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 811-10053
Merrill Lynch Total Return Bond Fund
Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Terry K. Glenn, President,
Merrill Lynch Total Return Bond Fund, 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: 06/30/03
Date of reporting period: 07/01/02 - 12/31/02
Item 1 - Is shareholder report attached? - Y
Item 2 - Did registrant adopt 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, principal
accounting officer or controller, or persons performing similar
functions, regardless of whether these individuals are employed by
the registrant or a third party? If not, why not? Briefly describe
any amendments or waivers that occurred during the period. State
here if code of ethics/amendments/waivers are on website and give
website address-. State here if fund will send code of ethics to
shareholders without charge upon request--N/A (not answered until
July 15, 2003 and only annually for funds)
Item 3 - Did the registrant's board of directors determine that the
registrant either: (i) has at least one audit committee financial
expert serving on its audit committee; or (ii) does not have an
audit committee financial expert serving on its audit committee? If
yes, disclose name of financial expert and whether he/she is
"independent," (fund may, but is not required, to disclose
name/independence of more than one financial expert) If no, explain
why not. -N/A (not answered until July 15, 2003 and only annually
for funds)
Item 4 - Disclose annually only (not answered until December 15,
2003)
(a) Audit Fees - Disclose aggregate fees billed for each of the last
two fiscal years for professional services rendered by the principal
accountant for the audit of the registrant's annual financial
statements or services that are normally provided by the accountant
in connection with statutory and regulatory filings or engagements
for those fiscal years. N/A.
(b) Audit-Related Fees - Disclose aggregate fees billed in each of
the last two fiscal years for assurance and related services by the
principal accountant that are reasonably related to the performance
of the audit of the registrant's financial statements and are not
reported under paragraph (a) of this Item. Registrants shall
describe the nature of the services comprising the fees disclosed
under this category. N/A.
(c) Tax Fees - Disclose aggregate fees billed in each of the last
two fiscal years for professional services rendered by the principal
accountant for tax compliance, tax advice, and tax planning.
Registrants shall describe the nature of the services comprising the
fees disclosed under this category. N/A.
(d) All Other Fees - Disclose aggregate fees billed in each of the
last two fiscal years for products and services provided by the
principal accountant, other than the services reported in paragraphs
(a) through (c) of this Item. Registrants shall describe the nature
of the services comprising the fees disclosed under this category.
N/A.
(e)(1) Disclose the audit committee's pre-approval policies and
procedures described in paragraph (c)(7) of Rule 2-01 of Regulation
S-X. N/A.
(e)(2) Disclose the percentage of services described in each of
paragraphs (b) through (d) of this Item that were approved by the
audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of
Regulation S-X. N/A.
(f) If greater than 50%, disclose the percentage of hours expended
on the principal accountant's engagement to audit the registrant's
financial statements for the most recent fiscal year that were
attributed to work performed by persons other than the principal
accountant's full-time, permanent employees. N/A.
(g) Disclose the aggregate non-audit fees billed by the registrant's
accountant for services rendered to the registrant, and rendered to
the registrant's investment adviser (not including any sub-adviser
whose role is primarily portfolio management and is subcontracted
with or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the adviser
that provides ongoing services to the registrant for each of the
last two fiscal years of the registrant. N/A.
(h) Disclose whether the registrant's audit committee has considered
whether the provision of non-audit services that were rendered to
the registrant's investment adviser (not including any subadviser
whose role is primarily portfolio management and is subcontracted
with or overseen by another 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. N/A.
Items 5-6 - Reserved
Item 7 - For closed-end funds that contain voting securities in
their portfolio, describe the policies and procedures that it uses
to determine how to vote proxies relating to those portfolio
securities. N/A.
Item 8--Reserved
Item 9(a) - Disclose the conclusions of the registrant's principal
executive officer or officers and principal financial officer or
officers, or persons performing similar functions, about the
effectiveness of the registrant's disclosure controls and procedures
(as defined in Rule 30a-2(c) under the Act (17 CFR 270.30a-2(c)))
based on their evaluation of these controls and procedures as of a
date within 90 days of the filing date of the report that includes
the disclosure required by this paragraph. N/A.
Item 9(b)--There were no significant changes in the registrant's
internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Item 10 - Exhibits
10(a) - Attach code of ethics or amendments/waivers, unless code of
ethics or amendments/waivers is on website or offered to
shareholders upon request without charge. N/A.
10(b) - Attach certifications (4 in total pursuant to Sections 302
and 906 for CEO/CFO). 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.
Merrill Lynch Total Return Bond Fund
By: _/s/ Terry K. Glenn_______
Terry K. Glenn,
President of
Merrill Lynch Total Return Bond Fund
Date: February 18, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By: _/s/ Terry K. Glenn________
Terry K. Glenn,
President of
Merrill Lynch Total Return Bond Fund
Date: February 18, 2003
By: _/s/ Donald C. Burke________
Donald C. Burke
Chief Financial Officer of
Merrill Lynch Total Return Bond Fund
Date: February 18, 2003
<ITEM 1>
(BULL LOGO)
Merrill Lynch Investment Managers
Semi-Annual Report
December 31, 2002
Merrill Lynch
Total Return
Bond Fund
www.mlim.ml.com
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Statements and other information herein are as dated and are subject
to change.
Merrill Lynch Total Return Bond Fund of
Merrill Lynch Investment Managers Funds, Inc.
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
MERRILL LYNCH TOTAL RETURN BOND FUND
Officers and
Directors/Trustees
Terry K. Glenn, President and Director/Trustee
James H. Bodurtha, Director/Trustee
Joe Grills, Director/Trustee
Herbert I. London, Director/Trustee
Andre F. Perold, Director/Trustee
Roberta Cooper Ramo, Director/Trustee
Robert S. Salomon, Jr., Director/Trustee
Melvin R. Seiden, Director/Trustee
Stephen B. Swensrud, Director/Trustee
Patrick Maldari, Vice President
James J. Pagano, Vice President
Donald C. Burke, Vice President and Treasurer
Phillip S. Gillespie, Secretary
Effective January 1, 2003, Melvin R. Seiden, Director/Trustee of
Merrill Lynch Total Return Bond Fund, retired. The Fund's Board of
Directors/Trustees wishes Mr. Seiden well in his retirement.
Custodian
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109-3661
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
800-637-3863
Merrill Lynch Total Return Bond Fund, December 31, 2002
DEAR SHAREHOLDER
Economic Environment
The U.S. economy grew throughout 2002, although the pace of the
growth had been quite uneven from quarter to quarter. For the year
as a whole, the economy quite likely grew at an annual pace of
approximately 3.0%--modest for sure, but hardly the source for
"double-dip" recessionary concerns that dominated the headlines from
time to time. Inflation remained virtually non-existent, with the
core personal consumption expenditure deflator, the inflation gauge
watched by the Federal Reserve Board, rising by only 1.8%.
In past economic recoveries, businesses have contributed
significantly to growth. However, the continuing corporate profit
drought in the face of significant excess capacity left businesses
holding back on capital spending and achieving productivity gains
through paring down payrolls. The consumer sector, on the other
hand, held up remarkably well, despite the weak employment outlook,
declining equity markets, and terrorism and geopolitical concerns
adding to the decline in consumer confidence. Nevertheless, the
sharp drop in mortgage rates during the past year contributed to a
healthy housing market and a refinancing boom, helping out the
consumer, while heavy economic incentives (such as zero-cost
financing) helped keep consumption of durable goods, such as
automobiles, robust.
Looking ahead, we anticipate the economy to grow at a sub-par rate
of below 3% in 2003, with risks to the forecast more evenly
balanced. While the prospects for a strong fiscal stimulus package
from Washington, D.C. have improved markedly, the timing of the
legislation, its scope and its potential positive impact on the
economy over the near term remain uncertain. At the same time, the
possible end of the mortgage refinancing boom and a murky labor
market could further erode consumer confidence, posing downside
risks to the economy. Capital spending by businesses is also likely
to remain somewhat subdued as the sectors that have contributed
historically to capital spending--telecommunications, utility and
energy--work out past excesses. Government spending is not likely to
contribute very much, given the potential for the growing fiscal
deficits at state and local government levels somewhat offsetting
the spending from Washington.
Interest Rates
Interest rates essentially followed the economic news through most
of the six months ended December 31, 2002. The Federal Reserve Board
started the period with the Federal Funds rate at 1.75%, with a
balanced view of risk. However, with the economy showing signs of
stress in the third quarter, at the Federal Open Market Committee
(FOMC) meeting, the Federal Reserve Board changed its bias once
again toward "weakness" in the economy. Amid growing deflationary
concerns, and the potential for the economy to slip back into a
recession, the Federal Reserve Board surprised investors at its
November FOMC meeting, by lowering the Federal Funds rate by 50
basis points (.50%) to 1.25%, but changing the bias once again to
"balanced."
Most Treasury yields reacted to the changing economic prospects
throughout the period. Sensing a strong recovery, Treasury yields
fell sharply from early April, with most of the declines occurring
in the third quarter through October 10, 2002. During this period,
two-year note yields declined by 197 basis points, ten-year notes by
177 basis points and 30-year bonds by 111 basis points. Although
yields have backed up toward year end, for the year as a whole, the
investment-grade sector in general had a solid year.
Going forward, we expect the Federal Reserve Board to remain on
hold, at least through the first half of 2003. While a slow growing
economy with little threat of inflation should keep interest rates
range bound, the risks to the fixed income markets have become
somewhat asymmetric. The growing budget deficits at the Federal and
state levels, along with the absolute low levels of current interest
rates, not to mention the stellar performance of the fixed market
over the past three years, give us little reason to hope for a
sustained drop in interest rates. Accordingly, we anticipate
interest rates to have an upward bias and the yield curve to have a
bearish steepening bias over the next few months.
Portfolio Matters
For the six months ended December 31, 2002, the Fund's Class A,
Class B, Class C and Class D Shares had total returns of +6.19%,
+5.28%, +5.28% and +5.67%, respectively, compared to its unmanaged
benchmark, the Lehman Brothers Aggregate Bond Index, which had a
total return of +6.23% for the same six-month period. (Fund results
shown do not reflect sales charges and would be lower if sales
charges were included. Complete performance information can be found
on pages 4 and 5 of this report to shareholders.)
Entering the six-month period ended December 31, 2002, the portfolio
held overweights of 3% - 8% in the major credit sectors, including
corporate bonds, mortgage-backed securities and commercial mortgage-
backed securities. However, the warning signals that began to emerge
near the end of the first half caused us to question our optimistic
view of the economy and the markets. After peaking at about 10,350,
the Dow Jones Industrial Average plunged more than 2,500 points in
just over eight weeks. Consumer confidence, estimates of gross
domestic product growth and Treasury yields also fell, and by the
beginning of August the markets were in a crisis mode. Although we
made major adjustments in portfolio construction, reducing our
corporate and mortgage overweights to neutral and adding duration,
performance suffered as market liquidity dried up. This caused our
restructuring to take longer than expected, and execution delays
invariably cost money in such volatile market conditions. Although
the corporate sector suffered a total of more than 400 basis points
of negative excess returns during June and July, careful management
of our holdings substantially limited the effects of the down move.
Portfolio performance during this period enabled the Fund to make up
ground compared to its peers.
In the last quarter of 2002, the summer's extreme volatility had
given way to a market in which Treasury yields have traded in a
narrow range. As was true at the beginning of the period, the credit
sectors have again taken a leading role. While we have reestablished
overweight positions in the corporate and mortgage sectors, we
remain mindful of the potential for a return of volatility. As such,
the overweights are smaller--about 2% - 3%--and more liquid, which
enables us to move quickly back to a neutral profile should it
become necessary. We have continued to actively manage portfolio
duration and to aggressively finance our "to be announced" mortgage
holdings, which are safe strategies designed to incrementally
increase Fund performance.
Going forward, we seek to maintain a portfolio profile reflective of
our pro-cyclical bias--spread sector overweights and duration less
than that of the benchmark. While we believe there is a high
probability that there will be a military confrontation with Iraq
during the first quarter of 2003, we anticipate that this will
ultimately result in a decline in volatility as uncertainty is
removed from the markets. We expect this to provide the basis for
solid, if unspectacular, economic growth as the year progresses.
In Conclusion
On September 30, 2002, the Fund's Board of Directors approved a plan
of reorganization, subject to shareholder approval and certain other
conditions, among the Fund, Mercury Total Return Bond Fund, Merrill
Lynch Global Bond Fund For Investment and Retirement, The Corporate
Fund Accumulation Program, Inc., the Core Bond Portfolio of Merrill
Lynch Bond Fund, Inc. (the "Core Bond Portfolio") and the Portfolio
whereby the Core Bond Portfolio will acquire all of the assets and
will assume all of the liabilities of the Fund in exchange for newly
issued shares of the Core Bond Portfolio.
We thank you for your investment in Merrill Lynch Total Return Bond
Fund.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President and Director
(Patrick Maldari)
Patrick Maldari
Portfolio Manager
(James J. Pagano)
James J. Pagano
Portfolio Manager
February 4, 2003
Merrill Lynch Total Return Bond Fund, December 31, 2002
PERFORMANCE DATA
About Fund
Performance
Investors are able to purchase shares of the Fund through the
Merrill Lynch Select Pricing SM System, which offers four pricing
alternatives:
* Class A Shares incur a maximum initial sales charge (front-end
load) of 4.25% and bear no ongoing distribution or account
maintenance fees. Class A Shares are available only to eligible
investors.
* Effective December 1, 2002, Class B Shares are subject to a
maximum contingent deferred sales charge of 4%, declining to 0%
after six years. All Class B shares purchased prior to December 1,
2002 will maintain the four-year schedule. In addition, Class B
Shares are subject to a distribution fee of 0.75% and an account
maintenance fee of 0.25%. These shares automatically convert to
Class D Shares after approximately ten years. (There is no initial
sales charge for automatic share conversions.)
* Class C Shares are subject to a distribution fee of 0.75% and an
account maintenance fee of 0.25%. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within
one year of purchase.
* Class D Shares incur a maximum initial sales charge of 4.25% and
an account maintenance fee of 0.25% (but no distribution fee).
The performance results depicted on pages 4 and 5 are those of
Merrill Lynch Total Return Bond Fund and, prior to October 6, 2000,
a predecessor Fund investing in the same underlying portfolio and
with the same fees as Merrill Lynch Total Return Bond Fund.
Performance results prior to October 6, 2000 reflect the annual
operating expenses of the predecessor Fund. If Merrill Lynch Total
Return Bond Fund's operating expenses were reflected, the results
may have been less than those shown for this time period.
Performance results after October 6, 2000 include actual operating
expenses of Merrill Lynch Total Return Bond Fund. The Fund commenced
operations on October 6, 2000.
None of the past results shown should be considered a representation
of future performance. Performance results do not reflect the
deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares. Figures shown
in each of the following tables assume reinvestment of all
dividends and capital gains distributions at net asset value on the
ex-dividend date. The Portfolio's investment adviser pays annual
operating expenses of the Fund's Class A, Class B, Class C and Class
D Shares in excess of .65%, 1.65%, 1.65% and .90%, respectively, of
the average net assets of each Class. If the investment adviser did
not pay such expenses, net returns would be lower. Investment return
and principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Dividends paid to each class of shares will vary because of the
different levels of account maintenance, distribution and transfer
agency fees applicable to each class, which are deducted from the
income available to be paid to shareholders.
Average Annual
Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
One Year Ended 12/31/02 +9.75% +5.09%
Five Years Ended 12/31/02 +6.65 +5.73
Inception (12/06/94) through 12/31/02 +8.57 +7.99
*Maximum sales charge is 4.25%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
One Year Ended 12/31/02 +8.28% +4.28%
Inception (10/06/00) through 12/31/02 +8.52 +7.30
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after six years.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
One Year Ended 12/31/02 +8.28% +7.28%
Inception (10/06/00) through 12/31/02 +8.53 +8.53
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after one year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
One Year Ended 12/31/02 +9.09% +4.45%
Inception (6/02/99) through 12/31/02 +7.08 +5.79
*Maximum sales charge is 4.25%.
**Assuming maximum sales charge.
Recent
Performance
Results
6-Month 12-Month Since Inception Standardized
As of December 31, 2002 Total Return Total Return Total Return 30-Day Yield
ML Total Return Bond Fund Class A Shares* +6.19% +9.75% +94.15% 3.47%
ML Total Return Bond Fund Class B Shares* +5.28 +8.28 +20.06 2.66
ML Total Return Bond Fund Class C Shares* +5.28 +8.28 +20.07 2.65
ML Total Return Bond Fund Class D Shares* +5.67 +9.09 +27.75 3.25
Lehman Brothers Aggregate Bond Index** +6.23 +10.25 +93.69/+34.21/+23.77 --
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge were included. Total
investment returns are based on changes in net asset values for the
periods shown, and assume reinvestment of all dividends and capital
gains distributions at net asset value on the payable date. The
Fund's since inception periods are from 12/06/94 for Class A Shares,
from 10/06/00 for Class B and Class C Shares, and from 6/02/99 for
Class D Shares.
**This unmanaged market-weighted Index is comprised of investment-
grade corporate bonds (rated BBB or better), mortgages and U.S.
Treasury and government agency issues with at least one year to
maturity. Since inception total returns are from 12/31/94, 6/30/99
and 10/31/00, respectively.
Merrill Lynch Total Return Bond Fund, December 31, 2002
STATEMENT OF ASSETS AND LIABILITIES
MERRILL LYNCH
TOTAL RETURN
BOND FUND As of December 31, 2002
Assets: Investment in Total Return Bond Master Portfolio, at value
(identified cost--$46,562,574) $ 47,590,687
Receivable from administrator 46,100
--------------
Total assets 47,636,787
--------------
Liabilities: Payables:
Dividends and distributions to shareholders $ 76,787
Distributor 30,855 107,642
--------------
Accrued expenses 81,541
--------------
Total liabilities 189,183
--------------
Net Assets: Net assets $ 47,447,604
==============
Net Assets Class A Shares of Common Stock, $.01 par value, 100,000,000
Consist of: shares authorized $ 1,035
Class B Shares of Common Stock, $.01 par value, 200,000,000
shares authorized 14,855
Class C Shares of Common Stock, $.01 par value, 100,000,000
shares authorized 16,176
Class D Shares of Common Stock, $.01 par value, 100,000,000
shares authorized 11,601
Paid-in capital in excess of par 46,220,826
Undistributed investment income--net $ 3,009
Undistributed realized capital gains on investments from
the Portfolio--net 151,989
Unrealized appreciation on investments from the Portfolio--net 1,028,113
--------------
Total accumulated earnings--net 1,183,111
--------------
Net assets $ 47,447,604
==============
Net Asset Class A--Based on net assets of $1,130,344 and 103,471
Value: shares outstanding $ 10.92
==============
Class B--Based on net assets of $16,131,227 and 1,485,519
shares outstanding $ 10.86
==============
Class C--Based on net assets of $17,573,195 and 1,617,633
shares outstanding $ 10.86
==============
Class D--Based on net assets of $12,612,838 and 1,160,100
shares outstanding $ 10.87
==============
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
MERRILL LYNCH
TOTAL RETURN
BOND FUND For the Six Months Ended December 31, 2002
Investment Net investment income allocated from the Portfolio:
Income from the Interest $ 1,016,596
Portfolio--Net: Dividends 8,316
Expenses (100,418)
--------------
Net investment income from the Portfolio 924,494
--------------
Expenses: Account maintenance and distribution fees--Class C $ 75,809
Account maintenance and distribution fees--Class B 71,081
Administration fees 52,273
Printing and shareholder reports 24,881
Registration fees 20,962
Account maintenance fees--Class D 14,215
Transfer agent fees--Class C 8,667
Professional fees 8,598
Transfer agent fees--Class B 8,134
Transfer agent fees--Class D 6,527
Transfer agent fees--Class A 612
Other 3,210
--------------
Total expenses before reimbursement 294,969
Reimbursement of expenses (98,372)
--------------
Total expenses after reimbursement 196,597
--------------
Investment income--net 727,897
--------------
Realized & Realized gain on investments from the Portfolio--net 568,896
Unrealized Change in unrealized appreciation on investments from the Portfolio--net 817,095
Gain from the --------------
Portfolio--Net: Total realized and unrealized gain on investments from the Portfolio--net 1,385,991
--------------
Net Increase in Net Assets Resulting from Operations $ 2,113,888
==============
See Notes to Financial Statements.
Merrill Lynch Total Return Bond Fund, December 31, 2002
STATEMENTS OF CHANGES IN NET ASSETS
For the Six For the
MERRILL LYNCH Months Ended Year Ended
TOTAL RETURN December 31 June 30,
BOND FUND Increase (Decrease) in Net Assets: 2002 2002
Operations: Investment income--net $ 727,897 $ 752,065
Realized gain (loss) on investments from the Portfolio--net 568,896 (147,374)
Change in unrealized appreciation/depreciation on investments
from the Portfolio--net 817,095 224,559
-------------- --------------
Net increase in net assets resulting from operations 2,113,888 829,250
-------------- --------------
Dividends & Investment income--net:
Distributions to Class A (22,638) (21,127)
Shareholders: Class B (229,585) (258,324)
Class C (244,136) (158,109)
Class D (227,671) (320,034)
Realized gain on investments from the Portfolio--net:
Class A (4,527) (473)
Class B (63,181) (7,467)
Class C (68,860) (3,664)
Class D (46,670) (9,703)
-------------- --------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (907,268) (778,901)
-------------- --------------
Capital Share Net increase in net assets derived from capital share transactions 14,807,219 28,178,439
Transactions: -------------- --------------
Net Assets: Total increase in net assets 16,013,839 28,228,788
Beginning of period 31,433,765 3,204,977
-------------- --------------
End of period* $ 47,447,604 $ 31,433,765
============== ==============
*Undistributed (accumulated) investment income (loss)--net $ 3,009 $ (858)
============== ==============
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
Class A
The following per share data and ratios For the Six For the For the
have been derived from information Months Year Period
MERRILL LYNCH provided in the financial statements. Ended Ended Oct. 6, 2000++
TOTAL RETURN Dec. 31, June 30, to June 30,
BOND FUND Increase (Decrease) in Net Asset Value: 2002 2002 2001
Per Share Net asset value, beginning of period $ 10.55 $ 10.20 $ 10.00
Operating ---------- ---------- ----------
Performance: Investment income--net .23+++++ .51+++++ .45
Realized and unrealized gain on investments from the
Portfolio--net .41 .42 .17
---------- ---------- ----------
Total from investment operations .64 .93 .62
---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.23) (.57) (.42)
Realized gain on investments--net (.04) (.01) --
---------- ---------- ----------
Total dividends and distributions (.27) (.58) (.42)
---------- ---------- ----------
Net asset value, end of period $ 10.92 $ 10.55 $ 10.20
========== ========== ==========
Total Based on net asset value per share 6.19%+++ 9.30% 6.23%+++
Investment ========== ========== ==========
Return:**
Ratios to Expenses, net of reimbursement++++ .65%* .65% .65%*
Average ========== ========== ==========
Net Assets: Expenses++++ 1.12%* 1.54% 19.00%*
========== ========== ==========
Investment income--net 4.26%* 5.07% 6.56%*
========== ========== ==========
Supplemental Net assets, end of period (in thousands) $ 1,131 $ 875 $ 64
Data: ========== ========== ==========
Class B
The following per share data and ratios For the Six For the For the
have been derived from information Months Year Period
MERRILL LYNCH provided in the financial statements. Ended Ended Oct. 6, 2000++
TOTAL RETURN Dec. 31, June 30, to June 30,
BOND FUND Increase (Decrease) in Net Asset Value: 2002 2002 2001
Per Share Net asset value, beginning of period $ 10.53 $ 10.18 $ 10.00
Operating ---------- ---------- ----------
Performance: Investment income--net .18+++++ .44+++++ .35
Realized and unrealized gain on investments from the
Portfolio--net .37 .39 .18
---------- ---------- ----------
Total from investment operations .55 .83 .53
---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.18) (.47) (.35)
Realized gain on investments--net (.04) (.01) --
---------- ---------- ----------
Total dividends and distributions (.22) (.48) (.35)
---------- ---------- ----------
Net asset value, end of period $ 10.86 $ 10.53 $ 10.18
========== ========== ==========
Total Based on net asset value per share 5.28%+++ 8.21% 5.39%+++
Investment ========== ========== ==========
Return:**
Ratios to Expenses, net of reimbursement++++ 1.65%* 1.65% 1.65%*
Average ========== ========== ==========
Net Assets: Expenses++++ 2.12%* 2.58% 20.00%*
========== ========== ==========
Investment income--net 3.25%* 4.22% 5.32%*
========== ========== ==========
Supplemental Net assets, end of period (in thousands) $ 16,131 $ 10,113 $ 2,077
Data: ========== ========== ==========
*Annualized.
**Total investment returns exclude the effects of sales charges. The
Portfolio's investment adviser reimbursed a portion of the Fund's
expenses. Without such reimbursement, the Fund's performance would
have been lower.
++Commencement of operations.
++++Includes the Fund's share of the Portfolio's allocated expenses.
+++Aggregate total investment return.
+++++Based on average shares outstanding.
See Notes to Financial Statements.
Merrill Lynch Total Return Bond Fund, December 31, 2002
FINANCIAL HIGHLIGHTS (concluded)
Class C
The following per share data and ratios For the Six For the For the
have been derived from information Months Year Period
MERRILL LYNCH provided in the financial statements. Ended Ended Oct. 6, 2000++
TOTAL RETURN Dec. 31, June 30, to June 30,
BOND FUND Increase (Decrease) in Net Asset Value: 2002 2002 2001
Per Share Net asset value, beginning of period $ 10.53 $ 10.18 $ 10.00
Operating ---------- ---------- ----------
Performance: Investment income--net .18+++++ .40+++++ .36
Realized and unrealized gain on investments from the
Portfolio--net .37 .47 .17
---------- ---------- ----------
Total from investment operations .55 .87 .53
---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.18) (.51) (.35)
Realized gain on investments--net (.04) (.01) --
---------- ---------- ----------
Total dividends and distributions (.22) (.52) (.35)
---------- ---------- ----------
Net asset value, end of period $ 10.86 $ 10.53 $ 10.18
========== ========== ==========
Total Based on net asset value per share 5.28%+++ 8.22% 5.39%+++
Investment ========== ========== ==========
Return:**
Ratios to Expenses, net of reimbursement++++ 1.65%* 1.64% 1.65%*
Average ========== ========== ==========
Net Assets: Expenses++++ 2.12%* 2.51% 20.00%*
========== ========== ==========
Investment income--net 3.24%* 4.07% 5.44%*
========== ========== ==========
Supplemental Net assets, end of period (in thousands) $ 17,573 $ 10,339 $ 259
Data: ========== ========== ==========
Class D
The following per share data and ratios For the Six For the For the
have been derived from information Months Year Period
MERRILL LYNCH provided in the financial statements. Ended Ended Oct. 6, 2000++
TOTAL RETURN Dec. 31, June 30, to June 30,
BOND FUND Increase (Decrease) in Net Asset Value: 2002 2002 2001
Per Share Net asset value, beginning of period $ 10.54 $ 10.19 $ 10.00
Operating ---------- ---------- ----------
Performance: Investment income--net .22+++++ .51+++++ .42
Realized and unrealized gain on investments from the
Portfolio--net .37 .41 .17
---------- ---------- ----------
Total from investment operations .59 .92 .59
---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.22) (.56) (.40)
Realized gain on investments--net (.04) (.01) --
---------- ---------- ----------
Total dividends and distributions (.26) (.57) (.40)
---------- ---------- ----------
Net asset value, end of period $ 10.87 $ 10.54 $ 10.19
========== ========== ==========
Total Based on net asset value per share 5.67%+++ 9.03% 5.97%+++
Investment ========== ========== ==========
Return:**
Ratios to Expenses, net of reimbursement++++ .90%* .90% .90%*
Average ========== ========== ==========
Net Assets: Expenses++++ 1.37%* 1.80% 19.25%*
========== ========== ==========
Investment income--net 4.03%* 4.85% 6.19%*
========== ========== ==========
Supplemental Net assets, end of period (in thousands) $ 12,613 $ 10,107 $ 805
Data: ========== ========== ==========
*Annualized.
**Total investment returns exclude the effects of sales charges. The
Portfolio's investment adviser reimbursed a portion of the Fund's
expenses. Without such reimbursement, the Fund's performance would
have been lower.
++Commencement of operations.
++++Includes the Fund's share of the Portfolio's allocated expenses.
+++Aggregate total investment return.
+++++Based on average shares outstanding.
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
MERRILL LYNCH
TOTAL RETURN
BOND FUND
1. Significant Accounting Policies:
Merrill Lynch Total Return Bond Fund (the "Fund") is a fund of
Merrill Lynch Investment Managers Funds, Inc. (the "Company"). The
Company is a diversified, open-end management investment company
which is organized as a Maryland corporation. The Fund seeks to
achieve its investment objective by investing all of its assets in
Total Return bond Master Portfolio (the "Portfolio") of the Fund
Asset Management Master Trust (the "Trust"), which has the same
investment objective as the Fund. The value of the Fund's investment
in the Portfolio reflects the Fund's proportionate interest in the
net assets of the Portfolio. The performance of the Fund is directly
affected by the performance of the Portfolio. The financial
statements of the Portfolio, including the Schedule of Investments,
are included elsewhere in this report and should be read in
conjunction with the Fund's financial statements. The Fund's
financial statements are prepared in conformity with accounting
principles generally accepted in the United States of America, which
may require the use of management accruals and estimates. These
unaudited financial statements reflect all adjustments, which are,
in the opinion of management, necessary to a fair statement of the
results for the interim period presented. All such adjustments are
of a normal, recurring nature. The percentage of the Portfolio owned
by the Fund at December 31, 2002 was 28.0%. The Fund offers four
classes of shares under the Merrill Lynch Select Pricing SM System.
Shares of Class A and Class D are sold with a front-end sales
charge. Shares of Class B and Class C may be subject to a contingent
deferred sales charge. All classes of shares have identical voting,
dividend, liquidation and other rights and the same terms and
conditions, except that Class B, Class C and Class D Shares bear
certain expenses related to the account maintenance of such shares,
and Class B and Class C Shares also bear certain expenses related to
the distribution of such shares and the additional incremental
transfer agency costs resulting from the deferred sales charge
arrangements. Each class has exclusive voting rights with respect to
matters relating to its account maintenance and distribution
expenditures. Income, expenses (other than expenses attributable to
a specific class) and realized and unrealized gains and losses on
investments and foreign currency transactions are allocated daily to
each class based on its relative net assets. The following is a
summary of significant accounting policies followed by the Fund.
(a) Valuation of investments--The Fund records its investment in the
Portfolio at fair value. Valuation of securities held by the
Portfolio is discussed in Note 1a of the Portfolio's Notes to
Financial Statements, which are included elsewhere in this report.
(b) Investment income and expenses--The Fund records daily its
proportionate share of the Portfolio's income, expenses and realized
and unrealized gains and losses. In addition, the Fund accrues its
own expenses.
(c) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to shareholders. Therefore, no Federal income tax
provision is required.
(d) Prepaid registration fees--Prepaid registration fees are charged
to expenses as the related shares are issued.
(e) Dividends and distributions--Dividends from net investment
income are declared daily and paid monthly. Distributions of capital
gains are recorded on the ex-dividend dates.
(f) Investment transactions--Investment transactions in the
Portfolio are accounted for on a trade date basis.
2. Transactions with Affiliates:
The Company has also entered into an Administration Agreement with
FAM. The general partner of FAM is Princeton Services, Inc. ("PSI"),
a wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."),
which is the limited partner. The Fund pays a monthly fee at an
annual rate of .25% of the Fund's average daily net assets for the
performance of administrative services (other than investment advice
and related portfolio activities) necessary for the operation of the
Fund. FAM has contractually agreed to pay all annual operating
expenses of the Fund's Class A, Class B, Class C and Class D Shares
in excess of .65%, 1.65%, 1.65% and .90%, respectively, as applied
to the daily net assets of each Class through December 31, 2002. For
the six months ended December 31, 2002, FAM earned fees of $52,273,
all of which was waived. Also, FAM reimbursed the Fund $46,099 for
additional expenses.
Merrill Lynch Total Return Bond Fund, December 31, 2002
NOTES TO FINANCIAL STATEMENTS (concluded)
MERRILL LYNCH
TOTAL RETURN
BOND FUND
The Company has also entered into a Distribution Agreement and
Distribution Plans with FAM Distributors, Inc. ("FAMD" or the
"Distributor"), which is an indirect, wholly-owned subsidiary of
Merrill Lynch Group, Inc.
Pursuant to the Distribution Plans adopted by the Company in
accordance with Rule 12b-1 under the Investment Company Act of 1940,
the Fund pays the Distributor ongoing account maintenance and
distribution fees. The fees are accrued daily and paid monthly at
annual rates based upon the average daily net assets of the shares
as follows:
Account Distribution
Maintenance Fee Fee
Class B .25% .75%
Class C .25% .75%
Class D .25% --
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("MLPF&S"), a subsidiary of
ML & Co., also provides account maintenance and distribution
services to the Fund. The ongoing account maintenance fee
compensates the Distributor and MLPF&S for providing account
maintenance services to Class B, Class C and Class D shareholders.
The ongoing distribution fee compensates the Distributor and MLPF&S
for providing shareholder and distribution-related services to Class
B and Class C shareholders.
For the six months ended December 31, 2002, FAMD earned underwriting
discounts and MLPF&S earned dealer concessions on sales of the
Fund's Class D Shares as follows:
FAMD MLPF&S
Class D $1,419 $10,647
For the six months ended December 31, 2002, MLPF&S received
contingent deferred sales charges of $19,528 and $6,497 relating to
transactions in Class B and Class C Shares, respectively.
Financial Data Services, Inc. ("FDS"), an indirect, wholly-owned
subsidiary of ML & Co., is the Fund's transfer agent.
Certain officers and/or directors of the Company are officers and/or
directors of FAM, PSI, FAMD, FDS, and/or ML & Co.
3. Investments:
Increases and decreases in the Fund's investment in the Portfolio
for the six months ended December 31, 2002 were $16,352,862 and
$2,563,507, respectively.
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions
was $14,807,219 and $28,178,439 for the six months ended December
31, 2002 and for the year ended June 30, 2002, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Six Months Dollar
Ended December 31, 2002 Shares Amount
Shares sold 36,007 $ 387,254
Shares issued to shareholders
in reinvestment of dividends
and distributions 1,915 20,690
------------ ------------
Total issued 37,922 407,944
Shares redeemed (17,341) (186,779)
------------ ------------
Net increase 20,581 $ 221,165
============ ============
Class A Shares for the Year Dollar
Ended June 30, 2002 Shares Amount
Shares sold 90,986 $ 959,466
Shares issued to shareholders
in reinvestment of dividends
and distributions 1,235 12,923
------------ ------------
Total issued 92,221 972,389
Shares redeemed (15,606) (163,062)
------------ ------------
Net increase 76,615 $ 809,327
============ ============
Class B Shares for the Six Months Dollar
Ended December 31, 2002 Shares Amount
Shares sold 616,009 $ 6,590,580
Shares issued to shareholders
in reinvestment of dividends
and distributions 17,458 187,825
------------ ------------
Total issued 633,467 6,778,405
Automatic conversion of shares (149) (1,608)
Shares redeemed (108,658) (1,161,842)
------------ ------------
Net increase 524,660 $ 5,614,955
============ ============
Class B Shares for the Year Dollar
Ended June 30, 2002 Shares Amount
Shares sold 957,144 $ 10,042,376
Shares issued to shareholders
in reinvestment of dividends
and distributions 13,945 145,691
------------ ------------
Total issued 971,089 10,188,067
Automatic conversion of shares (43) (451)
Shares redeemed (214,241) (2,238,470)
------------ ------------
Net increase 756,805 $ 7,949,146
============ ============
Class C Shares for the Six Months Dollar
Ended December 31, 2002 Shares Amount
Shares sold 714,038 $ 7,643,374
Shares issued to shareholders
in reinvestment of dividends
and distributions 23,413 251,913
------------ ------------
Total issued 737,451 7,895,287
Shares redeemed (101,725) (1,090,138)
------------ ------------
Net increase 635,726 $ 6,805,149
============ ============
Class C Shares for the Year Dollar
Ended June 30, 2002 Shares Amount
Shares sold 1,021,783 $ 10,711,445
Shares issued to shareholders
in reinvestment of dividends
and distributions 10,172 106,321
------------ ------------
Total issued 1,031,955 10,817,766
Shares redeemed (75,484) (790,676)
------------ ------------
Net increase 956,471 $ 10,027,090
============ ============
Class D Shares for the Six Months Dollar
Ended December 31, 2002 Shares Amount
Shares sold 205,462 $ 2,212,857
Automatic conversion of shares 149 1,608
Shares issued to shareholders
in reinvestment of dividends
and distributions 23,530 253,006
------------ ------------
Total issued 229,141 2,467,471
Shares redeemed (28,113) (301,521)
------------ ------------
Net increase 201,028 $ 2,165,950
============ ============
Class D Shares for the Year Dollar
Ended June 30, 2002 Shares Amount
Shares sold 977,576 $ 10,422,064
Automatic conversion of shares 43 451
Shares issued to shareholders
in reinvestment of dividends
and distributions 27,083 283,035
------------ ------------
Total issued 1,004,702 10,705,550
Shares redeemed (124,615) (1,312,674)
------------ ------------
Net increase 880,087 $ 9,392,876
============ ============
5. Reorganization Plan:
On September 30, 2002, the Fund's Board of Directors approved a plan
of reorganization, subject to shareholder approval and certain other
conditions, among the Fund, Mercury Total Return Bond Fund, Merrill
Lynch Global Bond Fund For Investment and Retirement, The Corporate
Fund Accumulation Program, Inc., the Core Bond Portfolio of Merrill
Lynch Bond Fund, Inc. (the "Core Bond Portfolio") and the Portfolio
whereby the Core Bond Portfolio will acquire all of the assets and
will assume all of the liabilities of the Fund in exchange for newly
issued shares of the Core Bond Portfolio.
Merrill Lynch Total Return Bond Fund, December 31, 2002
SCHEDULE OF INVESTMENTS (in U.S. dollars)
Total Return Bond Master Portfolio
Face
Industries Amount Investments Value
CORPORATE Aerospace & $ 170,000 Martin Marietta Corp., 7.375% due 4/15/2013 $ 199,423
BONDS & Defense--0.2% 210,000 Raytheon Company, 6.75% due 3/15/2018 220,070
NOTES--40.3% ------------
419,493
Automotive--6.7% 260,000 American Honda Finance, 1.65% due 10/03/2005 (a)(c) 259,751
Chrysler Financial Company LLC (a):
274,000 1.60% due 2/03/2003 273,912
274,000 1.59% due 3/06/2003 273,806
Daimler-Chrysler NA Holdings:
2,154,000 7.125% due 4/10/2003 2,176,677
260,000 6.40% due 5/15/2006 280,269
245,000 7.30% due 1/15/2012 274,927
95,000 Ford Motor Company, 7.45% due 7/16/2031 82,638
Ford Motor Credit Company:
3,000,000 2.493% due 4/17/2003 (a) 2,993,589
945,000 6.50% due 1/25/2007 933,394
240,000 7.25% due 10/25/2011 233,202
General Motors Acceptance Corp.:
3,000,000 2.115% due 7/21/2003 (a) 2,977,371
390,000 6.875% due 8/28/2012 384,443
226,000 8% due 11/01/2031 227,231
------------
11,371,210
Banking--3.0% 350,000 BB&T Corporation, 4.75% due 10/01/2012 351,255
405,000 Bank of America Corporation, 5.125% due 11/15/2014 411,905
205,000 The Bank of New York, 5.20% due 7/01/2007 220,677
415,000 BankAmerica Corp., 5.875% due 2/15/2009 455,384
Capital One Bank:
40,000 6.50% due 7/30/2004 39,120
160,000 6.875% due 2/01/2006 154,792
105,000 Hudson United Bancorp Inc., 8.20% due 9/15/2006 114,584
550,000 KFW International Finance, 2.50% due 10/17/2005 553,455
180,000 MBNA America Bank NA, 7.125% due 11/15/2012 188,372
MBNA Corporation:
320,000 6.25% due 1/17/2007 334,049
100,000 5.625% due 11/30/2007 102,132
160,000 Marshall & Ilsley Bank, 4.125% due 9/04/2007 165,208
150,000 Regions Financial Corporation, 6.375% due 5/15/2012 167,289
200,000 Suntrust Bank, 5.45% due 12/01/2017 197,500
480,000 US Bancorp, 1.56% due 9/16/2005 (a) 480,302
240,000 Wachovia Corporation, 4.95% due 11/01/2006 256,096
Washington Mutual Inc.:
175,000 7.50% due 8/15/2006 196,781
310,000 4.375% due 1/15/2008 315,881
360,000 Wells Fargo & Co., 5.125% due 2/15/2007 386,645
------------
5,091,427
Beverage Brewing & 220,000 Coors Brewing Company, 6.375% due 5/15/2012 245,860
Distilling--0.1%
Broadcasting/ 300,000 Liberty Media Corporation, 7.875% due 7/15/2009 325,355
Media--0.2%
Building & 290,000 Toll Brothers Inc., 6.875% due 11/15/2012 (c) 298,652
Construction--0.2%
Cable & 254,000 AOL Time Warner Inc., 6.875% due 5/01/2012 268,250
Media--0.9% Clear Channel Communications:
190,000 7.875% due 6/15/2005 208,015
205,000 7.65% due 9/15/2010 232,235
280,000 Cox Communications Inc., 7.125% due 10/01/2012 311,006
205,000 USA Interactive, 7% due 1/15/2013 (c) 211,975
235,000 Viacom Inc., 7.875% due 7/30/2030 292,535
------------
1,524,016
Canadian 475,000 Province of Ontario, 3.50% due 9/17/2007 482,524
Provinces--0.6% 370,000 Province of Quebec, 5% due 7/17/2009 395,372
75,000 Province of Saskatchewan, 8% due 7/15/2004 81,609
------------
959,505
Cellular AT&T Wireless Services Inc.:
Telephones--0.2% 164,000 8.125% due 5/01/2012 164,820
138,000 8.75% due 3/01/2031 135,240
------------
300,060
Chemicals--0.1% 100,000 Methanex Corporation, 8.75% due 8/15/2012 106,000
133,000 Praxair Inc., 6.375% due 4/01/2012 148,679
------------
254,679
Commercial 250,000 Cendant Corporation, 6.875% due 8/15/2006 259,416
Services &
Supplies--0.2%
Communications--0.4% 700,000 GTE Corporation, 6.84% due 4/15/2018 727,012
Consumer--0.2% 390,000 SC Johnson & Son Inc., 5% due 12/15/2012 (c) 393,645
Containers--0.1% 120,000 Sealed Air Corporation, 6.95% due 5/15/2009 (c) 122,838
Diversified--0.2% 305,000 Codelco Inc., 6.375% due 11/30/2012 (c) 319,688
Diversified Citigroup Inc.:
Financials--1.7% 250,000 5.70% due 2/06/2004 260,039
260,000 5.75% due 5/10/2006 282,250
530,000 7.25% due 10/01/2010 615,261
140,000 6.50% due 1/18/2011 157,080
311,000 6.625% due 6/15/2032 339,527
1,245,000 General Electric Capital Corp., 5.45% due 1/15/2013 1,293,226
------------
2,947,383
Merrill Lynch Total Return Bond Fund, December 31, 2002
SCHEDULE OF INVESTMENTS (continued) (in U.S. dollars)
Total Return Bond Master Portfolio (continued)
Face
Industries Amount Investments Value
CORPORATE Diversified $ 255,000 Cooper Industries Inc., 5.50% due 11/01/2009 $ 265,774
BONDS & NOTES Manufacturing--0.2%
(continued)
Diversified 265,000 Verizon Global Funding Corporation, 7.375% due 9/01/2012 304,893
Telecommunication
Services--0.2%
Drug/ 59,000 Eli Lilly & Company, 7.125% due 6/01/2025 69,641
Pharmaceuticals--0.0%
Electric--0.6% Florida Power & Light:
90,000 4.85% due 2/01/2013 91,938
140,000 5.85% due 2/01/2033 143,399
230,000 Georgia Power Company, 5.125% due 11/15/2012 237,999
265,000 PSE&G Power, 6.95% due 6/01/2012 269,064
250,000 Southern Power Company, 6.25% due 7/15/2012 264,131
------------
1,006,531
Electric 105,000 Exelon Corporation, 6.75% due 5/01/2011 114,934
Utilities--0.1%
Energy 200,000 Mid-American Energy Holdings, 5.875% due 10/01/2012 (c) 202,746
Sources--0.1%
Finance--2.4% 110,000 Boeing Capital Corporation, 7.10% due 9/27/2005 119,154
370,000 Equifax Inc., 4.95% due 11/01/2007 (c) 376,474
Household Finance Corporation:
1,550,000 2.91% due 12/16/2004 1,548,808
735,000 5.875% due 2/01/2009 754,408
505,000 7% due 5/15/2012 553,121
250,000 International Lease Finance Corporation, 4.375%
due 12/15/2005 252,988
550,000 Mellon Funding Corporation, 5% due 12/01/2014 559,017
------------
4,163,970
Financial-- 750,000 Goldman Sachs Group, Inc., 6.875% due 1/15/2011 837,180
Other--0.5%
Financial 370,000 CountryWide Home Loan, 5.625% due 7/15/2009 391,513
Services--0.8% 795,000 Lehman Brothers Holdings, Inc., 6.625% due 1/18/2012 879,930
------------
1,271,443
Food--0.0% 55,000 SuperValu Inc., 7.50% due 5/15/2012 59,284
Food 255,000 Archer-Daniels-Midland, 5.935% due 10/01/2032 254,439
Distribution--0.2%
Foreign 190,000 Republic of Finland, 5.875% due 2/27/2006 208,089
Government 415,000 Republic of Italy, 4.375% due 10/25/2006 437,886
Obligations--0.7% 470,000 United Mexican States, 9.875% due 2/01/2010 576,972
------------
1,222,947
Gaming & 510,000 Circus Circus Enterprises, Inc., 6.70% due 11/15/2096 512,385
Lodging--0.3%
Health Care--0.2% 310,000 HCA Inc., 6.30% due 10/01/2012 312,648
Home 160,000 Newell Rubbermaid Inc., 4.625% due 12/15/2009 163,219
Furnishings--0.1%
Hotels & 350,000 Hilton Hotels Corporation, 7.625% due 12/01/2012 353,448
Motels--0.2%
Industrial-- Tele-Communications Inc.:
Other--0.6% 300,000 8.25% due 1/15/2003 300,088
635,000 9.80% due 2/01/2012 763,285
------------
1,063,373
Industrial-- Aramark Services Inc.:
Services--0.5% 265,000 6.75% due 8/01/2004 275,715
250,000 6.375% due 2/15/2008 258,838
360,000 First Data Corporation, 6.75% due 7/15/2005 391,804
------------
926,357
Industrials--0.4% 50,000 Abitibi Consolidated Inc., 8.55% due 8/01/2010 55,493
50,000 Domtar Inc., 7.875% due 10/15/2011 58,438
85,000 Norsk Hydro A/S, 6.36% due 1/15/2009 92,207
188,000 Phillip Morris Companies, Inc., 8.25% due 10/15/2003 194,805
310,000 Tyson Foods, Inc., 6.625% due 10/01/2004 329,611
------------
730,554
Insurance--0.2% 170,000 John Hancock Financial Services, 5.625% due 12/01/2008 178,233
130,000 Progressive Corporation, 6.25% due 12/01/2032 133,377
------------
311,610
Machinery--0.0% 75,000 Emerson Electric Company, 6% due 8/15/2032 76,144
Metals & 175,000 Alcoa Inc., 1.70% due 12/06/2004 (a) 175,449
Mining--0.1%
Multi-Sector 420,000 Lehman Brothers, TRAINS, 6.259% due 8/15/2008 (a)(c)(d) 432,499
Holdings--2.4% Morgan Stanley TRACERS (c)(e):
2,850,000 5.854% due 3/01/2007 (a) 3,036,761
570,000 6.726% due 6/15/2012 627,450
------------
4,096,710
Oil--0.5% Anadarko Finance Company:
90,000 6.75% due 5/01/2011 101,410
75,000 7.50% due 5/01/2031 89,179
260,000 Colonial Pipeline, 7.63% due 4/15/2032 (c) 310,312
420,000 Motiva Enterprises LLC, 5.20% due 9/15/2012 (c) 419,300
------------
920,201
Oil--Integrated--0.1% Texaco Capital Inc.:
55,000 8.625% due 6/30/2010 69,288
55,000 8.625% due 11/15/2031 77,872
------------
147,160
Paper 140,000 UPM-Kymmene Corporation, 5.625% due 12/01/2014 (c) 145,274
Products--0.1%
Pipelines--Gas--0.4% Kinder Morgan Energy:
180,000 5.35% due 8/15/2007 188,353
430,000 6.75% due 3/15/2011 467,088
------------
655,441
Merrill Lynch Total Return Bond Fund, December 31, 2002
SCHEDULE OF INVESTMENTS (continued) (in U.S. dollars)
Total Return Bond Master Portfolio (continued)
Face
Industries Amount Investments Value
CORPORATE Pipelines--Oil & $ 230,000 Consolidated Natural Gas, 5.375% due 11/01/2006 $ 243,130
BONDS & NOTES Gas--0.1%
(concluded)
Real Estate 675,000 Avalonbay Communities, 6.58% due 2/15/2004 707,839
Investment 140,000 Developers Divers Realty, 6.625% due 1/15/2008 140,757
Trust--1.6% 420,000 EOP Operating LP, 7.375% due 11/15/2003 437,013
65,000 Health Care Properties Inc., 7.48% due 4/05/2004 68,595
Health Care Properties Investors Inc.:
155,000 6.50% due 2/15/2006 160,981
280,000 6.45% due 6/25/2012 282,077
185,000 Nationwide Health Properties, 6.59% due 7/07/2038 191,619
790,000 Prologis Trust, 7% due 10/01/2003 812,258
------------
2,801,139
Retail-- 160,000 Limited Brands Inc., 6.125% due 12/01/2012 168,422
Apparel--0.1%
Retail-- 100,000 Kohl's Corporation, 6% due 1/15/2033 100,531
Stores--0.1%
Savings & Loan 325,000 Golden West Financial Corporation, 4.75% due 10/01/2012 326,799
Associations--0.2%
Special 245,000 Principal Life Global, 6.25% due 2/15/2012 (c) 259,698
Services--0.2%
Supranational--0.8% 235,000 Corporacion Andina de Fomento, 6.875% due 3/15/2012 246,362
1,000,000 European Investment Bank, 7.125% due 9/18/2006 1,157,690
------------
1,404,052
Telephone--0.9% 390,000 CenturyTel Inc., 7.875% due 8/15/2012 (c) 461,593
France Telecom:
90,000 9.25% due 3/01/2011 104,064
85,000 10% due 3/01/2031 103,473
240,000 Koninklijke (KPN) NV, 8% due 10/01/2010 268,800
275,000 US West Communications, 7.20% due 11/01/2004 261,250
250,000 Verizon New York Inc., 6.875% due 4/01/2012 280,847
------------
1,480,027
Telephone 105,000 AT&T Corporation, 7.30% due 11/15/2011 114,766
Service--0.6% 70,000 Alltel Corporation, 7% due 7/01/2012 80,672
530,000 British Telecom PLC, 8.375% due 12/15/2010 635,416
190,000 Deutsche Telekom International Finance,
8.50% due 6/15/2010 218,829
------------
1,049,683
Transportation--0.3% 155,000 Continental Airlines, 6.563% due 2/15/2012 165,670
Southwest Airlines Co.:
50,000 8% due 3/01/2005 55,326
200,000 7.875% due 9/01/2007 225,088
------------
446,084
U.S. Government 4,280,000 Fannie Mae, 7% due 7/15/2005 4,798,436
Agency--5.2% 3,600,000 Freddie Mac, 7% due 7/15/2005 4,038,473
------------
8,836,909
Utilities-- Sprint Capital Corporation:
Communication--0.6% 705,000 5.70% due 11/15/2003 701,475
395,000 8.375% due 3/15/2012 393,025
------------
1,094,500
Utilities-- 140,000 Alabama Power Capital Trust, 5.50% due 10/01/2042 (a) 140,777
Electric & 545,000 Cincinnati Gas & Electric Company, 5.70% due 9/15/2012 558,652
Gas--1.7% Commonwealth Edison Company:
75,000 6.15% due 3/15/2012 82,975
210,000 6.95% due 7/15/2018 231,059
380,000 Consolidated Edison Company of New York, 4.875% due
2/01/2013 385,269
Dominion Resources Inc.:
430,000 8.125% due 6/15/2010 500,262
120,000 6.75% due 12/15/2032 123,157
640,000 FirstEnergy Corp., 6.45% due 11/15/2011 636,700
210,000 Mississippi Power, 6.05% due 5/01/2003 212,535
------------
2,871,386
Waste Disposal 530,000 Waste Management Inc., 7.375% due 8/01/2010 579,894
Services--0.3%
Yankee-- 85,000 BSCH Issuances Ltd., 7.625% due 9/14/2010 96,682
Corporates--0.7% Korea Development Bank:
150,000 7.125% due 4/22/2004 159,455
265,000 4.25% due 11/13/2007 269,064
Pemex Project Funding Master Trust:
280,000 9.125% due 10/13/2010 320,600
260,000 7.375% due 12/15/2014 (c) 266,500
------------
1,112,301
Total Corporate Bonds & Notes (Cost--$66,479,592) 68,698,549
GOVERNMENT Collateralized Freddie Mac:
AGENCY Mortgage 350,933 5.57% due 7/15/2022 353,310
MORTGAGE- Obligations--0.3% 104,698 24.917% due 6/15/2029 105,681
BACKED ------------
SECURITIES++-- 458,991
25.8%
Pass-Through Fannie Mae:
Securities--25.5% 337,138 7% due 9/01/2031 354,617
4,782,954 6.50% due 12/01/2031 4,982,377
770,734 7% due 7/01/2032 810,692
5,413,019 7% due 8/01/2032 5,693,461
Merrill Lynch Total Return Bond Fund, December 31, 2002
SCHEDULE OF INVESTMENTS (continued) (in U.S. dollars)
Total Return Bond Master Portfolio (continued)
Face
Industries Amount Investments Value
GOVERNMENT Pass-Through Freddie Mac Participation Certificates--Gold Program:
AGENCY Securities $ 1,657,975 6.50% due 5/01/2016 $ 1,754,146
MORTGAGE-BACKED (concluded) 6,895,550 6% due 4/01/2017 7,215,393
SECURITIES++ 2,313,277 7.50% due 1/01/2030 2,462,216
(concluded) 910,000 5% due TBA (b) 934,473
910,000 5.50% TBA (b) 929,078
3,400,000 6% due TBA (b) 3,521,224
8,561,047 6.50% due TBA (b) 8,909,353
3,300,000 7% due 10/01/2031 3,468,489
2,343,289 Government National Mortgage Association, 6.50% due
10/15/2031 2,462,065
------------
43,497,584
Total Government Agency Mortgage-Backed Securities
(Cost--$43,302,106) 43,956,575
GOVERNMENT Fannie Mae:
AGENCY 2,600,000 5.25% due 6/15/2006 2,833,334
OBLIGATIONS-- 730,000 7.125% due 3/15/2007 854,035
14.6% 1,570,000 6.375% due 6/15/2009 1,816,658
1,100,000 6% due 5/15/2011 1,243,399
1,700,000 6.50% due TBA (b) 1,767,983
1,810,000 7.125% due 1/15/2030 2,233,618
2,050,000 Freddie Mac, 6.625% due 9/15/2009 2,404,732
Freddie Mac Participation Certificates--Gold Program (b):
7,600,000 6% due TBA 7,868,592
3,600,000 7.50% due TBA 3,811,133
Total Government Agency Obligations (Cost--$24,004,928) 24,833,484
ASSET-BACKED 1,077,000 CIT Equipment Collateral, 2002-VT1 A2, 2.90% due
SECURITIES--6.9% 6/21/2004 1,082,499
California Infrastructure PG&E:
400,000 1997-1 A6, 6.38% due 9/25/2008 436,856
550,000 1997-1 A7, 6.42% due 9/25/2008 598,710
738,912 EQCC Home Equity Loan Trust, 1999-1 A3F, 5.915% due
11/20/2024 753,898
Household Automotive Trust:
1,400,000 2002-1 A2, 2.75% due 5/17/2005 1,408,649
800,000 2002-3 A3A, 2.75% due 6/18/2007 811,808
1,088,340 Household Home Equity Loan Trust, 2002-2 A, 1.688% due
4/20/2032 (a) 1,086,474
1,350,000 Ikon Receivables LLC, 2002-1 A2, 2.91% due 2/15/2005 1,355,645
547,898 MBNA Master Credit Card Trust, 1999-F B, 1.79% due
1/16/2007 (a) 547,788
1,248,978 Option One Mortgage Loan Trust, 2002-4 A, 1.68% due
7/25/2032 (a) 1,244,525
1,300,000 Residential Asset Securities Corporation, 2002-KS8 A2,
3.04% due 6/25/2023 1,310,156
1,100,000 Superior Wholesale Inventory Financing Trust, 2001-A7,
1.77% due 6/15/2006 (a) 1,097,426
Total Asset-Backed Securities (Cost--$12,586,152) 11,734,434
NON-AGENCY Collateralized 514,656 ABN AMro Mortgage Corporation, 2001-8 2A1, 6.50%
MORTGAGE-BACKED Mortgage due 1/25/2032 520,698
SECURITIES-- Obligations--5.1% 332,204 Bank of America Mortgage Securities, 2002-IA 1B,
12.1% 4.64% due 8/25/2032 334,441
59,585 Blackrock Capital Finance LP, 1997-R2 AP, 9.03% due
12/25/2035 (a)(c) 63,211
200,000 CMC Securities Corporation IV, 1994-G A4, 7% due 9/25/2024 203,853
1,097,414 Chase Mortgage Finance Corporation, 1999-S4 A1, 6.50%
due 4/25/2029 1,127,132
91,801 Collateralized Mortgage Obligation Trust, 57 D, 9.90%
due 2/01/2019 92,316
150,055 GE Capital Mortgage Services, Inc., 1994-24 A4, 7% due
7/25/2024 152,627
Housing Securities Inc.:
186,053 1994-1 AB2, 6.50% due 3/25/2009 130,470
104,324 1994-2 B1, 6.50% due 7/25/2009 82,481
145,443 Independent National Mortgage Corporation, 1995-F A5,
8.25% due 5/25/2010 145,219
260,036 Ocwen Residential MBS Corporation, 1998-R2 AP, 7.124%
due 11/25/2034 (a)(c) 264,546
891,341 Structured Asset Securities Corporation, 2002-9 A2, 1.72%
due 10/25/2027 (a) 884,857
Washington Mutual Inc.:
600,000 2000-1 B1, 5.42% due 1/25/2040 (a)(c) 597,563
900,000 2002-AR4 A7, 5.58% due 4/25/2032 922,755
957,046 2002-S3 1A1, 6.50% due 6/25/2032 982,152
Wells Fargo Mortgage-Backed Securities Trust:
1,771,374 2002-3 A1, 5.50% due 3/25/2032 1,803,347
435,732 2002-A A2, 5.90% due 3/25/2032 437,112
------------
8,744,780
Commercial 2,500,000 Bank of America-First Union NB, 2001-3 A2, 5.464%
Mortgage-Backed due 4/11/2037 2,671,107
Securities--7.0% 750,000 CS First Boston Mortgage Securities Corporation,
1995-WF1 D, 7.532% due 12/21/2027 791,052
2,150,622 First Union NB-Bank of America Commercial Mortgage Trust,
2001-C1 A1, 5.711% due 3/15/2033 (a) 2,313,736
2,024,506 GS Mortgage Securities Corporation II, 1998-C1 A1, 6.06%
due 10/18/2030 (a) 2,147,506
1,600,000 Greenwich Capital Commercial Funding Corporation,
2002-C1-A4, 4.948% due 11/11/2025 1,633,250
1,250,000 LB-UBS Commercial Mortgage Trust, 2002-C1 A3, 6.226%
due 3/15/2026 1,392,928
827,282 Nomura Asset Securities Corporation, 1995-MD3 A1B, 8.15%
due 3/04/2020 911,032
------------
11,860,611
Total Non-Agency Mortgage-Baked Securities
(Cost--$19,012,133) 20,605.391
Shares
Held
PREFERRED 500 Home Ownership Funding 2(c) 309,758
STOCKS - 0.2%
Total Preferred Stocks (Cost - $500,000) 309,758
Merrill Lynch Total Return Bond Fund, December 31, 2002
SCHEDULE OF INVESTMENTS (concluded) (in U.S. dollars)
Total Return Bond Master Portfolio (concluded)
Face
Amount Investments Value
U.S. TREASURY U.S. Treaury U.S. Treasury Bonds:
OBLIGATIONS-- Bonds--3.7% $ 930,000 7.50% due 11/15/2016 $ 1,216,193
9.8% 570,000 8.125% due 8/15/2019 793,948
1,980,000 7.25% due 8/15/2022 2,576,861
430,000 6.25% due 8/15/2023 505,183
430,000 6.625% due 2/15/2027 531,218
610,000 5.375% due 2/15/2031 664,995
------------
6,288,398
U.S. Treasury US Treasury Notes:
Notes--6.1% 215,000 1.875% due 9/30/2004 216,503
650,000 7.50% due 2/15/2005 728,863
2,500,000 6.50% due 5/15/2005 2,775,098
410,000 5.75% due 11/15/2005 453,226
1,080,000 6.25% due 2/15/2007 1,239,089
600,000 3.25% due 8/15/2007 614,860
1,330,000 6.125% due 8/15/2007 1,529,396
200,000 3% due 11/15/2007 202,406
950,000 4.75% due 11/15/2008 1,036,984
570,000 6.50% due 2/15/2010 681,328
820,000 5% due 2/15/2011 900,975
------------
10,378,728
Total U.S. Treasury Obligations (Cost--$16,096,692) 16,667,126
SHORT-TERM Commercial 5,000,000 Conoco Inc., 1.45% due 1/14/2003 4,997,583
INVESTMENTS-- Paper*--5.8% 4,815,000 Ryder System, 1.40% due 1/02/2003 4,815,000
5.8%
Total Short-Term Investments (Cost - $9,812,583) 9,812,583
Total Investments (Cost - $191,794,186)--115.5% 196,617,900
Liabilities in Excess of Other Assets--(15.5)% (26,408,990)
------------
Net Assets - 100.0% $170,208,910
============
(a)Floating rate note.
(b)Represents a "to-be-announced" (TBA) transaction. The Portfolio
has committed to purchasing securities for which all specific
information is not available at this time.
(c)The security may be offered and sold to "qualified institutional
buyers" under Rule 144A of the Securities Act of 1933.
(d)Target Return Index Securities (TRAINS).
(e)Tradable Custodial Receipts (TRACERS).
++Mortgage-Backed Securities are subject to principal paydowns as a
result of prepayments or refinancings of the underlying mortgage
instruments. As a result, the average life may be substantially less
than the original maturity.
*Commercial Paper is traded on a discount basis; the interest rates
shown reflect the discount rates paid at the time of purchase by the
Portfolio.
See Notes to Financial Statements.
STATEMENT OF ASSETS AND LIABILITIES
TOTAL RETURN
BOND MASTER
PORTFOLIO As of December 31, 2002
Assets: Investments, at value (identified cost--$191,794,186) $ 196,617,900
Receivables:
Securities sold $ 26,576,779
Interest 1,835,272
Contributions 1,109,515
Paydowns 554,732 30,076,298
--------------
Prepaid expenses and other assets 112,302
--------------
Total assets 226,806,500
--------------
Liabilities: Payables:
Securities purchased 54,060,667
Custodian bank 1,971,116
Withdrawals 502,053
Investment adviser 43,221 56,577,057
--------------
Accrued expenses 20,680
--------------
Total liabilities 56,597,737
--------------
Net Assets: Net assets $ 170,208,763
==============
Net Assets Investors' capital $ 165,385,049
Consist of: Unrealized appreciation on investments--net 4,823,714
--------------
Net assets $ 170,208,763
==============
See Notes to Financial Statements.
Merrill Lynch Total Return Bond Fund, December 31, 2002
STATEMENT OF OPERATIONS
TOTAL RETURN
BOND MASTER
PORTFOLIO For the Six Months Ended December 31, 2002
Investment Interest $ 4,123,847
Income: Dividends 33,716
--------------
Total income 4,157,563
--------------
Expenses: Investment advisory fees $ 253,777
Accounting services 77,873
Custodian fees 32,431
Professional fees 20,502
Pricing fees 10,272
Trustees' fees and expenses 4,970
Other 6,314
--------------
Total expenses 406,139
--------------
Investment income--net 3,751,424
--------------
Realized & Realized gain on investments--net 2,366,756
Unrealized Change in unrealized appreciation on investments--net 3,404,790
Gain on --------------
Investments--Net: Total realized and unrealized gain on investments--net 5,771,546
--------------
Net Increase in Net Assets Resulting from Operations $ 9,522,970
==============
See Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
For the Six For the
TOTAL RETURN Months Ended Year Ended
BOND MASTER December 31, June 30,
PORTFOLIO Increase (Decrease) in Net Assets: 2002 2002
Operations: Investment income--net $ 3,751,424 $ 8,726,128
Realized gain on investments--net 2,366,756 2,570,410
Change in unrealized appreciation/depreciation on investments--net 3,404,790 2,102,703
-------------- --------------
Net increase in net assets resulting from operations 9,522,970 13,399,241
-------------- --------------
Capital Proceeds from contributions 41,385,059 119,146,818
Transactions: Fair value of withdrawals (34,642,875) (135,833,885)
-------------- --------------
Net increase (decrease) in net assets derived from capital
contributions 6,742,184 (16,687,067)
-------------- --------------
Net Assets: Total increase (decrease) in net assets 16,265,154 (3,287,826)
Beginning of period 153,943,609 157,231,435
-------------- --------------
End of period $ 170,208,763 $ 153,943,609
============== ==============
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
For the Six For the For the Period
TOTAL RETURN Months Ended Year Ended October 6, 2000++
BOND MASTER The following ratios have been derived from December 31, June 30, to June 30,
PORTFOLIO information provided in the financial statements. 2002 2002 2001
Total Investment 6.38%+++ 9.97% --
Return:** ========== ========== ==========
Ratios to Expenses .48%* .48% .42%*
Average ========== ========== ==========
Net Assets: Investment income--net 4.43%* 5.53% 6.59%*
========== ========== ==========
Supplemental Net assets, end of period (in thousands) $ 170,209 $ 153,944 $ 157,231
Data: ========== ========== ==========
Portfolio turnover 195.58% 208.91% 276.08%
========== ========== ==========
*Annualized.
**Total return is required to be disclosed for fiscal years
beginning after December 15, 2000.
++Commencement of operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
Merrill Lynch Total Return Bond Fund, December 31, 2002
NOTES TO FINANCIAL STATEMENTS
TOTAL RETURN
BOND MASTER
PORTFOLIO
1. Significant Accounting Policies:
Total Return Bond Master Portfolio (the "Portfolio") is a fund of
Fund Asset Management Master Trust (the "Master Trust"). The Master
Trust is registered under the Investment Company Act of 1940 and is
organized as a Delaware business trust. The Declaration of Trust
permits the Trustees to issue nontransferable interests in the
Portfolio, subject to certain limitations. The Portfolio's financial
statements are prepared in conformity with accounting principles
generally accepted in the United States of America, which may
require the use of management accruals and estimates. These
unaudited financial statements reflect all adjustments, which are,
in the opinion of management, necessary to a fair statement of the
results for the interim period presented. All such adjustments are
of a normal, recurring nature. The following is a summary of
significant accounting policies followed by the Portfolio.
(a) Valuation of investments--Portfolio securities that are traded
on stock exchanges are valued at the last sale price on the exchange
on which such securities are traded, as of the close of business on
the day the securities are being valued or, lacking any sales, at
the last available bid price. Securities that are traded in the over-
the-counter market are valued at the last available bid price prior
to the time of valuation. In cases where securities are traded on
more than one exchange, the securities are valued on the exchange
designated by or under the authority of the Board of Trustees as the
primary market. Securities that are traded both in the over-the-
counter market and on a stock exchange are valued according to the
broadest and most representative market. Short-term securities are
valued at amortized cost, which approximates market value. Other
investments are stated at market value. Securities and assets for
which market quotations are not readily available are valued at fair
market value, as determined in good faith by or under the direction
of the Master Trust's Board of Trustees.
(b) Derivative financial instruments--The Portfolio may engage in
various portfolio strategies to increase or decrease the level of
risk to which the Portfolio is exposed more quickly and efficiently
than transactions in other types of instruments. Losses may arise
due to changes in the value of the contract or if the counterparty
does not perform under the contract.
* Financial futures contracts--The Portfolio may purchase or sell
financial futures contracts and options on such futures contracts
for the purpose of hedging the market risk on existing securities or
the intended purchase of securities. Futures contracts are contracts
for delayed delivery of securities at a specific future date and at
a specific price or yield. Upon entering into a contract, the
Portfolio deposits and maintains as collateral such initial margin
as required by the exchange on which the transaction is effected.
Pursuant to the contract, the Portfolio 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 Portfolio as unrealized
gains or losses. When the contract is closed, the Portfolio records
a realized gain or loss equal to the difference between the value of
the contract at the time it was opened and the value at the time it
was closed.
* Options--The Portfolio is authorized to purchase and write call
and put options. When the Portfolio writes an option, an amount
equal to the premium received by the Portfolio 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 Portfolio enters into a closing
transaction), the Portfolio realizes a gain or loss on the option to
the extent of the premiums received or paid (or a gain or loss to
the extent that the cost of the closing transaction exceeds the
premium paid or received).
(c) Income taxes--The Portfolio is classified as a partnership for
Federal income tax purposes. As such, each investor in the Portfolio
is treated as owner of its proportionate share of the net assets,
income, expenses and realized and unrealized gains and losses of the
Portfolio. Accordingly, as a "pass through" entity, the Portfolio
pays no income dividends or capital gains distributions. Therefore,
no Federal income tax provision is required. It is intended that the
Portfolio's assets will be managed so an investor in the Portfolio
can satisfy the requirements of subchapter M of the Internal Revenue
Code.
(d) Security transactions and investment income--Security
transactions are accounted for on the date the securities are
purchased or sold (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 (including amortization of premium and discount) is
recognized on the accrual basis.
(e) Prepaid registration fees--Prepaid registration fees are charged
to expenses as the related shares are issued.
(f) Custodian bank--The Fund recorded an amount payable to the
custodian bank reflecting an overnight overdraft, which resulted
from a failed trade that settled the next day.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Master Trust has entered into an Investment Advisory Agreement
for the Portfolio with Fund Asset Management, L.P. ("FAM"). The
general partner of FAM is Princeton Services, Inc. ("PSI"), an
indirect, wholly-owned subsidiary of Merrill Lynch & Co., Inc.
("ML & Co."), which is the limited partner.
FAM is responsible for the management of the Portfolio's investments
and provides the necessary personnel, facilities, equipment and
certain other services necessary to the operations of the Portfolio.
For such services, the Portfolio pays a monthly fee at an annual
rate of .30% of the average daily value of the Portfolio's net
assets.
For the six months ended December 31, 2002, the Fund reimbursed FAM
$1,889 for certain accounting services.
Certain officers and/or trustees of the MasterTrust are officers
and/or directors of FAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended December 31, 2002 were $357,875,294 and
$364,006,934, respectively.
Net realized gains (losses) for the six months ended December 31,
2002 and net unrealized gains as of December 31, 2002 were as
follows:
Realized Unrealized
Gains (Losses) Gains
Long-term investments $ 2,398,660 $ 4,823,714
Options written 37,520 --
Financial futures contracts (69,424) --
------------- -------------
Total investments $ 2,366,756 $ 4,823,714
============= =============
As of December 31, 2002, net unrealized appreciation for Federal
income tax purposes aggregated $4,767,281, of which $5,100,871
related to appreciated securities and $333,590 related to
depreciated securities. At December 31, 2002, the aggregate cost of
investments for Federal income tax purposes was $191,850,619.
4. Short-Term Borrowings:
The Master Trust, along with certain other funds managed by FAM and
its affiliates, is a party to a credit agreement with Bank One, N.A.
and certain other lenders. Effective November 29, 2002, in
conjunction with the renewal for one year at the same terms, the
total commitment was reduced from $1,000,000,000 to $500,000,000.
The Portfolio may borrow under the credit agreement to fund
shareholder redemptions and for other lawful purposes other than for
leverage. The Portfolio may borrow up to the maximum amount
allowable under the Portfolio's current prospectus and statement of
additional information, subject to various other legal, regulatory
or contractual limits. The Portfolio pays a commitment fee of .09%
per annum based on the Portfolio's pro rata share of the unused
portion of the credit agreement. Amounts borrowed under the credit
agreement bear interest at a rate equal to, at each fund's election,
the Federal Funds rate plus .50% or a base rate as determined by
Bank One, N.A. The Portfolio did not borrow under the credit
agreement during the six months ended December 31, 2002.
</ITEM 1>