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
Name of Fund: Merrill Lynch Low Duration Fund
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 - 06/30/03
Item 1 - Attach shareholder report
[LOGO] Merrill Lynch Investment Managers
Annual Report
June 30, 2003
Merrill Lynch
Low Duration Fund
www.mlim.ml.com
MERRILL LYNCH LOW DURATION FUND
Important
Tax Information
(unaudited)
Of the net investment income distributions paid monthly by Merrill Lynch Low
Duration Fund during the taxable year ended June 30, 2003, 9.55% is attributable
to income from Federal obligations. In calculating the foregoing percentage,
Fund expenses have been allocated on a pro rata basis.
The law varies in each state as to whether and what percentage of dividend
income attributable to Federal obligations is exempt from state income tax. We
recommend that you consult your tax adviser to determine if any portion of the
dividends you received is exempt from state income tax.
Please retain this information for your records.
Merrill Lynch Low Duration Fund, June 30, 2003
DEAR SHAREHOLDER
Effective April 14, 2003, the share class names for the Merrill Lynch family of
mutual funds were changed to be consistent with the standard share classes of
most other mutual fund families. As of that date, all Class A Shares were
redesignated Class I Shares. At the same time, Class D Shares were redesignated
Class A Shares. There are no changes to the Class B or Class C share class
labels. Trading symbols have not changed nor have current eligibility rules or
pricing structures. This redesignation of share classes does not impact your
investment in any way.
Economic Environment
The U.S. economy grew at a sluggish pace of about 1.5% in the first half of
2003, following equally anemic growth of only 1.4% in the last quarter of 2002.
As has been typical of this uneven slow recovery from the recession of 2001, the
modest economic gains have been the result of productivity improvements rather
than employment growth. Indeed, while the U.S. unemployment rate increased from
6% in December 2002 to 6.4% in June 2003 (with a loss of nearly 236,000 jobs),
U.S. Labor Department statistics suggest improvement in labor productivity at an
annual rate of almost 2%. Meanwhile, inflation remained well contained in the
first half of the year, with the consumer price index (CPI) growing at an annual
rate of only 2.1%, and CPI, excluding food and energy, growing at a mere 1.6%.
The fact that the economy grew even moderately in the first half of the year is
remarkable, given the heightened level of economic and geopolitical uncertainty
we experienced. As it was, a mild economic recession meant there was little
pent-up demand to drive higher levels of growth. With significant excess
capacity and little evidence of emerging final demand, businesses continued to
cut costs in 2003 in an effort to remain profitable. The uncertainty over the
war in Iraq and its aftermath, including the effect on energy prices, also left
businesses reluctant to hire or commit to capital spending. Nevertheless, the
consumer segment of the economy did its part in holding up the economy, despite
mounting layoffs, concerns about the war in Iraq and the threat of terrorist
attacks on U.S. soil. Low interest rates clearly helped to maintain healthy
consumer spending, with record home mortgage refinancing and robust low-cost
durable goods financing.
Entering the second half of 2003, the outlook for the economy appears brighter,
even amid lingering concerns over the long-term sustainability of growth. We
expect the economy could grow at a faster pace of greater than 3.5% in the next
six months as the extraordinary level of monetary, fiscal and exchange rate
stimulus begins to kick in. The Federal Reserve Board, in an effort to prevent
deflationary pressures from taking hold and to foster economic growth, lowered
the Federal Funds rate in June by an additional .25%, bringing the rate to just
1%. This move marked the thirteenth time since January 2001 that the Federal
Reserve Board lowered the Federal Funds rate (from a high of 6.5%) in its
attempts to stimulate the economy. The economy also has been the beneficiary of
a significant fiscal boost, with the latest tax legislation directly impacting
consumer disposable income starting in the third quarter of 2003, thereby
fueling final demand. We believe the sharp decline in the value of the U.S.
dollar over the past several months should provide further impetus to the
economy. Indeed, we already are seeing signs that the economy is beginning to
respond to the cumulative effects of these policy initiatives.
Interest Rates
The Federal Open Market Committee (FOMC) started the year with the Federal Funds
rate at 1.25% and an economic bias that was "balanced," suggesting that the
risks to faster and slower growth were roughly equal. Faced with uncertainty at
the onset of war in Iraq, the Federal Reserve Board left the Federal Funds rate
the same at the March FOMC meeting, while offering no policy guidance. At the
May FOMC meeting, however, the Federal Reserve Board took the unusual step of
splitting the bias statement into two parts, addressing the risks to economic
growth on one hand and the risks to the general price level on the other. This
allowed the Federal Reserve Board to better articulate its position and policy
action, in terms of addressing the growing concern over the potential threat of
deflation. The Federal Reserve Board followed through at its June FOMC meeting
with a .25% interest rate cut aimed at preventing an unwelcome fall in
inflation.
Interest rates fell through most of the first half of the year on concerns over
sluggish economic growth, but abruptly changed course in the middle of June,
following the release of several better-than-expected economic numbers. Even so,
for the six months ended June 30, 2003, yields on two-year Treasury notes were
down 30 basis points (.30%), while yields on 10-year Treasury notes and 30-year
Treasury bonds were down 30 basis points and 22 basis points, respectively.
Yields on corporate bonds (both investment grade and non-investment grade) fell
even more sharply, providing exceptional total returns for those sectors in the
first half of 2003.
Looking ahead, we expect the Federal Reserve Board to remain on hold with
respect to interest rates for the foreseeable future, willing to tolerate faster
economic growth even at the expense of a modest pickup in inflation. While that
should keep short-term interest rates anchored, we expect long-term interest
rates to drift higher on growing prospects of an improving economy, decreasing
fears over deflation and ballooning budget deficits, both at the federal and
state levels. Any significant backup in interest rates, however, likely will be
met with significant buying, given the prevailing concerns over the
sustainability of the nascent economic growth.
Fiscal Year in Review
For the 12-month period ended June 30, 2003, Merrill Lynch Low Duration Fund's
Class A, Class B, Class C and Class I Shares had total returns of +5.36%,
+4.77%, +4.68% and +5.61%, respectively, performing in line with its unmanaged
benchmark, the Merrill Lynch 1-3 Year Corporate & Government Index, which
returned +5.63% for the same period. (Fund results shown do not reflect sales
charges and would be lower if sales charges were included. Complete performance
information can be found on pages 4-7 of this report to shareholders.) During
the fiscal year ended June 30, 2003, the Fund changed its benchmark from the
Merrill Lynch 1-3 Year U.S. Treasury Index to the Merrill Lynch 1-3 Year
Corporate and Government Index. We believe that the new benchmark provides for a
better comparison relative to the Fund's investment objectives.
During the fiscal year, the Fund concentrated on two main themes. First, we
focused on adding to spread sectors such as the corporate sector, the agency
mortgage sector and the asset-backed sector. Second, we emphasized a duration
profile that was shorter than that of our benchmark during the first half of the
period and neutral to slightly longer than that of our benchmark during the
second half of the fiscal year.
We felt that a significant opportunity existed in the corporate bond market,
particularly in the lower-quality area of the corporate market. As spreads
expanded to historically wide levels, we increased our allocation to this sector
from 25% of total assets to 40%. Specifically, we added to BBB-rated corporate
securities in the electric utility sector, the real estate investment trust
sector and the banking sector. We also increased our allocation to the agency
mortgage sector by 10%, bringing our total allocation from 12% of assets to 22%.
Within the mortgage market, we focused on high-coupon 30-year agency mortgage
collateral and 15-year agency mortgage collateral. In addition, we increased
exposure to the asset-backed area, concentrating on sectors such as home equity
loans, auto loans and commercial mortgage-backed securities.
This increased position in spread sectors brought the Fund's total allocation
from 55% of assets to 90%, and was mainly funded by the U.S. Treasury and agency
sector. This strategy worked in the Fund's favor, as these sectors provided
attractive excess returns relative to Treasury and agency securities.
For the first six months of the fiscal year, we maintained a duration profile
approximately 10% shorter than that of our benchmark. Throughout this period,
the two-year Treasury note remained range bound in the 1.8%-2% yield area, as
below-trend economic growth and low inflation rates kept short-term interest
rates well contained. As we moved into 2003, we believed that the Federal
Reserve Board would be more inclined to ease monetary policy as opposed to
tightening. With this view in mind, we lifted the maturity of the Fund to the
1.65 year - 1.7 year maturity range, giving the Fund an opportunity to benefit
from stable-to-lower short-term interest rates. This allowed us to take
advantage of a steep yield curve at the short end of the curve and to exploit an
inverted credit curve for some corporate securities.
In Conclusion
On June 16, 2003, the Fund acquired all of the net assets of Mercury Low
Duration Fund pursuant to a plan of reorganization. The acquisition was
accomplished by a tax-free exchange of 14,028,031 shares of Common Stock of
Mercury Low Duration Fund for 13,543,183 shares of Common Stock of the Fund. We
are pleased to welcome our new shareholders, and appreciate your investment in
Merrill Lynch Low Duration Fund. We look forward to sharing our investment
outlook and strategies with you again in our next report to shareholders.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President and Director/Trustee
/s/ Patrick Maldari
Patrick Maldari
Vice President and Portfolio Manager
/s/ James J. Pagano
James J. Pagano
Vice President and Portfolio Manager
July 15, 2003
2 & 3
Merrill Lynch Low Duration Fund, June 30, 2003
PERFORMANCE DATA
About Fund
Performance
Effective April 14, 2003, Class A Shares were redesignated Class I Shares and
Class D Shares were redesignated Class A Shares. Investors are able to purchase
shares of the Fund through multiple pricing alternatives:
o Class A Shares incur a maximum initial sales charge of 3% and an account
maintenance fee of 0.25% (but no distribution fee).
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 A 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 I Shares incur a maximum initial sales charge (front-end load) of 3%
and bear no ongoing distribution or account maintenance fees. Class I
Shares are available only to eligible investors.
o Class R Shares do not incur a maximum sales charge (front-end load) or
deferred sales charge. These shares are subject to a distribution fee of
0.25% and an account maintenance fee of 0.25%. Class R Shares are
available only to certain retirement plans.
The performance results depicted on pages 4-7 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 I Shares in excess of .83%, 1.48%, 1.48% and .58%, 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*
Ten Year/
6-Month 12-Month Since Inception Standardized
As of June 30, 2003 Total Return Total Return Total Return 30-Day Yield
================================================================================================================================
ML Low Duration Fund Class A Shares* +2.13% +5.36% +23.07% 2.05%
- --------------------------------------------------------------------------------------------------------------------------------
ML Low Duration Fund Class B Shares* +1.89 +4.77 +14.31 1.45
- --------------------------------------------------------------------------------------------------------------------------------
ML Low Duration Fund Class C Shares* +1.80 +4.68 +14.14 1.46
- --------------------------------------------------------------------------------------------------------------------------------
ML Low Duration Fund Class I Shares* +2.24 +5.61 +93.84 2.34
- --------------------------------------------------------------------------------------------------------------------------------
ML Low Duration Fund Class R Shares* -- -- + 2.55 3.03
- --------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch 1 - 3 Year U.S. Treasury Note Index** +1.31 +4.65 +76.23/+26.01/+18.53/+1.60 --
- --------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch 1 - 3 Year Corporate & Government Index*** +1.98 +5.63 +79.63/+27.98/+20.19/+1.84 --
================================================================================================================================
* 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 ten-year/since inception periods
are ten years for Class I Shares, from 9/24/99 for Class A Shares, from
10/06/00 for Class B & Class C Shares and from 1/03/03 for Class R Shares.
** This unmanaged Index is comprised of Treasury securities with maturities
of one to three years. The ten year/since inception total returns are for
ten years, from 9/24/99, from 10/06/00 and from 1/03/03, respectively.
*** This unmanaged Index is comprised of investment grade corporate bonds and
U.S. Treasury and agency securities with a maturity ranging from one year
to three years. The ten year/since inception total returns are for ten
years, from 9/30/99 and from 10/31/00.
Total Return Based on a $10,000 Investment--Class A Shares
A line graph depicting the growth of an investment in the Fund's Class A Shares
compared to growth of an investment in the Merrill Lynch 1-3 Yr U.S. Treasury
Note Index and the Merrill Lynch 1-3 Year Corporate & Government Index. Values
are from September 24, 1999 through June 2003:
9/24/99** 6/00 6/01 6/02 6/03
ML Low Duration Fund+--
Class A Shares* $9,700 $10,070 $10,830 $11,320 $11,927
9/30/99** 6/00 6/01 6/02 6/03
Merrill Lynch 1-3 Year
U.S. Treasury Note Index++ $10,000 $10,361 $11,296 $12,047 $12,607
Merrill Lynch 1-3 Year Corporate &
Government Index+++ $10,000 $10,365 $11,342 $12,116 $12,798
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
** Commencement of operations.
+ The Fund invests all of its assets in Low Duration Master Portfolio of
Fund Asset Management Master Trust. The Portfolio invests in bonds of
varying maturities with a portfolio duration of one to three years.
++ This unmanaged Index is comprised of Treasury securities with maturities
of one-to-three years, which are guaranteed as to the timely payment of
principal and interest by the U.S. government.
+++ This unmanaged Index is comprised of investment grade corporate bonds and
U.S. Treasury and agency securities with a maturity ranging from one year
to three years. The starting date for the Index is from 9/30/99.
Past performance is not indicative of future results.
Class A Shares
Average Annual
Total Return
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
One Year Ended 6/30/03 +5.36% +2.20%
- --------------------------------------------------------------------------------
Inception (9/24/99)
through 6/30/03 +5.66 +4.81
- --------------------------------------------------------------------------------
* Maximum sales charge is 3%.
** Assuming maximum sales charge.
4 & 5
Merrill Lynch Low Duration Fund, June 30, 2003
PERFORMANCE DATA (concluded)
Total Return Based on a $10,000 Investment--Class B & Class C Shares
A line graph depicting the growth of an investment in the Fund's Class B & Class
C Shares compared to growth of an investment in the Merrill Lynch 1-3 Yr U.S.
Treasury Note Index and the Merrill Lynch 1-3 Year Corporate & Government Index.
Values are from October 6, 2000 through June 2003:
10/06/00** 6/01 6/02 6/03
ML Low Duration Fund+--
Class B Shares* $10,000 $10,516 $10,910 $11,131
ML Low Duration Fund+--
Class C Shares* $10,000 $10,510 $10,904 $11,414
Merrill Lynch 1-3 Year U.S.
Treasury Note Index++ $10,000 $10,670 $11,379 $11,908
Merrill Lynch 1-3 Year Corporate &
Government Index+++ $10,000 $10,652 $11,378 $12,019
Total Return Based on a $10,000 Investment--Class I Shares
A line graph depicting the growth of an investment in the Fund's Class I Shares
compared to growth of an investment in the Merrill Lynch 1-3 Yr U.S. Treasury
Note Index and the Merrill Lynch 1-3 Year Corporate & Government Index. Values
are from June 1993 through June 2003:
6/93 6/94 6/95 6/96 6/97 6/98
ML Low Duration
Fund+--
Class I Shares* $9,700 $10,576 $11,659 $12,532 $13,508 $14,447
6/99 6/00 6/01 6/02 6/03
ML Low Duration
Fund+--
Class I Shares* $14,930 $15,734 $17,012 $17,808 $18,807
5/31/93** 6/94 6/95 6/96 6/97 6/98
Merrill Lynch 1-3 Year
U.S. Treasury Note Index++ $10,000 $10,161 $10,946 $11,544 $12,303 $13,139
Merrill Lynch 1-3 Year Corporate &
Government Index+++ $10,000 $10,169 $10,964 $11,571 $12,339 $13,184
6/99 6/00 6/01 6/02 6/03
Merrill Lynch 1-3 Year
U.S. Treasury Note Index++ $13,807 $14,485 $15,791 $16,841 $17,624
Merrill Lynch 1-3 Year Corporate &
Government Index+++ $13,866 $14,546 $15,918 $17,004 $17,961
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
** Commencement of operations.
+ The Fund invests all of its assets in Low Duration Master Portfolio of
Fund Asset Management Master Trust. The Portfolio invests in bonds of
varying maturities with a portfolio duration of one to three years.
++ This unmanaged Index is comprised of Treasury securities with maturities
of one-to-three years, which are guaranteed as to the timely payment of
principal and interest by the U.S. government.
+++ This unmanaged Index is comprised of investment grade corporate bonds and
U.S. Treasury and agency securities with a maturity ranging from one year
to three years. The starting date for the Index in the Class B and Class C
Shares' graph is from 10/31/00.
Past performance is not indicative of future results.
Class B, Class C and
Class I Shares
Average Annual
Total Return
% Return % Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
One Year Ended 6/30/03 +4.77% +0.77%
- --------------------------------------------------------------------------------
Inception (10/06/00)
through 6/30/03 +5.02 +4.00
- --------------------------------------------------------------------------------
* 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 6/30/03 +4.68% +3.68%
- --------------------------------------------------------------------------------
Inception (10/06/00)
through 6/30/03 +4.96 +4.96
- --------------------------------------------------------------------------------
* 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 I Shares*
================================================================================
One Year Ended 6/30/03 +5.61% +2.44%
- --------------------------------------------------------------------------------
Five Years Ended 6/30/03 +5.41 +4.77
- --------------------------------------------------------------------------------
Ten Years Ended 6/30/03 +6.84 +6.52
- --------------------------------------------------------------------------------
* Maximum sales charge is 3%.
** Assuming maximum sales charge.
Class R Shares
Aggregate
Total Return
% Return Without
Sales Charge
================================================================================
Class R Shares
================================================================================
Inception (1/03/03)
through 6/30/03 +5.62%
- --------------------------------------------------------------------------------
6 & 7
Merrill Lynch Low Duration Fund, June 30, 2003
STATEMENT OF ASSETS AND LIABILITIES
MERRILL LYNCH
LOW DURATION
FUND As of June 30, 2003
==================================================================================================================================
Assets: Investment in Low Duration Master Portfolio, at value
(identified cost--$730,854,001) .............................................. $ 739,333,158
Prepaid registration fees and other assets ................................... 150,020
-------------
Total assets ................................................................. 739,483,178
-------------
==================================================================================================================================
Liabilities: Payables:
Dividends to shareholders .................................................. $ 479,559
Distributor ................................................................ 316,227
Administrator .............................................................. 146,632
Other affiliates ........................................................... 102,592 1,045,010
-------------
Accrued expenses and other liabilities ....................................... 249,969
-------------
Total liabilities ............................................................ 1,294,979
-------------
==================================================================================================================================
Net Assets: Net assets ................................................................... $ 738,188,199
=============
==================================================================================================================================
Net Assets Class A Shares of Common Stock, $.01 par value, 100,000,000 shares authorized $ 147,129
Consist of: Class B Shares of Common Stock, $.01 par value, 200,000,000 shares authorized 134,760
Class C Shares of Common Stock, $.01 par value, 100,000,000 shares authorized 253,850
Class I Shares of Common Stock, $.01 par value, 100,000,000 shares authorized 175,736
Class R Shares of Common Stock, $.01 par value, 200,000,000 shares authorized --+
Paid-in capital in excess of par ............................................. 741,912,185
Accumulated distributions in excess of investment income--net ................ $ (97,547)
Accumulated realized capital losses on investments and foreign currency
transactions from the Portfolio--net ......................................... (12,817,071)
Unrealized appreciation on investments from the Portfolio--net ............... 8,479,157
-------------
Total accumulated losses--net ................................................ (4,435,461)
-------------
Net assets ................................................................... $ 738,188,199
=============
==================================================================================================================================
Net Asset Class A--Based on net assets of $152,780,379 and 14,712,915 shares outstanding $ 10.38
Value: =============
Class B--Based on net assets of $139,688,256 and 13,475,968 shares outstanding $ 10.37
=============
Class C--Based on net assets of $263,065,853 and 25,385,005 shares outstanding $ 10.36
=============
Class I--Based on net assets of $182,653,607 and 17,573,550 shares outstanding $ 10.39
=============
Class R--Based on net assets of $103.99 and 10.03 shares outstanding ......... $ 10.37
=============
==================================================================================================================================
+ Amount is less than $1.
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
MERRILL LYNCH
LOW DURATION
FUND For the Year Ended June 30, 2003
=================================================================================================================================
Investment Income Net investment income allocated from the Portfolio:
From the Portfolio-- Interest ............................................................ $ 19,377,358
Net: Dividends ........................................................... 148,462
Interest income on swaps ............................................ 103,549
Expenses ............................................................ (1,394,577)
-------------
Net investment income from the Portfolio .............................. 18,234,792
-------------
=================================================================================================================================
Expenses: Account maintenance and distribution fees--Class C .................... $ 1,859,593
Administration fees ................................................... 1,218,280
Account maintenance and distribution fees--Class B .................... 975,680
Account maintenance fees--Class A ..................................... 320,751
Transfer agent fees--Class C .......................................... 237,359
Reorganization costs .................................................. 236,142
Registration fees ..................................................... 150,035
Transfer agent fees--Class A .......................................... 137,535
Transfer agent fees--Class B .......................................... 127,670
Printing and shareholder reports ...................................... 66,510
Professional fees ..................................................... 48,211
Transfer agent fees--Class I .......................................... 47,147
Accounting services ................................................... 2,989
Other ................................................................. 26,308
-------------
Total expenses ........................................................ 5,454,210
-------------
Investment income--net ................................................ 12,780,582
-------------
=================================================================================================================================
Realized & Realized gain on investments from the Portfolio--net .................. 1,729,075
Unrealized Change in unrealized appreciation/depreciation on investments
Gain from the from the Portfolio--net ............................................... 7,502,338
Portfolio--Net: -------------
Total realized and unrealized gain from the Portfolio--net ............ 9,231,413
-------------
Net Increase in Net Assets Resulting from Operations .................. $ 22,011,995
=============
=================================================================================================================================
See Notes to Financial Statements.
8 & 9
Merrill Lynch Low Duration Fund, June 30, 2003
STATEMENTS OF CHANGES IN NET ASSETS
For the Year Ended
MERRILL LYNCH June 30,
LOW DURATION ------------------------------
FUND Increase (Decrease) in Net Assets: 2003 2002
===============================================================================================================================
Operations: Investment income--net .............................................. $ 12,780,582 $ 4,119,815
Realized gain (loss) on investments and foreign currency transactions
from the Portfolio--net ............................................. 1,729,075 (832,050)
Change in unrealized appreciation/depreciation on investments from
the Portfolio--net .................................................. 7,502,338 (1,694,397)
------------- -------------
Net increase in net assets resulting from operations ................ 22,011,995 1,593,368
------------- -------------
===============================================================================================================================
Dividends & Investment income--net:
Distributions to Class A ........................................................... (3,951,943) (684,885)
Shareholders: Class B ........................................................... (2,616,559) (1,161,980)
Class C ........................................................... (4,992,750) (1,790,475)
Class I ........................................................... (1,467,547) (486,534)
Class R ........................................................... (2) --
Realized gain on investments from the Portfolio--net:
Class A ........................................................... -- (3,853)
Class B ........................................................... -- (18,973)
Class C ........................................................... -- (26,954)
Class I ........................................................... -- (7,129)
------------- -------------
Net decrease in net assets resulting from dividends and distributions
to shareholders ..................................................... (13,028,801) (4,180,783)
------------- -------------
===============================================================================================================================
Capital Share Net increase in net assets derived from capital share transactions .. 405,029,497 315,569,072
Transactions: ------------- -------------
===============================================================================================================================
Net Assets: Total increase in net assets ........................................ 414,012,691 312,981,657
Beginning of year ................................................... 324,175,508 11,193,851
------------- -------------
End of year* ........................................................ $ 738,188,199 $ 324,175,508
============= =============
===============================================================================================================================
* Accumulated distributions in excess of investment income--net ....... $ (97,547) $ (95,522)
============= =============
===============================================================================================================================
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
Class A@@
-----------------------------------------
The following per share data and ratios have been derived For the Year Ended For the Period
MERRILL LYNCH from information provided in the financial statements. June 30, October 6, 2000+
LOW DURATION ----------------------- to June 30,
FUND Increase (Decrease) in Net Asset Value: 2003 2002 2001
==============================================================================================================================
Per Share Net asset value, beginning of period .................. $ 10.16 $ 10.19 $ 10.00
Operating --------- --------- ---------
Performance: Investment income--net ................................ .31++ .34++ .36
Realized and unrealized gain on investments and foreign
currency transactions from the Portfolio--net ......... .23 .12 .19
--------- --------- ---------
Total from investment operations ...................... .54 .46 .55
--------- --------- ---------
Less dividends and distributions:
Investment income--net .............................. (.32) (.48) (.36)
Realized gain on investments--net ................... -- (.01) --
--------- --------- ---------
Total dividends and distributions ..................... (.32) (.49) (.36)
--------- --------- ---------
Net asset value, end of period ........................ $ 10.38 $ 10.16 $ 10.19
========= ========= =========
==============================================================================================================================
Total Investment Based on net asset value per share .................... 5.36% 4.53% 5.58%@
Return:** ========= ========= =========
==============================================================================================================================
Ratios to Average Expenses, net of waiver and reimbursement and excluding
Net Assets: reorganization expenses+++ ............................ .95% .83% .83%*
========= ========= =========
Expenses+++ ........................................... 1.00% 1.02% 8.76%*
========= ========= =========
Investment income--net ................................ 3.03% 4.04% 5.75%*
========= ========= =========
==============================================================================================================================
Supplemental Data: Net assets, end of period (in thousands) .............. $ 152,780 $ 110,014 $ 268
========= ========= =========
Portfolio turnover of Low Duration Master Portfolio ... 198.09% 70.92% 192.04%
========= ========= =========
==============================================================================================================================
* 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.
@@ Effective April 14, 2003, Class D Shares were redesignated Class A Shares.
See Notes to Financial Statements.
10 & 11
Merrill Lynch Low Duration Fund, June 30, 2003
FINANCIAL HIGHLIGHTS (continued)
Class B
-----------------------------------------
The following per share data and ratios have been derived For the Year Ended For the Period
MERRILL LYNCH from information provided in the financial statements. June 30, October 6, 2000+
LOW DURATION ----------------------- to June 30,
FUND Increase (Decrease) in Net Asset Value: 2003 2002 2001
==============================================================================================================================
Per Share Net asset value, beginning of period .................. $ 10.14 $ 10.18 $ 10.00
Operating --------- --------- ---------
Performance: Investment income--net ................................ .24++ .37++ .33
Realized and unrealized gain on investments and foreign
currency transactions from the Portfolio--net ......... .24 .01 .18
--------- --------- ---------
Total from investment operations ...................... .48 .38 .51
--------- --------- ---------
Less dividends and distributions:
Investment income--net .............................. (.25) (.41) (.33)
Realized gain on investments--net ................... -- (.01) --
--------- --------- ---------
Total dividends and distributions ..................... (.25) (.42) (.33)
--------- --------- ---------
Net asset value, end of period ........................ $ 10.37 $ 10.14 $ 10.18
========= ========= =========
==============================================================================================================================
Total Investment Based on net asset value per share .................... 4.77% 3.75% 5.16%@
Return:** ========= ========= =========
==============================================================================================================================
Ratios to Average Expenses, net of waiver and reimbursement and excluding
Net Assets: reorganization expenses+++ ............................ 1.61% 1.48% 1.48%*
========= ========= =========
Expenses+++ ........................................... 1.66% 1.70% 9.41%*
========= ========= =========
Investment income--net ................................ 2.36% 3.75% 5.10%*
========= ========= =========
==============================================================================================================================
Supplemental Data: Net assets, end of period (in thousands) .............. $ 139,688 $ 64,457 $ 5,016
========= ========= =========
Portfolio turnover of Low Duration Master Portfolio ... 198.09% 70.92% 192.04%
========= ========= =========
==============================================================================================================================
Class C
-----------------------------------------
The following per share data and ratios have been derived For the Year Ended For the Period
from information provided in the financial statements. June 30, October 6, 2000+
----------------------- to June 30,
Increase (Decrease) in Net Asset Value: 2003 2002 2001
==============================================================================================================================
Per Share Net asset value, beginning of period .................. $ 10.14 $ 10.18 $ 10.00
Operating --------- --------- ---------
Performance: Investment income--net ................................ .24++ .35++ .32
Realized and unrealized gain on investments and foreign
currency transactions from the Portfolio--net ......... .23 .03 .18
--------- --------- ---------
Total from investment operations ...................... .47 .38 .50
--------- --------- ---------
Less dividends and distributions:
Investment income--net .............................. (.25) (.41) (.32)
Realized gain on investments--net ................... -- (.01) --
--------- --------- ---------
Total dividends and distributions ..................... (.25) (.42) (.32)
--------- --------- ---------
Net asset value, end of period ........................ $ 10.36 $ 10.14 $ 10.18
========= ========= =========
==============================================================================================================================
Total Investment Based on net asset value per share .................... 4.68% 3.75% 5.10%@
Return:** ========= ========= =========
==============================================================================================================================
Ratios to Average Expenses, net of waiver and reimbursement and excluding
Net Assets: reorganization expenses+++ ............................ 1.61% 1.48% 1.48%*
========= ========= =========
Expenses+++ ........................................... 1.66% 1.68% 9.41%*
========= ========= =========
Investment income--net ................................ 2.37% 3.62% 5.10%*
========= ========= =========
==============================================================================================================================
Supplemental Data: Net assets, end of period (in thousands) .............. $ 263,066 $ 126,380 $ 4,754
========= ========= =========
Portfolio turnover of Low Duration Master Portfolio ... 198.09% 70.92% 192.04%
========= ========= =========
==============================================================================================================================
* 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.
12 & 13
Merrill Lynch Low Duration Fund, June 30, 2003
FINANCIAL HIGHLIGHTS (concluded)
Class I@@
---------------------------------------
The following per share data and ratios have been derived For the Year Ended For the Period
MERRILL LYNCH from information provided in the financial statements. June 30, October 6, 2000+
LOW DURATION ---------------------- to June 30,
FUND Increase (Decrease) in Net Asset Value: 2003 2002 2001
============================================================================================================================
Per Share Net asset value, beginning of period .................. $ 10.17 $ 10.21 $ 10.00
Operating --------- --------- ---------
Performance: Investment income--net ................................ .31++ .45++ .40
Realized and unrealized gain on investments and foreign
currency transactions from the Portfolio--net ......... .25 .02 .19
--------- --------- ---------
Total from investment operations ...................... .56 .47 .59
--------- --------- ---------
Less dividends and distributions:
Investment income--net .............................. (.34) (.50) (.38)
Realized gain on investments--net ................... -- (.01) --
--------- --------- ---------
Total dividends and distributions ..................... (.34) (.51) (.38)
--------- --------- ---------
Net asset value, end of period ........................ $ 10.39 $ 10.17 $ 10.21
========= ========= =========
============================================================================================================================
Total Investment Based on net asset value per share .................... 5.61% 4.68% 5.95%@
Return:** ========= ========= =========
============================================================================================================================
Ratios to Average Expenses, net of waiver and reimbursement and excluding
Net Assets: reorganization expenses+++ ............................ .70% .58% .58%*
========= ========= =========
Expenses+++ ........................................... .75% .78% 8.51%*
========= ========= =========
Investment income--net ................................ 3.29% 4.51% 6.00%*
========= ========= =========
============================================================================================================================
Supplemental Data: Net assets, end of period (in thousands) .............. $ 182,654 $ 23,325 $ 1,156
========= ========= =========
Portfolio turnover of Low Duration Master Portfolio ... 198.09% 70.92% 192.04%
========= ========= =========
============================================================================================================================
Class R
----------------
The following per share data and ratios have been derived For the Period
from information provided in the financial statements. January 3, 2003+
to June 30,
Increase (Decrease) in Net Asset Value: 2003
=============================================================================================================================
Per Share Net asset value, beginning of period ................................................ $ 10.29
Operating -------
Performance: Investment income--net++ ............................................................ .18
Realized and unrealized gain on investments from the Portfolio--net ................. .08
-------
Total from investment operations .................................................... .26
-------
Less dividends from investment income--net .......................................... (.18)
-------
Net asset value, end of period ...................................................... $ 10.37
=======
=============================================================================================================================
Total Investment Based on net asset value per share .................................................. 2.55%@
Return:** =======
=============================================================================================================================
Ratios to Average Expenses, excluding reorganization expenses+++ ...................................... 1.19%*
Net Assets: =======
Expenses+++ ......................................................................... 1.28%*
=======
Investment income--net .............................................................. 2.74%*
=======
=============================================================================================================================
Supplemental Data: Net assets, end of period (in thousands) ............................................ --@@@
=======
Portfolio turnover of Low Duration Master Portfolio ................................. 198.09%
=======
=============================================================================================================================
* 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.
@@ Effective April 14, 2003, Class A Shares were redesignated Class I Shares.
@@@ Amount is less than $1,000.
See Notes to Financial Statements.
14 & 15
Merrill Lynch Low Duration Fund, June 30, 2003
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 amended, 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 June 30, 2003 was 100%. 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. The Fund offers multiple classes
of shares. Effective April 14, 2003, Class A Shares were redesignated Class I
Shares and Class D Shares were redesignated Class A Shares. The Fund's financial
statements and financial highlights contained within this report reflect the new
share class redesignation. Shares of Class A and Class I are sold with a
front-end sales charge. Shares of Class B and Class C may be subject to a
contingent deferred sales charge. Class R Shares are sold only to certain
retirement plans. All classes of shares have identical voting, dividend,
liquidation and other rights and the same terms and conditions, except that
Class A, Class B, Class C and Class R Shares bear certain expenses related to
the account maintenance of such shares, and Class B, Class C and Class R Shares
also bear certain expenses related to the distribution of such shares. 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.
(g) Reclassification -- Accounting principles generally accepted in the United
States of America require that certain components of net assets be adjusted to
reflect permanent differences between financial and tax reporting. Accordingly,
the current year's permanent book/tax differences of $246,194 have been
reclassified between paid-in capital in excess of par and accumulated net
investment loss and $2,025 has been reclassified between paid-in capital in
excess of par and accumulated net realized capital losses. These
reclassifications have no effect on net assets or net asset values per share.
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 A ........................................ .25% --
Class B ........................................ .25% .65%
Class C ........................................ .25% .65%
Class R ........................................ .25% .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 A, Class B, Class C and Class R shareholders. The
ongoing distribution fee compensates the Distributor and MLPF&S for providing
shareholder and distribution-related services to Class B, Class C and Class R
shareholders.
For the year ended June 30, 2003, FAMD earned underwriting discounts and direct
commissions and MLPF&S earned dealer concessions on sales of the Fund's Class A
and Class I Shares as follows:
- --------------------------------------------------------------------------------
FAMD MLPF&S
- --------------------------------------------------------------------------------
Class A ............................ $ 31,263 $151,566
Class I ............................ $ 508 $ 3,271
- --------------------------------------------------------------------------------
For the year ended June 30, 2003, MLPF&S received contingent deferred sales
charges of $290,366 and $218,416 relating to transactions in Class B and Class C
Shares, respectively. Furthermore, MLPF&S received contingent deferred sales
charges of $25,981 and $2,100 relating to transactions subject to front-end
sales charge waivers in Class A and Class I 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. Capital Share Transactions:
Net increase in net assets derived from capital share transactions was
$405,029,497 and $315,569,072 for the years ended June 30, 2003 and June 30,
2002, respectively.
Transactions in capital shares for each class were as follows:
- -------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended June 30, 2003+ Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 5,435,945 $ 56,020,611
Automatic conversion of shares ......... 385,549 3,939,699
Shares issued resulting from
reorganization ......................... 773,210 8,068,892
Shares issued to shareholders
in reinvestment of dividends ........... 197,594 2,035,808
------------- -------------
Total issued ........................... 6,792,298 70,065,010
Shares redeemed ........................ (2,908,773) (29,990,966)
------------- -------------
Net increase ........................... 3,883,525 $ 40,074,044
============= =============
- -------------------------------------------------------------------------------
+ Effective April 14, 2003, Class D Shares were redesignated Class A Shares.
16 & 17
Merrill Lynch Low Duration Fund, June 30, 2003
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 ............................ 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
============= =============
- -------------------------------------------------------------------------------
+ Effective April 14, 2003, Class D Shares were redesignated Class A Shares.
- -------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended June 30, 2003 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 9,970,842 $ 102,372,451
Shares issued resulting from
reorganization ......................... 148,975 1,551,900
Shares issued to shareholders
in reinvestment of dividends ........... 151,779 1,562,601
------------- -------------
Total issued ........................... 10,271,596 105,486,952
Automatic conversion of shares ......... (386,259) (3,939,699)
Shares redeemed ........................ (2,765,779) (28,468,694)
------------- -------------
Net increase ........................... 7,119,558 $ 73,078,559
============= =============
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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 Year Dollar
Ended June 30, 2003 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 18,094,112 $ 185,812,014
Shares issued resulting from
reorganization ......................... 38,920 405,345
Shares issued to shareholders
in reinvestment of dividends ........... 329,001 3,385,682
------------- -------------
Total issued ........................... 18,462,033 189,603,041
Shares redeemed ........................ (5,542,453) (57,048,508)
------------- -------------
Net increase ........................... 12,919,580 $ 132,554,533
============= =============
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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 I Shares for the Year Dollar
Ended June 30, 2003+ Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 5,633,201 $ 58,229,344
Shares issued resulting from
reorganization ......................... 12,582,078 131,422,146
Shares issued to shareholders
in reinvestment of dividends ........... 92,757 962,617
------------- -------------
Total issued ........................... 18,308,036 190,614,107
Shares redeemed ........................ (3,028,336) (31,291,850)
------------- -------------
Net increase ........................... 15,279,700 $ 159,322,257
============= =============
- -------------------------------------------------------------------------------
+ Effective April 14, 2003, Class A Shares were redesignated Class I Shares.
- -------------------------------------------------------------------------------
Class I 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
============= =============
- -------------------------------------------------------------------------------
+ Effective April 14, 2003, Class A Shares were redesignated Class I Shares.
- -------------------------------------------------------------------------------
Class R Shares for the Period Dollar
January 3, 2003+ to June 30, 2003 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 9 $ 100
Shares issued to shareholders
in reinvestment of dividends ........... 1 4
------------- -------------
Net increase ........................... 10 $ 104
============= =============
- -------------------------------------------------------------------------------
+ Commencement of operations.
4. Distributions to Shareholders:
The tax character of distributions paid during the fiscal years ended June 30,
2003 and June 30, 2002 was as follows:
- -------------------------------------------------------------------------------
6/30/2003 6/30/2002
- -------------------------------------------------------------------------------
Distributions paid from:
Ordinary income ...................... $ 13,028,801 $ 4,180,753
Net long-term capital gains .......... -- 30
------------- -------------
Total taxable distributions ............ $ 13,028,801 $ 4,180,783
============= =============
- -------------------------------------------------------------------------------
As of June 30, 2003, the components of accumulated losses on a tax basis were as
follows:
- -----------------------------------------------------------------------------
Accumulated ordinary loss--net ........................... $ (97,547)
Undistributed long-term capital gains--net ............... --
------------
Total undistributed earnings--net ........................ (97,547)
Capital loss carryforward ................................ (11,382,730)*
Unrealized gains--net .................................... 7,044,816**
------------
Total accumulated losses--net ............................ $ (4,435,461)
============
- -----------------------------------------------------------------------------
* On June 30, 2003, the Fund had a net capital loss carryforward of
$11,382,730, of which $2,721,252 expires in 2007, $6,549,324 expires in
2008, $1,140,537 expires in 2009 and $971,617 expires in 2011. This amount
will be available to offset like amounts of any future taxable gains.
** The difference between book-basis and tax-basis net unrealized gains is
attributable primarily to the tax deferral of losses on wash sales, the
tax deferral of losses on straddles and other book/tax temporary
differences.
5. Acquisition of Mercury Low Duration Fund:
On June 16, 2003, the Fund acquired all of the net assets of Mercury Low
Duration Fund pursuant to a plan of reorganization. The acquisition was
accomplished by a tax-free exchange of 14,028,031 shares of common stock of
Mercury Low Duration Fund for 13,543,183 shares of common stock of the Fund.
Mercury Low Duration Fund's net assets on that date of $141,448,283, including
$2,878,969 of net unrealized appreciation and $10,456,698 of accumulated net
realized capital losses, were combined with those of the Fund. The aggregate net
assets immediately after the acquisition amounted to $738,439,324.
18 & 19
Merrill Lynch Low Duration Fund, June 30, 2003
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of Merrill Lynch
Investment Managers Funds, Inc. and Shareholders
of Merrill Lynch Low Duration Fund:
We have audited the accompanying statement of assets and liabilities of Merrill
Lynch Low Duration Fund as of June 30, 2003, the related statement of operations
for the year then ended, the statements of changes in net assets for each of the
two years in the period then ended, and the financial highlights for each of the
periods indicated therein. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Merrill Lynch Low Duration Fund at June 30, 2003, and the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the indicated periods in conformity with accounting principles generally
accepted in the United States.
/s/ Ernst & Young LLP
MetroPark, New Jersey
August 13, 2003
SCHEDULE OF INVESTMENTS (in U.S. dollars)
Low Duration Master Portfolio
--------------------------------------------------------------------------------------------------------------
Face
Industry+ Amount Investments Value
===================================================================================================================================
Corporate Bonds & Aerospace & Defense-- $ 1,500,000 Lockheed Martin Corp., 7.25% due 5/15/2006 $ 1,708,265
Notes--39.1% 0.8% 2,000,000 Northrop-Grumman Corp., 8.625% due 10/15/2004 2,164,778
Raytheon Company:
915,000 6.50% due 7/15/2005 994,667
1,250,000 6.15% due 11/01/2008 1,413,409
------------
6,281,119
--------------------------------------------------------------------------------------------------------------
Automotive--5.6% DaimlerChrysler NA Holdings:
4,200,000 3.40% due 12/15/2004 4,239,509
1,200,000 6.40% due 5/15/2006 1,310,444
Ford Motor Credit Company:
2,000,000 7.50% due 3/15/2005 2,125,336
14,900,000 7.60% due 8/01/2005 15,997,951
General Motors Acceptance Corp.:
5,000,000 7.625% due 6/15/2004 5,244,765
1,750,000 6.85% due 6/17/2004 1,820,340
9,750,000 7.50% due 7/15/2005 10,448,539
------------
41,186,884
--------------------------------------------------------------------------------------------------------------
Banking--4.9% 5,000,000 Bank of America Corporation, 4.75% due 10/15/2006 5,389,675
1,310,000 Capital One Bank, 4.875% due 5/15/2008 1,336,865
5,000,000 First Security Corporation--Delaware, 5.875%
due 11/01/2003 5,077,460
2,680,000 Firstbank Puerto Rico, 7.625% due 12/20/2005 2,817,503
FleetBoston Financial Corporation:
1,000,000 7.25% due 9/15/2005 1,115,989
4,500,000 3.85% due 2/15/2008 4,670,204
1,450,000 Golden West Financial, 5.50% due 8/08/2006 1,598,750
1,500,000 Mellon Bank NA, 7% due 3/15/2006 1,701,212
U.S. Bancorp:
5,000,000 6.875% due 12/01/2004 5,375,100
1,110,000 2.75% due 3/30/2006 1,132,841
1,500,000 Wachovia Corporation, 4.95% due 11/01/2006 1,633,226
825,000 Washington Mutual Inc., 5.625% due 1/15/2007 909,308
3,050,000 Wells Fargo Company, 6.625% due 7/15/2004 3,213,510
------------
35,971,643
--------------------------------------------------------------------------------------------------------------
Beverages--0.2% 1,250,000 Brown-Forman Corporation, 3% due 3/15/2008 1,254,875
--------------------------------------------------------------------------------------------------------------
20 & 21
Merrill Lynch Low Duration Fund, June 30, 2003
SCHEDULE OF INVESTMENTS (continued) (in U.S. dollars)
Low Duration Master Portfolio (continued)
--------------------------------------------------------------------------------------------------------------
Face
Industry+ Amount Investments Value
===================================================================================================================================
Corporate Bonds & Cable & Media--1.9% $ 1,000,000 AOL Time Warner Inc., 5.625% due 5/01/2005 $ 1,061,627
Notes Clear Channel Communications:
(continued) 1,200,000 7.25% due 9/15/2003 1,212,024
1,800,000 7.875% due 6/15/2005 1,980,954
1,440,000 Comcast Cable Communications, 6.375% due 1/30/2006 1,571,388
1,250,000 News America Inc., 6.75% due 1/09/2038 1,388,698
4,500,000 TCI Communications Inc., 8.35% due 2/15/2005 4,826,912
1,000,000 Turner Broadcasting, 7.40% due 2/01/2004 1,022,939
1,000,000 USA Interactive, 6.75% due 11/15/2005 1,090,191
------------
14,154,733
--------------------------------------------------------------------------------------------------------------
Commercial Services & 1,100,000 Cendant Corporation, 6.875% due 8/15/2006 1,230,401
Supplies--0.3% 1,100,000 PHH Corporation, 6% due 3/01/2008 1,182,716
------------
2,413,117
--------------------------------------------------------------------------------------------------------------
Consumer Products-- 2,300,000 American Greetings, 11.75% due 7/15/2008 2,679,500
0.4%
--------------------------------------------------------------------------------------------------------------
Data Processing--0.2% 1,350,000 Fiserv Inc., 4% due 4/15/2008 (c) 1,390,234
--------------------------------------------------------------------------------------------------------------
Electric--1.5% 1,060,000 Appalachian Power Company, 3.60% due 5/15/2008 1,073,075
595,000 Consumers Energy, 4.25% due 4/15/2008 (c) 615,276
1,225,000 Duke Energy Corporation, 3.75% due 3/05/2008 (c) 1,260,930
4,500,000 NiSource Finance Corporation, 7.625% due 11/15/2005 4,920,074
2,500,000 PSE&G Power LLC, 6.875% due 4/15/2006 2,788,610
685,000 Xcel Energy Inc., 3.40% due 7/01/2008 (c) 680,271
------------
11,338,236
--------------------------------------------------------------------------------------------------------------
Electric Utilities--2.8% 1,465,000 American Electric Power, 6.125% due 5/15/2006 1,605,863
6,000,000 Boston Edison Company, 1.606% due 10/15/2005 (a) 6,003,924
4,450,000 Conectiv Inc., 5.30% due 6/01/2005 4,635,436
2,000,000 Detroit Edison Company, 5.05% due 10/01/2005 2,135,594
2,500,000 Dominion Resources Inc., 7.625% due 7/15/2005 2,780,613
3,000,000 FirstEnergy Corporation, 5.50% due 11/15/2006 3,215,966
------------
20,377,396
--------------------------------------------------------------------------------------------------------------
Financial Services--7.5% 5,000,000 Associates Corp. NA, 6% due 7/15/2005 5,424,490
Bear Stearns Companies, Inc.:
2,400,000 7.80% due 8/15/2007 2,860,176
3,365,000 2.875% due 7/02/2008 3,332,665
Citigroup Inc.:
1,425,000 5.70% due 2/06/2004 1,463,233
2,500,000 5.75% due 5/10/2006 2,759,938
4,650,000 Countrywide Home Loan, 5.25% due 6/15/2004 4,820,967
Goldman Sachs Group Inc.:
2,000,000 7.50% due 1/28/2005 2,185,430
2,220,000 4.125% due 1/15/2008 2,332,891
Household Finance Corporation:
4,000,000 6.50% due 1/24/2006 4,436,576
2,200,000 4.625% due 1/15/2008 2,347,495
1,155,000 IOS Capital LLC, 7.25% due 6/30/2008 1,129,013
1,900,000 International Lease Finance Corporation, 2.95%
due 5/23/2006 1,909,561
5,000,000 Lehman Brothers Holdings, Inc., 6.625% due 4/01/2004 5,197,605
3,060,000 MBNA Corporation, 5.625% due 11/30/2007 3,307,477
2,500,000 Morgan Stanley, Dean Witter Corp., 7.75% due 6/15/2005 2,785,535
Pemex Finance Ltd.:
180,000 9.14% due 8/15/2004 187,396
2,443,750 8.45% due 2/15/2007 2,731,331
3,350,000 Salomon Inc., 6.75% due 8/15/2003 3,371,862
2,745,000 Textron Financial Corporation, 2.75% due 6/01/2006 2,740,957
------------
55,324,598
--------------------------------------------------------------------------------------------------------------
Food Distribution--0.3% 2,000,000 Pepsi Bottling Holdings Inc., 5.375% due 2/17/2004 (c) 2,050,866
--------------------------------------------------------------------------------------------------------------
Foods--0.4% 1,200,000 Conagra Inc., 7.40% due 9/15/2004 1,278,040
1,400,000 Fred Meyer Inc., 7.375% due 3/01/2005 1,511,965
------------
2,790,005
--------------------------------------------------------------------------------------------------------------
Gaming & Lodging--0.2% Circus Circus Enterprises, Inc.:
915,000 6.45% due 2/01/2006 947,025
230,000 6.70% due 11/15/2096 232,300
------------
1,179,325
--------------------------------------------------------------------------------------------------------------
Hospitals--0.6% 4,000,000 HCA Healthcare, Inc., 7.125% due 6/01/2006 4,348,540
--------------------------------------------------------------------------------------------------------------
Industrials--0.3% 2,500,000 Waste Management Inc., 6.50% due 5/15/2004 2,558,695
--------------------------------------------------------------------------------------------------------------
Insurance--1.6% 2,000,000 Hartford Financial Services Group, 4.70% due 9/01/2007 2,120,820
Marsh & McLennan Companies Inc.:
3,500,000 6.625% due 6/15/2004 3,671,402
3,500,000 3.625% due 2/15/2008 3,603,058
2,300,000 MetLife Inc., 3.911% due 5/15/2005 2,395,595
------------
11,790,875
--------------------------------------------------------------------------------------------------------------
Metal(s)--0.0% 360,000 Timken Company, 6.75% due 8/21/2006 401,257
--------------------------------------------------------------------------------------------------------------
Paper Products--0.2% 1,700,000 Abitibi-Consolidated Inc., 6.95% due 12/15/2006 1,797,294
--------------------------------------------------------------------------------------------------------------
Real Estate Investment 1,000,000 Avalonbay Communities, 6.58% due 2/15/2004 1,031,128
Trust--5.3% 5,000,000 Developers Divers Realty, 6.95% due 7/23/2004 5,186,200
950,000 Duke Realty Corporation, 6.875% due 3/15/2005 1,018,748
Health Care Properties Inc.:
3,600,000 2.57% due 2/23/2004 (a) 3,582,569
900,000 9% due 3/01/2004 938,664
3,000,000 7.48% due 4/05/2004 3,109,491
3,500,000 Highwoods Realty LP, 8% due 12/01/2003 3,590,612
4,000,000 IRT Property Company, 7.77% due 4/01/2006 4,476,832
22 & 23
Merrill Lynch Low Duration Fund, June 30, 2003
SCHEDULE OF INVESTMENTS (continued) (in U.S. dollars)
Low Duration Master Portfolio (continued)
--------------------------------------------------------------------------------------------------------------
Face
Industry+ Amount Investments Value
===================================================================================================================================
Corporate Bonds & Real Estate Investment Nationwide Health Properties:
Notes Trust $ 1,400,000 7.60% due 11/20/2028 $ 1,493,400
(concluded) (concluded) 5,000,000 6.90% due 10/01/2037 5,257,580
1,400,000 6.59% due 7/07/2038 1,418,606
6,951,000 Susa Partnership LP, 6.95% due 7/01/2006 7,875,990
------------
38,979,820
--------------------------------------------------------------------------------------------------------------
Telecommunications-- 3,500,000 British Telecom PLC, 7.875% due 12/15/2005 3,985,940
3.7% 4,500,000 Deutsche Telekom International Finance, 8.25%
due 6/15/2005 5,018,076
2,500,000 France Telecom, 8.70% due 3/01/2006 2,851,678
1,250,000 Harris Corporation, 6.35% due 2/01/2028 1,351,887
5,000,000 Qwest Capital Funding, 5.875% due 8/03/2004 4,787,500
5,200,000 Sprint Capital Corporation, 6% due 1/15/2007 5,588,190
2,250,000 Verizon Global Funding Corporation, 6.75% due 12/01/2005 2,510,687
5,000,000 WorldCom, Inc., 7.55% due 4/01/2004 (d) 1,475,000
------------
27,568,958
--------------------------------------------------------------------------------------------------------------
Transportation--0.4% 890,000 American Airlines, 3.857% due 7/09/2010 890,000
2,000,000 CSX Corporation, 6.46% due 6/22/2005 2,160,094
------------
3,050,094
--------------------------------------------------------------------------------------------------------------
Total Corporate Bonds & Notes (Cost--$283,675,208) 288,888,064
===================================================================================================================================
Government Agency Collateralized Mortgage Fannie Mae:
Mortgage-Backed Obligations--8.2% 8,689,597 2003-23 AB, 4% due 3/25/2017 8,844,967
Securities**--22.9% 11,863,315 2003-48 HA, 3.50% due 11/25/2017 12,034,339
Freddie Mac:
16,750,000 2.75% due 7/31/2018 16,710,088
37,299 1617-D, 6.50% due 11/15/2023 (c) 37,398
8,919,153 2590 XR, 3.25% due 12/15/2013 8,965,448
Ginnie Mae:
4,870,274 2002-83 A, 3.313% due 4/16/2017 5,016,097
8,722,060 2003-47 A, 2.848% due 6/16/2018 8,814,341
------------
60,422,678
--------------------------------------------------------------------------------------------------------------
Pass-Through Fannie Mae:
Securities--14.7% 830,262 8% due 7/01/2027 901,654
3,331,281 8% due 4/01/2032 3,579,922
2,488,459 8% due 5/01/2032 2,674,193
24,887,187 8% due 11/01/2032 26,744,099
Freddie Mac:
36,000,000 5% due 7/15/2018 37,170,000
3,101,817 C01197, 6.50% due 7/01/2031 3,227,798
8,491,421 E00975, 6% due 5/01/2016 8,831,222
2,024,833 E01009, 6.50% due 8/01/2016 2,126,767
2,771,207 E01139, 6% due 4/01/2017 2,881,861
2,868,230 E88102, 6.50% due 2/01/2017 3,012,500
3,274,688 E88913, 6% due 4/01/2017 3,405,732
6,244,599 E89282, 6% due 4/01/2017 6,493,945
2,796,889 E89435, 6% due 5/01/2017 2,908,569
2,840,653 E90312, 6% due 6/01/2017 2,954,080
1,577,717 G11267, 6.50% due 1/01/2017 1,657,142
------------
108,569,484
--------------------------------------------------------------------------------------------------------------
Total Government Agency Mortgage-Backed Securities
(Cost--$168,264,308) 168,992,162
===================================================================================================================================
Government Agency 9,280,000 Federal Farm Credit Bank, 5.15% due 3/05/2004 9,534,755
Obligations--4.4% 11,000,000 Federal Home Loan Bank, 5.25% due 2/13/2004 11,282,073
11,360,000 Freddie Mac, 3.25% due 12/15/2003 11,474,713
--------------------------------------------------------------------------------------------------------------
Total Government Agency Obligations (Cost--$31,769,303) 32,291,541
===================================================================================================================================
Asset Backed 2,675,246 ARNC Auto Owner Trust, 2001-A A3, 3.76% due 10/17/2005 2,698,570
Securities**--18.0% 38,300 Advanta Mortgage Loan Trust, 1998-2 A17, 6.05%
due 9/25/2018 38,566
5,000,000 CIT Equipment Collateral, 2002-VT1, A3, 4.03%
due 1/20/2006 5,121,683
California Infrastructure PG&E:
1,600,000 1997-1 A6, 6.38% due 9/25/2008 1,735,152
2,000,000 1997-1 A7, 6.42% due 9/25/2008 2,166,905
4,100,000 Capital One Auto Finance Trust, 2003-A A4A, 2.47%
due 1/15/2010 4,115,516
Centex Home Equity:
401,513 2001-B A2, 5.35% due 10/25/2022 401,237
2,899,697 2001-C A2, 3.94% due 2/25/2025 2,909,141
3,000,000 2002-C AF2, 2.87% due 8/25/2018 3,027,307
6,600,000 Chase Credit Card Master Trust, 2003-1 C, 2.28%
due 4/15/2008 6,620,095
3,500,000 Chase Funding Mortgage Loan Asset-Backed Certificates,
2002-3 1A3, 3.55% due 3/25/2022 3,581,424
Chase Manhattan Auto Owner Trust:
5,000,000 2002-B, 4.24% due 1/15/2009 5,188,530
2,150,000 2003-A, 2.04% due 12/15/2009 2,132,939
938,496 CityScape Home Equity Loan Trust, 1996-4 A10, 7.40%
due 9/25/2027 (c) 946,827
280,786 Countrywide Home Equity Loan Trust, 1999-A, 1.50%
due 4/15/2025 (a) 280,406
5,000,000 DaimlerChrysler Auto Trust, 2001-D A4, 3.78% due 2/06/2007 5,190,594
10,000,000 First Franklin Mortgage Loan Asset-Backed Certificates,
2002-FF4 2A2, 2.80% due 2/25/2033 10,188,765
Freddie Mac:
4,431,483 T-45 A2, 2.91% due 8/27/2007 4,456,178
14,000,000 T-50 A3, 2.182% due 9/27/2007 14,059,062
7,300,000 GMAC Mortgage Corporation Loan Trust, 2003-HE A2, 3.14%
due 6/25/2025 7,418,792
2,500,000 Harley-Davidson Motorcycle Trust, 2001-2 A2, 4.72%
due 6/15/2009 2,591,230
3,500,000 IKON Receivables LLC, 2003-1 A3B, 2.33% due 12/15/2007 3,537,041
3,495,485 John Deere Owner Trust, 2001-A A3, 3.26% due 10/17/2005 3,533,682
2,590,000 M & I Auto Loan Trust, 2001-1 A4, 4.97% due 3/20/2007 2,709,299
MBNA Credit Card Master Note Trust:
4,100,000 2001-C3, 6.55% due 12/15/2008 4,470,574
7,000,000 2002-C5, 4.05% due 1/15/2008 7,232,353
24 & 25
Merrill Lynch Low Duration Fund, June 30, 2003
SCHEDULE OF INVESTMENTS (continued) (in U.S. dollars)
Low Duration Master Portfolio (continued)
--------------------------------------------------------------------------------------------------------------
Face
Amount Investments Value
===================================================================================================================================
Asset Backed $ 4,329,883 PSE&G Transition Funding LLC, 2001-1 A2, 5.74%
Securities due 3/15/2007 $ 4,510,207
(concluded) 2,240,221 Residential Asset Mortgage Products, Inc., 2002-RZ1 A2,
4.30% due 4/25/2023 2,238,617
Residential Asset Securities Corporation:
4,172,248 2002-KS5 AIB2, 2.47% due 8/25/2022 4,182,669
5,000,000 2002-KS6 AI2, 3.09% due 11/25/2022 5,071,299
5,000,000 2002-KS8 A2, 3.04% due 6/25/2023 5,070,361
1,313,934 USAA Auto Owner Trust, 2001-2 A3, 3.20% due 2/15/2006 1,322,898
2,100,000 WFS Financial Owner Trust, 2003-2 B, 2.48% due 12/20/2010 2,125,083
2,000,000 Whole Auto Loan Trust, 2002-1 B, 2.91% due 4/15/2009 2,027,232
--------------------------------------------------------------------------------------------------------------
Total Asset-Backed Securities (Cost--$131,031,425) 132,900,234
===================================================================================================================================
Non-Agency Collateralized Mortgage 1,511,873 ABN AMRO Mortgage Corporation, 2002-6 A1, 6% due 8/25/2032 1,510,931
Mortgage-Backed Obligations--7.7% 286,465 Blackrock Capital Finance LP, 1997-R2 AP, 8.396%
Securities**--14.1% due 12/25/2035 (a)(c) 286,465
5,217,778 CFAB 1999-4 IA6, 7.407% due 9/25/2011 5,748,782
6,300,000 CIT Group Home Equity Loan Trust, 2003-1 A2, 2.35%
due 4/20/2027 6,338,892
816,026 Chase Mortgage Finance Corporation, 1999-S4 A1, 6.50%
due 4/25/2029 815,968
1,420 Citicorp Mortgage Securities, Inc., 1994-4 A6, 6%
due 2/25/2009 1,418
65,459 Housing Securities Inc., 1994-2 B1, 6.50% due 7/25/2009 51,692
971,871 Ocwen Residential MBS Corporation, 1998-R2 AP, 6.666%
due 11/25/2034 (a)(c) 985,842
6,146,557 PNC Mortgage Securities Corp., 1999-4 1A5, 6.20%
due 6/25/2029 6,270,241
5,000,000 Permanent Financing PLC, 1 2A, 4.20% due 6/10/2007 5,239,550
87,955 Salomon Brothers Mortgage Securities VI, 1986-1 A, 6%
due 12/25/2011 87,862
8,124,285 Structured Asset Securities Corporation, 2002-19 A1, 4.20%
due 10/25/2032 8,277,428
Structured Mortgage Asset Residential Trust:
10,128 1991-1H, 8.25% due 6/25/2022 10,588
23,371 1992-3A AA, 8% due 10/25/2007 24,084
238,441 Walsh Acceptance, 1997-2 A, 2.035% due 3/01/2027 (a)(c) 131,143
Washington Mutual Inc.:
1,103,555 2000-1 B1, 5.035% due 1/25/2040 (a)(c) 1,098,382
9,695,588 2002-AR15 A3, 4.07% due 12/25/2032 9,746,478
5,000,000 2002-AR19 A3, 3.492% due 1/25/2033 5,065,941
214,683 2002-S3 1A1, 6.50% due 6/25/2032 214,538
4,823,077 2003-AR1 A2, 2.92% due 3/25/2033 4,882,805
------------
56,789,030
--------------------------------------------------------------------------------------------------------------
Commercial 2,408,587 Banc of America Commercial Mortgage Inc., 2000-1 A1A,
Mortgage-Backed 7.109% due 11/15/2008 2,735,242
Securities--4.0% CS First Boston Mortgage Securities Corporation:
4,637,603 1995-WF1 AX, 1.338% due 12/21/2027 (a)(b)(c) 38,052
3,259,697 2001-CK6 A1, 4.393% due 7/15/2006 3,389,793
91,000,000 2003-CPN1 ASP, 1.584% due 3/15/2035 (b) 7,000,284
1,079,064 First Union NB-Bank of America Commercial Mortgage Trust,
2001-C1, A1, 5.711% due 3/15/2033 1,175,870
2,643,456 GS Mortgage Securities Corporation II, 1998-C1 A1, 6.06%
due 10/18/2030 2,816,400
2,617,360 Nomura Asset Securities Corporation, 1995-MD3 A1B, 8.15%
due 3/04/2020 2,853,853
9,640,417 Saxon Asset Securities Trust, 2002-3 AV, 1.435%
due 12/25/2032 9,655,522
------------
29,665,016
--------------------------------------------------------------------------------------------------------------
Stripped 22,843,358 Asset Securitization Corporation, 1997-D5 ACS1, 2.091%
Mortgage-Backed due 2/14/2043 (a)(b) 71,721
Securities--2.4% 144,187,444 Government National Mortgage Association, 2002-94 XB,
2.349% due 11/16/2007 (b) 7,812,451
35,000,000 Greenwich Capital Commercial Funding Corp., 2002-C1 XP,
2.059% due 1/11/2035 (b) 3,757,135
85,000,000 LB-UBS Commercial Mortgage Trust, 2002-C4 XCP, 1.475%
due 10/15/2035 (b) 6,423,348
------------
18,064,655
--------------------------------------------------------------------------------------------------------------
Total Non-Agency Mortgage-Backed Securities
(Cost--$103,927,285) 104,518,701
===================================================================================================================================
Shares
Held
===================================================================================================================================
Preferred 1,500 Home Ownership Funding 2 (c) 857,297
Stock--0.1%
--------------------------------------------------------------------------------------------------------------
Total Preferred Stock (Cost--$1,500,000) 857,297
===================================================================================================================================
Face
Amount
===================================================================================================================================
U.S. Treasury U.S. Treasury Notes:
Obligations--2.2% $ 3,890,000 4.75% due 2/15/2004 3,980,715
4,303,000 1.875% due 9/30/2004 (e) 4,345,359
4,530,000 7% due 7/15/2006 5,235,688
2,900,000 2.625% due 5/15/2008 2,926,509
--------------------------------------------------------------------------------------------------------------
Total U.S. Treasury Obligations (Cost--$16,349,594) 16,488,271
==================================================================================================================================
Short-Term Commercial Paper*-- 20,000,000 Giro Funding US Corporation, 1.06% due 7/11/2003 19,994,111
Investments--5.8% 5.7% 22,295,000 Motiva Enterprises LLC, 1.23% due 7/01/2003 22,295,000
------------
42,289,111
--------------------------------------------------------------------------------------------------------------
Time Deposit--0.1% 605,921 Brown Brothers, 0.61% due 7/01/2003 605,921
--------------------------------------------------------------------------------------------------------------
Total Short-Term Investments (Cost--$42,895,032) 42,895,032
===================================================================================================================================
Total Investments (Cost--$779,412,155)--106.6% 787,831,302
===================================================================================================================================
Number of
Contracts
===================================================================================================================================
Options Purchased-- Call Options 127 Eurodollar, expiring December 2003 at USD 97.75, Broker
0.0% Purchased--0.0% Greenwich Capital Markets 158,750
--------------------------------------------------------------------------------------------------------------
Total Options Purchased (Cost--$79,947) 158,750
===================================================================================================================================
26 & 27
Merrill Lynch Low Duration Fund, June 30, 2003
SCHEDULE OF INVESTMENTS (concluded) (in U.S. dollars)
Low Duration Master Portfolio (concluded)
--------------------------------------------------------------------------------------------------------------
Number of
Contracts Investments Value
===================================================================================================================================
Options Written-- Call Options Written--0.0% 127 Eurodollar, expiring December 2003 at USD 98.5, Broker
0.0% Greenwich Capital Markets $ (31,750)
--------------------------------------------------------------------------------------------------------------
Put Options Written--0.0% 127 Eurodollar, expiring December 2003 at USD 98, Broker
Greenwich Capital Markets (90,488)
--------------------------------------------------------------------------------------------------------------
Total Options Written (Premiums Received--$106,807) (122,238)
===================================================================================================================================
Total Investments, Including Options
(Cost--$779,385,295)--106.6% 787,867,814
Variation Margin on Financial Futures Contracts--0.0%*** (24,031)
Unrealized Depreciation on Swaps--0.0%**** (36,750)
Liabilities in Excess of Other Assets--(6.6%) (48,472,861)
------------
Net Assets--100.0% $739,334,172
============
===================================================================================================================================
+ For Portfolio compliance purposes, "Industry" means any one or more of the
industry sub-classifications used by one or more widely recognized market
indexes or ratings group indexes, and/or as defined by Portfolio
management. This definition may not apply for purposes of this report,
which may combine such industry sub-classifications for reporting ease.
These industry classifications are unaudited.
* 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.
*** Financial futures contracts purchased as of June 30, 2003 were as follows:
--------------------------------------------------------------------------
Number of Expiration Face Unrealized
Contracts Issue Date Value Gains
--------------------------------------------------------------------------
127 Eurodollar December 2004 $31,115,571 $18,479
--------------------------------------------------------------------------
Total Unrealized Gains--Net $18,479
=======
--------------------------------------------------------------------------
Financial futures contracts sold as of June 30, 2003 were as follows:
--------------------------------------------------------------------------
Number of Expiration Face Unrealized
Contracts Issue Date Value Gains
--------------------------------------------------------------------------
210 Five-Year U.S. September 2003 $24,191,167 $14,917
Treasury Note Futures
--------------------------------------------------------------------------
Total Unrealized Gains--Net $14,917
=======
--------------------------------------------------------------------------
**** Swap contracts entered into as of June 30, 2003 were as follows:
--------------------------------------------------------------------------
Notional Unrealized
Amount Depreciation
--------------------------------------------------------------------------
J.P. Morgan HYDIS 100 Index
Broker, JP Morgan Chase Bank
Expires June 2008 7,350,000 $(36,750)
--------------------------------------------------------------------------
(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) Non-income producing security.
(e) All or a portion of security held as collateral in connection with open
financial futures contracts.
See Notes to Financial Statements.
STATEMENT OF ASSETS AND LIABILITIES
LOW DURATION
MASTER PORTFOLIO As of June 30, 2003
===============================================================================================================================
Assets: Investments, at value (identified cost--$779,412,155) ............. $ 787,831,302
Options purchased, at value (cost--$79,947) ....................... 158,750
Cash .............................................................. 485
Receivables:
Interest ........................................................ $ 6,198,173
Contributions ................................................... 1,762,386
Securities sold ................................................. 420,080
Paydowns ........................................................ 17,221 8,397,860
-------------
Prepaid expenses and other assets ................................. 2,597
-------------
Total assets ...................................................... 796,390,994
-------------
===============================================================================================================================
Liabilities: Unrealized depreciation on swaps .................................. 36,750
Options written, at value (premiums received--$106,807) ........... 122,238
Payables:
Securities purchased ............................................ 54,957,975
Withdrawals ..................................................... 1,713,585
Investment adviser .............................................. 123,376
Variation margin ................................................ 24,031
Other affiliates ................................................ 4,050 56,823,017
-------------
Accrued expenses and other liabilities ............................ 74,817
-------------
Total liabilities ................................................. 57,056,822
-------------
===============================================================================================================================
Net Assets: Net assets ........................................................ $ 739,334,172
=============
===============================================================================================================================
Net Assets Investors' capital ................................................ $ 730,855,007
Consist of: Unrealized appreciation on investments--net ....................... 8,479,165
-------------
Net assets ........................................................ $ 739,334,172
=============
===============================================================================================================================
See Notes to Financial Statements.
28 & 29
Merrill Lynch Low Duration Fund, June 30, 2003
STATEMENT OF OPERATIONS
LOW DURATION
MASTER PORTFOLIO For the Year Ended June 30, 2003
===============================================================================================================================
Investment Interest .......................................................... $ 25,888,728
Income: Dividends ......................................................... 200,070
Interest income on swaps .......................................... 138,350
-------------
Total income ...................................................... 26,227,148
-------------
===============================================================================================================================
Expenses: Investment advisory fees .......................................... $ 1,373,040
Accounting services ............................................... 305,129
Custodian fees .................................................... 59,671
Professional fees ................................................. 50,937
Trustees' fees and expenses ....................................... 30,624
Pricing fees ...................................................... 15,770
Printing and shareholder reports .................................. 3,857
Other ............................................................. 23,605
-------------
Total expenses .................................................... 1,862,633
-------------
Investment income--net ............................................ 24,364,515
-------------
===============================================================================================================================
Realized & Realized gain on investments--net ................................. 2,412,393
Unrealized Gain on Change in unrealized appreciation/depreciation on investments--net 11,367,228
Investments--Net: -------------
Total realized and unrealized gain on investments--net ............ 13,779,621
-------------
Net Increase in Net Assets Resulting from Operations .............. $ 38,144,136
=============
===============================================================================================================================
See Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
For the Year Ended
June 30,
LOW DURATION -------------------------------
MASTER PORTFOLIO Increase (Decrease) in Net Assets: 2003 2002
===============================================================================================================================
Operations: Investment income--net ............................................ $ 24,364,515 $ 17,080,656
Realized gain on investments and foreign currency transactions--net 2,412,393 914,391
Change in unrealized appreciation/depreciation on investments--net 11,367,228 (3,287,313)
------------- -------------
Net increase in net assets resulting from operations .............. 38,144,136 14,707,734
------------- -------------
===============================================================================================================================
Capital Proceeds from contributions ....................................... 905,711,132 551,288,181
Transactions: Fair value of withdrawals ......................................... (716,855,965) (359,175,221)
------------- -------------
Net increase in net assets derived from capital transactions ...... 188,855,167 192,112,960
------------- -------------
===============================================================================================================================
Net Assets: Total increase in net assets ...................................... 226,999,303 206,820,694
Beginning of year ................................................. 512,334,869 305,514,175
------------- -------------
End of year ....................................................... $ 739,334,172 $ 512,334,869
============= =============
===============================================================================================================================
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
For the Year Ended For the Period
June 30, October 6, 2000+
LOW DURATION The following ratios have been derived ------------------------- to June 30,
MASTER PORTFOLIO from information provided in the financial statements 2003 2002 2001
===============================================================================================================================
Total Investment 6.05% 5.59% --
Return:** ========= ========= =========
===============================================================================================================================
Ratios to Average Expenses ............................................. .28% .32% .30%*
Net Assets: ========= ========= =========
Investment income--net ............................... 3.73% 5.03% 6.78%*
========= ========= =========
===============================================================================================================================
Supplemental Net assets, end of period (in thousands) ............. $ 739,334 $ 512,335 $ 305,514
Data: ========= ========= =========
Portfolio turnover ................................... 198.09% 70.92% 192.04%
========= ========= =========
===============================================================================================================================
* Annualized.
** Total return is required to be disclosed for fiscal years beginning after
December 15, 2000.
+ Commencement of operations.
See Notes to Financial Statements.
30 & 31
Merrill Lynch Low Duration Fund, June 30, 2003
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, as amended, and is organized as a
Delaware statutory 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. 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 or the Nasdaq National Market are valued at the last sale price or
official closing 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 for long positions, and at the last
available ask price for short positions. Securities 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. Options written or
purchased are valued at the last sale price in the case of exchange-traded
options. In the case of options traded in the over-the-counter market, valuation
is the last asked price (options written) or the last bid price (options
purchased). 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 available are valued at fair value as determined in
good faith by or under the direction of the Master Trust's Board of Trustees.
Occasionally, events affecting the values of securities and other assets may
occur between the times at which valuations of such securities are determined
(that is, close of the market on which such securities trade) and the close of
business on the NYSE. If events (for example, company announcement, natural
disasters, market volatility) occur during such periods that are expected to
materially affect the value for such securities, those securities may be valued
at their fair market value as determined in good faith by the Master Trust's
Board of Trustees or by the investment adviser using a pricing service and/or
procedures approved by the Board of Trustees of the Master Trust.
(b) Derivative financial instruments -- The Portfolio may engage in various
portfolio investment strategies both to increase the return of the Portfolio and
to hedge, or protect, its exposure to interest rate movement and movements in
the securities markets. Losses may arise due to changes in the value of the
contract or if the counterparty does not perform under the contract.
o Financial futures contracts -- The Portfolio may purchase or sell financial
futures contracts and options on such futures contracts. Futures contracts are
contracts for delayed delivery of securities at a specific future date and at a
specific price or yield. Upon entering into a contract, the 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 Options -- The Portfolio is authorized to purchase and write call and put
options. When the Portfolio writes an option, an amount equal to the premium
received by the Portfolio is reflected as an asset and an equivalent liability.
The amount of the liability is subsequently marked to market to reflect the
current market value of the option written.
When a security is purchased or sold through an exercise of an option, the
related premium paid (or received) is added to (or deducted from) the basis of
the security acquired or deducted from (or added to) the proceeds of the
security sold. When an option expires (or the Portfolio enters into a closing
transaction), the Portfolio realizes a gain or loss on the option to the extent
of the premiums received or paid (or loss or gain to the extent the cost of the
closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
o Swaps -- The Portfolio is authorized to enter into swap agreements. In a swap
agreement, the Portfolio exchanges with the counterparty their respective
commitments to pay or receive interest on a specified notional principal amount.
If the counterparty defaults on its obligation, the Portfolio's ability to
receive interest will be delayed or limited. Furthermore, if the Portfolio does
not have sufficient income to pay its obligation under the swap agreement, the
Portfolio would be in default and the counterparty would be able to terminate
the swap agreement. When the swap agreement is closed, the Portfolio records a
realized gain or loss equal to the difference between the value of the swap
agreement at the time it was entered into 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 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 "pass-through" entity 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. 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 .21%.
For the year ended June 30, 2003, the Portfolio reimbursed FAM $18,287 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
year ended June 30, 2003 were $1,500,099,835 and $1,210,720,234, respectively.
32 & 33
Merrill Lynch Low Duration Fund, June 30, 2003
NOTES TO FINANCIAL STATEMENTS (concluded)
LOW DURATION
MASTER PORTFOLIO
Net realized gains (losses) for the year ended June 30, 2003 and net unrealized
gains (losses) as of June 30, 2003 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Gains (Losses)
- --------------------------------------------------------------------------------
Long-term investments .................. $ 2,982,299 $ 8,419,147
Short-term investments ................. 6,891 --
Options purchased ...................... -- 78,803
Options written ........................ 46,875 (15,431)
Swaps .................................. 82,229 (36,750)
Interest rate spreadlocks .............. 65,620 --
Financial futures contracts ............ (771,521) 33,396
----------- -----------
Total investments ...................... $ 2,412,393 $ 8,479,165
=========== ===========
- --------------------------------------------------------------------------------
As of June 30, 2003, net unrealized appreciation for Federal income tax purposes
aggregated $8,301,386, of which $14,145,247 related to appreciated securities
and $5,843,861 related to depreciated securities. At June 30, 2003, the
aggregate cost of investments, including options for Federal income tax purposes
was $779,566,428.
Transactions in call options written for the year ended June 30, 2003 were as
follows:
- --------------------------------------------------------------------------------
Number of Premiums
Contracts Received
- --------------------------------------------------------------------------------
Outstanding call options written,
beginning of year ...................... -- --
Options written ........................ 127 $ 15,304
----------- -----------
Outstanding call options written,
end of year ............................ 127 $ 15,304
=========== ===========
- --------------------------------------------------------------------------------
Transactions in put options written for the year ended June 30, 2003 were as
follows:
- --------------------------------------------------------------------------------
Number of Premiums
Contracts Received
- --------------------------------------------------------------------------------
Outstanding put options written,
beginning of year ...................... -- --
Options written ........................ 5,000,127 $ 91,503
Options expired ........................ (5,000,000) --
----------- -----------
Outstanding put options written,
end of year ............................ 127 $ 91,503
=========== ===========
- --------------------------------------------------------------------------------
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 year ended June 30, 2003.
REPORT OF INDEPENDENT AUDITORS
To the Board of Trustees of Fund Asset
Management Master Trust and Investors of
Low Duration Master Portfolio:
We have audited the accompanying statement of assets and liabilities of Low
Duration Master Portfolio, including the schedule of investments, as of June 30,
2003, the related statements of operations for the year then ended, and the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the periods indicated therein.
These financial statements and financial highlights are the responsibility of
the Portfolio's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of June 30, 2003, by correspondence with the
custodian and others. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Low
Duration Master Portfolio at June 30, 2003, the results of its operations, the
changes in its net assets and the financial highlights for each of the indicated
periods in conformity with accounting principles generally accepted in the
United States.
/s/ Ernst & Young LLP
MetroPark, New Jersey
August 13, 2003
34 & 35
Merrill Lynch Low Duration Fund, June 30, 2003
OFFICERS AND DIRECTORS/TRUSTEES (UNAUDITED)
Other
Number of Public
Portfolios in Directorships
Position(s) Length Fund Complex Held by
Held of Time Overseen by Director/
Name Address & Age with Fund Served Principal Occupation(s) During Past 5 Years Director/Trustee Trustee
====================================================================================================================================
Interested Director/Trustee
====================================================================================================================================
Terry K. P.O. Box 9011 President 2000 to President and Chairman of Merrill Lynch Invest- 114 Funds None
Glenn* Princeton, NJ and present ment Managers, L.P. ("MLIM")/Fund Asset 159 Portfolios
08543-9011 Director/ Management, L.P. ("FAM")--Advised Funds since
Age: 62 Trustee 1999; Chairman (Americas Region) of MLIM from
2000 to 2002; Executive Vice President of MLIM
and FAM (which terms as used herein include
their corporate predecessors) from 1983 to 2002;
President of FAM Distributors, Inc. ("FAMD") from
1986 to 2002 and Director thereof from 1991 to
2002; Executive Vice President and Director of
Princeton Services, Inc. ("Princeton Services")
from 1993 to 2002; President of Princeton
Administrators, L.P. from 1989 to 2002; Director of
Financial Data Services, Inc. from 1985 to 2002.
=========================================================================================================================
* Mr. Glenn is a director, trustee or member of an advisory board of certain other investment companies for which FAM or
MLIM acts as investment adviser. Mr. Glenn is an "interested person," as described in the Investment Company Act, of
the Fund based on his former positions with MLIM, FAM, FAMD, Princeton Services and Princeton Administrators, L.P. The
Director's term is unlimited. Directors serve until their resignation, removal, or death, or until December 31 of the
year in which they turn 72. As Fund President, Mr. Glenn serves at the pleasure of the Board of Directors/Trustees.
====================================================================================================================================
Other
Number of Public
Portfolios in Directorships
Position(s) Length Fund Complex Held by
Held of Time Overseen by Director/
Name Address & Age with Fund Served* Principal Occupation(s) During Past 5 Years Director/Trustee Trustee
====================================================================================================================================
Independent Directors/Trustees
====================================================================================================================================
James H. P.O. Box 9095 Director/ 2002 to Director and Executive Vice President, The China 40 Funds None
Bodurtha Princeton, NJ Trustee present Business Group, Inc. since 1995; Chairman, 59 Portfolios
08543-9095 Berkshire Holding Corporation since 1982.
Age: 59
====================================================================================================================================
Joe P.O. Box 9095 Director/ 1996 to Member of the Committee of Investment of 40 Funds Kimco
Grills Princeton, NJ Trustee present Employee Benefit Assets of the Association of 59 Portfolios Realty
08543-9095 Financial Professionals ("CIEBA") since 1986 and Corporation
Age: 68 its Chairman from 1991 to 1992; Member of the
Investment Advisory Committees of the State of
New York Common Retirement Fund since 1989;
Member of the Investment Advisory Committee of
the Howard Hughes Medical Institute from 1997 to
2000; Director, Duke Management Company since
1992 and Vice Chairman thereof since 1998;
Director, LaSalle Street Fund from 1995 to 2001;
Director, Kimco Realty Corporation since 1997;
Member of the Investment Advisory Committee of
the Virginia Retirement System since 1998 and Vice
Chairman thereof since 2002; Director, Montpelier
Foundation since 1998 and Vice Chairman thereof
since 2000; Member of the Investment Committee
of the Woodberry Forest School since 2000; Member
of the Investment Committee of the National Trust
for Historic Preservation since 2000.
====================================================================================================================================
Herbert I. P.O. Box 9095 Director/ 2002 to John M. Olin Professor of Humanities, New York 40 Funds None
London Princeton, NJ Trustee present University since 1993 and Professor thereof since 59 Portfolios
08543-9095 1980; President of Hudson Institute since 1997 and
Age: 64 Trustee thereof since 1980.
====================================================================================================================================
Andre F. P.O. Box 9095 Director/ 2002 to George Gund Professor of Finance and Banking, 40 Funds None
Perold Princeton, NJ Trustee present Harvard Business School since 2000 and a member 59 Portfolios
08543-9095 of the faculty since 1979; Director and Chairman
Age: 51 of the Board, UNX, Inc. since 2003; Director,
Sanlam Limited and Sanlam Life since 2001;
Director, Genbel Securities and Gensec Bank since
1999; Director, Stockback.com from 2002 to 2002;
Director, Bulldogresearch.com from 2000 to 2001;
Director, Sanlam Investment Management from
1999 to 2001; Director, Quantec Limited from 1991
to 1999.
====================================================================================================================================
Roberta P.O. Box 9095 Director/ 2002 to Shareholder, Modrall, Sperling, Roehl, Harris & 40 Funds None
Cooper Ramo Princeton, NJ Trustee present Sisk, P.A. since 1993; Director of Cooper's, Inc. 59 Portfolios
08543-9095 since 1999 and Chairman of the Board since 2000;
Age: 60 Director of ECMC, Inc. since 2001.
====================================================================================================================================
Robert S. P.O. Box 9095 Director/ 2002 to Principal of STI Management since 1994; Trustee 40 Funds None
Salomon, Jr. Princeton, NJ Trustee present of Commonfund from 1980 to 2001; Director of Rye 59 Portfolios
08543-9095 Country Day School since 2001.
Age: 66
====================================================================================================================================
Stephen B. P.O. Box 9095 Director/ 2002 to Chairman, Fernwood Advisors (investment adviser) 40 Funds None
Swensrud Princeton, NJ Trustee present since 1996; Principal of Fernwood Associates 59 Portfolios
08543-9095 (financial consultant) since 1975; Chairman of RPP
Age: 70 Corporation since 1978; Director, International
Mobile Communications, Inc. since 1998.
=========================================================================================================================
* The Director's/Trustee's term is unlimited. Directors/Trustees serve until their resignation, removal or death, or
until December 31 of the year in which they turn 72.
====================================================================================================================================
36 & 37
Merrill Lynch Low Duration Fund, June 30, 2003
OFFICERS AND DIRECTORS/TRUSTEES (unaudited) (concluded)
Position(s) Length
Held of Time
Name Address & Age with Fund Served* Principal Occupation(s) During Past 5 Years
====================================================================================================================================
Fund Officers
====================================================================================================================================
Donald C. P.O. Box 9011 Vice 2002 to First Vice President of FAM and MLIM since 1997 and Treasurer thereof
Burke Princeton, NJ President present since 1999; Senior Vice President and Treasurer of Princeton Services since
08543-9011 and 1999; Vice President of FAMD since 1999; Director of MLIM Taxation since 1990.
Age: 43 Treasurer
====================================================================================================================================
Patrick P.O. Box 9011 Vice 2002 to Managing Director of MLIM since 2000; Director (Global Fixed Income) of
Maldari Princeton, NJ President present MLIM from 1998 to 2000.
08543-9011
Age: 41
====================================================================================================================================
James J. P.O. Box 9011 Vice 2002 to Vice President of MLIM since 1996.
Pagano Princeton, NJ President present
08543-9011
Age: 40
====================================================================================================================================
Phillip S. P.O. Box 9011 Secretary 2002 to First Vice President of MLIM since 2001; Director (Legal Advisory) of MLIM
Gillespie Princeton, NJ present from 2000 to 2001; Vice President of MLIM from 1999 to 2000; Attorney
08543-9011 associated with MLIM since 1998; Assistant General Counsel of Chancellor
Age: 39 LGT Asset Management Inc. from 1997 to 1998.
=========================================================================================================================
* Officers of the Fund serve at the pleasure of the Board of Directors/Trustees.
====================================================================================================================================
Further information about the Fund's Officers and Directors/Trustees is available in the Fund's Statement of
Additional Information, which can be obtained without charge by calling 1-800-MER-FUND.
====================================================================================================================================
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
38
[LOGO] Merrill Lynch Investment Managers
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.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available (1) without
charge, upon request, by calling toll-free 1-800-MER-FUND (1-800-637-3863); (2)
on www.mutualfunds.ml.com; and (3) on the Securities and Exchange Commission's
website at http://www.sec.gov.
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--6/03
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 (annual requirement only and not required to
be answered until the registrant's fiscal year-end on or after July 15,
2003)
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 (annual requirement only
and not required to be answered until the registrant's fiscal year-end
on or after July 15, 2003)
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.
Item 5 - If the registrant is a listed issuer as defined in Rule 10A-3 under the
Exchange Act, state whether or not the registrant has a
separately-designated standing audit committee established in
accordance with Section 3(a)(58)(A) of the Exchange Act. If the
registrant has such a committee, however designated, identify each
committee member. If the entire board of directors is acting as the
registrant's audit committee in Section 3(a)(58)(B) of the Exchange
Act, so state.
If applicable, provide the disclosure required by Rule 10A-3(d) under
the Exchange Act regarding an exemption from the listing standards for
audit committees. N/A
(Listed issuers must be in compliance with the new listing rules by the
earlier of their first annual shareholders meeting after January 2004,
or October 31, 2004 (annual requirement))
Item 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) - The registrant's certifying officers have reasonably designed such
disclosure controls and procedures to ensure material information
relating to the registrant is made known to us by others
particularly during the period in which this report is being
prepared. The registrant's certifying officers have determined that
the registrant's disclosure controls and procedures are effective
based on our evaluation of these controls and procedures as of a
date within 90 days prior to the filing date of this report.
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 pursuant to Section 302 of the Sarbanes-Oxley Act.
Attached hereto.
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Merrill Lynch Low Duration Fund
By: /s/ Terry K. Glenn
---------------------------
Terry K. Glenn,
President of
Merrill Lynch Low Duration Fund
Date: August 21, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by
the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
By: /s/ Terry K. Glenn
---------------------------
Terry K. Glenn,
President of
Merrill Lynch Low Duration Fund
Date: August 21, 2003
By: /s/ Donald C. Burke
---------------------------
Donald C. Burke,
Chief Financial Officer of
Merrill Lynch Low Duration Fund
Date: August 21, 2003
Attached hereto as a furnished exhibit are the certifications pursuant
to Section 906 of the Sarbanes-Oxley Act.