR* 1,300 Western Generation Agency, Oregon, Cogeneration
Project Revenue Bonds (Wauna Cogeneration Project), AMT, Series B,
7.40% due 1/01/2016 1,360
====================================================================================================================================
Pennsylvania--7.5% Beaver County, Pennsylvania, IDA, PCR, Refunding
(Cleveland Electric Project):
BB+ Ba1 1,600 7.625% due 5/01/2025 1,719
BB+ Ba1 1,500 Series A, 7.75% due 7/15/2025 1,623
NR* NR* 3,250 Pennsylvania Economic Development Financing
Authority, Exempt Facilities Revenue Bonds (National
Gypsum Company), AMT, Series A, 6.25% due 11/01/2027 3,085
NR* NR* 4,970 Pennsylvania State Higher Educational Facilities
Authority, College and University Revenue Bonds (Eastern College),
Series B, 8% due 10/15/2006 (j) 5,937
Philadelphia, Pennsylvania, Authority for IDR,
Commercial Development Refunding:
NR* NR* 4,000 (Days Inn), Series B, 6.50% due 10/01/2027 3,973
NR* NR* 1,500 (Doubletree), Series A, 6.50% due 10/01/2027 1,490
AAA Aaa 6,000 Philadelphia, Pennsylvania, School District,
GO, Series A, 4.75% due 4/01/2027 (i) 4,900
====================================================================================================================================
Tennessee--4.5% Hardeman County, Tennessee, Correctional Facilities
Corporation Revenue Bonds:
NR* NR* 680 7% due 8/01/2004 703
NR* NR* 4,500 7.75% due 8/01/2017 4,733
NR* Aa2 3,400 Tennessee Educational Loan Revenue Bonds
(Educational Funding South Inc.), AMT, Senior Sub-Series B,
6.20% due 12/01/2021 3,388
A+ A1 4,730 Tennessee Housing Development Agency, Mortgage
Finance Revenue Refunding Bonds, Series A, 5.95% due 7/01/2028 4,665
====================================================================================================================================
Texas--4.3% BBB- Baa 15,000 Dallas-Fort Worth, Texas, International Airport
Facilities, Improvement Corporation Revenue Bonds
(American Airlines Inc.), AMT, 6.375% due 5/01/2035 4,787
A1+ NR* 200 Harris County, Texas, Health Facilities Development
Corporation, Hospital Revenue Refunding Bonds
(Methodist Hospital), VRDN, 3.60% due 12/01/2025 (l) 200
BB Ba1 5,000 Houston, Texas, Airport System Revenue Bonds
(Special Facilities--Continental Airlines), AMT, Series B,
6.125% due 7/15/2017 4,665
BB- Ba1 3,500 Lower Colorado River Authority, Texas, PCR
(Samsung Austin Semiconductor), AMT, 6.375% due 4/01/2027 3,405
====================================================================================================================================
</TABLE>
6 & 7
<PAGE>
MuniHoldings Fund, Inc., October 31, 1999
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>
Utah--1.0% NR* NR* $ 3,000 Tooele County, Utah, PCR, Refunding (Laidlaw
Environmental), AMT, Series A, 7.55% due 7/01/2027 $ 3,143
====================================================================================================================================
Virginia--1.5% NR* NR* 3,250 Peninsula Ports Authority, Virginia, Revenue
Refunding Bonds (Port Facility--Zeigler Coal), 6.90%
due 5/02/2022 3,142
Pocahontas Parkway Associates, Virginia, Toll Road
Revenue Bonds, First Tier, Sub-Series C:
NR* Ba1 5,600 6.25%** due 8/15/2028 707
NR* Ba1 5,700 6.25%** due 8/15/2029 669
====================================================================================================================================
Puerto Rico--1.4% AAA Aaa 5,000 Puerto Rico Commonwealth, GO, Refunding,
Public Improvement Bonds, 4.50% due 7/01/2023 (a) 4,058
====================================================================================================================================
Total Investments (Cost--$308,165)--98.4% 295,464
Other Assets Less Liabilities--1.6% 4,794
--------
Net Assets--100.0% $300,258
========
====================================================================================================================================
</TABLE>
(a) AMBAC Insured.
(b) Escrowed to maturity.
(c) FGIC Insured.
(d) FHA Insured.
(e) FHLMC Collateralized.
(f) FNMA/GNMA Collateralized.
(g) GNMA Collateralized.
(h) FSA Insured.
(i) MBIA Insured.
(j) Prerefunded.
(k) 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, 1999.
(l) 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,
1999.
* Not Rated.
** Represents a zero coupon; the interest rate shown reflects the effective
yield at the time of purchase by the Fund.
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<TABLE>
<CAPTION>
As of October 31, 1999
====================================================================================================================================
<S> <C> <C>
Assets: Investments, at value (identified cost--$308,164,854) (Note 1a) ......... $295,463,642
Cash .................................................................... 86,612
Interest receivable ..................................................... 5,005,505
Prepaid expenses ........................................................ 23,196
------------
Total assets ............................................................ 300,578,955
------------
====================================================================================================================================
Liabilities: Payables:
Investment adviser (Note 2) ........................................... $ 160,234
Dividends to shareholders (Note 1f) ................................... 110,100 270,334
------------
Accrued expenses and other liabilities .................................. 50,933
------------
Total liabilities ....................................................... 321,267
------------
====================================================================================================================================
Net Assets: Net assets .............................................................. $300,257,688
============
====================================================================================================================================
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 (13,777,309 shares issued
and outstanding) ...................................................... $ 1,377,731
Paid-in capital in excess of par ........................................ 203,911,600
Undistributed investment income--net .................................... 1,970,319
Accumulated realized capital losses on investments--net ................. (4,300,750)
Unrealized depreciation on investments--net ............................. (12,701,212)
------------
Total--Equivalent to $13.81 net asset value per share of Common
Stock (market pric e-- $12.875) ......................................... 190,257,688
------------
Total capital ........................................................... $300,257,688
============
====================================================================================================================================
</TABLE>
*Auction Market Preferred Stock.
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Six Months Ended October 31, 1999
====================================================================================================================================
<S> <C> <C>
Investment Interest and amortization of premium and discount earned .............. $ 9,465,554
Income (Note 1d):
====================================================================================================================================
Expenses: Investment advisory fees (Note 2) ..................................... $ 868,330
Commission fees (Note 4) .............................................. 138,287
Professional fees ..................................................... 44,531
Transfer agent fees ................................................... 28,842
Accounting services (Note 2) .......................................... 17,277
Custodian fees ........................................................ 12,592
Listing fees .......................................................... 12,018
Printing and shareholder reports ...................................... 10,115
Directors' fees and expenses .......................................... 9,692
Pricing fees .......................................................... 6,182
Other ................................................................. 16,328
------------
Total expenses ........................................................ 1,164,194
------------
Investment income--net ................................................ 8,301,360
============
====================================================================================================================================
Realized & Realized loss on investments--net ..................................... (5,496,138)
Unrealized Loss Change in unrealized appreciation/depreciation on investments--net .... (25,437,925)
on Investments-- ------------
Net (Notes 1b, Net Decrease in Net Assets Resulting from Operations .................. $(22,632,703)
1d & 3): ============
====================================================================================================================================
</TABLE>
See Notes to Financial Statements.
8 & 9
<PAGE>
MuniHoldings Fund, Inc., October 31, 1999
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Six For the
Months Ended Year Ended
Increase (Decrease) in Net Assets: Oct. 31, 1999 April 30, 1999
=================================================================================================================================
<S> <C> <C>
Operations: Investment income--net ................................................ $ 8,301,360 $ 16,964,850
Realized gain (loss) on investments--net .............................. (5,496,138) 4,117,261
Change in unrealized appreciation/depreciation on investments--net .... (25,437,925) 1,322,257
------------ ------------
Net increase (decrease) in net assets resulting from operations ....... (22,632,703) 22,404,368
------------ ------------
=================================================================================================================================
Dividends & Investment income--net:
Distributions to Common Stock ........................................................ (6,429,526) (13,279,497)
Shareholders Preferred Stock ..................................................... (1,797,906) (2,857,580)
(Note 1f): Realized gain on investments--net:
Common Stock ........................................................ -- (4,418,052)
Preferred Stock ..................................................... -- (1,231,956)
------------ ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders ......................................... (8,227,432) (21,787,085)
------------ ------------
=================================================================================================================================
Capital Stock Value of shares issued to Common Stock shareholders in
Transactions reinvestment of dividends and distributions ........................... -- 783,328
(Notes 1e & 4): Net increase in net assets derived from capital stock ------------ ------------
transactions .......................................................... -- 783,328
------------ ------------
=================================================================================================================================
Net Assets: Total increase (decrease) in net assets ............................... (30,860,135) 1,400,611
Beginning of period ................................................... 331,117,823 329,717,212
------------ ------------
End of period* ........................................................ $300,257,688 $331,117,823
============ ============
=================================================================================================================================
*Undistributed investment income--net .................................. $ 1,970,319 $ 1,896,391
============ ============
=================================================================================================================================
</TABLE>
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. For the Six For the For the Period
Months Ended Year Ended May 2, 1997+ to
Increase (Decrease) in Net Asset Value: Oct. 31, 1999 April 30, 1999 April 30, 1998
==================================================================================================================================
<S> <C> <C> <C>
Per Share Net asset value, beginning of period ....................... $ 16.05 $ 16.00 $ 15.00
Operating ------------- -------------- --------------
Performance: Investment income--net ..................................... .60 1.24 1.21
Realized and unrealized gain (loss) on investments--net .... (2.24) .40 1.03
------------- -------------- --------------
Total from investment operations ........................... (1.64) 1.64 2.24
------------- -------------- --------------
Less dividends and distributions to Common Stock
shareholders:
Investment income--net ................................... (.47) (.97) (.87)
Realized gain on investments--net ........................ -- (.32) --
------------- -------------- --------------
Total dividends and distributions to Common Stock
shareholders ............................................... (.47) (1.29) (.87)
------------- -------------- --------------
Capital charge resulting from issuance of Common Stock ..... -- -- (.03)
------------- -------------- --------------
Effect of Preferred Stock activity:++
Dividends and distributions to Preferred Stock
shareholders:
Investment income--net ................................. (.13) (.21) (.26)
Realized gain on investments--net -- (.09) --
Capital charge resulting from issuance of Preferred Stock. -- -- (.08)
------------- -------------- --------------
Total effect of Preferred Stock activity ................... (.13) (.30) (.34)
------------- -------------- --------------
Net asset value, end of period ............................. $ 13.81 $ 16.05 $ 16.00
============= ============== ==============
Market price per share, end of period ...................... $ 12.875 $ 15.25 $ 14.75
============= ============== ==============
==================================================================================================================================
Total
Investment Based on market price per share ............................ (12.73%)@ 12.06% 4.01%@
Return:** ============= ============== ==============
Based on net asset value per share ......................... (11.06%)@ 8.73% 12.83%@
============= ============== ==============
==================================================================================================================================
Ratios Based on Total expenses, net of reimbursement*** .................... 1.12%* 1.09% .85%*
Average Net ============= ============== ==============
Assets of Total expenses*** .......................................... 1.12%* 1.09% 1.05%*
Common Stock: ============= ============== ==============
Total investment income--net*** ............................ 7.98%* 7.52% 7.77%*
============= ============== ==============
Amount of dividends to Preferred Stock shareholders ........ 1.73%* 1.27% 1.67%*
============= ============== ==============
Investment income--net, to Common Stock shareholders ....... 6.25%* 6.25% 6.10%*
============= ============== ==============
==================================================================================================================================
Ratios Based on Total expenses, net of reimbursement ....................... .73%* .73% .58%*
Total Average ============= ============== ==============
Net Total expenses ............................................. .73%* .73% .72%*
Assets:+++*** ============= ============== ==============
Total investment income--net ............................... 5.22%* 5.05% 5.31%*
============= ============== ==============
==================================================================================================================================
Ratios Based on Dividends to Preferred Stock shareholders .................. 3.28%* 2.58% 3.60%*
Average Net ============= ============== ==============
Assets Of
Preferred Stock:
==================================================================================================================================
Supplemental
Data: Net assets, net of Preferred Stock, end of period (in
thousands) ................................................. $ 190,258 $ 221,118 $ 219,717
============= ============== ==============
Preferred Stock outstanding, end of period (in thousands) .. $ 110,000 $ 110,000 $ 110,000
============= ============== ==============
Portfolio turnover ......................................... 81.11% 66.07% 106.16%
============= ============== ==============
==================================================================================================================================
Leverage: Asset coverage per $1,000 .................................. $ 2,730 $ 3,010 $ 2,997
============= ============== ==============
==================================================================================================================================
Dividends Per Series A--Investment income--net ........................... $ 410 $ 657 $ 810
Share on ============= ============== ==============
Preferred Series B--Investment income--net ........................... $ 407 $ 642 $ 816
Stock ============= ============== ==============
Outstanding:
==================================================================================================================================
</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 charges.
*** 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.
+++ Includes Common and Preferred Stock average net assets.
@ Aggregate total investment return.
See Notes to Financial Statements
10 & 11
<PAGE>
MuniHoldings Fund, Inc., October 31, 1999
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. The
Fund's financial statements are prepared in accordance with generally accepted
accounting principles, which may require the use of management accruals and
estimates. These unaudited financial statements reflect all adjustments, which
are, in the opinion of management, necessary to a fair statement of the results
for the interim period presented. All such adjustments are of a normal recurring
nature. The Fund'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-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 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 Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML &
Co."), which is the limited partner.
FAM is responsible for the management of the Fund's portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Fund. For such services, the Fund pays a monthly fee at
an annual rate of .55% of the Fund's average weekly net assets, including
proceeds from the issuance of Preferred Stock.
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, 1999 were $251,287,358 and $250,786,764, respectively.
Net realized gains (losses) for the six months ended October 31, 1999 and net
unrealized losses as of October 31, 1999 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Gains
- --------------------------------------------------------------------------------
Long-term investments ....................... $(6,460,733) $(12,701,212)
Financial futures contracts ................. 964,595 --
----------- ------------
Total ....................................... $(5,496,138) $(12,701,212)
=========== ============
- --------------------------------------------------------------------------------
As of October 31, 1999, net unrealized depreciation for Federal income tax
purposes aggregated $12,701,212, of which $1,192,914 related to appreciated
securities and $13,894,126 related to depreciated securities. The aggregate cost
of investments at October 31, 1999 for Federal income tax purposes was
$308,164,854.
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, 1999
remain constant and during the year ended April 30, 1999 increased by 48,320 as
a result of dividend reinvestment.
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, 1999 were as follows: Series A, 3.30% and Series B, 3.34%.
Shares issued and outstanding during the six months ended October 31, 1999 and
during the year ended April 30, 1999 remained constant.
12 & 13
<PAGE>
MuniHoldings Fund, Inc., October 31, 1999
NOTES TO FINANCIAL STATEMENTS (concluded)
The Fund pays commissions to certain broker-dealers at the end of each auction
at an annual rate ranging from .25% to .375%, calculated on the proceeds of each
auction. For the six months ended October 31, 1999, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, an affiliate of FAM, earned $201,208 as
commissions.
5. Subsequent Event:
On November 9, 1999, the Fund's Board of Directors declared an ordinary income
dividend to Common Stock shareholders in the amount of $.077000 per share,
payable on November 29, 1999 to shareholders of record as of November 22, 1999.
QUALITY PROFILE
The quality ratings of securities in the Fund as of October 31, 1999 were as
follows:
- --------------------------------------------------------------------------------
Percent of
S&P Rating/Moody's Rating Net Assets
- --------------------------------------------------------------------------------
AAA/Aaa ................................................................ 37.9%
AA/Aa ................................................................. 7.1
A/A ................................................................... 8.1
BBB/Baa ............................................................... 15.1
BB/Ba ................................................................. 9.8
B/B ................................................................... 2.4
NR (Not Rated) ........................................................ 17.9
Other+ ................................................................ 0.1
- --------------------------------------------------------------------------------
+Temporary investments in short-term securities.
YEAR 2000 ISSUES
Many computer systems were designed using only two digits to designate years.
These systems may not be able to distinguish the Year 2000 from the Year 1900
(commonly known as the "Year 2000 Problem"). The Fund could be adversely
affected if the computer systems used by the Fund's management or other Fund
service providers do not properly address this problem before January 1, 2000.
The Fund's management expects to have addressed this problem before then, and
does not anticipate that the services it provides will be adversely affected.
The Fund's other service providers have told the Fund's management that they
also expect to resolve the Year 2000 Problem, and the Fund's management will
continue to monitor the situation as the Year 2000 approaches. However, if the
problem has not been fully addressed, the Fund could be negatively affected. The
Year 2000 Problem could also have a negative impact on the securities in which
the Fund invests and this could hurt the Fund's investment returns.
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
Terry K. Glenn, President and Director
Ronald W. Forbes, Director
Cynthia A. Montgomery, Director
Charles C. Reilly, Director
Kevin A. Ryan, Director
Richard R. West, Director
Arthur Zeikel, Director
Vincent R. Giordano, Senior Vice President
Robert A. DiMella, Vice President
Kenneth A. Jacob, Vice President
John M. Loffredo, Vice President
Donald C. Burke, Vice President and Treasurer
William E. Zitelli, 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:
The Bank of New York
100 Church Street
New York, NY 10286
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--10/99
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