-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TcsWNkw9wqWpRbYGpc2mh5FaiTHM6saCM82inWNfY6VEO9ZUtGpfYYqliinfgYBk iIHpcDa/o+a4gtrpoNPgAg== 0001005477-99-005864.txt : 19991215 0001005477-99-005864.hdr.sgml : 19991215 ACCESSION NUMBER: 0001005477-99-005864 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990430 FILED AS OF DATE: 19991214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MUNIHOLDINGS FUND INC CENTRAL INDEX KEY: 0001034665 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 223508039 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-08081 FILM NUMBER: 99774039 BUSINESS ADDRESS: STREET 1: 800 SCUDDERS MILL RD STREET 2: C/O MERRILL LYNCH ASSET MANAGEMENT CITY: PLAINSBORO STATE: NJ ZIP: 08536 BUSINESS PHONE: 6092823087 MAIL ADDRESS: STREET 1: MERRILL LYNCH ASSET MANAGEMENT STREET 2: INFO SYSTEMS SECT 2-B PO BOX 9011 CITY: PRINCETON STATE: NJ ZIP: 08543-9011 N-30D 1 ANNUAL REPORT MUNIHOLDINGS FUND, INC. [GRAPHIC OMITTED] STRATEGIC Performance Semi-Annual Report October 31, 1999 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. 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 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)
S&P Moody's Face Value STATE Ratings Ratings Amount Issue (Note 1a) ==================================================================================================================================== 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 ==================================================================================================================================== ====================================================================================================================================
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 MuniHoldings Fund, Inc., October 31, 1999 SCHEDULE OF INVESTMENTS (continued) (in Thousands)
S&P Moody's Face Value STATE Ratings Ratings Amount Issue (Note 1a) ==================================================================================================================================== 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 ====================================================================================================================================
6 & 7 MuniHoldings Fund, Inc., October 31, 1999 SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
S&P Moody's Face Value STATE Ratings Ratings Amount Issue (Note 1a) ==================================================================================================================================== 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 ======== ====================================================================================================================================
(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
As of October 31, 1999 ==================================================================================================================================== 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 ============ ====================================================================================================================================
*Auction Market Preferred Stock. See Notes to Financial Statements. STATEMENT OF OPERATIONS
For the Six Months Ended October 31, 1999 ==================================================================================================================================== 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): ============ ====================================================================================================================================
See Notes to Financial Statements. 8 & 9 MuniHoldings Fund, Inc., October 31, 1999 STATEMENTS OF CHANGES IN NET ASSETS
For the Six For the Months Ended Year Ended Increase (Decrease) in Net Assets: Oct. 31, 1999 April 30, 1999 ================================================================================================================================= 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 ============ ============ =================================================================================================================================
See Notes to Financial Statements. FINANCIAL HIGHLIGHTS
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 ================================================================================================================================== 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: ==================================================================================================================================
* 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 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 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 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 [RECYCLE LOGO]Printed on post-consumer recycled paper -----END PRIVACY-ENHANCED MESSAGE-----