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 Low Duration Fund
Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Terry K. Glenn, President, Merrill Lynch
Low Duration 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
[LOGO] Merrill Lynch Investment Managers
Semi-Annual Report
December 31, 2002
Merrill Lynch
Low Duration Fund
www.mlim.ml.com
MERRILL LYNCH LOW DURATION 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
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
- --------------------------------------------------------------------------------
Effective January 1, 2003, Melvin R. Seiden, Director/Trustee of Merrill Lynch
Low Duration Fund, retired. The Fund's Board of Directors/Trustees wishes Mr.
Seiden well in his retirement.
- --------------------------------------------------------------------------------
Merrill Lynch Low Duration 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 +3.29%, +2.83%, +2.83% and +3.16%,
respectively. (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.) This compares to the
Fund's unmanaged benchmark, the Merrill Lynch 1 - 3 Year U.S. Treasury Note
Index, which had a return of +3.30% for the same six-month period.
The Fund continues to be managed with a focus on the spread sectors, including
corporate bonds, agency mortgage collateral and collateralized mortgage
obligations (CMOs), non-agency CMOs, asset-backed securities, and commercial
mortgage-backed securities. By stress-testing potential purchases using a
combination of fundamental research, prepayment and cash flow vectoring, and
scenario analysis, we have been able to find attractive opportunities in spite
of unprecedented volatility in the markets.
We began the second half of 2002 with more than 65% of the portfolio invested in
spread sector securities, and we have gradually increased that weighting to
almost 80% of assets. As interest rates have steadily fallen, we have reduced
our Treasury and agency holdings, as we believe that the record low interest
rates available in the short end of the yield curve offer little more potential
for price appreciation. The record low yields have also impacted our duration
decision as we have moved from a moderate long position of 107% of the benchmark
duration to a short position of approximately 88%. As noted, this decision is
based both on the absolute level of rates and our view of potential future
changes in curve shape.
Going forward, we expect to maintain a portfolio profile reflective of our
pro-cyclical bias -- spread sector overweights and duration less than that of
the benchmark. Though 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
We appreciate your investment in Merrill Lynch Low Duration Fund, and we look
forward to serving your investment needs in the months and years ahead.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President and Director
/s/ Patrick Maldari
Patrick Maldari
Vice President and Portfolio Manager
/s/ James J. Pagano
James J. Pagano
Vice President and Portfolio Manager
January 29, 2003
2 & 3
Merrill Lynch Low Duration 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:
o Class A Shares incur a maximum initial sales charge (front-end load) of 3%
and bear no ongoing distribution or account maintenance fees. Class A
Shares are available only to eligible investors.
o 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 0.65% and an account maintenance fee of 0.25%. These
shares automatically convert to Class D Shares after approximately 10
years. (There is no initial sales charge for automatic share conversions.)
o Class C Shares are subject to a distribution fee of 0.65% 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.
o Class D Shares incur a maximum initial sales charge of 3% and an account
maintenance fee of 0.25% (but no distribution fee).
The performance results depicted on page 5 are those of Merrill Lynch Low
Duration Fund and, prior to October 6, 2000, a predecessor Fund investing
in the same underlying portfolio and with the same fees as Merrill Lynch
Low Duration Fund. Performance results prior to October 6, 2000 reflect
the annual operating expenses of the predecessor Fund. If Merrill Lynch
Low Duration 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 the actual operating expenses of Merrill
Lynch Low Duration 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 .58%, 1.48%, 1.48% and .83%, 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.
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 Low Duration Fund Class A Shares* +3.29% +4.52% +90.58% 2.63%
- -----------------------------------------------------------------------------------------------------------------
ML Low Duration Fund Class B Shares* +2.83 +3.48 +12.19 1.82
- -----------------------------------------------------------------------------------------------------------------
ML Low Duration Fund Class C Shares* +2.83 +3.58 +12.12 1.82
- -----------------------------------------------------------------------------------------------------------------
ML Low Duration Fund Class D Shares* +3.16 +4.26 +20.50 2.39
- -----------------------------------------------------------------------------------------------------------------
Merrill Lynch 1 - 3 Year U.S. Treasury Note Index** +3.30 +5.76 +75.23/+24.33/+17.00 --
=================================================================================================================
* Investment results shown do not reflect sales charges; results shown would
be lower if a sales charge was 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 ex-dividend date. The Fund's since inception periods are from
5/18/93 for Class A Shares, from 10/06/00 for Class B and Class C Shares,
and from 9/24/99 for Class D Shares.
** This unmanaged Index is comprised of Treasury securities with maturities
of one to three years. Since inception total returns are from 5/31/93,
9/30/99 and 10/31/00, respectively.
Average Annual
Total Return
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
One Year Ended 12/31/02 +4.52% +1.38%
- --------------------------------------------------------------------------------
Five Years Ended 12/31/02 +5.62 +4.98
- --------------------------------------------------------------------------------
Inception (5/18/93)
through 12/31/02 +6.93 +6.59
- --------------------------------------------------------------------------------
* Maximum sales charge is 3%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
One Year Ended 12/31/02 +3.48% -0.52%
- --------------------------------------------------------------------------------
Inception (10/06/00)
through 12/31/02 +5.28 +4.01
- --------------------------------------------------------------------------------
* 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 +3.58% +2.58%
- --------------------------------------------------------------------------------
Inception (10/06/00)
through 12/31/02 +5.25 +5.25
- --------------------------------------------------------------------------------
* 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 +4.26% +1.13%
- --------------------------------------------------------------------------------
Inception (9/24/99)
through 12/31/02 +5.87 +4.89
- --------------------------------------------------------------------------------
* Maximum sales charge is 3%.
** Assuming maximum sales charge.
4 & 5
Merrill Lynch Low Duration Fund, December 31, 2002
STATEMENT OF ASSETS AND LIABILITIES
MERRILL LYNCH
LOW DURATION
FUND As of December 31, 2002
======================================================================================================================
Assets: Investment in Low Duration Master Portfolio, at value
(identified cost--$477,507,394) .............................. $ 480,494,609
Prepaid registration fees and other assets ................... 39,531
-------------
Total assets ................................................. 480,534,140
-------------
======================================================================================================================
Liabilities: Payables:
Dividends to shareholders .................................. $ 527,446
Distributor ................................................ 263,975
Administrator .............................................. 99,973
Reorganization costs ....................................... 87,920
----------
Total liabilities ............................................ 979,314
-------------
======================================================================================================================
Net Assets: Net assets ................................................... $ 479,554,826
=============
======================================================================================================================
Net Assets Class A Shares of Common Stock, $.01 par value, 100,000,000
Consist of: shares authorized ............................................ $ 35,263
Class B Shares of Common Stock, $.01 par value, 200,000,000
shares authorized ............................................ 105,540
Class C Shares of Common Stock, $.01 par value, 100,000,000
shares authorized ............................................ 203,180
Class D Shares of Common Stock, $.01 par value, 100,000,000
shares authorized ............................................ 121,375
Paid-in capital in excess of par ............................. 478,926,839
Accumulated distributions in excess of investment income--net $ (191,295)
Accumulated realized capital losses on investments and foreign
currency transactions from the Portfolio--net ................ (2,633,291)
Unrealized appreciation on investments from the Portfolio--net 2,987,215
----------
Total accumulated earnings--net .............................. 162,629
-------------
Net assets ................................................... $ 479,554,826
=============
======================================================================================================================
Net Asset Class A--Based on net assets of $36,416,861 and 3,526,338
Value: shares outstanding ........................................... $ 10.33
=============
Class B--Based on net assets of $108,698,586 and 10,553,984
shares outstanding ........................................... $ 10.30
=============
Class C--Based on net assets of $209,209,964 and 20,317,987
shares outstanding ........................................... $ 10.30
=============
Class D--Based on net assets of $125,229,415 and 12,137,463
shares outstanding ........................................... $ 10.32
=============
======================================================================================================================
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
MERRILL LYNCH
LOW DURATION
FUND For the Six Months Ended December 31, 2002
======================================================================================================================
Investment Income Net investment income allocated from the Portfolio:
From the Portfolio-- Interest ................................................... $ 8,273,568
Net: Dividends .................................................. 69,829
Expenses ................................................... (598,455)
-------------
Net investment income from the Portfolio ..................... 7,744,942
-------------
======================================================================================================================
Expenses: Account maintenance and distribution fees--Class C ........... $ 795,041
Administration fees .......................................... 527,373
Account maintenance and distribution fees--Class B ........... 413,040
Account maintenance fees--Class D ............................ 151,715
Transfer agent fees--Class C ................................. 98,294
Transfer agent fees--Class D ................................. 67,510
Registration fees ............................................ 56,059
Transfer agent fees--Class B ................................. 51,061
Printing and shareholder reports ............................. 33,103
Professional fees ............................................ 18,277
Transfer agent fees--Class A ................................. 17,838
Accounting services .......................................... 1,364
Other ........................................................ 5,542
----------
Total expenses ............................................... 2,236,217
-------------
Investment income--net ....................................... 5,508,725
-------------
======================================================================================================================
Realized & Realized gain on investments from the Portfolio--net ......... 1,458,183
Unrealized Change in unrealized appreciation/depreciation on investments
Gain from the from the Portfolio--net ...................................... 4,889,365
Portfolio--Net: -------------
Total realized and unrealized gain from the Portfolio--net ... 6,347,548
-------------
Net Increase in Net Assets Resulting from Operations ......... $ 11,856,273
=============
======================================================================================================================
See Notes to Financial Statements.
6 & 7
Merrill Lynch Low Duration Fund, December 31, 2002
STATEMENTS OF CHANGES IN NET ASSETS
For the Six For the
MERRILL LYNCH Months Ended Year Ended
LOW DURATION December 31, June 30,
FUND Increase (Decrease) in Net Assets: 2002 2002
===============================================================================================================================
Operations: Investment income--net .............................................. $ 5,508,725 $ 4,119,815
Realized gain (loss) on investments and foreign currency transactions
from the Portfolio--net ............................................. 1,458,183 (832,050)
Change in unrealized appreciation/depreciation on investments from
the Portfolio--net .................................................. 4,889,365 (1,694,397)
------------- -------------
Net increase in net assets resulting from operations ................ 11,856,273 1,593,368
------------- -------------
===============================================================================================================================
Dividends & Investment income--net:
Distributions to Class A ........................................................... (528,877) (486,534)
Shareholders: Class B ........................................................... (1,099,539) (1,161,980)
Class C ........................................................... (2,117,119) (1,790,475)
Class D ........................................................... (1,858,963) (684,885)
Realized gain on investments from the Portfolio--net:
Class A ........................................................... -- (7,129)
Class B ........................................................... -- (18,973)
Class C ........................................................... -- (26,954)
Class D ........................................................... -- (3,853)
------------- -------------
Net decrease in net assets resulting from dividends and
distributions to shareholders ....................................... (5,604,498) (4,180,783)
------------- -------------
===============================================================================================================================
Capital Share Net increase in net assets derived from capital share transactions .. 149,127,543 315,569,072
Transactions: ------------- -------------
===============================================================================================================================
Net Assets: Total increase in net assets ........................................ 155,379,318 312,981,657
Beginning of period ................................................. 324,175,508 11,193,851
------------- -------------
End of period* ...................................................... $ 479,554,826 $ 324,175,508
============= =============
*Accumulated distributions in excess of investment income--net ....... $ (191,295) $ (95,522)
============= =============
===============================================================================================================================
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
Class A
The following per share data and ratios have been ----------------------------------------------
derived from information provided in the financial For the Six For the For the
MERRILL LYNCH statements. Months Ended Year Ended October 6, 2000+
LOW DURATION December 31, June 30, to June 30,
FUND Increase (Decrease) in Net Asset Value: 2002 2002 2001
==============================================================================================================================
Per Share Net asset value, beginning of period ................ $ 10.17 $ 10.21 $ 10.00
Operating ---------- ---------- ----------
Performance: Investment income--net .............................. .17++ .45++ .40
Realized and unrealized gain on investments and
foreign currency transactions from the Portfolio--net .16 .02 .19
---------- ---------- ----------
Total from investment operations .................... .33 .47 .59
---------- ---------- ----------
Less dividends and distributions:
Investment income--net ............................ (.17) (.50) (.38)
Realized gain on investments--net ................. -- (.01) --
---------- ---------- ----------
Total dividends and distributions ................... (.17) (.51) (.38)
---------- ---------- ----------
Net asset value, end of period ...................... $ 10.33 $ 10.17 $ 10.21
========== ========== ==========
==============================================================================================================================
Total Investment Based on net asset value per share .................. 3.29%@ 4.68% 5.95%@
Return:** ========== ========== ==========
==============================================================================================================================
Ratios to Average Expenses, net of reimbursement+++ ................... .70%* .58% .58%*
Net Assets: ========== ========== ==========
Expenses+++ ......................................... .70%* .78% 8.51%*
========== ========== ==========
Investment income--net .............................. 3.25%* 4.51% 6.00%*
========== ========== ==========
==============================================================================================================================
Supplemental Data: Net assets, end of period (in thousands) ............ $ 36,417 $ 23,325 $ 1,156
========== ========== ==========
==============================================================================================================================
* Annualized.
** Total investment returns exclude the effects of sales charges. If
applicable, 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.
++ Based on average shares outstanding.
+++ Includes the Fund's share of the Portfolio's allocated expenses.
@ Aggregate total investment return.
See Notes to Financial Statements.
8 & 9
Merrill Lynch Low Duration Fund, December 31, 2002
FINANCIAL HIGHLIGHTS (concluded)
Class B
---------------------------------------------
The following per share data and ratios have been derived For the Six For the For the Period
MERRILL LYNCH from information provided in the financial statements. Months Ended Year Ended October 6, 2000+
LOW DURATION December 31, June 30, to June 30,
FUND Increase (Decrease) in Net Asset Value: 2002 2002 2001
====================================================================================================================================
Per Share Net asset value, beginning of period ....................... $ 10.14 $ 10.18 $ 10.00
Operating --------- --------- ---------
Performance: Investment income--net ..................................... .12++ .37++ .33
Realized and unrealized gain on investments and
foreign currency transactions from the Portfolio--net ...... .17 .01 .18
--------- --------- ---------
Total from investment operations ........................... .29 .38 .51
--------- --------- ---------
Less dividends and distributions:
Investment income--net ................................... (.13) (.41) (.33)
Realized gain on investments--net ........................ -- (.01) --
--------- --------- ---------
Total dividends and distributions .......................... (.13) (.42) (.33)
--------- --------- ---------
Net asset value, end of period ............................. $ 10.30 $ 10.14 $ 10.18
========= ========= =========
====================================================================================================================================
Total Investment Based on net asset value per share ......................... 2.83%@ 3.75% 5.16%@
Return:** ========= ========= =========
====================================================================================================================================
Ratios to Average Expenses, net of reimbursement+++ .......................... 1.60%* 1.48% 1.48%*
Net Assets: ========= ========= =========
Expenses+++ ................................................ 1.60%* 1.70% 9.41%*
========= ========= =========
Investment income--net ..................................... 2.35%* 3.75% 5.10%*
========= ========= =========
====================================================================================================================================
Supplemental Data: Net assets, end of period (in thousands) ................... $ 108,699 $ 64,457 $ 5,016
========= ========= =========
====================================================================================================================================
Class C
---------------------------------------------
The following per share data and ratios have been derived For the Six For the For the Period
from information provided in the financial statements. Months Ended Year Ended October 6, 2000+
December 31, June 30, to June 30,
Increase (Decrease) in Net Asset Value: 2002 2002 2001
====================================================================================================================================
Per Share Net asset value, beginning of period ....................... $ 10.14 $ 10.18 $ 10.00
Operating --------- --------- ---------
Performance: Investment income--net ..................................... .12++ .35++ .32
Realized and unrealized gain on investments and
foreign currency transactions from the Portfolio--net ...... .17 .03 .18
--------- --------- ---------
Total from investment operations ........................... .29 .38 .50
--------- --------- ---------
Less dividends and distributions:
Investment income--net ................................... (.13) (.41) (.32)
Realized gain on investments--net ........................ -- (.01) --
--------- --------- ---------
Total dividends and distributions .......................... (.13) (.42) (.32)
--------- --------- ---------
Net asset value, end of period ............................. $ 10.30 $ 10.14 $ 10.18
========= ========= =========
====================================================================================================================================
Total Investment Based on net asset value per share ......................... 2.83%@ 3.75% 5.10%@
Return:** ========= ========= =========
====================================================================================================================================
Ratios to Average Expenses, net of reimbursement+++ .......................... 1.60%* 1.48% 1.48%*
Net Assets: ========= ========= =========
Expenses+++ ................................................ 1.60%* 1.68% 9.41%*
========= ========= =========
Investment income--net ..................................... 2.35%* 3.62% 5.10%*
========= ========= =========
====================================================================================================================================
Supplemental Data: Net assets, end of period (in thousands) ................... $ 209,210 $ 126,380 $ 4,754
========= ========= =========
====================================================================================================================================
Class D
---------------------------------------------
The following per share data and ratios have been derived For the Six For the For the Period
from information provided in the financial statements. Months Ended Year Ended October 6, 2000+
December 31, June 30, to June 30,
Increase (Decrease) in Net Asset Value: 2002 2002 2001
====================================================================================================================================
Per Share Net asset value, beginning of period ....................... $ 10.16 $ 10.19 $ 10.00
Operating --------- --------- ---------
Performance: Investment income--net ..................................... .16++ .34++ .36
Realized and unrealized gain on investments and
foreign currency transactions from the Portfolio--net ...... .16 .12 .19
--------- --------- ---------
Total from investment operations ........................... .32 .46 .55
--------- --------- ---------
Less dividends and distributions:
Investment income--net ................................... (.16) (.48) (.36)
Realized gain on investments--net ........................ -- (.01) --
--------- --------- ---------
Total dividends and distributions .......................... (.16) (.49) (.36)
--------- --------- ---------
Net asset value, end of period ............................. $ 10.32 $ 10.16 $ 10.19
========= ========= =========
====================================================================================================================================
Total Investment Based on net asset value per share ......................... 3.16%@ 4.53% 5.58%@
Return:** ========= ========= =========
====================================================================================================================================
Ratios to Average Expenses, net of reimbursement+++ .......................... .95%* .83% .83%*
Net Assets: ========= ========= =========
Expenses+++ ................................................ .95%* 1.02% 8.76%*
========= ========= =========
Investment income--net ..................................... 3.02%* 4.04% 5.75%*
========= ========= =========
====================================================================================================================================
Supplemental Data: Net assets, end of period (in thousands) ................... $ 125,229 $ 110,014 $ 268
========= ========= =========
====================================================================================================================================
* Annualized.
** Total investment returns exclude the effects of sales charges. If
applicable, 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.
++ Based on average shares outstanding.
+++ Includes the Fund's share of the Portfolio's allocated expenses.
@ Aggregate total investment return.
See Notes to Financial Statements.
10 & 11
Merrill Lynch Low Duration Fund, December 31, 2002
NOTES TO FINANCIAL STATEMENTS
MERRILL LYNCH
LOW DURATION
FUND
1. Significant Accounting Policies:
Merrill Lynch Low Duration Fund (the "Fund") is a fund of Merrill Lynch
Investment Managers Funds, Inc. (the "Company"). The Company is registered under
the Investment Company Act of 1940 as 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 Low
Duration Master Portfolio (the "Portfolio") of Fund Asset Management Master
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 percentage of the Portfolio owned by the Fund at December 31, 2002 was
74.4%. 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 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
expense 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 entered into an Administration Agreement with Fund Asset
Management, L.P. ("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.
The Company has also entered into a Distribution Agreement and Distributions
Plans with FAM Distributors, Inc. ("FAMD" or the "Distributor"), 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% .65%
Class C .................................. .25% .65%
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 A and Class D
Shares as follows:
- --------------------------------------------------------------------------------
FAMD MLPF&S
- --------------------------------------------------------------------------------
Class A .............................. $ 113 $ 788
Class D .............................. $14,539 $71,451
- --------------------------------------------------------------------------------
For the six months ended December 31, 2002, MLPF&S received contingent deferred
sales charges of $146,668 and $91,491 relating to transactions in Class B and
Class C Shares, respectively. Furthermore, MLPF&S received contingent deferred
sales charges of $2,100 and $25,392 relating to transactions subject to
front-end sales charge waivers in Class A and Class D 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 $190,338,415 and $48,868,169, respectively.
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions was
$149,127,543 and $315,569,072 for the six months ended December 31, 2002 and 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 ............................ 2,466,595 $ 25,284,621
Shares issued to shareholders
in reinvestment of dividends ........... 19,128 196,521
------------- -------------
Total issued ........................... 2,485,723 25,481,142
Shares redeemed ........................ (1,253,235) (12,851,252)
------------- -------------
Net increase ........................... 1,232,488 $ 12,629,890
============= =============
- -------------------------------------------------------------------------------
12 & 13
Merrill Lynch Low Duration Fund, December 31, 2002
NOTES TO FINANCIAL STATEMENTS (concluded)
MERRILL LYNCH
LOW DURATION
FUND
- -------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended June 30, 2002 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 2,933,256 $ 30,121,533
Shares issued resulting from
reorganization ......................... 19,772 202,490
Shares issued to shareholders
in reinvestment of dividends
and distributions ...................... 7,781 79,753
------------- -------------
Total issued ........................... 2,960,809 30,403,776
Shares redeemed ........................ (780,233) (7,983,028)
------------- -------------
Net increase ........................... 2,180,576 $ 22,420,748
============= =============
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class B Shares for the Six Months Dollar
Ended December 31, 2002 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 5,678,875 $ 58,029,865
Shares issued to shareholders
in reinvestment of dividends ........... 65,966 675,471
------------- -------------
Total issued ........................... 5,744,841 58,705,336
Automatic conversion of shares ......... (343,488) (3,497,652)
Shares redeemed ........................ (1,203,779) (12,310,481)
------------- -------------
Net increase ........................... 4,197,574 $ 42,897,203
============= =============
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended June 30, 2002 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 5,986,542 $ 61,312,584
Shares issued resulting from
reorganization ......................... 586,789 5,992,678
Shares issued to shareholders
in reinvestment of dividends
and distributions ...................... 47,102 480,957
------------- -------------
Total issued ........................... 6,620,433 67,786,219
Automatic conversion of shares ......... (4,006) (40,782)
Shares redeemed ........................ (752,805) (7,701,393)
------------- -------------
Net increase ........................... 5,863,622 $ 60,044,044
============= =============
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class C Shares for the Six Months Dollar
Ended December 31, 2002 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 9,978,861 $ 101,958,629
Shares issued to shareholders
in reinvestment of dividends ........... 146,077 1,495,213
------------- -------------
Total issued ........................... 10,124,938 103,453,842
Shares redeemed ........................ (2,272,376) (23,238,725)
------------- -------------
Net increase ........................... 7,852,562 $ 80,215,117
============= =============
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended June 30, 2002 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 12,912,508 $ 131,999,635
Shares issued resulting from
reorganization ......................... 35,929 366,860
Shares issued to shareholders
in reinvestment of dividends
and distributions ...................... 105,436 1,076,381
------------- -------------
Total issued ........................... 13,053,873 133,442,876
Shares redeemed ........................ (1,055,611) (10,778,366)
------------- -------------
Net increase ........................... 11,998,262 $ 122,664,510
============= =============
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class D Shares for the Six Months Dollar
Ended December 31, 2002 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 2,152,110 $ 22,055,327
Automatic conversion of shares ......... 342,861 3,497,652
Shares issued to shareholders
in reinvestment of dividends ........... 101,422 1,039,982
------------- -------------
Total issued ........................... 2,596,393 26,592,961
Shares redeemed ........................ (1,288,320) (13,207,628)
------------- -------------
Net increase ........................... 1,308,073 $ 13,385,333
============= =============
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class D Shares for the Year Dollar
Ended June 30, 2002 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 7,115,133 $ 72,653,961
Automatic conversion of shares ......... 3,999 40,782
Shares issued resulting from
reorganization ......................... 4,998,284 51,139,515
Shares issued to shareholders
in reinvestment of dividends
and distributions ...................... 18,450 188,585
------------- -------------
Total issued ........................... 12,135,866 124,022,843
Shares redeemed ........................ (1,332,776) (13,583,073)
------------- -------------
Net increase ........................... 10,803,090 $ 110,439,770
============= =============
- -------------------------------------------------------------------------------
5. Capital Loss Carryforward:
On June 30, 2002, the Fund had a net capital loss carryforward of $3,436,404, of
which $488,336 expires in 2003, $1,015,207 expires in 2004, $1,288,726 expires
in 2005, $142,956 expires in 2006, $110,946 expires in 2007, $270,092 expires in
2008 and $120,141 expires in 2009. This amount will be available to offset like
amounts of any future taxable gains.
14 & 15
Merrill Lynch Low Duration Fund, December 31, 2002
SCHEDULE OF INVESTMENTS (in U.S. dollars)
Low Duration Master Portfolio
--------------------------------------------------------------------------------------------------------------
Face
Industries Amount Investments Value
====================================================================================================================================
Corporate Bonds & Aerospace & Defense-- $ 3,000,000 Lockheed Martin Corp., 7.25% Due 5/15/2006 $ 3,378,633
Notes--32.2% 0.9% 2,000,000 Northrop-Grumman Corp., 8.625% due 10/15/2004 2,173,268
-----------
5,551,901
--------------------------------------------------------------------------------------------------------------
Automotive--2.5% 4,200,000 Daimler-Chrysler NA Holdings, 3.40% due 12/15/2004 4,228,753
Ford Motor Credit Company:
2,000,000 7.50% due 3/15/2005 2,040,528
4,400,000 7.60% due 8/01/2005 4,492,598
General Motors Acceptance Corp.:
5,000,000 7.625% due 6/15/2004 5,250,250
250,000 6.85% due 6/17/2004 260,357
-----------
16,272,486
--------------------------------------------------------------------------------------------------------------
Banking--3.7% 5,000,000 Bank of America Corporation, 4.75% due 10/15/2006 5,291,375
5,000,000 First Security Corporation--Delaware, 5.875%
due 11/01/2003 5,165,255
1,000,000 FleetBoston Financial Corp., 7.25% due 9/15/2005 1,107,278
5,000,000 US Bancorp, 6.875% due 12/01/2004 5,451,315
6,500,000 Wells Fargo Company, 6.625% due 7/15/2004 6,953,414
-----------
23,968,637
--------------------------------------------------------------------------------------------------------------
Cable & Media--2.4% Clear Channel Communications:
4,000,000 7.25% due 9/15/2003 4,080,724
1,800,000 7.875% due 6/15/2005 1,970,672
2,940,000 Comcast Cable Communications, 6.375% due 1/30/2006 3,076,096
4,500,000 TCI Communications Inc., 2.11% due 3/11/2003 (a) 4,500,225
1,000,000 Turner Broadcasting, 7.40% due 2/01/2004 1,024,534
1,000,000 USA Interactive, 6.75% due 11/15/2005 1,047,215
-----------
15,699,466
--------------------------------------------------------------------------------------------------------------
Commercial Services & 1,100,000 Cendant Corporation, 6.875% due 8/15/2006 1,141,428
Supplies--0.2%
--------------------------------------------------------------------------------------------------------------
Electric--0.4% 2,500,000 PSE&G Power LLC, 6.875% due 4/15/2006 2,621,050
--------------------------------------------------------------------------------------------------------------
Electric Utilities--2.7% 6,000,000 Boston Edison Company, 2.275% due 10/15/2005 (a) 5,998,638
4,450,000 Conectiv Inc., 5.30% due 6/01/2005 4,633,211
2,000,000 Detroit Edison Company, 5.05% due 10/01/2005 2,118,430
2,500,000 Dominion Resources Inc., 7.625% due 7/15/2005 2,742,542
2,000,000 FirstEnergy Corporation, 5.50% due 11/15/2006 2,011,294
-----------
17,504,115
--------------------------------------------------------------------------------------------------------------
Financial Services--7.3% 5,000,000 Associates Corp. NA, 6% due 7/15/2005 5,392,785
4,475,000 Bear Stearns Companies Inc., 6.15% due 3/02/2004 4,681,333
1,425,000 Citigroup Inc., 5.70% due 2/06/2004 1,482,224
Countrywide Home Loan:
1,600,000 5.25% due 5/22/2003 1,621,357
2,400,000 5.25% due 6/15/2004 2,496,151
1,450,000 Donaldson, Lufkin & Jenrette Inc., 6.875% due 11/01/2005 1,584,501
2,000,000 Goldman Sachs Group Inc., 7.50% due 1/28/2005 2,197,718
Household Finance Corporation:
4,000,000 6.50% due 1/24/2006 4,259,688
470,000 5.875% due 2/01/2009 482,411
325,000 7% due 5/15/2012 355,969
International Lease Finance Corporation:
5,000,000 5.50% due 6/07/2004 5,165,910
1,900,000 4.375% due 12/15/2005 1,922,711
5,000,000 Lehman Brothers Holdings, Inc., 6.625% due 4/01/2004 5,271,175
3,060,000 MBNA Corporation, 5.625% due 11/30/2007 3,125,245
Pemex Finance Ltd.:
252,000 9.14% due 8/15/2004 267,589
2,769,583 8.45% due 2/15/2007 3,097,391
3,350,000 Salomon Inc., 6.75% due 8/15/2003 3,454,178
-----------
46,858,336
--------------------------------------------------------------------------------------------------------------
Food Distribution--0.8% 5,000,000 Pepsi Bottling Holdings Inc., 5.375% due 2/17/2004 (c) 5,204,580
--------------------------------------------------------------------------------------------------------------
Foods--0.2% 1,200,000 Conagra Inc., 7.40% due 9/15/2004 1,300,303
--------------------------------------------------------------------------------------------------------------
Gaming & Lodging--0.0% 230,000 Circus Circus Enterprises, Inc., 6.70% due 11/15/2096 231,076
--------------------------------------------------------------------------------------------------------------
Hospitals--0.7% 4,000,000 HCA Healthcare Inc., 7.125% due 6/01/2006 4,238,948
--------------------------------------------------------------------------------------------------------------
Industrials--0.7% 2,000,000 Tyson Foods, Inc., 6.625% due 10/01/2004 2,126,520
2,500,000 Waste Management Inc., 6.50% due 5/15/2004 2,578,008
-----------
4,704,528
--------------------------------------------------------------------------------------------------------------
Insurance--0.6% 3,500,000 Marsh & McLennan Companies Inc., 6.625% due 6/15/2004 3,738,291
--------------------------------------------------------------------------------------------------------------
Multi-Sector Holdings--0.2% 1,579,200 Lehman Brothers, TRAINS, 6.259% due 8/15/2008 (a)(c)(f) 1,626,197
--------------------------------------------------------------------------------------------------------------
Oil--Integrated--0.9% 2,400,000 Ashland Inc., 2.02% due 3/07/2003 (a) 2,399,136
3,000,000 Conoco Funding Company, 5.45% due 10/15/2006 3,238,098
-----------
5,637,234
--------------------------------------------------------------------------------------------------------------
Paper Products--0.3% 1,700,000 Abitibi-Consolidated Inc., 6.95% due 12/15/2006 1,765,866
--------------------------------------------------------------------------------------------------------------
Real Estate Investment 1,000,000 Avalonbay Communities, 6.58% due 2/15/2004 1,048,651
Trust--4.7% 5,000,000 Developers Divers Realty, 6.95% due 7/23/2004 5,228,075
Health Care Properties Inc.:
900,000 9% due 3/01/2004 961,807
3,000,000 7.48% due 4/05/2004 3,165,939
3,500,000 Highwoods Realty LP, 8% due 12/01/2003 3,661,276
Nationwide Health Properties:
1,400,000 7.60% due 11/20/2028 1,473,625
5,000,000 6.90% due 10/01/2037 5,331,305
1,400,000 6.59% due 7/07/2038 1,450,093
6,951,000 Susa Partnership LP, 6.95% due 7/01/2006 7,770,509
-----------
30,091,280
--------------------------------------------------------------------------------------------------------------
16 & 17
Merrill Lynch Low Duration Fund, December 31, 2002
SCHEDULE OF INVESTMENTS (continued) (in U.S. dollars)
Low Duration Master Portfolio (continued)
--------------------------------------------------------------------------------------------------------------
Face
Industries Amount Investments Value
====================================================================================================================================
Corporate Bonds & Telecommunications-- $ 2,500,000 British Telecom PLC, 7.875% Due 12/15/2005 $ 2,819,262
Notes 2.7% 2,500,000 Deutsche Telekom International Finance, 8.25%
(concluded) due 6/15/2005 2,733,515
2,500,000 France Telecom, 8.70% due 3/01/2006 2,737,160
5,000,000 Qwest Capital Funding, 5.875% due 8/03/2004 4,200,000
Sprint Capital Corporation:
2,000,000 5.70% due 11/15/2003 1,990,000
2,000,000 5.875% due 5/01/2004 1,980,000
5,000,000 WorldCom, Inc., 7.55% due 4/01/2004 (e) 1,175,000
------------
17,634,937
--------------------------------------------------------------------------------------------------------------
Transportation--0.3% 2,000,000 CSX Corporation, 6.46% due 6/22/2005 2,154,096
--------------------------------------------------------------------------------------------------------------
Total Corporate Bonds & Notes (Cost--$207,813,012) 207,944,755
====================================================================================================================================
Government Agency Collateralized Mortgage Fannie Mae:
Mortgage-Backed Obligations--0.8% 299,355 1993-6 S, 20.895% due 1/25/2008 (a) 314,984
Securities**--14.2% 29,975 1994-60 D, 7% due 4/25/2024 30,156
71,000 Freddie Mac, 1617-D, 6.50% due 11/15/2023 (c) 71,721
4,981,751 Ginnie Mae, 2002-83 A, 3.313% due 4/16/2017 5,025,223
------------
5,442,084
--------------------------------------------------------------------------------------------------------------
Pass-Through Fannie Mae:
Securities--13.4% 40,000,000 8% (d) 42,875,680
343,604 1999-53 AT, 6% due 10/25/2013 344,180
Freddie Mac:
13,900,745 E00975, 6% due 5/01/2016 14,553,857
3,145,432 E01009, 6.50% due 8/01/2016 3,326,314
4,087,273 E01139, 6% due 4/01/2017 4,276,856
4,736,276 E88102, 6.50% due 2/01/2017 4,998,674
4,479,233 E88913, 6% due 4/01/2017 4,689,684
3,988,830 E89435, 6% due 5/01/2017 4,173,847
4,228,670 E90312, 6% due 6/01/2017 4,424,812
2,567,681 G11267, 6.50% due 1/01/2017 2,715,339
------------
86,379,243
--------------------------------------------------------------------------------------------------------------
Total Government Agency Mortgage-Backed Securities
(Cost--$90,796,206) 91,821,327
====================================================================================================================================
Government Agency 9,280,000 Federal Farm Credit Bank, 5.15% due 3/05/2004 9,673,147
Obligations--5.1% 11,000,000 Federal Home Loan Bank, 5.25% due 2/13/2004 11,466,312
11,360,000 Freddie Mac, 3.25% due 12/15/2003 11,574,545
--------------------------------------------------------------------------------------------------------------
Total Government Agency Obligations (Cost--$31,867,367) 32,714,004
====================================================================================================================================
Asset-Backed 5,000,000 ARNC Auto Owner Trust, 2001-A A3, 3.76% due 10/17/2005 5,061,160
Securities**--18.7% 104,230 Advanta Mortgage Loan Trust, 1998-2 A17, 6.05% due 9/25/2018 105,270
434,381 Asset-Backed Funding Certificates, 1999-1 A2F, 7.641%
due 10/25/2030 447,050
5,000,000 CIT Equipment Collateral, 2002-VT1 A3, 4.03% due 1/20/2006 5,132,692
California Infrastructure PG&E:
1,600,000 1997-1 A6, 6.38% due 9/25/2008 1,747,424
2,000,000 1997-1 A7, 6.42% due 9/25/2008 2,177,129
Centex Home Equity:
3,166,685 2001-B A2, 5.35% due 10/25/2022 3,182,732
4,000,000 2001-C A2, 3.94% due 2/25/2025 4,030,445
3,000,000 2002-C AF2, 2.87% due 8/25/2018 3,021,882
3,500,000 Chase Funding Mortgage Loan Asset-Backed Certificates,
2002-3 1A3, 3.55% due 3/25/2022 3,549,301
5,000,000 Chase Manhattan Auto Owner Trust, 2002-B, 4.24%
due 1/15/2009 5,184,206
1,164,762 CityScape Home Equity Loan Trust, 1996-4 A10, 7.40%
due 9/25/2027 (c) 1,205,603
364,683 Countrywide Home Equity Loan Trust, 1999-A, 1.74%
due 4/15/2025 (a) 363,302
5,000,000 DaimlerChrysler Auto Trust, 2001-D A4, 3.78% due 2/06/2007 5,177,301
10,000,000 First Franklin Mortgage Loan Asset-Backed Certificates,
2002-FF4 2A2, 2.80% due 2/25/2033 10,000,000
Freddie Mac:
5,000,000 T-45 A2, 2.91% due 8/27/2007 5,029,225
14,000,000 T-50 A3, 2.182% due 9/27/2007 13,965,000
5,000,000 GMAC Mortgage Corporation Loan Trust, 2002-HE A2, 4.63% due
6/25/2027 (c) 5,070,130
78,358 Green Tree Recreational, Equipment & Consumer Trust,
1996-C A1, 1.66% due 10/15/2017 (a) 78,367
2,500,000 Harley-Davidson Motorcycle Trust, 2001-2 A2, 4.72%
due 6/15/2009 2,611,712
2,030,677 IndyMac Home Equity Loan Asset-Backed Trust, 2001-B AF3,
5.692% due 3/25/2027 (a) 2,044,215
5,000,000 John Deere Owner Trust, 2001-A A3, 3.26% due 10/17/2005 5,067,356
2,590,000 M & I Auto Loan Trust, 2001-1 A4, 4.97% due 3/20/2007 2,730,874
5,368,984 PSE&G Transition Funding LLC, 2001-1 A2, 5.74% due 3/15/2007 5,615,796
9,000,000 Residential Asset Mortgage Products, Inc., 2002-RZ1 A2,
4.30% due 4/25/2023 9,157,971
Residential Asset Securities Corporation:
5,000,000 2002-KS5 AIB2, 2.47% due 8/25/2022 5,011,315
5,000,000 2002-KS6 AI2, 3.09% due 11/25/2022 5,040,374
5,000,000 2002-KS8 A2, 3.04% due 6/25/2023 5,039,063
2,000,000 USAA Auto Owner Trust, 2001-2 A3, 3.20% due 2/15/2006 2,018,150
2,000,000 Whole Auto Loan Trust, 2002-1 B, 2.91% due 4/15/2009 2,021,246
--------------------------------------------------------------------------------------------------------------
Total Asset-Backed Securities (Cost--$119,263,086) 120,886,291
====================================================================================================================================
Non-Agency Collateralized Mortgage ABN AMRO Mortgage Corporation:
Mortgage-Backed Obligations--11.5% 1,482,805 2001-1A 1A3, 4.75% due 11/25/2031 1,482,981
Securities**--13.8% 2,642,082 2001-8 2A1, 6.50% due 1/25/2032 2,673,100
830,846 Bank of America Mortgage Securities, 2000-A A-1, 6.944% due
1/25/2031 (a) 837,700
327,719 Blackrock Capital Finance LP, 1997-R2 AP, 9.03%
due 12/25/2035 (a)(c) 347,661
6,584,482 Chase Mortgage Finance Corporation, 1999-S4 A1, 6.50%
due 4/25/2029 6,762,795
Citicorp Mortgage Securities, Inc.:
104,573 1989-8 A1, 10.50% due 6/25/2019 113,489
217,881 1994-4 A6, 6% due 2/25/2009 219,554
2,390 Countrywide Funding Corp., 1994-17 A9, 8% due 7/25/2024 2,395
2,324,318 GE Capital Mortgage Services, Inc., 1996-5 A4, 6.75%
due 3/25/2011 2,327,038
18 & 19
Merrill Lynch Low Duration Fund, December 31, 2002
SCHEDULE OF INVESTMENTS (concluded) (in U.S. dollars)
Low Duration Master Portfolio (concluded)
--------------------------------------------------------------------------------------------------------------
Face
Amount Investments Value
===================================================================================================================================
Non-Agency Collateralized Mortgage $ 93,393 Housing Securities Inc., 1994-2 B1, 6.50% due 7/25/2009 $ 73,838
Mortgage-Backed Obligations 1,130,590 Ocwen Residential MBS Corporation, 1998-R2 AP, 7.124%
Securities** (concluded) due 11/25/2034 (a)(c) 1,150,198
(concluded) 9,735,000 PNC Mortgage Securities Corp., 1999-4 1A5, 6.20%
due 6/25/2029 10,000,804
5,000,000 Permanent Financing PLC, 1 2A, 4.20% due 6/10/2007 5,175,000
1,106,267 Residential Funding Mortgage Securities I, 2001-S24 A8,
5.50% due 10/25/2031 1,118,702
106,206 Salomon Brothers Mortgage Securities VI, 1986-1 A, 6%
due 12/25/2011 108,940
9,361,409 Structured Asset Securities Corporation, 2002-19 A1, 4.20%
due 10/25/2032 9,528,885
Structured Mortgage Asset Residential Trust:
10,873 1991-1H, 8.25% due 6/25/2022 11,277
29,690 1992-3A AA, 8% due 10/25/2007 30,660
34,037 1993-5A AA, 8.575% due 6/25/2024 (a) 36,919
271,048 Walsh Acceptance, 1997-2 A, 2.42% due 3/01/2027 (a)(c) 162,629
Washington Mutual:
1,900,000 2000-1 B1, 5.42% due 1/25/2040 (a)(c) 1,892,281
9,695,588 2002-AR15 A3, 4.07% due 12/25/2032 9,934,996
5,000,000 2002-AR19 A3, 3.492% due 1/25/2033 5,015,625
6,836,043 2002-S3 1A1, 6.50% due 6/25/2032 7,015,372
Wells Fargo Mortgage-Backed Securities Trust:
3,112,370 2002-A A2, 5.90% due 3/25/2032 3,122,228
5,127,661 2002-3 A1, 5.50% due 3/25/2032 5,220,215
------------
74,365,282
--------------------------------------------------------------------------------------------------------------
Commercial Mortgage- 2,568,656 Banc of America Commercial Mortgage Inc., 2000-1 A1A, 7.109%
Backed Securities--2.3% due 11/15/2008 2,871,406
CS First Boston Mortgage Securities Corporation:
4,637,603 1995-WF1 AX, 1.338% due 12/21/2027 (a)(b)(c) 26,934
3,938,562 2001-CK6 A1, 4.393% due 7/15/2006 4,086,651
1,120,116 First Union NB-Bank of America Commercial Mortgage Trust,
2001-C1 A1, 5.711% due 3/15/2033 1,205,071
3,036,759 GS Mortgage Securities Corporation II, 1998-C1 A1, 6.06% due
10/18/2030 3,221,259
2,676,501 Nomura Asset Securities Corporation, 1995-MD3 A1B, 8.15% due
3/04/2020 2,947,458
------------
14,358,779
--------------------------------------------------------------------------------------------------------------
Stripped Mortgage- 22,843,358 Asset Securitization Corporation, 1997-D5 ACS1, 2.091%
Backed Securities--0.0% due 2/14/2043 (a)(b) 129,419
13,725,000 Saxon Asset Securities Trust, 2000-2 AIO, 6%
due 7/25/2030 (b) 4,289
------------
133,708
--------------------------------------------------------------------------------------------------------------
Total Non-Agency Mortgage-Backed Securities
(Cost--$88,004,177) 88,857,769
===================================================================================================================================
Shares
Held
===================================================================================================================================
Preferred 1,500 Home Ownership Funding 2 (c) 929,273
Stock--0.1%
--------------------------------------------------------------------------------------------------------------
Total Preferred Stock (Cost--$1,500,000) 929,273
===================================================================================================================================
Face
Amount
===================================================================================================================================
U.S. Treasury U.S. Treasury Notes:
Obligations--2.0% $ 3,890,000 4.75% due 2/15/2004 4,042,258
4,303,000 1.875% due 9/30/2004 4,333,087
4,500,000 3.25% due 8/15/2007 4,611,447
--------------------------------------------------------------------------------------------------------------
Total U.S. Treasury Obligations (Cost--$12,639,997) 12,986,792
===================================================================================================================================
Short-Term Commercial Paper* 11,340,000 Autoliv ASP Inc., 1.33% due 1/02/2003 11,340,000
Investments--19.7% 17,408,000 BMW US Capital Group, 1.35% due 1/09/2003 17,403,431
30,000,000 Barton Capital Corporation, 1.36% due 1/07/2003 29,994,333
15,700,000 Ciesco LP, 6.253% due 1/03/2003 15,697,273
27,600,000 Fortis Funding LLC, 1.35% due 1/23/2003 27,578,265
13,500,000 Variable Funding Capital Corp., 1.34% due 1/14/2003 13,493,970
12,000,000 Viacom, 2.02% due 1/14/2003 11,994,000
--------------------------------------------------------------------------------------------------------------
Total Short-Term Investments (Cost--$127,499,192) 127,501,272
===================================================================================================================================
Total Investments (Cost--$679,383,037)--105.8% 683,641,483
Time Deposit--0.0%*** 37,158
Liabilities in Excess of Other Assets--(5.8%) (37,622,636)
------------
Net Assets--100.0% $646,056,005
============
===================================================================================================================================
(a) Floating rate note.
(b) Represents the interest-only portion of a mortgage-backed obligation.
(c) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(d) 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.
(e) Non-income producing security.
(f) Target Return Index Securities (TRAINS).
* 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.
** Mortgage-Backed and Asset-Backed Securities are subject to principal
paydowns as a result of prepayments or refinancings of the underlying
instruments. As a result, the average life may be substantially less than
the original maturity.
*** Time deposit bears interest at 0.74% and matures on 1/02/2003.
See Notes to Financial Statements.
20 & 21
Merrill Lynch Low Duration Fund, December 31, 2002
STATEMENT OF ASSETS AND LIABILITIES
LOW DURATION
MASTER PORTFOLIO As of December 31, 2002
========================================================================================================================
Assets: Investments, at value (identified cost--$679,383,037) ............ $683,641,483
Time deposit ..................................................... 37,158
Cash ............................................................. 4,453
Receivables:
Interest ....................................................... $ 4,629,288
Paydowns ....................................................... 3,455,852
Contributions .................................................. 3,336,842 11,421,982
-----------
Prepaid expenses ................................................. 698
------------
Total assets ..................................................... 695,105,774
------------
========================================================================================================================
Liabilities: Payables:
Securities purchased ........................................... 42,953,055
Withdrawals .................................................... 5,883,036
Investment adviser ............................................. 114,890 48,950,981
-----------
Accrued expenses and other liabilities ........................... 98,788
------------
Total liabilities ................................................ 49,049,769
------------
========================================================================================================================
Net Assets: Net assets ....................................................... $646,056,005
============
========================================================================================================================
Net Assets Investors' capital ............................................... $641,797,559
Consist of: Unrealized appreciation on investments--net ...................... 4,258,446
------------
Net assets ....................................................... $646,056,005
============
========================================================================================================================
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
LOW DURATION
MASTER PORTFOLIO For the Six Months Ended December 31, 2002
========================================================================================================================
Investment Interest ......................................................... $ 11,903,429
Income: Dividends ........................................................ 100,591
------------
Total income ..................................................... 12,004,020
------------
========================================================================================================================
Expenses: Investment advisory fees ......................................... $ 638,937
Accounting services .............................................. 140,788
Custodian fees ................................................... 24,905
Professional fees ................................................ 24,311
Trustees' fees and expenses ...................................... 10,461
Pricing fees ..................................................... 6,112
Printing and shareholder reports ................................. 2,321
Other ............................................................ 11,699
-----------
Total expenses ................................................... 859,534
------------
Investment income--net ........................................... 11,144,486
------------
========================================================================================================================
Realized & Realized gain on investments--net ................................ 2,041,755
Unrealized Gain on Change in unrealized appreciation/depreciation on investments--net 7,146,509
Investments--Net: ------------
Total realized and unrealized gain on investments--net ........... 9,188,264
------------
Net Increase in Net Assets Resulting from Operations ............. $ 20,332,750
============
========================================================================================================================
See Notes to Financial Statements.
22 & 23
Merrill Lynch Low Duration Fund, December 31, 2002
STATEMENTS OF CHANGES IN NET ASSETS
For the Six For the
Months Ended Year Ended
LOW DURATION December 31, June 30,
MASTER PORTFOLIO Increase in Net Assets: 2002 2002
=============================================================================================================================
Operations: Investment income--net ............................................ $ 11,144,486 $ 17,080,656
Realized gain on investments and foreign currency transactions--net 2,041,755 914,391
Change in unrealized appreciation/depreciation on investments--net 7,146,509 (3,287,313)
------------- -------------
Net increase in net assets resulting from operations .............. 20,332,750 14,707,734
------------- -------------
=============================================================================================================================
Capital Proceeds from contributions ....................................... 320,920,427 551,288,181
Transactions: Fair value of withdrawals ......................................... (207,532,041) (359,175,221)
------------- -------------
Net increase in net assets derived from capital transactions ...... 113,388,386 192,112,960
------------- -------------
=============================================================================================================================
Net Assets: Total increase in net assets ...................................... 133,721,136 206,820,694
Beginning of period ............................................... 512,334,869 305,514,175
------------- -------------
End of period ..................................................... $ 646,056,005 $ 512,334,869
============= =============
=============================================================================================================================
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
For the Six For the For the Period
Months Ended Year Ended October 6, 2000+
LOW DURATION The following ratios have been derived December 31, June 30, to June 30,
MASTER PORTFOLIO from information provided in the financial statements. 2002 2002 2001
================================================================================================================================
Total Investment 3.50%++ 5.59% --
Return:** =========== =========== ===========
================================================================================================================================
Ratios to Average Expenses ........................................... .28%* .32% .30%*
Net Assets: =========== =========== ===========
Investment income--net ............................. 3.66%* 5.03% 6.78%*
=========== =========== ===========
================================================================================================================================
Supplemental Net assets, end of period (in thousands) ........... $ 646,056 $ 512,335 $ 305,514
Data: =========== =========== ===========
Portfolio turnover ................................. 153.98% 70.92% 192.04%
=========== =========== ===========
================================================================================================================================
* 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.
NOTES TO FINANCIAL STATEMENTS
LOW DURATION
MASTER PORTFOLIO
1. Significant Accounting Policies:
Low Duration 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, including futures contracts and related options, are
stated at market value. Securities and assets for which market quotations are
not readily available are valued at fair value, as determined in good faith by
or under the direction of the Master Trust's Board of Trustees.
(b) Derivative financial instruments -- The Portfolio may engage in various
portfolio investment techniques to increase or decrease the level of risk to
which the Portfolio is exposed more quickly and efficiently than transactions in
other types of investments. Losses may arise due to changes in the value of the
contract or if the counterparty does not perform under the contract.
o Financial futures contracts -- The 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. 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 the 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.
o Interest rate spreadlocks -- The Portfolio is authorized to enter into
interest rate spreadlocks, which are over-the-counter contracts in which one
party agrees to make periodic payments based on the change in the market value
of a specified security, basket of securities or index in exchange for periodic
payments based on a fixed or variable interest rate or the change in market
value of a different security, basket of securities or index. Agreements may be
used to obtain exposure to the underlying investments without taking physical
custody of the securities in
24 & 25
Merrill Lynch Low Duration Fund, December 31, 2002
NOTES TO FINANCIAL STATEMENTS (concluded)
LOW DURATION
MASTER PORTFOLIO
circumstances where direct investment is restricted by law or is otherwise
impractical.
(c) Foreign currency transactions -- Transactions denominated in foreign
currencies are recorded at the exchange rate prevailing when recognized. Assets
and liabilities denominated in foreign currencies are valued at the exchange
rate at the end of the period. Foreign currency transactions are the result of
settling (realized) or valuing (unrealized) assets or liabilities expressed in
foreign currencies into U.S. dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates on investments.
(d) 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.
(e) 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. Interest income is recognized on the accrual basis.
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 based upon the average daily value of the
Portfolio's net assets at the annual rate of 0.21%.
For the six months ended December 31, 2002, the Portfolio reimbursed FAM $8,691
for certain accounting services.
Certain officers and/or trustees of the Master Trust 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 $931,176,862 and $829,230,186, respectively.
Net realized gains for the six months ended December 31, 2002 and net unrealized
gains as of December 31, 2002 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains Gains
- --------------------------------------------------------------------------------
Long-term investments .................... $1,921,539 $4,256,366
Short-term investments ................... 7,721 2,080
Interest rate spreadlock ................. 65,620 --
Options written .......................... 46,875 --
---------- ----------
Total investments ........................ $2,041,755 $4,258,446
========== ==========
- --------------------------------------------------------------------------------
Transactions in put options written for the six months ended December 31, 2002
were as follows:
- --------------------------------------------------------------------------------
Nominal Value
Covered by Premiums
Options Written Received
- --------------------------------------------------------------------------------
Outstanding put options written,
beginning of period ...................... -- --
Options written .......................... 5,000,000 --
Options expired .......................... (5,000,000) --
---------- ----------
Outstanding put options written,
beginning of period ...................... -- --
========== ==========
- --------------------------------------------------------------------------------
As of December 31, 2002, net unrealized appreciation for Federal income tax
purposes aggregated $4,255,888, of which $10,599,277 related to appreciated
securities and $6,343,389 related to depreciated securities. At December 31,
2002, the aggregate cost of investments for Federal income tax purposes was
$679,385,595.
4. Short-Term Borrowings:
The Master Trust on behalf of the Portfolio, along with certain other funds
managed by FAM and its affiliates, is a party to a $500,000,000 credit agreement
with Bank One, N.A. and certain other lenders. The Portfolio may borrow under
the credit agreement to fund investor withdrawals 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. On November 29, 2002, the credit agreement was renewed for one year
under the same terms, except that the total commitment was reduced from
$1,000,000,000 to $500,000,000. The Portfolio did not borrow under the credit
agreement during the six months ended December 31, 2002.
26 & 27
[LOGO] Merrill Lynch Investment Managers
[GRAPHICS OMITTED]
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.
The Fund seeks to maximize total return, consistent with capital preservation.
The Fund will seek to achieve its objective by investing all of its assets in
Low Duration Master Portfolio of Fund Asset Management Master Trust, which has
the same investment objective as the Fund.
The Portfolio may invest a portion of its assets in non-investment-grade debt
securities, commonly referred to as high yield "junk" bonds, which may be
subject to greater market fluctuations and risk of loss of income and principal
than securities in higher rating categories. The Portfolio may also invest a
portion of its assets in emerging markets and other foreign securities, which
involve special risks including fluctuating foreign exchange rates, foreign
government regulations, differing degrees of liquidity, and the possibility of
substantial volatility due to adverse political, economic or other developments.
Merrill Lynch Low Duration Fund of
Merrill Lynch Investment Managers Funds, Inc.
Box 9011
Princeton, NJ
08543-9011
[RECYCLED LOGO] Printed on post-consumer recycled paper #ML--3070--12/02
- --------------------------------------------------------------------------------
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.