UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-08081
Name of Fund: MuniHoldings Fund, Inc.
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Robert C. Doll, Jr., Chief Executive
Officer, MuniHoldings Fund, Inc., 800 Scudders Mill Road, Plainsboro,
NJ, 08536. Mailing address: P.O. Box 9011, Princeton, NJ, 08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 04/30/06
Date of reporting period: 05/01/05 - 04/30/06
Item 1 - Report to Stockholders
Annual Reports
April 30, 2006
MuniHoldings Fund, Inc.
MuniHoldings Insured Fund, Inc.
(BULL LOGO) Merrill Lynch Investment Managers
www.mlim.ml.com
Mercury Advisors
A Division of Merrill Lynch Investment Managers
www.mercury.ml.com
MuniHoldings Fund, Inc. and MuniHoldings Insured Fund, Inc. seek to provide
shareholders with current income exempt from federal income taxes by investing
primarily in portfolios of long-term, investment grade municipal obligations
the interest on which, in the opinion of bond counsel to the issuer, is exempt
from federal income taxes. Under normal circumstances, MuniHoldings Insured
Fund, Inc. invests at least 80% of its total assets in municipal bonds that
are covered by insurance.
These reports, including the financial information herein, are transmitted to
shareholders of MuniHoldings Fund, Inc. and MuniHoldings Insured Fund, Inc.
for their information. This is not a prospectus. Past performance results
shown in these reports should not be considered a representation of future
performance. The Funds have leveraged their Common Stock and intend to remain
leveraged by issuing Preferred Stock to provide the Common Stock shareholders
with potentially higher rates 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.
A description of the policies and procedures that the Funds use to determine
how to vote proxies relating to portfolio securities is available (1)
without charge, upon request, by calling toll-free 1-800-637-3863; (2) on
www.mutualfunds.ml.com; and (3) on the Securities and Exchange Commission's
Web site at http://www.sec.gov.
MuniHoldings Fund, Inc.
MuniHoldings Insured Fund, Inc.
Box 9011
Princeton, NJ 08543-9011
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MuniHoldings Fund, Inc.
MuniHoldings Insured Fund, Inc.
Announcement to Shareholders
On February 15, 2006, BlackRock, Inc. ("BlackRock") and Merrill Lynch & Co.,
Inc. ("Merrill Lynch") entered into an agreement to contribute Merrill Lynch's
investment management business, Merrill Lynch Investment Managers, L.P. and
certain affiliates (including Fund Asset Management, L.P. and Merrill Lynch
Investment Managers International Limited), to BlackRock to create a new
independent company that will be one of the world's largest asset management
firms with over $1 trillion in assets under management (based on combined
assets under management as of March 31, 2006). The transaction is expected to
close in the third quarter of 2006, at which time the new company will operate
under the BlackRock name. The Fund's Board of Directors has approved a new
investment advisory agreement with BlackRock Advisors, Inc. or its successor
("BlackRock Advisors") on substantially the same terms and for the same
advisory fee as the current investment advisory agreement with the Investment
Adviser. If the new agreement is approved by the Fund's shareholders,
BlackRock Advisors is expected to become the Fund's investment adviser upon
the closing of the transaction between Merrill Lynch and BlackRock.
Quality Profiles as of April 30, 2006
Percent of
MuniHoldings Fund, Inc. by Total
S&P/Moody's Rating Investments
AAA/Aaa 31.4%
AA/Aa 7.7
A/A 16.5
BBB/Baa 18.2
BB/Ba 2.2
B/B 1.7
CCC/Caa 1.6
NR 19.2
Other++ 1.5
++ Includes portfolio holdings in short-term investments and
variable rate demand notes.
Percent of
MuniHoldings Insured Fund, Inc. by Total
S&P/Moody's Rating Investments
AAA/Aaa 91.6%
AA/Aa 3.2
A/A 1.8
BBB/Baa 2.6
Other++ 0.8
++ Includes portfolio holdings in short-term investments and
variable rate demand notes.
Dividend Policy
The Funds' dividend policy is to distribute all or a portion of their net
investment income to their shareholders on a monthly basis. In order to
provide shareholders with a more stable level of dividend distributions, the
Funds 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
Funds for any particular month may be more or less than the amount of net
investment income earned by the Funds during such month. The Funds' current
accumulated but undistributed net investment income, if any, is disclosed in
the Statement of Net Assets, which comprises part of the financial information
included in these reports.
ANNUAL REPORTS APRIL 30, 2006
A Letter From the President
Dear Shareholder
You may be aware that changes are on the horizon at Merrill Lynch Investment
Managers ("MLIM"). On February 15, 2006, Merrill Lynch announced plans to
combine the firm's investment advisory business, including MLIM, with another
highly regarded investment manager - BlackRock, Inc. ("BlackRock").
We believe this merger of asset management strength will benefit our
investors. MLIM is a leading investment management organization with over
$576 billion in assets under management globally and 2,757 employees in
17 countries. It offers over 100 investment strategies in vehicles ranging
from mutual funds to institutional portfolios. BlackRock is one of the
largest publicly traded investment management firms in the United States
with $463.1 billion in assets under management and 1,839 employees. It
manages assets on behalf of institutional and individual investors worldwide
through a variety of equity, fixed income, liquidity and alternative
investment products.
At the completion of the transaction, which is expected in the third quarter
of this year, the resultant firm will be a top-10 investment manager worldwide
with over $1 trillion in assets under management.* The combined company will
provide a wider selection of high-quality investment solutions across a
range of asset classes and investment styles. MLIM and BlackRock possess
complementary capabilities that together create a well-rounded organization
uniting some of the finest money managers in the industry. At the same time,
the firms share similar values and beliefs - they are focused on delivering
excellence on behalf of clients, and both make investment performance their
single most important mission. In short, the merger only reinforces our
commitment to shareholders.
Most of MLIM's investment products - including mutual funds, separately
managed accounts, annuities and variable insurance funds - eventually will
carry the "BlackRock" name. As a shareholder in one or more MLIM-advised
mutual funds, you will receive a proxy package in the coming weeks in
connection with this transaction. After you receive this information, should
you have any questions or concerns, do not hesitate to contact your financial
advisor.
As always, we thank you for entrusting us with your investment assets, and we
look forward to continuing to serve your investment needs with even greater
strength and scale as the new BlackRock.
Sincerely,
(Robert C. Doll, Jr.)
Robert C. Doll, Jr.
President and Chief Investment Officer
Merrill Lynch Investment Managers
* $1.039 trillion in assets under management as of March 31, 2006.
Data, including assets under management, are as of March 31, 2006.
ANNUAL REPORTS APRIL 30, 2006
A Discussion With Your Funds' Portfolio Manager
The Funds ended the period fully invested and with an overall neutral market
posture. We remain focused on generating an attractive level of tax-exempt
income for our shareholders.
Describe the recent market environment relative to municipal bonds.
Long-term bond yields rose sharply during the 12-month period, with much of
the increase occurring in March and April 2006. Bond prices, which move
opposite yields, declined. Bond prices were pressured as investors focused on
solid economic growth, both globally and in the United States, and renewed
inflationary pressures deriving from rising commodity prices.
The Federal Reserve Board (the Fed) continued to raise short-term interest
rates at each of its meetings during the past year, bringing the federal funds
target rate to 4.75% at period-end, and to 5% with another interest rate hike
on May 10. In response, the yield curve continued to flatten, with short-term
interest rates rising more than longer-term interest rates. Over the past 12
months, 30-year U.S. Treasury bond yields rose 66 basis points (.66%) to 5.17%
and 10-year U.S. Treasury note yields rose 86 basis points to 5.07%, the
highest level since May 2002.
While municipal bond yields also rose sharply in recent months, a significant
decline in new issuance allowed municipal bond prices to decline much less
than their taxable counterparts. As measured by Municipal Market Data, yields
on AAA-rated issues maturing in 30 years rose 16 basis points to 4.53% while
yields on AAA-rated issues maturing in 10 years rose 51 basis points to 4.08%.
For the most part, the recent outperformance of the tax-exempt market has been
fostered by a dramatic decline in new bond issuance so far in 2006. In 2005,
more than $408 billion in new long-term tax-exempt bonds was underwritten,
a new annual record and an increase of over 13% versus 2004. Over the past
six-month and three-month periods, new issue volume has declined 8.6% and 24%,
respectively, compared to the corresponding periods a year ago.
The tax-exempt market has continued to enjoy strong investor demand. As
reported by the Investment Company Institute, long-term municipal bond funds
received net new monies of $5.0 billion in 2005 - a sharp reversal from the
$3.7 billion outflow in 2004. During the first quarter of 2006, tax-exempt
mutual funds received over $9.3 billion, slightly higher than the $8.9 billion
inflow during the same period in 2005. Recent statistics from AMG Data
Services indicate that, thus far in 2006, average weekly cash flows into long-
term municipal bond funds averaged over $300 million, a significant
improvement from the weekly average of $65 million in December 2005.
Looking ahead, the fundamentals for the tax-exempt bond market appear
favorable, and continued positive cash flows are anticipated. Given their
attractive yields relative to comparable U.S. Treasury bonds, and the
prospects for reduced issuance in 2006, we believe municipal bonds could enjoy
solid results in the coming months.
MuniHoldings Fund, Inc.
How did the Fund perform during the fiscal year?
For the 12-month period ended April 30, 2006, the Common Stock of MuniHoldings
Fund, Inc. had net annualized yields of 6.58% and 6.56%, based on a year-end
per share net asset value of $16.14 and a per share market price of $16.20,
respectively, and $1.062 per share income dividends. Over the same period, the
total investment return on the Fund's Common Stock was +5.69%, based on a
change in per share net asset value from $16.31 to $16.14, and assuming
reinvestment of all distributions.
The Fund's total return, based on net asset value, exceeded the +3.86% average
return of the Lipper General Municipal Debt Funds (Leveraged) category for the
12-month period. (Funds in this Lipper category invest primarily in municipal
debt issues rated in the top four credit-rating categories. These funds can be
leveraged via use of debt, preferred equity and/or reverse repurchase
agreements.)
Overall, the municipal market performed fairly well in this period of rising
interest rates. The yield curve continued to flatten as the long end rallied
slightly while the short end underperformed. Against this backdrop, the Fund
benefited from its limited exposure to securities with shorter effective
maturities, generally eight years - 15 years. Also contributing to performance
was the portfolio's ample exposure to lower-rated investment quality and non-
investment grade securities (that is, spread product). As has been the case
for the past 24 months, credit spreads continued to narrow in the municipal
market as strong demand for incremental yield met with an extremely low supply
of higher-yielding securities. This led to strong outperformance for spread
sectors.
ANNUAL REPORTS APRIL 30, 2006
For the six-month period ended April 30, 2006, the total investment return on
the Fund's Common Stock was +3.70%, based on a change in per share net asset
value from $16.06 to $16.14, and assuming reinvestment of all distributions.
For a description of the Fund's total investment return based on a change in
the per share market value of the Fund's Common Stock (as measured by the
trading price of the Fund's shares on the New York Stock Exchange), and
assuming reinvestment of dividends, please refer to the Financial Highlights
section of this report. As a closed-end fund, the Fund's shares may trade in
the secondary market at a premium or discount to the Fund's net asset value.
As a result, total investment returns based on changes in the market value of
the Fund's Common Stock can vary significantly from total investment returns
based on changes in the Fund's net asset value.
What changes were made to the portfolio during the period?
Broadly speaking, we moved the portfolio from a slightly defensive stance to
more of a neutral posture as the Fed appeared to be approaching a pause in its
interest rate-hiking campaign. Although both the Treasury and the municipal
yield curves continued to flatten during the past six months, the move was not
nearly as dramatic as we have seen in prior periods. The municipal curve
managed to retain a positive slope - particularly notable because the Treasury
curve actually inverted early in 2006 - and this contributed to the market's
and the Fund's positive performance.
We maintained our focus on refundable, essential service securities from high-
demand states. The lack of new-issue supply and increased demand for municipal
bonds has caused spreads to narrow in all sectors of the municipal market. We
took advantage of these tight spreads to move the Fund to a market neutral
exposure to spread product while increasing its position in bonds tax-exempt
in specialty states (that is, states with a combination of high taxes and
larger populations). We believe this strategy should prove beneficial with any
shift in the supply/demand imbalance in both the high yield sector and the
general municipal market.
For the six-month period ended April 30, 2006, the Fund's Auction Market
Preferred Stock (AMPS) had an average yield of 3.02% for Series A, 3.07% for
Series B and 2.96% for Series C. The Fed raised the short-term interest rate
target 200 basis points during the 12-month period, and this continued to
affect the Fund's borrowing costs. We would expect additional increases in the
cost of funds to be more limited as the Fed nears a pause in its monetary
tightening campaign. Despite the interest rate increases during the period,
the tax-exempt yield curve maintained a positive slope, allowing us to borrow
at a lower rate than where we invest. This continued to generate an income
benefit to the holders of Common Stock from the leveraging of Preferred Stock.
However, should the spread between short-term and long-term interest rates
narrow, the benefits of leveraging will decline and, as a result, reduce the
yield on the Fund's Common Stock. At the end of the period, the Fund's
leverage amount, due to AMPS, was 35.85% of total net assets, before the
deduction of Preferred Stock. (For a more complete explanation of the benefits
and risks of leveraging, see page 7 of this report to shareholders.)
How would you characterize the Fund's position at the close of the period?
We remain focused on generating an attractive level of tax-exempt income for
our shareholders. The Fund ended the period fully invested and with an overall
neutral market posture. After 16 consecutive interest rate hikes, the Fed may
be near a pause in its monetary tightening program. However, global economies
and certain pockets of the U.S. economy continue to show solid growth, leading
us to believe that it still may be early to become too aggressive. We believe
a neutral stance is prudent in the current environment and should provide
competitive performance.
MuniHoldings Insured Fund, Inc.
How did the Fund perform during the fiscal year?
For the 12-month period ended April 30, 2006, the Common Stock of MuniHoldings
Insured Fund, Inc. had net annualized yields of 5.92% and 6.24%, based on a
year-end per share net asset value of $13.80 and a per share market price of
$13.10, respectively, and $.817 per share income dividends. Over the same
period, the total investment return on the Fund's Common Stock was +1.46%,
based on a change in per share net asset value from $14.44 to $13.80, and
assuming reinvestment of all distributions.
The Fund's total return, based on net asset value, trailed the +2.24% average
return of the Lipper Insured Municipal Debt Funds (Leveraged) category for the
12-month period. (Funds in this Lipper category invest primarily in municipal
debt issues insured as to timely payment. These funds can be leveraged via use
of debt, preferred equity and/or reverse repurchase agreements.)
ANNUAL REPORTS APRIL 30, 2006
A Discussion With Your Funds' Portfolio Manager (concluded)
Overall, the municipal market performed fairly well in this period of rising
interest rates. The yield curve continued to flatten as the long end rallied
slightly while the short end underperformed. Against this backdrop, Fund
performance lagged due to its higher exposure to securities at the shorter end
of the yield curve. While we anticipated that the curve would flatten, we held
on to securities with shorter effective maturities (generally eight years - 15
years) because they were booked in the portfolio at above-average yields,
allowing us to maintain the Fund's competitive distribution rate. As such, the
Fund maintained one of the highest yields in its Lipper category, although its
total return underperformed the average.
For the six-month period ended April 30, 2006, the total investment return on
the Fund's Common Stock was +1.84%, based on a change in per share net asset
value from $13.94 to $13.80, and assuming reinvestment of all distributions.
For a description of the Fund's total investment return based on a change in
the per share market value of the Fund's Common Stock (as measured by the
trading price of the Fund's shares on the New York Stock Exchange), and
assuming reinvestment of dividends, please refer to the Financial Highlights
section of this report. As a closed-end fund, the Fund's shares may trade in
the secondary market at a premium or discount to the Fund's net asset value.
As a result, total investment returns based on changes in the market value of
the Fund's Common Stock may vary significantly from total investment returns
based on changes in the Fund's net asset value.
What changes were made to the portfolio during the period?
Broadly speaking, we moved the portfolio from a slightly defensive stance to
more of a neutral posture as the Fed appeared to be approaching a pause in its
interest rate-hiking campaign. Although both the Treasury and the municipal
yield curves continued to flatten during the past six months, the move was not
nearly as dramatic as we have seen in prior periods. The municipal curve
managed to retain a positive slope - particularly notable because the Treasury
curve actually inverted early in 2006 - and this contributed to the market's
and the Fund's positive performance.
We maintained our focus on refundable, essential service securities from high-
demand states. The lack of new-issue supply and increased demand for municipal
bonds has caused spreads to narrow in all sectors of the municipal market. We
took advantage of these tight spreads to increase the Fund's exposure to the
bonds of specialty states (that is, states with a combination of high taxes
and larger populations.) We believe our strategy should prove beneficial going
forward, as the relatively tight spreads have driven down the yield sacrifice
typically involved in owning specialty state bonds. However, should increasing
supply or decreasing demand reestablish normal sector spreads in the future,
we will once again decrease our exposure to the specialty states.
For the six-month period ended April 30, 2006, the Fund's Auction Market
Preferred Stock (AMPS) had average yields of 3.09% for Series A and 2.99% for
Series B. The Fed raised the short-term interest rate target 200 basis points
during the 12-month period, and this continued to affect the Fund's borrowing
costs. We would expect additional increases in the cost of funds to be more
limited as the Fed nears a pause in its monetary tightening campaign. Despite
the interest rate increases during the period, the tax-exempt yield curve
maintained a positive slope, allowing us to borrow at a lower rate than where
we invest. This continued to generate an income benefit to the holders of
Common Stock from the leveraging of Preferred Stock. However, should the
spread between short-term and long-term interest rates narrow, the benefits of
leveraging will decline and, as a result, reduce the yield on the Fund's
Common Stock. At the end of the period, the Fund's leverage amount, due to
AMPS, was 42.98% of total net assets, before the deduction of Preferred Stock.
(For a more complete explanation of the benefits and risks of leveraging, see
page 7 of this report to shareholders.)
How would you characterize the Fund's position at the close of the period?
We remain focused on generating an attractive level of tax-exempt income for
our shareholders. The Fund ended the period fully invested and with an overall
neutral market posture. After 16 consecutive interest rate hikes, the Fed may
be near a pause in its monetary tightening program. However, global economies
and certain pockets of the U.S. economy continue to show solid growth, leading
us to believe that it still may be early to become too aggressive. We believe
a neutral stance is prudent in the current environment and should provide
competitive performance.
Robert A. DiMella, CFA
Vice President and Portfolio Manager
May 15, 2006
ANNUAL REPORTS APRIL 30, 2006
The Benefits and Risks of Leveraging
The Funds utilize leveraging to seek to enhance the yield and net asset value
of their Common Stock. However, these objectives cannot be achieved in all
interest rate environments. To leverage, each 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 each 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 issue 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.
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 their investment strategy, the Funds 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 Funds 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 Funds invest in inverse floaters, the market value of each
Fund's portfolio and the net asset value of each Fund's shares may also be
more volatile than if the Funds did not invest in these securities. As of
April 30, 2006, the percentages of MuniHoldings Fund, Inc.'s and MuniHoldings
Insured Fund, Inc.'s total net assets invested in inverse floaters were 5.32%
and 5.66%, respectively, before the deduction of Preferred Stock.
Swap Agreements
The Funds may invest in swap agreements, which are over-the-counter contracts
in which one party agrees to make periodic payments based on the change in
market value of a specified bond, basket of bonds, or index in return for
periodic payments based on a fixed or variable interest rate or the change in
market value of a different bond, basket of bonds or index. Swap agreements
may be used to obtain exposure to a bond or market without owning or taking
physical custody of securities. Swap agreements involve the risk that the
party with whom each Fund has entered into a swap will default on its
obligation to pay the Fund and the risk that the Fund will not be able to meet
its obligations to pay the other party to the agreement.
ANNUAL REPORTS APRIL 30, 2006
Schedule of Investments MuniHoldings Fund, Inc.
(In Thousands)
Face
Amount Municipal Bonds Value
Alabama--2.9%
$ 1,750 Camden, Alabama, IDB, Exempt Facilities Revenue
Bonds (Weyerhaeuser Company), Series A, 6.125%
due 12/01/2024 $ 1,924
4,550 Jefferson County, Alabama, Limited Obligation
School Warrants, Series A, 5% due 1/01/2024 4,646
Alaska--1.5%
3,400 Valdez, Alaska, Marine Terminal Revenue Refunding
Bonds (BP Pipelines Inc. Project), VRDN, Series C,
3.71% due 7/01/2037 (f) 3,400
Arizona--3.4%
Maricopa County, Arizona, IDA, Education Revenue
Bonds (Arizona Charter Schools Project 1), Series A:
935 6.50% due 7/01/2012 942
2,300 6.75% due 7/01/2029 2,289
3,000 Phoenix, Arizona, IDA, Airport Facility, Revenue
Refunding Bonds (America West Airlines Inc.
Project), AMT, 6.30% due 4/01/2023 2,668
1,000 Pinal County, Arizona, COP, 5% due 12/01/2029 1,007
610 Show Low, Arizona, Improvement District No. 5,
Special Assessment Bonds, 6.375% due 1/01/2015 627
Arkansas--0.9%
2,000 University of Arkansas, University Construction
Revenue Bonds (UAMS Campus), Series B, 5%
due 11/01/2023 (h) 2,073
California--20.4%
875 Agua Caliente Band of Cahuilla Indians, California,
Casino Revenue Bonds, 5.60% due 7/01/2013 907
2,965 California Infrastructure and Economic Development
Bank, Insured Revenue Bonds (Rand Corporation),
Series A, 5.50% due 4/01/2032 (b) 3,173
3,405 California Pollution Control Financing Authority, PCR,
Refunding, DRIVERS, AMT, Series 878Z, 6.558%
due 12/01/2009 (g)(h) 3,775
6,800 California State Public Works Board, Lease Revenue
Bonds (Department of Corrections), Series C, 5.25%
due 6/01/2028 7,049
2,500 California State, Various Purpose, GO, 5.50%
due 4/01/2028 2,705
3,870 California Statewide Communities Development
Authority, Health Facility Revenue Bonds (Memorial
Health Services), Series A, 6% due 10/01/2023 4,202
2,000 East Side Union High School District, California,
Santa Clara County, GO (Election of 2002), Series D,
5% due 8/01/2021 (k) 2,092
Golden State Tobacco Securitization Corporation of
California, Tobacco Settlement Revenue Bonds:
1,165 Series A-3, 7.875% due 6/01/2042 1,387
1,670 Series B, 5.625% due 6/01/2013 (i) 1,837
(In Thousands)
Face
Amount Municipal Bonds Value
California (concluded)
$ 6,000 Los Angeles, California, Unified School District, GO,
Series A, 5% due 1/01/2028 (h) $ 6,201
Montebello, California, Unified School District,
GO (c)(m):
2,405 5.61% due 8/01/2022 1,091
2,455 5.61% due 8/01/2023 1,059
2,095 Oceanside, California, Unified School District,
GO (Election of 2000), Series C, 5.25%
due 8/01/2032 (h) 2,196
3,490 Sequoia, California, Unified High School District,
GO, Refunding, Series B, 5.50% due 7/01/2035 (e) 3,823
1,000 Sunnyvale, California, School District, GO (Election of
2004), Series A, 5% due 9/01/2026 (e) 1,040
2,915 Tustin, California, Unified School District, Senior
Lien Special Tax Bonds (Community Facilities District
Number 97-1), Series A, 5% due 9/01/2032 (e) 2,977
Colorado--1.7%
2,645 Elk Valley, Colorado, Public Improvement Revenue
Bonds (Public Improvement Fee), Series A, 7.35%
due 9/01/2031 2,799
1,000 Plaza Metropolitan District Number 1, Colorado,
Tax Allocation Revenue Bonds (Public Improvement
Fees), 8.125% due 12/01/2025 997
Connecticut--4.5%
2,285 Bridgeport, Connecticut, Senior Living Facilities
Revenue Bonds (3030 Park Retirement Community
Project), 7.25% due 4/01/2035 1,925
2,165 Connecticut State Development Authority, Airport
Facility Revenue Bonds (LearJet Inc. Project), AMT,
7.95% due 4/01/2026 2,575
2,735 Connecticut State Development Authority, IDR (AFCO
Cargo BDL-LLC Project), AMT, 8% due 4/01/2030 2,957
2,450 Connecticut State, GO, Series A, 4.75%
due 12/15/2024 2,507
Florida--9.1%
2,980 Florida State Department of Transportation, Turnpike
Revenue Bonds, Series A, 5% due 7/01/2030 3,082
2,340 Miami-Dade County, Florida, Subordinate Special
Obligation Revenue Bonds, Series A, 5.24%
due 10/01/2037 (h)(m) 434
Midtown Miami, Florida, Community Development
District, Special Assessment Revenue Bonds:
2,250 Series A, 6.25% due 5/01/2037 2,453
2,550 Series B, 6.50% due 5/01/2037 2,821
3,225 Orange County, Florida, Health Facilities Authority,
Hospital Revenue Bonds (Orlando Regional
Healthcare), 6% due 12/01/2012 (i) 3,602
2,095 Orlando, Florida, Greater Orlando Aviation Authority,
Airport Facilities Revenue Bonds (JetBlue Airways
Corp.), AMT, 6.50% due 11/15/2036 2,100
Portfolio Abbreviations
To simplify the listings of portfolio holdings in the Schedules of
Investments, we have abbreviated the names of many of the securities
according to the list at right.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
DRIVERS Derivative Inverse Tax-Exempt Receipts
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
M/F Multi-Family
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
VRDN Variable Rate Demand Notes
ANNUAL REPORTS APRIL 30, 2006
Schedule of Investments (continued) MuniHoldings Fund, Inc.
(In Thousands)
Face
Amount Municipal Bonds Value
Florida (concluded)
$ 800 Orlando, Florida, Urban Community Development
District, Capital Improvement Special Assessment
Bonds, Series A, 6.95% due 5/01/2033 $ 862
1,645 Preserve at Wilderness Lake, Florida, Community
Development District, Capital Improvement Bonds,
Series A, 5.90% due 5/01/2034 1,688
1,000 Tern Bay Community Development District, Florida,
Capital Improvement Revenue Refunding Bonds,
Series A, 5.375% due 5/01/2037 989
2,300 West Villages Improvement District, Florida, Special
Assessment Revenue Refunding Bonds (Unit of
Development Number 2), 5.80% due 5/01/2036 2,349
Georgia--0.9%
1,750 Atlanta, Georgia, Tax Allocation Bonds (Atlantic
Station Project), 7.90% due 12/01/2024 1,941
Illinois--3.8%
730 Beardstown, Illinois, IDR (Jefferson Smurfit Corp.
Project), 8% due 10/01/2016 751
1,000 Chicago, Illinois, O'Hare International Airport, Special
Facility Revenue Refunding Bonds (American
Airlines Inc. Project), 8.20% due 12/01/2024 1,004
1,200 Chicago, Illinois, Special Assessment Bonds (Lake
Shore East), 6.75% due 12/01/2032 1,288
4,000 Illinois HDA, Homeowner Mortgage Revenue Bonds,
AMT, Sub-Series C-2, 5.35% due 2/01/2027 4,072
700 Illinois State Finance Authority Revenue Bonds
(Landing At Plymouth Place Project), Series A, 6%
due 5/15/2025 723
625 Naperville, Illinois, IDR (General Motors Corporation),
Refunding, VRDN, 8% due 12/01/2012 (f) 625
Indiana--2.6%
8,985 Allen County, Indiana, Redevelopment District Tax
Increment Revenue Bonds (General Motors
Development Area), 7% due 5/15/2008 (i)(m) 5,911
Kentucky--1.0%
2,000 Louisville and Jefferson Counties, Kentucky,
Metropolitan Sewer District, Sewer and Drain
System Revenue Bonds, Series A, 5.50%
due 5/15/2034 (h) 2,155
Louisiana--4.3%
4,115 Louisiana Public Facilities Authority, Hospital Revenue
Bonds (Franciscan Missionaries of Our Lady Health
System, Inc.), Series A, 5.25% due 8/15/2036 4,181
1,750 New Orleans, Louisiana, Financing Authority Revenue
Bonds (Xavier University of Louisiana Project),
5.30% due 6/01/2026 (h) 1,822
3,540 New Orleans, Louisiana, GO (Public Improvements),
5% due 10/01/2033 (h) 3,585
Maryland--6.6%
1,875 Anne Arundel County, Maryland, Special Obligation
Revenue Bonds (Arundel Mills Project), 7.10%
due 7/01/2009 (i) 2,090
5,417 Baltimore, Maryland, Convention Center Hotel
Revenue Bonds, RIB, Series 1252X, 6.44%
due 9/01/2039 (g)(k) 6,019
Maryland State Economic Development Corporation,
Student Housing Revenue Bonds (University of
Maryland College Park Project) (i):
1,760 6% due 6/01/2013 1,960
1,700 6.50% due 6/01/2013 1,945
(In Thousands)
Face
Amount Municipal Bonds Value
Maryland (concluded)
$ 2,750 Maryland State Energy Financing Administration,
Limited Obligation Revenue Bonds
(Cogeneration-AES Warrior Run), AMT, 7.40%
due 9/01/2019 $ 2,779
Massachusetts--3.7%
2,900 Massachusetts State, HFA, Housing Revenue Bonds,
AMT, Series A, 5.25% due 12/01/2048 2,900
5,215 Massachusetts State School Building Authority,
Dedicated Sales Tax Revenue Bonds, Series A, 5%
due 8/15/2030 (e) 5,403
Michigan--3.5%
1,400 Flint, Michigan, Hospital Building Authority, Revenue
Refunding Bonds (Hurley Medical Center), Series A,
6% due 7/01/2020 (a) 1,501
4,805 Michigan State Strategic Fund, Limited Obligation
Revenue Refunding Bonds (Detroit Edison Pollution
Control), AMT, Series B, 5.65% due 9/01/2029 4,978
1,300 Michigan State Strategic Fund, PCR (General
Motors Corporation Project), VRDN, 7.875%
due 12/01/2008 (f) 1,300
Minnesota--1.7%
3,500 Minneapolis, Minnesota, Community Development
Agency, Supported Development Revenue Refunding
Bonds, Series G-3, 5.45% due 12/01/2011 (i) 3,778
Mississippi--5.5%
7,675 Claiborne County, Mississippi, PCR, Refunding
(System Energy Resources Inc. Project), 6.20%
due 2/01/2026 7,746
2,500 Mississippi Business Finance Corporation, Mississippi,
PCR, Refunding (System Energy Resources Inc.
Project), 5.90% due 5/01/2022 2,521
Mississippi Development Bank, Special Obligation
Revenue Refunding Bonds (Gulfport Water and
Sewer System Project) (e):
1,000 5.25% due 7/01/2017 1,076
810 5.25% due 7/01/2019 867
Missouri--1.4%
1,915 Fenton, Missouri, Tax Increment Revenue Refunding
and Improvement Bonds (Gravois Bluffs), 7%
due 10/01/2011 (i) 2,186
1,000 Missouri State Development Finance Board,
Infrastructure Facilities Revenue Refunding Bonds
(Branson), Series A, 5.50% due 12/01/2032 1,026
New Jersey--13.4%
1,595 Garden State Preservation Trust of New Jersey, Open
Space and Farmland Preservation Revenue Bonds,
Series A, 5.80% due 11/01/2017 (e) 1,794
New Jersey EDA, Cigarette Tax Revenue Bonds:
5,385 5.75% due 6/15/2029 5,689
2,280 5.75% due 6/15/2034 2,396
New Jersey EDA, Retirement Community Revenue
Bonds Series A:
1,475 (Cedar Crest Village Inc. Facility), 7.25%
due 11/15/2031 1,591
2,600 (Seabrook Village Inc.), 8.25% due 11/15/2030 2,908
1,965 New Jersey EDA, School Facilities Construction
Revenue Bonds, Series O, 5.125% due 3/01/2030 2,035
ANNUAL REPORTS APRIL 30, 2006
Schedule of Investments (continued) MuniHoldings Fund, Inc.
(In Thousands)
Face
Amount Municipal Bonds Value
New Jersey (concluded)
New Jersey EDA, Special Facility Revenue Bonds
(Continental Airlines Inc. Project), AMT:
$ 1,000 6.625% due 9/15/2012 $ 1,016
2,950 6.25% due 9/15/2029 2,876
3,325 New Jersey Health Care Facilities Financing Authority
Revenue Bonds (South Jersey Hospital), 6%
due 7/01/2026 3,518
3,500 New Jersey State Turnpike Authority, Turnpike
Revenue Bonds, Series C, 5% due 1/01/2030 (e) 3,619
2,315 Tobacco Settlement Financing Corporation of
New Jersey, Asset-Backed Revenue Bonds, 7%
due 6/01/2041 2,619
New Mexico--3.7%
2,000 Farmington, New Mexico, PCR, Refunding (Public
Service Company of New Mexico--San Juan
Project), Series A, 6.30% due 12/01/2016 2,063
New Mexico Finance Authority, Senior Lien State
Transportation Revenue Bonds, Series A (h):
2,100 5.125% due 6/15/2017 2,227
3,720 5.125% due 6/15/2018 3,939
New York--15.3%
1,185 Dutchess County, New York, IDA, Civic Facility
Revenue Refunding Bonds (Saint Francis Hospital),
Series A, 7.50% due 3/01/2029 1,287
535 New York City, New York, City IDA, Civic Facility
Revenue Bonds, Series C, 6.80% due 6/01/2028 573
480 New York City, New York, GO, Refunding, Series F,
6% due 8/01/2006 (h)(i) 490
New York City, New York, Sales Tax Asset Receivable
Corporation Revenue Bonds:
2,120 DRIVERS, Series 1133Z, 6.379%
due 10/15/2012 (b)(g) 2,385
3,500 Series A, 5.25% due 10/15/2018 (h) 3,749
6,500 Series A, 5% due 10/15/2029 (b) 6,736
2,715 New York State Dormitory Authority Revenue Bonds
(School Districts Financing Program), Series D,
5.25% due 10/01/2023 (h) 2,880
1,050 New York State Thruway Authority, General
Revenue Refunding Bonds, Series G, 5.25%
due 1/01/2027 (e) 1,118
Tobacco Settlement Financing Corporation of New
York Revenue Bonds:
3,150 Series A-1, 5.50% due 6/01/2018 3,368
3,500 Series C-1, 5.50% due 6/01/2017 3,715
3,800 Series C-1, 5.50% due 6/01/2020 (c)(j) 4,093
1,400 Series C-1, 5.50% due 6/01/2022 1,494
2,080 Westchester County, New York, IDA, Continuing Care
Retirement, Mortgage Revenue Bonds (Kendal on
Hudson Project), Series A, 6.50% due 1/01/2034 2,209
Oklahoma--0.6%
1,425 Tulsa, Oklahoma, Municipal Airport Trust Revenue
Refunding Bonds (AMR Corporation), AMT, Series A,
5.375% due 12/01/2035 1,417
Oregon--0.9%
2,050 Western Generation Agency, Oregon, Cogeneration
Project Revenue Bonds (Wauna Cogeneration
Project), AMT, Series B, 7.40% due 1/01/2016 2,066
(In Thousands)
Face
Amount Municipal Bonds Value
Pennsylvania--6.8%
$ 1,700 Bucks County, Pennsylvania, IDA, Retirement
Community Revenue Bonds (Ann's Choice Inc.),
Series A, 6.25% due 1/01/2035 $ 1,749
3,500 Pennsylvania Economic Development Financing
Authority, Exempt Facilities Revenue Bonds
(National Gypsum Company), AMT, Series B,
6.125% due 11/01/2027 3,686
725 Philadelphia, Pennsylvania, Authority for IDR,
Commercial Development, 7.75% due 12/01/2017 734
2,500 Philadelphia, Pennsylvania, Authority for IDR,
Commercial Development (Days Inn), Refunding,
Series B, 6.50% due 2/01/2007 (i) 2,590
Philadelphia, Pennsylvania, Authority for Industrial
Development, Senior Living Revenue Bonds:
1,105 (Arbor House Inc. Project), Series E, 6.10%
due 7/01/2033 1,146
1,245 (Saligman House Project), Series C, 6.10%
due 7/01/2033 1,292
3,500 Sayre, Pennsylvania, Health Care Facilities Authority,
Revenue Bonds (Guthrie Healthcare System),
Series B, 7.125% due 12/01/2031 4,099
Rhode Island--1.4%
2,820 Rhode Island State Health and Educational Building
Corporation, Hospital Financing Revenue Bonds
(Lifespan Obligation Group), 6.50% due 8/15/2012 (i) 3,215
South Carolina--1.5%
3,020 Medical University Hospital Authority, South Carolina,
Hospital Facilities Revenue Refunding Bonds,
Series A, 6.375% due 8/15/2012 (i) 3,434
Tennessee--6.0%
4,500 Hardeman County, Tennessee, Correctional Facilities
Corporation Revenue Bonds, 7.75% due 8/01/2017 4,645
4,575 Shelby County, Tennessee, Health, Educational
and Housing Facility Board, Hospital Revenue
Refunding Bonds (Methodist Healthcare) 6.50%
due 9/01/2012 (i) 5,238
3,400 Tennessee Educational Loan Revenue Bonds
(Educational Funding South Inc.), AMT, Senior
Series B, 6.20% due 12/01/2021 3,424
Texas--15.3%
4,000 Austin, Texas, Convention Center Revenue Bonds
(Convention Enterprises Inc.), First Tier, Series A,
6.70% due 1/01/2028 4,252
1,000 Brazos River Authority, Texas, PCR, Refunding
(TXU Energy Company LLC Project), Series B, 4.75%
due 5/01/2029 1,005
2,340 Brazos River Authority, Texas, Revenue Refunding
Bonds (Reliant Energy Inc. Project), Series B, 7.75%
due 12/01/2018 2,537
3,375 Brazos River, Texas, Harbor Navigation District,
Brazoria County Environmental Revenue Refunding
Bonds (Dow Chemical Company Project), AMT,
Series A-7, 6.625% due 5/15/2033 3,762
Harris County, Texas, Revenue Refunding Bonds,
DRIVERS (e)(g):
3,450 Series 1111, 6.369% due 8/15/2009 3,738
2,430 Series 1172-Z, 6.379% due 8/15/2009 2,623
1,800 Houston, Texas, Health Facilities Development
Corporation, Retirement Facility Revenue Bonds
(Buckingham Senior Living Community), Series A,
7.125% due 2/15/2034 1,964
ANNUAL REPORTS APRIL 30, 2006
Schedule of Investments (concluded) MuniHoldings Fund, Inc.
(In Thousands)
Face
Amount Municipal Bonds Value
Texas (concluded)
$ 3,000 Lower Colorado River Authority, Texas, PCR
(Samsung Austin Semiconductor), AMT, 6.375%
due 4/01/2027 $ 3,128
1,485 Matagorda County, Texas, Navigation District
Number 1, Revenue Refunding Bonds (Reliant
Energy Inc.), Series C, 8% due 5/01/2029 1,596
1,425 Port Corpus Christi, Texas, Individual Development
Corporation, Environmental Facilities Revenue
Bonds (Citgo Petroleum Corporation Project), AMT,
8.25% due 11/01/2031 1,492
5,160 Texas State Department of Housing and Community
Affairs, Residential Mortgage Revenue Bonds, AMT,
Series A, 5.70% due 1/01/2033 (d) 5,248
2,800 Texas State Department of Housing and Community
Affairs, Residential Mortgage Revenue Refunding
Bonds, AMT, Series B, 5.25% due 7/01/2022 (d) 2,881
Vermont--1.1%
2,370 Vermont Educational and Health Buildings Financing
Agency, Revenue Bonds (Developmental and Mental
Health), Series A, 6% due 6/15/2017 2,446
Virginia--5.4%
1,150 Chesterfield County, Virginia, IDA, PCR (Virginia
Electric and Power Company), Series A, 5.875%
due 6/01/2017 1,236
3,000 Fairfax County, Virginia, EDA, Resource Recovery
Revenue Refunding Bonds, AMT, Series A, 6.10%
due 2/01/2011 (b) 3,259
Pocahontas Parkway Association, Virginia, Toll Road
Revenue Bonds:
3,825 Senior Series A, 5.50% due 8/15/2028 3,896
1,500 Senior Series B, 8.40% due 8/15/2029 (m) 394
300 Senior Series B, 8.80% due 8/15/2030 (m) 74
3,035 Tobacco Settlement Financing Corporation of
Virginia, Asset-Backed Revenue Bonds, 5.625%
due 6/01/2037 3,101
(In Thousands)
Face
Amount Municipal Bonds Value
Washington--0.6%
$ 1,365 Seattle, Washington, Housing Authority Revenue
Bonds (Replacement Housing Project), 6.125%
due 12/01/2032 $ 1,346
Wisconsin--1.2%
Wisconsin State Health and Educational Facilities
Authority Revenue Bonds:
825 (New Castle Place Project), Series A, 7%
due 12/01/2031 850
1,755 (Synergyhealth Inc.), 6% due 11/15/2032 1,877
Puerto Rico--0.8%
2,060 Puerto Rico Industrial, Medical and
Environmental Pollution Control Facilities
Financing Authority, Special Facilities
Revenue Bonds (American Airlines Inc.),
Series A, 6.45% due 12/01/2025 1,851
U.S. Virgin Islands--1.7%
3,460 Virgin Islands Government Refinery Facilities, Revenue
Refunding Bonds (Hovensa Coker Project), AMT,
6.50% due 7/01/2021 3,887
Total Municipal Bonds
(Cost--$331,856)--155.1% 346,928
Shares
Held Short-Term Securities
9 Merrill Lynch Institutional Tax-Exempt Fund,
3.49% (l)(n) 9
Total Short-Term Securities
(Cost--$9)--0.0% 9
Total Investments (Cost--$331,865*)--155.1% 346,937
Other Assets Less Liabilities--0.8% 1,774
Preferred Stock, at Redemption Value--(55.9%) (125,053)
----------
Net Assets Applicable to Common Stock--100.0% $ 223,658
==========
* The cost and unrealized appreciation (depreciation) of investments
as of April 30, 2006, as computed for federal income tax purposes,
were as follows:
Aggregate cost $ 331,548
===============
Gross unrealized appreciation $ 17,209
Gross unrealized depreciation (1,820)
---------------
Net unrealized appreciation $ 15,389
===============
(a) ACA Insured.
(b) AMBAC Insured.
(c) FGIC Insured.
(d) FNMA/GNMA Collateralized.
(e) FSA Insured.
(f) Security may have a maturity of more than one year at time of issuance,
but has variable rate and demand features that qualify it as a short-term
security. The rate disclosed is that currently in effect. This rate
changes periodically based upon prevailing market rates.
(g) The rate disclosed is that currently in effect. This rate changes
periodically and inversely based upon prevailing market rates.
(h) MBIA Insured.
(i) Prerefunded.
(j) Tradable Custodial Receipts (TRACERS).
(k) XL Capital Insured.
(l) Investments in companies considered to be an affiliate of the Fund,
for purposes of Section 2(a)(3) of the Investment Company Act of 1940,
were as follows:
Net Dividend
Affiliate Activity Income
Merrill Lynch Institutional Tax-Exempt Fund -- --*
* Amount is less than $1,000.
(m) Represents a zero coupon bond; the interest rate shown reflects the
effective yield at the time of purchase.
(n) Represents the current yield as of 4/30/2006.
See Notes to Financial Statements.
ANNUAL REPORTS APRIL 30, 2006
Schedule of Investments MuniHoldings Insured Fund, Inc.
(In Thousands)
Face
Amount Municipal Bonds Value
Alabama--1.3%
$ 2,170 Jefferson County, Alabama, Limited Obligation
School Warrants, Series A, 5.50% due 1/01/2022 $ 2,317
Arkansas--2.2%
3,710 Arkansas State Development Finance Authority,
M/F Mortgage Revenue Refunding Bonds, DRIVERS,
Series 964Z, 6.569% due 6/01/2010 (b)(e)(h) 3,956
California--28.4%
3,250 California Pollution Control Financing Authority, PCR,
Refunding, DRIVERS, AMT, Series 878Z, 6.558%
due 12/01/2009 (b)(h) 3,603
2,000 California State Public Works Board, Lease Revenue
Bonds (Department of General Services--
Capitol East End Complex), Series A, 5%
due 12/01/2027 (a) 2,051
1,300 California State, Various Purpose, GO, 5.50%
due 4/01/2028 1,407
East Side Union High School District, California,
Santa Clara County, GO (Election of 2002):
1,800 Series B, 5% due 8/01/2027 (c) 1,854
1,335 Series D, 5% due 8/01/2021 (d) 1,396
5,155 Series D, 5% due 8/01/2029 (d) 5,305
Los Angeles, California, Unified School District, GO:
2,000 (Election of 1997), Series F, 5% due 1/01/2028 (c) 2,067
4,395 Series A, 5% due 1/01/2028 (b) 4,542
2,565 Modesto, California, Schools Infrastructure
Financing Agency, Special Tax Bonds, 5.50%
due 9/01/2036 (a) 2,760
5,005 San Francisco, California, City and County, GO
(California Academy of Sciences Improvements),
Series E, 5% due 6/15/2023 (b) 5,201
1,265 San Jose, California, GO (Libraries, Parks and Public
Safety Projects), 5% due 9/01/2030 (b) 1,301
San Pablo, California, Joint Powers Financing
Authority, Tax Allocation Revenue Refunding
Bonds (b)(m):
2,635 5.66% due 12/01/2024 1,010
2,355 5.66% due 12/01/2025 852
2,355 5.66% due 12/01/2026 803
3,145 Sequoia, California, Unified High School District, GO,
Refunding, Series B, 5.50% due 7/01/2035 (f) 3,445
2,080 Sweetwater, California, Union High School District,
Public Financing Authority, Special Tax Revenue
Bonds, Series A, 5% due 9/01/2028 (f) 2,139
Tustin, California, Unified School District, Senior Lien
Special Tax Bonds (Community Facilities District
Number 97-1), Series A, (f):
2,180 5% due 9/01/2032 2,227
2,800 5% due 9/01/2038 2,852
2,000 University of California Revenue Bonds (Multiple
Purpose Projects), Series Q, 5% due 9/01/2022 (f) 2,074
3,480 West Contra Costa, California, Unified School
District, GO, Series C, 5% due 8/01/2021 (c) 3,616
(In Thousands)
Face
Amount Municipal Bonds Value
Colorado--6.5%
$10,620 Aurora, Colorado, COP 5.75% due 12/01/2010 (a)(g) $ 11,481
Florida--4.2%
2,890 Florida State Department of Transportation, Turnpike
Revenue Bonds, Series A, 5% due 7/01/2030 2,989
2,225 Miami-Dade County, Florida, Subordinate Special
Obligation Revenue Bonds, Series A, 5.24%
due 10/01/2037 (b)(m) 413
3,850 Pasco County, Florida, Half-Cent Sales Tax Revenue
Bonds, 5.125% due 12/01/2028 (a) 4,003
Georgia--1.2%
2,000 Augusta, Georgia, Water and Sewer Revenue
Bonds, 5.25% due 10/01/2034 (f) 2,114
Illinois--11.4%
7,965 Chicago, Illinois, GO, Series A, 6%
due 7/01/2010 (c)(g) 8,713
2,150 Chicago, Illinois, O'Hare International Airport
Revenue Bonds, DRIVERS, AMT, Series 845-Z,
7.837% due 1/01/2012 (b)(d)(h) 2,593
2,965 Chicago, Illinois, Park District, Limited Tax, GO,
Series A, 5.75% due 1/01/2011 (c)(g) 3,214
1,000 Chicago, Illinois, Second Lien, Water
Revenue Refunding Bonds, VRDN, 3.77%
due 11/01/2031 (b)(l) 1,000
4,500 Illinois State, GO, First Series, 6% due 1/01/2018 (c) 4,809
45 Lake, Cook, Kane and McHenry Counties, Illinois,
Community Unit School District Number 220, GO,
5.75% due 12/01/2019 (c) 48
Indiana--1.2%
2,000 Indiana Transportation Finance Authority, Highway
Revenue Bonds, Series A, 5.25% due 6/01/2029 (c) 2,110
Maryland--1.6%
2,640 Baltimore, Maryland, Convention Center Hotel
Revenue Bonds, Senior Series A, 5.25%
due 9/01/2023 (d) 2,825
Massachusetts--11.6%
3,565 Massachusetts Bay Transportation Authority, Sales
Tax Revenue Refunding Bonds, Senior Series A,
5% due 7/01/2035 3,648
2,105 Massachusetts Bay Transportation Authority,
Special Assessment Revenue Refunding Bonds,
Series A, 5% due 7/01/2031 2,172
565 Massachusetts State, HFA, Housing Development
Revenue Refunding Bonds, AMT, Series A, 5.15%
due 6/01/2011 (b) 567
Massachusetts State, HFA, Rental Housing Mortgage
Revenue Bonds, AMT (f):
3,300 Series A, 5.15% due 7/01/2026 3,289
2,440 Series C, 5.50% due 7/01/2032 2,555
8,065 Massachusetts State School Building Authority,
Dedicated Sales Tax Revenue Bonds, Series A, 5%
due 8/15/2030 (f) 8,356
ANNUAL REPORTS APRIL 30, 2006
Schedule of Investments (continued) MuniHoldings Insured Fund, Inc.
(In Thousands)
Face
Amount Municipal Bonds Value
Michigan--3.8%
$ 2,035 Boyne City, Michigan, Public School District, GO,
5.75% due 5/01/2009 (c)(g) $ 2,150
Michigan State Strategic Fund, Limited Obligation
Revenue Refunding Bonds, AMT (d):
1,750 DRIVERS, Series 857Z, 7.138%
due 3/01/2010 (h) 1,934
1,000 DRIVERS, Series 858Z, 6.838%
due 12/01/2011 (h) 1,114
1,500 (Detroit Edison Pollution), Series B, 5.65%
due 9/01/2029 1,579
Minnesota--2.4%
4,015 Sauk Rapids, Minnesota, Independent School District
Number 47, GO, Series A, 5.65% due 2/01/2019 (b) 4,340
Missouri--5.2%
2,000 Cape Girardeau, Missouri, School District Number 063,
GO (Missouri Direct Deposit Program), 5.50%
due 3/01/2018 (c) 2,112
Mehlville, Missouri, School District Number R-9, COP
Series A (f):
1,925 5.50% due 3/01/2014 2,060
2,175 5.50% due 3/01/2015 2,322
1,170 5.50% due 3/01/2016 1,250
1,500 5.50% due 3/01/2017 1,592
Nebraska--2.2%
Omaha Convention Hotel Corporation, Nebraska,
Convention Center Revenue Bonds, First Tier,
Series A (a):
1,585 5.50% due 4/01/2020 1,697
2,000 5.50% due 4/01/2021 2,136
New Jersey--18.1%
2,335 Garden State Preservation Trust of New Jersey, Open
Space and Farmland Preservation Revenue Bonds,
Series A, 5.80% due 11/01/2017 (f) 2,627
New Jersey EDA, Cigarette Tax Revenue Bonds:
5,295 5.75% due 6/15/2029 5,594
3,800 5.75% due 6/15/2034 (k) 4,118
6,700 New Jersey EDA, Motor Vehicle Surcharge Revenue
Bonds, Series A, 5.25% due 7/01/2033 (b) 7,092
6,705 New Jersey State Transportation Trust Fund Authority,
Transportation System Revenue Bonds, Series D,
5% due 6/15/2019 (f) 6,999
5,500 New Jersey State Turnpike Authority, Turnpike
Revenue Bonds, Series C, 5% due 1/01/2030 (f) 5,687
New Mexico--3.1%
New Mexico Finance Authority, Senior Lien State
Transportation Revenue Bonds, Series A (b):
1,900 5.125% due 6/15/2017 2,015
3,325 5.125% due 6/15/2018 3,521
(In Thousands)
Face
Amount Municipal Bonds Value
New York--31.9%
$10,000 Nassau Health Care Corporation, New York,
Health System Revenue Bonds, 5.75%
due 8/01/2009 (f)(g) $ 10,810
New York City, New York, GO (f):
4,000 Series E, 5% due 11/01/2017 4,198
7,085 Series G, 5.75% due 10/15/2007 (g) 7,360
New York City, New York, GO, Refunding:
5,865 Series C, 5.875% due 8/01/2006 (b)(g) 5,984
230 Series G, 5.75% due 2/01/2017 (f) 234
New York City, New York, Sales Tax Asset Receivable
Corporation Revenue Bonds, Series A:
3,150 5.25% due 10/15/2018 (b) 3,374
4,095 5.25% due 10/15/2027 (a) 4,351
3,500 5% due 10/15/2029 (a) 3,627
4,000 5% due 10/15/2032 (a) 4,139
2,645 New York State Dormitory Authority Revenue Bonds
(School Districts Financing Program), Series D,
5.25% due 10/01/2023 (b) 2,805
945 New York State Thruway Authority, General
Revenue Refunding Bonds, Series G, 5.25%
due 1/01/2027 (f) 1,007
Tobacco Settlement Financing Corporation of New
York Revenue Bonds, Series C-1:
4,900 5.50% due 6/01/2017 5,201
3,430 5.50% due 6/01/2020 (c)(j) 3,694
Oklahoma--0.9%
1,600 Oklahoma State Industries Authority, Revenue
Refunding Bonds (Integris Baptist), VRDN, Series B,
3.62% due 8/15/2029 (b)(l) 1,600
Oregon--0.8%
1,400 Portland, Oregon, Urban Renewal and Redevelopment
Tax Allocation Bonds (Oregon Convention Center),
Series A, 5.75% due 6/15/2015 (a) 1,513
Pennsylvania--10.2%
3,900 Pennsylvania State Higher Educational Facilities
Authority, State System of Higher Education Revenue
Bonds, Series O, 5.125% due 6/15/2024 (a) 3,950
6,045 Philadelphia, Pennsylvania, Airport Revenue Bonds
(Philadelphia Airport System), AMT, Series B, 5.50%
due 6/15/2017 (c) 6,246
1,730 Sayre, Pennsylvania, Health Care Facilities Authority,
Revenue Refunding Bonds (Guthrie Healthcare
System), Series A, 5.875% due 12/01/2031 1,829
2,015 Seneca Valley, Pennsylvania, School District, GO, 5%
due 1/01/2019 (c) 2,115
1,800 Washington County, Pennsylvania, Capital Funding
Authority Revenue Bonds (Capital Projects and
Equipment Program), 6.15% due 12/01/2029 (a) 1,928
1,885 York County, Pennsylvania, School of Technology
Authority, Lease Revenue Refunding Bonds, 5.50%
due 2/15/2022 (c) 2,026
ANNUAL REPORTS APRIL 30, 2006
Schedule of Investments (concluded) MuniHoldings Insured Fund, Inc.
(In Thousands)
Face
Amount Municipal Bonds Value
Rhode Island--4.8%
$ 5,000 Providence, Rhode Island, Redevelopment Agency
Revenue Refunding Bonds (Public Safety
and Municipal Buildings), Series A, 5.75%
due 4/01/2010 (a)(g) $ 5,409
2,870 Rhode Island State Health and Educational
Building Corporation Revenue Bonds (Rhode
Island School of Design), Series D, 5.50%
due 8/15/2031 (d) 3,089
South Carolina--0.9%
1,525 Medical University Hospital Authority, South Carolina,
Hospital Facilities, Revenue Refunding Bonds,
Series A, 5.25% due 2/15/2025 (b)(e) 1,607
Tennessee--3.0%
Tennessee HDA, Revenue Refunding Bonds
(Homeownership Program), AMT, Series A, (f):
2,730 5.25% due 7/01/2022 2,793
2,505 5.35% due 1/01/2026 2,563
Texas--4.1%
4,000 Dallas-Fort Worth, Texas, International Airport
Revenue Bonds, DRIVERS, AMT, Series 778-Z,
6.838% due 11/01/2011 (b)(h) 4,453
2,780 Houston, Texas, Community College System,
Participation Interests, COP (Alief Center Project),
5.75% due 8/15/2022 (b) 2,923
Washington--4.9%
4,000 Bellevue, Washington, GO, Refunding, 5.50%
due 12/01/2039 (b) 4,317
2,310 Chelan County, Washington, Public Utility District
Number 001, Consolidated Revenue Bonds
(Chelan Hydro System), AMT, Series A, 5.45%
due 7/01/2037 (a) 2,416
1,810 Snohomish County, Washington, Public Utility District
Number 001, Electric Revenue Bonds, 5.50%
due 12/01/2022 (f) 1,942
(In Thousands)
Face
Amount Municipal Bonds Value
West Virginia--2.9%
$ 5,000 West Virginia State Housing Development Fund,
Housing Finance Revenue Refunding Bonds,
Series D, 5.20% due 11/01/2021 (b) $ 5,139
Wisconsin--0.3%
500 Wisconsin State Health and Educational Facilities
Authority Revenue Bonds (Blood Center of
Southeastern Wisconsin Project), 5.50%
due 6/01/2024 520
Wyoming--0.9%
1,500 Wyoming Student Loan Corporation, Student Loan
Revenue Refunding Bonds, Series A, 6.20%
due 6/01/2024 1,589
Puerto Rico--3.0%
3,235 Puerto Rico Electric Power Authority, Power
Revenue Bonds, Series RR, 5%
due 7/01/2027 (d) 3,355
1,870 Puerto Rico Public Buildings Authority, Government
Facilities Revenue Refunding Bonds, Series D,
5.25% due 7/01/2036 1,927
Total Municipal Bonds
(Cost--$301,849)--173.0% 307,649
Shares
Held Short-Term Securities
21 Merrill Lynch Institutional Tax-Exempt Fund,
3.49% (i)(n) 21
Total Short-Term Securities
(Cost--$21)--0.0% 21
Total Investments (Cost--$301,870*)--173.0% 307,670
Other Assets Less Liabilities--2.4% 4,181
Preferred Stock, at Redemption Value--(75.4%) (134,061)
----------
Net Assets Applicable to Common Stock--100.0% $ 177,790
==========
* The cost and unrealized appreciation (depreciation) of investments
as of April 30, 2006, as computed for federal income tax purposes,
were as follows:
Aggregate cost $ 301,916
===============
Gross unrealized appreciation $ 7,497
Gross unrealized depreciation (1,743)
---------------
Net unrealized appreciation $ 5,754
===============
(a) AMBAC Insured.
(b) MBIA Insured.
(c) FGIC Insured.
(d) XL Capital Insured.
(e) FHA Insured.
(f) FSA Insured.
(g) Prerefunded.
(h) The rate disclosed is that currently in effect. This rate changes
periodically and inversely based upon prevailing market rates.
(i) Investments in companies considered to be an affiliate of the Fund,
for purposes of Section 2(a)(3) of the Investment Company Act of 1940,
were as follows:
Net Dividend
Affiliate Activity Income
Merrill Lynch Institutional Tax-Exempt Fund (100) $15
(j) Tradable Custodial Receipts (TRACERS).
(k) Assured Guaranty Insured.
(l) Security may have a maturity of more than one year at time of issuance,
but has variable rate and demand features that qualify it as a short-term
security. The rate disclosed is that currently in effect. This rate
changes periodically based upon prevailing market rates.
(m) Represents a zero coupon bond; the interest rate shown reflects the
effective yield at the time of purchase.
(n) Represents the current yield as of 4/30/2006.
See Notes to Financial Statements.
ANNUAL REPORTS APRIL 30, 2006
Statements of Net Assets
MuniHoldings
MuniHoldings Insured
As of April 30, 2006 Fund, Inc. Fund, Inc.
Assets
Investments in unaffiliated securities, at value* $ 346,928,305 $ 307,649,498
Investments in affiliated securities, at value** 8,940 20,840
Cash 683,782 7,781
Receivable for securities sold 3,601,148 5,327,830
Interest receivable 5,898,861 4,681,552
Prepaid expenses and other assets 2,197 2,351
--------------- ---------------
Total assets 357,123,233 317,689,852
--------------- ---------------
Liabilities
Payable for securities purchased 8,178,543 5,555,888
Payable to investment adviser 147,331 115,801
Payable for other affiliates 2,380 2,152
Dividends payable to Common Stock shareholders -- 90,855
Offering costs payable 10,000 --
Accrued expenses and other liabilities 74,430 73,896
--------------- ---------------
Total liabilities 8,412,684 5,838,592
--------------- ---------------
Preferred Stock
Preferred Stock, at redemption value, par value $.10 per share*** of AMPS+++
at $25,000 per share liquidation preference 125,052,947 134,061,235
--------------- ---------------
Net Assets Applicable to Common Stock
Net assets applicable to Common Stock $ 223,657,602 $ 177,790,025
=============== ===============
Net Assets Consist of
Undistributed investment income--net $ 2,408,263 $ 936,244
Accumulated realized capital losses--net (166,753) (20,701,790)
Unrealized appreciation--net 15,072,128 5,800,436
--------------- ---------------
Total accumulated earnings (losses)--net 17,313,638 (13,965,110)
Common Stock, par value $.10 per share++ 1,386,115 1,288,620
Paid-in capital in excess of par 204,957,849 190,466,515
--------------- ---------------
Net Assets $ 223,657,602 $ 177,790,025
=============== ===============
Net asset value per share of Common Stock $ 16.14 $ 13.80
=============== ===============
Market price $ 16.20 $ 13.10
=============== ===============
* Identified cost in unaffiliated securities $ 331,856,177 $ 301,849,062
=============== ===============
** Identified cost in affiliated securities $ 8,940 $ 20,840
=============== ===============
*** Preferred Stock authorized, issued and outstanding:
Series A Shares 2,200 2,680
=============== ===============
Series B Shares 2,200 2,680
=============== ===============
Series C Shares 600 --
=============== ===============
++ Common Stock issued and outstanding 13,861,150 12,886,200
=============== ===============
+++ Auction Market Preferred Stock.
See Notes to Financial Statements.
ANNUAL REPORTS APRIL 30, 2006
Statements of Operations
MuniHoldings
MuniHoldings Insured
For the Year Ended April 30, 2006 Fund, Inc. Fund, Inc.
Investment Income
Interest and amortization of premium and discount earned $ 18,644,907 $ 14,755,351
Dividends from affiliates 234 15,125
--------------- ---------------
Total income 18,645,141 14,770,476
--------------- ---------------
Expenses
Investment advisory fees 1,883,168 1,736,742
Commission fees 298,124 339,984
Accounting services 125,246 118,375
Professional fees 56,115 56,501
Transfer agent fees 54,870 48,540
Directors' fees and expenses 32,595 32,906
Printing and shareholder reports 26,329 24,708
Custodian fees 20,799 20,331
Pricing fees 19,551 16,105
Listing fees 15,057 15,048
Other 41,397 45,844
--------------- ---------------
Total expenses before waiver and/or reimbursement 2,573,251 2,455,084
Waiver and/or reimbursement of expenses (18) (196,849)
--------------- ---------------
Total expenses after waiver and/or reimbursement 2,573,233 2,258,235
--------------- ---------------
Investment income--net 16,071,908 12,512,241
--------------- ---------------
Realized & Unrealized Gain (Loss)--Net
Realized gain (loss) on:
Investments--net 3,393,460 3,115,377
Futures contracts and forward interest rate swaps--net -- (700,892)
--------------- ---------------
Total realized gain--net 3,393,460 2,414,485
--------------- ---------------
Change in unrealized appreciation/depreciation on:
Investments--net (3,441,338) (9,817,394)
Futures contracts and forward interest rate swaps--net -- 945,784
--------------- ---------------
Total change in unrealized appreciation/depreciation--net (3,441,338) (8,871,610)
--------------- ---------------
Total realized and unrealized loss--net (47,878) (6,457,125)
--------------- ---------------
Dividends to Preferred Stock Shareholders
Investment income--net (3,250,051) (3,639,222)
--------------- ---------------
Net Increase in Net Assets Resulting from Operations $ 12,773,979 $ 2,415,894
=============== ===============
See Notes to Financial Statements.
ANNUAL REPORTS APRIL 30, 2006
Statements of Changes in Net Assets MuniHoldings Fund, Inc.
For the Year Ended April 30,
Increase (Decrease) in Net Assets: 2006 2005
Operations
Investment income--net $ 16,071,908 $ 16,624,737
Realized gain--net 3,393,460 2,939,627
Change in unrealized appreciation/depreciation--net (3,441,338) 8,533,658
Dividends to Preferred Stock shareholders (3,250,051) (1,607,958)
--------------- ---------------
Net increase in net assets resulting from operations 12,773,979 26,490,064
--------------- ---------------
Dividends to Common Stock Shareholders
Investment income--net (14,886,804) (15,903,116)
--------------- ---------------
Net decrease in net assets resulting from dividends to Common Stock shareholders (14,886,804) (15,903,116)
--------------- ---------------
Stock Transactions
Offering and underwriting costs resulting from the issuance of Preferred Stock (253,446) --
Value of shares issued to Common Stock shareholders in reinvestment of dividends 805,613 158,591
--------------- ---------------
Net increase in net assets resulting from stock transactions 552,167 158,591
--------------- ---------------
Net Assets Applicable to Common Stock
Total increase (decrease) in net assets applicable to Common Stock (1,560,658) 10,745,539
Beginning of year 225,218,260 214,472,721
--------------- ---------------
End of year* $ 223,657,602 $ 225,218,260
=============== ===============
* Undistributed investment income--net $ 2,408,263 $ 4,473,210
=============== ===============
See Notes to Financial Statements.
MuniHoldings Insured Fund, Inc.
For the Year Ended April 30,
Increase (Decrease) in Net Assets: 2006 2005
Operations
Investment income--net $ 12,512,241 $ 13,024,998
Realized gain--net 2,414,485 2,296,913
Change in unrealized appreciation/depreciation--net (8,871,610) 2,511,721
Dividends to Preferred Stock shareholders (3,639,222) (2,002,764)
--------------- ---------------
Net increase in net assets resulting from operations 2,415,894 15,830,868
--------------- ---------------
Dividends to Common Stock Shareholders
Investment income--net (10,717,062) (11,735,198)
--------------- ---------------
Net decrease in net assets resulting from dividends to Common Stock shareholders (10,717,062) (11,735,198)
--------------- ---------------
Stock Transactions
Value of shares issued to Common Stock shareholders in reinvestment of dividends 269,995 --
--------------- ---------------
Net increase in net assets resulting from stock transactions 269,995 --
--------------- ---------------
Net Assets Applicable to Common Stock
Total increase (decrease) in net assets applicable to Common Stock (8,031,173) 4,095,670
Beginning of year 185,821,198 181,725,528
--------------- ---------------
End of year* $ 177,790,025 $ 185,821,198
=============== ===============
* Undistributed investment income--net $ 936,244 $ 2,780,287
=============== ===============
See Notes to Financial Statements.
ANNUAL REPORTS APRIL 30, 2006
Financial Highlights MuniHoldings Fund, Inc.
The following per share data and ratios have been derived For the Year Ended April 30,
from information provided in the financial statements. 2006 2005 2004 2003 2002
Per Share Operating Performance
Net asset value, beginning of year $ 16.31 $ 15.54 $ 15.07 $ 14.50 $ 13.76
---------- ---------- ---------- ---------- ----------
Investment income--net 1.16++++ 1.20++++ 1.25++++ 1.25++++ 1.17
Realized and unrealized gain (loss)--net --++++++ .84 .40 .40 .66
Less dividends to Preferred Stock shareholders from
investment income--net (.23) (.12) (.07) (.10) (.16)
---------- ---------- ---------- ---------- ----------
Total from investment operations .93 1.92 1.58 1.55 1.67
---------- ---------- ---------- ---------- ----------
Less dividends to Common Stock shareholders from
investment income--net (1.08) (1.15) (1.11) (.98) (.93)
---------- ---------- ---------- ---------- ----------
Offering and underwriting costs resulting from the
issuance of Preferred Stock (.02) -- -- -- --
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 16.14 $ 16.31 $ 15.54 $ 15.07 $ 14.50
========== ========== ========== ========== ==========
Market price per share, end of year $ 16.20 $ 16.12 $ 14.43 $ 14.43 $ 13.38
========== ========== ========== ========== ==========
Total Investment Return++
Based on net asset value per share 5.69% 12.95% 10.94% 11.54% 12.64%
========== ========== ========== ========== ==========
Based on market price per share 7.34% 20.22% 7.58% 15.75% 8.51%
========== ========== ========== ========== ==========
Ratios Based on Average Net Assets of Common Stock
Total expenses, net of reimbursement* 1.15% 1.13% 1.14% 1.18% 1.21%
========== ========== ========== ========== ==========
Total expenses* 1.15% 1.13% 1.15% 1.18% 1.21%
========== ========== ========== ========== ==========
Total investment income--net* 7.15% 7.61% 7.98% 8.40% 8.03%
========== ========== ========== ========== ==========
Amount of dividends to Preferred Stock shareholders 1.45% .74% .45% .66% 1.08%
========== ========== ========== ========== ==========
Investment income--net, to Common Stock shareholders 5.70% 6.87% 7.53% 7.74% 6.95%
========== ========== ========== ========== ==========
Ratios Based on Average Net Assets of Preferred Stock
Dividends to Preferred Stock shareholders 2.76% 1.47% .88% 1.23% 1.96%
========== ========== ========== ========== ==========
Supplemental Data
Net assets applicable to Common Stock, end of year
(in thousands) $ 223,658 $ 225,218 $ 214,473 $ 207,960 $ 200,091
========== ========== ========== ========== ==========
Preferred Stock outstanding, end of year (in thousands) $ 125,000 $ 110,000 $ 110,000 $ 110,000 $ 110,000
========== ========== ========== ========== ==========
Portfolio turnover 53.60% 36.23% 42.89% 50.68% 62.94%
========== ========== ========== ========== ==========
Leverage
Asset coverage per $1,000 $ 2,789 $ 3,047 $ 2,950 $ 2,891 $ 2,819
========== ========== ========== ========== ==========
Dividends Per Share on Preferred Stock Outstanding
Series A--Investment income--net $ 688 $ 366 $ 220 $ 315 $ 492
========== ========== ========== ========== ==========
Series B--Investment income--net $ 684 $ 365 $ 223 $ 302 $ 490
========== ========== ========== ========== ==========
Series C**--Investment income--net $ 389 -- -- -- --
========== ========== ========== ========== ==========
* Do not reflect the effect of dividends to Preferred
Stock shareholders.
** Series C was issued October 19, 2005.
++ Total investment returns based on market price, 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.
++++ Based on average shares outstanding.
++++++ Amount is less than $(.01).
See Notes to Financial Statements.
ANNUAL REPORTS APRIL 30, 2006
Financial Highlights MuniHoldings Insured Fund, Inc.
The following per share data and ratios have been derived For the Year Ended April 30,
from information provided in the financial statements. 2006 2005 2004 2003 2002
Per Share Operating Performance
Net asset value, beginning of year $ 14.44 $ 14.12 $ 14.48 $ 13.78 $ 13.29
---------- ---------- ---------- ---------- ----------
Investment income--net .97+++ 1.01+++ 1.04+++ 1.06+++ 1.07
Realized and unrealized gain (loss)--net (.50) .38 (.42) .62 .44
Less dividends to Preferred Stock shareholders from
investment income--net (.28) (.16) (.09) (.13) (.21)
---------- ---------- ---------- ---------- ----------
Total from investment operations .19 1.23 .53 1.55 1.30
---------- ---------- ---------- ---------- ----------
Less dividends to Common Stock shareholders from
investment income--net (.83) (.91) (.89) (.85) (.81)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 13.80 $ 14.44 $ 14.12 $ 14.48 $ 13.78
========== ========== ========== ========== ==========
Market price per share, end of year $ 13.10 $ 13.70 $ 12.64 $ 13.50 $ 12.65
========== ========== ========== ========== ==========
Total Investment Return*
Based on net asset value per share 1.46% 9.35% 4.07% 12.04% 10.28%
========== ========== ========== ========== ==========
Based on market price per share 1.51% 15.90% (.07%) 13.79% 4.38%
========== ========== ========== ========== ==========
Ratios Based on Average Net Assets of Common Stock
Total expenses, net of waiver and reimbursement** 1.24% 1.24% 1.24% 1.28% 1.30%
========== ========== ========== ========== ==========
Total expenses** 1.35% 1.35% 1.34% 1.38% 1.39%
========== ========== ========== ========== ==========
Total investment income--net** 6.87% 7.09% 7.12% 7.55% 7.75%
========== ========== ========== ========== ==========
Amount of dividends to Preferred Stock shareholders 2.00% 1.09% .65% .91% 1.50%
========== ========== ========== ========== ==========
Investment income--net, to Common Stock shareholders 4.87% 6.00% 6.47% 6.64% 6.25%
========== ========== ========== ========== ==========
Ratios Based on Average Net Assets of Preferred Stock
Dividends to Preferred Stock shareholders 2.72% 1.50% .90% 1.23% 1.99%
========== ========== ========== ========== ==========
Supplemental Data
Net assets applicable to Common Stock, end of year
(in thousands) $ 177,790 $ 185,821 $ 181,726 $ 186,372 $ 177,286
========== ========== ========== ========== ==========
Preferred Stock outstanding, end of year (in thousands) $ 134,000 $ 134,000 $ 134,000 $ 134,000 $ 134,000
========== ========== ========== ========== ==========
Portfolio turnover 63.53% 51.81% 39.94% 49.59% 49.69%
========== ========== ========== ========== ==========
Leverage
Asset coverage per $1,000 $ 2,327 $ 2,387 $ 2,356 $ 2,391 $ 2,323
========== ========== ========== ========== ==========
Dividends Per Share on Preferred Stock Outstanding
Series A--Investment income--net $ 686 $ 372 $ 225 $ 313 $ 502
========== ========== ========== ========== ==========
Series B--Investment income--net $ 672 $ 376 $ 228 $ 302 $ 491
========== ========== ========== ========== ==========
* 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.
+++ Based on average shares outstanding.
See Notes to Financial Statements.
ANNUAL REPORTS APRIL 30, 2006
Notes to Financial Statements
1. Significant Accounting Policies:
MuniHoldings Fund, Inc. and MuniHoldings Insured Fund, Inc. (the "Funds" or
individually as the "Fund") are registered under the Investment Company Act
of 1940, as amended, as non-diversified, closed-end management investment
companies. The Funds' financial statements are prepared in conformity with
U.S. generally accepted accounting principles, which may require the use of
management accruals and estimates. Actual results may differ from these
estimates. The Funds determine and make available for publication the net
asset value of their Common Stock on a daily basis. The Funds' Common Stock
shares are listed on the New York Stock Exchange under the symbols MHD and
MUS, respectively. The following is a summary of significant accounting
policies followed by the Funds.
(a) Valuation of investments--Municipal bonds are traded primarily in the over-
the-counter ("OTC") markets and are valued at the last available bid price in
the OTC market or on the basis of values as obtained by a pricing service.
Pricing services use valuation matrixes that incorporate both dealer-supplied
valuations and valuation models. The procedures of the pricing service and its
valuations are reviewed by the officers of the Funds under the general
direction of the Board of Directors. Such valuations and procedures are
reviewed periodically by the Board of Directors of the Funds. 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 OTC market, valuation
is the last asked price (options written) or the last bid price (options
purchased). Swap agreements are valued by quoted fair values received daily by
the Fund's pricing service. Short-term investments with a remaining maturity
of 60 days or less are valued at amortized cost, which approximates market
value, under which method the investment is valued at cost and any premium or
discount is amortized on a straight line basis to maturity. Investments in
open-end investment companies are valued at their net asset value each
business day. Securities and other 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 Funds.
(b) Derivative financial instruments--Each Fund may engage in various
portfolio investment strategies both to increase the return of the Fund and to
hedge, or protect, its exposure to interest rate movements and movements in
the securities 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--Each Fund may purchase or sell financial
futures contracts and options on such futures contracts. 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.
* Options--Each Fund may 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.
* Forward interest rate swaps--Each Fund may enter into forward interest rate
swaps. In a forward interest rate swap, the Fund and the counterparty agree to
make periodic net payments on a specified notional contract amount, commencing
on a specified future effective date, unless terminated earlier. When the
agreement is closed, the Fund records a realized gain or loss in an amount
equal to the value of the agreement.
(c) Income taxes--It is each 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.
ANNUAL REPORTS APRIL 30, 2006
Notes to Financial Statements (continued)
(d) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Realized gains and losses on security transactions are determined on the
identified cost basis. Dividend income is recorded on the ex-dividend dates.
Interest income is recognized on the accrual basis. The Funds amortize all
premiums and discounts on debt securities.
(e) Dividends and distributions--Dividends from net investment income are
declared and paid monthly. Distributions of capital gains are recorded on the
ex-dividend dates.
(f) Offering costs for MuniHoldings Fund, Inc.--Direct expenses relating to
the public offering of the Fund's Preferred Stock were charged to capital at
the time of issuance of the shares.
2. Investment Advisory Agreement and Transactions with Affiliates:
Each 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 each Fund's portfolio and provides
the necessary personnel, facilities, equipment and certain other services
necessary to the operations of the Fund. For such services, each 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. The Investment
Adviser has agreed to reimburse its management fee by the amount of management
fees each Fund pays to FAM indirectly through their investment in the Merrill
Lynch Institutional Tax-Exempt Fund. For the year ended April 30, 2006, FAM
reimbursed the Funds in the amount of $18 and $1,279 relating to MuniHoldings
Fund, Inc. and MuniHoldings Insured Fund, Inc., respectively. In addition, for
MuniHoldings Insured Fund, Inc., the Investment Adviser has agreed to
reimburse its management fee based on the proceeds of Preferred Stock that
exceeds 35% of the Fund's total net assets. For the year ended April 30, 2006,
FAM earned fees of $1,736,742, of which $195,570 was waived.
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), an affiliate of
FAM, received commissions on the execution of portfolio security transactions
for the year ended April 30, 2006 as follows:
MuniHoldings Fund, Inc. $626
MuniHoldings Insured Fund, Inc. $621
For the year ended April 30, 2006, MLPF&S received underwriting fees of
$150,000 in connection with the issuance of an additional Series of Preferred
Stock for MuniHoldings Fund, Inc.
For the year ended April 30, 2006, MuniHoldings Fund, Inc. purchased a
security, subject to Rule 17a-7 under the Investment Company Act of 1940, from
MuniYield Insured Fund, Inc., an affiliate of FAM. This resulted in an
outstanding payable in the amount of $3,459,721.
For the year ended April 30, 2006, MuniHoldings Fund, Inc. and MuniHoldings
Insured Fund, Inc. reimbursed FAM $7,841 and $7,235, respectively, for certain
accounting services.
Certain officers and/or directors of the Funds are officers and/or directors
of FAM, PSI, and/or ML & Co.
In February 2006, ML & Co. and BlackRock, Inc. entered into an agreement to
contribute ML & Co.'s investment management business, including FAM, to the
investment management business of BlackRock, Inc. The transaction is expected
to close in the third quarter of 2006.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended April 30, 2006 were as follows:
MuniHoldings
MuniHoldings Insured
Fund, Inc. Fund, Inc.
Total Purchases $192,305,671 $197,639,022
Total Sales $181,043,078 $200,830,848
4. Stock Transactions:
Each Fund is authorized to issue 200,000,000 shares of 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 stock without approval of holders of Common
Stock.
Common Stock
MuniHoldings Fund, Inc.
Shares issued and outstanding during the years ended April 30, 2006 and April
30, 2005 increased by 49,412 and 9,843, respectively, as a result of dividend
reinvestment.
ANNUAL REPORTS APRIL 30, 2006
Notes to Financial Statements (concluded)
MuniHoldings Insured Fund, Inc.
Shares issued and outstanding during the year ended April 30, 2006 increased
by 18,659 as a result of dividend reinvestment. Shares issued and outstanding
during the year ended April 30, 2005 remained constant.
Preferred Stock
Auction Market Preferred Stock are shares of Preferred Stock of the Funds,
with a par value of $.10 per share and a liquidation preference of $25,000 per
share, plus accrued and unpaid dividends, that entitle their holders to
receive cash dividends at an annual rate that may vary for the successive
dividend periods. The yields in effect at April 30, 2006 were as follows:
MuniHoldings
MuniHoldings Insured
Fund, Inc. Fund, Inc.
Series A 3.60% 3.70%
Series B 3.70% 3.71%
Series C 3.69% --
MuniHoldings Fund, Inc.
Shares issued and outstanding during the year ended April 30, 2006 increased
by 600 from the issuance of an additional series of Preferred Stock. Shares
issued and outstanding during the year ended April 30, 2005 remained constant.
MuniHoldings Insured Fund, Inc.
Shares issued and outstanding during the years ended April 30, 2006 and April
30, 2005 remained constant.
Each 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 year ended April 30, 2006, MLPF&S earned
commissions as follows:
Commissions
MuniHoldings Fund, Inc. $ 181,639
MuniHoldings Insured Fund, Inc. $ 208,024
5. Distributions to Shareholders:
Each Fund paid a tax-exempt income dividend to holders of Common Stock in the
amounts of $.082000 per share and $.061000 per share relating to MuniHoldings
Fund, Inc. and MuniHoldings Insured Fund, Inc. respectively, on May 30, 2006
to shareholders of record on May 15, 2006.
MuniHoldings Fund, Inc.
The tax character of distributions paid during the fiscal years ended
April 30, 2006 and April 30, 2005 was as follows:
4/30/2006 4/30/2005
Distributions paid from:
Tax-exempt income $ 18,136,855 $ 17,511,074
-------------- --------------
Total distributions $ 18,136,855 $ 17,511,074
============== ==============
As of April 30, 2006, the components of accumulated earnings on a tax
basis were as follows:
Undistributed tax-exempt income--net $ 2,091,190
Undistributed long-term capital gains--net --
--------------
Total undistributed earnings--net 2,091,190
Capital loss carryforward (41,704)*
Unrealized gains--net 15,264,152**
--------------
Total accumulated earnings--net $ 17,313,638
==============
* On April 30, 2006, the Fund had a net capital loss carryforward of
$41,704, all of which expires in 2009. This amount will be available
to offset like amounts of any future taxable gains.
** The difference between book-basis and tax-basis net unrealized
gains is attributable primarily to the tax deferral of losses on
straddles and the difference between book and tax amortization
methods for premiums and discounts on fixed income securities.
MuniHoldings Insured Fund, Inc.
The tax character of distributions paid during the fiscal years ended
April 30, 2006 and April 30, 2005 was as follows:
4/30/2006 4/30/2005
Distributions paid from:
Tax-exempt income $ 14,356,284 $ 13,737,962
-------------- --------------
Total distributions $ 14,356,284 $ 13,737,962
============== ==============
As of April 30, 2006, the components of accumulated losses on a tax
basis were as follows:
Undistributed tax-exempt income--net $ 936,244
Undistributed long-term capital gains--net --
--------------
Total undistributed earnings--net 936,244
Capital loss carryforward (18,297,525)*
Unrealized gains--net 3,396,171**
--------------
Total accumulated losses--net $ (13,965,110)
==============
* On April 30, 2006, the Fund had a net capital loss carryforward of
$18,297,525, of which $8,713,612 expires in 2008 and $9,583,913
expires in 2009. This amount will be available to offset like amounts
of any future taxable gains.
** The difference between book-basis and tax-basis net unrealized
gains is attributable primarily to the tax deferral of losses on
wash sales and the tax deferral of losses on straddles.
ANNUAL REPORTS APRIL 30, 2006
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of
MuniHoldings Fund, Inc. and MuniHoldings
Insured Fund, Inc.:
We have audited the accompanying statements of net assets of MuniHoldings
Fund, Inc. and MuniHoldings Insured Fund, Inc. (the "Funds"), including the
schedules of investments, as of April 30, 2006, and the related statements of
operations for the year then ended, the statements of changes in net assets
for each of the two years in the period then ended, and the financial
highlights for each of the five years in the period then ended. These
financial statements and financial highlights are the responsibility of the
Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether
the financial statements and financial highlights are free of material
misstatement. We were not engaged to perform an audit of the Funds' internal
control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the Funds' internal control
over financial reporting. Accordingly, we express no such opinion. An audit
also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and financial highlights, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. Our procedures
included confirmation of securities owned as of April 30, 2006 by
correspondence with the custodian and brokers or by other appropriate auditing
procedures where replies from brokers were not received. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
MuniHoldings Fund, Inc. and MuniHoldings Insured Fund, Inc. at April 30, 2006,
the results of their operations for the year then ended, the changes in their
net assets for each of the two years in the period then ended, and the
financial highlights for each of the five years in the period then ended, in
conformity with U.S. generally accepted accounting principles.
(Ernst & Young, LLP)
Philadelphia, Pennsylvania
June 9, 2006
Fund Certification (unaudited)
In September 2005, MuniHoldings Fund, Inc. and MuniHoldings Insured Fund, Inc.
filed their Chief Executive Officer Certification for the prior year with the
New York Stock Exchange pursuant to Section 303A.12(a) of the New York Stock
Exchange Corporate Governance Listing Standards.
The Funds' Chief Executive Officer and Chief Financial Officer Certifications
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 were filed with the
Funds' Form N-CSR and are available on the Securities and Exchange
Commission's Web site at http://www.sec.gov.
Important Tax Information (unaudited)
All of the net investment income distributions paid by MuniHoldings Fund, Inc.
and MuniHoldings Insured Fund, Inc. during the taxable year ended April 30,
2006 qualify as tax-exempt interest dividends for federal income tax purposes.
ANNUAL REPORTS APRIL 30, 2006
Automatic Dividend Reinvestment Plan
How the Plan Works--The Funds offer a Dividend Reinvestment Plan (the "Plan")
under which income and capital gains dividends paid by each Fund are
automatically reinvested in additional shares of Common Stock of each Fund.
The Plan is administered on behalf of the shareholders by The Bank of New York
(the "Plan Agent"). Under the Plan, whenever the Funds declare a dividend,
participants in the Plan will receive the equivalent in shares of Common Stock
of each Fund. The Plan Agent will acquire the shares for the participant's
account either (i) through receipt of additional unissued but authorized
shares of each Fund ("newly issued shares") or (ii) by purchase of outstanding
shares of Common Stock on the open market on the New York Stock Exchange or
elsewhere. If, on the dividend payment date, each Fund's net asset value per
share is equal to or less than the market price per share plus estimated
brokerage commissions (a condition often referred to as a "market premium"),
the Plan Agent will invest the dividend amount in newly issued shares. If the
Funds' net asset value per share is greater than the market price per share
(a condition often referred to as a "market discount"), the Plan Agent will
invest the dividend amount by purchasing on the open market additional shares.
If the Plan Agent is unable to invest the full dividend amount in open market
purchases, or if the market discount shifts to a market premium during the
purchase period, the Plan Agent will invest any uninvested portion in newly
issued shares. The shares acquired are credited to each shareholder's account.
The amount credited is determined by dividing the dollar amount of the
dividend by either (i) when the shares are newly issued, the net asset value
per share on the date the shares are issued or (ii) when shares are purchased
in the open market, the average purchase price per share.
Participation in the Plan--Participation in the Plan is automatic, that is, a
shareholder is automatically enrolled in the Plan when he or she purchases
shares of Common Stock of the Funds unless the shareholder specifically elects
not to participate in the Plan. Shareholders who elect not to participate will
receive all dividend distributions in cash. Shareholders who do not wish to
participate in the Plan, must advise the Plan Agent in writing (at the address
set forth below) that they elect not to participate in the Plan. Participation
in the Plan is completely voluntary and may be terminated or resumed at any
time without penalty by writing to the Plan Agent.
Benefits of the Plan--The Plan provides an easy, convenient way for
shareholders to make additional, regular investments in the Funds. The Plan
promotes a long-term strategy of investing at a lower cost. All shares
acquired pursuant to the Plan receive voting rights. In addition, if the
market price plus commissions of each Fund's shares is above the net asset
value, participants in the Plan will receive shares of the Funds for less than
they could otherwise purchase them and with a cash value greater than the
value of any cash distribution they would have received. However, there may
not be enough shares available in the market to make distributions in shares
at prices below the net asset value. Also, since each Fund does not redeem
shares, the price on resale may be more or less than the net asset value.
Plan Fees--There are no enrollment fees or brokerage fees for participating in
the Plan. The Plan Agent's service fees for handling the reinvestment of
distributions are paid for by the Funds. However, brokerage commissions may be
incurred when the Funds purchase shares on the open market and shareholders
will pay a pro rata share of any such commissions.
Tax Implications--The automatic reinvestment of dividends and distributions
will not relieve participants of any federal, state or local income tax that
may be payable (or required to be withheld) on such dividends. Therefore,
income and capital gains may still be realized even though shareholders do not
receive cash. Participation in the Plan generally will not effect the tax-
exempt status of exempt interest dividends paid by the Fund. If, when the
Funds' shares are trading at a market premium, the Funds issue shares pursuant
to the Plan that have a greater fair market value than the amount of cash
reinvested, it is possible that all or a portion of the discount from the
market value (which may not exceed 5% of the fair market value of each Fund's
shares) could be viewed as a taxable distribution. If the discount is viewed
as a taxable distribution, it is also possible that the taxable character of
this discount would be allocable to all the shareholders, including
shareholders who do not participate in the Plan. Thus, shareholders who do not
participate in the Plan might be required to report as ordinary income a
portion of their distributions equal to their allocable share of the discount.
Contact Information--All correspondence concerning the Plan, including any
questions about the Plan, should be directed to the Plan Agent at The Bank of
New York, Church Street Station, P.O. Box 11258, New York, NY 10286-1258,
Telephone: 800-432-8224.
ANNUAL REPORTS APRIL 30, 2006
Disclosure of Investment Advisory Agreement
Activities of and Composition of the Boards of Directors
All but one member of each Fund's Board of Directors is an independent
director whose only affiliation with Fund Asset Management, L.P. (the
"Investment Adviser") or other Merrill Lynch affiliates is as a director of
each Fund and as a trustee or director of certain other funds advised by the
Investment Adviser or its affiliates. The Chairman of the Boards is also an
independent director. New director nominees are chosen as nominees by a
Nominating Committee comprised of independent directors. All independent
directors also are members of each Board's Audit Committee and the independent
directors meet in executive session at each in-person Board meeting. Each
Board and each Audit Committee meet in person for at least two days each
quarter and conduct other in-person and telephone meetings throughout the
year, some of which are formal board meetings, and some of which are
informational meetings. The independent counsel to the independent directors
attends all in-person Board and Audit Committee meetings and other meetings at
the independent directors' request.
Investment Advisory Agreements--Matters Considered by the Boards
Every year, each Board considers approval of each Fund's investment advisory
agreement (the "Investment Advisory Agreement"). Each Board assesses the
nature, scope and quality of the services provided to each Fund by the
personnel of the Investment Adviser and its affiliates, including
administrative services, shareholder services, oversight of fund accounting,
marketing services and assistance in meeting legal and regulatory
requirements. Each Board also receives and assesses information regarding the
services provided to the Fund by certain unaffiliated service providers.
At various times throughout the year, each Board also considers a range of
information in connection with its oversight of the services provided by the
Investment Adviser and its affiliates. Among the matters considered are: (a)
fees (in addition to management fees) paid to the Investment Adviser and its
affiliates by each Fund; (b) Fund operating expenses paid to third parties;
(c) the resources devoted to and compliance reports relating to each Fund's
investment objective, policies and restrictions, and its compliance with its
Code of Ethics and the Investment Adviser's compliance policies and
procedures; and (d) the nature, cost and character of non-investment
management services provided by the Investment Adviser and its affiliates.
Each Board believes that the Investment Adviser is one of the most experienced
global asset management firms and considers the overall services provided by
the Investment Adviser to be of high quality. Each Board also believes that
the Investment Adviser is financially sound and well managed and notes that
the Investment Adviser is affiliated with one of America's largest financial
firms. Each Board works closely with the Investment Adviser in overseeing the
Investment Adviser's efforts to achieve good performance. As part of this
effort, each Board discusses portfolio manager effectiveness and, when
performance is not satisfactory, discusses with the Investment Adviser taking
steps such as changing investment personnel.
Annual Consideration of Approvals by the Boards of Directors
In the period prior to the Board meeting to consider renewal of the Investment
Advisory Agreement, each Board requests and receives materials specifically
relating to the Fund's Investment Advisory Agreement. These materials are
prepared separately for each Fund, and include (a) information compiled by
Lipper Inc. ("Lipper") on the fees and expenses, investment performance and
leverage of the Fund as compared to a comparable group of funds as classified
by Lipper; (b) information comparing each Fund's market price with its net
asset value per share; (c) a discussion by each Fund's portfolio management
team of investment strategies used by the Fund during its most recent fiscal
year; (d) information on the profitability to the Investment Adviser and its
affiliates of the Investment Advisory Agreement and other relationships with
the Fund; and (e) information provided by the Investment Adviser concerning
investment advisory fees charged to other retail closed-end funds under
similar investment mandates. Each Board also considers other matters it deems
important to the approval process, such as payments made for services related
to the valuation and pricing of Fund portfolio holdings, the Fund's portfolio
turnover statistics, and direct and indirect benefits to the Investment
Adviser and its affiliates from their relationship with the Fund. The Boards
did not identify any particular information as controlling, and each member
of the Boards may have attributed different weights to the various items
considered.
Certain Specific Renewal Data
In connection with the most recent renewal of each Fund's Investment Advisory
Agreement in November 2005, the independent directors' and Boards' review
included the following:
ANNUAL REPORTS APRIL 30, 2006
Disclosure of Investment Advisory Agreement (continued)
Investment Adviser's Services and Fund Performance--Each Board reviewed the
nature, extent and quality of services provided by the Investment Adviser,
including the investment advisory services and the resulting performance of
each Fund. The Boards focused primarily on the Investment Adviser's investment
advisory services and each Fund's investment performance. Each Board compared
Fund performance - both including and excluding the effects of each Fund's
fees and expenses - to the performance of a comparable group of funds. While
each Board reviews performance data quarterly, consistent with the Investment
Adviser's investment goals, each Board attaches primary importance to
performance over relatively long periods of time, typically three to five
years.
Relative to closed-end leveraged general municipal debt funds deemed
comparable by the Investment Adviser, the Board noted that for the period
ended August 31, 2005, MuniHoldings Fund, Inc.'s performance for the one-,
three- and five-year periods ranked in the first quintile. The Board also
reviewed the Fund's performance based on annualized yields and noted that the
Fund ranked in the first quintile for the past three years ended August 31,
2005, and in the third quintile for the prior year.
Relative to closed-end leveraged insured municipal debt funds deemed
comparable by the Investment Adviser, the Board noted that MuniHoldings
Insured Fund, Inc.'s performance ranked in the fifth quintile for the one-year
period, in the second quintile for the three-year period, and in the first
quintile for the five-year period, ended August 31, 2005. The Board also noted
the Fund's performance based on annualized yields and noted that the Fund
ranked in the fifth quintile for the one-year period ended August 31, 2005,
and in the second quintile for the two prior years. The Board concluded that
each Fund's performance supported the continuation of the Investment Advisory
Agreement.
The Investment Adviser's Personnel and Investment Process--At least annually,
each Board reviews each Fund's investment objectives and strategies. The
Boards discussed with senior management of the Investment Adviser responsible
for investment operations and the senior management of the Investment
Adviser's municipal investing group the strategies being used to achieve the
stated objectives. Among other things, each Board considered the size,
education and experience of the Investment Adviser's investment staff, its use
of technology, and the Investment Adviser's approach to training and retaining
portfolio managers and other research, advisory and management personnel.
Each Board also reviewed the Investment Adviser's compensation policies and
practices with respect to the Funds' portfolio manager. The Board also
considered the experience of the Funds' portfolio manager and noted that
Mr. DiMella has over 13 years of experience investing in municipal securities.
The Board concluded that the Investment Adviser and its investment staff and
each Fund's management team have extensive experience in analyzing and
managing the type of investment used by each Fund and that each Fund benefits
from that experience.
Management Fees and Other Expenses--Each Board reviews the Fund's contractual
management fee rate and actual management fee rate as a percentage of total
assets at common asset levels - the actual rate includes advisory and
administrative service fees and the effects of any fee waivers - compared to
the other funds considered comparable by Lipper. It also compares the Fund's
total expenses to those of other comparable funds of the Investment Adviser.
The Board noted that investment advisory fees charged to each of the Funds was
equal to or slightly more than the fees charged to other retail closed-end
funds of the Investment Adviser. With respect to MuniHoldings Fund, Inc., the
Board noted that that the contractual and actual management fee rates and
total expense ratio were below the median fees charged by comparable funds, as
determined by Lipper. With respect to MuniHoldings Insured Fund, Inc., the
Board noted that contractual management fee rate was equal to the median fee
charged by comparable funds, as determined by Lipper, while the actual
management fee rate and actual total expense ratio were higher than the median
fees charged by such comparable funds. Each Board concluded that the Fund's
management fee and fee rate and overall expense ratio (taking into account the
fee waiver agreement applicable to MuniHoldings Insured Fund, Inc.) are
reasonable compared to those of other comparable funds.
Profitability--Each Board considered the cost of the services provided to the
Fund by the Investment Adviser, and the Investment Adviser's and its
affiliates' profits relating to the management of the Fund and the MLIM/FAM-
advised funds. As part of its analysis, each Board reviewed the Investment
Adviser's methodology in allocating its costs to the management of the Fund
and concluded that there was a reasonable basis for the allocation. The Boards
also considered federal court decisions discussing an investment adviser's
profitability and profitability levels considered to be reasonable in those
decisions. Each Board concluded that the Investment Adviser's profits are
acceptable in relation to the nature and quality of services provided and
given the level of fees and expenses overall.
ANNUAL REPORTS APRIL 30, 2006
Disclosure of Investment Advisory Agreement (concluded)
Economies of Scale--Each Board considered the extent to which economies of
scale might be realized as the assets of a Fund increase and whether there
should be changes in the management fee rate or structure in order to enable
the Fund to participate in these economies of scale. Each Board considered
economies of scale to the extent applicable to each Fund's closed-end
structure and determined that each Fund appropriately benefits from any
economies of scale and no changes were currently necessary.
Conclusion
After the independent directors deliberated in executive session, each entire
Board, including all of the independent directors, approved the renewal of the
existing Investment Advisory Agreement, concluding that the advisory fee,
taking into account the fee waiver applicable to MuniHoldings Insured Fund,
Inc., was reasonable in relation to the services provided and that a contract
renewal was in the best interests of the shareholders.
Officers and Directors
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name, Address & Age Fund Served Principal Occupation(s) During Past 5 Years Director Director
Interested Director
Robert C. Doll, Jr.* President 2005 to President of the MLIM/FAM-advised funds 131 Funds None
P.O. Box 9011 and present since 2005; President of MLIM and FAM since 177 Portfolios
Princeton, Director 2001; Co-Head (Americas Region) thereof
NJ 08543-9011 from 2000 to 2001 and Senior Vice President
Age: 51 from 1999 to 2001; President and Director
of Princeton Services, Inc. ("Princeton
Services") since 2001; President of
Princeton Administrators, L.P. ("Princeton
Administrators") since 2001; Chief Investment
Officer of OppenheimerFunds, Inc. in 1999
and Executive Vice President thereof from
1991 to 1999.
* Mr. Doll is a director, trustee or member of an advisory board of certain other
investment companies for which MLIM or FAM acts as investment adviser. Mr. Doll is
an "interested person," as defined in the Investment Company Act, of the Fund based
on his positions with MLIM, FAM, Princeton Services and Princeton Administrators.
Directors serve until their resignation, removal or death, or until December 31 of
the year in which they turn 72. As Fund President, Mr. Doll serves at the pleasure
of the Board of Directors.
ANNUAL REPORTS APRIL 30, 2006
Officers and Directors (continued)
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name, Address & Age Fund Served Principal Occupation(s) During Past 5 Years Director Director
Independent Directors*
Ronald W. Forbes** Director 1997 (MHD) Professor Emeritus of Finance, School of 49 Funds None
P.O. Box 9095 and 1998 Business, State University of New York at 50 Portfolios
Princeton, (MUS) to Albany since 2000 and Professor thereof
NJ 08543-9095 present from 1989 to 2000; International Consultant,
Age: 65 Urban Institute, Washington, D.C. from
1995 to 1999.
Cynthia A. Montgomery Director 1997 (MHD) Professor, Harvard Business School since 49 Funds Newell
P.O. Box 9095 and 1998 1989; Associate Professor, J.L. Kellogg 50 Portfolios Rubbermaid, Inc.
Princeton, (MUS) to Graduate School of Management, Northwestern (manufacturing)
NJ 08543-9095 present University from 1985 to 1989; Associate
Age: 53 Professor, Graduate School of Business
Administration, University of Michigan
from 1979 to 1985; Director, Harvard
Business School Publishing since 2005;
Director, McLean Hospital since 2005.
Jean Margo Reid Director 2004 to Self-employed consultant since 2001; 49 Funds None
P.O. Box 9095 present Counsel of Alliance Capital Management 50 Portfolios
Princeton, (investment adviser) in 2000; General
NJ 08543-9095 Counsel, Director and Secretary of
Age: 60 Sanford C. Bernstein & Co., Inc.
(investment adviser/broker-dealer) from
1997 to 2000; Secretary, Sanford C.
Bernstein Fund, Inc. from 1994 to 2000;
Director and Secretary of SCB, Inc.
since 1998; Director and Secretary of SCB
Partners, Inc. since 2000; and Director of
Covenant House from 2001 to 2004.
Roscoe S. Suddarth Director 2000 to President, Middle East Institute, from 1995 49 Funds None
P.O. Box 9095 present to 2001; Foreign Service Officer, United 50 Portfolios
Princeton, States Foreign Service, from 1961 to 1995
NJ 08543-9095 and Career Minister from 1989 to 1995;
Age: 70 Deputy Inspector General, U.S. Department
of State, from 1991 to 1994; U.S. Ambassador
to the Hashemite Kingdom of Jordan from 1987
to 1990.
Richard R. West Director 1997 (MHD) Professor of Finance from 1984 to 1995, 49 Funds Bowne & Co.,
P.O. Box 9095 and 1998 Dean from 1984 to 1993 and since 1995 50 Portfolios Inc. (financial
Princeton, (MUS) to Dean Emeritus of New York University's printers);
NJ 08543-9095 present Leonard N. Stern School of Business Vornado Realty
Age: 68 Administration. Trust (real estate
company);
Alexander's, Inc.
(real estate
company)
Edward D. Zinbarg Director 2000 to Self-employed financial consultant since 49 Funds None
P.O. Box 9095 present 1994; Executive Vice President of the 50 Portfolios
Princeton, Prudential Insurance Company of America
NJ 08543-9095 from 1988 to 1994; Former Director of
Age: 71 Prudential Reinsurance Company and former
Trustee of the Prudential Foundation.
* Directors serve until their resignation, removal or death, or until December 31
of the year in which they turn 72.
** Chairman of the Board of Directors and the Audit Committee.
ANNUAL REPORTS APRIL 30, 2006
Officers and Directors (concluded)
Position(s) Length of
Held with Time
Name, Address & Age Fund Served Principal Occupation(s) During Past 5 Years
Fund Officers*
Donald C. Burke Vice 1997 (MHD) First Vice President of MLIM and FAM since 1997 and Treasurer thereof since
P.O. Box 9011 President and 1998 1999; Senior Vice President and Treasurer of Princeton Services since 1999
Princeton, and (MUS) to and Director since 2004; Vice President of FAM Distributors, Inc. ("FAMD")
NJ 08543-9011 Treasurer present since 1999 and Director since 2004; Vice President of MLIM and FAM from 1990
Age: 45 and to 1997; Director of Taxation of MLIM from 1990 to 2001; Vice President,
1999 to Treasurer and Secretary of the IQ Funds since 2004.
present
Kenneth A. Jacob Senior 2002 to Managing Director of MLIM since 2000; Director of MLIM from 1997 to 2000.
P.O. Box 9011 Vice present
Princeton, President
NJ 08543-9011
Age: 55
John M. Loffredo Senior 2002 to Managing Director of MLIM since 2000; Director of MLIM from 1997 to 2000.
P.O. Box 9011 Vice present
Princeton, President
NJ 08543-9011
Age: 42
Robert A. DiMella Vice 1997 (MHD) Managing Director of MLIM since 2004; Director of MLIM from 2002 to 2004;
P.O. Box 9011 President and 1999 Vice President of MLIM from 1996 to 2001.
Princeton, (MUS) to
NJ 08543-9011 present
Age: 39
Jeffrey Hiller Chief 2004 to Chief Compliance Officer of the MLIM/FAM-advised funds and First Vice President
P.O. Box 9011 Compliance present and Chief Compliance Officer of MLIM (Americas Region) since 2004; Chief
Princeton, Officer Compliance Officer of the IQ Funds since 2004; Global Director of Compliance at
NJ 08543-9011 Morgan Stanley Investment Management from 2002 to 2004; Managing Director
Age: 54 and Global Director of Compliance at Citigroup Asset Management from 2000
to 2002; Chief Compliance Officer at Soros Fund Management in 2000; Chief
Compliance Officer at Prudential Financial from 1995 to 2000; Senior Counsel in
the Commission's Securities and Exchange Division of Enforcement in Washington,
D.C. from 1990 to 1995.
Alice A. Pellegrino Secretary 2004 to Director (Legal Advisory) of MLIM since 2002; Vice President of MLIM from 1999
P.O. Box 9011 present to 2002; Attorney associated with MLIM since 1997; Secretary of MLIM, FAM, FAMD
Princeton, and Princeton Services since 2004.
NJ 08543-9011
Age: 46
* Officers of the Funds serve at the pleasure of the Board of Directors.
Custodian
The Bank of New York
100 Church Street
New York, NY 10286
Transfer Agents
Common Stock:
The Bank of New York
101 Barclay Street - 11 East
New York, NY 10286
Preferred Stock:
The Bank of New York
101 Barclay Street - 7 West
New York, NY 10286
NYSE Symbols
MHD MuniHoldings Fund, Inc.
MUS MuniHoldings Insured Fund, Inc.
ANNUAL REPORTS APRIL 30, 2006
Availability of Quarterly Schedule of Investments
The Funds file their complete schedules of portfolio holdings with the
Securities and Exchange Commission ("SEC") for the first and third quarters
of each fiscal year on Form N-Q. The Funds' Forms N-Q are available on the
SEC's Web site at http://www.sec.gov. The Funds' Forms N-Q may also be
reviewed and copied at the SEC's Public Reference Room in Washington, DC.
Information on the operation of the Public Reference Room may be obtained
by calling 1-800-SEC-0330.
ANNUAL REPORTS APRIL 30, 2006
Electronic Delivery
The Funds offer electronic delivery of communications to their shareholders.
In order to receive this service, you must register your account and provide
us with e-mail information. To sign up for this service, simply access this
Web site at http://www.icsdelivery.com/live and follow the instructions. When
you visit this site, you will obtain a personal identification number (PIN).
You will need this PIN should you wish to update your e-mail address, choose
to discontinue this service and/or make any other changes to the service. This
service is not available for certain retirement accounts at this time.
ANNUAL REPORTS APRIL 30, 2006
Item 2 - Code of Ethics - The registrant has adopted a code of ethics, as of
the end of the period covered by this report, that applies to the
registrant's principal executive officer, principal financial
officer and principal accounting officer, or persons performing
similar functions. A copy of the code of ethics is available
without charge upon request by calling toll-free 1-800-MER-FUND
(1-800-637-3863).
Item 3 - Audit Committee Financial Expert - The registrant's board of
directors has determined that (i) the registrant has the following
audit committee financial experts serving on its audit committee
and (ii) each audit committee financial expert is independent: (1)
Ronald W. Forbes, (2) Richard R. West, and (3) Edward D. Zinbarg.
Item 4 - Principal Accountant Fees and Services
(a) Audit Fees - Fiscal Year Ending April 30, 2006 - $34,000
Fiscal Year Ending April 30, 2005 - $32,000
(b) Audit-Related Fees - Fiscal Year Ending April 30, 2006 - $3,500
Fiscal Year Ending April 30, 2005 - $3,500
The nature of the services include assurance and related services
reasonably related to the performance of the audit of financial
statements not included in Audit Fees.
(c) Tax Fees - Fiscal Year Ending April 30, 2006 - $6,000
Fiscal Year Ending April 30, 2005 - $5,700
The nature of the services include tax compliance, tax advice and
tax planning.
(d) All Other Fees - Fiscal Year Ending April 30, 2006 - $0
Fiscal Year Ending April 30, 2005 - $0
(e)(1) The registrant's audit committee (the "Committee") has
adopted policies and procedures with regard to the pre-approval of
services. Audit, audit-related and tax compliance services
provided to the registrant on an annual basis require specific pre-
approval by the Committee. The Committee also must approve other
non-audit services provided to the registrant and those non-audit
services provided to the registrant's affiliated service providers
that relate directly to the operations and the financial reporting
of the registrant. Certain of these non-audit services that the
Committee believes are a) consistent with the SEC's auditor
independence rules and b) routine and recurring services that will
not impair the independence of the independent accountants may be
approved by the Committee without consideration on a specific case-
by-case basis ("general pre-approval"). However, such services
will only be deemed pre-approved provided that any individual
project does not exceed $5,000 attributable to the registrant or
$50,000 for all of the registrants the Committee oversees. Any
proposed services exceeding the pre-approved cost levels will
require specific pre-approval by the Committee, as will any other
services not subject to general pre-approval (e.g., unanticipated
but permissible services). The Committee is informed of each
service approved subject to general pre-approval at the next
regularly scheduled in-person board meeting.
(e)(2) 0%
(f) Not Applicable
(g) Fiscal Year Ending April 30, 2006 - $9,500
Fiscal Year Ending April 30, 2005 - $9,200
(h) The registrant's audit committee has considered and determined
that the provision of non-audit services that were rendered to the
registrant's investment adviser and any entity controlling,
controlled by, or under common control with the investment adviser
that provides ongoing services to the registrant that were not pre-
approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of
Regulation S-X is compatible with maintaining the principal
accountant's independence.
Regulation S-X Rule 2-01(c)(7)(ii) - $0, 0%
Item 5 - Audit Committee of Listed Registrants - The following individuals
are members of the registrant's separately-designated standing
audit committee established in accordance with Section 3(a)(58)(A)
of the Exchange Act (15 U.S.C. 78c(a)(58)(A)):
Ronald W. Forbes
Cynthia A. Montgomery
Jean Margo Reid
Roscoe S. Suddarth
Richard R. West
Edward D. Zinbarg
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies -
Proxy Voting Policies and Procedures
Each Fund's Board of Directors/Trustees has delegated to Merrill
Lynch Investment Managers, L.P. and/or Fund Asset Management, L.P.
(the "Investment Adviser") authority to vote all proxies relating
to the Fund's portfolio securities. The Investment Adviser has
adopted policies and procedures ("Proxy Voting Procedures") with
respect to the voting of proxies related to the portfolio
securities held in the account of one or more of its clients,
including a Fund. Pursuant to these Proxy Voting Procedures, the
Investment Adviser's primary objective when voting proxies is to
make proxy voting decisions solely in the best interests of each
Fund and its shareholders, and to act in a manner that the
Investment Adviser believes is most likely to enhance the economic
value of the securities held by the Fund. The Proxy Voting
Procedures are designed to ensure that that the Investment Adviser
considers the interests of its clients, including the Funds, and
not the interests of the Investment Adviser, when voting proxies
and that real (or perceived) material conflicts that may arise
between the Investment Adviser's interest and those of the
Investment Adviser's clients are properly addressed and resolved.
In order to implement the Proxy Voting Procedures, the Investment
Adviser has formed a Proxy Voting Committee (the "Committee"). The
Committee is comprised of the Investment Adviser's Chief Investment
Officer (the "CIO"), one or more other senior investment
professionals appointed by the CIO, portfolio managers and
investment analysts appointed by the CIO and any other personnel
the CIO deems appropriate. The Committee will also include two non-
voting representatives from the Investment Adviser's Legal
department appointed by the Investment Adviser's General Counsel.
The Committee's membership shall be limited to full-time employees
of the Investment Adviser. No person with any investment banking,
trading, retail brokerage or research responsibilities for the
Investment Adviser's affiliates may serve as a member of the
Committee or participate in its decision making (except to the
extent such person is asked by the Committee to present information
to the Committee, on the same basis as other interested
knowledgeable parties not affiliated with the Investment Adviser
might be asked to do so). The Committee determines how to vote the
proxies of all clients, including a Fund, that have delegated proxy
voting authority to the Investment Adviser and seeks to ensure that
all votes are consistent with the best interests of those clients
and are free from unwarranted and inappropriate influences. The
Committee establishes general proxy voting policies for the
Investment Adviser and is responsible for determining how those
policies are applied to specific proxy votes, in light of each
issuer's unique structure, management, strategic options and, in
certain circumstances, probable economic and other anticipated
consequences of alternate actions. In so doing, the Committee may
determine to vote a particular proxy in a manner contrary to its
generally stated policies. In addition, the Committee will be
responsible for ensuring that all reporting and recordkeeping
requirements related to proxy voting are fulfilled.
The Committee may determine that the subject matter of a recurring
proxy issue is not suitable for general voting policies and
requires a case-by-case determination. In such cases, the
Committee may elect not to adopt a specific voting policy
applicable to that issue. The Investment Adviser believes that
certain proxy voting issues require investment analysis - such as
approval of mergers and other significant corporate transactions -
akin to investment decisions, and are, therefore, not suitable for
general guidelines. The Committee may elect to adopt a common
position for the Investment Adviser on certain proxy votes that are
akin to investment decisions, or determine to permit the portfolio
manager to make individual decisions on how best to maximize
economic value for a Fund (similar to normal buy/sell investment
decisions made by such portfolio managers). While it is expected
that the Investment Adviser will generally seek to vote proxies
over which the Investment Adviser exercises voting authority in a
uniform manner for all the Investment Adviser's clients, the
Committee, in conjunction with a Fund's portfolio manager, may
determine that the Fund's specific circumstances require that its
proxies be voted differently.
To assist the Investment Adviser in voting proxies, the Committee
has retained Institutional Shareholder Services ("ISS"). ISS is an
independent adviser that specializes in providing a variety of
fiduciary-level proxy-related services to institutional investment
managers, plan sponsors, custodians, consultants, and other
institutional investors. The services provided to the Investment
Adviser by ISS include in-depth research, voting recommendations
(although the Investment Adviser is not obligated to follow such
recommendations), vote execution, and recordkeeping. ISS will also
assist the Fund in fulfilling its reporting and recordkeeping
obligations under the Investment Company Act.
The Investment Adviser's Proxy Voting Procedures also address
special circumstances that can arise in connection with proxy
voting. For instance, under the Proxy Voting Procedures, the
Investment Adviser generally will not seek to vote proxies related
to portfolio securities that are on loan, although it may do so
under certain circumstances. In addition, the Investment Adviser
will vote proxies related to securities of foreign issuers only on
a best efforts basis and may elect not to vote at all in certain
countries where the Committee determines that the costs associated
with voting generally outweigh the benefits. The Committee may at
any time override these general policies if it determines that such
action is in the best interests of a Fund.
From time to time, the Investment Adviser may be required to vote proxies in
respect of an issuer where an affiliate of the Investment Adviser (each, an
"Affiliate"), or a money management or other client of the Investment Adviser
(each, a "Client") is involved. The Proxy Voting Procedures and the Investment
Adviser's adherence to those procedures are designed to address such conflicts
of interest. The Committee intends to strictly adhere to the Proxy Voting
Procedures in all proxy matters, including matters involving Affiliates and
Clients. If, however, an issue representing a non-routine matter that is
material to an Affiliate or a widely known Client is involved such that the
Committee does not reasonably believe it is able to follow its guidelines (or
if the particular proxy matter is not addressed by the guidelines) and vote
impartially, the Committee may, in its discretion for the purposes of ensuring
that an independent determination is reached, retain an independent fiduciary
to advise the Committee on how to vote or to cast votes on behalf of the
Investment Adviser's clients.
In the event that the Committee determines not to retain an
independent fiduciary, or it does not follow the advice of such an
independent fiduciary, the powers of the Committee shall pass to a
subcommittee, appointed by the CIO (with advice from the Secretary
of the Committee), consisting solely of Committee members selected
by the CIO. The CIO shall appoint to the subcommittee, where
appropriate, only persons whose job responsibilities do not include
contact with the Client and whose job evaluations would not be
affected by the Investment Adviser's relationship with the Client
(or failure to retain such relationship). The subcommittee shall
determine whether and how to vote all proxies on behalf of the
Investment Adviser's clients or, if the proxy matter is, in their
judgment, akin to an investment decision, to defer to the
applicable portfolio managers, provided that, if the subcommittee
determines to alter the Investment Adviser's normal voting
guidelines or, on matters where the Investment Adviser's policy is
case-by-case, does not follow the voting recommendation of any
proxy voting service or other independent fiduciary that may be
retained to provide research or advice to the Investment Adviser on
that matter, no proxies relating to the Client may be voted unless
the Secretary, or in the Secretary's absence, the Assistant
Secretary of the Committee concurs that the subcommittee's
determination is consistent with the Investment Adviser's fiduciary
duties
In addition to the general principles outlined above, the
Investment Adviser has adopted voting guidelines with respect to
certain recurring proxy issues that are not expected to involve
unusual circumstances. These policies are guidelines only, and the
Investment Adviser may elect to vote differently from the
recommendation set forth in a voting guideline if the Committee
determines that it is in a Fund's best interest to do so. In
addition, the guidelines may be reviewed at any time upon the
request of a Committee member and may be amended or deleted upon
the vote of a majority of Committee members present at a Committee
meeting at which there is a quorum.
The Investment Adviser has adopted specific voting guidelines with
respect to the following proxy issues:
o Proposals related to the composition of the Board of Directors of issuers
other than investment companies. As a general matter, the Committee
believes that a company's Board of Directors (rather than shareholders) is
most likely to have access to important, nonpublic information regarding a
company's business and prospects, and is therefore best-positioned to set
corporate policy and oversee management. The Committee, therefore,
believes that the foundation of good corporate governance is the election
of qualified, independent corporate directors who are likely to diligently
represent the interests of shareholders and oversee management of the
corporation in a manner that will seek to maximize shareholder value over
time. In individual cases, the Committee may look at a nominee's history
of representing shareholder interests as a director of other companies or
other factors, to the extent the Committee deems relevant.
o Proposals related to the selection of an issuer's independent auditors. As
a general matter, the Committee believes that corporate auditors have a
responsibility to represent the interests of shareholders and provide an
independent view on the propriety of financial reporting decisions of
corporate management. While the Committee will generally defer to a
corporation's choice of auditor, in individual cases, the Committee may
look at an auditors' history of representing shareholder interests as
auditor of other companies, to the extent the Committee deems relevant.
o Proposals related to management compensation and employee benefits. As a
general matter, the Committee favors disclosure of an issuer's compensation
and benefit policies and opposes excessive compensation, but believes that
compensation matters are normally best determined by an issuer's board of
directors, rather than shareholders. Proposals to "micro-manage" an
issuer's compensation practices or to set arbitrary restrictions on
compensation or benefits will, therefore, generally not be supported.
o Proposals related to requests, principally from management, for approval of
amendments that would alter an issuer's capital structure. As a general
matter, the Committee will support requests that enhance the rights of
common shareholders and oppose requests that appear to be unreasonably
dilutive.
o Proposals related to requests for approval of amendments to an issuer's
charter or by-laws. As a general matter, the Committee opposes poison pill
provisions.
o Routine proposals related to requests regarding the formalities of
corporate meetings.
o Proposals related to proxy issues associated solely with holdings of
investment company shares. As with other types of companies, the Committee
believes that a fund's Board of Directors (rather than its shareholders) is
best-positioned to set fund policy and oversee management. However, the
Committee opposes granting Boards of Directors authority over certain
matters, such as changes to a fund's investment objective, that the
Investment Company Act envisions will be approved directly by shareholders.
o Proposals related to limiting corporate conduct in some manner that relates
to the shareholder's environmental or social concerns. The Committee
generally believes that annual shareholder meetings are inappropriate
forums for discussion of larger social issues, and opposes shareholder
resolutions "micromanaging" corporate conduct or requesting release of
information that would not help a shareholder evaluate an investment in the
corporation as an economic matter. While the Committee is generally
supportive of proposals to require corporate disclosure of matters that
seem relevant and material to the economic interests of shareholders, the
Committee is generally not supportive of proposals to require disclosure of
corporate matters for other purposes.
Item 8 - Portfolio Managers of Closed-End Management Investment Companies -
as of April 30, 2006.
(a)(1) Mr. Robert A. DiMella is primarily responsible for the day-
to-day management of the registrant's portfolio ("Portfolio
Manager"). Mr. DiMella has been a portfolio manager with
MLIM since 1997, was a Vice President of MLIM from 1997 to
2001, was a Director (Tax-Exempt Fund Management) of MLIM
from 2002 to 2004, has been a Managing Director of MLIM
since 2004 and has 16 years of experience investing in
Municipal Bonds as a portfolio manager on behalf of
registered investment companies. He has been the portfolio
manager and a Vice President of the Fund since 1999.
(a)(2) As of April 30, 2006:
(iii) Number of Other Accounts and
(ii) Number of Other Accounts Managed Assets for Which Advisory Fee is
and Assets by Account Type Performance-Based
Other Other
(i) Name of Registered Other Pooled Registered Other Pooled
Portfolio Investment Investment Other Investment Investment Other
Manager Companies Vehicles Accounts Companies Vehicles Accounts
Robert A.
DiMella 5 1 0 0 1 0
$ 2,936,378,902 $ 22,996,576 $ 0 $ 0 $ 22,996,576 $ 0
(iv) Potential Material Conflicts of Interest
Real, potential or apparent conflicts of interest may arise when a
portfolio manager has day-to-day portfolio management responsibilities with
respect to more than one fund or account, including the following:
Certain investments may be appropriate for the Fund and also for other
clients advised by the Investment. Adviser and its affiliates, including other
client accounts managed by the Fund's portfolio management team. Investment
decisions for the Fund and other clients are made with a view to achieving
their respective investment objectives and after consideration of such factors
as their current holdings, availability of cash for investment and the size of
their investments generally. Frequently, a particular security may be bought or
sold for only one client or in different amounts and at different times for
more than one but less than all clients. Likewise, because clients of the
Investment Adviser and its affiliates may have differing investment strategies,
a particular security may be bought for one or more clients when one or more
other clients are selling the security. The investment results for the Fund may
differ from the results achieved by other clients of the Investment Adviser and
its affiliates and results among clients may differ. In addition, purchases or
sales of the same security may be made for two or more clients on the same day.
In such event, such transactions will be allocated among the clients in a
manner believed by the Investment Adviser and its affiliates to be equitable to
each. The Investment Adviser will not determine allocations based on whether it
receives a performance based fee from the client. In some cases, the allocation
procedure could have an adverse effect on the price or amount of the securities
purchased or sold by the Fund. Purchase and sale orders for the Fund may be
combined with those of other clients of the Investment Adviser and its
affiliates in the interest of achieving the most favorable net results to the
Fund.
To the extent that the Fund's portfolio management team has
responsibilities for managing accounts in addition to the Fund, a portfolio
manager will need to divide his time and attention among relevant accounts.
In some cases, a real, potential or apparent conflict may also arise
where (i) the Investment Adviser may have an incentive, such as a performance
based fee, in managing one account and not with respect to other accounts it
manages or (ii) where a member of the Fund's portfolio management team owns an
interest in one fund or account he or she manages and not another.
(a)(3) As of April 30, 2006:
Portfolio Manager Compensation
The Portfolio Manager Compensation Program of MLIM and its affiliates,
including the Investment Adviser, is critical to MLIM's ability to attract and
retain the most talented asset management professionals. This program ensures
that compensation is aligned with maximizing investment returns and it provides
a competitive pay opportunity for competitive performance.
Compensation Program
The elements of total compensation for MLIM and its affiliates
portfolio managers are a fixed base salary, annual performance-based cash and
stock compensation (cash and stock bonus) and other benefits. MLIM has balanced
these components of pay to provide portfolio managers with a powerful incentive
to achieve consistently superior investment performance. By design, portfolio
manager compensation levels fluctuate--both up and down--with the relative
investment performance of the portfolios that they manage.
Base Salary
Under the MLIM approach, like that of many asset management firms, base
salaries represent a relatively small portion of a portfolio manager's total
compensation. This approach serves to enhance the motivational value of the
performance-based (and therefore variable) compensation elements of the
compensation program.
Performance-Based Compensation
MLIM believes that the best interests of investors are served by
recruiting and retaining exceptional asset management talent and managing their
compensation within a consistent and disciplined framework that emphasizes pay
for performance in the context of an intensely competitive market for talent.
To that end, MLIM and its affiliates portfolio manager incentive compensation
is based on a formulaic compensation program. MLIM's formulaic portfolio
manager compensation program includes: investment performance relative to a
subset of general closed-end, leveraged, municipal debt funds over 1-, 3- and 5-
year performance periods and a measure of operational efficiency. Portfolio
managers are compensated based on the pre-tax performance of the products they
manage. If a portfolio manager's tenure is less than 5 years, performance
periods will reflect time in position. Portfolio managers are compensated based
on products they manage. A discretionary element of portfolio manager
compensation may include consideration of: financial results, expense control,
profit margins, strategic planning and implementation, quality of client
service, market share, corporate reputation, capital allocation, compliance and
risk control, leadership, workforce diversity, supervision, technology and
innovation. MLIM and its affiliates also consider the extent to which
individuals exemplify and foster ML & Co.'s principles of client focus, respect
for the individual, teamwork, responsible citizenship and integrity. All
factors are considered collectively by MLIM management.
Cash Bonus
Performance-based compensation is distributed to portfolio managers in
a combination of cash and stock. Typically, the cash bonus, when combined with
base salary, represents more than 60% of total compensation for portfolio
managers.
Stock Bonus
A portion of the dollar value of the total annual performance-based
bonus is paid in restricted shares of ML & Co. stock. Paying a portion of
annual bonuses in stock puts compensation earned by a portfolio manager for a
given year "at risk" based on the company's ability to sustain and improve its
performance over future periods. The ultimate value of stock bonuses is
dependent on future ML & Co. stock price performance. As such, the stock bonus
aligns each portfolio manager's financial interests with those of the ML & Co.
shareholders and encourages a balance between short-term goals and long-term
strategic objectives. Management strongly believes that providing a significant
portion of competitive performance-based compensation in stock is in the best
interests of investors and shareholders. This approach ensures that portfolio
managers participate as shareholders in both the "downside risk" and "upside
opportunity" of the company's performance. Portfolio managers therefore have a
direct incentive to protect ML & Co.'s reputation for integrity.
Other Compensation Programs
Portfolio managers who meet relative investment performance and
financial management objectives during a performance year are eligible to
participate in a deferred cash program. Awards under this program are in the
form of deferred cash that may be benchmarked to a menu of MLIM mutual funds
(including their own fund) during a five-year vesting period. The deferred cash
program aligns the interests of participating portfolio managers with the
investment results of MLIM products and promotes continuity of successful
portfolio management teams.
Other Benefits
Portfolio managers are also eligible to participate in broad-based
plans offered generally to employees of ML & Co. and its affiliates, including
broad-based retirement, 401(k), health, and other employee benefit plans.
(a)(4) Beneficial Ownership of Securities. As of April 30, 2006,
Mr. DiMella does not beneficially own any stock issued by
the Fund.
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 10 - Submission of Matters to a Vote of Security Holders - Not Applicable
Item 11 - Controls and Procedures
11(a) - The registrant's certifying officers have reasonably designed such
disclosure controls and procedures to ensure material information
relating to the registrant is made known to us by others
particularly during the period in which this report is being
prepared. The registrant's certifying officers have determined
that the registrant's disclosure controls and procedures are
effective based on our evaluation of these controls and procedures
as of a date within 90 days prior to the filing date of this
report.
11(b) - There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act
(17 CFR 270.30a-3(d)) that occurred during the second fiscal half-
year of the period covered by this report that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - See Item 2
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(b) - Certifications - Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
MuniHoldings Fund, Inc.
By: /s/ Robert C. Doll, Jr.
---------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
MuniHoldings Fund, Inc.
Date: June 22, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on
the dates indicated.
By: /s/ Robert C. Doll, Jr.
---------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
MuniHoldings Fund, Inc.
Date: June 22, 2006
By: /s/ Donald C. Burke
---------------------------
Donald C. Burke,
Chief Financial Officer of
MuniHoldings Fund, Inc.
Date: June 22, 2006