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 Duration Fund, Inc.
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Robert C. Doll, Jr., Chief Executive
Officer, Muni Intermediate 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: 05/31/06
Date of reporting period: 06/01/05 - 05/31/06
Item 1 - Report to Stockholders
Annual Reports
May 31, 2006
Muni Intermediate Duration Fund, Inc.
Muni New York Intermediate Duration Fund, Inc.
(BULL LOGO) Merrill Lynch Investment Managers
www.mlim.ml.com
Mercury Advisors
A Division of Merrill Lynch Investment Managers
www.mercury.ml.com
These reports, including the financial information herein, are transmitted
to shareholders of Muni Intermediate Duration Fund, Inc. and Muni New York
Intermediate Duration Fund, Inc. for their information. This is not a
prospectus. The Funds have leveraged their Common Stock and intend to remain
leveraged by issuing Preferred Stock to provide the Common Stock shareholders
with potentially higher rates of return. Leverage creates risks for Common
Stock shareholders, including the likelihood of greater volatility of net
asset value and market price of shares of the Common Stock, and the risk that
fluctuations in the short-term dividend rates of the Preferred Stock may
affect the yield to Common Stock shareholders. Past performance results shown
in these reports 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 Funds use to determine
how to vote proxies relating to portfolio securities is available (1)
without charge, upon request, by calling toll-free 1-800-637-3863; (2) at
www.mutualfunds.ml.com; and (3) on the Securities and Exchange Commission's
Web site at http://www.sec.gov. Information about how the Funds voted proxies
relating to securities held in the Funds' portfolios during the most recent
12-month period ended June 30 is available (1) at www.mutualfunds.ml.com; and
(2) on the Securities and Exchange Commission's Web site at http://www.sec.gov.
Muni Intermediate Duration Fund, Inc.
Muni New York Intermediate Duration Fund, Inc.
Box 9011
Princeton, NJ 08543-9011
(GO PAPERLESS LOGO)
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Muni Intermediate Duration Fund, Inc.
Muni New York Intermediate Duration Fund, Inc.
Announcement to Shareholders
On February 15, 2006, BlackRock, Inc. ("BlackRock") and Merrill Lynch & Co.,
Inc. ("Merrill Lynch") entered into an agreement to contribute Merrill Lynch's
investment management business, Merrill Lynch Investment Managers, L.P. and
certain affiliates (including Fund Asset Management, L.P. and Merrill Lynch
Investment Managers International Limited), to BlackRock to create a new
independent company ("New BlackRock") that will be one of the world's largest
asset management firms with approximately $1 trillion in assets under
management (based on combined assets under management as of March 31, 2006)
(the "Transaction"). The Transaction is expected to close in the third quarter
of 2006, at which time the new company will operate under the BlackRock name.
The Board of Directors of each Fund has approved a new investment advisory
agreement with BlackRock Advisors, Inc. or its successor on substantially the
same terms and for the same advisory fee as the current investment advisory
agreement with the Investment Adviser. If the new agreement is approved by the
Funds' shareholders, BlackRock Advisors, Inc. or its successor is expected to
become the investment adviser of the Funds upon the closing of the
Transaction.
Quality Profiles as of May 31, 2006
Percent of
Muni Intermediate Duration Fund, Inc. Total
By S&P/Moody's Rating Investments
AAA/Aaa 38.5%
AA/Aa 4.5
A/A 14.0
BBB/Baa 16.9
BB/Ba 5.1
B/B 1.2
CCC/Caa 1.6
NR (Not Rated) 13.6
Other* 4.6
* Includes portfolio holdings in variable rate demand notes.
Muni New York Intermediate Percent of
Duration Fund, Inc. Total
By S&P/Moody's Rating Investments
AAA/Aaa 36.0%
AA/Aa 18.2
A/A 9.3
BBB/Baa 15.8
BB/Ba 8.5
CCC/Caa 2.5
NR (Not Rated) 5.3
Other* 4.4
* Includes portfolio holdings in anticipation notes and
short-term investments.
ANNUAL REPORTS MAY 31, 2006
A Letter From the President
Dear Shareholder
You may be aware that changes are on the horizon at Merrill Lynch Investment
Managers ("MLIM"). Earlier this year, Merrill Lynch announced plans to combine
its investment advisory business, including MLIM, with another highly regarded
investment manager - BlackRock, Inc. ("BlackRock").
At the completion of the transaction, which is expected at the end of the
third quarter of this year (subject to regulatory and shareholder approvals),
the resultant firm will be a top-10 investment manager worldwide with
approximately $1 trillion in assets under management.* The combined company
will provide a wider selection of high-quality investment solutions across a
range of asset classes and investment styles. MLIM and BlackRock possess
complementary capabilities that together create a well-rounded organization
uniting some of the finest money managers in the industry. At the same time,
the firms share similar values and beliefs - they are focused on delivering
excellence on behalf of clients, and both make investment performance their
single most important mission. In short, the combination only reinforces our
commitment to shareholders.
Most of MLIM's investment products - including mutual funds, separately
managed accounts, annuities and variable insurance funds - eventually will
carry the "BlackRock" name. As a shareholder in one or more MLIM-advised
mutual funds, you recently were mailed a proxy package asking you to vote on
proposed changes that affect those funds. The proposals vary based on the
funds in which you invest. However, all shareholders are asked to vote on a
new investment advisory agreement with BlackRock Advisors, Inc. Your Fund's
Board of Directors has approved, and recommends that you approve, the new
agreement. Your Fund's Board also has approved, and recommends that you
approve, a contingent subadvisory agreement that will serve to ensure that
management services can continue during the course of completing the
transaction.
It is important that you exercise your right as a mutual fund shareholder by
voting on the proposals that are presented to you in your funds' proxy
statements. Your participation - via phone, mail, online or in person - is
critical. (Refer to your proxy card for detailed voting procedures and
deadlines.) You should know that your vote on these proposals will not affect
your brokerage account or change your relationship with your financial
advisor. If you are a client of Merrill Lynch, you will remain a client of
Merrill Lynch.
Should you have any questions or concerns, please do not hesitate to call
1.866.752.6486.
As always, we thank you for entrusting us with your investment assets, and we
look forward to continuing to serve your investment needs with even greater
strength and scale as the new BlackRock.
Sincerely,
(Robert C. Doll, Jr.)
Robert C. Doll, Jr.
President and Chief Investment Officer
Merrill Lynch Investment Managers
* $1.039 trillion in assets under management as of March 31, 2006.
ANNUAL REPORTS MAY 31, 2006
A Discussion With Your Funds' Portfolio Managers
The Funds outperformed the average return of the Lipper Intermediate Debt Fund
category for the fiscal year, benefiting from their exposure to longer-dated
bonds and lower-quality, higher-yielding municipal credits.
Describe the recent market environment relative to municipal bonds.
Long-term bond yields rose sharply during the 12-month period, with much of
the increase occurring in the final three months. Bond prices, which move
opposite of yields, declined. Bond prices were pressured as investors focused
on solid economic growth, both globally and in the United States, and renewed
inflationary pressures deriving from rising commodity prices. First quarter
2006 gross domestic product growth was recently revised upward to 5.3%, well
above the 1.7% rate recorded in the fourth quarter of 2005.
The Federal Reserve Board (the Fed) continued to raise short-term interest
rates at each of its meetings during the past year, bringing the federal funds
target rate to 5% at period-end. Consequently, the yield curve continued to
flatten, with short-term interest rates rising more than longer-term interest
rates. Over the past 12 months, 30-year U.S. Treasury bond yields rose 89
basis points (.89%) to 5.21% and 10-year U.S. Treasury note yields rose 112
basis points to 5.12%, the highest level since May 2002.
While municipal bond yields also rose sharply in recent months, the market's
strong technical position provided significant price support and allowed
municipal bond prices to decline much less than their taxable counterparts. As
measured by Municipal Market Data, yields on AAA-rated issues maturing in 30
years rose 27 basis points to 4.53% and yields on AAA-rated issues maturing in
10 years rose 53 basis points to 4.02%, resulting in some additional
flattening of the municipal yield curve as well.
For the most part, the recent outperformance of the tax-exempt market has been
fostered by a dramatic decline in new bond issuance so far in 2006. In 2005,
more than $408 billion in new long-term tax-exempt bonds was underwritten, a
new annual record and an increase of over 13% versus 2004. Over the past six-
month and three-month periods, new-issue volume declined 13.4% and 11%,
respectively, compared to the corresponding periods a year ago. The record new
issuance in 2005 was largely triggered by a 47% increase in refunding activity
as issuers took advantage of historically low bond yields and a flattening
yield curve to refinance their outstanding higher-couponed debt. Year-to-date
through May 2006, refunding volume declined over 55% relative to the first
five months of 2005. This decline led some analysts to reduce their forecasts
for 2006 new issuance from the $350 billion - $370 billion range to the $300
billion - $325 billion range. Lower annual issuance would further solidify the
tax-exempt market's already positive technical position.
The tax-exempt market has continued to enjoy strong investor demand. As
reported by the Investment Company Institute (ICI), long-term municipal bond
funds received net new monies of $5.04 billion in 2005 - a sharp reversal from
the $3.67 billion outflow in 2004. ICI reports that during the first four
months of 2006, tax-exempt mutual funds continued to experience cash flows of
over $5.9 billion, significantly higher than the $689 million received during
the same period in 2005. Recent statistics from AMG Data Services have
indicated that, thus far in 2006, weekly cash flows into long-term municipal
bond funds averaged over $275 million, a significant improvement from the
weekly average of $65 million in December 2005.
Looking ahead, the fundamentals for the municipal market appear positive.
Demand is expected to be sustained as investors receive cash flow from coupon
income and the proceeds of bond maturities and calls. In addition, new
issuance should be manageable. The favorable supply/demand dynamic, coupled
with attractive yields relative to comparable U.S. Treasury bonds, should
continue to support the municipal market in the coming months.
Muni Intermediate Duration Fund, Inc.
How did the Fund perform during the fiscal year?
For the 12-month period ended May 31, 2006, the Common Stock of Muni
Intermediate Duration Fund, Inc. had net annualized yields of 5.54% and 5.75%,
based on a year-end per share net asset value of $15.07 and a per share market
price of $14.52, respectively, and $.835 per share income dividends. Over the
same period, the total investment return on the Fund's Common Stock was
+4.71%, based on a change in per share net asset value from $15.51 to $15.07,
and assuming reinvestment of all distributions.
ANNUAL REPORTS MAY 31, 2006
The Fund's total return, based on net asset value, exceeded the +2.28%
average return of the Lipper Intermediate Municipal Debt Funds category for
the 12-month period. (Funds in this Lipper category invest in municipal debt
issues with dollar-weighted average maturities of 5 years - 10 years.)
Previously, Lipper had placed the Fund in the General Municipal Debt Funds
(Leveraged) category, which contains funds that invest in various maturity
ranges.
Fund performance benefited from the continued contraction of credit spreads in
the municipal market, which had a favorable impact on our positions in tax-
backed and corporate-related debt, where we have a significant concentration,
as well as our exposure to health care-related and land-secured bonds. The
greatest contribution to performance came from the Fund's positions in airline-
related debt. While this sector lagged in the first six months, airlines
resumed a strong rally in the latter half of the fiscal year that resulted in
considerable spread tightening. This proved beneficial to some of our larger
holdings in Continental Airlines Inc. and American Airlines Inc. Also
contributing to performance was strong appreciation in the portfolio's
holdings in the bonds of Pocahontas Parkway, a toll road in Virginia that was
constructed within the past few years. The road has been signed over to an
infrastructure financing entity, with the transaction expected to close in the
summer. Given this development, the toll road's outstanding debt is expected
to be defeased (or called at its first call date), which has resulted in a
price increase in the existing bonds. Finally, our yield curve strategy also
proved advantageous. For most of the year, we had an overweight position in
bonds with maturities greater than 20 years. This benefited performance as the
yield curve flattened and longer-term bonds outperformed short-term issues.
For the six-month period ended May 31, 2006, the total investment return on
the Fund's Common Stock was +3.54%, based on a change in per share net asset
value from $15.22 to $15.07, and assuming reinvestment of all distributions.
For a description of the Fund's total investment return based on a change in
the per share market value of the Fund's Common Stock (as measured by the
trading price of the Fund's shares on the New York Stock Exchange), and
assuming reinvestment of dividends, please refer to the Financial Highlights
section of this report. As a closed-end fund, the Fund's shares may trade in
the secondary market at a premium or discount to the Fund's net asset value.
As a result, total investment returns based on changes in the market value of
the Fund's Common Stock may vary significantly from total investment returns
based on changes in the Fund's net asset value.
What changes were made to the portfolio during the period?
Broadly speaking, we moved the portfolio from a slightly defensive stance to
more of a neutral posture as the Fed appeared to be approaching a pause in its
interest rate-hiking campaign. Although both the Treasury and the municipal
yield curves continued to flatten during the past 12 months, the move was not
nearly as dramatic as we have seen in previous periods. Notably, the municipal
curve retained a positive slope, particularly relative to the Treasury curve
which actually inverted early in 2006, and this contributed to the market's
and the Fund's positive performance.
The Fund maintained its focus on refundable, essential service securities from
high-demand states. A lack of new-issue supply and increased demand for
municipal bonds has caused spreads to narrow in all sectors of the municipal
market. We took advantage of these tight spreads to move the Fund's exposure
to spread product to neutral while increasing its position in bonds exempt
from tax in specialty states. We believe this strategy should prove beneficial
with any shift in the demand/supply imbalance in both the high yield sector
and the broader municipal market.
For the six months ended May 31, 2006, the average yield for the Fund's
Auction Market Preferred Stock (AMPS) was 3.13% for Series M7; 3.20% for
Series T7; 3.16% for Series W7; 3.14% for Series TH7; 3.16% for Series F7; and
3.37% for Series TH28. The Fed raised the short-term interest rate target 200
basis points during the 12-month period, and this continued to affect the
Fund's borrowing costs. We would expect additional increases in the cost of
funds to be more limited as the Fed nears a pause in its monetary tightening
campaign. Despite the interest rate increases during the period, the tax-
exempt yield curve maintained a positive slope, allowing us to borrow at a
lower interest rate than where we invest. This continued to generate an income
benefit to the holders of Common Stock from the leveraging of Preferred Stock.
However, should the spread between short-term and long-term interest rates
narrow, the benefits of leveraging will decline and, as a result, reduce the
yield on the Fund's Common Stock. At the end of the period, the Fund's
leverage amount, due to AMPS, was 35.83% of total net assets, before the
deduction of Preferred Stock. (For a more complete explanation of the benefits
and risks of leveraging, see page 8 of this report to shareholders.)
ANNUAL REPORTS MAY 31, 2006
A Discussion With Your Funds' Portfolio Managers (concluded)
How would you characterize the Fund's position at the close of the period?
We remain focused on generating an attractive level of tax-exempt income for
our shareholders. The Fund ended the period fully invested and with an overall
neutral market posture. After 17 consecutive interest rate hikes, the Fed may
be near a pause in its monetary tightening program. However, global economies
and certain pockets of the U.S. economy continue to show solid growth, leading
us to believe that it still may be early to become too aggressive. We believe
a neutral posture is prudent in the current environment and should provide for
competitive performance.
Muni New York Intermediate Duration Fund, Inc.
Describe conditions in the State of New York.
In December, credit-rating agency Moody's upgraded New York's rating to Aa3,
the state's highest rating from Moody's since 1975. Standard & Poor's and
Fitch maintained ratings of AA and AA-, respectively, and all three agencies
assign a stable outlook to the state's ratings. The New York economy continues
to improve and revenue collections are increasing. State tax collections
remain largely dependent on the performance of the financial sector, but tax
receipts over the past few years have been strong.
New York's 2006 fiscal year ended on March 31, and preliminary operating
results indicate a $2 billion surplus and a $945 million rainy day fund. The
2006 budget had closed an estimated $4 billion deficit. The state finalized
the 2007 budget on April 26. The $112.5 billion budget includes roughly $850
million in tax cuts and applies almost $2 billion from the 2006 fiscal year
surplus toward out-year gaps. The budget also includes $700 million in school
operating aid as part of compliance with a court order on school funding. It
is unclear whether this amount, as well as additional capital grants and
bonding authority to New York City, will be sufficient in meeting the court
mandate.
Preliminary April 2006 employment numbers reflect a 0.6% increase from April
2005 levels. New York ranks fifth-highest among all states in per capita
income. Economic growth is disproportionately stronger in downstate New York,
while the upstate economy remains lackluster.
How did the Fund perform during the fiscal year?
For the 12-month period ended May 31, 2006, the Common Stock of Muni New York
Intermediate Duration Fund, Inc. had net annualized yields of 4.67% and 5.25%,
based on a year-end per share net asset value of $14.66 and a per share market
price of $13.03, respectively, and $.684 per share income dividends. Over the
same period, the total investment return on the Fund's Common Stock was
+2.52%, based on a change in per share net asset value from $15.05 to $14.66,
and assuming reinvestment of all distributions.
The Fund's total return, based on net asset value, exceeded the +2.28% average
return of the Lipper Intermediate Municipal Debt Funds category for the 12-
month period. (Funds in this Lipper category invest in municipal debt issues
with dollar-weighted average maturities of 5 years - 10 years.) Lipper
previously had placed the Fund in the New York Municipal Debt Funds category,
which included New York municipal bond funds of all durations. The new
category accounts for the Fund's intermediate duration profile, although there
will be some variance in returns given that the category includes national
funds as well as funds focused on single states other than New York.
Fund performance reflected our duration and yield curve strategies. Although
our relatively long duration hurt the Fund as interest rates rose late in the
fiscal year, this was overwhelmed by the fact that longer-maturity bonds,
where we focused our investment, outperformed as the yield curve flattened.
Not only did longer-maturity issues hold their value better than shorter-term
bonds, contributing to the Fund's total return, but they also offered higher
yields. Fund performance also benefited from our positions in lower-quality
credits, the market's best performers during the past year. These credits,
particularly airline- and tobacco-related debt, as well as lower-quality
hospital bonds, appreciated as spreads (versus higher-quality issues of
comparable maturity) tightened. They also offered greater income in what was a
yield-driven market.
Fund performance was hindered by our exposure to Puerto Rico debt, as these
bonds' prices suffered amid a declining credit situation in the commonwealth.
Other detractors included our positions in higher-quality bonds, which tend
to be lower yielding; discount bonds, which are priced to maturity and,
therefore, have longer durations than premium-coupon bonds; and intermediate-
maturity holdings, which underperformed as the curve flattened given their
relatively short maturities.
For the six-month period ended May 31, 2006, the total investment return on
the Fund's Common Stock was +2.50%, based on an unchanged per share net asset
value of $14.66, and assuming reinvestment of all distributions.
ANNUAL REPORTS MAY 31, 2006
For a description of the Fund's total investment return based on a change in
the per share market value of the Fund's Common Stock (as measured by the
trading price of the Fund's shares on the New York Stock Exchange), and
assuming reinvestment of dividends, please refer to the Financial Highlights
section of this report. As a closed-end fund, the Fund's shares may trade in
the secondary market at a premium or discount to the Fund's net asset value.
As a result, total investment returns based on changes in the market value of
the Fund's Common Stock may vary significantly from total investment returns
based on changes in the Fund's net asset value.
What changes were made to the portfolio during the period?
We continued our strategy of moving further out on the municipal yield curve
in an effort to increase the Fund's yield. Because the yield curve measures
maturity, not duration, we are able to add bonds with longer maturities
without necessarily extending duration. In some cases, our efforts were
limited by market conditions and the fact that some of our existing holdings
had higher yields than those currently available. Overall, this strategy
allowed the portfolio's average maturity to increase from just over 12 years
to just under 15 years, while the Fund's average duration increased less than
one year - from 4.99 years to 5.81 years.
Other themes pursued during the period included capitalizing on opportunities
to diversify the portfolio and augment yield. This included adding to our
exposure to lower-quality credits, although we passively reduced exposure to
the hospital sector as some of these bonds were called by their issuers prior
to maturity. To some extent, our ability to restructure the portfolio as we
would have liked was hampered by a decline in new issuance in 2006. For the
year, new municipal bond supply in New York was down 4.3% versus the same 12
months a year ago. The drop was even more pronounced in recent months, with
new issuance down 32% and 23% for the most recent six-month and three-month
periods, respectively.
For the six months ended May 31, 2006, the average yield for the Fund's
Auction Market Preferred Stock (AMPS) was 3.07%. The Fed raised the short-term
interest rate target 200 basis points during the 12-month period, and this
continued to affect the Fund's borrowing costs. We would expect additional
increases in the cost of funds to be more limited as the Fed nears a pause in
its monetary tightening campaign. Despite the interest rate increases during
the period, the tax-exempt yield curve maintained a positive slope, allowing
us to borrow at a lower rate than where we invest. This continued to generate
an income benefit to the holders of Common Stock from the leveraging of
Preferred Stock. However, should the spread between short-term and long-term
interest rates narrow, the benefits of leveraging will decline and, as a
result, reduce the yield on the Fund's Common Stock. At the end of the period,
the Fund's leverage amount, due to AMPS, was 33.44% of total net assets,
before the deduction of Preferred Stock. (For a more complete explanation of
the benefits and risks of leveraging, see page 8 of this report to
shareholders.)
How would you characterize the Fund's position at the close of the period?
After 17 consecutive interest rate hikes, investors appear to be getting more
comfortable with the idea that the monetary tightening campaign is nearing an
end, despite some uncertain rhetoric from Fed Chairman Ben Bernanke. Still,
the economy is showing signs of weakness, including slowdowns in housing,
manufacturing and employment. The wildcard, and the variable on which the Fed
is focused, is inflation.
Against this backdrop, the Fund ended the period with a duration neutral to
slightly longer than that of its peers. We believe the long end of the yield
curve still has some room to outperform and that our duration posture is
appropriate given that assumption. We also see further appreciation potential
in lower-quality issues. We are mindful of our duration parameters and would
expect to see value restored in the intermediate part of the curve once the
Fed pauses in its interest rate-hiking campaign. Overall, we will continue to
look for opportunities to diversify the Fund while also seeking to balance
yield and total return potential.
Robert A. DiMella, CFA
Vice President and Portfolio Manager
Muni Intermediate Duration Fund, Inc.
Timothy T. Browse, CFA
Vice President and Portfolio Manager
Muni New York Intermediate Duration Fund, Inc.
June 30, 2006
ANNUAL REPORTS MAY 31, 2006
The Benefits and Risks of Leveraging
The Funds utilize leveraging to seek to enhance the yield and net asset value
of their Common Stock. However, these objectives cannot be achieved in all
interest rate environments. To leverage, each Fund issues Preferred Stock,
which pays dividends at prevailing short-term interest rates, and invests
the proceeds in long-term municipal bonds. The interest earned on these
investments, 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 each Fund's Common
Stock. However, in order to benefit Common Stock shareholders, the yield curve
must be positively sloped; that is, short-term interest rates must be lower
than long-term interest rates. At the same time, a period of generally
declining interest rates will benefit Common Stock shareholders. If either
of these conditions change, then the risks of leveraging will begin to
outweigh the benefits.
To illustrate these concepts, assume a fund's Common Stock capitalization of
$100 million and the 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.
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 Funds may invest in certain
securities whose potential income return is inversely related to changes in a
floating interest rate ("inverse floaters"). In general, income on inverse
floaters will decrease when short-term interest rates increase and increase
when short-term interest rates decrease. Investments in inverse floaters may
be characterized as derivative securities and may subject the Funds to the
risks of reduced or eliminated interest payments and losses of invested
principal. In addition, inverse floaters have the effect of providing
investment leverage and, as a result, the market value of such securities will
generally be more volatile than that of fixed-rate, tax-exempt securities. To
the extent the Funds invest in inverse floaters, the market value of each
Fund's portfolio and the net asset value of each Fund's shares may also be
more volatile than if the Funds did not invest in such securities. As of May
31, 2006, the percentage of Muni Intermediate Duration Fund, Inc.'s total net
assets invested in inverse floaters was 3.71%, before the deduction of
Preferred Stock. As of May 31, 2006, none of Muni New York Intermediate
Duration Fund, Inc.'s total net assets was invested in inverse floaters.
Swap Agreements
The Funds may invest in swap agreements, which are over-the-counter contracts
in which one party agrees to make periodic payments based on the change in
market value of a specified bond, basket of bonds, or index in return for
periodic payments based on a fixed or variable interest rate or the change in
market value of a different bond, basket of bonds or index. Swap agreements
may be used to obtain exposure to a bond or market without owning or taking
physical custody of securities. Swap agreements involve the risk that the
party with whom each Fund has entered into the swap will default on its
obligation to pay the Funds and the risk that the Funds will not be able to
meet their obligations to pay the other party to the agreement.
ANNUAL REPORTS MAY 31, 2006
Schedule of Investments (In Thousands)
Muni Intermediate Duration Fund, Inc.
Face
Amount Municipal Bonds Value
Alabama--3.4%
Jefferson County, Alabama, Limited Obligation
School Warrants, Series A:
$ 5,500 5.50% due 1/01/2021 $ 5,875
6,500 5.25% due 1/01/2023 6,797
6,600 Tuscaloosa, Alabama, Special Care Facilities Financing
Authority, Residential Care Facility Revenue Bonds
(Capstone Village, Inc. Project), Series A, 5.625%
due 8/01/2025 6,621
Arizona--2.1%
2,820 Maricopa County, Arizona, IDA, Education Revenue
Bonds (Arizona Charter Schools Project 1), Series A,
6.625% due 7/01/2020 2,812
3,000 Navajo County, Arizona, IDA, IDR (Stone Container
Corporation Project), AMT, 7.20% due 6/01/2027 3,098
Pima County, Arizona, IDA, Education Revenue Bonds
(Arizona Charter Schools Project):
1,000 Series C, 6.70% due 7/01/2021 1,051
1,750 Series K/L, 6.375% due 7/01/2031 1,809
3,630 Vistancia Community Facilities District, Arizona, GO,
5% due 7/15/2014 3,563
Arkansas--0.7%
3,755 Conway, Arkansas, Public Facilities Board, Capital
Improvement Revenue Refunding Bonds (Hendrix
College Projects), Series B, 5% due 10/01/2026 3,824
California--25.9%
8,865 California Pollution Control Financing Authority, PCR,
Refunding, DRIVERS, AMT, Series 878Z, 7.143%
due 12/01/2009 (g)(j) 9,838
5,000 California State Department of Water Resources,
Power Supply Revenue Bonds, Series A, 5.375%
due 5/01/2012 (h) 5,469
California State, GO:
1,910 5.50% due 4/01/2014 (h) 2,116
15,590 5.50% due 4/01/2028 16,908
5,000 California State, GO, Refunding, 5.25%
due 2/01/2027 (g) 5,254
10,000 California State Public Works Board, Lease Revenue
Bonds (Department of Corrections), Series C, 5.50%
due 6/01/2020 10,782
2,500 California Statewide Communities Development
Authority, Health Facility Revenue Bonds
(Memorial Health Services), Series A, 6%
due 10/01/2023 2,713
2,400 Elk Grove, California, Poppy Ridge Community
Facilities Number 3, Special Tax, Series 1, 6%
due 9/01/2008 (h) 2,527
Face
Amount Municipal Bonds Value
California (concluded)
$ 6,440 Grossmont-Cuyamaca Community College District,
California, GO (Election of 2002), Series A, 5%
due 8/01/2027 (g) $ 6,627
Los Angeles, California, Unified School District, GO:
10,485 (Election of 1997), Series F, 5% due 7/01/2025 (d) 10,851
26,575 Series A, 5% due 1/01/2028 (g) 27,428
5,850 Ontario-Montclair, California, School District, GO
(Election of 2002), Series A, 5% due 8/01/2027 (d) 6,022
10,135 Peralta, California, Community College District, GO
(Election of 2000), Series D, 5% due 8/01/2030 (f) 10,473
1,515 Rowland, California, Unified School District, GO
(Election of 2000), Series B, 5.25% due 8/01/2027 (f) 1,597
Sacramento, California, Special Tax (North Natomas
Community Facilities), Series 4-C:
585 5.60% due 9/01/2020 614
1,720 5.75% due 9/01/2022 1,817
500 5.90% due 9/01/2023 532
3,000 6% due 9/01/2028 3,194
3,000 San Jose, California, Airport Revenue Bonds, Series A,
5.25% due 3/01/2017 (d) 3,167
3,100 San Jose, California, GO (Libraries, Parks and Public
Safety Projects), 5% due 9/01/2030 (g) 3,185
9,030 Sequoia, California, Unified High School District, GO,
Refunding, Series B, 5.50% due 7/01/2035 (f) 9,870
4,875 Tamalpais, California, Union High School District, GO
(Election of 2001), 5% due 8/01/2028 (f) 5,017
2,610 Tustin, California, Unified School District, Senior Lien
Special Tax Bonds (Community Facilities District
Number 97-1), Series A, 5% due 9/01/2032 (f) 2,667
Colorado--2.6%
2,000 Denver, Colorado, City and County Airport Revenue
Refunding Bonds, Series E, 5.25% due 11/15/2023 (g) 2,055
900 Elk Valley, Colorado, Public Improvement Revenue
Bonds (Public Improvement Fee), Series A, 7.10%
due 9/01/2014 961
2,250 Montrose, Colorado, Memorial Hospital, Revenue Bonds,
6.375% due 12/01/2023 2,477
7,500 Plaza Metropolitan District Number 1, Colorado, Tax
Allocation Revenue Bonds (Public Improvement Fees),
7.50% due 12/01/2015 8,223
1,000 Southlands, Colorado, Medical District, GO (Metropolitan
District Number 1), 6.75% due 12/01/2016 1,093
Connecticut--1.7%
1,160 Connecticut State Development Authority, Airport Facility
Revenue Bonds (LearJet Inc. Project), AMT, 7.95%
due 4/01/2026 1,379
8,000 Connecticut State Development Authority, PCR, Refunding
(Connecticut Light and Power Company), Series A,
5.85% due 9/01/2028 8,408
Portfolio Abbreviations
To simplify the listings of portfolio holdings in the Schedules of
Investments, we have abbreviated the names of many of the securities
according to the list at right.
AMT Alternative Minimum Tax (subject to)
DRIVERS Derivative Inverse Tax-Exempt Receipts
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
ANNUAL REPORTS MAY 31, 2006
Schedule of Investments (continued) (In Thousands)
Muni Intermediate Duration Fund, Inc.
Face
Amount Municipal Bonds Value
Florida--4.2%
$ 2,935 Harbor Bay, Florida, Community Development District,
Capital Improvement Special Assessment Bonds,
6.75% due 5/01/2034 $ 3,183
2,110 Heritage Isle at Viera Community Development District,
Florida, Special Assessment Bonds, Series B, 5%
due 11/01/2009 2,110
Midtown Miami, Florida, Community Development
District, Special Assessment Revenue Bonds:
3,500 Series A, 6% due 5/01/2024 3,774
2,000 Series B, 6.50% due 5/01/2037 2,201
3,670 Orange County, Florida, Health Facilities Authority, Health
Care Revenue Refunding Bonds (Orlando Lutheran
Towers), 5% due 7/01/2013 3,594
930 Orlando, Florida, Urban Community Development District,
Capital Improvement Special Assessment Bonds, 6%
due 5/01/2020 1,000
1,085 Portofino Shores, Florida, Community Development
District, Special Assessment Bonds, Series A, 6.40%
due 5/01/2034 1,148
1,500 Sarasota County, Florida, Public Hospital Board, Hospital
Revenue Bonds (Sarasota Memorial Hospital), VRDN,
Series A, 3.58% due 7/01/2037 (a)(i) 1,500
2,390 South Lake County, Florida, Hospital District Revenue
Bonds (South Lake Hospital Inc.), 6.625%
due 10/01/2023 2,649
645 Sterling Hill, Florida, Community Development District,
Capital Improvement Revenue Refunding Bonds,
Series B, 5.50% due 11/01/2010 650
2,060 Watergrass Community Development District, Florida,
Special Assessment Revenue Bonds, Series B, 4.875%
due 11/01/2010 2,052
Georgia--4.0%
1,500 Atlanta, Georgia, Tax Allocation Bonds (Atlantic Station
Project), 7.90% due 12/01/2024 1,662
Brunswick & Glynn County, Georgia, Development
Authority, First Mortgage Revenue Bonds (Coastal
Community Retirement Corporation Project),
Series A:
5,395 7.125% due 1/01/2025 5,470
2,800 7.25% due 1/01/2035 2,833
4,900 Burke County, Georgia, Development Authority, PCR,
Refunding (Oglethorpe Power Corporation), VRDN,
Series B, 3.54% due 1/01/2020 (a)(i) 4,900
4,500 Fulton County, Georgia, Residential Care Facilities,
Revenue Refunding Bonds (Canterbury Court Project),
Series A, 5.80% due 2/15/2018 4,566
Savannah, Georgia, EDA Revenue Bonds (Marshes of
Skidaway), First Mortgage, Series A:
1,245 6.25% due 1/01/2012 1,273
2,245 6.85% due 1/01/2019 2,317
Idaho--0.1%
465 Idaho Housing and Finance Association, S/F
Mortgage Revenue Bonds, AMT, Series F-2, 5.85%
due 7/01/2015 (e)(k) 466
Illinois--3.5%
2,510 Chicago, Illinois, O'Hare International Airport Revenue
Bonds, Third Lien, AMT, Series B-2, 6%
due 1/01/2029 (l) 2,756
6,000 Hodgkins, Illinois, Environmental Improvement Revenue
Bonds (Metro Biosolids Management LLC Project),
AMT, 5.90% due 11/01/2017 6,273
Face
Amount Municipal Bonds Value
Illinois (concluded)
$ 6,930 Illinois Development Finance Authority Revenue Bonds
(Community Rehabilitation Providers Facilities),
Series A, 6.625% due 7/01/2032 $ 7,409
1,800 Illinois State Finance Authority Revenue Bonds
(Landing at Plymouth Place Project), Series A,
6% due 5/15/2025 1,863
1,580 Village of Wheeling, Illinois, Revenue Bonds (North
Milwaukee/Lake-Cook Tax Increment Financing (TIF)
Redevelopment Project), 6% due 1/01/2025 1,523
Indiana--0.8%
4,300 Indiana Transportation Finance Authority, Highway
Revenue Bonds, Series A, 5% due 6/01/2028 (f) 4,407
Kansas--0.6%
3,500 Olathe, Kansas, Health Facilities Revenue Bonds
(Olathe Medical Center), VRDN, Series A, 3.52%
due 9/01/2032 (a)(i) 3,500
Louisiana--1.4%
2,695 Louisiana State, Gas and Fuels Tax Revenue Bonds,
Series A, 5% due 5/01/2030 (d) 2,761
5,000 Port New Orleans, Louisiana, IDR, Refunding (Continental
Grain Company Project), 6.50% due 1/01/2017 5,098
Maine--0.4%
1,965 Portland, Maine, Housing Development Corporation,
Senior Living Revenue Bonds (Avesta Housing
Development Corporation Project), Series A, 6%
due 2/01/2034 2,026
Maryland--0.1%
500 Maryland State Industrial Development Financing
Authority, Economic Development Revenue Bonds
(Our Lady of Good Counsel School), Series A, 6%
due 5/01/2035 529
Massachusetts--4.8%
4,560 Massachusetts Bay Transportation Authority, Sales Tax
Revenue Refunding Bonds, Senior Series A, 5%
due 7/01/2012 (h) 4,852
7,695 Massachusetts Bay Transportation Authority, Special
Assessment Revenue Refunding Bonds, Series A, 5%
due 7/01/2031 7,938
Massachusetts State Development Finance Agency,
Resource Recovery Revenue Bonds (Ogden Haverhill
Associates), AMT, Series B:
1,210 5.35% due 12/01/2015 1,239
2,000 5.50% due 12/01/2019 2,073
10,995 Massachusetts State School Building Authority,
Dedicated Sales Tax Revenue Bonds, Series A, 5%
due 8/15/2030 (f) 11,363
Michigan--1.3%
2,325 Macomb County, Michigan, Hospital Finance Authority,
Hospital Revenue Bonds (Mount Clemens General
Hospital), Series B, 5.875% due 11/15/2034 2,455
4,795 Michigan State Hospital Finance Authority, Revenue
Refunding Bonds (Oakwood Obligated Group), Series A,
6% due 4/01/2022 5,160
Minnesota--1.0%
Minneapolis and Saint Paul, Minnesota, Housing and
Redevelopment Authority, Health Care System Revenue
Bonds (Group Health Plan Inc. Project):
1,000 6% due 12/01/2019 1,080
2,545 6% due 12/01/2021 2,736
ANNUAL REPORTS MAY 31, 2006
Schedule of Investments (continued) (In Thousands)
Muni Intermediate Duration Fund, Inc.
Face
Amount Municipal Bonds Value
Minnesota (concluded)
$ 2,000 Minnesota State Municipal Power Agency, Electric
Revenue Bonds, Series A, 5.25% due 10/01/2024 $ 2,095
Mississippi--1.4%
Mississippi Business Finance Corporation, Mississippi,
PCR, Refunding (System Energy Resources Inc. Project):
5,000 5.875% due 4/01/2022 5,033
2,910 5.90% due 5/01/2022 2,930
Nevada--0.4%
2,250 Clark County, Nevada, Improvement District Number 142,
Special Assessment Bonds, 6.375% due 8/01/2023 2,324
New Jersey--16.6%
Garden State Preservation Trust of New Jersey, Open Space
and Farmland Preservation Revenue Bonds, Series A (f):
2,195 5.80% due 11/01/2017 2,472
3,635 5.80% due 11/01/2021 4,109
5,050 5.80% due 11/01/2023 5,718
New Jersey EDA, Cigarette Tax Revenue Bonds:
10,950 5.625% due 6/15/2018 11,407
9,810 5.75% due 6/15/2029 10,412
17,900 New Jersey EDA, Motor Vehicle Surcharge Revenue Bonds,
Series A, 5.25% due 7/01/2033 (g) 18,912
5,540 New Jersey EDA, Special Facility Revenue Bonds
(Continental Airlines Inc. Project), AMT, 6.625%
due 9/15/2012 5,695
New Jersey State Transportation Trust Fund Authority,
Transportation System Revenue Bonds:
5,000 Series C, 5.25% due 6/15/2015 (g)(h) 5,429
10,000 Series D, 5% due 6/15/2018 (a) 10,497
20,000 Series D, 5% due 6/15/2019 (f) 20,932
New Mexico--3.9%
Farmington, New Mexico, PCR, Refunding:
3,000 (Public Service Company of New Mexico--San
Juan Project), Series D, 6.375% due 4/01/2022 3,119
9,000 (Tucson Electric Power Company--San Juan
Project), Series A, 6.95% due 10/01/2020 9,385
9,520 New Mexico Finance Authority, Senior Lien State
Transportation Revenue Bonds, Series A, 5.125%
due 6/15/2018 (g) 10,129
New York--27.7%
1,145 Dutchess County, New York, IDA, Civic Facility
Revenue Bonds (Saint Francis Hospital), Series B,
7.25% due 3/01/2019 1,239
10,500 Metropolitan Transportation Authority, New York,
Revenue Refunding Bonds, Series A, 5.75%
due 11/15/2032 11,402
1,755 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 1,769
3,500 New York City, New York, City IDA, Special Facility Revenue
Bonds (Continental Airlines Inc. Project), AMT, 8.375%
due 11/01/2016 3,764
1,110 New York City, New York, City Transitional Finance
Authority, Future Tax Secured Revenue Bonds, Series C,
5.50% due 5/01/2009 (h) 1,176
5,000 New York City, New York, GO, Refunding, Series B, 5.75%
due 8/01/2015 5,451
2,055 New York City, New York, IDA, Civic Facility Revenue
Bonds (Special Needs Facilities Pooled Program),
Series C-1, 6.80% due 7/01/2019 2,096
Face
Amount Municipal Bonds Value
New York (concluded)
$ 5,550 New York City, New York, Sales Tax Asset Receivable
Corporation Revenue Bonds, DRIVERS, Series 1133Z,
6.712% due 10/15/2012 (a)(j) $ 6,268
New York City, New York, Sales Tax Asset Receivable
Corporation Revenue Bonds, Series A:
9,070 5% due 10/15/2020 (g) 9,538
4,325 5% due 10/15/2032 (a) 4,480
5,580 New York State Dormitory Authority, Lease Revenue
Refunding Bonds (Court Facilities), Series A, 5.25%
due 5/15/2012 5,940
New York State Dormitory Authority Revenue Bonds:
1,000 (North Shore L I Jewish Group), 5% due 5/01/2012 1,046
7,075 (School Districts Financing Program), Series D, 5.25%
due 10/01/2023 (g) 7,504
7,775 New York State Dormitory Authority, Revenue Refunding
Bonds (City University System), Consolidated Second
Generation, Series A, 6.125% due 7/01/2013 (a) 8,532
New York State Dormitory Authority, Revenue Refunding
Bonds (Mount Sinai Health), Series A:
7,000 6.625% due 7/01/2018 7,543
5,000 6.625% due 7/01/2019 5,385
7,380 New York State Environmental Facilities Corporation,
State Personal Income Tax Revenue Bonds, Series A,
5.25% due 12/15/2018 (d) 7,986
60 New York State Thruway Authority, Local Highway and
Bridge Service Contract, Revenue Refunding Bonds,
5.50% due 4/01/2017 65
11,650 New York State Urban Development Corporation,
Correctional and Youth Facilities Services, Revenue
Refunding Bonds, Series A, 5.50% due 1/01/2017 12,380
10,000 New York State Urban Development Corporation,
Personal Income Tax Revenue Bonds (State Facilities),
Series A-1, 5.25% due 3/15/2034 (d) 10,533
5,000 Port Authority of New York and New Jersey, Senior
Consolidated Revenue Bonds, AMT, 131st Series, 5%
due 12/15/2017 (c) 5,223
Tobacco Settlement Financing Corporation of New York
Revenue Bonds:
3,340 Series A-1, 5.50% due 6/01/2016 3,521
6,510 Series A-1, 5.25% due 6/01/2022 (a) 6,876
9,750 Series C-1, 5.50% due 6/01/2020 (d) 10,512
7,000 Series C-1, 5.50% due 6/01/2021 7,512
10,000 Series C-1, 5.50% due 6/01/2022 10,725
North Carolina--1.7%
3,105 Gaston County, North Carolina, Industrial Facilities and
Pollution Control Financing Authority, Revenue Bonds
(National Gypsum Company Project), AMT, 5.75%
due 8/01/2035 3,247
6,000 North Carolina Medical Care Commission, Health Care
Facilities, First Mortgage Revenue Refunding Bonds
(Presbyterian Homes Project), 7% due 10/01/2031 6,361
Ohio--0.2%
1,280 Port of Greater Cincinnati Development Authority, Ohio,
Special Assessment Revenue Bonds (Cooperative Public
Parking Infrastructure Project), 6.30% due 2/15/2024 1,375
Oklahoma--1.9%
2,780 Norman, Oklahoma, Regional Hospital Authority, Hospital
Revenue Bonds, 5.50% due 9/01/2025 2,844
7,940 Oklahoma State Industries Authority, Revenue Refunding
Bonds (Integris Baptist), VRDN, Series B, 3.53%
due 8/15/2029 (g)(i) 7,940
ANNUAL REPORTS MAY 31, 2006
Schedule of Investments (continued) (In Thousands)
Muni Intermediate Duration Fund, Inc.
Face
Amount Municipal Bonds Value
Pennsylvania--6.5%
$ 3,500 Montgomery County, Pennsylvania, IDA, Revenue
Bonds (Whitemarsh Continuing Care Project), 6%
due 2/01/2021 $ 3,671
7,710 Pennsylvania Economic Development Financing Authority,
Exempt Facilities Revenue Bonds (National Gypsum
Company), AMT, Series A, 6.25% due 11/01/2027 8,176
7,490 Philadelphia, Pennsylvania, Gas Works Revenue
Refunding Bonds, 1975 General Ordinance,
17th Series, 5.375% due 7/01/2022 (f) 7,944
9,630 Pittsburgh, Pennsylvania, GO, Refunding, Series B, 5.25%
due 9/01/2017 (f) 10,429
Sayre, Pennsylvania, Health Care Facilities Authority,
Revenue Refunding Bonds (Guthrie Healthcare System),
Series A:
1,750 6.25% due 12/01/2015 1,916
3,000 6.25% due 12/01/2016 3,280
1,490 6.25% due 12/01/2018 1,622
South Carolina--2.0%
Medical University Hospital Authority, South Carolina,
Mortgage Hospital Facilities, Revenue Refunding
Bonds, Series A (e)(g)(k):
4,250 5.25% due 8/15/2023 4,484
3,000 5.25% due 8/15/2024 3,161
4,000 Newberry County, South Carolina, School District,
Installment Purchase Revenue Bonds, 5%
due 12/01/2030 (b) 4,057
Tennessee--4.0%
1,800 Johnson City, Tennessee, Health and Educational
Facilities Board, Retirement Facility Revenue Bonds
(Appalachian Christian Village Project), Series A,
6% due 2/15/2019 1,821
5,000 McMinn County, Tennessee, IDB, PCR (Calhoun
Newsprint Co. Project), AMT, 7.625% due 3/01/2016 5,009
Shelby County, Tennessee, Health, Educational and Housing
Facilities Board Revenue Bonds (Germantown Village),
Series A:
3,550 6.75% due 12/01/2018 3,683
1,450 7% due 12/01/2023 1,522
Shelby County, Tennessee, Health, Educational and
Housing Facility Board, Hospital Revenue Refunding
Bonds (Methodist Healthcare) (h):
6,000 6% due 9/01/2012 6,703
3,500 6.25% due 9/01/2012 3,959
Texas--16.0%
Austin, Texas, Convention Center Revenue Bonds
(Convention Enterprises Inc.), First Tier, Series A:
6,445 6.375% due 1/01/2016 6,755
10,260 6.70% due 1/01/2032 10,824
Bell County, Texas, Health Facilities Development
Corporation, Hospital Revenue Bonds (Scott &
White Memorial Hospital), VRDN (g)(i):
3,000 Series 2001-1, 3.53% due 8/15/2031 3,000
600 Series B-1, 3.53% due 8/15/2029 600
1,500 Bexar County, Texas, Health Facilities Development
Corporation, Revenue Refunding Bonds
(Army Retirement Residence Project), 6.30%
due 7/01/2032 1,589
Face
Amount Municipal Bonds Value
Texas (concluded)
Brazos River Authority, Texas, PCR, Refunding AMT,
Series A:
$ 1,500 (TXU Energy Company LLC Project), 6.75%
due 4/01/2038 $ 1,665
5,085 (Texas Utility Company), 7.70% due 4/01/2033 5,933
4,000 Dallas-Fort Worth, Texas, International Airport Facility
Improvement Corporation, Revenue Bonds (Learjet Inc.),
AMT, Series A-1, 6.15% due 1/01/2016 4,038
5,000 Dallas-Fort Worth, Texas, International Airport Facility
Improvement Corporation, Revenue Refunding Bonds,
AMT, Series A-2, 9% due 5/01/2029 5,403
3,500 Dallas-Fort Worth, Texas, International Airport Revenue
Bonds, AMT, Series A, 6% due 11/01/2024 (d) 3,700
2,440 Gulf Coast, Texas, IDA, Solid Waste Disposal Revenue
Bonds (Citgo Petroleum Corporation Project), AMT,
7.50% due 5/01/2025 2,739
3,000 Gulf Coast, Texas, Waste Disposal Authority Revenue
Refunding Bonds (International Paper Company), AMT,
Series A, 6.10% due 8/01/2024 3,211
4,800 Harris County, Texas, Health Facilities Development
Corporation, Hospital Revenue Bonds (Texas
Children's Hospital), VRDN, Series B-1, 3.53%
due 10/01/2029 (g)(i) 4,800
Harris County, Texas, Revenue Refunding Bonds,
DRIVERS (f)(j):
9,320 Series 1111, 6.701% due 8/15/2009 10,127
6,300 Series 1172-Z, 6.712% due 8/15/2009 6,820
1,500 Houston, Texas, Health Facilities Development
Corporation, Retirement Facility Revenue Bonds
(Buckingham Senior Living Community), Series A,
7% due 2/15/2023 1,658
7,420 Lower Colorado River Authority, Texas, PCR (Samsung
Austin Semiconductor), AMT, 6.95% due 4/01/2030 8,201
2,600 Matagorda County, Texas, Navigation District Number 1,
Revenue Refunding Bonds (Reliant Energy Inc.),
Series C, 8% due 5/01/2029 2,788
2,300 Port Corpus Christi, Texas, Individual Development
Corporation, Environmental Facilities Revenue Bonds
(Citgo Petroleum Corporation Project), AMT, 8.25%
due 11/01/2031 2,403
5,000 Sabine River Authority, Texas, PCR, Refunding (TXU
Electric Company Project/TXU Energy Company LLC),
AMT, Series B, 5.75% due 5/01/2030 5,288
Virginia--4.5%
James City County, Virginia, IDA, Residential Care
Facility Revenue Refunding Bonds, Series A:
3,285 5.75% due 3/01/2017 3,407
1,150 6% due 3/01/2023 1,211
2,250 Loudoun County, Virginia, IDA, IDR, Refunding (Dulles
Airport Marriott Hotel), 7.125% due 9/01/2015 2,289
10,735 Pocahontas Parkway Association, Virginia, Toll Road
Revenue Bonds, Senior Series A, 5.50%
due 8/15/2028 11,081
7,800 Tobacco Settlement Financing Corporation of Virginia,
Asset-Backed Revenue Bonds, 5.625% due 6/01/2037 7,985
Washington--1.8%
10,000 Snohomish County, Washington, School District
Number 015 (Edmonds), GO, 5% due 12/01/2019 (d) 10,539
ANNUAL REPORTS MAY 31, 2006
Schedule of Investments (concluded) (In Thousands)
Muni Intermediate Duration Fund, Inc.
Face
Amount Municipal Bonds Value
Guam--0.8%
$ 4,250 Commonwealth of the Northern Mariana
Islands, Guam, GO, Series A, 6.75%
due 10/01/2033 $ 4,732
Puerto Rico--7.2%
17,935 Puerto Rico Electric Power Authority, Power
Revenue Bonds, Series NN, 5.50%
due 7/01/2018 18,873
5,390 Puerto Rico Industrial, Medical and Environmental
Pollution Control Facilities Financing Authority,
Special Facilities Revenue Bonds (American
Airlines Inc.), Series A, 6.45% due 12/01/2025 4,996
Puerto Rico Public Buildings Authority, Government
Facilities Revenue Refunding Bonds:
5,170 Series D, 5.25% due 7/01/2027 5,303
8,000 Series I, 5.50% due 7/01/2021 8,459
Face
Amount Municipal Bonds Value
Puerto Rico (concluded)
$ 3,535 Puerto Rico Public Finance Corporation, Commonwealth
Appropriation Revenue Bonds, Series E, 5.50%
due 8/01/2029 $ 3,657
U.S. Virgin Islands--1.7%
1,860 Virgin Islands Government Refinery Facilities, Revenue
Refunding Bonds (Hovensa Coker Project), AMT,
6.50% due 7/01/2021 2,088
6,750 Virgin Islands Public Finance Authority, Refinery
Facilities Revenue Bonds (Hovensa Refinery), AMT,
6.125% due 7/01/2022 7,400
Total Investments (Cost--$876,611*)--156.9% 898,933
Liabilities in Excess of Other Assets--(1.0%) (5,739)
Preferred Stock, at Redemption Value--(55.9%) (320,160)
----------
Net Assets Applicable to Common Stock--100.0% $ 573,034
==========
* The cost and unrealized appreciation (depreciation) of investments
as of May 31, 2006, as computed for federal income tax purposes,
were as follows:
Aggregate cost $ 876,499
===============
Gross unrealized appreciation $ 24,739
Gross unrealized depreciation (2,305)
---------------
Net unrealized appreciation $ 22,434
===============
(a) AMBAC Insured.
(b) Assured Guaranty Insured.
(c) CIFG Insured.
(d) FGIC Insured.
(e) FHA Insured.
(f) FSA Insured.
(g) MBIA Insured.
(h) Prerefunded.
(i) Security may have a maturity of more than one year at time of issuance,
but has variable rate and demand features that qualify it as a short-term
security. The rate disclosed is that currently in effect. This rate
changes periodically based upon prevailing market rates.
(j) The rate disclosed is that currently in effect. This rate changes
periodically and inversely based upon prevailing market rates.
(k) Federal Housing Administration/Veterans' Administration Mortgages
packaged by the Federal National Mortgage Association.
(l) XL Capital Insured.
o Forward interest rate swaps outstanding as of May 31, 2006 were as follows:
Notional Unrealized
Amount Appreciation
Pay a fixed rate of 4.365% and receive
a floating rate based on 1-week Bond
Market Association rate
Broker, JPMorgan Chase Bank
Expires July 2026 $ 58,000 $ 83
See Notes to Financial Statements.
ANNUAL REPORTS MAY 31, 2006
Schedule of Investments (In Thousands)
Muni New York Intermediate Duration Fund, Inc.
Face
Amount Municipal Bonds Value
New York--127.7%
$ 760 Albany County, New York, IDA, IDR (Albany College
of Pharmacy), Series A, 5.25% due 12/01/2019 $ 788
Cattaraugus County, New York, IDA, Civic Facility Revenue
Bonds (Saint Bonaventure University Project), Series A:
695 4.90% due 5/01/2016 695
500 5% due 5/01/2023 501
460 Dutchess County, New York, IDA, Civic Facility Revenue
Bonds (Saint Francis Hospital), Series B, 7.25%
due 3/01/2019 498
2,000 Erie County, New York, IDA, Life Care Community
Revenue Bonds (Episcopal Church Home), Series A,
5.875% due 2/01/2018 2,059
1,000 Erie County, New York, IDA, Revenue Bonds (Orchard
Park CCRC, Inc. Project), Series A, 6% due 11/15/2026 1,041
Erie County, New York, IDA, School Facility Revenue
Bonds (City of Buffalo Project) (f):
3,835 5.75% due 5/01/2024 4,090
1,000 5.75% due 5/01/2026 1,113
750 Essex County, New York, IDA, Solid Waste Disposal,
Revenue Refunding Bonds (International Paper
Company), AMT, Series A, 5.20% due 12/01/2023 752
2,000 Hempstead Town, New York, IDA, Resource Recovery
Revenue Refunding Bonds (American Refinery--Fuel
Co. Project), 5% due 12/01/2010 2,068
1,000 Metropolitan Transportation Authority, New York,
Service Contract Revenue Refunding Bonds, Series A,
5% due 7/01/2030 (b) 1,024
1,615 New York City, New York, City Housing Development
Corporation, Presidential Revenue Bonds (The Animal
Medical Center), Series A, 5.50% due 12/01/2033 1,675
1,415 New York City, New York, City IDA, Civic Facility Revenue
Bonds (PSCH Inc. Project), 6.20% due 7/01/2020 1,489
1,160 New York City, New York, City IDA, Civic Facility
Revenue Refunding Bonds (Special Needs Facilities
Pooled Program), Series A-1, 5.15% due 7/01/2015 (a) 1,212
New York City, New York, City IDA, Special Facility
Revenue Bonds, AMT:
1,500 (1990 American Airlines Inc. Project), 5.40%
due 7/01/2020 1,263
1,000 (British Airways Plc Project), 7.625% due 12/01/2032 1,105
1,000 (Continental Airlines Inc. Project), 8.375%
due 11/01/2016 1,075
1,000 New York City, New York, City IDA, Special Facility
Revenue Refunding Bonds (Terminal One Group
Association Project), AMT, 5.50% due 1/01/2024 1,056
New York City, New York, GO:
1,500 Series J, 5.25% due 5/15/2018 (h) 1,607
3,000 Series J, 5.50% due 6/01/2021 3,206
1,285 Series N, 5% due 8/01/2023 (e) 1,341
2,000 New York City, New York, GO, Refunding, Series G,
5.50% due 8/01/2012 (k) 2,171
1,775 New York City, New York, GO, Sub-Series F-1,
5% due 9/01/2026 1,821
500 New York City, New York, Trust for Cultural Resources
Revenue Bonds (Museum of American Folk Art), 6.125%
due 7/01/2030 (a) 536
Face
Amount Municipal Bonds Value
New York (continued)
New York Convention Center Development Corporation,
New York, Revenue Bonds (Hotel Unit Fee Secured) (b):
$ 2,750 5% due 11/15/2024 $ 2,870
1,000 5% due 11/15/2026 1,040
2,000 5% due 11/15/2035 2,061
1,000 New York State Dormitory Authority, Mental Health
Services Facilities Improvement, Revenue Bonds,
Series B, 5% due 2/15/2030 (b) 1,033
1,000 New York State Dormitory Authority, Non-State
Supported Debt, Insured Revenue Bonds (United
Cerebral Palsy Affiliates--Pooled Loan Program),
Series A, 5% due 7/01/2034 (c) 1,028
1,000 New York State Dormitory Authority, Non-State
Supported Debt, Insured Revenue Refunding Bonds
(Canisius College), 5% due 7/01/2018 (h) 1,048
New York State Dormitory Authority Revenue Bonds:
1,500 (North Shore Long Island Jewish Group), 5%
due 5/01/2013 1,572
1,735 (Winthrop S. Nassau University), 5.50%
due 7/01/2011 1,834
New York State Dormitory Authority Revenue
Refunding Bonds:
1,305 (Lenox Hill Hospital Obligation Group), 5.75%
due 7/01/2017 1,343
1,000 (Mount Sinai Health), Series A, 6.50%
due 7/01/2015 1,077
1,000 (Mount Sinai Health), Series A, 6.625%
due 7/01/2018 1,078
1,000 (State University Educational Facilities), Series A,
5.50% due 5/15/2013 1,078
1,790 New York State Dormitory Authority, State Personal
Income Tax Revenue Bonds (Education), Series F,
5% due 3/15/2030 1,846
New York State Dormitory Authority, Supported Debt
Revenue Refunding Bonds:
1,500 (Department of Health), Series A, 5%
due 7/01/2025 (d) 1,551
1,790 (State University Dormitory Facilities), Series C,
5% due 7/01/2021 (h) 1,876
500 New York State Energy Research and Development
Authority, Gas Facilities Revenue Refunding Bonds
(Brooklyn Union Gas Company/Keyspan), AMT,
Series A, 4.70% due 2/01/2024 (e) 496
1,000 New York State Environmental Facilities Corporation,
Solid Waste Disposal Revenue Bonds (Waste Management
Inc. Project), AMT, Series A, 4.45% due 7/01/2017 1,007
1,000 New York State, GO, Series A, 4% due 3/15/2022 (e) 947
2,635 New York State Mortgage Agency, Homeowner
Mortgage Revenue Bonds, AMT, Series 130, 4.75%
due 10/01/2030 2,597
2,000 New York State Municipal Bond Bank Agency, Special
School Purpose Revenue Bonds, Series C, 5.25%
due 12/01/2018 2,110
New York State Thruway Authority, General Revenue
Refunding Bonds, Series G (f):
1,000 5% due 1/01/2024 1,044
500 4.75% due 1/01/2030 503
ANNUAL REPORTS MAY 31, 2006
Schedule of Investments (concluded) (In Thousands)
Muni New York Intermediate Duration Fund, Inc.
Face
Amount Municipal Bonds Value
New York (concluded)
$ 3,000 New York State Urban Development Corporation,
Correctional and Youth Facilities Services Revenue
Refunding Bonds, Series A, 5% due 1/01/2017 $ 3,126
2,000 New York State Urban Development Corporation
Revenue Bonds, Subordinate Lien, Corporation Purpose,
Series A, 5.125% due 7/01/2019 2,099
Saratoga County, New York, IDA Civic Facility Revenue
Refunding Bonds (The Saratoga Hospital Project),
Series A (j):
365 4.375% due 12/01/2013 370
380 4.50% due 12/01/2014 387
395 4.50% due 12/01/2015 400
400 Schenectady, New York, GO, TAN, 4.70%
due 12/29/2006 399
800 Suffolk County, New York, IDA, Continuing Care and
Retirement, Revenue Refunding Bonds (Jeffersons
Ferry Project), 4.625% due 11/01/2016 790
1,000 Tobacco Settlement Financing Corporation of New York,
Asset-Backed Revenue Bonds, Series A-1, 5.25%
due 6/01/2016 1,045
1,000 Tobacco Settlement Financing Corporation of New York
Revenue Bonds, Series C-1, 5.50% due 6/01/2022 1,073
Tompkins County, New York, IDA, Care Community
Revenue Refunding Bonds (Kendal at Ithaca), Series A-2:
250 5.75% due 7/01/2018 255
1,000 6% due 7/01/2024 1,024
1,250 Utica, New York, IDA, Civic Facility Revenue Bonds (Utica
College Project), Series A, 6.875% due 6/01/2009 (i) 1,365
Westchester County, New York, IDA, Civic Facility Revenue
Bonds (Special Needs Facilities Pooled Program):
515 Series D-1, 6.80% due 7/01/2019 542
615 Series E-1, 5.50% due 7/01/2007 620
Guam--3.4%
1,000 A.B. Won Guam International Airport Authority,
General Revenue Refunding Bonds, AMT, Series C,
5.25% due 10/01/2022 (h) 1,040
1,000 Guam Government Waterworks Authority, Water
and Wastewater System, Revenue Refunding Bonds,
6% due 7/01/2025 1,063
Face
Amount Municipal Bonds Value
Puerto Rico--11.8%
$ 750 Children's Trust Fund Project of Puerto Rico,
Tobacco Settlement Revenue Refunding Bonds:
5% due 5/15/2011 $ 769
1,020 5.375% due 5/15/2033 1,038
1,000 Puerto Rico Commonwealth Highway and
Transportation Authority, Transportation
Revenue Refunding Bonds, Series K, 5%
due 7/01/2030 1,001
850 Puerto Rico Electric Power Authority, Power
Revenue Bonds, Series RR, 5% due 7/01/2029 (d) 878
500 Puerto Rico Municipal Finance Agency, GO, Refunding,
Series C, 5.25% due 8/01/2023 (d) 548
1,000 Puerto Rico Municipal Finance Agency, GO, Series A,
5.25% due 8/01/2025 1,035
1,900 Puerto Rico Public Finance Corporation,
Commonwealth Appropriation Revenue Bonds,
Series E, 5.70% due 2/01/2010 (i) 2,029
U.S. Virgin Islands--2.6%
500 Virgin Islands Government Refinery Facilities,
Revenue Refunding Bonds (Hovensa Coker
Project), AMT, 6.50% due 7/01/2021 561
1,000 Virgin Islands Public Finance Authority, Senior
Lien Revenue Bonds (Matching Fund Loan
Note), Series A, 5.25% due 10/01/2024 1,034
Total Municipal Bonds
(Cost--$87,747)--145.5% 89,716
Shares
Held Short-Term Securities
2,341 CMA New York Municipal Money Fund, 2.88% (g)(l) 2,341
Total Short-Term Securities
(Cost--$2,341)--3.8% 2,341
Total Investments (Cost--$90,088*)--149.3% 92,057
Other Assets Less Liabilities--1.0% 621
Preferred Stock, at Redemption Value--(50.3%) (31,006)
----------
Net Assets Applicable to Common Stock--100.0% $ 61,672
==========
* The cost and unrealized appreciation (depreciation) of investments
as of May 31, 2006, as computed for federal income tax purposes,
were as follows:
Aggregate cost $ 90,033
===============
Gross unrealized appreciation $ 2,292
Gross unrealized depreciation (268)
---------------
Net unrealized appreciation $ 2,024
===============
(a) ACA Insured.
(b) AMBAC Insured.
(c) Assured Guarantee Insured.
(d) CIFG Insured.
(e) FGIC Insured.
(f) FSA Insured.
(g) Investments in companies considered to be an affiliate of the Fund,
for purposes of Section 2(a)(3) of the Investment Company Act of 1940,
were as follows:
Net Dividend
Affiliate Activity Income
CMA New York Municipal
Money Fund 1,723 $23
(h) MBIA Insured.
(i) Prerefunded.
(j) Radian Insured.
(k) XL Capital Insured.
(l) Represents the current yield as of 5/31/2006.
See Notes to Financial Statements.
ANNUAL REPORTS MAY 31, 2006
Statements of Net Assets
Muni Muni New York
Intermediate Intermediate
Duration Duration
As of May 31, 2006 Fund, Inc. Fund, Inc.
Assets
Investments in unaffiliated securities, at value* $ 898,933,330 $ 89,716,000
Investments in affiliated securities, at value** -- 2,340,918
Cash 23,441 39,037
Unrealized appreciation on forward interest rate swaps 83,346 --
Interest receivable 15,755,110 1,473,400
Prepaid expenses 37,120 19,298
--------------- ---------------
Total assets 914,832,347 93,588,653
--------------- ---------------
Liabilities
Payable for securities purchased 20,820,143 791,824
Dividends payable to Common Stock shareholders 457,380 50,432
Payable to investment adviser 234,405 24,056
Payable to other affiliates 7,670 3,184
Accrued expenses 119,162 41,678
--------------- ---------------
Total liabilities 21,638,760 911,174
--------------- ---------------
Preferred Stock
Preferred Stock, at redemption value, par value $.10 per share++ of
AMPS+++ at $25,000 per share liquidation preference 320,159,566 31,005,690
--------------- ---------------
Net Assets Applicable to Common Stock
Net assets applicable to Common Stock $ 573,034,021 $ 61,671,789
=============== ===============
Analysis of Net Assets Applicable to Common Stock
Undistributed investment income--net $ 4,310,990 $ 354,377
Undistributed (accumulated) realized capital gains (losses)--net 5,815,187 (281,623)
Unrealized appreciation--net 22,406,176 1,968,923
--------------- ---------------
Total accumulated earnings--net 32,532,353 2,041,677
--------------- ---------------
Common Stock, par value $.10 per share++++ 3,803,493 420,644
Paid-in capital in excess of par $ 536,698,175 $ 59,209,468
=============== ===============
Net Assets Applicable to Common Stock $ 573,034,021 $ 61,671,789
=============== ===============
Net asset value per share of Common Stock $ 15.07 $ 14.66
=============== ===============
Market price per share of Common Stock $ 14.52 $ 13.03
=============== ===============
* Identified cost for unaffiliated securities $ 876,610,500 $ 87,747,077
=============== ===============
** Identified cost for affiliated securities -- $ 2,340,918
=============== ===============
++ Preferred Stock authorized, issued and outstanding:
Series M7 Shares 2,000 --
=============== ===============
Series T7 Shares 2,700 --
=============== ===============
Series W7 Shares 2,000 --
=============== ===============
Series TH7 Shares 2,700 --
=============== ===============
Series F7 Shares 2,000 1,240
=============== ===============
Series TH28 Shares 1,400 --
=============== ===============
++++ Common Stock issued and outstanding 38,034,934 4,206,439
=============== ===============
+++ Auction Market Preferred Stock.
See Notes to Financial Statements.
ANNUAL REPORTS MAY 31, 2006
Statements of Operations
Muni Muni New York
Intermediate Intermediate
Duration Duration
For the Year Ended May 31, 2006 Fund, Inc. Fund, Inc.
Investment Income
Interest and amortization of premium and discount earned $ 44,647,191 $ 4,333,842
Dividends from affiliates -- 23,100
--------------- ---------------
Total income 44,647,191 4,356,942
--------------- ---------------
Expenses
Investment advisory fees 4,921,073 513,274
Commission fees 794,336 78,579
Accounting services 260,886 60,425
Transfer agent fees 91,185 31,672
Professional fees 70,105 48,462
Custodian fees 46,094 8,321
Printing and shareholder reports 46,971 5,178
Trustees' fees and expenses 27,137 27,049
Listing fees 27,049 19,137
Pricing fees 28,046 8,895
Other 62,670 28,276
--------------- ---------------
Total expenses before waiver and reimbursement 6,375,552 829,268
Waiver and reimbursement of expenses (1,342,111) (144,108)
--------------- ---------------
Total expenses after waiver and reimbursement 5,033,441 685,160
--------------- ---------------
Investment income--net 39,613,750 3,671,782
--------------- ---------------
Realized & Unrealized Gain (Loss)--Net
Realized gain on:
Investments--net 6,154,634 285,861
Forward interest rate swaps--net 868,858 --
--------------- ---------------
Total realized gain--net 7,023,492 285,861
--------------- ---------------
Change in unrealized appreciation/depreciation on:
Investments--net (16,897,855) (1,852,166)
Forward interest rate swaps--net 4,095,816 --
--------------- ---------------
Total change in unrealized appreciation/depreciation--net (12,802,039) (1,852,166)
--------------- ---------------
Total realized and unrealized loss--net (5,778,547) (1,566,305)
--------------- ---------------
Dividends & Distributions to Preferred Stock Shareholders
Investment income--net (7,895,095) (821,449)
Realized gain--net (1,465,133) --
--------------- ---------------
Total dividends and distributions to Preferred Stock shareholders (9,360,228) (821,449)
--------------- ---------------
Net Increase in Net Assets Resulting from Operations $ 24,474,975 $ 1,284,028
=============== ===============
See Notes to Financial Statements.
ANNUAL REPORTS MAY 31, 2006
Statements of Changes in Net Assets Muni Intermediate Duration Fund, Inc.
For the Year Ended May 31,
Increase (Decrease) in Net Assets: 2006 2005
Operations
Investment income--net $ 39,613,750 $ 38,953,922
Realized gain--net 7,023,492 10,418,746
Change in unrealized appreciation/depreciation--net (12,802,039) 33,195,645
Dividends and distributions to Preferred Stock shareholders (9,360,228) (4,936,122)
--------------- ---------------
Net increase in net assets resulting from operations 24,474,975 77,632,191
--------------- ---------------
Dividends & Distributions to Common Stock Shareholders
Investment income--net (32,101,484) (32,862,183)
Realized gain--net (8,646,634) (7,146,878)
--------------- ---------------
Net decrease in net assets resulting from dividends and distributions to
Common Stock shareholders (40,748,118) (40,009,061)
--------------- ---------------
Stock Transactions
Offering and underwriting costs resulting from the issuance of Preferred Stock (494,868) --
--------------- ---------------
Net decrease in net assets derived from stock transactions (494,868) --
--------------- ---------------
Net Assets Applicable to Common Stock
Total increase (decrease) in net assets applicable to Common Stock (16,768,011) 37,623,130
Beginning of year 589,802,032 552,178,902
--------------- ---------------
End of year* $ 573,034,021 $ 589,802,032
=============== ===============
* Undistributed investment income--net $ 4,310,990 $ 4,700,475
=============== ===============
See Notes to Financial Statements.
Statements of Changes in Net Assets Muni New York Intermediate Duration Fund, Inc.
For the Year Ended May 31,
Increase (Decrease) in Net Assets: 2006 2005
Operations
Investment income--net $ 3,671,782 $ 3,594,122
Realized gain (loss)--net 285,861 (514,710)
Change in unrealized appreciation/depreciation--net (1,852,166) 2,943,785
Dividends to Preferred Stock shareholders (821,449) (481,976)
--------------- ---------------
Net increase in net assets resulting from operations 1,284,028 5,541,221
--------------- ---------------
Dividends to Common Stock Shareholders
Investment income--net (2,902,443) (3,028,634)
--------------- ---------------
Net decrease in net assets resulting from dividends to Common Stock shareholders (2,902,443) (3,028,634)
--------------- ---------------
Net Assets Applicable to Common Stock
Total increase (decrease) in net assets applicable to Common Stock (1,618,415) 2,512,587
Beginning of year 63,290,204 60,777,617
--------------- ---------------
End of year* $ 61,671,789 $ 63,290,204
=============== ===============
* Undistributed investment income--net $ 354,377 $ 411,104
=============== ===============
See Notes to Financial Statements.
ANNUAL REPORTS MAY 31, 2006
Financial Highlights Muni Intermediate Duration Fund, Inc.
For the Period
August 1, 2003++
The following per share data and ratios have been derived For the Year Ended May 31, to May 31,
from information provided in the financial statements. 2006 2005 2004
Per Share Operating Performance
Net asset value, beginning of period $ 15.51 $ 14.52 $ 14.33
----------- ----------- -----------
Investment income--net 1.04+++++ 1.02+++++ .79
Realized and unrealized gain (loss)--net (.15) 1.15 .21
Dividends and distributions to Preferred Stock shareholders:
Investment income--net (.21) (.11) (.06)
Realized gain--net (.04) (.02) --
----------- ----------- -----------
Total from investment operations .64 2.04 .94
----------- ----------- -----------
Less dividends and distributions to Common Stock shareholders:
Investment income--net (.84) (.86) (.65)
Realized gain--net (.23) (.19) --
----------- ----------- -----------
Total dividends and distributions to Common Stock shareholders (1.07) (1.05) (.65)
----------- ----------- -----------
Offering costs resulting from issuance of Common Stock -- -- (.02)
----------- ----------- -----------
Offering and underwriting costs resulting from issuance of Preferred Stock (.01) -- (.08)
----------- ----------- -----------
Net asset value, end of period $ 15.07 $ 15.51 $ 14.52
=========== =========== ===========
Market price per share, end of period $ 14.52 $ 13.94 $ 13.10
=========== =========== ===========
Total Investment Return**
Based on net asset value per share 4.71% 15.36% 6.09%+++
=========== =========== ===========
Based on market price per share 12.25% 14.93% (8.59%)+++
=========== =========== ===========
Ratios Based on Average Net Assets of Common Stock
Expenses, net of waiver*** .87% .84% .75%*
=========== =========== ===========
Expenses*** 1.10% 1.07% 1.03%*
=========== =========== ===========
Investment income--net*** 6.82% 6.77% 6.51%*
=========== =========== ===========
Amount of dividends to Preferred Stock shareholders 1.36% .74% .48%*
=========== =========== ===========
Investment income--net, to Common Stock shareholders 5.46% 6.03% 6.03%*
=========== =========== ===========
Ratios Based on Average Net Assets of Preferred Stock
Dividends to Preferred Stock shareholders 2.51% 1.50% .97%*
=========== =========== ===========
Supplemental Data
Net assets applicable to Common Stock, end of period (in thousands) $ 573,034 $ 589,802 $ 552,179
=========== =========== ===========
Preferred Stock outstanding, end of period (in thousands) $ 320,000 $ 285,000 $ 285,000
=========== =========== ===========
Portfolio turnover 50.53% 54.55% 70.29%
=========== =========== ===========
Leverage
Asset coverage per $1,000 $ 2,791 $ 3,069 $ 2,937
=========== =========== ===========
Dividends Per Share on Preferred Stock Outstanding
Series M7++++--Investment income--net $ 613 $ 372 $ 190
=========== =========== ===========
Series T7++++--Investment income--net $ 624 $ 377 $ 192
=========== =========== ===========
Series W7++++--Investment income--net $ 623 $ 374 $ 188
=========== =========== ===========
Series TH7++++--Investment income--net $ 631 $ 375 $ 188
=========== =========== ===========
Series F7++++--Investment income--net $ 611 $ 373 $ 189
=========== =========== ===========
Series TH28++++++--Investment income--net $ 580 -- --
=========== =========== ===========
* Annualized.
** Total investment returns based on market value, which can
be significantly greater or lesser than the net asset value, may
result in substantially different returns. Total investment returns
exclude the effects of sales charges.
*** Do not reflect the effect of dividends to Preferred Stock shareholders.
++ Commencement of operations.
++++ Issued on August 20, 2003.
++++++ Issued on August 3, 2005.
+++ Aggregate total investment return.
+++++ Based on average shares outstanding.
See Notes to Financial Statements.
ANNUAL REPORTS MAY 31, 2006
Financial Highlights (concluded) Muni New York Intermediate Duration Fund, Inc.
For the Period
August 1, 2003++
The following per share data and ratios have been derived For the Year Ended May 31, to May 31,
from information provided in the financial statements. 2006 2005 2004
Per Share Operating Performance
Net asset value, beginning of period $ 15.05 $ 14.45 $ 14.33
----------- ----------- -----------
Investment income--net .87+++++ .85+++++ .68
Realized and unrealized gain (loss)--net (.37) .58 .19
Dividends to Preferred Stock shareholders from investment income--net (.20) (.11) (.06)
----------- ----------- -----------
Total from investment operations .30 1.32 .81
----------- ----------- -----------
Less dividends to Common Stock shareholders from investment income--net (.69) (.72) (.54)
----------- ----------- -----------
Offering costs resulting from issuance of Common Stock -- -- (.03)
----------- ----------- -----------
Offering and underwriting costs resulting from issuance of Preferred Stock -- -- (.12)
----------- ----------- -----------
Net asset value, end of period $ 14.66 $ 15.05 $ 14.45
=========== =========== ===========
Market price per share, end of period $ 13.03 $ 13.44 $ 12.79
=========== =========== ===========
Total Investment Return**
Based on net asset value per share 2.52% 9.99% 4.71%+++
=========== =========== ===========
Based on market price per share 2.03% 10.97% (11.46%)+++
=========== =========== ===========
Ratios Based on Average Net Assets of Common Stock
Total expenses, net of waiver and reimbursement*** 1.10% 1.15% .81%*
=========== =========== ===========
Total expenses*** 1.33% 1.38% 1.19%*
=========== =========== ===========
Total investment income--net*** 5.89% 5.75% 5.40%*
=========== =========== ===========
Amount of dividends to Preferred Stock shareholders 1.32% .77% .45%*
=========== =========== ===========
Investment income--net, to Common Stock shareholders 4.57% 4.98% 4.95%*
=========== =========== ===========
Ratios Based on Average Net Assets of Preferred Stock
Dividends to Preferred Stock shareholders 2.65% 1.55% .96%*
=========== =========== ===========
Supplemental Data
Net assets applicable to Common Stock, end of period (in thousands) $ 61,672 $ 63,290 $ 60,778
=========== =========== ===========
Preferred Stock outstanding, end of period (in thousands) $ 31,000 $ 31,000 $ 31,000
=========== =========== ===========
Portfolio turnover 49.28% 16.51% 21.02%
=========== =========== ===========
Leverage
Asset coverage per $1,000 $ 2,989 $ 3,042 $ 2,961
=========== =========== ===========
Dividends Per Share on Preferred Stock Outstanding
Series F7++++--Investment income--net $ 662 $ 389 $ 188
=========== =========== ===========
* Annualized.
** Total investment returns based on market value, which can be significantly greater or lesser
than the net asset value, may result in substantially different returns. Total investment
returns exclude the effects of sales charges.
*** Do not reflect the effect of dividends to Preferred Stock shareholders.
++ Commencement of operations.
++++ Issued on August 20, 2003.
+++ Aggregate total investment return.
+++++ Based on average shares outstanding.
See Notes to Financial Statements.
ANNUAL REPORTS MAY 31, 2006
Notes to Financial Statements
1. Significant Accounting Policies:
Muni Intermediate Duration Fund, Inc. and Muni New York Intermediate Duration
Fund, Inc. (the "Funds" or individually as the "Fund") are registered under
the Investment Company Act of 1940, as amended, as non-diversified, closed-end
management investment companies. The Funds' financial statements are prepared
in conformity with U.S. generally accepted accounting principles, which may
require the use of management accruals and estimates. Actual results may
differ from these estimates. The Funds determine and make available for
publication the net asset values of their Common Stock on a daily basis. Each
Fund's Common Stock shares are listed on the New York Stock Exchange under the
symbol MUI for Muni Intermediate Duration Fund, Inc. and MNE for Muni New York
Intermediate Duration Fund, Inc.
(a) Valuation of investments--Municipal bonds are traded primarily in the over-
the-counter ("OTC") markets and are valued at the last available bid price in
the OTC market or on the basis of values as obtained by a pricing service.
Pricing services use valuation matrixes that incorporate both dealer-supplied
valuations and valuation models. The procedures of the pricing service and its
valuations are reviewed by the officers of the Funds under the general
direction of the Board of Directors. Such valuations and procedures are
reviewed periodically by the Board of Directors of the Funds. Financial
futures contracts and options thereon, which are traded on exchanges, are
valued at their closing prices as of the close of such exchanges. Options
written or purchased are valued at the last sale price in the case of exchange-
traded options. In the case of options traded in the OTC market, valuation is
the last asked price (options written) or the last bid price (options
purchased). Swap agreements are valued by quoted fair values received daily by
the Funds' pricing service. Short-term investments with a remaining maturity
of 60 days or less are valued at amortized cost, which approximates market
value, under which method the investment is valued at cost and any premium or
discount is amortized on a straight line basis to maturity. Investments in
open-end investment companies are valued at their net asset value each
business day. Securities and other assets for which market quotations are not
readily available are valued at fair value as determined in good faith by or
under the direction of the Board of Directors of the Funds.
(b) Derivative financial instruments--Each Fund may engage in various
portfolio investment strategies both to increase the return of the Fund and to
hedge, or protect, its exposure to interest rate movements and movements in
the securities markets. Losses may arise due to changes in the value of the
contract or if the counterparty does not perform under the contract.
* Financial futures contracts--Each Fund may purchase or sell financial
futures contracts and options on such futures contracts. Futures contracts are
contracts for delayed delivery of securities at a specific future date and at
a specific price or yield. Upon entering into a contract, the Fund deposits
and maintains as collateral such initial margin as required by the exchange on
which the transaction is effected. Pursuant to the contract, the Fund agrees
to receive from or pay to the broker an amount of cash equal to the daily
fluctuation in value of the contract. Such receipts or payments are known as
variation margin and are recorded by the Fund as unrealized gains or losses.
When the contract is closed, the Fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed.
* Options--Each Fund may purchase and write call and put options. When the
Fund writes an option, an amount equal to the premium received by the Fund is
reflected as an asset and an equivalent liability. The amount of the liability
is subsequently marked-to-market to reflect the current market value of the
option written. When a security is purchased or sold through an exercise of an
option, the related premium paid (or received) is added to (or deducted from)
the basis of the security acquired or deducted from (or added to) the proceeds
of the security sold. When an option expires (or the Fund enters into a
closing transaction), the Fund realizes a gain or loss on the option to the
extent of the premiums received or paid (or gain or loss to the extent the
cost of the closing transaction exceeds the premium paid or received). Written
and purchased options are non-income producing investments.
* Forward interest rate swaps--Each Fund may enter into forward interest rate
swaps. In a forward interest rate swap, the Fund and the counterparty agree to
make periodic net payments on a specified notional contract amount, commencing
on a specified future effective date, unless terminated earlier. When the
agreement is closed, the Fund records a realized gain or loss in an amount
equal to the value of the agreement.
(c) Income taxes--It is each Fund's policy to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no federal income tax provision is required.
ANNUAL REPORTS MAY 31, 2006
Notes to Financial Statements (continued)
(d) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Realized gains and losses on security transactions are determined on the
identified cost basis. Dividend income is recorded on the ex-dividend dates.
Interest income is recognized on the accrual basis. The Funds amortize all
premiums and discounts on debt securities.
(e) Dividends and distributions--Dividends from net investment income are
declared and paid monthly. Distributions of capital gains are recorded on the
ex-dividend dates.
(f) Offering costs--Direct expenses relating to the public offering of Muni
Intermediate Duration Fund, Inc.'s Preferred Stock were charged to capital at
the time of issuance of the shares.
(g) Reclassifications--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, the current
year's permanent book/tax differences have been reclassified as follows:
Muni Intermediate Duration Fund, Inc.
$6,656 has been reclassified between undistributed net investment income and
undistributed net realized capital gains 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.
Muni New York Intermediate Duration Fund, Inc.
$4,617 has been reclassified between undistributed net investment income and
accumulated net realized capital losses on investments 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:
Each Fund has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services,
Inc. ("PSI"), an indirect, wholly-owned subsidiary of Merrill Lynch & Co.,
Inc. ("ML & Co."), which is the limited partner.
FAM is responsible for the management of each Fund's portfolio and provides
the necessary personnel, facilities, equipment and certain other services
necessary to the operations of the Funds. For such services, each 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 each
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 year ended May 31, 2006, FAM earned fees and waived a portion of
its fees as follows:
Investment Advisory Fees
Fees Earned Waived
Muni Intermediate
Duration Fund, Inc. $4,921,073 $1,342,111
Muni New York
Intermediate Duration
Fund, Inc. $ 513,274 $ 139,984
In addition, FAM has agreed to reimburse its management fee by the amount of
management fees Muni New York Intermediate Duration Fund, Inc. pays to FAM
indirectly through its investment in CMA New York Municipal Money Fund. For
the year ended May 31, 2006, FAM reimbursed Muni New York Intermediate
Duration Fund, Inc. in the amount of $4,124.
For the year ended May 31, 2006, Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("MLPF&S"), an affiliate of FAM, received underwriting fees of
$350,000 in connection with the issuance of Muni Intermediate Duration Fund,
Inc.'s Preferred Stock.
For the year ended May 31, 2006, the Funds reimbursed FAM for certain
accounting services. The reimbursements were as follows:
Reimbursement
Muni Intermediate Duration Fund, Inc. $20,430
Muni New York Intermediate Duration Fund, Inc. $ 1,969
ANNUAL REPORTS MAY 31, 2006
Notes to Financial Statements (continued)
Certain officers and/or directors of the Funds are officers and/or directors
of FAM, PSI, and/or ML & Co.
In February 2006, ML & Co. and BlackRock, Inc. entered into an agreement to
contribute ML & Co.'s investment management business, including FAM, to the
investment management business of BlackRock, Inc. The transaction is expected
to close in the third quarter of 2006.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended May 31, 2006 were as follows:
Muni Muni New York
Intermediate Intermediate
Duration Duration
Fund, Inc. Fund, Inc.
Total Purchases $453,929,943 $44,559,841
Total Sales $445,439,882 $44,592,452
4. Stock Transactions:
Each Fund is authorized to issue 200,000,000 shares of stock, including
Preferred Stock, par value $.10 per share, all of which were initially
classified as Common Stock. The Board of Directors is authorized, however, to
reclassify any unissued shares of beneficial interest without approval of the
holders of Common Stock.
Preferred Stock
Auction Market Preferred Stock are redeemable shares of Preferred Stock of the
Fund, with a par value of $.10 per share and a liquidation preference of
$25,000 per share plus accrued and unpaid dividends that entitle their holders
to receive cash dividends at an annual rate that may vary for the successive
dividend periods. The yields in effect at May 31, 2006 were as follows:
Muni Muni New York
Intermediate Intermediate
Duration Duration
Fund, Inc. Fund, Inc.
Series M7 3.40% --
Series T7 3.40% --
Series TH7 3.40% --
Series W7 3.33% --
Series F7 3.32% 3.35%
Series TH28 3.40% --
Muni Intermediate Duration Fund, Inc.
Shares issued and outstanding during the year ended May 31, 2006 increased by
1,400 from the issuance of an additional series of Preferred Stock and during
the year ended May 31, 2005 remained constant.
Muni New York Intermediate Duration Fund, Inc.
Shares issued and outstanding during the years ended May 31, 2006 and May 31,
2005 remained constant.
Each Fund pays commissions to certain broker-dealers at the end of each
auction at an annual rate ranging from .25% to .375%, calculated on the
proceeds of each auction. For the year ended May 31, 2006, MLPF&S earned
commissions as follows:
Commissions
Muni Intermediate Duration Fund, Inc. $668,340
Muni New York Intermediate Duration Fund, Inc. $ 58,873
5. Distributions to Shareholders:
Each Fund paid a tax-exempt income dividend to holders of Common Stock in
the amounts of $.063000 per share and $.054000 per share relating to Muni
Intermediate Duration Fund, Inc. and Muni New York Intermediate Duration
Fund, Inc., respectively, on June 29, 2006 to shareholders of record on
June 13, 2006.
Muni Intermediate Duration Fund, Inc.
The tax character of distributions paid during the fiscal years ended
May 31, 2006 and May 31, 2005 was as follows:
5/31/2006 5/31/2005
Distributions paid from:
Tax-exempt income $ 39,996,579 $ 37,130,875
Ordinary income 1,319,480 7,395,390
Net long-term capital gain 8,792,287 418,918
--------------- ---------------
Total distributions $ 50,108,346 $ 44,945,183
=============== ===============
As of May 31, 2006, the components of accumulated earnings on a tax basis
were as follows:
Undistributed ordinary income--net $ 4,118,687
Undistributed tax-exempt income--net 4,042,302
Undistributed long-term capital gains--net 1,853,232
---------------
Total undistributed earnings--net 10,014,221
Capital loss carryforward --
Unrealized gains--net 22,518,132*
---------------
Total accumulated earnings--net $ 32,532,353
===============
* The difference between book-basis and tax-basis net unrealized
gains is attributable primarily to the tax deferrals of losses on
wash sales and the difference between book and tax amortization
methods for premiums and discounts on fixed income securities.
ANNUAL REPORTS MAY 31, 2006
Notes to Financial Statements (concluded)
Muni New York Intermediate Duration Fund, Inc.
The tax character of distributions paid during the fiscal years ended
May 31, 2006 and May 31, 2005 was as follows:
5/31/2006 5/31/2005
Distributions paid from:
Tax-exempt income $ 3,723,892 $ 3,510,610
--------------- ---------------
Total distributions $ 3,723,892 $ 3,510,610
=============== ===============
As of May 31, 2006, the components of accumulated earnings on a tax basis
were as follows:
Undistributed tax-exempt income--net $ 299,774
Undistributed long-term capital gains--net --
---------------
Total undistributed earnings--net 299,774
Capital loss carryforward (281,623)*
Unrealized gains-net 2,023,526**
---------------
Total accumulated earnings--net $ 2,041,677
===============
* On May 31, 2006, the Fund had a net capital loss carryforward
of $281,623, all of which expires in 2013. This amount will be
available to offset like amounts of any future taxable gains.
** The difference between book-basis and tax-basis net unrealized
gains is attributable primarily to the difference between book and
tax amortization methods for premiums and discounts on fixed
income securities.
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of
Muni Intermediate Duration Fund, Inc. and
Muni New York Intermediate Duration Fund, Inc.:
We have audited the accompanying statements of net assets of Muni Intermediate
Duration Fund, Inc. and Muni New York Intermediate Duration Fund, Inc. (the
"Funds"), including the schedules of investments, as of May 31, 2006, and the
related statements of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods indicated therein. These
financial statements and financial highlights are the responsibility of the
Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan and perform the audits to obtain reasonable assurance about whether
the financial statements and financial highlights are free of material
misstatement. We were not engaged to perform an audit of the Funds' internal
control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the Funds' internal control
over financial reporting. Accordingly, we express no such opinion. An audit
also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and financial highlights, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. Our procedures
included confirmation of securities owned as of May 31, 2006 by correspondence
with the custodian and brokers or by other appropriate auditing procedures
where replies from brokers were not received. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Muni
Intermediate Duration Fund, Inc. and Muni New York Intermediate Duration Fund,
Inc. at May 31, 2006, the results of their operations for the year then ended,
the changes in their net assets for each of the two years in the period then
ended, and their financial highlights for each of the indicated periods, in
conformity with U.S. generally accepted accounting principles.
(Ernst & Young LLP)
Philadelphia, Pennsylvania
July 14, 2006
ANNUAL REPORTS MAY 31, 2006
Important Tax Information
All of the net investment income distributions paid by Muni Intermediate
Duration Fund, Inc. and Muni New York Intermediate Duration Fund, Inc. during
the taxable period ended May 31, 2006 qualify as tax-exempt interest dividends
for federal income tax purposes.
Additionally, the following table summarizes the taxable per share
distributions paid by Muni Intermediate Duration Fund, Inc. during the year:
Payable Ordinary Long-Term
Date Income Capital Gains
Common Stock Shareholders 12/29/2005 $.029664 $.197670
Preferred Stock Shareholders:
Series M7 10/18/2005 $2.49 $17.06
10/25/2005 $2.25 $15.46
11/01/2005 $2.35 $16.09
11/08/2005 $2.17 $14.88
11/15/2005 $2.69 $17.23
11/22/2005 $2.74 $17.54
11/29/2005 $1.34 $ 8.52
Series T7 10/19/2005 $2.42 $16.62
10/26/2005 $2.40 $16.42
11/02/2005 $2.42 $16.57
11/09/2005 $2.55 $17.51
11/16/2005 $2.69 $17.15
11/23/2005 $2.78 $17.72
11/30/2005 $0.95 $ 6.03
Series W7 10/20/2005 $2.37 $16.29
10/27/2005 $2.40 $16.42
11/03/2005 $2.42 $16.62
11/10/2005 $2.54 $17.38
11/17/2005 $2.65 $16.91
11/25/2005 $3.20 $20.40
12/01/2005 $0.55 $ 3.44
Payable Ordinary Long-Term
Date Income Capital Gains
Preferred Stock Shareholders (concluded):
Series TH7 10/21/2005 $2.35 $16.09
10/28/2005 $2.35 $16.15
11/04/2005 $2.54 $17.38
11/11/2005 $3.78 $24.66
11/18/2005 $1.52 $ 9.86
11/25/2005 $2.75 $17.89
12/02/2005 $1.14 $ 7.46
Series F7 10/17/2005 $2.14 $14.62
10/24/2005 $2.35 $16.09
10/31/2005 $2.29 $15.78
11/07/2005 $2.54 $17.38
11/14/2005 $2.51 $16.00
11/21/2005 $2.72 $17.49
11/28/2005 $1.36 $ 8.65
Series TH28 12/23/2005 $4.96 $32.96
ANNUAL REPORTS MAY 31, 2006
Automatic Dividend Reinvestment Plan
How the Plan Works--The Funds offer a Dividend Reinvestment Plan (the "Plan")
under which income and capital gains dividends paid by each Fund are
automatically reinvested in additional shares of Common Stock of each Fund.
The Plan is administered on behalf of the shareholders by Computershare Trust
Company, N.A. (the "Plan Agent"). Under the Plan, whenever the Funds declare
a dividend, participants in the Plan will receive the equivalent in shares of
Common Stock of each Fund. The Plan Agent will acquire the shares for the
participant's account either (i) through receipt of additional unissued but
authorized shares of each Fund ("newly issued shares") or (ii) by purchase of
outstanding shares of Common Stock on the open market on the New York Stock
Exchange or elsewhere. If, on the dividend payment date, each Fund's net
asset value per share is equal to or less than the market price per share
plus estimated brokerage commissions (a condition often referred to as a
"market premium"), the Plan Agent will invest the dividend amount in newly
issued shares. If the Funds' net asset value per share is greater than the
market price per share (a condition often referred to as a "market
discount"), the Plan Agent will invest the dividend amount by purchasing on
the open market additional shares. If the Plan Agent is unable to invest the
full dividend amount in open market purchases, or if the market discount
shifts to a market premium during the purchase period, the Plan Agent will
invest any uninvested portion in newly issued shares. The shares acquired are
credited to each shareholder's account. The amount credited is determined by
dividing the dollar amount of the dividend by either (i) when the shares are
newly issued, the net asset value per share on the date the shares are issued
or (ii) when shares are purchased in the open market, the average purchase
price per share.
Participation in the Plan--Participation in the Plan is automatic, that is, a
shareholder is automatically enrolled in the Plan when he or she purchases
shares of Common Stock of the Funds unless the shareholder specifically elects
not to participate in the Plan. Shareholders who elect not to participate will
receive all dividend distributions in cash. Shareholders who do not wish to
participate in the Plan must advise the Plan Agent in writing (at the address
set forth below) that they elect not to participate in the Plan. Participation
in the Plan is completely voluntary and may be terminated or resumed at any
time without penalty by writing to the Plan Agent.
Benefits of the Plan--The Plan provides an easy, convenient way for
shareholders to make additional, regular investments in the Funds. The Plan
promotes a long-term strategy of investing at a lower cost. All shares
acquired pursuant to the Plan receive voting rights. In addition, if the
market price plus commissions of each Fund's shares is above the net asset
value, participants in the Plan will receive shares of the Fund for less than
they could otherwise purchase them and with a cash value greater than the
value of any cash distribution they would have received. However, there may
not be enough shares available in the market to make distributions in shares
at prices below the net asset value. Also, since each Fund does not redeem
shares, the price on resale may be more or less than the net asset value.
Plan Fees--There are no enrollment fees or brokerage fees for participating in
the Plan. The Plan Agent's service fees for handling the reinvestment of
distributions are paid for by the Fund. However, brokerage commissions may be
incurred when the Fund purchases shares on the open market and shareholders
will pay a pro rata share of any such commissions.
Tax Implications--The automatic reinvestment of dividends and distributions
will not relieve participants of any federal, state or local income tax that
may be payable (or required to be withheld) on such dividends. Therefore,
income and capital gains may still be realized even though shareholders do not
receive cash.
Contact Information--All correspondence concerning the Plan, including any
questions about the Plan, should be directed to the Plan Agent at Computershare
Trust Company, N.A., P.O. Box 43010, Providence, RI 02940-3010, Telephone:
800-426-5523.
ANNUAL REPORTS MAY 31, 2006
Disclosure of New Investment Advisory Agreement
New BlackRock Investment Advisory Agreement--Matters Considered by the Boards
In connection with the Transaction between Merrill Lynch and BlackRock, each
Fund's Board of Directors considered a new investment advisory agreement (each
a "New Investment Advisory Agreement") between the Fund and BlackRock
Advisors, Inc. or its successor ("BlackRock Advisors"). If each Fund's New
Investment Advisory Agreement is approved by shareholders of the Fund, it will
become effective upon the closing of the Transaction, which is expected in the
third quarter of 2006.
The Boards discussed the New Investment Advisory Agreements at telephonic and
in-person meetings held during April and May 2006. Each Board, including the
independent directors, approved the applicable New Investment Advisory
Agreement at a meeting held on May 8, 2006.
To assist each Board in its consideration of the New Investment Advisory
Agreement, BlackRock provided materials and information about BlackRock,
including its financial condition and asset management capabilities and
organization, and Merrill Lynch provided materials and information about the
Transaction. Each Fund's independent directors, through their independent
legal counsel, also requested and received additional information from Merrill
Lynch and BlackRock in connection with their consideration of the Fund's New
Investment Advisory Agreement. The additional information was provided in
advance of the May 8, 2006 meetings. In addition, each Fund's independent
directors consulted with their counsel and Fund counsel on numerous occasions,
discussing, among other things, the legal standards and certain other
considerations relevant to the directors' deliberations.
At the Board meetings, members of each Fund's Board discussed with Merrill
Lynch management and certain BlackRock representatives the Transaction, its
strategic rationale and BlackRock's general plans and intentions regarding the
Fund. At these Board meetings, representatives of Merrill Lynch and BlackRock
made presentations to and responded to questions from the Boards. The
directors also inquired about the plans for and anticipated roles and
responsibilities of certain employees and officers of the Investment Adviser
and certain affiliates being transferred to BlackRock in connection with the
Transaction. The independent directors also conferred separately and with
their counsel about the Transaction and other matters related to the
Transaction on a number of occasions, including in connection with the April
and May 2006 meetings. After the presentations and after reviewing the written
materials provided, each Fund's independent directors met in executive
sessions with their counsel to consider the Fund's New Investment Advisory
Agreement.
In connection with each Board's review of the New Investment Advisory
Agreement, Merrill Lynch and/or BlackRock advised the directors about a
variety of matters. The advice included the following, among other matters:
* that there is not expected to be any diminution in the nature, quality and
extent of services provided to each Fund and its shareholders by BlackRock
Advisors, including compliance services;
* that operation of New BlackRock as an independent investment management
firm will enhance its ability to attract and retain talented
professionals;
* that each Fund should benefit from having access to BlackRock's state of
the art technology and risk management analytic tools, including
investment tools, provided under the BlackRock Solutions (R) brand name;
* that BlackRock has no present intention to alter any applicable expense
waivers or reimbursements currently in effect and, while it reserves the
right to do so in the future, it would seek Board approval before making
any changes;
* that under the Transaction Agreement, Merrill Lynch and BlackRock have
agreed to conduct, and use reasonable best efforts to cause their
respective affiliates to conduct, their respective businesses in
compliance with the conditions of Section 15 (f) of the Investment Company
Act of 1940 Act (the "1940 Act") in relation to any public funds advised
by BlackRock or the Investment Adviser (or its affiliates), respectively;
and
* that Merrill Lynch and BlackRock would derive benefits from the
Transaction and that, as a result, they have a different financial
interest in the matters that were being considered than do Fund
shareholders.
The directors considered the information provided by Merrill Lynch and
BlackRock above, and, among other factors, the following:
* the potential benefits to each Fund's shareholders from being part of a
combined fund family with BlackRock-sponsored funds, including possible
economies of scale and access to investment opportunities;
ANNUAL REPORTS MAY 31, 2006
Disclosure of New Investment Advisory Agreement (continued)
* the reputation, financial strength and resources of BlackRock and its
investment advisory subsidiaries and the anticipated financial strength
and resources of New BlackRock;
* the compliance policies and procedures of BlackRock Advisors;
* the terms and conditions of each New Investment Advisory Agreement,
including the fact that neither Fund's schedule of total advisory fees
will increase by virtue of the Fund's New Investment Advisory Agreement,
but will remain the same;
* that within the past year each Fund's Board performed a full annual review
of the investment advisory agreement currently in effect for the Fund (the
"Current Investment Advisory Agreement") as required by the 1940 Act and
has determined that the Investment Adviser has the capabilities, resources
and personnel necessary to provide the advisory and administrative
services currently provided to the Fund; and that the advisory and/or
management fees paid by the Fund, taking into account any applicable
agreed-upon fee waivers and breakpoints, represent reasonable compensation
to the Investment Adviser in light of the services provided, the costs to
the Investment Adviser of providing those services, economies of scale,
the fees and other expenses paid by similar funds (including information
provided by Lipper, Inc. ["Lipper"]), and such other matters as the
directors have considered relevant in the exercise of their reasonable
judgment (each Board had most recently performed a full annual review of
the Current Investment Advisory Agreement in November 2005); and
* that Merrill Lynch agreed to pay all expenses of each Fund in connection
with the Board's consideration of the New Investment Advisory Agreement
and related agreements and all costs of shareholder approval of the New
Investment Advisory Agreement and as a result the Fund would bear no costs
in obtaining shareholder approval of the New Investment Advisory
Agreement.
Certain of these considerations are discussed in more detail below.
In its review of the New Investment Advisory Agreement, each Board assessed
the nature, scope and quality of the services to be provided to the applicable
Fund by the personnel of BlackRock Advisors and its affiliates, including
administrative services, shareholder services, oversight of fund accounting,
marketing services and assistance in meeting legal and regulatory
requirements. In its review of the New Investment Advisory Agreement, each
Board also considered a range of information in connection with its oversight
of the services to be provided by BlackRock Advisors and its affiliates. Among
the matters considered by each Board were: (a) fees (in addition to management
fees) to be paid to BlackRock Advisors and its affiliates by the Fund; (b)
Fund operating expenses paid to third parties; (c) the resources devoted to
and compliance reports relating to the Fund's investment objective, policies
and restrictions, and its compliance with its Code of Ethics and BlackRock
Advisors' compliance policies and procedures; and (d) the nature, cost and
character of non-investment management services to be provided by BlackRock
Advisors and its affiliates.
In the period prior to the Board meeting to consider renewal of the Current
Investment Advisory Agreement, each Board had requested and received materials
specifically relating to the agreement. These materials for each Fund included
(a) information compiled by Lipper on the fees and expenses and the investment
performance of the Fund as compared to a comparable group of funds as
classified by Lipper; (b) information comparing the Fund's market price with
its net asset value per share; (c) a discussion by the Fund's portfolio
management team on investment strategies used by the Fund during its most
recent fiscal year; (d) information on the profitability to the Investment
Adviser of the Fund's Current Investment Advisory Agreement and other payments
received by the Investment Adviser and its affiliates from the Fund; and (e)
information provided by the Investment Adviser concerning services related to
the valuation and pricing of Fund portfolio holdings, the Fund's portfolio
turnover statistics, and direct and indirect benefits to the Investment
Adviser and its affiliates from their relationship with the Fund.
In their deliberations, each Fund's directors considered information received
in connection with their most recent continuation of the Fund's Current
Investment Advisory Agreement, in addition to information provided by
BlackRock and BlackRock Advisors in connection with their evaluation of the
terms and conditions of the Fund's New Investment Advisory Agreement. Neither
Fund's directors identified any particular information that was all-important
or controlling, and each director attributed different weights to the various
factors. Each Fund's directors made their determinations separately in respect
of the Fund. The directors of each Fund, including a majority of the
independent directors, concluded that the terms of the Fund's New Investment
Advisory Agreement are appropriate, that the fees to be paid are reasonable in
light of the services to be provided to the Fund, and that the New Investment
Advisory Agreement should be approved and recommended to Fund shareholders.
ANNUAL REPORTS MAY 31, 2006
Nature, Quality and Extent of Services Provided--Each Fund's Board reviewed
the nature, extent and quality of services provided by the Investment Adviser,
including the investment advisory services and the resulting performance of
the Fund, as well as the nature, quality and extent of services expected to be
provided by BlackRock Advisors. Each Fund's Board focused primarily on the
Investment Adviser's advisory services and the Fund's investment performance,
but also considered certain areas in which both the Investment Adviser and the
Fund receive services as part of the Merrill Lynch complex. Each Fund's Board
compared the Fund's performance - both including and excluding the effects of
the Fund's fees and expenses - to the performance of a comparable group of
funds, and the performance of a relevant index or combination of indexes.
While each Board reviews performance data at least quarterly, consistent with
the Investment Adviser's investment goals, the Board will attach more
importance to performance over relatively long periods of time, typically
three to five years.
In evaluating the nature, quality and extent of the services to be provided by
BlackRock Advisors under the New Investment Advisory Agreement, each Fund's
directors considered, among other things, the expected impact of the
Transaction on the operations, facilities, organization and personnel of
BlackRock Advisors and how it would affect the Fund; the ability of BlackRock
Advisors to perform its duties after the Transaction; and any anticipated
changes to the current investment and other practices of the Fund.
Each Fund's directors were given information with respect to the potential
benefits to the Fund and its shareholders from having access to BlackRock's
state of the art technology and risk management analytic tools, including the
investment tools provided under the BlackRock Solutions brand name.
Each Fund's directors were advised that, as a result of Merrill Lynch's equity
interest in BlackRock after the Transaction, the Fund will continue to be
subject to restrictions concerning certain transactions involving Merrill
Lynch affiliates (for example, transactions with a Merrill Lynch broker-dealer
acting as principal) absent revised or new regulatory relief. Each Fund's
directors were advised that a revision of existing regulatory relief with
respect to these restrictions was being sought from the Securities and
Exchange Commission and were advised of the possibility of receipt of such
revised regulatory relief. There can be no assurance that such relief will be
obtained.
Based on their review of the materials provided and the assurances they had
received from the management of Merrill Lynch and of BlackRock, each Fund's
directors determined that the nature and quality of services to be provided to
the Fund under the New Investment Advisory Agreement were expected to be as
good or better than that provided under the Fund's Current Investment Advisory
Agreement. It was noted, however, that it is expected that there will be
changes in personnel following the Transaction and the combination of the
operations of the Investment Adviser and its affiliates with those of
BlackRock. Each Fund's directors noted that if current portfolio managers or
other personnel cease to be available, the Board would consider all available
options, which could include seeking the investment advisory or other services
of BlackRock affiliates. Accordingly, each Fund's directors concluded that,
overall, they were satisfied at the present time with assurances from
BlackRock and BlackRock Advisors as to the expected nature, extent and quality
of the services to be provided to the Fund under its New Investment Advisory
Agreement.
Costs of Services Provided and Profitability--It was noted that, in
conjunction with the recent review of the Current Investment Advisory
Agreement, each Fund's directors had received, among other things, a report
from Lipper comparing the Fund's fees, expenses and performance to those of a
peer group selected by Lipper, and information as to the fees charged by the
Investment Adviser or its affiliates to other registered investment company
clients for investment management services. Each Fund's Board reviewed the
Fund's contractual management fee rate and actual management fee rate as a
percentage of total assets at common asset levels - the actual rate includes
advisory fees and the effects of any fee waivers - compared to the other funds
in its Lipper category. Each Fund's Board also compared the Fund's total
expenses to those of other comparable funds. The information showed that each
Fund had fees and expenses within the range of fees and expenses of comparable
funds. Each Fund's Board considered the services to be provided by and the
fees to be charged by BlackRock Advisors to other funds with similar
investment mandates and noted that the fees charged by BlackRock Advisors in
those cases, including fee waivers and expense reimbursements, were generally
comparable to those being charged to the Fund. Each Fund's Board also noted
that, as a general matter, according to the information provided by BlackRock,
fees charged to institutional clients were lower than the fees charged to the
Fund, but BlackRock Advisors provided less extensive services to such clients.
Each Fund's Board concluded that the Fund's management fee and fee rate and
overall expense ratio are reasonable compared to those of other comparable
funds.
ANNUAL REPORTS MAY 31, 2006
Disclosure of New Investment Advisory Agreement (concluded)
In evaluating the costs of the services to be provided by BlackRock Advisors
under the New Investment Advisory Agreement, each Fund's directors considered,
among other things, whether advisory fees or other expenses would change as a
result of the Transaction. Based on their review of the materials provided and
the fact that each New Investment Advisory Agreement is substantially similar
to the applicable Current Investment Advisory Agreement in all material
respects, including the rate of compensation, each Fund's directors determined
that the Transaction should not increase the total fees payable, including any
fee waivers and expense reimbursements, for advisory and administrative
services. Each Fund's directors noted that it was not possible to predict with
certainty New BlackRock's future profitability from its relationship with the
Fund.
Each Fund's directors discussed with BlackRock Advisors its general
methodology to be used in determining New BlackRock's profitability with
respect to its relationship with the Fund. The directors noted that they
expect to receive profitability information from New BlackRock on at least an
annual basis and thus be in a position to evaluate whether any adjustments in
Fund fees and/or fee breakpoints would be appropriate.
Fees and Economies of Scale--Each Fund's Board considered the extent to which
economies of scale might be realized as the assets of the Fund increase and
whether there should be changes in the management fee rate or structure in
order to enable the Fund to participate in these economies of scale. Each
Fund's Board determined that changes were not currently necessary and that the
Fund appropriately participated in these economies of scale.
In reviewing the Transaction, the directors considered, among other things,
whether advisory fees or other expenses would change as a result of the
Transaction. Based on the fact that each New Investment Advisory Agreement is
substantially similar to the applicable Current Investment Advisory Agreement
in all material respects, including the rate of compensation, each Fund's
directors determined that as a result of the Transaction, the Fund's total
advisory fees would be no higher than the fees under its Current Investment
Advisory Agreement. Each Fund's directors noted that in conjunction with their
most recent deliberations concerning the Current Investment Advisory
Agreement, the directors had determined that the total fees for advisory and
administrative services for the Fund were reasonable in light of the services
provided. It was noted that in conjunction with the recent review of the
Current Investment Advisory Agreement, each Fund's directors had received,
among other things, a report from Lipper comparing the Fund's fees, expenses
and performance to those of a peer group selected by Lipper, and information
as to the fees charged by the Investment Adviser or its affiliates to other
registered investment company clients for investment management services. Each
Fund's directors concluded that, because the rates for advisory fees for the
Fund would be no higher than its current fee rates, the proposed management
fee structure, including any fee waivers, was reasonable and that no
additional changes were currently necessary.
Fall-Out Benefits--In evaluating the fall-out benefits to be received by
BlackRock Advisors under the New Investment Advisory Agreement, each Fund's
directors considered whether the Transaction would have an impact on the fall-
out benefits received by the Investment Adviser by virtue of the Current
Investment Advisory Agreement. Based on their review of the materials
provided, including materials received in connection with their most recent
approval or continuance of the Current Investment Advisory Agreement, and
their discussions with management of the Investment Adviser and BlackRock,
each Fund's directors determined that those benefits could include increased
ability for BlackRock to distribute shares of its funds and other investment
products. The directors noted that any such benefits were difficult to
quantify with certainty at this time, and indicated that they would continue
to evaluate them going forward.
Investment Performance--Each Fund's directors considered investment
performance for the Fund. Each Fund's directors compared the Fund's
performance - both including and excluding the effects of the Fund's fees and
expenses - to the performance of a comparable group of funds, and the
performance of a relevant index or combination of indexes. The comparative
information received from Lipper showed each Fund's performance at various
levels within the range of performance of comparable funds over different time
periods. While each Board reviews performance data at least quarterly,
consistent with the Investment Adviser's investment goals, the Board will
attach more importance over relatively long periods of time, typically three
to five years. Each Fund's directors believed the Fund's performance was
satisfactory. Also, the directors took into account the investment performance
of funds currently advised by BlackRock Advisors. Each Board considered
comparative information from Lipper which showed that the performance of the
funds advised by BlackRock Advisors was within the range of performance of
comparable funds over different time periods. Each Fund's Board noted
BlackRock's considerable investment management experience and capabilities,
but were unable to predict what effect, if any, consummation of the
Transaction would have on the future performance of the Fund.
Conclusion--After the independent directors of each Fund deliberated in
executive session, the Fund's entire Board, including the independent
directors, approved the Fund's New Investment Advisory Agreement, concluding
that the advisory fee rate was reasonable in relation to the services provided
and that the New Investment Advisory Agreement was in the best interests of
the Fund's shareholders. In approving the New Investment Advisory Agreement,
each Board noted that it anticipated reviewing the continuance of the
agreement in advance of the expiration of the initial two-year period.
Contingent BlackRock Subadvisory Agreement--Matters Considered by the Boards
At the telephonic and in-person meetings held during April and May 2006 at
which each Board of Directors discussed and approved the New Investment
Advisory Agreement, the Board, including the independent directors, also
approved a contingent subadvisory agreement (each a "Contingent Subadvisory
Agreement") between the Investment Adviser and BlackRock Advisors (the
"BlackRock Subadviser"). Each Fund's Contingent Subadvisory Agreement is
intended to ensure that the Fund operates with efficient portfolio management
services until the closing of the Transaction, in the event that the Fund's
Board deems it necessary and in the best interests of the Fund and its
shareholders that the BlackRock Subadviser assist in managing the operations
of the Fund during the interim period until the closing of the Transaction. If
each Fund's shareholders approve the Contingent Subadvisory Agreement, it will
take effect only upon recommendation from the Investment Adviser and upon
subsequent approval of the Fund's Board in the period up to the closing of the
Transaction. The effectiveness of each Fund's Contingent Subadvisory
Agreement, therefore, would be contingent on further Board approval after
shareholders approve it. Pursuant to each Contingent Subadvisory Agreement,
the BlackRock Subadviser would receive a monthly fee from the Investment
Adviser equal to 50% of the advisory fee received by the Investment Adviser.
The Investment Adviser would pay the BlackRock Subadviser out of its own
resources. There would be no increase in either Fund's expenses as a result of
the Contingent Subadvisory Agreement.
In making its approval, each Board considered the Contingent Subadvisory
Agreement in conjunction with the New Investment Advisory Agreement and
reviewed the same information and factors discussed above. Each Fund's Board
also considered in conjunction with the Contingent Subadvisory Agreement the
necessity of ensuring that the Fund operates with effective management
services until the closing of the Transaction. In reviewing the subadvisory
fee rate provided in each Fund's Contingent Subadvisory Agreement, the Fund's
Board took note of the fact that both the Investment Adviser and the BlackRock
Subadviser would have significant responsibilities under their respective
advisory agreements. The Investment Adviser would remain responsible for
oversight of each Fund's operations and administration and the BlackRock
Subadviser would provide advisory services to the Fund under the Contingent
Subadvisory Agreement. Each Fund's Board also took into account the expected
short duration of the term of any Contingent Subadvisory Agreement and the
fact that total advisory fees paid by the Fund would not increase as a result
of the Contingent Subadvisory Agreement. Under all of the circumstances, each
Fund's Board concluded that it was a reasonable allocation of fees for the
BlackRock Subadviser to receive 50% of the advisory fee paid by the Fund to
the Investment Adviser.
After the independent directors of each Fund deliberated in executive session,
the Fund's entire Board, including the independent directors, approved the
applicable Contingent Subadvisory Agreement, concluding that the advisory fee
was reasonable in relation to the services provided and that the Contingent
Subadvisory Agreement was in the best interests of the Fund's shareholders.
ANNUAL REPORTS MAY 31, 2006
Officers and Directors
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name, Address & Age Funds Served Principal Occupation(s) During Past 5 Years Director Director
Interested Director
Robert C. Doll, Jr.* President 2005 to President of the MLIM/FAM-advised funds since 131 Funds None
P.O. Box 9011 and present 2005; President of MLIM and FAM since 2001; 177 Portfolios
Princeton, Director Co-Head (Americas Region) thereof from 2000
NJ 08543-9011 to 2001 and Senior Vice President from 1999
Age: 51 to 2001; President and Director of Princeton
Services, Inc. ("Princeton Services") since 2001;
President of Princeton Administrators, L.P.
("Princeton Administrators") since 2001; Chief
Investment Officer of OppenheimerFunds, Inc.
in 1999 and Executive Vice President thereof
from 1991 to 1999.
* Mr. Doll is a director, trustee or member of an advisory board of certain
other investment companies for which MLIM or FAM acts as investment adviser.
Mr. Doll is an "interested person," as defined in the Investment Company Act,
of the Fund based on his positions with MLIM, FAM, Princeton Services and
Princeton Administrators. Directors serve until their resignation, removal
or death, or until December 31 of the year in which they turn 72. As Fund
President, Mr. Doll serves at the pleasure of the Board of Directors.
ANNUAL REPORTS MAY 31, 2006
Officers and Directors (continued)
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name, Address & Age Funds 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 Knology, Inc.
P.O. Box 9095 present Limited Partnership (an investment 42 Portfolios (telecommuni-
Princeton, partnership) since 1979; Managing General cations) and
NJ 08543-9095 Partner of The South Atlantic Venture Funds Symbion, Inc.
Age: 62 since 1983; Member of the Investment Advisory (healthcare)
Council of the Florida State Board of
Administration since 2001.
John Francis O'Brien Director 2004 to President and Chief Executive Officer of 23 Funds ABIOMED
P.O. Box 9095 present Allmerica Financial Corporation (financial 42 Portfolios (medical device
Princeton, services holding company) from 1995 to 2002 manufacturer),
NJ 08543-9095 and Director from 1995 to 2003; President of Cabot
Age: 63 Allmerica Investment Management Co., Inc. Corporation
(investment adviser) from 1989 to 2002, (chemicals),
Director from 1989 to 2002 and Chairman of LKQ Corporation
the Board from 1989 to 1990; President, Chief (auto parts
Executive Officer and Director of First manufacturing)
Allmerica Financial Life Insurance Company and TJX
from 1989 to 2002 and Director of various Companies, Inc.
other Allmerica Financial companies until 2002; (retailer)
Director since 1989, Member of the Governance
Nominating Committee since 2004, Member of
the Compensation Committee since 1989 and
Member of the Audit Committee from 1990 to
2004 of ABIOMED; Director, Member of the
Governance and Nomination Committee and
Member of the Audit Committee of Cabot
Corporation since 1990; Director and Member of
the Audit Committee and Compensation Committee
of LKQ Corporation since 2003; Lead Director of
TJX Companies, Inc. since 1999; Trustee of the
Woods Hole Oceanographic Institute since 2003.
David H. Walsh Director 2003 to Consultant with Putnam Investments from 1993 23 Funds None
P.O. Box 9095 present to 2003, and employed in various capacities 42 Portfolios
Princeton, therewith from 1973 to 1992; Director,
NJ 08543-9095 Massachusetts Audubon Society from 1990 to
Age: 64 1997; Director, The National Audubon Society from
1998 to 2005; 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 42 Portfolios Pharmaceuticals,
Princeton, and Development of Warner Lambert Co. from Inc.
NJ 08543-9095 1979 to 1997; Director of the Michael J. Fox (pharmaceutical
Age: 64 Foundation for Parkinson's Research since 2000; company)
Director of BTG International Plc (a global
technology commercialization company) since 2001.
* Directors serve until their resignation, removal or death, or until
December 31 of the year in which they turn 72.
** Chairman of the Board of Directors and the Audit Committee.
ANNUAL REPORTS MAY 31, 2006
Officers and Directors (concluded)
Position(s) Length of
Held with Time
Name, Address & Age Funds Served Principal Occupation(s) During Past 5 Years
Fund Officers*
Donald C. Burke Vice 2003 to Managing Director of MLIM and FAM since 2006 and Treasurer thereof since 1999;
P.O. Box 9011 President present First Vice President of MLIM and FAM from 1997 to 2005; Senior Vice President
Princeton, and and Treasurer of Princeton Services since 1999 and Director since 2004; Vice
NJ 08543-9011 Treasurer President of FAM Distributors, Inc. ("FAMD") since 1999 and Director since 2004;
Age: 45 Vice President of MLIM and FAM from 1990 to 1997; Director of Taxation of MLIM
from 1990 to 2001; Vice President, Treasurer and Secretary of the IQ Funds since
2004.
Kenneth A. Jacob Senior 2003 to Managing Director (Tax-Exempt Fund Management) of MLIM since 2000; Director
P.O. Box 9011 Vice present of MLIM from 1997 to 2000.
Princeton, President
NJ 08543-9011
Age: 55
John M. Loffredo Senior 2003 to Managing Director (Tax-Exempt Fund Management) of MLIM since 2000; Director
P.O. Box 9011 Vice present of MLIM from 1997 to 2000.
Princeton, President
NJ 08543-9011
Age: 42
Timothy T. Browse Vice 2004 to Vice President (Tax-Exempt Fund Management) of MLIM since 2004; Vice President,
P.O. Box 9011 President present portfolio manager and team leader of the Municipal Investments Team with Lord
Princeton, Abbet & Co. from 2000 to 2003; Vice President and portfolio manager in the
NJ 08543-9011 municipal fund management group of Eaton Vance Management, Inc. from 1992
Age: 47 to 2000.
Robert A. DiMella Vice 2003 to Managing Director (Tax-Exempt Fund Management) of MLIM since 2004; Director
P.O. Box 9011 President present of MLIM from 2002 to 2004; Vice President of MLIM from 1996 to 2002.
Princeton,
NJ 08543-9011
Age: 39
Jeffrey Hiller Chief 2004 to Chief Compliance Officer of the MLIM/FAM-advised funds and First Vice President
P.O. Box 9011 Compliance present and Chief Compliance Officer of MLIM (Americas Region) since 2004; Chief
Princeton, Officer Compliance Officer of the IQ Funds since 2004; Global Director of Compliance at
NJ 08543-9011 Morgan Stanley Investment Management from 2002 to 2004; Managing Director and
Age: 54 Global Director of Compliance at Citigroup Asset Management from 2000 to 2002;
Chief Compliance Officer at Soros Fund Management in 2000; Chief Compliance
Officer at Prudential Financial from 1995 to 2000; Senior Counsel in the
Commission's Securities and Exchange Division of Enforcement in Washington, D.C.
from 1990 to 1995.
Alice A. Pellegrino Secretary 2004 to Director (Legal Advisory) of MLIM since 2002; Vice President of MLIM from 1999 to
P.O. Box 9011 present 2002; Attorney associated with MLIM since 1997; Secretary of MLIM, FAM, FAMD
Princeton, and Princeton Services since 2004.
NJ 08543-9011
Age: 46
* Officers of the Funds serve at the pleasure of the Board of Directors.
Custodian
State Street Bank and
Trust Company
P.O. Box 351
Boston, MA 02101
Transfer Agents
Common Stock:
Computershare Trust
Company, N.A.
P.O. Box 43010
Providence, RI 02940-3010
800-426-5523
Preferred Stock:
The Bank of New York
101 Barclay Street - 7 West
New York, NY 10286
Laurie Simon Hodrick resigned as a Director of Muni Intermediate Duration Fund,
Inc. and Muni New York Intermediate Duration Fund, Inc. effective May 1, 2006.
ANNUAL REPORTS MAY 31, 2006
Investment Objectives
NYSE Symbol Muni Intermediate Duration Fund, Inc. seeks to provide
MUI 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.
NYSE Symbol Muni New York Intermediate Duration Fund, Inc. seeks to provide
MNE shareholders with high current income exempt from federal income
taxes and New York State and New York City personal 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 and New York State and
New York City personal income taxes.
Fund Certifications
In September 2005, Muni Intermediate Duration Fund, Inc. and Muni New York
Intermediate Duration Fund, Inc. filed their Chief Executive Officer
Certifications for the prior year with the New York Stock Exchange pursuant to
Section 303A.12(a) of the New York Stock Exchange Corporate Governance Listing
Standards.
The Funds' Chief Executive Officer and Chief Financial Officer Certifications
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 were filed with the
Fund's Form N-CSR and are available on the Securities and Exchange
Commission's Web site at http://www.sec.gov.
Availability of Quarterly Schedule of Investments
The Funds file their complete schedules of portfolio holdings with the
Securities and Exchange Commission ("SEC") for the first and third quarters
of each fiscal year on Form N-Q. The Funds' Forms N-Q are available on the
SEC's Web site at http://www.sec.gov. The Funds' Forms N-Q may also be
reviewed and copied at the SEC's Public Reference Room in Washington, DC.
Information on the operation of the Public Reference Room may be obtained
by calling 1-800-SEC-0330.
Electronic Delivery
The Funds offer electronic delivery of communications to their shareholders.
In order to receive this service, you must register your account and provide
us with e-mail information. To sign up for this service, simply access this
Web site at http://www.icsdelivery.com/live and follow the instructions. When
you visit this site, you will obtain a personal identification number (PIN).
You will need this PIN should you wish to update your e-mail address, choose
to discontinue this service and/or make any other changes to the service. This
service is not available for certain retirement accounts at this time.
ANNUAL REPORTS MAY 31, 2006
Item 2 - Code of Ethics - The registrant has adopted a code of ethics, as of
the end of the period covered by this report, that applies to the
registrant's principal executive officer, principal financial
officer and principal accounting officer, or persons performing
similar functions. A copy of the code of ethics is available
without charge upon request by calling toll-free 1-800-MER-FUND
(1-800-637-3863).
Item 3 - Audit Committee Financial Expert - The registrant's board of
directors has determined that (i) the registrant has the following
audit committee financial experts serving on its audit committee
and (ii) each audit committee financial expert is independent:
(1) Donald W. Burton, (2) Laurie Simon Hodrick (resigned as of
May 1, 2006), (3) John F. O'Brien, (4) David H. Walsh and (5)
Fred G. Weiss.
The registrant's board of directors has determined that Laurie
Simon Hodrick qualifies as a financial expert 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.
Item 4 - Principal Accountant Fees and Services
(a) Audit Fees - Fiscal Year Ending May 31, 2006 - $34,000
Fiscal Year Ending May 31, 2005 - $33,000
(b) Audit-Related Fees - Fiscal Year Ending May 31, 2006 - $3,500
Fiscal Year Ending May 31, 2005 - $3,500
The nature of the services include assurance and related services
reasonably related to the performance of the audit of financial
statements not included in Audit Fees.
(c) Tax Fees - Fiscal Year Ending May 31, 2006 - $6,000
Fiscal Year Ending May 31, 2005 - $5,700
The nature of the services include tax compliance, tax advice and
tax planning.
(d) All Other Fees - Fiscal Year Ending May 31, 2006 - $0
Fiscal Year Ending May 31, 2005 - $0
(e)(1) The registrant's audit committee (the "Committee") has
adopted policies and procedures with regard to the pre-approval of
services. Audit, audit-related and tax compliance services
provided to the registrant on an annual basis require specific pre-
approval by the Committee. The Committee also must approve other
non-audit services provided to the registrant and those non-audit
services provided to the registrant's affiliated service providers
that relate directly to the operations and the financial reporting
of the registrant. Certain of these non-audit services that the
Committee believes are a) consistent with the SEC's auditor
independence rules and b) routine and recurring services that will
not impair the independence of the independent accountants may be
approved by the Committee without consideration on a specific case-
by-case basis ("general pre-approval"). However, such services
will only be deemed pre-approved provided that any individual
project does not exceed $5,000 attributable to the registrant or
$50,000 for all of the registrants the Committee oversees. Any
proposed services exceeding the pre-approved cost levels will
require specific pre-approval by the Committee, as will any other
services not subject to general pre-approval (e.g., unanticipated
but permissible services). The Committee is informed of each
service approved subject to general pre-approval at the next
regularly scheduled in-person board meeting.
(e)(2) 0%
(f) Not Applicable
(g) Fiscal Year Ending May 31, 2006 - $9,500
Fiscal Year Ending May 31, 2005 - $9,200
(h) The registrant's audit committee has considered and determined
that the provision of non-audit services that were rendered to the
registrant's investment adviser and any entity controlling,
controlled by, or under common control with the investment adviser
that provides ongoing services to the registrant that were not pre-
approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of
Regulation S-X is compatible with maintaining the principal
accountant's independence.
Regulation S-X Rule 2-01(c)(7)(ii) - $0, 0%
Item 5 - Audit Committee of Listed Registrants - The following individuals
are members of the registrant's separately-designated standing
audit committee established in accordance with Section 3(a)(58)(A)
of the Exchange Act (15 U.S.C. 78c(a)(58)(A)):
Donald W. Burton
Laurie Simon Hodrick (resigned as of May 1, 2006)
John F. O'Brien
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 the Investment Adviser
considers the interests of its clients, including the Funds, and
not the interests of the Investment Adviser, when voting proxies
and that real (or perceived) material conflicts that may arise
between the Investment Adviser's interest and those of the
Investment Adviser's clients are properly addressed and resolved.
In order to implement the Proxy Voting Procedures, the Investment
Adviser has formed a Proxy Voting Committee (the "Committee"). The
Committee is comprised of the Investment Adviser's Chief Investment
Officer (the "CIO"), one or more other senior investment
professionals appointed by the CIO, portfolio managers and
investment analysts appointed by the CIO and any other personnel
the CIO deems appropriate. The Committee will also include two non-
voting representatives from the Investment Adviser's Legal
department appointed by the Investment Adviser's General Counsel.
The Committee's membership shall be limited to full-time employees
of the Investment Adviser. No person with any investment banking,
trading, retail brokerage or research responsibilities for the
Investment Adviser's affiliates may serve as a member of the
Committee or participate in its decision making (except to the
extent such person is asked by the Committee to present information
to the Committee, on the same basis as other interested
knowledgeable parties not affiliated with the Investment Adviser
might be asked to do so). The Committee determines how to vote the
proxies of all clients, including a Fund, that have delegated proxy
voting authority to the Investment Adviser and seeks to ensure that
all votes are consistent with the best interests of those clients
and are free from unwarranted and inappropriate influences. The
Committee establishes general proxy voting policies for the
Investment Adviser and is responsible for determining how those
policies are applied to specific proxy votes, in light of each
issuer's unique structure, management, strategic options and, in
certain circumstances, probable economic and other anticipated
consequences of alternate actions. In so doing, the Committee may
determine to vote a particular proxy in a manner contrary to its
generally stated policies. In addition, the Committee will be
responsible for ensuring that all reporting and recordkeeping
requirements related to proxy voting are fulfilled.
The Committee may determine that the subject matter of a recurring
proxy issue is not suitable for general voting policies and
requires a case-by-case determination. In such cases, the
Committee may elect not to adopt a specific voting policy
applicable to that issue. The Investment Adviser believes that
certain proxy voting issues require investment analysis - such as
approval of mergers and other significant corporate transactions -
akin to investment decisions, and are, therefore, not suitable for
general guidelines. The Committee may elect to adopt a common
position for the Investment Adviser on certain proxy votes that are
akin to investment decisions, or determine to permit the portfolio
manager to make individual decisions on how best to maximize
economic value for a Fund (similar to normal buy/sell investment
decisions made by such portfolio managers). While it is expected
that the Investment Adviser will generally seek to vote proxies
over which the Investment Adviser exercises voting authority in a
uniform manner for all the Investment Adviser's clients, the
Committee, in conjunction with a Fund's portfolio manager, may
determine that the Fund's specific circumstances require that its
proxies be voted differently.
To assist the Investment Adviser in voting proxies, the Committee
has retained Institutional Shareholder Services ("ISS"). ISS is an
independent adviser that specializes in providing a variety of
fiduciary-level proxy-related services to institutional investment
managers, plan sponsors, custodians, consultants, and other
institutional investors. The services provided to the Investment
Adviser by ISS include in-depth research, voting recommendations
(although the Investment Adviser is not obligated to follow such
recommendations), vote execution, and recordkeeping. ISS will also
assist the Fund in fulfilling its reporting and recordkeeping
obligations under the Investment Company Act.
The Investment Adviser's Proxy Voting Procedures also address
special circumstances that can arise in connection with proxy
voting. For instance, under the Proxy Voting Procedures, the
Investment Adviser generally will not seek to vote proxies related
to portfolio securities that are on loan, although it may do so
under certain circumstances. In addition, the Investment Adviser
will vote proxies related to securities of foreign issuers only on
a best efforts basis and may elect not to vote at all in certain
countries where the Committee determines that the costs associated
with voting generally outweigh the benefits. The Committee may at
any time override these general policies if it determines that such
action is in the best interests of a Fund.
From time to time, the Investment Adviser may be required to vote proxies in
respect of an issuer where an affiliate of the Investment Adviser (each, an
"Affiliate"), or a money management or other client of the Investment Adviser
(each, a "Client") is involved. The Proxy Voting Procedures and the Investment
Adviser's adherence to those procedures are designed to address such conflicts
of interest. The Committee intends to strictly adhere to the Proxy Voting
Procedures in all proxy matters, including matters involving Affiliates and
Clients. If, however, an issue representing a non-routine matter that is
material to an Affiliate or a widely known Client is involved such that the
Committee does not reasonably believe it is able to follow its guidelines (or
if the particular proxy matter is not addressed by the guidelines) and vote
impartially, the Committee may, in its discretion for the purposes of ensuring
that an independent determination is reached, retain an independent fiduciary
to advise the Committee on how to vote or to cast votes on behalf of the
Investment Adviser's clients.
In the event that the Committee determines not to retain an
independent fiduciary, or it does not follow the advice of such an
independent fiduciary, the powers of the Committee shall pass to a
subcommittee, appointed by the CIO (with advice from the Secretary
of the Committee), consisting solely of Committee members selected
by the CIO. The CIO shall appoint to the subcommittee, where
appropriate, only persons whose job responsibilities do not include
contact with the Client and whose job evaluations would not be
affected by the Investment Adviser's relationship with the Client
(or failure to retain such relationship). The subcommittee shall
determine whether and how to vote all proxies on behalf of the
Investment Adviser's clients or, if the proxy matter is, in their
judgment, akin to an investment decision, to defer to the
applicable portfolio managers, provided that, if the subcommittee
determines to alter the Investment Adviser's normal voting
guidelines or, on matters where the Investment Adviser's policy is
case-by-case, does not follow the voting recommendation of any
proxy voting service or other independent fiduciary that may be
retained to provide research or advice to the Investment Adviser on
that matter, no proxies relating to the Client may be voted unless
the Secretary, or in the Secretary's absence, the Assistant
Secretary of the Committee concurs that the subcommittee's
determination is consistent with the Investment Adviser's fiduciary
duties
In addition to the general principles outlined above, the
Investment Adviser has adopted voting guidelines with respect to
certain recurring proxy issues that are not expected to involve
unusual circumstances. These policies are guidelines only, and the
Investment Adviser may elect to vote differently from the
recommendation set forth in a voting guideline if the Committee
determines that it is in a Fund's best interest to do so. In
addition, the guidelines may be reviewed at any time upon the
request of a Committee member and may be amended or deleted upon
the vote of a majority of Committee members present at a Committee
meeting at which there is a quorum.
The Investment Adviser has adopted specific voting guidelines with
respect to the following proxy issues:
o Proposals related to the composition of the Board of Directors of issuers
other than investment companies. As a general matter, the Committee
believes that a company's Board of Directors (rather than shareholders) is
most likely to have access to important, nonpublic information regarding a
company's business and prospects, and is therefore best-positioned to set
corporate policy and oversee management. The Committee, therefore,
believes that the foundation of good corporate governance is the election
of qualified, independent corporate directors who are likely to diligently
represent the interests of shareholders and oversee management of the
corporation in a manner that will seek to maximize shareholder value over
time. In individual cases, the Committee may look at a nominee's history
of representing shareholder interests as a director of other companies or
other factors, to the extent the Committee deems relevant.
o Proposals related to the selection of an issuer's independent auditors. As
a general matter, the Committee believes that corporate auditors have a
responsibility to represent the interests of shareholders and provide an
independent view on the propriety of financial reporting decisions of
corporate management. While the Committee will generally defer to a
corporation's choice of auditor, in individual cases, the Committee may
look at an auditors' history of representing shareholder interests as
auditor of other companies, to the extent the Committee deems relevant.
o Proposals related to management compensation and employee benefits. As a
general matter, the Committee favors disclosure of an issuer's compensation
and benefit policies and opposes excessive compensation, but believes that
compensation matters are normally best determined by an issuer's board of
directors, rather than shareholders. Proposals to "micro-manage" an
issuer's compensation practices or to set arbitrary restrictions on
compensation or benefits will, therefore, generally not be supported.
o Proposals related to requests, principally from management, for approval of
amendments that would alter an issuer's capital structure. As a general
matter, the Committee will support requests that enhance the rights of
common shareholders and oppose requests that appear to be unreasonably
dilutive.
o Proposals related to requests for approval of amendments to an issuer's
charter or by-laws. As a general matter, the Committee opposes poison pill
provisions.
o Routine proposals related to requests regarding the formalities of
corporate meetings.
o Proposals related to proxy issues associated solely with holdings of
investment company shares. As with other types of companies, the Committee
believes that a fund's Board of Directors (rather than its shareholders) is
best-positioned to set fund policy and oversee management. However, the
Committee opposes granting Boards of Directors authority over certain
matters, such as changes to a fund's investment objective, that the
Investment Company Act envisions will be approved directly by shareholders.
o Proposals related to limiting corporate conduct in some manner that relates
to the shareholder's environmental or social concerns. The Committee
generally believes that annual shareholder meetings are inappropriate
forums for discussion of larger social issues, and opposes shareholder
resolutions "micromanaging" corporate conduct or requesting release of
information that would not help a shareholder evaluate an investment in the
corporation as an economic matter. While the Committee is generally
supportive of proposals to require corporate disclosure of matters that
seem relevant and material to the economic interests of shareholders, the
Committee is generally not supportive of proposals to require disclosure of
corporate matters for other purposes.
Item 8 - Portfolio Managers of Closed-End Management Investment Companies -
as of May 31, 2006.
(a)(1) Mr. Robert A. DiMella is primarily responsible for the day-
to-day management of the registrant's portfolio ("Portfolio
Manager"). Mr. DiMella has been a portfolio manager with
MLIM since 1997, was a Vice President of MLIM from 1997 to
2001, was a Director (Tax-Exempt Fund Management) of MLIM
from 2002 to 2004, has been a Managing Director of MLIM
since 2004 and has 16 years of experience investing in
Municipal Bonds as a portfolio manager on behalf of
registered investment companies. He has been the portfolio
manager and a Vice President of the Fund since 2003.
(a)(2) As of May 31, 2006:
(iii) Number of Other Accounts and
(ii) Number of Other Accounts Managed Assets for Which Advisory Fee is
and Assets by Account Type Performance-Based
Other Other
(i) Name of Registered Other Pooled Registered Other Pooled
Portfolio Investment Investment Other Investment Investment Other
Manager Companies Vehicles Accounts Companies Vehicles Accounts
Robert A.
DiMella 5 1 0 0 1 0
$ 2,384,791,962 $ 23,409,341 $ 0 $ 0 $ 23,409,341 $ 0
(iv) Potential Material Conflicts of Interest
Real, potential or apparent conflicts of interest may arise when a
portfolio manager has day-to-day portfolio management responsibilities with
respect to more than one fund or account, including the following:
Certain investments may be appropriate for the Fund and also for other
clients advised by the Investment. Adviser and its affiliates, including other
client accounts managed by the Fund's portfolio management team. Investment
decisions for the Fund and other clients are made with a view to achieving
their respective investment objectives and after consideration of such factors
as their current holdings, availability of cash for investment and the size of
their investments generally. Frequently, a particular security may be bought or
sold for only one client or in different amounts and at different times for
more than one but less than all clients. Likewise, because clients of the
Investment Adviser and its affiliates may have differing investment strategies,
a particular security may be bought for one or more clients when one or more
other clients are selling the security. The investment results for the Fund may
differ from the results achieved by other clients of the Investment Adviser and
its affiliates and results among clients may differ. In addition, purchases or
sales of the same security may be made for two or more clients on the same day.
In such event, such transactions will be allocated among the clients in a
manner believed by the Investment Adviser and its affiliates to be equitable to
each. The Investment Adviser will not determine allocations based on whether it
receives a performance based fee from the client. In some cases, the allocation
procedure could have an adverse effect on the price or amount of the securities
purchased or sold by the Fund. Purchase and sale orders for the Fund may be
combined with those of other clients of the Investment Adviser and its
affiliates in the interest of achieving the most favorable net results to the
Fund.
To the extent that the Fund's portfolio management team has
responsibilities for managing accounts in addition to the Fund, a portfolio
manager will need to divide his time and attention among relevant accounts.
In some cases, a real, potential or apparent conflict may also arise
where (i) the Investment Adviser may have an incentive, such as a performance
based fee, in managing one account and not with respect to other accounts it
manages or (ii) where a member of the Fund's portfolio management team owns an
interest in one fund or account he or she manages and not another.
(a)(3) As of May 31, 2006:
Portfolio Manager Compensation
The Portfolio Manager Compensation Program of MLIM and its affiliates,
including the Investment Adviser, is critical to MLIM's ability to attract and
retain the most talented asset management professionals. This program ensures
that compensation is aligned with maximizing investment returns and it provides
a competitive pay opportunity for competitive performance.
Compensation Program
The elements of total compensation for MLIM and its affiliates
portfolio managers are a fixed base salary, annual performance-based cash and
stock compensation (cash and stock bonus) and other benefits. MLIM has balanced
these components of pay to provide portfolio managers with a powerful incentive
to achieve consistently superior investment performance. By design, portfolio
manager compensation levels fluctuate--both up and down--with the relative
investment performance of the portfolios that they manage.
Base Salary
Under the MLIM approach, like that of many asset management firms, base
salaries represent a relatively small portion of a portfolio manager's total
compensation. This approach serves to enhance the motivational value of the
performance-based (and therefore variable) compensation elements of the
compensation program.
Performance-Based Compensation
MLIM believes that the best interests of investors are served by
recruiting and retaining exceptional asset management talent and managing their
compensation within a consistent and disciplined framework that emphasizes pay
for performance in the context of an intensely competitive market for talent.
To that end, MLIM and its affiliates portfolio manager incentive compensation
is based on a formulaic compensation program. MLIM's formulaic portfolio
manager compensation program includes: investment performance relative to a
subset of general closed-end, leveraged, municipal debt funds over 1-, 3- and 5-
year performance periods and a measure of operational efficiency. Portfolio
managers are compensated based on the pre-tax performance of the products they
manage. If a portfolio manager's tenure is less than 5 years, performance
periods will reflect time in position. Portfolio managers are compensated based
on products they manage. A discretionary element of portfolio manager
compensation may include consideration of: financial results, expense control,
profit margins, strategic planning and implementation, quality of client
service, market share, corporate reputation, capital allocation, compliance and
risk control, leadership, workforce diversity, supervision, technology and
innovation. MLIM and its affiliates also consider the extent to which
individuals exemplify and foster ML & Co.'s principles of client focus, respect
for the individual, teamwork, responsible citizenship and integrity. All
factors are considered collectively by MLIM management.
Cash Bonus
Performance-based compensation is distributed to portfolio managers in
a combination of cash and stock. Typically, the cash bonus, when combined with
base salary, represents more than 60% of total compensation for portfolio
managers.
Stock Bonus
A portion of the dollar value of the total annual performance-based
bonus is paid in restricted shares of ML & Co. stock. Paying a portion of
annual bonuses in stock puts compensation earned by a portfolio manager for a
given year "at risk" based on the company's ability to sustain and improve its
performance over future periods. The ultimate value of stock bonuses is
dependent on future ML & Co. stock price performance. As such, the stock bonus
aligns each portfolio manager's financial interests with those of the ML & Co.
shareholders and encourages a balance between short-term goals and long-term
strategic objectives. Management strongly believes that providing a significant
portion of competitive performance-based compensation in stock is in the best
interests of investors and shareholders. This approach ensures that portfolio
managers participate as shareholders in both the "downside risk" and "upside
opportunity" of the company's performance. Portfolio managers therefore have a
direct incentive to protect ML & Co.'s reputation for integrity.
Other Compensation Programs
Portfolio managers who meet relative investment performance and
financial management objectives during a performance year are eligible to
participate in a deferred cash program. Awards under this program are in the
form of deferred cash that may be benchmarked to a menu of MLIM mutual funds
(including their own fund) during a five-year vesting period. The deferred cash
program aligns the interests of participating portfolio managers with the
investment results of MLIM products and promotes continuity of successful
portfolio management teams.
Other Benefits
Portfolio managers are also eligible to participate in broad-based
plans offered generally to employees of ML & Co. and its affiliates, including
broad-based retirement, 401(k), health, and other employee benefit plans.
(a)(4) Beneficial Ownership of Securities. As of May 31, 2006,
Mr. DiMella does not beneficially own any stock issued by the
Fund.
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 10 - Submission of Matters to a Vote of Security Holders - Not Applicable
Item 11 - Controls and Procedures
11(a) - The registrant's certifying officers have reasonably designed such
disclosure controls and procedures to ensure material information
relating to the registrant is made known to us by others
particularly during the period in which this report is being
prepared. The registrant's certifying officers have determined
that the registrant's disclosure controls and procedures are
effective based on our evaluation of these controls and procedures
as of a date within 90 days prior to the filing date of this
report.
11(b) - There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act
(17 CFR 270.30a-3(d)) that occurred during the second fiscal half-
year of the period covered by this report that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - See Item 2
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(b) - Certifications - Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
Muni Intermediate Duration Fund, Inc.
By: /s/ Robert C. Doll, Jr.
---------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
Muni Intermediate Duration Fund, Inc.
Date: July 21, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on
the dates indicated.
By: /s/ Robert C. Doll, Jr.
---------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
Muni Intermediate Duration Fund, Inc.
Date: July 21, 2006
By: /s/ Donald C. Burke
---------------------------
Donald C. Burke,
Chief Financial Officer of
Muni Intermediate Duration Fund, Inc.
Date: July 21, 2006