MUNIHOLDINGS
FUND II, INC.
FUND LOGO
Semi-Annual Report
January 31, 2000
This report, including the financial information herein, is
transmitted to the shareholders of MuniHoldings Fund II, 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 II, Inc.
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
MUNIHOLDINGS FUND II, INC.
The Benefits and
Risks of
Leveraging
MuniHoldings Fund II, Inc. utilizes leveraging to seek to enhance
the yield and net asset value of its Common Stock. However, these
objectives cannot be achieved in all interest rate environments. To
leverage, the Fund issues Preferred Stock, which pays dividends at
prevailing short-term interest rates, and invests the proceeds in
long-term municipal bonds. The interest earned on these investments
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 of 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.
MuniHoldings Fund II, Inc., January 31, 2000
DEAR SHAREHOLDER
For the six-month period ended January 31, 2000, the Common Stock of
MuniHoldings Fund II, Inc. earned $0.425 per share income dividends,
which included earned and unpaid dividends of $0.065. This
represents a net annualized yield of 7.23%, based on a month-end per
share net asset value of $11.65. Over the same period, the total
investment return on the Fund's Common Stock was -14.61%, based on a
change in per share net asset value from $14.16 to $11.65 and
assuming reinvestment of $0.429 per share ordinary income dividends
and $0.015 per share capital gains distributions.
For the six-month period ended January 31, 2000, the Fund's Auction
Market Preferred Stock had an average yield of 3.75% for Series A
and 3.44% for Series B.
The Municipal Market Environment
During the six months ended January 31, 2000, continued strong
domestic growth, gradual improvement in foreign economies and
investor concerns regarding future inflationary pressures pushed
long-term fixed-income bond yields higher. The Federal Reserve Board
continued to raise short-term interest rates in August and November
1999 as well as just after the period's close, seeking to moderate
US economic growth and maintain the existing benign inflationary
environment. US economic growth, in part intensified by Year 2000
(Y2K) preparations, grew 5.8% during the last fiscal quarter of 1999
and had an annual rate of 4.1% for 1999. A number of inflationary
indicators have also begun to signal some increase in price
pressures.
However, most investors believe that the Federal Reserve Board will
be extremely vigilant in preventing such pressures from any material
escalation. US Treasury bond yields responded by rising
approximately 60 basis points (0.60%) by mid-January 2000. A strong
rally, largely based upon an expected significant reduction in the
future supply of US Treasury 30-year maturity bonds, pushed yields
lower to 6.50% at January 31, 2000. Over the last six months, yields
on 30-year US Treasury bonds rose approximately 40 basis points.
The tax-exempt bond market was also under pressure throughout the
entire period. Despite receiving more than $30 billion in coupon
payments, bond maturities and proceeds from early redemptions in
December and January, overall investor demand has diminished. It is
likely that the returns generated by the US equity market have
continued to attract investor attention and have left little demand
for competing investment alternatives. At January 31, 2000, the long-
term tax-exempt revenue bond yield, as measured by the Bond Buyer
Revenue Index, was 6.34%, an increase of nearly 70 basis points over
the last six months.
Issuance by municipalities has significantly declined in recent
months. Over the last six months, less than $100 billion in long-
term tax-exempt bonds were issued, representing a decline of over
20% compared to the same period a year ago. During the last three
months, less than $45 billion in long-term bonds were issued by
various municipalities. This most recent quarterly issuance is 30%
below the level of the January 31, 1999 quarter. Additionally,
during January 2000, less than $8 billion in municipal debt was
underwritten, down more than 50% from January 1999 levels. This
represents the lowest monthly issuance in over five years. Toward
the end of 1999, consensus estimates for 2000 annual issuance were
in the $210 billion--$215 billion range. January's underwritings,
as well as those expected to be issued in the near future, have led
some analysts to revise their forecasts to the $190 billion range.
We believe an overall reduction in bond supply in the coming year
should help support the municipal bond market's overall technical
position. While tax-exempt bond yields, which are at their highest
level in over three years, have attracted significant retail
investor interest, institutional demand declined sharply. Long-term
municipal mutual funds have seen consistent outflows in recent
months as the yields of individual securities rose faster than those
of larger, more diverse mutual funds. During the six months ended
January 31, 2000, tax-exempt mutual funds have had net redemptions
of approximately $9 billion. Also, the demand from property and
casualty insurance companies has weakened as a result of the losses
and anticipated losses incurred from a series of damaging storms
across much of the eastern United States. Additionally, many
institutional investors who have in recent years been attracted to
the municipal bond market by historically attractive tax-exempt bond
yield ratios of over 90%, 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 an
attempt to attract adequate demand. We believe a reduced bond supply
going forward is likely to promote a more closely balanced
supply/demand structure and foster a more stable tax-exempt interest
rate environment.
Looking ahead, it appears to us that long-term tax-exempt bond
yields will remain under pressure, trading in a broad range centered
around current levels. Investors are also likely to remain concerned
regarding future action by the Federal Reserve Board in early 2000.
Any improvement in bond prices may 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 could negatively
affect US economic growth. The US housing market is likely to be
among the first sectors to be affected, as some declines have
already been evidenced because of higher mortgage rates. We believe
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 may 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
During the six months ended January 31, 2000, our investment
strategy focused on seeking to enhance tax-exempt income. To achieve
this goal, we kept the Fund at an above-average duration as well as
fully invested. During this period, price volatility in the fixed-
income market, particularly the municipal bond market, was greater
than usual. This was the result of strong domestic growth, concerns
about inflation, and the uncertainty of the Y2K situation. During
the period, the long-term bond yield rose approximately 40 basis
points, while long-term tax-exempt interest rates rose about 70
basis points. While this was not good for the Fund's total return,
it allowed us to purchase high coupon bonds, which have not been
available in the tax-exempt market since early 1995. These purchases
were designed to enable us to generate a higher level of tax-exempt
income and limit the effects the Fund may experience from any
additional interest rate volatility.
Short-term tax-exempt interest rates provided a significant yield
benefit to MuniHoldings Fund II, Inc.'s Common Stock shareholders.
Although the Federal Reserve Board has made recent increases in
short-term interest rates, with a possibility of another tightening
in the future, interest rates on the Fund's Preferred Stock remained
around historical averages for much of the past six months. However,
should the spread between long-term and short-term interest rates
narrow, the benefits of the leverage will decline and, as a result,
reduce the yield on the Fund's Common Stock. (See page 1 of this
report to shareholders for a complete explanation of the benefits
and risks of leverage.)
In Conclusion
We appreciate your ongoing interest in MuniHoldings Fund II, Inc.,
and we look forward to assisting you with your financial needs in
the months and years ahead.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President
(Vincent R. Giordano)
Vincent R. Giordano
Senior Vice President
(Robert A. DiMella)
Robert A. DiMella
Vice President and Portfolio Manager
March 8, 2000
MuniHoldings Fund II, Inc., January 31, 2000
PROXY RESULTS
During the six-month period ended January 31, 2000, MuniHoldings
Fund II, Inc.'s Common Stock shareholders voted on the following
proposals. The proposals were approved at a shareholders' meeting on
December 15, 1999. The description of each proposal and number of
shares voted are as follows:
<TABLE>
<CAPTION>
Shares Voted Shares Withheld
For From Voting
<S> <S> <C> <C>
1. To elect the Fund's Directors: Terry K. Glenn 10,448,163 518,952
Ronald W. Forbes 10,448,163 518,952
Cynthia A. Montgomery 10,448,163 518,952
Kevin A. Ryan 10,441,278 525,837
Arthur Zeikel 10,439,950 527,165
<CAPTION>
Shares Voted Shares Voted Shares Voted
For Against Abstain
<S> <C> <C> <C>
2. To ratify the selection of Ernst & Young LLP as the Fund's
independent auditors for the current fiscal year. 10,551,035 297,483 118,597
</TABLE>
During the six-month period ended January 31, 2000, MuniHoldings
Fund II, Inc.'s Preferred Stock shareholders voted on the following
proposals. The proposals were approved at a shareholders' meeting on
December 15, 1999. The description of each proposal and number of
shares voted are as follows:
<TABLE>
<CAPTION>
Shares Voted Shares Withheld
For From Voting
<S> <S> <C> <C>
1. To elect the Fund's Board of Directors:
Terry K. Glenn, Ronald W. Forbes,
Cynthia A. Montgomery, Charles C. Reilly,
Kevin A. Ryan, Richard R. West and
Arthur Zeikel as follows:
Series A 1,490 222
Series B 1,679 0
<CAPTION>
Shares Voted Shares Voted Shares Voted
For Against Abstain
<S> <S> <C> <C> <C>
2. To ratify the selection of Ernst & Young LLP as the
Fund's independent auditors for the current
fiscal year as follows:
Series A 1,713 0 0
Series B 1,679 0 0
</TABLE>
MANAGED DIVIDEND POLICY
The Fund's dividend policy is to distribute all or a portion of its
net investment income to its shareholders on a monthly basis. In
order to provide shareholders with a more 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.
QUALITY PROFILE
The quality ratings of securities in the Fund as of January 31, 2000
were as follows:
Percent of
S&P Rating/Moody's Rating Net Assets
AAA/Aaa 43.5%
AA/Aa 2.3
A/A 6.1
BBB/Baa 12.0
BB/Ba 5.3
B/B 1.2
NR (Not Rated) 19.7
Other++ 6.1
++Temporary investments in short-term municipal securities.
MuniHoldings Fund II, Inc., January 31, 2000
Portfolio
Abbreviations
To simplify the listings of MuniHoldings Fund II, Inc.'s portfolio
holdings in the Schedule of Investments, we have abbreviated the
names of many of the securities according to the list below and at
right.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
EDA Economic Development Authority
GO General Obligation Bonds
HFA Housing Finance Agency
IDA Industrial Development Authority
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
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face
STATE Ratings Ratings Amount Issue Value
<S> <S> <S> <C> <S> <C>
Arizona--5.4% B+ Ba3 $ 2,500 Apache County, Arizona, IDA, PCR, Refunding (Tuscon Electric
Power Co. Project), Series B, 5.875% due 3/01/2033 $ 2,094
BBB+ Baa1 2,170 Arizona Health Facilities Authority Revenue Bonds (Catholic
Healthcare West), Series A, 6.625% due 7/01/2020 2,065
NR* B1 2,800 Phoenix, Arizona, IDA, Airport Facility Revenue Refunding Bonds
(America West Airlines Inc. Project), AMT, 6.30% due 4/01/2023 2,471
B+ Ba3 4,000 Pima County, Arizona, IDA, Industrial Revenue Refunding Bonds
(Tucson Electric Power Company Project), Series B, 6% due
9/01/2029 3,388
NR* NR* 1,695 Show Low, Arizona, Improvement District No. 5, Special
Assessment Bonds, 6.375% due 1/01/2015 1,640
California NR* Aaa 6,500 California Statewide Communities Development Authority, COP,
- --8.6% RIB, Series 24, 7.495% due 12/01/2015 (c)(g) 5,819
NR* NR* 3,000 Santa Margarita, California, Water District, Special Tax
Refunding Bonds (Community Facilities District Number 99),
Series 1, 6.25% due 9/01/2029 2,766
AAA Aaa 10,000 Tracy, California, Area Public Facilities Financing Agency,
Special Tax Refunding Bonds (Community Facilities District
Number 87-1), Series H, 5.875% due 10/01/2019 (b) 9,901
Colorado--1.7% NR* Aa2 3,500 Colorado HFA, S/F Program Revenue Bonds, Series B-3, 6.55%
due 10/01/2016 3,634
Connecticut BB+ Ba1 5,000 Connecticut State Development Authority, PCR, Refunding
- --2.0% (Connecticut Light and Power Company), Series A, 5.85%
due 9/01/2028 4,351
Florida--2.4% NR* NR* 1,000 Heritage Palms, Florida, Community Development District, Capital
Improvement Revenue Bonds, 6.25% due 11/01/2004 989
A- Baa1 3,300 Highlands County, Florida, Health Facilities Authority Revenue
Bonds (Adventist Health Systems), 5.25% due 11/15/2028 2,401
NR* NR* 1,825 Indigo, Florida, Community Development District, Capital
Improvement Revenue Refunding Bonds, Series B, 6.40%
due 5/01/2006 1,793
Illinois--4.7% AAA Aaa 4,000 Chicago, Illinois, GO (Lakefront Millennium Parking
Facilities), 5% due 1/01/2018 (b) 3,419
AAA Aaa 2,500 Illinois Development Finance Authority, PCR, Refunding (Illinois
Power Company Project), Series B, 5.40% due 3/01/2028 (b) 2,188
A1 VMIG1++ 250 Illinois Health Facilities Authority, Revenue Refunding Bonds
(University of Chicago Hospitals), VRDN, 3.70% due 8/01/2026 (b)(f) 250
AAA Aaa 4,155 Will and Kendall Counties, Illinois, Community Consolidated
School District Number 202, GO, 5.75% due 12/30/2011 (c) 4,221
Indiana--5.4% NR* NR* 3,500 Indiana Health Facilities Financing Authority Revenue Bonds
(Community-Hartsfield Village Project), Series A, 6.375% due
8/15/2027 3,012
NR* NR* 2,595 Indiana State Educational Facilities Authority, Revenue
Refunding Bonds (Saint Joseph's College Project), 7% due
10/01/2029 2,510
A1+ VMIG1++ 600 Jasper County, Indiana, PCR, Refunding (Northern Indiana
Public Service), VRDN, Series C, 3.60% due 4/01/2019 (f) 600
A1+c NR* 5,635 Rockport, Indiana, PCR, Refunding (AEP Generating Company
Project), VRDN, Series B, 3.60% due 7/01/2025 (a)(f) 5,635
Kentucky--0.5% NR* NR* 1,165 Kenton County, Kentucky, Airport Board, Special Facilities
Revenue Bonds (Mesaba Aviation Inc. Project), AMT, Series A,
6.625% due 7/01/2019 1,106
Maryland--4.3% NR* NR* 9,000 Maryland State Energy Financing Administration, Limited
Obligation Revenue Bonds (Cogeneration-AES Warrior Run),
AMT, 7.40% due 9/01/2019 9,182
Minnesota--1.8% AAA Aaa 4,080 Minnesota State, GO, 5.25% due 8/01/2015 3,853
Mississippi--2.8% Mississippi Business Finance Corporation, Mississippi,
PCR, Refunding (System Energy Resources Inc. Project):
BBB- Ba1 5,000 5.875% due 4/01/2022 4,271
BBB- Ba1 2,050 5.90% due 5/01/2022 1,756
Nevada--3.3% Henderson, Nevada, Health Care Facility Revenue Bonds
(Catholic Healthcare West-Saint Rose Dominican Hospital):
BBB+ Baa1 5,000 5.375% due 7/01/2026 3,681
BBB+ Baa1 5,000 5.125% due 7/01/2028 3,506
New BB- NR* 1,250 New Hampshire Higher Educational and Health Facilities
Hampshire-- Authority, Revenue Refunding Bonds (Littleton Hospital
0.5% Association), Series A, 6% due 5/01/2028 999
New Jersey BBB- NR* 2,630 New Jersey EDA, Revenue Bonds (First Mortgage-Fellowship
- --5.7% Village Project), Series C, 5.50% due 1/01/2018 2,134
AAA Aaa 6,760 New Jersey Sports and Exposition Authority, Convention Center
Luxury Tax Revenue Refunding Bonds, 5% due 9/01/2016 (b) 6,069
AAA Aaa 4,400 New Jersey State Housing and Mortgage Finance Agency,
Home Buyer Revenue Refunding Bonds, AMT, Series AA, 5.90%
due 10/01/2029 (b) 4,177
New York AAA Aaa 15,500 Long Island Power Authority, New York, Electric System
- --11.0% Revenue Refunding Bonds, Series A, 5.50% due 12/01/2029 (b) 13,916
AAA Aaa 2,000 Nassau County, New York, GO, General Improvement, Series Q,
5.20% due 8/01/2014 (e) 1,853
NR* Aaa 7,860 New York City, New York, City Municipal Water Finance
Authority, Water and Sewer System Revenue Bonds, RITR,
Series 11, 8.22% due 6/15/2026 (c)(g) 7,258
A1+ VMIG1++ 800 New York City, New York, GO, VRDN, Series B-2, Sub-Series
B-5, 3.55% due 8/15/2011 (b)(f) 800
North AAA Aaa 3,000 Charlotte, North Carolina, Airport Revenue Bonds, AMT,
Carolina-- Series B, 6% due 7/01/2016 (b) 2,987
2.9% BBB Baa3 2,000 North Carolina Eastern Municipal Power Agency, Power System
Revenue Bonds, Series D, 6.75% due 1/01/2026 1,950
AA Aa2 1,385 North Carolina HFA, Home Ownership Revenue Refunding Bonds,
AMT, Series 6-A, 6% due 1/01/2016 1,367
</TABLE>
MuniHoldings Fund II, Inc., January 31, 2000
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face
STATE Ratings Ratings Amount Issue Value
<S> <S> <S> <C> <S> <C>
Ohio--1.8% NR* NR* $ 5,000 Ohio State HFA, Mortgage Revenue Refunding Bonds, RITR, AMT,
Series 15, 7.07% due 9/01/2019 (c)(d)(g) $ 3,836
Pennsylvania A1+ VMIG1++ 3,900 Geisinger Authority, Pennsylvania, Health System Revenue
- --5.3% Refunding Bonds (Penn State-Geisinger Health), VRDN, Series B,
3.65% due 8/15/2028 (f) 3,900
NR* NR* 2,000 Lancaster County, Pennsylvania, Hospital Authority Revenue Bonds
(Health Center-Saint Anne's Home), 6.625% due 4/01/2028 1,757
NR* NR* 3,000 Montgomery County, Pennsylvania, IDA, Revenue Refunding Bonds
(First Mortgage-Meadowood), Series A, 6.25% due 12/01/2017 2,616
NR* NR* 2,500 Pennsylvania Economic Development Financing Authority, Exempt
Facilities Revenue Bonds (National Gypsum Company), AMT, Series A,
6.25% due 11/01/2027 2,257
NR* NR* 1,000 Philadelphia, Pennsylvania, IDA, Commercial Development
Refunding Bonds (Doubletree), Series A, 6.50% due 10/01/2027 955
Tennessee NR* NR* 2,200 Hardeman County, Tennessee, Correctional Facilities Corporation
- --1.0% Revenue Bonds, Series B, 7.375% due 8/01/2017 2,242
Texas--11.0% BBB- Baa1 2,500 Dallas-Fort Worth, Texas, International Airport Facilities,
Improvement Corporation Revenue Bonds (American Airlines Inc.),
AMT, 6.375% due 5/01/2035 2,305
A1+ NR* 500 Harris County, Texas, Health Facilities Development Corporation,
Hospital Revenue Refunding Bonds (Methodist Hospital), VRDN,
3.65% due 12/01/2025 (f) 500
AAA Aaa 3,000 Lower Neches Valley Authority, Texas, Industrial Development
Corporation, Revenue Refunding Bonds (Mobil Oil Refunding
Corporation), AMT, 5.55% due 3/01/2033 2,585
NR* NR* 1,750 North Central Texas, Health Facility Development Corporation,
Retirement Facility Revenue Bonds (Northwest Senior Housing),
Series A, 7.50% due 11/15/2029 1,621
A1+ NR* 1,500 North Central Texas, Health Facility Development Corporation
Revenue Bonds (Methodist Hospitals-Dallas), VRDN, Series B,
3.65% due 10/01/2015 (b)(f) 1,500
AAA Aaa 17,525 Texas State Turnpike Authority, Dallas North Thruway
Revenue Bonds (President George Bush Turnpike), 5.25% due
1/01/2023 (e) 15,251
Virginia--9.1% NR* NR* 2,500 Dulles Town Center, Virginia, Community Development
Authority, Special Assessment Tax (Dulles Town Center Project),
6.25% due 3/01/2026 2,302
AAA Aaa 10,000 Fairfax County, Virginia, EDA, Resource Recovery Revenue
Refunding Bonds, AMT, Series A, 6.10% due 2/01/2011 (a) 10,415
NR* NR* 2,500 Peninsula Ports Authority, Virginia, Revenue Refunding Bonds
(Port Facility-Zeigler Coal), 6.90% due 5/02/2022 2,060
Pocahontas Parkway Association, Virginia, Toll Road Revenue Bonds:
NR* Ba1 6,200 First Tier, Sub-Series C, 6.25%** due 8/15/2030 587
BBB- Baa3 48,400 Senior-Series B, 5.95%** due 8/15/2033 4,231
West A A2 12,800 Braxton County, West Virginia, Solid Waste Disposal Revenue
Virginia--5.0% Refunding Bonds (Weyerhaeuser Company Project), AMT, 5.40% due
5/01/2025 10,863
Total Investments (Cost--$228,932)--96.2% 207,795
Other Assets Less Liabilities--3.8% 8,248
--------
Net Assets--100.0% $216,043
========
(a)AMBAC Insured.
(b)MBIA Insured.
(c)FSA Insured.
(d)GNMA Collateralized.
(e)FGIC Insured.
(f)The interest rate is subject to change periodically based upon
prevailing market rates. The interest rate shown is the rate in
effect at January 31, 2000.
(g)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 January 31, 2000.
*Not Rated.
**Represents a zero coupon bond; the interest rate shown reflects
the effective yield at the time of purchase by the Fund.
++Highest short-term rating by Moody's Investors Service, Inc.
See Notes to Financial Statements.
</TABLE>
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<TABLE>
<CAPTION>
As of January 31, 2000
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$228,931,956) $207,794,844
Cash 84,815
Receivables:
Securities sold $ 15,278,351
Interest 3,467,874 18,746,225
------------
Prepaid expenses 20,694
------------
Total assets 226,646,578
------------
Liabilities: Payables:
Securities purchased 10,259,367
Dividends to shareholders 192,164
Investment adviser 94,866 10,546,397
------------
Accrued expenses 57,231
------------
Total liabilities 10,603,628
------------
Net Assets: Net assets $216,042,950
============
Capital: Capital Stock (200,000,000 shares authorized):
Preferred Stock, par value $.10 per share (3,480 shares of
AMPS* issued and outstanding at $25,000 per share liquidation
preference) $ 87,000,000
Common Stock, par value $.10 per share (11,073,334 shares
issued and outstanding) $ 1,107,333
Paid-in capital in excess of par 163,858,315
Undistributed investment income--net 1,060,721
Accumulated realized capital losses on investments--net (15,846,307)
Unrealized depreciation on investments--net (21,137,112)
------------
Total--Equivalent to $11.65 net asset value per share of Common
Stock (market price--$11.5625) 129,042,950
------------
Total capital $216,042,950
============
*Auction Market Preferred Stock.
See Notes to Financial Statements.
</TABLE>
MuniHoldings Fund II, Inc., January 31, 2000
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Six Months Ended January 31, 2000
<S> <S> <C> <C>
Investment Interest and amortization of premium and discount earned $ 7,070,089
Income:
Expenses: Investment advisory fees $ 628,154
Commission fees 110,156
Professional fees 48,627
Accounting services 37,973
Transfer agent fees 19,189
Listing fees 15,288
Organization expenses 13,579
Custodian fees 9,765
Directors' fees and expenses 9,760
Printing and shareholder reports 9,738
Pricing fees 3,950
Other 9,574
------------
Total expenses 915,753
------------
Investment income--net 6,154,336
------------
Realized & Realized loss on investments--net (15,846,296)
Unrealized Change in unrealized depreciation on investments--net (11,525,524)
Loss on ------------
Investments--Net: Net Decrease in Net Assets Resulting from Operations $(21,217,484)
------------
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Six For the
Months Ended Year Ended
January 31, July 31,
Increase (Decrease) in Net Assets: 2000 1999
<S> <S> <C> <C>
Operations: Investment income--net $ 6,154,336 $ 12,254,471
Realized gain (loss) on investments--net (15,846,296) 778,981
Change in unrealized appreciation/depreciation on
investments--net (11,525,524) (10,544,761)
------------ ------------
Net increase (decrease) in net assets resulting from
operations (21,217,484) 2,488,691
------------ ------------
Dividends & Investment income--net:
Distributions to Common Stock (4,752,996) (9,214,198)
Shareholders: Preferred Stock (1,520,795) (2,777,110)
Realized gain on investments--net:
Common Stock (163,066) --
Preferred Stock (48,041) --
------------ ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (6,484,898) (11,991,308)
------------ ------------
Net Assets: Total decrease in net assets (27,702,382) (9,502,617)
Beginning of period 243,745,332 253,247,949
------------ ------------
End of period* $216,042,950 $243,745,332
============ ============
*Undistributed investment income--net $ 1,060,721 $ 1,180,176
============ ============
See Notes to Financial Statements.
</TABLE>
MuniHoldings Fund II, Inc., January 31, 2000
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
The following per share data and ratios have been derived For the Six For the For the Period
from information provided in the financial statements. Months Ended Year Ended Feb. 27, 1998++
January 31, July 31, to July 31,
Increase (Decrease) in Net Asset Value: 2000 1999 1998
<S> <S> <C> <C> <C>
Per Share Net asset value, beginning of period $ 14.16 $ 15.01 $ 15.00
Operating
Performance: Investment income--net .56 1.11 .47
Realized and unrealized gain (loss) on
investments--net (2.49) (.88) .04
------------ ------------ ------------
Total from investment operations (1.93) .23 .51
------------ ------------ ------------
Less dividends and distributions to Common Stock
shareholders:
Investment income--net (.43) (.83) (.29)
Realized gain on investments--net (.01) -- --
------------ ------------ ------------
Total dividends and distributions to Common Stock
shareholders (.44) (.83) (.29)
------------ ------------ ------------
Capital charge resulting from issuance of
Common Stock -- -- (.03)
------------ ------------ ------------
Effect of Preferred Share activity:+++++
Dividends and distributions to Preferred Stock
shareholders:
Investment income--net (.14) (.25) (.10)
Realized gain on investments--net --++++ -- --
Capital charge resulting from issuance of
Preferred Stock -- -- (.08)
------------ ------------ ------------
Total effect of Preferred Stock activity (.14) (.25) (.18)
------------ ------------ ------------
Net asset value, end of period $ 11.65 $ 14.16 $ 15.01
============ ============ ============
Market price per share, end of period $ 11.5625 $ 12.9375 $ 14.25
============ ============ ============
Total Investment Based on market price per share (7.25%)+++ (3.79%) (3.14%)+++
Return:** ============ ============ ============
Based on net asset value per share (14.61%)+++ (.03%) 2.03%+++
============ ============ ============
Ratios Based on Total expenses, net of reimbursement*** 1.28%* 1.11% .45%*
Average Net Assets ============ ============ ============
Of Common Stock: Total expenses*** 1.28%* 1.14% 1.04%*
============ ============ ============
Total investment income--net*** 8.61%* 7.35% 7.66%*
============ ============ ============
Amount of dividends to Preferred Stock shareholders 2.13%* 1.66% 1.69%*
============ ============ ============
Investment income--net, to Common Stock shareholders 6.48%* 5.68% 5.96%*
============ ============ ============
Ratios Based on Total expenses, net of reimbursement .80%* .73% .30%*
Total Average ============ ============ ============
Net Total expenses .80%* .75% .71%*
Assets:++++++*** ============ ============ ============
Total investment income--net 5.35%* 4.83% 5.21%*
============ ============ ============
Ratios Based on Dividends to Preferred Stock shareholders 3.49%* 3.20% 3.60%*
Average Net Assets ============ ============ ============
Of Preferred Stock:
Supplemental Net assets, net of Preferred Stock, end of period
Data: (in thousands) $ 129,043 $ 156,745 $ 166,248
============ ============ ============
Preferred Stock outstanding, end of period (in
thousands) $ 87,000 $ 87,000 $ 87,000
============ ============ ============
Portfolio turnover 61.40% 71.07% 64.62%
============ ============ ============
Leverage: Asset coverage per $1,000 $ 2,483 $ 2,802 $ 2,911
Dividends ============ ============ ============
Per Share on Series A--Investment income--net $ 456 $ 807 $ 325
Preferred Stock ============ ============ ============
Outstanding: Series B--Investment income--net $ 418 $ 789 $ 340
============ ============ ============
*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.
++++Amount is less than $.01 per share.
++++++Includes Common and Preferred Stock average net assets.
+++Aggregate total investment return.
+++++The Fund's Preferred Stock was issued on March 19, 1998.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniHoldings Fund II, 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
determines and makes available for publication the net asset value
of its Common Stock on a weekly basis. The Fund's Common Stock is
listed on the New York Stock Exchange under the symbol MUH. 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.
* 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.
MuniHoldings Fund II, Inc., January 31, 2000
NOTES TO FINANCIAL STATEMENTS (concluded)
* 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) Organization and offering expenses--In accordance with Statement
of Position 98-5, unamortized organization expenses of $13,579 were
expensed during the six months ended January 31, 2000. This was
considered to be a change in accounting principle and had no
material impact on the operations of the Fund.
(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 January 31, 2000 were $131,979,764 and
$143,054,772, respectively.
Net realized losses for the six months ended January 31, 2000 and
net unrealized losses as of January 31, 2000 were as follows:
Realized Unrealized
Losses Losses
Long-term investments $ (15,846,296) $ (21,137,112)
------------- -------------
Total $ (15,846,296) $ (21,137,112)
============= =============
As of January 31, 2000, net unrealized depreciation for Federal
income tax purposes aggregated $21,137,112, of which $233,916
related to appreciated securities and $21,371,028 related to
depreciated securities. The aggregate cost of investments at January
31, 2000 for Federal income tax purposes was $228,931,956.
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 January
31, 2000 and the year ended July 31, 1999 remained constant.
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 January
31, 2000 were as follows: Series A, 3.60% and Series B, 3.60%.
Shares issued and outstanding during the six months ended January
31, 2000 and the year ended July 31, 1999 remained constant.
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
ending January 31, 2000, Merrill Lynch, Pierce, Fenner &Smith
Incorporated, an affilliate of FAM, earned $61,669 as commissions.
5. Subsequent Event:
On February 7, 2000, the Fund's Board of Directors declared an
ordinary income dividend to Common Stock shareholders in the amount
of $.065400 per share, payable on February 28, 2000 to shareholders
of record as of February 17, 2000.
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
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
MUH
