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 811-21348
Name of Fund: Muni Intermediate Term Duration Fund, Inc.
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Terry K. Glenn, President,
Muni Intermediate Term Duration 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: 05/31/04
Date of reporting period: 06/01/03 - 05/31/04
Item 1 - Report to Stockholders
(BULL LOGO)
Merrill Lynch Investment Managers
www.mlim.ml.com
Muni Intermediate Duration
Fund, Inc.
Annual Report
May 31, 2004
Muni Intermediate Duration Fund, Inc. seeks to provide shareholders
with high current income exempt from Federal income taxes by
investing primarily in a portfolio of municipal obligations, the
interest on which, in the opinion of bond counsel to the issuer, is
exempt from Federal income taxes.
This report, including the financial information herein, is
transmitted to shareholders of Muni Intermediate Duration Fund, Inc.
for their information. It is not a prospectus. The Fund has
leveraged its Common Stock and intends to remain leveraged by
issuing Preferred Stock to provide the Common Stock shareholders
with a potentially higher rate of return. Leverage creates risks for
Common Stock shareholders, including the likelihood of greater
volatility of net asset value and market price of shares of the
Common Stock, and the risk that fluctuations in the short-term
dividend rates of the Preferred Stock may affect the yield to Common
Stock shareholders. Past performance results shown in this report
should not be considered a representation of future performance.
Statements and other information herein are as dated and are subject
to change.
A description of the policies and procedures that the Fund uses to
determine how to vote proxies relating to portfolio securities is
available (1) without charge, upon request, by calling toll-free
1-800-MER-FUND (1-800-637-3863); (2) at www.mutualfunds.ml.com;
and (3) on the Securities and Exchange Commission's website at
http://www.sec.gov.
Muni Intermediate Duration Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
(GO PAPERLESS LOGO)
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Muni Intermediate Duration Fund, Inc.
The Benefits and Risks of Leveraging
Muni Intermediate Duration Fund, Inc. utilizes leveraging to seek
to enhance the yield and net asset value of its Common Stock.
However, these objectives cannot be achieved in all interest rate
environments. To leverage, the Fund issues Preferred Stock, which
pays dividends at prevailing short-term interest rates, and invests
the proceeds in long-term municipal bonds. The interest earned on
these investments, net of dividends to Preferred Stock, is paid to
Common Stock shareholders in the form of dividends, and the value of
these portfolio holdings is reflected in the per share net asset
value of the Fund's Common Stock. However, in order to benefit
Common Stock shareholders, the yield curve must be positively
sloped; that is, short-term interest rates must be lower than long-
term interest rates. At the same time, a period of generally
declining interest rates will benefit Common Stock shareholders. If
either of these conditions change, then the risks of leveraging will
begin to outweigh the benefits.
To illustrate these concepts, assume a fund's Common Stock
capitalization of $100 million and the issuance of Preferred
Stock for an additional $50 million, creating a total value of
$150 million available for investment in long-term municipal bonds.
If prevailing short-term interest rates are approximately 3% and
long-term interest rates are approximately 6%, the yield curve has a
strongly positive slope. The fund pays dividends on the $50 million
of Preferred Stock based on the lower short-term interest rates. At
the same time, the fund's total portfolio of $150 million earns the
income based on long-term interest rates. Of course, increases in
short-term interest rates would reduce (and even eliminate) the
dividends on the Common Stock.
In this case, the dividends paid to Preferred Stock shareholders are
significantly lower than the income earned on the fund's long-term
investments, and therefore the Common Stock shareholders are the
beneficiaries of the incremental yield. However, if short-term
interest rates rise, narrowing the differential between short-term
and long-term interest rates, the incremental yield pickup on the
Common Stock will be reduced or eliminated completely. At the same
time, the market value of the fund's Common Stock (that is, its
price as listed on the New York Stock Exchange) may, as a result,
decline. Furthermore, if long-term interest rates rise, the Common
Stock's net asset value will reflect the full decline in the price
of the portfolio's investments, since the value of the fund's
Preferred Stock does not fluctuate. In addition to the decline in
net asset value, the market value of the fund's Common Stock may
also decline.
As a part of its investment strategy, the Fund may invest in
certain securities whose potential income return is inversely
related to changes in a floating interest rate ("inverse floaters").
In general, income on inverse floaters will decrease when short-term
interest rates increase and increase when short-term interest rates
decrease. Investments in inverse floaters may be characterized as
derivative securities and may subject the Fund to the risks of
reduced or eliminated interest payments and losses of invested
principal. In addition, inverse floaters have the effect of
providing investment leverage and, as a result, the market value
of such securities will generally be more volatile than that of
fixed-rate, tax-exempt securities. To the extent the Fund invests in
inverse floaters, the market value of the Fund's portfolio and the
net asset value of the Fund's shares may also be more volatile than
if the Fund did not invest in such securities. As of May 31, 2004,
none of the Fund's net assets were invested in inverse floaters.
Swap Agreements
The Fund may also 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 the Fund has entered into the 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.
MUNI INTERMEDIATE DURATION FUND, INC., MAY 31, 2004
A Letter From the President
Dear Shareholder
For the six-month and 12-month periods ended May 31, 2004, the
Lehman Brothers Municipal Bond Index posted respective returns
of -.22% and -.03%. Its taxable counterpart, the Lehman Brothers
Aggregate Bond Index, returned +.60% for the six-month period and
-.44% for the 12-month period ended May 31, 2004. Amid considerable
month-to-month volatility, tax-exempt bond yields rose over the past
year, generally mimicking the movement of U.S. Treasury yields.
Given their tax-exempt status, however, municipal bonds continued to
be an attractive fixed income investment alternative.
By May month-end, the Federal Reserve Board appeared poised to raise
the Federal Funds target rate from its 45-year low of 1%. This
anticipated shift in monetary policy was largely prompted by better-
than-expected employment reports for the months of March, April and
May, as well as by rising producer prices. The good news on the
employment front - previously a dim spot in an otherwise bright
economic picture - helped cause the yield on the 10-year Treasury
bond to spike 75 basis points (.75%), from 3.91% on April 1 to 4.66%
on May 28.
Equity markets, in the meantime, gleaned support from the improving
economic environment and provided attractive returns. Although we
did experience a market correction toward the end of the period,
for the six months and 12 months ended May 31, 2004, the Standard &
Poor's 500 Index returned +6.79% and +18.33%, respectively.
Significant fiscal and monetary stimulus in 2003, including low
interest rates and tax cuts, opened the door to consumer spending,
capital spending, increases in exports and long-awaited job growth.
As expected, these developments led the way to improvements in
corporate earnings - a positive for stock markets.
The events and efforts of the past year leave us with a much
stronger economy today. Of course, markets will always fluctuate,
and there are many uncertainties - including the possibility of
geopolitical events - that can translate into negative market
movements. Keeping this in mind, however, we encourage you to
revisit your portfolio and your asset allocation strategy to ensure
you are well positioned to take advantage of the opportunities that
lie ahead. Importantly, your financial advisor can help you develop
a strategy most suitable for your circumstances through all types of
market and economic cycles.
We thank you for trusting Merrill Lynch Investment Managers with
your investment assets, and we look forward to serving you in the
months and years ahead.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President and Director
MUNI INTERMEDIATE DURATION FUND, INC., MAY 31, 2004
A Discussion With Your Fund's Portfolio Manager
We maintained the portfolio's defensive stance throughout the
period, as we believe this positioning readies the Fund for relative
outperformance once interest rates begin to rise.
Describe the recent market environment relative to municipal bonds.
Amid considerable volatility, yields on long-term fixed
income securities moved higher over the past 12 months as bond
prices - which move opposite of yields - fell. The rise in bond
yields was largely driven by robust economic activity and long-
awaited job growth.
At the start of the period, bond yields declined (and prices rose)
as the Federal Reserve Board lowered short-term interest rates
in order to bolster the then sputtering U.S. economic activity. Long-
term U.S. Treasury bond yields had fallen to their recent historic
low of 4.17% by mid-June 2003. As economic growth gained steam,
yields rose (and prices declined) dramatically until again turning
downward on continued reports of lackluster job growth. The trend
reversed once more in early April 2004 when a surprisingly strong
monthly employment report triggered fears that the long-
accommodative Federal Reserve Board might raise interest rates
sooner than many had expected. As a result, bond yields rose (prices
fell) for the remainder of the period.
At the end of May, long-term bond yields had risen to 5.35%, an
increase of nearly 100 basis points (1.00%) over the 12-month
period. Ten-year U.S. Treasury note yields ended May at 4.65%,
an increase of more than 125 basis points during the past year.
Tax-exempt bond yields generally mimicked the movement of their
taxable counterparts, although volatility in the municipal market
was more subdued. Long-term revenue bond yields, as measured by the
Bond Buyer Revenue Bond Index, rose approximately 55 basis points
during the past 12 months. For the same period, yields on AAA-rated
issues maturing in 30 years rose approximately 65 basis points to
4.99% while yields on 10-year, AAA-rated issues increased more than
80 basis points to nearly 3.95%, according to Municipal Market Data.
The more marked increase in 10-year bond yields may be attributed to
the fact that recent issuance has been heavily concentrated in the
10-year - 20-year range. The resulting supply imbalance prompted
higher intermediate bond yields (and lower prices). Longer-maturity
and lower-rated issues continued to benefit from more favorable
supply/demand factors and, therefore, have seen less price
depreciation. Overall, in the past 12 months, nearly $385 billion
in long-term tax-exempt bonds was issued, comparable to the prior
year's issuance. In more recent months, however, the pace of
underwriting has quickened. More than $92 billion in long-term
municipal obligations was marketed in the past three months, an
increase of more than 12.5% compared to the same period a year ago.
While investor enthusiasm for stocks has taken some attention away
from fixed income markets, overall demand for tax-exempt municipal
bonds has remained positive. Recent Federal Reserve Board statistics
showed that U.S. household holdings of municipal securities
increased by more than $25 billion during the fourth quarter of 2003
to approximately $680 billion.
How did the Fund perform during the fiscal year in light of the
existing market conditions?
Since inception (August 1, 2003) through May 31, 2004, the Common
Stock of Muni Intermediate Duration Fund, Inc. had net annualized
yields of 5.93% and 6.58%, based on a period-end per share net
asset value of $14.52 and a per share market price of $13.10,
respectively, and $.720 per share income dividends. Over the same
period, the total investment return on the Fund's Common Stock was
+6.09%, based on a change in per share net asset value from $14.33
to $14.52, and assuming reinvestment of $.648 per share ordinary
income dividends.
For the six-month period ended May 31, 2004, the total investment
return on the Fund's Common Stock was +.62%, based on a change in
per share net asset value from $14.88 to $14.52, and assuming
reinvestment of $.432 per share income dividends.
For the six-month period ended May 31, 2004, the Fund's Auction
Market Preferred Stock (AMPS) had an average yield of .91%.
The Fund's total return, based on net asset value, since inception
through May 31, 2004 lagged the +7.01% average return of the Lipper
General Municipal Debt Funds (Leveraged) category for the same
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.)
MUNI INTERMEDIATE DURATION FUND, INC., MAY 31, 2004
Since its inception, we have positioned the Fund to be less
sensitive to interest rate changes than the average longer-maturity,
closed-end, leveraged municipal bond fund. Given the historically
low interest rate environment, our goal was to seek to protect the
Fund's net asset value from any negative price impact associated
with an eventual rise in interest rates. While this strategy
resulted in a lower relative total return than the Lipper category,
in a period generally characterized by falling interest rates (since
the Fund's inception on August 1, 2003) we believe it effectively
positions the Fund for relative outperformance when interest rates
ultimately head higher. In fact, we expect long-term interest rates
to rise in the coming months.
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 included in 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.
How have you managed the Fund since its inception?
The Fund commenced operations on August 1, 2003, and we quickly
achieved a fully invested portfolio. Our strategy aims to provide a
lower-duration alternative to longer-maturity, closed-end, leveraged
funds. To that end, we invested the portfolio's assets predominantly
in 15-year - 20-year bonds and a combination of lower investment
grade and non-investment grade securities. Given the relative
steepness of the municipal yield curve, we felt longer intermediate
maturities (15 years - 20 years) represented the greatest value in
the high-grade municipal market. For example, purchasing bonds that
mature in 2023 captures 95% of the yield on the curve while avoiding
the significant duration risk associated with longer-dated bonds.
In our view, the lower investment grade and non-investment grade
securities represented value, given the historically wide credit
spreads that had existed for some time and the possibility that
these spreads would narrow significantly with an improving economy.
In fact, this contraction in spreads occurred, causing lower credit
quality issues to significantly outperform the broader municipal
market.
Since its inception, the Fund's borrowing costs generally remained
in the .85% - 1.15% range. These attractive funding levels, in
combination with the steep municipal yield curve, continued to
generate significant income to the Fund's Common Stock shareholders.
Currently, the Federal Reserve Board appears poised to begin raising
short-term interest rates. The increase, however, is expected to be
gradual and should not have a material impact on the positive
advantage leverage has had on the Fund's Common Stock yield.
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 34.04% of
total net assets. (For a more complete explanation of the benefits
and risks of leveraging, see page 2 of this report to shareholders.)
How would you characterize the Fund's position at the close of the
period?
We remained fully invested at the close of the period and
defensively structured. In our opinion, the economy is on track for
continued growth, which we expect should push interest rates higher
over time. Therefore, the portfolio's defensive positioning should
ultimately serve to benefit relative performance.
We believe credit spreads will continue to narrow, although not at
the same pace seen in the last several months. Nevertheless, we
expect that the Fund's position in lower-quality issues should
continue to make a positive contribution to performance.
Robert A. DiMella
Vice President and Portfolio Manager
June 9, 2004
MUNI INTERMEDIATE DURATION FUND, INC., MAY 31, 2004
Schedule of Investments (In Thousands)
S&P Moody's Face
State Ratings+++ Ratings+++ Amount Municipal Bonds Value
Arizona--0.9% NR* NR* $ 3,000 Navajo County, Arizona, IDA, IDR (Stone Container Corporation
Project), AMT, 7.20% due 6/01/2027 $ 2,967
Pima County, Arizona, IDA, Education Revenue Bonds (Arizona
Charter Schools Project):
NR* Baa3 1,000 Series C, 6.70% due 7/01/2021 1,019
NR* Baa3 1,000 Series K/L, 6.375% due 7/01/2031 972
California-- AAA Aaa 18,500 California Pollution Control Financing Authority, PCR, Refunding
22.1% (Pacific Gas & Electric), AMT, Series A, 5.35% due 12/01/2016 (d) 19,470
California State Department of Water Resources, Power Supply
Revenue Bonds, Series A:
BBB+ A3 8,500 5.25% due 5/01/2020 8,663
BBB+ A3 5,000 5.375% due 5/01/2021 5,132
BBB+ A3 6,500 5.375% due 5/01/2022 6,648
AA- Aa3 2,800 California State Economic Recovery Bonds, GO, Series A, 5% due
7/01/2017 2,894
AAA Aaa 5,000 California State, GO, Refunding, 5.25% due 2/01/2027 (d) 5,052
BBB- Baa1 10,000 California State Public Works Board, Lease Revenue Bonds
(Department of Corrections), Series C, 5.50% due 6/01/2020 10,321
BBB A3 17,500 California State, Various Purpose, GO, 5.50% due 4/01/2028 17,900
A A3 2,500 California Statewide Communities Development Authority, Health
Facility Revenue Bonds (Memorial Health Services), Series A, 6%
due 10/01/2023 2,624
NR* NR* 2,400 Elk Grove, California, Poppy Ridge Community Facilities Number 3
Special Tax, Series 1, 6% due 9/01/2028 2,299
Golden State Tobacco Securitization Corporation of California,
Tobacco Settlement Revenue Bonds, Series B:
BBB- Baa1 5,000 5.625% due 6/01/2020 5,064
BBB- Baa1 2,000 5.75% due 6/01/2021 2,042
BBB- Baa1 7,575 5.75% due 6/01/2022 7,721
BBB- Baa1 7,495 5.75% due 6/01/2023 7,626
Sacramento, California, Special Tax (North Natomas Community
Facilities), Series 4-C:
NR* NR* 585 5.60% due 9/01/2020 581
NR* NR* 1,720 5.75% due 9/01/2022 1,695
NR* NR* 500 5.90% due 9/01/2023 493
NR* NR* 3,000 6% due 9/01/2028 2,984
AAA Aaa 2,680 San Dieguito, California, Public Facilities Authority Revenue
Bonds, 5% due 8/01/2021 (a) 2,701
San Jose, California, Airport Revenue Bonds, Series A (b):
AAA Aaa 2,040 5.25% due 3/01/2016 2,148
AAA Aaa 3,000 5.25% due 3/01/2017 3,151
A+ NR* 4,830 Santa Monica, California, Community College District, COP,
Series A, 5.90% due 2/01/2027 5,020
Colorado--4.2% Denver, Colorado, City and County Airport Revenue Refunding
Bonds (d):
AAA Aaa 11,000 Series A, 5.50% due 11/15/2025 11,395
AAA Aaa 2,000 Series E, 5.25% due 11/15/2023 2,049
BBB- NR* 2,250 Montrose, Colorado, Memorial Hospital, Revenue Bonds, 6.375% due
12/01/2023 2,318
NR* NR* 7,500 Plaza Metropolitan District No. 1, Colorado, Tax Allocation Revenue
Bonds (Public Improvement Fees), 7.50% due 12/01/2015 7,573
Connecticut-- BBB A3 8,000 Connecticut State Development Authority, PCR, Refunding (Connecticut
1.5% Light and Power Company), Series A, 5.85% due 9/01/2028 8,308
Portfolio Abbreviations
To simplify the listings of Muni Intermediate Duration Fund, Inc.'s
portfolio holdings in the Schedule of Investments, we have
abbreviated the names of many of the securities according to the
list at right.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
EDA Economic Development Authority
GO General Obligation Bonds
IDA Industrial Development Authority
IDB Industrial Development Board
IDR Industrial Development Revenue Bonds
PCR Pollution Control Revenue Bonds
S/F Single-Family
TAN Tax Anticipation Notes
VRDN Variable Rate Demand Notes
MUNI INTERMEDIATE DURATION FUND, INC., MAY 31, 2004
Schedule of Investments (continued) (In Thousands)
S&P Moody's Face
State Ratings+++ Ratings+++ Amount Municipal Bonds Value
Florida--1.4% NR* NR* $ 3,000 Harbor Bay, Florida, Community Development District, Capital
Improvement Special Assessment Bonds, 6.75% due 5/01/2034 $ 3,159
NR* NR* 1,085 Portofino Shores, Florida, Community Development District,
Special Assessment Bonds, Series A, 6.40% due 5/01/2034 1,115
NR* Baa3 2,290 South Lake County, Florida, Hospital District Revenue Bonds
(South Lake Hospital Inc.), 6.625% due 10/01/2023 2,351
NR* NR* 1,000 Sterling Hill, Florida, Community Development District, Capital
Improvement Revenue Refunding Bonds, Series B, 5.50% due 11/01/2010 999
Georgia--1.7% NR* NR* 1,500 Atlanta, Georgia, Tax Allocation Revenue Bonds (Atlantic Station
Project), 7.90% due 12/01/2024 1,553
NR* NR* 4,500 Fulton County, Georgia, Residential Care Facilities Revenue
Refunding Bonds (Canterbury Court Project), Series A, 5.80% due
2/15/2018 4,459
Savannah, Georgia, EDA, Revenue Bonds (Marshes of Skidaway), First
Mortgage, Series A:
NR* NR* 1,245 6.25% due 1/01/2012 1,224
NR* NR* 2,245 6.85% due 1/01/2019 2,247
Idaho--0.2% NR* Aa1 1,025 Idaho Housing and Finance Association, S/F Mortgage Revenue Bonds,
AMT, Series F-2, 5.85% due 7/01/2015 (f) 1,041
Illinois--12.1% AAA Aaa 2,510 Chicago, Illinois, O'Hare International Airport Revenue Bonds,
3rd Lien, AMT, Series B-2, 6% due 1/01/2029 (e) 2,678
Chicago, Illinois, O'Hare International Airport, Revenue Refunding
Bonds, 3rd Lien, AMT, Series A-2:
A- A2 18,955 6% due 1/01/2017 20,580
AAA Aaa 12,300 5.75% due 1/01/2019 (c) 13,189
AAA Aaa 4,000 Chicago, Illinois, Wastewater Transmission Revenue Bonds, Second
Lien, 5.25% due 1/01/2028 (a) 4,033
Hodgkins, Illinois, Environmental Improvement Revenue Bonds, AMT:
BBB Baa1 5,280 (MBM Project), 6% due 11/01/2015 5,422
BBB Baa1 6,000 (Metro Biosolids Management LLC Project), 5.90% due 11/01/2017 6,095
BBB NR* 6,930 Illinois Development Finance Authority Revenue Bonds (Community
Rehabilitation Providers Facilities), Series A, 6.625% due 7/01/2032 7,122
BBB NR* 5,540 Illinois Development Finance Authority, Revenue Refunding Bonds
(Community Rehabilitation Providers), Series A, 6.05% due 7/01/2019 5,628
AAA Aaa 2,070 Illinois Health Facilities Authority Revenue Bonds (University of
Chicago Hospital System), 5.375% due 8/15/2017 (d) 2,179
Indiana--1.5% Indiana Transportation Finance Authority, Highway Revenue Bonds,
Series A (b):
AAA Aaa 3,230 5.25% due 6/01/2024 3,311
AAA Aaa 5,000 5.25% due 6/01/2025 5,090
Louisiana-- B NR* 3,900 Hodge, Louisiana, Utility Revenue Refunding Bonds (Stone Container
2.3% Corporation), AMT, 7.45% due 3/01/2024 3,899
Port New Orleans, Louisiana, IDR, Refunding (Continental Grain
Company Project):
BB- NR* 3,500 7.50% due 7/01/2013 3,604
BB- NR* 5,000 6.50% due 1/01/2017 5,041
Maine--1.6% NR* Baa2 1,965 Portland, Maine, Housing Development Corporation, Senior Living
Revenue Bonds (Avesta Housing Development Corporation Project),
Series A, 6% due 2/01/2034 1,894
NR* Ba2 7,000 Rumford, Maine, Solid Waste Disposal Revenue Refunding Bonds
(Boise Cascade Corporation Project), AMT, 6.875% due 10/01/2026 6,985
Massachusetts-- Massachusetts State Development Finance Agency, Resource Recovery
0.5% Revenue Bonds (Ogden Haverhill Associates), AMT, Series B:
BBB NR* 1,210 5.35% due 12/01/2015 1,141
BBB NR* 2,000 5.50% due 12/01/2019 1,880
MUNI INTERMEDIATE DURATION FUND, INC., MAY 31, 2004
Schedule of Investments (continued) (In Thousands)
S&P Moody's Face
State Ratings+++ Ratings+++ Amount Municipal Bonds Value
Michigan--3.1% BBB Baa2 $ 4,500 Cornell Township, Michigan, Economic Development Revenue Refunding
Bonds (Mead Westvaco Corporation--Escanaba Project), 5.875% due
5/01/2018 $ 4,654
BBB Baa2 4,500 Delta County, Michigan, Economic Development Corporation,
Environmental Improvement Revenue Refunding Bonds (Mead
Westvaco--Escanaba), Series A, 6.25% due 4/15/2027 4,664
BBB- NR* 3,325 Macomb County, Michigan, Hospital Finance Authority, Hospital
Revenue Bonds (Mount Clemens General Hospital), Series B, 5.875%
due 11/15/2034 3,050
A A2 4,795 Michigan State Hospital Finance Authority, Revenue Refunding Bonds
(Oakwood Obligated Group), Series A, 6% due 4/01/2022 4,995
Minnesota-- Minneapolis and Saint Paul, Minnesota, Housing and Redevelopment
0.7% Authority, Health Care System Revenue Bonds (Group Health Plan Inc.
Project):
BBB+ Baa1 1,000 6% due 12/01/2019 1,038
BBB+ Baa1 2,545 6% due 12/01/2021 2,623
Mississippi-- Mississippi Business Finance Corporation, Mississippi, PCR,
1.4% Refunding (System Energy Resources Inc. Project):
BBB- Ba1 5,000 5.875% due 4/01/2022 5,021
BBB- Ba1 2,910 5.90% due 5/01/2022 2,929
Missouri--3.4% St. Louis, Missouri, Airport Revenue Bonds (Airport Developmental
Program), Series A (d):
AAA Aaa 5,220 5.625% due 7/01/2016 5,625
AAA Aaa 3,500 5.625% due 7/01/2017 3,794
AAA Aaa 8,500 5.625% due 7/01/2018 9,214
Montana--0.3% AA+ Aa1 1,355 Montana State Board of Housing, AMT, S/F Program Revenue Bonds,
Series B-2, 6.35% due 12/01/2021 (f) 1,402
Nevada--0.4% NR* NR* 2,250 Clark County, Nevada, Improvement District No. 142 Special Assessment,
6.375% due 8/01/2023 2,234
New Jersey-- AAA Aaa 7,735 Casino Reinvestment Development Authority, New Jersey, Parking Fee
5.9% Revenue Bonds, 5% due 10/01/2021 (a) 7,877
Garden State Preservation Trust, New Jersey, Open Space and Farmland
Preservation Revenue Bonds, Series A (c):
AAA Aa3 3,635 5.80% due 11/01/2021 3,810
AAA Aa3 5,050 5.80% due 11/01/2023 5,225
B Caa2 5,540 New Jersey EDA, Special Facility Revenue Bonds (Continental
Airlines Inc. Project), AMT, 6.625% due 9/15/2012 4,767
AAA Aaa 2,030 Sparta Township, New Jersey, School District, GO, Refunding, 5%
due 9/01/2020 (d) 2,071
BBB Baa3 9,535 Tobacco Settlement Financing Corporation of New Jersey, Asset-Backed
Revenue Bonds, 5.75% due 6/01/2016 8,613
New Mexico-- Farmington, New Mexico, PCR, Refunding:
2.2% BBB Baa2 3,000 (Public Service Company of New Mexico--San Juan), Series D,
6.375% due 4/01/2022 3,121
B+ Ba3 9,000 (Tucson Electric Power Co.--San Juan Project), Series A,
6.95% due 10/01/2020 9,294
New York-- NR* NR* 1,250 Dutchess County, New York, IDA, Civic Facility Revenue Bonds
31.6% (Saint Francis Hospital), Series B, 7.25% due 3/01/2019 1,227
A A2 10,500 Metropolitan Transportation Authority, New York, Revenue Refunding
Bonds, Series A, 5.75% due 11/15/2032 10,937
NR* NR* 3,165 New York City, New York, City IDA, Civic Facility Revenue Bonds
(Special Needs Facilities Pooled Program), Series C-1, 5.50% due
7/01/2007 3,149
New York City, New York, City IDA, Special Facility Revenue
Bonds, AMT:
BB- Ba2 1,250 (British Airways PLC Project), 7.625% due 12/01/2032 1,194
CCC+ NR* 3,000 (Continental Airlines Inc. Project), 8.375% due 11/01/2016 2,853
New York City, New York, City Transitional Finance Authority,
Future Tax Secured Revenue Bonds, Series C:
AA+ Aa2 20 5.50% due 5/01/2009 (g) 22
AA+ Aa2 2,780 5.50% due 5/01/2025 2,878
MUNI INTERMEDIATE DURATION FUND, INC., MAY 31, 2004
Schedule of Investments (continued) (In Thousands)
S&P Moody's Face
State Ratings+++ Ratings+++ Amount Municipal Bonds Value
New York New York City, New York, GO, Refunding:
(concluded) A A2 $ 5,000 Series B, 5.75% due 8/01/2015 $ 5,402
AAA A2 5,050 Series F, 5.25% due 8/01/2015 (d) 5,344
A A2 14,000 New York City, New York, GO, Series C, 5.50% due 8/01/2013 15,206
A A3 5,580 New York State Dormitory Authority, Lease Revenue Refunding Bonds
(Court Facilities), Series A, 5.25% due 5/15/2012 6,004
NR* A3 1,000 New York State Dormitory Authority Revenue Bonds (North Shore L. I.
Jewish Group), 5% due 5/01/2012 1,045
New York State Dormitory Authority, Revenue Refunding Bonds:
AAA Aaa 7,775 (City University System), Consolidated Second Generation,
Series A, 6.125% due 7/01/2013 (a) 8,882
NR* A3 2,350 (Lenox Hill Hospital Obligation Group), 5.75% due 7/01/2016 2,508
BB Ba1 7,000 (Mount Sinai Health), Series A, 6.625% due 7/01/2018 7,102
BB Ba1 5,000 (Mount Sinai Health), Series A, 6.625% due 7/01/2019 5,074
AAA Aaa 15,000 (North Shore University Hospital), 5.20% due 11/01/2017 (d) 15,691
AA Aaa 1,970 New York State Dormitory Authority, State Personal Income Tax
Revenue Bonds, Series A, 5% due 3/15/2022 (d) 1,994
A+ NR* 16,550 New York State Municipal Bond Bank Agency, Special School Purpose
Revenue Bonds, Series C, 5.25% due 12/01/2020 16,956
New York State Thruway Authority, Service Contract Revenue Refunding
Bonds (Local Highway and Bridges Project):
AA- A3 4,695 5.50% due 4/01/2012 (g) 5,277
AA- A3 60 5.50% due 4/01/2017 65
New York State Urban Development Corporation, Correctional and Youth
Facilities Services, Revenue Refunding Bonds, Series A:
AA- A3 4,500 5% due 1/01/2017 4,780
AA- A3 11,650 5.50% due 1/01/2017 12,710
New York State Urban Development Corporation Revenue Bonds,
Subordinate Lien, Corporation Purpose, Series A:
A A2 2,500 5.125% due 7/01/2016 2,591
A A2 2,500 5.125% due 7/01/2017 2,572
A A2 1,895 5.125% due 7/01/2019 1,924
A A2 1,000 5.125% due 7/01/2021 1,006
NR* NR* 2,000 Schenectady, New York, GO, TAN, 6.25% due 12/30/2004 1,994
Tobacco Settlement Financing Corporation of New York Revenue Bonds,
Series A-1:
AA- NR* 10,000 5.50% due 6/01/2014 10,651
AA- A3 8,385 5.25% due 6/01/2016 8,735
AA- NR* 3,340 5.50% due 6/01/2016 3,523
AAA NR* 5,000 5.25% due 6/01/2022 (a) 5,137
North NR* NR* 6,000 North Carolina Medical Care Commission, Health Care Facilities,
Carolina--2.2% First Mortgage Revenue Refunding Bonds (Presbyterian Homes Project),
7% due 10/01/2031 6,341
North Carolina Medical Care Commission, Hospital Revenue Bonds
(Maria Parham Medical Center) (h):
AA NR* 2,505 5.50% due 10/01/2013 2,726
AA NR* 2,940 5.50% due 10/01/2016 3,121
Ohio--2.5% Jackson, Ohio, Local School District Refunding Bonds (Stark and
Summit Counties), GO, Facilities Construction and Improvement (b):
AAA Aaa 3,590 5.25% due 12/01/2022 3,740
AAA Aaa 3,980 5.25% due 12/01/2024 4,108
AAA Aaa 4,350 5.25% due 12/01/2026 4,445
NR* NR* 1,280 Port of Greater Cincinnati Development Authority, Ohio, Special
Assessment Revenue Bonds (Cooperative Public Parking Infrastructure
Project), 6.30% due 2/15/2024 1,238
MUNI INTERMEDIATE DURATION FUND, INC., MAY 31, 2004
Schedule of Investments (continued) (In Thousands)
S&P Moody's Face
State Ratings+++ Ratings+++ Amount Municipal Bonds Value
Oklahoma--1.8% A1+ VMIG1++ $ 2,400 Oklahoma State Industries Authority, Revenue Refunding Bonds
(Integris Baptist), VRDN, Series B, 1.06% due 8/15/2029 (d)(i) $ 2,400
B- Caa2 8,000 Tulsa, Oklahoma, Municipal Airport Trust, Revenue Refunding Bonds
(AMR Corporation), AMT, Series A, 5.80% due 6/01/2035 7,764
Pennsylvania-- NR* NR* 9,000 Pennsylvania Economic Development Financing Authority, Exempt
4.7% Facilities Revenue Bonds (National Gypsum Company), AMT, Series A,
6.25% due 11/01/2027 8,847
NR* NR* 2,800 Philadelphia, Pennsylvania, Authority for Industrial Development,
Health Care Facility Revenue Refunding Bonds (Paul's Run), Series A,
5.875% due 5/15/2028 2,685
AAA Aaa 7,490 Philadelphia, Pennsylvania, Gas Works Revenue Refunding Bonds, 1975
General Ordinance, 17th Series, 5.375% due 7/01/2022 (c) 7,838
Sayre, Pennsylvania, Health Care Facilities Authority, Revenue
Refunding Bonds, Series A:
A- NR* 1,750 (Guthrie Health), 6.25% due 12/01/2015 1,893
A- NR* 3,000 (Guthrie Health), 6.25% due 12/01/2016 3,224
A- NR* 1,490 (Guthrie Healthcare System), 6.25% due 12/01/2018 1,604
South AAA Aaa 5,000 South Carolina State Public Service Authority, Revenue Refunding
Carolina--1.3% Bonds, Series A, 5.50% due 1/01/2010 (c) 5,541
BBB Baa3 2,000 Tobacco Settlement Revenue Management Authority of South Carolina,
Tobacco Settlement Revenue Bonds, Series B, 6.375% due 5/15/2028 1,722
Tennessee--3.7% BB Ba2 5,000 McMinn County, Tennessee, IDB, PCR (Calhoun Newsprint Co. Project),
AMT, 7.625% due 3/01/2016 5,004
A- Baa1 3,500 Shelby County, Tennessee, Health, Educational and Housing Facility
Board, Hospital Revenue Bonds (Methodist Healthcare), 6.25% due
9/01/2018 3,771
Shelby County, Tennessee, Health, Educational and Housing Facility
Board, Hospital Revenue Refunding Bonds (Methodist Healthcare):
A- Baa1 2,000 6% due 9/01/2016 2,138
A- Baa1 4,000 6% due 9/01/2017 4,251
Shelby County, Tennessee, Health, Educational and Housing Facility
Board Revenue Bonds (Germantown Village), Series A:
NR* NR* 3,550 6.75% due 12/01/2018 3,568
NR* NR* 1,450 7% due 12/01/2023 1,449
Texas--22.0% Austin, Texas, Convention Center Revenue Bonds (Convention
Enterprises Inc.), First Tier, Series A:
BBB- Baa3 6,445 6.375% due 1/01/2016 6,684
BBB- Baa3 10,260 6.70% due 1/01/2032 10,589
A1+ VMIG1++ 15,800 Bell County, Texas, Health Facilities Development Corporation,
Hospital Revenue Bonds (Scott & White Memorial Hospital), VRDN,
Series 2001-2, 1.06% due 8/15/2031 (d)(i) 15,800
BBB- NR* 1,500 Bexar County, Texas, Health Facilities Development Corporation,
Revenue Refunding Bonds (Army Retirement Residence Project), 6.30%
due 7/01/2032 1,536
BBB Baa2 4,885 Brazos River Authority, Texas, PCR, Refunding (Texas Utility Company),
AMT, Series A, 7.70% due 4/01/2033 5,534
A A3 1,700 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 1,814
BBB- Baa3 7,850 Dallas-Fort Worth, Texas, International Airport Facility,
Improvement Corporation Revenue Bonds (Learjet Inc.), AMT,
Series 2001-A-1, 6.15% due 1/01/2016 7,815
BB Ba3 2,440 Gulf Coast, Texas, IDA, Solid Waste Disposal Revenue Bonds
(Citgo Petroleum Corporation Project), AMT, 7.50% due 5/01/2025 2,555
A1+ VMIG1++ 2,000 Harris County, Texas, Health Facilities Development Corporation,
Hospital Revenue Bonds (Texas Children's Hospital), VRDN, Series B-1,
1.11% due 10/01/2029 (d)(i) 2,000
MUNI INTERMEDIATE DURATION FUND, INC., MAY 31, 2004
Schedule of Investments (continued) (In Thousands)
S&P Moody's Face
State Ratings+++ Ratings+++ Amount Municipal Bonds Value
Texas NR* NR* $ 1,000 Houston, Texas, Health Facilities Development Corporation,
(concluded) Retirement Facility Revenue Bonds (Buckingham Senior Living
Community), Series A, 7% due 2/15/2023 $ 1,003
Houston, Texas, Utility System Revenue Refunding Bonds, First
Lien, Series A:
AAA Aaa 25,000 5.25% due 5/15/2022 (c) 25,882
AAA Aaa 10,500 5.25% due 5/15/2023 (b) 10,820
A- A3 7,420 Lower Colorado River Authority, Texas, PCR (Samsung Austin
Semiconductor), AMT, 6.95% due 4/01/2030 8,299
BBB NR* 1,150 Lufkin, Texas, Health Facilities Development Corporation, Health
System Revenue Bonds (Memorial Health System of East Texas), 5.70%
due 2/15/2028 1,045
BBB- Ba2 2,600 Matagorda County, Texas, Navigation District Number 1, Revenue
Refunding Bonds (Reliant Energy Inc.), Series C, 8% due 5/01/2029 2,808
BB Ba3 2,300 Port Corpus Christi, Texas, Individual Development Corporation,
Environmental Facilities Revenue Bonds (Citgo Petroleum Corporation
Project), AMT, 8.25% due 11/01/2031 2,428
Sabine River Authority, Texas, PCR, Refunding (TXU Electric Company
Project/TXU Energy Company LLC), Series B:
BBB Baa2 4,120 6.15% due 8/01/2022 4,248
BBB Baa2 5,000 AMT, 5.75% due 5/01/2030 5,236
Tomball, Texas, Hospital Authority Revenue Refunding Bonds
(Tomball Regional Hospital):
NR* Baa2 2,000 6% due 7/01/2029 1,944
NR* Baa2 3,140 6.125% due 7/01/2023 3,140
Utah--5.3% A1 VMIG1++ 29,000 Emery County, Utah, PCR, Refunding (Pacificorp Projects), VRDN,
1.06% due 11/01/2024 (a)(i) 29,000
Virginia--6.0% B Ba3 10,000 Giles County, Virginia, IDA, Revenue Bonds (Hoechst Celanese
Corporation), AMT, 6.45% due 5/01/2026 9,230
James City County, Virginia, IDA, Residential Care Facility Revenue
Refunding Bonds, Series A:
NR* NR* 3,285 5.75% due 3/01/2017 3,294
NR* NR* 1,000 6% due 3/01/2023 991
NR* Ba3 2,250 Loudoun County, Virginia, IDA, IDR, Refunding (Dulles Airport
Marriott Hotel), 7.125% due 9/01/2015 2,265
Pittsylvania County, Virginia, IDA Revenue Refunding Bonds, Exempt
Facility, AMT:
NR* NR* 6,250 Series A, 7.55% due 1/01/2019 5,422
NR* NR* 2,500 Series B, 7.65% due 1/01/2010 2,244
BB Ba2 11,910 Pocahontas Parkway Association, Virginia, Toll Road Revenue Bonds,
Senior Series A, 5.50% due 8/15/2028 9,767
Wyoming--1.6% Sweetwater County, Wyoming, Solid Waste Disposal Revenue Bonds
(FMC Corporation Project), AMT:
BB+ Ba3 3,895 Series A, 7% due 6/01/2024 3,908
BB+ Ba3 5,000 Series B, 6.90% due 9/01/2024 5,039
Guam--0.4% B+ Ba3 2,250 Commonwealth of the Northern Mariana Islands, GO, Series A, 6.75%
due 10/01/2033 2,243
Puerto A- A3 14,000 Puerto Rico Electric Power Authority, Power Revenue Bonds,
Rico--6.1% Series NN, 5.50% due 7/01/2018 14,842
A- Baa1 8,000 Puerto Rico Public Buildings Authority, Government Facilities
Revenue Refunding Bonds, Series I, 5.50% due 7/01/2021 8,385
BBB+ Baa2 10,000 Puerto Rico Public Finance Corporation, Commonwealth Appropriation
Revenue Bonds, Series E, 5.50% due 8/01/2029 10,181
MUNI INTERMEDIATE DURATION FUND, INC., MAY 31, 2004
Schedule of Investments (concluded) (In Thousands)
S&P Moody's Face
Ratings+++ Ratings+++ Amount Municipal Bonds Value
Virgin BBB- Baa3 $ 2,500 Virgin Islands Government Refinery Facilities, Revenue Refunding
Islands--2.5% Bonds (Hovensa Coker Project), AMT, 6.50% due 7/01/2021 $ 2,642
Virgin Islands Public Finance Authority, Refinery Facilities
Revenue Bonds (Hovensa Refinery), AMT:
BBB- Baa3 4,150 5.875% due 7/01/2022 4,200
BBB- Baa3 6,750 6.125% due 7/01/2022 6,949
Total Municipal Bonds (Cost--$876,628)--159.1% 878,403
Total Investments (Cost--$876,628)--159.1% 878,403
Liabilities in Excess of Other Assets--(7.5%) (41,176)
Preferred Stock, at Redemption Value--(51.6%) (285,048)
---------
Net Assets Applicable to Common Stock--100.0% $ 552,179
=========
*Not Rated.
++Highest short-term rating by Moody's Investors Service Inc.
+++Ratings of issues shown are unaudited.
(a)AMBAC Insured.
(b)FGIC Insured.
(c)FSA Insured.
(d)MBIA Insured.
(e)XL Capital Insured.
(f)Federal Housing Administration/Veterans' Administration Mortgages
packaged by the Federal National Mortgage Association.
(g)Prerefunded.
(h)Radian Insured.
(i)The interest rate is subject to change periodically based upon
prevailing market rates. The interest rate shown is the rate in
effect at May 31, 2004.
Investments in companies considered to be an affiliate of the Fund
(such companies are defined as "Affiliated Companies" in Section
2(a)(3) of the Investment Company Act of 1940) are as follows:
(In Thousands)
Net Dividend
Affiliate Activity Income
Merrill Lynch Institutional
Tax-Exempt Fund -- $134
Forward interest rate swaps entered into as of May 31, 2004 were as
follows:
(In Thousands)
Unrealized
Notional Appreciation/
Amount Depreciation
Receive a variable rate equal to
7-Day Bond Market Association
Municipal Swap Index Rate and
pay a fixed rate equal to 3.928%.
Broker, J.P. Morgan Chase Bank
Expires July 2014 $68,000 $ 319
Receive a variable rate equal to
7-Day Bond Market Association
Municipal Swap Index Rate and
pay a fixed rate equal to 4.385%.
Broker, J.P. Morgan Chase Bank
Expires November 2018 $ 7,800 (81)
-----
Total $ 238
=====
See Notes to Financial Statements.
MUNI INTERMEDIATE DURATION FUND, INC., MAY 31, 2004
Statement of Net Assets
As of May 31, 2004
Assets
Investments in unaffiliated securities, at value (identified cost--$876,628,263) $ 878,403,035
Cash 346,141
Unrealized appreciation on forward interest rate swaps 237,798
Receivables:
Interest $ 14,173,175
Securities sold 6,654,368 20,827,543
---------------
Prepaid expenses 71,340
---------------
Total assets 899,885,857
---------------
Liabilities
Payables:
Securities purchased 61,742,096
Dividends to Common Stock shareholders 612,292
Investment adviser 264,422
Other affiliates 7,036 62,625,846
---------------
Accrued expenses 32,917
---------------
Total liabilities 62,658,763
---------------
Preferred Stock
Preferred Stock, at redemption value, par value $.10 per share
(2,000 Series M7 Shares, 2,700 Series T7 Shares, 2,000 Series W7 Shares,
2,700 Series TH7 Shares, 2,000 Series F7 Shares of AMPS* issued and
outstanding at $25,000 per share liquidation preference) 285,048,192
---------------
Net Assets Applicable to Common Stock
Net assets applicable to Common Stock $ 552,178,902
===============
Analysis of Net Assets Applicable to Common Stock
Common Stock, par value $.10 per share (38,034,934 shares issued and
outstanding) $ 3,803,493
Paid-in capital in excess of par 537,193,043
Undistributed investment income--net $ 2,964,351
Undistributed realized capital gains on investments--net 6,205,445
Unrealized appreciation on investments--net 2,012,570
---------------
Total accumulated earnings--net 11,182,366
---------------
Total--Equivalent to $14.52 net asset value per share of Common Stock
(market price--$13.10) $ 552,178,902
===============
*Auction Market Preferred Stock.
See Notes to Financial Statements.
MUNI INTERMEDIATE DURATION FUND, INC., MAY 31, 2004
Statement of Operations
For the Period August 1, 2003++ to May 31, 2004
Investment Income
Interest $ 32,887,174
Dividends from affiliates 134,197
---------------
Total income 33,021,371
---------------
Expenses
Investment advisory fees $ 3,761,844
Commission fees 517,403
Accounting services 198,849
Transfer agent fees 47,439
Professional fees 42,154
Custodian fees 36,861
Directors' fees and expenses 24,529
Pricing fees 19,818
Printing and shareholder reports 16,659
Other 11,739
---------------
Total expenses before waiver 4,677,295
Waiver of expenses (1,256,455)
---------------
Total expenses after waiver 3,420,840
---------------
Investment income--net 29,600,531
---------------
Realized & Unrealized Gain on Investments--Net
Realized gain on investments--net 6,184,907
Unrealized appreciation on investments--net 2,012,570
---------------
Total realized and unrealized gain on investments--net 8,197,477
---------------
Dividends to Preferred Stock Shareholders
Investment income--net (2,161,817)
---------------
Net Increase in Net Assets Resulting from Operations $ 35,636,191
===============
++Commencement of operations.
See Notes to Financial Statements.
MUNI INTERMEDIATE DURATION FUND, INC., MAY 31, 2004
Statement of Changes in Net Assets
For the Period
August 1, 2003++
to May 31,
Increase (Decrease) in Net Assets: 2004
Operations
Investment income--net $ 29,600,531
Realized gain on investments--net 6,184,907
Unrealized appreciation on investments--net 2,012,570
Dividends to Preferred Stock shareholders (2,161,817)
---------------
Net increase in net assets resulting from operations 35,636,191
---------------
Dividends to Common Stock Shareholders
Investment income--net (24,453,825)
---------------
Net decrease in net assets resulting from dividends to Common Stock shareholders (24,453,825)
---------------
Stock Transactions
Net proceeds from issuance of Common Stock 543,991,875
Offering costs resulting from the issuance of Common Stock (662,473)
Offering and underwriting costs resulting from the issuance of Preferred Stock (3,205,458)
Value of shares issued to Common Stock shareholders in reinvestment of dividends 772,589
---------------
Net increase in net assets derived from stock transactions 540,896,533
---------------
Net Assets Applicable to Common Stock
Total increase in net assets applicable to Common Stock 552,078,899
Beginning of period 100,003
---------------
End of period* $ 552,178,902
===============
*Undistributed investment income--net $ 2,964,351
===============
++Commencement of operations.
See Notes to Financial Statements.
MUNI INTERMEDIATE DURATION FUND, INC., MAY 31, 2004
Financial Highlights
The following per share data and ratios have been derived For the Period
from information provided in the financial statements. August 1, 2003++
to May 31,
Increase (Decrease) in Net Asset Value: 2004
Per Share Operating Performance
Net asset value, beginning of period $ 14.33
---------------
Investment income--net .79
Realized and unrealized gain on investments--net .21
Dividends to Preferred Stock shareholders from investment income--net (.06)
---------------
Total from investment operations .94
---------------
Less dividends to Common Stock shareholders from investment income--net (.65)
---------------
Capital charge resulting from issuance of Common Stock (.02)
---------------
Capital charge and underwriting costs resulting from issuance of Preferred Stock (.08)
---------------
Net asset value, end of period $ 14.52
===============
Market price per share, end of period $ 13.10
===============
Total Investment Return**
Based on market price per share (8.59%)+++
===============
Based on net asset value per share 6.09%+++
===============
Ratios Based on Average Net Assets of Common Stock
Total expenses, net of waiver*** .75%*
===============
Total expenses*** 1.03%*
===============
Investment income--net*** 6.51%*
===============
Amount of dividends to Preferred Stock shareholders .48%*
===============
Investment income--net, to Common Stock shareholders 6.03%*
===============
Ratios Based on Average Net Assets of Common & Preferred Stock***
Total expenses, net of waiver .50%*
===============
Total expenses .69%*
===============
Total investment income--net 4.37%*
===============
Ratios Based on Average Net Assets of Preferred Stock
Dividends to Preferred Stock shareholders .97%*
===============
Supplemental Data
Net assets applicable to Common Stock, end of period (in thousands) $ 552,179
===============
Preferred Stock outstanding, end of period (in thousands) $ 285,000
===============
Portfolio turnover 70.29%
===============
MUNI INTERMEDIATE DURATION FUND, INC., MAY 31, 2004
Financial Highlights (concluded)
For the Period
August 1, 2003++
The following per share data and ratios have been derived to May 31,
from information provided in the financial statements. 2004
Leverage
Asset coverage per $1,000 $ 2,937
===============
Dividends Per Share on Preferred Stock Outstanding++++
Series M7--Investment income--net $ 190
===============
Series T7--Investment income--net $ 192
===============
Series W7--Investment income--net $ 188
===============
Series TH7--Investment income--net $ 188
===============
Series F7--Investment income--net $ 189
===============
*Annualized.
**Total investment returns based on market value, which can be
significantly greater or lesser than the net asset value, may result
in substantially different returns. Total investment returns exclude
the effects of sales charges. The Fund's Investment Adviser
voluntarily waived a portion of its management fee. Without such
waiver, the Fund's performance would have been lower.
***Do not reflect the effect of dividends to Preferred Stock
shareholders.
++Commencement of operations.
++++The Fund's Preferred Stock was issued on August 20, 2003.
+++Aggregate total investment return.
See Notes to Financial Statements.
MUNI INTERMEDIATE DURATION FUND, INC., MAY 31, 2004
Notes to Financial Statements
1. Significant Accounting Policies:
Muni Intermediate Duration Fund, Inc. (the "Fund") is registered
under the Investment Company Act of 1940, as amended, as a non-
diversified, closed-end management investment company. Prior to
commencement of operations on August 1, 2003, the Fund had no
operations other than those relating to organizational matters and
the sale of 6,981 shares of Common Stock on July 17, 2003 to Fund
Asset Management, L.P. ("FAM") for $100,003. The Fund's 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 Fund determines and makes available for publication
the net asset value of its Common Stock on a daily basis. The Fund's
Common Stock is listed on the New York Stock Exchange under the
symbol MUI. The following is a summary of significant accounting
policies followed by the Fund.
(a) Valuation of investments--Municipal bonds are traded primarily
in the over-the-counter markets and are valued at the last available
bid price in the over-the-counter market or on the basis of yield
equivalents as obtained by the Fund's pricing service from one or
more dealers that make markets in the securities. Financial futures
contracts and options thereon, which are traded on exchanges, are
valued at their closing prices as of the close of such exchanges.
Options written or purchased are valued at the last sale price in
the case of exchange-traded options. In the case of options traded
in the over-the-counter market, valuation is the last asked price
(options written) or the last bid price (options purchased). Swap
agreements are valued by quoted fair values received daily by the
Fund from the counterparty. Short-term investments with a remaining
maturity of sixty days or less are valued at amortized cost, which
approximates market value. Securities and assets for which market
quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Board of
Directors of the Fund, including valuations furnished by a pricing
service retained by the Fund, which may utilize a matrix system for
valuations. The procedures of the pricing service and its valuations
are reviewed by the officers of the Fund under the general
supervision of the Board of Directors.
(b) Derivative financial instruments--The Fund may engage in various
portfolio 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--The 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--The 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--The 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.
MUNI INTERMEDIATE DURATION FUND, INC., MAY 31, 2004
Notes to Financial Statements (continued)
(c) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required.
(d) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). 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 Fund amortizes 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) Reclassification--U.S. generally accepted accounting principles
require that certain components of net assets be adjusted to reflect
permanent differences between financial and tax reporting.
Accordingly, during the current year, $20,538 has been reclassified
between undistributed net investment income and accumulated realized
capital gains on investment as a result of permanent differences
attributable to amortization methods on fixed income securities.
This reclassification has no effect on net assets or net asset
values per share.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect, wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee at an annual rate of .55% of
the Fund's average daily net assets, including proceeds from the
issuance of Preferred Stock. FAM has contractually agreed to waive a
portion of its fee during the first seven years of the Fund's
operations ending July 31, 2010, as follows:
Fee Waiver
(As a Percentage
of Average Daily
Net Assets)
Years 1 through 5 .15%
Year 6 .10%
Year 7 .05%
Year 8 and thereafter .00%
FAM has not agreed to waive any portion of its fee beyond July 31,
2010.
For the period August 1, 2003 to May 31, 2004, FAM earned fees of
$3,761,844, of which $1,256,455 was waived.
During the period August 1, 2003 to May 31, 2004, Merrill Lynch,
Pierce, Fenner and Smith Incorporated ("MLPF&S"), an affiliate of
FAM, received underwriting fees of $2,850,000 in connection with the
issuance of the Fund's Preferred Stock.
For the period August 1, 2003 to May 31, 2004, the Fund reimbursed
FAM $13,027 for certain accounting services.
Certain officers and/or directors of the Fund are officers and/or
directors of FAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the period August 1, 2003 to May 31, 2004 were $1,355,042,533
and $536,698,097, respectively.
Net realized gains (losses) for the period August 1, 2003 to May 31,
2004 and net unrealized appreciation as of May 31, 2004 were as
follows:
Realized Unrealized
Gains (Losses) Appreciation
Long-term investments $ 9,799,567 $ 1,774,772
Short-term investments 44,140 --
Forward interest rate swaps (3,658,800) 237,798
-------------- --------------
Total $ 6,184,907 $ 2,012,570
============== ==============
MUNI INTERMEDIATE DURATION FUND, INC., MAY 31, 2004
Notes to Financial Statements (concluded)
As of May 31, 2004, net unrealized appreciation for Federal income
tax purposes aggregated $1,881,707, of which $8,743,467 related to
appreciated securities and $6,861,760 related to depreciated
securities. The aggregate cost of investments at May 31, 2004 for
Federal income tax purposes was $876,521,328.
4. Stock Transactions:
The 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
Shares issued and outstanding during the period August 1, 2003 to
May 31, 2004 increased by 37,975,000 from shares sold and 52,953
from reinvestment of dividends.
Preferred Stock
Auction Market Preferred Stock are redeemable shares of Preferred
Stock of the Fund, with a par value of $.10 per share and
liquidation preference of $25,000 per shares, 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 yield in effect at May 31, 2004 was Series M7,
1.00%; Series T7, 1.069%; Series W7, 1.07%; Series TH7, 1.039%; and
Series F7, 1.02%.
Shares issued and outstanding during the period August 1, 2003 to
May 31, 2004 increased by 11,400 from issuance of Preferred Stock.
The Fund pays commissions to certain broker-dealers at the end of
each auction at an annual rate ranging from .25% to .375%,
calculated on the proceeds of each auction. For the period August 1,
2003 to May 31, 2004, MLPF&S earned $530,386 as commissions.
5. Distributions to Shareholders:
The Fund paid a tax-exempt income dividend to holders of Common
Stock in the amount of $.072000 per share on June 29, 2004 to
shareholders of record on June 14, 2004.
The tax character of distributions paid during the period August 1,
2003 to May 31, 2004 was as follows:
August 1, 2003++
to May 31, 2004
Distributions paid from:
Tax-exempt income $ 26,615,642
--------------
Total distributions $ 26,615,642
==============
++Commencement of operations.
As of May 31, 2004, the components of accumulated earnings on a tax
basis were as follows:
Undistributed tax-exempt income--net $ 2,857,415
Undistributed ordinary income--net 6,205,445
--------------
Total undistributed earnings--net 9,062,860
Capital loss carryforward --
Unrealized gains--net 2,119,506*
--------------
Total accumulated earnings--net $ 11,182,366
==============
*The difference between book-basis and tax-basis net unrealized
gains is attributable primarily to the difference between book and
tax amortization methods for premiums and discounts on fixed income
securities.
MUNI INTERMEDIATE DURATION FUND, INC., MAY 31, 2004
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
of Muni Intermediate Duration Fund, Inc.:
We have audited the accompanying statement of net assets of Muni
Intermediate Duration Fund, Inc., including the schedule of
investments, as of May 31, 2004, and the related statements of
operations and changes in net assets, and financial highlights for
the period August 1, 2003 (commencement of operations) to May 31,
2004. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial
highlights based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements and financial
highlights. Our procedures included confirmation of securities owned
as of May 31, 2004, by correspondence with the custodian and others.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit
provides 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 Muni Intermediate Duration Fund, Inc. at May
31, 2004, the results of its operations, the changes in its net
assets, and the financial highlights for the period August 1, 2003
(commencement of operations) to May 31, 2004 in conformity with U.S.
generally accepted accounting principles.
(Ernst & Young LLP)
MetroPark, New Jersey
June 30, 2004
Quality Profile (unaudited)
The quality ratings of securities in the Fund as of May 31, 2004
were as follows:
Percent of
Total
S&P Rating/Moody's Rating Investments
AAA/Aaa 26.3%
AA/Aa 6.8
A/A 20.3
BBB/Baa 20.6
BB/Ba 9.2
B/B 1.9
CCC/Caa 0.3
NR (Not Rated) 9.0
Other++ 5.6
++Temporary investments in short-term variable rate municipal
securities.
MUNI INTERMEDIATE DURATION FUND, INC., MAY 31, 2004
Automatic Dividend Reinvestment Plan (unaudited)
The following description of the Fund's Automatic Dividend
Reinvestment Plan (the "Plan") is sent to you annually as required
by Federal securities laws.
Pursuant to the Fund's Plan, unless a holder of Common Stock
otherwise elects, all dividend and capital gains distributions will
be automatically reinvested by EquiServe (the "Plan Agent"), as
agent for shareholders in administering the Plan, in additional
shares of Common Stock of the Fund. Holders of Common Stock who
elect not to participate in the Plan will receive all distributions
in cash paid by check mailed directly to the shareholder of
record (or, if the shares are held in street or other nominee name
then to such nominee) by EquiServe, as dividend paying agent. Such
participants may elect not to participate in the Plan and to receive
all distributions of dividends and capital gains in cash by sending
written instructions to EquiServe, as dividend paying agent, at the
address set forth below. Participation in the Plan is completely
voluntary and may be terminated or resumed at any time without
penalty by written notice if received by the Plan Agent not less
than ten days prior to any dividend record date; otherwise such
termination will be effective with respect to any subsequently
declared dividend or distribution.
Whenever the Fund declares an income dividend or capital gains
distribution (collectively referred to as "dividends") payable
either in shares or in cash, non-participants in the Plan will
receive cash and participants in the Plan will receive the
equivalent in shares of Common Stock. The shares will be acquired
by the Plan Agent for the participant's account, depending upon
the circumstances described below, either (i) through receipt of
additional unissued but authorized shares of Common Stock from the
Fund ("newly issued shares") or (ii) by purchase of outstanding
shares of Common Stock on the open market ("open-market purchases")
on the New York Stock Exchange or elsewhere. If on the payment date
for the dividend, the net asset value per share of the Common Stock
is equal to or less than the market price per share of the Common
Stock plus estimated brokerage commissions (such conditions being
referred to herein as "market premium"), the Plan Agent will invest
the dividend amount in newly issued shares on behalf of the
participant. The number of newly issued shares of Common Stock to
be credited to the participant's account will be determined by
dividing the dollar amount of the dividend by the net asset value
per share on the date the shares are issued, provided that the
maximum discount from the then current market price per share on the
date of issuance may not exceed 5%. If on the dividend payment date
the net asset value per share is greater than the market value (such
condition being referred to herein as "market discount"), the Plan
Agent will invest the dividend amount in shares acquired on behalf
of the participant in open-market purchases.
In the event of a market discount on the dividend payment date, the
Plan Agent will have until the last business day before the next
date on which the shares trade on an "ex-dividend" basis or in no
event more than 30 days after the dividend payment date (the "last
purchase date") to invest the dividend amount in shares acquired in
open-market purchases. It is contemplated that the Fund will pay
monthly income dividends. Therefore, the period during which open-
market purchases can be made will exist only from the payment date
on the dividend through the date before the next "ex-dividend" date,
which typically will be approximately ten days. If, before the Plan
Agent has completed its open-market purchases, the market price of
a share of Common Stock exceeds the net asset value per share,
the average per share purchase price paid by the Plan Agent may
exceed the net asset value of the Fund's shares, resulting in the
acquisitions of fewer shares than if the dividend had been paid in
newly issued shares on the dividend payment date. Because of the
foregoing difficulty with respect to open-market purchases, the
Plan provides that if the Plan Agent is unable to invest the full
dividend amount in open-market purchases during the purchase period
or if the market discount shifts to a market premium during the
purchase period, the Plan Agent will cease making open-market
purchases and will invest the uninvested portion of the dividend
amount in newly issued shares at the close of business on the last
purchase date determined by dividing the uninvested portion of the
dividend by the net asset value per share.
The Plan Agent maintains all shareholders' accounts in the Plan and
furnishes written confirmation of all transactions in the account,
including information needed by shareholders for tax records. Shares
in the account of each Plan participant will be held by the Plan
Agent in non-certificated form in the name of the participant, and
each shareholder's proxy will include those shares purchased or
received pursuant to the Plan. The Plan Agent will forward all proxy
solicitation materials to participants and vote proxies for shares
held pursuant to the Plan in accordance with the instructions of the
participants.
MUNI INTERMEDIATE DURATION FUND, INC., MAY 31, 2004
In the case of shareholders such as banks, brokers or nominees
which hold shares of others who are the beneficial owners, the
Plan Agent will administer the Plan on the basis of the number of
shares certified from time to time by the record shareholders as
representing the total amount registered in the record shareholder's
name and held for the account of beneficial owners who are to
participate in the Plan.
There will be no brokerage charges with respect to shares issued
directly by the Fund as a result of dividends or capital gains
distributions payable either in shares or in cash. However, each
participant will pay a pro rata share of brokerage commissions
incurred with respect to the Plan Agent's open-market purchases in
connection with the reinvestment of dividends.
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.
Shareholders participating in the Plan may receive benefits not
available to shareholders not participating in the Plan. If the
market price plus commissions of the Fund's shares is above the
net asset value, participants in the Plan will receive shares of
the Fund at less than they could otherwise purchase them and will
have shares with a cash value greater than the value of any cash
distribution they would have received on their shares. If the market
price plus commissions is below the net asset value, participants
will receive distributions in shares with a net asset value greater
than the value of any cash distribution they would have received on
their shares. However, there may be insufficient shares available in
the market to make distributions in shares at prices below the net
asset value. Also, since the Fund does not redeem shares, the price
on resale may be more or less than the net asset value.
The value of shares acquired pursuant to the Plan will generally be
excluded from gross income to the extent that the cash amount
reinvested would be excluded from gross income. If, when the Fund's
shares are trading at a premium over net asset value, the Fund
issues 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 such discount (which may not exceed 5% of the fair
market value of the 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.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the
Plan. There is no direct service charge to participants in the Plan;
however, the Fund reserves the right to amend the Plan to include a
service charge payable by the participants.
All correspondence concerning the Plan should be directed to the
Plan Agent at EquiServe, P.O. Box 43010, Providence, RI 02940-3010,
Telephone: 800-426-5523.
MUNI INTERMEDIATE DURATION FUND, INC., MAY 31, 2004
Officers and Directors (unaudited)
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
Terry K. Glenn* President 2003 to President of the Merrill Lynch Investment 126 Funds None
P.O. Box 9011 and present Managers, L.P. ("MLIM")/Fund Asset 161 Portfolios
Princeton, Director Management, L.P. ("FAM")--Advised Funds
NJ 08543-9011 since 1999; Chairman (Americas Region)
Age: 63 of MLIM from 2000 to 2002; Executive Vice
President of MLIM and FAM (which terms as
used herein include their corporate
predecessors) from 1983 to 2002; President
of FAM Distributors, Inc. ("FAMD") from
1986 to 2002 and Director thereof from 1991
to 2002; Executive Vice President and
Director of Princeton Services, Inc.
("Princeton Services") from 1993 to 2002;
President of Princeton Administrators, L.P.
from 1989 to 2002; Director of Financial Data
Services, Inc. since 1985.
* Mr. Glenn 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. Glenn is an "interested person," as
described in the Investment Company Act, of the Fund based on his
former positions with MLIM, FAM, FAMD, Princeton Services and
Princeton Administrators, L.P. The Director's term is unlimited.
Directors serve until their resignation, removal or death, or until
December 31 of the year in which they turn 72. As Fund President,
Mr. Glenn serves at the pleasure of the Board of Directors.
MUNI INTERMEDIATE DURATION FUND, INC., MAY 31, 2004
Officers and Directors (unaudited)(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*
Donald W. Burton Director 2003 to General Partner of the Burton Partnership, 23 Funds ITC DeltaCom,
P.O. Box 9095 present Limited Partnership (an investment 36 Portfolios Inc.; ITC
Princeton, partnership) since 1979; Managing General Holding
NJ 08543-9095 Partner of The South Atlantic Venture Funds Company, Inc.;
Age: 60 since 1983; Member of the Investment Advisory Knology, Inc.;
Committee of the Florida State Board of MainBancorp,
Administration since 2001. N.A.; PriCare,
Inc.; Symbion,
Inc.
M. Colyer Crum Director 2003 to James R. Williston Professor of Investment 24 Funds Cambridge
P.O. Box 9095 present Management Emeritus, Harvard Business 37 Portfolios Bancorp
Princeton, School since 1996; James R. Williston
NJ 08543-9095 Professor of Investment Management,
Age: 71 Harvard Business School from 1971 to 1996.
Laurie Simon Hodrick Director 2003 to Professor of Finance and Economics, Graduate 23 Funds None
P.O. Box 9095 present School of Business, Columbia University 36 Portfolios
Princeton, since 1998; Associate Professor of Finance
NJ 08543-9095 and Economics, Graduate School of Business,
Age: 41 Columbia University from 1996 to 1998.
David H. Walsh Director 2003 to Consultant with Putnam Investments since 23 Funds None
P.O. Box 9095 present 1993 and employed in various capacities 36 Portfolios
Princeton, therewith from 1973 to 1992; Director,
NJ 08543-9095 The National Audubon Society since 1998;
Age: 62 Director, The American Museum of Fly
Fishing since 1997.
Fred G. Weiss Director 2003 to Managing Director of FGW Associates since 23 Funds Watson
P.O. Box 9095 present 1997; Vice President, Planning, Investment 36 Portfolios Pharmaceuticals,
Princeton, and Development of Warner Lambert Co. from Inc.
NJ 08543-9095 1979 to 1997; Director of Michael J. Fox
Age: 62 Foundation for Parkinson's Research;
Director of BTG International PLC
(a global technology commercialization
company) since 2001.
* The Director's term is unlimited. Directors serve until their
resignation, removal or death, or until December 31 of the year in
which they turn 72.
MUNI INTERMEDIATE DURATION FUND, INC., MAY 31, 2004
Officers and Directors (unaudited)(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 1993 to First Vice President of MLIM and FAM since 1997 and Treasurer thereof since
P.O. Box 9011 President present 1999; Senior Vice President and Treasurer of Princeton Services since 1999;
Princeton, and and Vice President of FAMD since 1999; Director of MLIM Taxation since 1990.
NJ 08543-9011 Treasurer 1999 to
Age: 43 present
Kenneth A. Jacob Senior 2002 to Managing Director of MLIM since 2000; Director (Municipal Tax-Exempt Fund
P.O. Box 9011 Vice present Management) of MLIM from 1997 to 2000.
Princeton, President
NJ 08543-9011
Age: 53
Robert A. DiMella Vice 2003 to Vice President of MLIM since 1997.
P.O. Box 9011 President present
Princeton,
NJ 08543-9011
Age: 34
Phillip S. Gillespie Secretary 2003 to First Vice President of MLIM since 2001; Director (Legal Advisory) from 2000
P.O. Box 9011 present to 2001; Vice President from 1999 to 2000 and Attorney associated with MLIM
Princeton, since 1998.
NJ 08543-9011
Age: 40
* Officers of the Fund serve at the pleasure of the Board of
Directors.
Custodian
State Street Bank and
Trust Company
P.O. Box 351
Boston, MA 02101
Transfer Agents
Common Stock:
EquiServe
P.O. Box 43010
Providence, RI 02940-3010
Preferred Stock:MUI
The Bank of New York
101 Barclay Street-7 West
New York, NY 10286
NYSE Symbol
MUNI INTERMEDIATE DURATION FUND, INC., MAY 31, 2004
Important Tax Information (unaudited)
All of the net investment income distributions paid monthly by Muni
Intermediate Duration Fund, Inc. during the taxable year ended May
31, 2004 qualify as tax-exempt interest dividends for Federal income
tax purposes.
Please retain this information for your records.
Electronic Delivery
The Fund offers electronic delivery of communications to its
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 website
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.
MUNI INTERMEDIATE DURATION FUND, INC., MAY 31, 2004
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) Donald W. Burton, (2) M. Colyer Crum, (3) Laurie
Simon Hodrick, (4) David H. Walsh and (5) Fred G. Weiss.
The registrant's board of directors has determined that Laurie Simon
Hodrick and M. Colyer Crum qualify as financial experts pursuant to
Item 3(c)(4) of Form N-CSR.
Ms. Hodrick has a thorough understanding of generally accepted
accounting principals, financial statements, and internal controls
and procedures for financial reporting. Ms. Hodrick earned a Ph.D.
in economics and has taught courses in finance for over 15 years.
Her M.B.A.-level course centers around the evaluation and analysis
of firms' corporate financial statements. She has also taught in
financial analysts' training programs. Ms. Hodrick has also worked
with several prominent corporations in connection with the analysis
of financial forecasts and projections and analysis of the financial
statements of those companies, serving on the Financial Advisory
Council of one of these major corporations. She has also served as
the Treasurer and Finance Chair of a 501(c)(3) organization. Ms.
Hodrick has published a number of articles in leading economic and
financial journals and is the associate editor of two leading
finance journals.
M. Colyer Crum also possesses a thorough understanding of generally
accepted accounting principals, financial statements, and internal
controls and procedures for financial reporting through a
combination of education and experience. Professor Crum was a
professor of investment management at the Harvard Business School
for 25 years. The courses taught by Professor Crum place a heavy
emphasis on the analysis of underlying company financial statements
with respect to stock selection and the analysis of credit risk in
making loans. Professor Crum has also served on a number of boards
of directors and has served on the audit committees, and in some
cases chaired the audit committee, for several major corporations
and financial institutions. For two such organizations, Professor
Crum has performed extensive investment analysis of financial
statements in connection with investment management decisions. From
these experiences, he has gained significant experience with the
establishment of reserves and accounting policies, differences
between U.S. GAAP and Canadian GAAP and executive compensation
issues.
Item 4 - Principal Accountant Fees and Services
(a) Audit Fees - Fiscal Year Ending May 31, 2004 - $38,500
Fiscal Year Ending May 31, 2003 - N/A
(b) Audit-Related Fees - Fiscal Year Ending May 31, 2004 - $28,000
Fiscal Year Ending May 31, 2003 - $N/A
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 May 31, 2004 - $5,200
Fiscal Year Ending May 31, 2003 - $N/A
The nature of the services include tax compliance, tax advice and
tax planning.
(d) All Other Fees - Fiscal Year Ending May 31, 2004 - $0
Fiscal Year Ending May 31, 2003 - $N/A
(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 the
project as a whole. 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 May 31, 2004 - $8,200
Fiscal Year Ending May 31, 2003 - $100,000
(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) - $541,640, 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)):
Donald W. Burton
M. Colyer Crum
Laurie Simon Hodrick
David H. Walsh
Fred G. Weiss
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:
* 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.
* 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.
* 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.
* 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.
* 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.
* Routine proposals related to requests regarding the formalities of
corporate meetings.
* 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.
* 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 - Purchases of Equity Securities by Closed-End Management
Investment Company and Affiliated Purchasers - Not Applicable
Item 9 - Submission of Matters to a Vote of Security Holders - Not
Applicable
Item 10 - Controls and Procedures
10(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.
10(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 11 - Exhibits attached hereto
11(a)(1) - Code of Ethics - See Item 2
11(a)(2) - Certifications - Attached hereto
11(a)(3) - Not Applicable
11(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.
Muni Intermediate Term Duration Fund, Inc.
By: _/s/ Terry K. Glenn_______
Terry K. Glenn,
President of
Muni Intermediate Term Duration Fund, Inc.
Date: July 19, 2004
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/ Terry K. Glenn________
Terry K. Glenn,
President of
Muni Intermediate Term Duration Fund, Inc.
Date: July 19, 2004
By: _/s/ Donald C. Burke________
Donald C. Burke,
Chief Financial Officer of
Muni Intermediate Term Duration Fund, Inc.
Date: July 19, 2004