UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-10053
Name of Fund: Merrill Lynch Low Duration Fund of Merrill Lynch Investment
Managers Funds, Inc.
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 of Merrill Lynch Investment Managers Funds, Inc., 800
Scudders Mill Road, Plainsboro, NJ 08536. Mailing address: P.O. Box
9011, Princeton, NJ 08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 06/30/04
Date of reporting period: 07/01/03 - 12/31/03
Item 1 - Report to Shareholders
[LOGO] Merrill Lynch Investment Managers www.mlim.ml.com
Merrill Lynch
Low Duration Fund
Semi-Annual Report
December 31, 2003
[LOGO] Merrill Lynch Investment Managers
A Letter From the President
[PHOTO]
Dear Shareholder
In my 35 years in the asset management business, 2003 was among the more
memorable. The year, which opened with unrelenting economic uncertainty and a
dismal continuation of a three-year equity market slump, vigorously reversed
course in the months that followed. However, amid the good economic news, fixed
income investments, which had become the asset class of choice during the
preceding three-year equity market decline, faced new challenges.
Throughout 2003, the Federal Reserve Board remained focused on averting
deflation and ensuring a sustained economic recovery. This translated into an
uninterrupted easing monetary policy and the lowest interest rates in decades.
The Federal Funds rate, which opened the year at 1.25%, ended it at 1% -- the
lowest level since 1958.
For fixed income investors, the markets seemed to reward those who were willing
to accept the greatest risk. The high yield sector, supported by improving
corporate earnings, posted the best results for the year with the Credit Suisse
First Boston High Yield Index providing a total return of +27.94% for the 12
months ended December 31, 2003. These results were comparable to the impressive
performance of equity markets this year, with the Standard & Poor's 500 Index
returning +28.68%. In other areas of fixed income, investment grade corporate
bonds, as measured by the unmanaged Merrill Lynch U.S. Corporate Master Index,
returned +8.31%, and Treasury issues, as measured by the unmanaged Merrill Lynch
U.S. Treasury Master Index, returned +2.26% for the year. Yields on 10-year
Treasuries -- which move opposite of price levels -- rose from 3.83% at December
31, 2002 to 4.27% at December 31, 2003.
In closing, I wish to share one final note regarding the look of our shareholder
communications. Our portfolio manager commentaries have been trimmed and
organized in such a way that you can get the information you need at a glance,
in plain language. Today's markets can be confusing. We want to help you put it
all in perspective. The report's new size also allows us certain mailing
efficiencies. Any cost savings in production or postage are passed on to the
Fund and, ultimately, to Fund shareholders.
We thank you for trusting Merrill Lynch Investment Managers with your investment
assets, and we look forward to serving you in the New Year and beyond.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President and Director/Trustee
2 MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2003
We are pleased to present to you the management team of
Merrill Lynch Low Duration Fund
[PHOTO]
[PHOTO]
Patrick Maldari
Senior Portfolio Manager
[PHOTO]
James J. Pagano
Senior Portfolio Manager
Senior Portfolio Managers Pat Maldari and Jim Pagano co-head the Merrill Lynch
Low Duration Fund team. Mr. Maldari, who joined Merrill Lynch Investment
Managers in 1984, received a bachelor's degree from Montclair State University.
He is a CFA(R) charterholder and a member of the Association for Investment
Management and Research (AIMR) and the New York Society of Security Analysts
(NYSSA). Mr. Pagano joined Merrill Lynch Investment Managers in 1997. He
received a bachelor's degree from the United States Naval Academy and is a CFA
charterholder. The portfolio management team also includes John Burger and Frank
Viola, the corporate bond and mortgage-backed managers, respectively. Mr. Burger
earned a bachelor's degree from Cornell University. He is a CFA charterholder
and a member of the AIMR and NYSSA. Mr. Viola earned a bachelor's degree from
The Pennsylvania State University. He is a CFA charterholder, an associate of
the Society of Actuaries and a member of the American Academy of Actuaries. The
team has a combined 65 years of investment experience.
================================================================================
Table of Contents
- --------------------------------------------------------------------------------
A Letter From the President ................................................. 2
A Discussion With Your Fund's Portfolio Manager ............................. 4
Performance Data ............................................................ 6
Fund Financial Statements ................................................... 8
Fund Financial Highlights ................................................... 11
Fund Notes to Financial Statements .......................................... 16
Officers & Directors/Trustees ............................................... 18
Schedule of Investments ..................................................... 19
Master Portfolio Financial Statements ....................................... 25
Master Portfolio Financial Highlights ....................................... 28
Master Portfolio Notes to Financial Statements .............................. 29
MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2003 3
[LOGO] Merrill Lynch Investment Managers
A Discussion With Your Fund's Portfolio Managers
The Fund continued to pursue its goal of enhancing total return and
preserving capital, and benefited most during the period from its emphasis on
spread sectors.
How did the Fund perform during the period in light of the existing market
conditions?
For the six-month period ended December 31, 2003, Merrill Lynch Low Duration
Fund's Class A, Class B, Class C, Class I and Class R Shares had total returns
of +.59%, +.25%, +.25%, +.72% and +.72%, respectively. This compared to a return
of +.75% for the Fund's unmanaged benchmark, the Merrill Lynch 1-3 Year
Corporate & Government Bond Index, 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 6 and 7 of this report to
shareholders.)
Our primary focus during the period was on spread sectors (corporate and high
yield fixed income securities), more specifically, lower-quality corporate
bonds. This included a significant overweight position, relative to our
benchmark, in BBB-rated corporate and high yield fixed income securities. In
addition, we maintained a substantial underweight position in Treasury issues.
In July, as the period began, the yield on the 10-year Treasury note stood at
3.56%. Economic activity heated up in the third quarter, with gross domestic
product growth reaching 8.2%. In response to the dramatic acceleration in
growth, the yield on the 10-year Treasury spiked 150 basis points (1.50%) from
3.10% on June 15, 2003 to 4.60% on September 2, 2003. It appeared that investors
had begun to factor in a potential increase in short-term interest rates by the
Federal Reserve Board and renewed inflationary pressures. Rates subsequently
settled into a range of between 4.00% and 4.40%, where they remained for the
balance of 2003, ending the year at 4.27%.
The Portfolio was able to avoid much of the interest rate volatility that
characterized the period by maintaining a meaningful position in spread sectors.
That is, we focused on areas with a lower correlation to Treasury issues, which
therefore were less vulnerable to fluctuations in interest rates. This strategy
helped enhance total returns, as the market was clearly rewarding investors for
taking on risk. For example, high yield fixed income investments, as measured by
the unmanaged Credit Suisse First Boston High Yield Index, returned +9.05% for
the six months ended December 31, 2003. On the other hand, investment grade
corporate bonds, as measured by the unmanaged Merrill Lynch Corporate Master
Index, returned +0.63%, and Treasury issues, as measured by the unmanaged
Merrill Lynch U.S. Treasury Master Index, returned -1.33% for the same period.
Our emphasis on spread sectors included a focus on corporate bonds (both
investment grade and high yield), agency mortgage collateral and collateralized
mortgage obligations (CMOs), non-agency CMOs, asset-backed securities (ABS) and
commercial mortgage-backed securities (CMBS). By strategically managing these
sectors and taking advantage of opportunities available across the markets, we
were able to consistently add value to the Fund. In general, we were overweight
in these sectors for most of the period by 60% - 70% relative to the benchmark
index.
What changes were made to the Portfolio during the period?
We maintained our allocation to corporate bonds at 40%, and we increased our
exposure to BBB-rated corporate bonds from 22% of net assets at the beginning of
the period to 25% at period end. Correspondingly, we reduced our exposure in
A-rated corporate bonds and AAA-rated securities, including structured products
such as loans and CMOs. We also increased the Portfolio's exposure to high yield
bonds from 2% of net assets to 3.5%. These moves were in response to the
attractive valuations of corporate and high yield fixed income securities,
combined with the outlook for a strengthening economy and improving fundamentals
within the corporate market. This includes improving corporate debt levels
(deleveraging), increasing free cash flow and better overall financial liquidity
at the corporate level.
4 MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2003
We also reduced our exposure to non-agency mortgages, which we believed were
overvalued, from about 5.0% of net assets to 3.5%. At the same time, we reduced
the portfolio's exposure to agency mortgages, also relatively expensive in our
view, from 22% of net assets to 19%, and added Government National Mortgage
Association (GNMA) project loans. These moves helped improve the liquidity of
the Portfolio.
We kept the overall duration profile of the Portfolio close to that of the
benchmark, given the relatively steep yield curve and our view toward continued
stability in monetary policy (or a stable Federal Funds rate).
How was the Portfolio positioned at the close of the period?
The Portfolio remained positioned to take advantage of opportunities in
higher-beta sectors, such as BBB-rated corporate bonds and high yield securities
that have greater sensitivity to the overall economy. We would expect these
sectors to perform well relative to U.S. Treasury securities when the U.S.
economy is expanding. This is based on our belief that the yield curve will
maintain its upward slope, which tends to be conducive to better performance by
spread sectors. In general, improving economic conditions should continue to
support the high yield and investment grade corporate bond sectors.
We plan to maintain the Portfolio's emphasis on spread sectors, with overweight
positions approximately 60% above the benchmark. This includes overweights in
the mortgage, investment grade corporate and ABS sectors, which we anticipate
will collectively represent about 85% of total assets. We also expect to
maintain our overweights to higher-beta corporate bonds, such as BBB-rated and
high yield securities. However, we recognize that the market has become fully
priced, and we will be looking for opportunities to begin reducing the
Portfolio's exposure to high yield and higher-beta corporate bonds such as
BBB-rated securities. This is important because the Portfolio's mandate requires
us to maintain a minimum amount of securities rated A or better in the
Portfolio. At the close of the period, the Portfolio was operating relatively
close to that minimum level of 70%. As time passes, we will likely begin moving
away from these higher-beta sectors, as their valuations appear to be getting
expensive.
Given the relatively benign near-term interest rate forecast, we will continue
to maintain an average portfolio duration close to that of the benchmark. We do
not expect the Federal Reserve Board to raise interest rates in the immediate
future and, in fact, anticipate that monetary policy will remain on hold for
some time to ensure a sustainable economic recovery. If, however, the Federal
Reserve Board does begin to raise interest rates, we would take steps to shorten
the duration of the securities in the Portfolio.
Patrick Maldari
Vice President and Senior Portfolio Manager
James J. Pagano
Vice President and Senior Portfolio Manager
January 27, 2004
MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2003 5
[LOGO] Merrill Lynch Investment Managers
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 page 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. Current performance may be lower or higher than the performance
data quoted. Refer to www.mlim.ml.com to obtain more current performance
information. 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. 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.
6 MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2003
Performance Data (continued)
Recent Performance Results*
10-Year/
6-Month 12-Month Since Inception Standardized
As of December 31, 2003 Total Return Total Return Total Return 30-Day Yield
====================================================================================================================================
ML Low Duration Fund Class A Shares* +0.59% +2.73% +23.80% 2.03%
- ------------------------------------------------------------------------------------------------------------------------------------
ML Low Duration Fund Class B Shares* +0.25 +2.15 +14.60 1.43
- ------------------------------------------------------------------------------------------------------------------------------------
ML Low Duration Fund Class C Shares* +0.25 +2.05 +14.43 1.44
- ------------------------------------------------------------------------------------------------------------------------------------
ML Low Duration Fund Class I Shares* +0.72 +2.98 +83.21 2.27
- ------------------------------------------------------------------------------------------------------------------------------------
ML Low Duration Fund Class R Shares* +0.72 -- + 3.29 1.84
- ------------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch 1 - 3 Year Corporate & Government Index** +0.75 +2.74 +77.25/+ 28.88/+21.57/+3.05 --
- ------------------------------------------------------------------------------------------------------------------------------------
* 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 10-year/since inception periods
are 10 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 investment grade corporate bonds and
U.S. Treasury and agency securities with a maturity ranging from one year
to three years. Ten-year/since inception total returns are for 10 years,
from 9/24/99, from 10/06/00 and from 1/03/03, respectively.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
===============================================================================
Class A Shares*
- -------------------------------------------------------------------------------
One Year Ended 12/31/03 +2.73% -0.35%
- -------------------------------------------------------------------------------
Inception (9/24/99)
through 12/31/03 +5.13 +4.38
- -------------------------------------------------------------------------------
* Maximum sales charge is 3%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
===============================================================================
Class B Shares*
- -------------------------------------------------------------------------------
One Year Ended 12/31/03 +2.15% -1.84%
- -------------------------------------------------------------------------------
Inception (10/06/00)
through 12/31/03 +4.30 +3.45
- -------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 4% and is reduced to 0% after
six years.
** Assuming payment of applicable contingent deferred sales charge.
- -------------------------------------------------------------------------------
% Return % Return
Without CDSC With CDSC**
===============================================================================
Class C Shares*
- -------------------------------------------------------------------------------
One Year Ended 12/31/03 +2.05% +1.06%
- -------------------------------------------------------------------------------
Inception (10/06/00)
through 12/31/03 +4.25 +4.25
- -------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 1% and is reduced to 0% after
one year.
** Assuming payment of applicable contingent deferred sales charge.
- -------------------------------------------------------------------------------
% Return Without % Return With
Sales Charge Sales Charge**
===============================================================================
Class I Shares*
- -------------------------------------------------------------------------------
One Year Ended 12/31/03 +2.98% -0.11%
- -------------------------------------------------------------------------------
Five Years Ended 12/31/03 +5.09 +4.45
- -------------------------------------------------------------------------------
Ten Years Ended 12/31/03 +6.24 +5.92
- -------------------------------------------------------------------------------
* Maximum sales charge is 3%.
** Assuming maximum sales charge.
Aggregate Total Return
% Return
===============================================================================
Class R Shares
- -------------------------------------------------------------------------------
Inception (1/03/03)
through 12/31/03 +3.29%
- -------------------------------------------------------------------------------
MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2003 7
[LOGO] Merrill Lynch Investment Managers
Statement of Assets and Liabilities Merrill Lynch Low Duration Fund
As of December 31, 2003
===============================================================================================================================
Assets
- -------------------------------------------------------------------------------------------------------------------------------
Investment in Low Duration Master Portfolio, at value
(identified cost--$784,580,449) .................................... $ 787,842,089
Prepaid registration fees ........................................... 33,796
-------------
Total assets ........................................................ 787,875,885
-------------
===============================================================================================================================
Liabilities
- -------------------------------------------------------------------------------------------------------------------------------
Payables:
Dividends to shareholders ........................................ $ 674,027
Distributor ...................................................... 342,336
Other affiliates ................................................. 109,878
Administrator .................................................... 21,482 1,147,723
-------------
Accrued expenses and other liabilities .............................. 95,136
-------------
Total liabilities ................................................... 1,242,859
-------------
===============================================================================================================================
Net Assets
- -------------------------------------------------------------------------------------------------------------------------------
Net assets .......................................................... $ 786,633,026
=============
===============================================================================================================================
Net Assets Consist of
- -------------------------------------------------------------------------------------------------------------------------------
Class A Shares of Common Stock, $.01 par value, 100,000,000 shares
authorized ......................................................... $ 148,154
Class B Shares of Common Stock, $.01 par value, 200,000,000 shares
authorized ......................................................... 130,679
Class C Shares of Common Stock, $.01 par value, 100,000,000 shares
authorized ......................................................... 248,247
Class I Shares of Common Stock, $.01 par value, 100,000,000 shares
authorized ......................................................... 236,403
Class R Shares of Common Stock, $.01 par value, 200,000,000 shares
authorized ......................................................... 1,216
Paid-in capital in excess of par .................................... 796,703,912
Accumulated distributions in excess of investment income--net ....... $ (97,032)
Accumulated realized capital losses on investments and foreign
currency transactions allocated from the Portfolio--net ............ (14,000,193)
Unrealized appreciation on investments allocated from the
Portfolio--net ..................................................... 3,261,640
-------------
Total accumulated losses--net ....................................... (10,835,585)
-------------
Net Assets .......................................................... $ 786,633,026
=============
===============================================================================================================================
Net Asset Value
- -------------------------------------------------------------------------------------------------------------------------------
Class A--Based on net assets of $152,515,973 and 14,815,435 shares
outstanding ........................................................ $ 10.29
=============
Class B--Based on net assets of $134,279,354 and 13,067,850 shares
outstanding ........................................................ $ 10.28
=============
Class C--Based on net assets of $255,015,922 and 24,824,720 shares
outstanding ........................................................ $ 10.27
=============
Class I--Based on net assets of $243,571,259 and 23,640,338 shares
outstanding ........................................................ $ 10.30
=============
Class R--Based on net assets of $1,250,518 and 121,649 shares
outstanding ........................................................ $ 10.28
=============
See Notes to Financial Statements.
8 MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2003
Statement of Operations Merrill Lynch Low Duration Fund
For the Six Months Ended December 31, 2003
===============================================================================================================================
Investment Income Allocated from the Portfolio--Net
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income allocated from the Portfolio:
Interest ......................................................... $ 14,090,715
Dividends ........................................................ 101,012
Interest on swaps ................................................ 33,492
Securities lending--net .......................................... 11,819
Expenses ......................................................... (1,031,772)
-------------
Net investment income allocated from the Portfolio .................. 13,205,266
-------------
===============================================================================================================================
Expenses
- -------------------------------------------------------------------------------------------------------------------------------
Account maintenance and distribution fees--Class C .................. $ 1,184,081
Administration fees ................................................. 943,925
Account maintenance and distribution fees--Class B .................. 628,696
Account maintenance fees--Class A ................................... 182,572
Transfer agent fees--Class C ........................................ 125,036
Transfer agent fees--Class I ........................................ 82,141
Transfer agent fees--Class B ........................................ 69,062
Registration fees ................................................... 61,347
Transfer agent fees--Class A ........................................ 58,875
Printing and shareholder reports .................................... 48,339
Professional fees ................................................... 9,421
Account maintenance and distribution fees--Class R .................. 1,276
Transfer agent fees--Class R ........................................ 193
Other ............................................................... 7,183
-------------
Total expenses ...................................................... 3,402,147
-------------
Investment income--net .............................................. 9,803,119
-------------
===============================================================================================================================
Realized & Unrealized Loss Allocated from the Portfolio--Net
- -------------------------------------------------------------------------------------------------------------------------------
Realized loss on investments allocated from the Portfolio--net ...... (1,183,122)
Change in unrealized appreciation on investments allocated from the
Portfolio--net ..................................................... (5,217,517)
-------------
Total realized and unrealized loss allocated from the Portfolio--net (6,400,639)
-------------
Net Increase in Net Assets Resulting from Operations ................ $ 3,402,480
=============
See Notes to Financial Statements.
MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2003 9
[LOGO] Merrill Lynch Investment Managers
Statements of Changes in Net Assets Merrill Lynch Low Duration Fund
For the Six For the
Months Ended Year Ended
December 31, June 30,
Increase (Decrease) in Net Assets: 2003 2003
===============================================================================================================================
Operations
- -------------------------------------------------------------------------------------------------------------------------------
Investment income--net .............................................. $ 9,803,119 $ 12,780,582
Realized gain (loss) on investments allocated from the Portfolio--net (1,183,122) 1,729,075
Change in unrealized appreciation on investments allocated from the
Portfolio--net ..................................................... (5,217,517) 7,502,338
-------------------------------
Net increase in net assets resulting from operations ................ 3,402,480 22,011,995
-------------------------------
===============================================================================================================================
Dividends to Shareholders
- -------------------------------------------------------------------------------------------------------------------------------
Investment income--net:
Class A .......................................................... (2,109,946) (3,951,943)
Class B .......................................................... (1,555,338) (2,616,559)
Class C .......................................................... (2,932,669) (4,992,750)
Class I .......................................................... (3,198,457) (1,467,547)
Class R .......................................................... (6,194) (2)
-------------------------------
Net decrease in net assets resulting from dividends to shareholders . (9,802,604) (13,028,801)
-------------------------------
===============================================================================================================================
Capital Share Transactions
- -------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets derived from capital share transactions .. 54,844,951 405,029,497
-------------------------------
===============================================================================================================================
Net Assets
- -------------------------------------------------------------------------------------------------------------------------------
Total increase in net assets ........................................ 48,444,827 414,012,691
Beginning of period ................................................. 738,188,199 324,175,508
-------------------------------
End of period* ...................................................... $ 786,633,026 $ 738,188,199
===============================
* Accumulated distributions in excess of investment income--net .. $ (97,032) $ (97,547)
===============================
See Notes to Financial Statements.
10 MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2003
Financial Highlights Merrill Lynch Low Duration Fund
Class A
-----------------------------------------------------------
The following per share data and ratios have been derived For the Six For the Year Ended For the Period
from information provided in the financial statements. Months Ended June 30, October 6, 2000+
December 31, ----------------------- to June 30,
Increase (Decrease) in Net Asset Value: 2003 2003@@ 2002@@ 2001@@
====================================================================================================================================
Per Share Operating Performance
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ......................... $ 10.38 $ 10.16 $ 10.19 $ 10.00
----------------------------------------------------------
Investment income--net ....................................... .15++ .31++ .34++ .36
Realized and unrealized gain (loss) on investments and foreign
currency transactions allocated from the Portfolio--net ..... (.09) .23 .12 .19
----------------------------------------------------------
Total from investment operations ............................. .06 .54 .46 .55
----------------------------------------------------------
Less dividends and distributions:
Investment income--net .................................... (.15) (.32) (.48) (.36)
Realized gain on investments--net ......................... -- -- (.01) --
----------------------------------------------------------
Total dividends and distributions ............................ (.15) (.32) (.49) (.36)
----------------------------------------------------------
Net asset value, end of period ............................... $ 10.29 $ 10.38 $ 10.16 $ 10.19
==========================================================
====================================================================================================================================
Total Investment Return**
- ------------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ........................... .59%@ 5.36% 4.53% 5.58%@
==========================================================
====================================================================================================================================
Ratios to Average Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses, net of waiver and reimbursement and excluding
reorganization expenses+++ .................................. .88%* .95% .83% .83%*
==========================================================
Expenses+++ .................................................. .88%* 1.00% 1.02% 8.76%*
==========================================================
Investment income--net ....................................... 2.88%* 3.03% 4.04% 5.75%*
==========================================================
====================================================================================================================================
Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) ..................... $152,516 $152,780 $110,014 $ 268
==========================================================
Portfolio turnover of Low Duration Master Portfolio .......... 53.91% 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.
MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2003 11
[LOGO] Merrill Lynch Investment Managers
Financial Highlights (continued) Merrill Lynch Low Duration Fund
Class B
-----------------------------------------------------------
The following per share data and ratios have been derived For the Six For the Year Ended For the Period
from information provided in the financial statements. Months Ended June 30, October 6, 2000+
December 31, ----------------------- to June 30,
Increase (Decrease) in Net Asset Value: 2003 2003 2002 2001
====================================================================================================================================
Per Share Operating Performance
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ......................... $ 10.37 $ 10.14 $ 10.18 $ 10.00
----------------------------------------------------------
Investment income--net ....................................... .12++ .24++ .37++ .33
Realized and unrealized gain (loss) on investments and foreign
currency transactions allocated from the Portfolio--net ..... (.09) .24 .01 .18
----------------------------------------------------------
Total from investment operations ............................. .03 .48 .38 .51
----------------------------------------------------------
Less dividends and distributions:
Investment income--net .................................... (.12) (.25) (.41) (.33)
Realized gain on investments--net ......................... -- -- (.01) --
----------------------------------------------------------
Total dividends and distributions ............................ (.12) (.25) (.42) (.33)
----------------------------------------------------------
Net asset value, end of period ............................... $ 10.28 $ 10.37 $ 10.14 $ 10.18
==========================================================
====================================================================================================================================
Total Investment Return**
- ------------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ........................... .25%@ 4.77% 3.75% 5.16%@
==========================================================
====================================================================================================================================
Ratios to Average Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses, net of waiver and reimbursement and excluding
reorganization expenses+++ .................................. 1.55%* 1.61% 1.48% 1.48%*
==========================================================
Expenses+++ .................................................. 1.55%* 1.66% 1.70% 9.41%*
==========================================================
Investment income--net ....................................... 2.22%* 2.22% 3.75% 5.10%*
==========================================================
====================================================================================================================================
Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) ..................... $134,279 $139,688 $ 64,457 $ 5,016
==========================================================
Portfolio turnover of Low Duration Master Portfolio .......... 53.91% 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 MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2003
Financial Highlights (continued) Merrill Lynch Low Duration Fund
Class C
-----------------------------------------------------------
The following per share data and ratios have been derived For the Six For the Year Ended For the Period
from information provided in the financial statements. Months Ended June 30, October 6, 2000+
December 31, ----------------------- to June 30,
Increase (Decrease) in Net Asset Value: 2003 2003 2002 2001
====================================================================================================================================
Per Share Operating Performance
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ......................... $ 10.36 $ 10.14 $ 10.18 $ 10.00
----------------------------------------------------------
Investment income--net ....................................... .12++ .24++ .35++ .32
Realized and unrealized gain (loss) on investments and foreign
currency transactions allocated from the Portfolio--net ..... (.09) .23 .03 .18
----------------------------------------------------------
Total from investment operations ............................. .03 .47 .38 .50
----------------------------------------------------------
Less dividends and distributions:
Investment income--net .................................... (.12) (.25) (.41) (.32)
Realized gain on investments--net ......................... -- -- (.01) --
----------------------------------------------------------
Total dividends and distributions ............................ (.12) (.25) (.42) (.32)
----------------------------------------------------------
Net asset value, end of period ............................... $ 10.27 $ 10.36 $ 10.14 $ 10.18
==========================================================
====================================================================================================================================
Total Investment Return**
- ------------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ........................... .25%@ 4.68% 3.75% 5.10%@
==========================================================
====================================================================================================================================
Ratios to Average Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses, net of waiver and reimbursement and excluding
reorganization expenses+++ .................................. 1.55%* 1.61% 1.48% 1.48%*
==========================================================
Expenses+++ .................................................. 1.55%* 1.66% 1.68% 9.41%*
==========================================================
Investment income--net ....................................... 2.22%* 2.37% 3.62% 5.10%*
==========================================================
====================================================================================================================================
Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) ..................... $255,016 $263,066 $126,380 $ 4,754
==========================================================
Portfolio turnover of Low Duration Master Portfolio .......... 53.91% 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.
MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2003 13
[LOGO] Merrill Lynch Investment Managers
Financial Highlights (continued) Merrill Lynch Low Duration Fund
Class I
-----------------------------------------------------------
The following per share data and ratios have been derived For the Six For the Year Ended For the Period
from information provided in the financial statements. Months Ended June 30, October 6, 2000+
December 31, ----------------------- to June 30,
Increase (Decrease) in Net Asset Value: 2003 2003@@ 2002@@ 2001@@
====================================================================================================================================
Per Share Operating Performance
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ......................... $ 10.39 $ 10.17 $ 10.21 $ 10.00
----------------------------------------------------------
Investment income--net ....................................... .16++ .31++ .45++ .40
Realized and unrealized gain (loss) on investments and foreign
currency transactions allocated from the Portfolio--net ..... (.09) .25 .02 .19
----------------------------------------------------------
Total from investment operations ............................. .07 .56 .47 .59
----------------------------------------------------------
Less dividends and distributions:
Investment income--net .................................... (.16) (.34) (.50) (.38)
Realized gain on investments--net ......................... -- -- (.01) --
----------------------------------------------------------
Total dividends and distributions ............................ (.16) (.34) (.51) (.38)
----------------------------------------------------------
Net asset value, end of period ............................... $ 10.30 $ 10.39 $ 10.17 $ 10.21
==========================================================
====================================================================================================================================
Total Investment Return**
- ------------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ........................... .72%@ 5.61% 4.68% 5.95%@
==========================================================
====================================================================================================================================
Ratios to Average Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses, net of waiver and reimbursement and excluding
reorganization expenses+++ .................................. .64%* .70% .58% .58%*
==========================================================
Expenses+++ .................................................. .64%* .75% .78% 8.51%*
==========================================================
Investment income--net ....................................... 3.10%* 3.29% 4.51% 6.00%*
==========================================================
====================================================================================================================================
Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) ..................... $243,571 $182,654 $ 23,325 $ 1,156
==========================================================
Portfolio turnover of Low Duration Master Portfolio .......... 53.91% 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 A Shares were redesignated Class I Shares.
See Notes to Financial Statements.
14 MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2003
Financial Highlights (concluded) Merrill Lynch Low Duration Fund
Class R
-----------------------------------
The following per share data and ratios have been derived For the Six For the Period
from information provided in the financial statements. Months Ended January 3, 2003+
December 31, to June 30,
Increase (Decrease) in Net Asset Value: 2003 2003
==============================================================================================================
Per Share Operating Performance
- --------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ....................... $ 10.37 $ 10.29
---------------------------------
Investment income--net@ .................................... .12 .18
Realized and unrealized gain (loss) on investments allocated
from the Portfolio--net ................................... (.05) .08
---------------------------------
Total from investment operations ........................... .07 .26
---------------------------------
Less dividends from investment income--net ................. (.16) (.18)
---------------------------------
Net asset value, end of period ............................. $ 10.28 $ 10.37
=================================
==============================================================================================================
Total Investment Return**
- --------------------------------------------------------------------------------------------------------------
Based on net asset value per share ......................... .72%++ 2.55%++
=================================
==============================================================================================================
Ratios to Average Net Assets
- --------------------------------------------------------------------------------------------------------------
Expenses, excluding reorganization expenses+++ ............. 1.14%* 1.19%*
=================================
Expenses+++ ................................................ 1.14%* 1.28%*
=================================
Investment income--net ..................................... 2.42%* 2.74%*
=================================
==============================================================================================================
Supplemental Data
- --------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) ................... $ 1,251 --@@
=================================
Portfolio turnover of Low Duration Master Portfolio ........ 53.91% 198.09%
=================================
* Annualized.
** Total investment returns exclude the effects of sales charges.
+ Commencement of operations.
++ Aggregate total investment return.
+++ Includes the Fund's share of the Portfolio's allocated expenses.
@ Based on average shares outstanding.
@@ Amount is less than $1,000.
See Notes to Financial Statements.
MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2003 15
[LOGO] Merrill Lynch Investment Managers
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.
These unaudited financial statements reflect all adjustments, which are, in the
opinion of management, necessary to a fair statement of the results for the
interim period presented. All such adjustments are of a normal, recurring
nature. The percentage of the Portfolio owned by the Fund at December 31, 2003
was 99.9%. 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. 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.
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 Distribution
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
16 MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2003
Notes to Financial Statements (continued) Merrill Lynch Low Duration Fund
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 six months ended December 31, 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 ............................ $ 9,923 $49,801
Class I ............................ $11,591 $ 344
- --------------------------------------------------------------------------------
For the six months ended December 31, 2003, MLPF&S received contingent deferred
sales charges of $189,353 and $105,119 relating to transactions in Class B and
Class C Shares, respectively. Furthermore, MLPF&S received contingent deferred
sales charges of $14,082 relating to transactions subject to front-end sales
charge waivers in Class A Shares.
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
$54,844,951 and $405,029,497 for the six months ended December 31, 2003 and the
year ended June 30, 2003, respectively.
Transactions in capital shares for each class were as follows:
- -------------------------------------------------------------------------------
Class A Shares for the Six Months Dollar
Ended December 31, 2003 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 5,063,817 $ 52,186,915
Automatic conversion of shares ......... 97,255 1,003,291
Shares issued to shareholders in
reinvestment of dividends ............ 99,042 1,019,428
--------------------------------
Total issued ........................... 5,260,114 54,209,634
Shares redeemed ........................ (5,157,594) (53,121,384)
--------------------------------
Net increase ........................... 102,520 $ 1,088,250
================================
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
Class B Shares for the Six Months Dollar
Ended December 31, 2003 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 1,947,278 $ 20,011,058
Shares issued to shareholders in
reinvestment of dividends ............ 98,024 1,007,057
--------------------------------
Total issued ........................... 2,045,302 21,018,115
Automatic conversion of shares ......... (97,444) (1,003,291)
Shares redeemed ........................ (2,355,976) (24,203,490)
--------------------------------
Net decrease ........................... (408,118) $ (4,188,666)
================================
- -------------------------------------------------------------------------------
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 C Shares for the Six Months Dollar
Ended December 31, 2003 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 4,488,916 $ 46,123,402
Shares issued to shareholders in
reinvestment of dividends ...... 206,864 2,124,838
--------------------------------
Total issued ........................... 4,695,780 48,248,240
Shares redeemed ........................ (5,256,065) (53,999,443)
--------------------------------
Net decrease ........................... (560,285) $ (5,751,203)
================================
MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2003 17
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements (concluded) Merrill Lynch Low Duration Fund
- -------------------------------------------------------------------------------
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 I Shares for the Six Months Dollar
Ended December 31, 2003 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 11,210,649 $ 115,471,244
Shares issued to shareholders in
reinvestment of dividends ............ 248,700 2,562,016
--------------------------------
Total issued ........................... 11,459,349 118,033,260
Shares redeemed ........................ (5,392,561) (55,584,625)
--------------------------------
Net increase ........................... 6,066,788 $ 62,448,635
================================
- -------------------------------------------------------------------------------
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 R Shares for the Six Months Dollar
Ended December 31, 2003 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 139,632 $ 1,432,710
Shares issued to shareholders in
reinvestment of dividends ............ 595 6,115
--------------------------------
Total issued ........................... 140,227 1,438,825
Shares redeemed ........................ (18,588) (190,890)
--------------------------------
Net increase ........................... 121,639 $ 1,247,935
================================
- -------------------------------------------------------------------------------
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. Capital Loss Carryforward:
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.
Officers and Directors/Trustees
Terry K. Glenn, President and Director/Trustee
James H. Bodurtha, Director/Trustee
Joe Grills, Director/Trustee
Herbert I. London, Director/Trustee
Andre F. Perold, Director/Trustee
Roberta Cooper Ramo, Director/Trustee
Robert S. Salomon, Jr., Director/Trustee
Stephen B. Swensrud, Director/Trustee
Patrick Maldari, Vice President
James J. Pagano, Vice President
Donald C. Burke, Vice President and Treasurer
Phillip S. Gillespie, Secretary
Custodian
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109-3661
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
800-637-3863
18 MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2003
Schedule of Investments Low Duration Master Portfolio (in U.S. dollars)
S&P Moody's Face
Ratings Ratings Amount Asset-Backed Securities+ Value
===================================================================================================================================
AAA Aaa $ 786,322 ARNC Auto Owner Trust, Series 2001-A, Class A3, 3.76% due
10/17/2005 $ 788,704
AAA Aaa 7,437 Advanta Mortgage Loan Trust, Series 1998-2, Class A17, 6.05%
due 9/25/2018 7,482
AAA Aaa 4,049,332 CIT Equipment Collateral, Series 2002-VT1, Class A3, 4.03%
due 1/20/2006 4,109,083
California Infrastructure PG&E, Series 1997-1:
AAA Aaa 1,449,225 Class A6, 6.38% due 9/25/2008 1,543,473
AAA Aaa 1,756,120 Class A7, 6.42% due 9/25/2008 1,867,848
AAA Aaa 4,100,000 Capital One Auto Finance Trust, Series 2003-A, Class A4A, 2.47%
due 1/15/2010 4,044,300
NR* NR* 7,000,000 Capital One Master Trust, Series 2000-4, Class C, 1.963%
due 8/15/2008 (a)(c) 6,980,586
AAA Aaa 2,743,132 Centex Home Equity, Series 2002-C, Class AF2, 2.87%
due 8/25/2018 2,744,364
BBB Baa2 6,600,000 Chase Credit Card Master Trust, Series 2003-1, Class C, 2.263%
due 4/15/2008 (a) 6,667,418
Chase Funding Mortgage Loan Asset-Backed Certificates:
AAA NR* 4,480,652 Series 1999-4, Class IA6, 7.407% due 9/25/2011 4,766,860
AAA Aaa 3,500,000 Series 2002-3, Class 1A3, 3.55% due 3/25/2022 3,546,684
Chase Manhattan Auto Owner Trust:
A A2 4,605,139 Series 2002-B, 4.24% due 1/15/2009 4,718,604
A A2 2,150,000 Series 2003-A, 2.04% due 12/15/2009 2,122,119
AAA Aaa 579,895 CityScape Home Equity Loan Trust, Series 1996-4, Class A10,
7.40% due 9/25/2027 (c) 579,363
AAA Aaa 214,927 Countrywide Home Equity Loan Trust, Series 1999-A, 1.483%
due 4/15/2025 (a) 214,762
Countrywide Home Loans:
AAA NR* 2,481,031 Series 2002-32, Class 1A1, 6% due 11/25/2032 2,508,016
AAA Aaa 8,014,945 Series 2003-R4, Class 1A1A, 2.216% due 7/25/2019 8,023,711
AAA Aaa 5,000,000 DaimlerChrysler Auto Trust, Series 2001-D, Class A4, 3.78%
due 2/06/2007 5,120,398
First Franklin Mortgage Loan Asset Trust (a):
AAA Aaa 9,391,366 Series 2002-FF4, Class 2A2, 2.80% due 2/25/2033 9,515,369
AAA Aaa 8,500,000 Series 2003-FF5, Class A2, 2.82% due 3/25/2034 8,500,000
BBB Baa2 8,500,000 First National Master Note Trust, Series 2003-2, Class C, 3.70%
due 4/15/2009 8,523,906
AAA Aaa 7,300,000 GMAC Mortgage Corporation Loan Trust, Series 2003-HE2, Class A2,
3.14% due 6/25/2025 7,359,346
AAA Aaa 2,396,783 Harley-Davidson Motorcycle Trust, Series 2001-2, Class A2,
4.72% due 6/15/2009 2,450,507
AAA Aaa 3,500,000 IKON Receivables LLC, Series 2003-1, Class A3B, 2.33%
due 12/15/2007 3,517,645
AAA Aaa 1,771,241 John Deere Owner Trust, Series 2001-A, Class A3, 3.26%
due 10/17/2005 1,782,566
AAA Aaa 2,590,000 M & I Auto Loan Trust, Series 2001-1, Class A4, 4.97%
due 3/20/2007 2,657,384
MBNA Credit Card Master Note Trust:
BBB Baa2 4,100,000 Series 2001-C3, Class C3, 6.55% due 12/15/2008 4,436,288
BBB Baa2 7,000,000 Series 2002-C5, Class C5, 4.05% due 1/15/2008 7,162,668
AAA Aaa 3,064,447 PSE&G Transition Funding LLC, Series 2001-1, Class A2, 5.74%
due 3/15/2007 3,160,342
Residential Asset Securities Corporation:
AAA Aaa 104,172 Series 2002-KS5, Class AIB2, 2.47% due 8/25/2022 104,076
AAA Aaa 4,694,992 Series 2002-KS6, Class AI2, 3.09% due 11/25/2022 4,718,322
AAA Aaa 5,000,000 Series 2002-KS8, Class A2, 3.04% due 5/25/2023 5,038,630
AAA Aaa 558,069 USAA Auto Owner Trust, Series 2001-2, Class A3, 3.20%
due 2/15/2006 559,926
WFS Financial Owner Trust, Class B:
AA Aa2 2,100,000 Series 2003-2, 2.48% due 12/20/2010 2,110,975
AA Aa2 8,500,000 Series 2003-4, 2.80% due 5/20/2011 8,364,000
A A1 1,580,821 Whole Auto Loan Trust, Series 2002-1, Class B, 2.91%
due 4/15/2009 1,595,596
----------------------------------------------------------------------------------------------------------------
Total Asset-Backed Securities (Cost--$141,290,193)--18.0% 141,911,321
================================================================================================================
Government & Agency Obligations
===================================================================================================================================
AAA Aaa 17,500,000 Fannie Mae, 1.875% due 9/15/2005 17,541,405
AAA Aaa 17,500,000 Federal Home Loan Bank, 1.75% due 8/15/2005 17,496,640
U.S. Treasury Notes:
AAA Aaa 3,890,000 4.75% due 2/15/2004 3,907,322
AAA Aaa 4,303,000 1.875% due 9/30/2004 (g) 4,327,372
AAA Aaa 4,530,000 7% due 7/15/2006 5,074,130
AAA Aaa 2,900,000 2.625% due 5/15/2008 2,856,387
----------------------------------------------------------------------------------------------------------------
Total Government & Agency Obligations (Cost--$51,269,180)--6.5% 51,203,256
================================================================================================================
MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2003 19
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments (continued)
Low Duration Master Portfolio (in U.S. dollars)
S&P Moody's Face
Ratings Ratings Amount Government Agency Mortgage-Backed Securities+ Value
===================================================================================================================================
Fannie Mae:
AAA Aaa $ 8,500,000 2.01% due 11/25/2033 $ 8,500,000
AAA Aaa 9,780,393 3.50% due 11/25/2017 9,685,867
AAA Aaa 7,247,053 4% due 3/25/2017 7,226,257
AAA Aaa 7,330,651 5% due 3/25/2018 7,330,101
AAA Aaa 1,726,902 6.50% due 8/01/2032--9/01/2032 1,806,241
AAA Aaa 19,665,845 8% due 7/01/2027--11/01/2032 21,231,031
Freddie Mac:
AAA Aaa 12,865,068 2.182% due 9/27/2007 12,876,557
AAA Aaa 14,139,483 2.75% due 7/15/2018 13,877,582
AAA Aaa 1,843,618 2.91% due 8/27/2007 1,847,462
AAA Aaa 7,299,126 3.25% due 12/15/2013 7,276,132
AAA Aaa 6,496,250 4% due 3/15/2014 6,462,475
AAA Aaa 9,119,314 4% due 12/15/2022 8,980,726
AAA Aaa 20,583,000 5% due 1/15/2019 20,962,509
AAA Aaa 15,900,519 6% due 5/01/2016--6/01/2017 16,684,762
AAA Aaa 4,058,823 6.50% due 8/01/2016--2/01/2017 4,299,868
Government National Mortgage Association:
AAA Aaa 144,187,444 2.349% due 11/16/2007 (a)(h) 6,179,932
AAA Aaa 5,302,721 2.848% due 6/16/2018 5,323,613
AAA Aaa 4,755,316 3.313% due 4/16/2017 4,816,567
AAA Aaa 15,000,000 5% due 1/15/2019 15,360,930
----------------------------------------------------------------------------------------------------------------
Total Government Agency Mortgage-Backed Securities
(Cost--$180,335,492)--22.9% 180,728,612
================================================================================================================
Non-Government Agency Mortgage-Backed Securities+
===================================================================================================================================
Collateralized NR* Aaa 250,579 Blackrock Capital Finance LP, Series 1997-R2, Class AP, 7.54%
Mortgage due 12/25/2035 (a)(c) 238,050
Obligations--2.7% AAA Aaa 6,300,000 CIT Group Home Equity Loan Trust, Series 2003-1, Class A2,
2.35% due 4/20/2027 6,314,804
NR* NR* 48,357 Housing Securities Inc., Series 1994-2, Class B1, 6.50%
due 7/25/2009 40,378
NR* Aaa 890,343 Ocwen Residential MBS Corporation, Series 1998-R2, Class AP,
6.278% due 11/25/2034 (a)(c) 890,343
AAA NR* 2,360,870 PNC Mortgage Securities Corp., Series 1999-4, Class 1A5, 6.20%
due 6/25/2029 2,390,703
AAA Aaa 5,000,000 Permanent Financing PLC, Series 1, Class 2A, 4.20% due 6/10/2007 5,193,750
NR* Aaa 71,755 Salomon Brothers Mortgage Securities VI, Series 1986-1,
Class A, 6% due 12/25/2011 71,663
AAA NR* 4,918,619 Structured Asset Securities Corporation, Series 2002-19,
Class A1, 4.20% due 10/25/2032 4,952,322
Structured Mortgage Asset Residential Trust:
AAA Aaa 9,351 Series 1991-1H, 8.25% due 6/25/2022 9,714
AAA Aaa 7,614 Series 1992-3A, Class AA, 8% due 10/25/2007 7,989
NR* NR* 197,687 Walsh Acceptance, Series 1997-2, Class A, 2.141% due
3/01/2027 (a)(c) 106,751
Washington Mutual Inc. (a):
BB NR* 811,509 Series 2000-1, Class B1, 5.141% due 1/25/2040 (c) 807,452
AAA Aaa 100,768 Series 2003-AR1, Class A2, 2.92% due 3/25/2033 100,694
------------
21,124,613
===================================================================================================================================
Commercial AAA Aaa 2,304,192 Banc of America Commercial Mortgage Inc., Series 2000-1,
Mortgage-Backed Class A1A, 7.109% due 11/15/2008 2,535,959
Securities--4.1% NR* Aaa 8,430,719 Bank of America Mortgage Securities, Series 2003-J, Class 2A1,
4.22% due 11/25/2033 (a) 8,470,238
CS First Boston Mortgage Securities Corp.:
AAA Aaa 2,349,726 Series 2001-CK6, Class A1, 4.393% due 7/15/2006 2,411,008
AAA Aaa 91,000,000 Series 2003-CPN1, Class ASP, 1.81% due 3/15/2035 (a)(h) 6,257,433
NR* Aaa 1,036,835 First Union NB--Bank of America Commercial Mortgage Trust,
Series 2001-C1, Class A1, 5.711% due 3/15/2033 1,106,099
AAA NR* 2,238,537 GS Mortgage Securities Corporation II, Series 1998-C1, Class A1,
6.06% due 10/18/2030 2,336,358
AAA NR* 2,555,887 Nomura Asset Securities Corporation, Series 1995-MD3, Class A1B,
8.15% due 3/04/2020 2,693,244
AAA Aaa 6,674,236 Saxon Asset Securities Trust, Series 2002-3, Class AV, 1.541%
due 12/25/2032 (a) 6,683,671
------------
32,494,010
================================================================================================================
20 MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2003
Schedule of Investments (continued)
Low Duration Master Portfolio (in U.S. dollars)
S&P Moody's Face
Ratings Ratings Amount Non-Government Agency Mortgage-Backed Securities+ Value
===================================================================================================================================
Stripped AAA Aaa $35,000,000 Greenwich Capital Commercial Funding Corporation,
Mortgage-Backed Series 2002-C1, Class XP, 2.29% due 1/11/2035 (a)(h) $ 3,403,712
Securities--1.2% AAA NR* 85,000,000 LB-UBS Commercial Mortgage Trust, Series 2002-C4, Class XCP,
1.696% due 10/15/2035 (a)(h) 5,797,051
------------
9,200,763
================================================================================================================
Total Non-Government Agency Mortgage-Backed Securities
(Cost--$62,447,207)--8.0% 62,819,386
================================================================================================================
Industry++ Corporate Bonds & Notes
===================================================================================================================================
Cable--U.S.--0.8% BB- Ba3 6,000,000 Echostar DBS Corporation, 4.405% due 10/01/2008 (a)(c) 6,247,500
===================================================================================================================================
Canadian BB+ Ba1 1,700,000 Abitibi-Consolidated Inc., 6.95% due 12/15/2006 (1) 1,779,876
Corporates**--
0.2%
===================================================================================================================================
Commercial BBB Baa3 2,500,000 Waste Management Inc., 6.50% due 5/15/2004 2,542,058
Services &
Supplies--0.3%
===================================================================================================================================
Containers--0.4% BBB Baa3 2,885,000 Sealed Air Corporation, 5.375% due 4/15/2008 3,046,240
===================================================================================================================================
Finance--1.3% Household Finance Corporation:
A A1 500,000 6.50% due 1/24/2006 540,738
A A1 2,200,000 4.625% due 1/15/2008 2,286,959
A A1 3,500,000 4.125% due 12/15/2008 3,530,608
BBB- Ba1 855,000 IOS Capital LLC, 7.25% due 6/30/2008 910,575
A- A3 2,745,000 Textron Financial Corporation, 2.75% due 6/01/2006 2,739,332
------------
10,008,212
===================================================================================================================================
Finance-- A+ Aa2 5,000,000 Bank of America Corporation, 4.75% due 10/15/2006 5,278,630
Banks--3.8% BBB- Baa2 1,310,000 Capital One Bank, 4.875% due 5/15/2008 1,348,190
BB+ Baa3 2,680,000 Firstbank Puerto Rico, 7.625% due 12/20/2005 2,878,615
FleetBoston Financial Corporation:
A A1 1,000,000 7.25% due 9/15/2005 1,087,411
A A1 4,500,000 3.85% due 2/15/2008 4,574,286
A+ A1 1,500,000 Mellon Bank NA, 7% due 3/15/2006 1,657,434
BBB+ A3 670,000 Popular North America, Inc., 3.875% due 10/01/2008 668,746
BB+ Ba1 2,800,000 Provident Bank, 6.375% due 1/15/2004 2,800,000
A+ Aa3 5,000,000 U.S. Bancorp, 6.875% due 12/01/2004 5,237,120
BBB+ A3 825,000 Washington Mutual Inc., 5.625% due 1/15/2007 889,155
AA- Aa1 3,050,000 Wells Fargo & Co., 6.625% due 7/15/2004 3,134,052
------------
29,553,639
===================================================================================================================================
Finance-- AA- Aa1 5,000,000 Associates Corp. NA, 6% due 7/15/2005 5,325,095
Other--9.3% Bear Stearns Companies, Inc.:
A A1 2,400,000 7.80% due 8/15/2007 2,775,238
A A1 3,365,000 2.875% due 7/02/2008 3,257,014
A A3 1,125,000 Boeing Capital Corporation, 7.10% due 9/27/2005 1,216,675
A- A3 1,600,000 Conoco Funding Company, 5.45% due 10/15/2006 1,716,634
A A3 4,650,000 Countrywide Home Loan, 5.25% due 6/15/2004 4,728,404
BBB+ Baa3 4,500,000 Deutsche Telekom International Finance, 8.25% due 6/15/2005 4,881,398
Ford Motor Credit Company:
BBB- A3 2,000,000 7.50% due 3/15/2005 2,110,826
BBB- A3 5,250,000 7.60% due 8/01/2005 5,611,273
BBB- A3 4,000,000 6.875% due 2/01/2006 4,269,232
General Motors Acceptance Corporation:
BBB A3 5,000,000 7.625% due 6/15/2004 5,133,465
BBB A3 1,750,000 6.85% due 6/17/2004 1,791,225
BBB A3 5,750,000 7.50% due 7/15/2005 6,179,559
A+ A1 1,450,000 Golden West Financial Corporation, 5.50% due 8/08/2006 1,564,785
MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2003 21
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments (continued)
Low Duration Master Portfolio (in U.S. dollars)
S&P Moody's Face
Industry++ Ratings Ratings Amount Corporate Bonds & Notes Value
===================================================================================================================================
Finance--Other Goldman Sachs Group Inc.:
(concluded) A+ Aa3 $ 2,000,000 7.50% due 1/28/2005 $ 2,123,516
A+ Aa3 2,220,000 4.125% due 1/15/2008 2,276,170
AA- A1 1,900,000 International Lease Finance Corporation, 2.95% due 5/23/2006 1,915,033
A+ A1 2,970,000 J.P. Morgan Chase & Co., 3.125% due 12/11/2006 2,994,167
A A1 1,900,000 Lehman Brothers Holdings, Inc., 6.625% due 4/01/2004 1,924,818
BBB Baa2 3,060,000 MBNA Corporation, 5.625% due 11/30/2007 3,274,249
A+ Aa3 2,500,000 Morgan Stanley, 7.75% due 6/15/2005 2,713,512
A+ A1 3,400,000 National Rural Utilities Cooperative Finance Corporation,
3.25% due 10/01/2007 3,390,851
Pemex Finance Ltd.:
A- Baa1 108,000 9.14% due 8/15/2004 109,740
A- Baa1 2,117,917 8.45% due 2/15/2007 2,321,025
------------
73,603,904
===================================================================================================================================
Gaming--0.1% BB+ Ba2 915,000 Circus Circus Enterprises, Inc., 6.45% due 2/01/2006 953,887
===================================================================================================================================
Industrial-- BB+ Ba3 2,300,000 American Greetings, 11.75% due 7/15/2008 2,656,500
Consumer A A2 1,250,000 Brown-Forman Corporation, 3% due 3/15/2008 1,223,402
Goods--1.0% BBB Baa2 1,200,000 Conagra Inc., 7.40% due 9/15/2004 1,244,491
A A2 2,975,000 Fortune Brands, Inc., 2.875% due 12/01/2006 2,993,418
------------
8,117,811
===================================================================================================================================
Industrial-- Daimler-Chrysler NA Holdings:
Manufacturing-- BBB A3 4,200,000 3.40% due 12/15/2004 4,243,537
3.0% BBB A3 1,200,000 6.40% due 5/15/2006 1,285,688
BBB- Ba1 4,245,000 Lear Corporation, 7.96% due 5/15/2005 4,542,150
BBB Baa3 2,000,000 Northrop-Grumman Corp., 8.625% due 10/15/2004 2,106,902
A+ A1 2,000,000 Pepsi Bottling Holdings Inc., 5.375% due 2/17/2004 (c) 2,009,356
Raytheon Company:
BBB- Baa3 915,000 6.50% due 7/15/2005 975,094
BBB- Baa3 1,250,000 6.15% due 11/01/2008 1,360,176
BBB- Baa2 3,000,000 Staples, Inc., 7.125% due 8/15/2007 3,300,693
NR* Ba1 360,000 Timken Company, 6.75% due 8/21/2006 368,154
BBB- Ba2 3,000,000 Tyco International Group SA, 6.375% due 2/15/2006 3,195,000
------------
23,386,750
===================================================================================================================================
Industrial-- BBB+ Baa1 1,000,000 AOL Time Warner Inc., 5.625% due 5/01/2005 1,046,793
Services--3.6% BBB Baa1 1,100,000 Cendant Corporation, 6.875% due 8/15/2006 1,206,856
BBB Baa3 1,440,000 Comcast Cable Communications, Inc., 6.375% due 1/30/2006 1,550,229
BBB+ Baa2 1,350,000 Fiserv, Inc., 4% due 4/15/2008 1,343,641
BBB- Ba1 4,000,000 HCA Inc., 7.125% due 6/01/2006 4,333,728
BBB- Baa3 6,800,000 Liberty Media Corporation, 2.67% due 9/17/2006 (a) 6,873,916
BBB Ba1 2,500,000 Manor Care, Inc., 7.50% due 6/15/2006 2,712,500
BBB- Baa3 1,250,000 News America Incorporated, 6.75% due 1/09/2038 1,395,792
BBB+ Baa1 1,100,000 PHH Corporation, 6% due 3/01/2008 1,183,560
BBB Baa3 4,500,000 TCI Communications Inc., 8.35% due 2/15/2005 4,793,756
BBB+ Baa1 1,000,000 Turner Broadcasting, 7.40% due 2/01/2004 1,004,306
BBB- Baa3 1,000,000 USA Interactive, 6.75% due 11/15/2005 1,065,689
------------
28,510,766
===================================================================================================================================
Industrial-- AAA Aaa 890,000 American Airlines, 3.857% due 7/09/2010 879,595
Transportation-- BBB Baa2 2,000,000 CSX Corporation, 6.46% due 6/22/2005 2,122,006
0.4% ------------
3,001,601
===================================================================================================================================
Insurance--1.6% A- A3 2,000,000 Hartford Financial Services Group, 4.70% due 9/01/2007 2,101,108
Marsh & McLennan Companies Inc.:
AA- A2 3,500,000 6.625% due 6/15/2004 3,580,594
AA- A2 3,500,000 3.625% due 2/15/2008 3,512,341
A A2 2,300,000 MetLife Inc., 3.911% due 5/15/2005 2,365,283
AA Aa3 385,000 Monumental Global Funding II, 3.85% due 3/03/2008 (c) 388,442
A- A3 500,000 Prudential Financial Inc., 3.75% due 5/01/2008 500,243
------------
12,448,011
================================================================================================================
22 MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2003
Schedule of Investments (continued)
Low Duration Master Portfolio (in U.S. dollars)
S&P Moody's Face
Industry++ Ratings Ratings Amount Corporate Bonds & Notes Value
===================================================================================================================================
Leisure--0.4% A- A3 $ 3,500,000 Carnival Corporation, 3.75% due 11/15/2007 (c) $ 3,506,254
===================================================================================================================================
Paper--0.4% BB Ba2 2,800,000 Boise Cascade Corporation, 7.66% due 5/27/2005 2,931,387
===================================================================================================================================
Real Estate BBB+ Baa1 1,000,000 Avalonbay Communities, 6.58% due 2/15/2004 1,005,636
Investment BBB Baa3 5,000,000 Developers Diversified Realty, 6.95% due 7/23/2004 5,134,315
Trust--4.4% BBB+ Baa1 950,000 Duke Realty Corporation, 6.875% due 3/15/2005 1,005,936
Health Care Properties Inc.:
BBB+ Baa2 3,600,000 2.47% due 2/23/2004 (a) 3,596,522
BBB+ Baa2 900,000 9% due 3/01/2004 908,829
BBB+ Baa2 3,000,000 7.48% due 4/05/2004 3,035,118
BBB- Baa3 4,000,000 IRT Property Company, 7.77% due 4/01/2006 4,382,480
Nationwide Health Properties:
BBB- Baa3 1,400,000 7.60% due 11/20/2028 1,443,133
BBB- Baa3 5,000,000 6.90% due 10/01/2037 5,111,900
BBB- Baa3 1,400,000 6.59% due 7/07/2038 1,374,995
AAA Aaa 6,951,000 Susa Partnership LP, 6.95% due 7/01/2006 7,684,998
------------
34,683,862
===================================================================================================================================
Retail-- BB+ Ba1 2,750,000 Yum! Brands, Inc., 8.50% due 4/15/2006 3,059,375
Stores--0.4%
===================================================================================================================================
Utilities-- BBB Baa2 1,250,000 Harris Corporation, 6.35% due 2/01/2028 1,334,926
Communications-- CCC+ Caa2 5,000,000 Qwest Capital Funding, 5.875% due 8/03/2004 5,012,500
2.9% BBB- Baa3 5,200,000 Sprint Capital Corporation, 6% due 1/15/2007 5,553,844
BBB+ Baa2 5,000,000 Telecom Italia Capital SA, 4% due 11/15/2008 (c) 5,031,650
BBB Ba1 1,500,000 Telus Corporation, 7.50% due 6/01/2007 1,678,716
A+ A2 2,250,000 Verizon Global Funding Corporation, 6.75% due 12/01/2005 2,441,408
NR* NR* 5,000,000 WorldCom, Inc., 7.55% due 4/01/2004 (b) 1,675,000
------------
22,728,044
===================================================================================================================================
Utilities-- A A2 2,500,000 Alabama Power Company, 2.80% due 12/01/2006 2,510,372
Electric & BBB Baa3 1,465,000 American Electric Power, 6.125% due 5/15/2006 1,578,665
Gas--4.4% BBB Baa2 1,060,000 Appalachian Power Company, 3.60% due 5/15/2008 1,048,478
A A1 4,645,000 Boston Edison Company, 1.65% due 10/15/2005 (a) 4,670,664
BBB Baa2 4,450,000 Conectiv Inc., 5.30% due 6/01/2005 4,624,124
BBB- Baa3 595,000 Consumers Energy, 4.25% due 4/15/2008 (c) 600,942
A- A3 645,000 Detroit Edison Company, 5.05% due 10/01/2005 674,693
BBB+ Baa1 2,500,000 Dominion Resources Inc., 7.625% due 7/15/2005 2,700,667
A- A2 2,125,000 FPL Group Capital Inc., 1.47% due 3/30/2005 (a) 2,125,504
BB+ Baa2 3,000,000 FirstEnergy Corporation, 5.50% due 11/15/2006 3,107,526
BBB Baa3 4,500,000 NiSource Finance Corporation, 7.625% due 11/15/2005 4,916,237
BBB Baa1 2,500,000 PSE&G Power LLC, 6.875% due 4/15/2006 2,725,485
BBB Baa2 2,500,000 Southern California Edison Company, 8% due 2/15/2007 2,859,375
BBB- Baa3 685,000 Xcel Energy Inc., 3.40% due 7/01/2008 (c) 668,955
------------
34,811,687
===================================================================================================================================
Yankee A- Baa1 3,500,000 British Telecom PLC, 7.875% due 12/15/2005 (2) 3,857,045
Corporates**-- BBB Baa3 2,500,000 France Telecom, 8.45% due 3/01/2006 (2) 2,792,487
0.9% ------------
6,649,532
================================================================================================================
Total Corporate Bonds & Notes (Cost--$308,512,684)--39.6% 311,570,396
================================================================================================================
Shares
Held Preferred Stocks
===================================================================================================================================
Finance--Other 1,500 Home Ownership Funding 2 (c) 751,523
----------------------------------------------------------------------------------------------------------------
Total Preferred Stocks (Cost--$1,500,000)--0.1% 751,523
================================================================================================================
MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2003 23
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments (concluded)
Low Duration Master Portfolio (in U.S. dollars)
Face
Amount Short-Term Investments Value
===================================================================================================================================
Commercial Paper*** $17,000,000 Countrywide Home Loans, Inc., 1% due 1/02/2004 $ 17,000,000
23,000,000 Morgan Stanley & Co., Inc., 1.08% due 1/07/2004 22,996,550
9,300,000 Polonius Inc., 1.09% due 1/20/2004 9,294,932
12,000,000 Romulus Funding Corp., 1.13% due 1/16/2004 11,994,727
8,000,000 Scaldis Capital LLC, 1.11% due 1/20/2004 7,995,560
------------
69,281,769
===================================================================================================================================
Time Deposit 556,277 Brown Brothers, 0.35% due 1/02/2004 556,277
===================================================================================================================================
Shares
Held
===================================================================================================================================
26,279,375 Merrill Lynch Premier Institutional Fund (d)(e) 26,279,375
---------------------------------------------------------------------------------------------------------
Total Short-Term Investments (Cost--$96,117,421)--12.2% 96,117,421
===================================================================================================================================
Total Investments (Cost--$841,472,177)--107.3% 845,101,915
Variation Margin on Financial Futures Contracts (f)--0.0% (52,877)
Liabilities in Excess of Other Assets--(7.3%) (57,206,949)
------------
Net Assets--100.0% $787,842,089
============
* Not Rated.
** Corresponding industry groups for foreign securities:
(1) Industrial.
(2) Telecommunications.
*** 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.
+ Asset-Backed and Mortgage-Backed Obligations 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.
++ 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.
(a) Floating rate note.
(b) Non-income producing security.
(c) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(d) Investments in companies considered to be an affiliate of the Portfolio
(such companies are defined as "Affiliated Companies" in Section 2(a)(3)
of the Investment Company Act of 1940) are as follows:
--------------------------------------------------------------------------
Net Dividend
Affiliate Activity Income
--------------------------------------------------------------------------
Merrill Lynch Premier Institutional Fund 26,279,375 $11,819
--------------------------------------------------------------------------
(e) Security was purchased with the cash proceeds from securities loans.
(f) Financial futures contracts purchased as of December 31, 2003 were as
follows:
--------------------------------------------------------------------------
Number of Expiration Face Unrealized
Contracts Issue Date Value Losses
--------------------------------------------------------------------------
127 Eurodollar December 2004 $126,365,572 $ (51,371)
--------------------------------------------------------------------------
Total Unrealized Losses $ (51,371)
=========
Financial futures contracts sold as of December 31, 2003 were as follows:
--------------------------------------------------------------------------
Number of Expiration Face Unrealized
Contracts Issue Date Value Losses
--------------------------------------------------------------------------
423 Five-Year U.S. March
Treasury Note Futures 2004 $46,900,648 $(316,727)
--------------------------------------------------------------------------
Total Unrealized Losses $(316,727)
=========
(g) All or a portion of security held as collateral in connection with open
financial futures contracts.
(h) Represents the interest-only portion of a mortgage-backed obligation.
See Notes to Financial Statements.
24 MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2003
Statement of Assets and Liabilities Low Duration Master Portfolio
As of December 31, 2003
============================================================================================================================
Assets
- ----------------------------------------------------------------------------------------------------------------------------
Investments, at value (including securities loaned of $25,471,782)
(identified cost--$841,472,177) ................................. $ 845,101,915
Receivables:
Interest ...................................................... $ 6,497,062
Contributions ................................................. 1,285,367
Paydowns ...................................................... 45,416
Securities lending--net ....................................... 8,499 7,836,344
-------------
Prepaid expenses and other assets ................................ 1,597
-------------
Total assets ..................................................... 852,939,856
-------------
============================================================================================================================
Liabilities
- ----------------------------------------------------------------------------------------------------------------------------
Collateral on securities loaned, at value ........................ 26,279,375
Payables:
Securities purchased .......................................... 36,169,214
Withdrawals ................................................... 2,067,518
Custodian bank ................................................ 477,673
Variation margin .............................................. 52,877
Investment adviser ............................................ 18,087
Other affiliates .............................................. 7,650 38,793,019
-------------
Accrued expenses and other liabilities ........................... 25,373
-------------
Total liabilities ................................................ 65,097,767
-------------
============================================================================================================================
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
Net assets ....................................................... $ 787,842,089
=============
============================================================================================================================
Net Assets Consist of
- ----------------------------------------------------------------------------------------------------------------------------
Investors' capital ............................................... $ 784,580,449
Unrealized appreciation on investments--net ...................... 3,261,640
-------------
Net Assets ....................................................... $ 787,842,089
=============
See Notes to Financial Statements.
MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2003 25
[LOGO] Merrill Lynch Investment Managers
Statement of Operations Low Duration Master Portfolio
For the Six Months Ended December 31, 2003
============================================================================================================================
Investment Income
- ----------------------------------------------------------------------------------------------------------------------------
Interest ......................................................... $ 14,090,715
Dividends ........................................................ 101,012
Interest on swaps ................................................ 33,492
Securities lending--net .......................................... 11,819
-------------
Total income ..................................................... 14,237,038
-------------
============================================================================================================================
Expenses
- ----------------------------------------------------------------------------------------------------------------------------
Investment advisory fees ......................................... $ 793,713
Accounting services .............................................. 139,211
Custodian fees ................................................... 30,077
Professional fees ................................................ 26,976
Trustees' fees and expenses ...................................... 15,555
Pricing fees ..................................................... 13,327
Printing and shareholder reports ................................. 1,917
Other ............................................................ 10,996
-------------
Total expenses ................................................... 1,031,772
-------------
Investment income--net ........................................... 13,205,266
-------------
============================================================================================================================
Realized & Unrealized Loss on Investments--Net
- ----------------------------------------------------------------------------------------------------------------------------
Realized loss on investments--net ................................ (1,183,122)
Change in unrealized appreciation on investments--net ............ (5,217,525)
-------------
Total realized and unrealized loss on investments--net ........... (6,400,647)
-------------
Net Increase in Net Assets Resulting from Operations ............. $ 6,804,619
=============
See Notes to Financial Statements.
26 MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2003
Statements of Changes in Net Assets Low Duration Master Portfolio
For the Six For the
Months Ended Year Ended
December 31, June 30,
Increase (Decrease) in Net Assets: 2003 2003
============================================================================================================================
Operations
- ----------------------------------------------------------------------------------------------------------------------------
Investment income--net ........................................... $ 13,205,266 $ 24,364,515
Realized gain (loss) on investments--net ......................... (1,183,122) 2,412,393
Change in unrealized appreciation on investments--net ............ (5,217,525) 11,367,228
-------------------------------
Net increase in net assets resulting from operations ............. 6,804,619 38,144,136
-------------------------------
============================================================================================================================
Capital Transactions
- ----------------------------------------------------------------------------------------------------------------------------
Proceeds from contributions ...................................... 235,225,329 905,711,132
Fair value of withdrawals ........................................ (193,522,031) (716,855,965)
-------------------------------
Net increase in net assets derived from capital transactions ..... 41,703,298 188,855,167
-------------------------------
============================================================================================================================
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
Total increase in net assets ..................................... 48,507,917 226,999,303
Beginning of period .............................................. 739,334,172 512,334,869
-------------------------------
End of period .................................................... $ 787,842,089 $ 739,334,172
===============================
See Notes to Financial Statements.
MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2003 27
[LOGO] Merrill Lynch Investment Managers
Financial Highlights Low Duration Master Portfolio
For the Six For the Year Ended For the Period
Months Ended June 30, October 6, 2000+
The following ratios have been derived December 31, ----------------------- to June 30,
from information provided in the financial statements. 2003 2003 2002 2001
==============================================================================================================================
Total Investment Return**
- ------------------------------------------------------------------------------------------------------------------------------
Total investment return ................ .90%++ 6.05% 5.59% --
============================================================
==============================================================================================================================
Ratios to Average Net Assets
- ------------------------------------------------------------------------------------------------------------------------------
Expenses ............................... .27%* .28% .32% .30%*
============================================================
Investment income--net ................. 3.48%* 3.73% 5.03% 6.78%*
============================================================
==============================================================================================================================
Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $787,842 $739,334 $512,335 $305,514
============================================================
Portfolio turnover ..................... 53.91% 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.
++ Aggregate total investment return.
See Notes to Financial Statements.
28 MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 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. These unaudited financial
statements reflect all adjustments, which are, in the opinion of management,
necessary to a fair statement of the results for the interim period presented.
All such adjustments are of a normal, recurring nature. The following is a
summary of significant accounting policies followed by the Portfolio.
(a) Valuation of investments -- Equity securities that are held by the Portfolio
that are traded on stock exchanges or the Nasdaq National Market are valued at
the last sale price or official close price on the exchange, 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. In cases where equity securities are traded on more
than one exchange, the securities are valued on the exchange designated as the
primary market by or under the authority of the Board of Trustees of the Master
Trust. Long positions traded in the over-the-counter ("OTC") market, Nasdaq
Small Cap or Bulletin Board are valued at the last available bid price or yield
equivalent obtained from one or more dealers or pricing services approved by the
Board of Trustees of the Master Trust. Short positions traded in the OTC market
are valued at the last available ask price. Portfolio securities that are traded
both in the OTC market and on a stock exchange are valued according to the
broadest and most representative market.
Options written are valued at the last sale price in the case of exchange-traded
options or, in the case of options traded in the OTC market, the last ask price.
Options purchased are valued at their last sale price in the case of
exchange-traded options or, in the case of options traded in the OTC market, the
last bid price. Swap agreements are valued daily based upon quotations from
market makers. Financial futures contracts and options thereon, which are traded
on exchanges, are valued at their last sale price as of the close of such
exchanges. Obligations with remaining maturities of 60 days or less are valued
at amortized cost unless the Investment Adviser believes that this method no
longer produces fair valuations.
Repurchase agreements are valued at cost plus accrued interest. The Portfolio
employs pricing services to provide certain securities prices for the Portfolio.
Securities and assets for which market quotations are not readily available are
valued at fair value as determined in good faith by or under the direction of
the Board of Trustees of the Master Trust, including valuations furnished by the
pricing services retained by the Portfolio, which may use a matrix system for
valuations. The procedures of a pricing service and its valuations are reviewed
by the officers of the Portfolio under the general supervision of the Master
Trust's Board of Trustees. Such valuations and procedures will be reviewed
periodically by the Board of Trustees of the Master Trust.
Generally, trading in foreign securities, as well as U.S. government securities
and money market instruments, is substantially completed each day at various
times prior to the close of business on the New York Stock Exchange ("NYSE").
The values of such securities used in computing the net assets of the Portfolio
are determined as of such times. Foreign currency exchange rates also are
generally determined prior to the close of business on the NYSE. Occasionally,
events affecting the values of such securities and such exchange rates may occur
between the times at which they are determined and the close of business on the
NYSE that may not be reflected in the computation of the Portfolio's net assets.
If events (for example, a company announcement, market volatility or a natural
disaster) occur during such periods that are expected to materially affect the
value of such securities, those securities may be valued at their fair 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
Master Trust's Board of Trustees.
(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 movements and movements in
the securities markets. Losses may arise due to changes in the value of the
contract or if the counterparty does not perform under the contract.
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
MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2003 29
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements (continued) Low Duration Master Portfolio
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 may purchase and write call and put options. When
the Portfolio writes an option, an amount equal to the premium received by
the Portfolio is reflected as an asset and an equivalent liability. The
amount of the liability is subsequently marked to market to reflect the
current market value of the option written. When a security is purchased
or sold through an exercise of an option, the related premium paid (or
received) is added to (or deducted from) the basis of the security
acquired or deducted from (or added to) the proceeds of the security sold.
When an option expires (or the Portfolio enters into a closing
transaction), the Portfolio realizes a gain or loss on the option to the
extent of the premiums received or paid (or a gain or loss to the extent
that the cost of the closing transaction exceeds the premium paid or
received).
Written and purchased options are non-income producing investments.
o Swaps -- The Portfolio may enter into swap agreements, which are
over-the-counter contracts in which the Portfolio and a counterparty agree
to make periodic net payments on a specified notional amount. The net
payments can be made for a set period of time or may be triggered by a
pre-determined credit event. The net periodic payments may be based on a
fixed or variable interest rate; the change in market value of a specified
security, basket of securities, or index; or the return generated by a
security.
(c) Foreign currency transactions -- Transactions denominated in foreign
currencies are recorded at the exchange rate prevailing when recognized. Assets
and liabilities denominated in foreign currencies are valued at the exchange
rate at the end of the period. Foreign currency transactions are the result of
settling (realized) or valuing (unrealized) assets or liabilities expressed in
foreign currencies into U.S. dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates on investments.
(d) Income taxes -- The Portfolio is classified as a partnership for Federal
income tax purposes. As such, each investor in the Portfolio is treated as owner
of its proportionate share of the net assets, income, expenses and realized and
unrealized gains and losses of the Portfolio. 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.
(f) Securities lending -- The Portfolio may lend securities to financial
institutions that provide cash or securities issued or guaranteed by the U.S.
government as collateral, which will be maintained at all times in an amount
equal to at least 100% of the current market value of the loaned securities. The
market value of the loaned securities is determined at the close of business of
the Portfolio and any additional required collateral is delivered to the
Portfolio on the next business day. Where the Portfolio receives securities as
collateral for the loaned securities, it collects a fee from the borrower. The
Portfolio typically receives the income on the loaned securities but does not
receive the income on the collateral. Where the Portfolio receives cash
collateral, it may invest such collateral and retain the amount earned on such
investment, net of any amount rebated to the borrower. Loans of securities are
terminable at any time and the borrower, after notice, is required to return
borrowed securities within five business days. The Portfolio may pay reasonable
finder's, lending agent, administrative and custodial fees in connection with
its loans. In the event that the borrower defaults on its obligation to return
borrowed securities because of insolvency or for any other reason, the Portfolio
could experience delays and costs in gaining access to the collateral. The
Portfolio also could suffer a loss where the value of the collateral falls below
the market value of the borrowed securities, in the event of borrower default or
in the event of losses on investments made with cash collateral.
(g) Custodian bank -- The Portfolio recorded an amount payable to the custodian
bank resulting from a timing difference of security transaction settlements.
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,
30 MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2003
Notes to Financial Statements (concluded) Low Duration Master Portfolio
Inc. ("PSI"), an indirect, wholly-owned subsidiary of Merrill Lynch & Co., Inc.
("ML & Co."), which is the limited partner.
FAM is responsible for the management of the Portfolio's investments and
provides the necessary personnel, facilities, equipment and certain other
services necessary to the operations of the Portfolio. For such services, the
Portfolio pays a monthly fee based upon the average daily value of the
Portfolio's net assets at the annual rate of 0.21%.
The Portfolio has received an exemptive order from the Securities and Exchange
Commission permitting it to lend portfolio securities to Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S"), a subsidiary of ML & Co., or its
affiliates. Pursuant to that order, the Portfolio also has retained Merrill
Lynch Investment Managers, LLC ("MLIM, LLC"), an affiliate of FAM, as the
securities lending agent for a fee based on a share of the returns on investment
of cash collateral. MLIM, LLC may, on behalf of the Portfolio, invest cash
collateral received by the Portfolio for such loans, among other things, in a
private investment company managed by MLIM, LLC or in registered money market
funds advised by FAM or its affiliates. For the six months ended December 31,
2003, MLIM, LLC received $5,167 in securities lending agent fees.
For the six months ended December 31, 2003, the Portfolio reimbursed FAM $7,354
for certain accounting services.
Certain officers and/or trustees of the Master Trust are officers and/or
directors of FAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the six
months ended December 31, 2003 were $404,493,466 and $388,354,399, respectively.
Net realized gains (losses) for the six months ended December 31, 2003 and net
unrealized gains (losses) as of December 31, 2003 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Gains (Losses)
- --------------------------------------------------------------------------------
Long-term investments .................. $(1,355,791) $ 3,629,738
Short-term investments ................. (261) --
Options purchased ...................... 112,147 --
Options written ........................ (359,469) --
Swaps .................................. 515,962 --
Financial futures contracts ............ (95,710) (368,098)
------------------------------
Total investments ...................... $(1,183,122) $ 3,261,640
==============================
As of December 31, 2003, net unrealized appreciation for Federal income tax
purposes aggregated $3,448,605, of which $9,477,395 related to appreciated
securities and $6,028,790 related to depreciated securities. At December 31,
2003, the aggregate cost of investments for Federal income tax purposes was
$841,653,310.
Transactions in call options written for the six months ended December 31, 2003
were as follows:
- -------------------------------------------------------------------------------
Number of Premiums
Contracts Received
- -------------------------------------------------------------------------------
Outstanding call options written,
beginning of period .................... 127 $ 15,304
Options written .......................... 25 1,315,913
Options closed ........................... (25) (1,315,913)
Options expired .......................... (127) (15,304)
---------------------------
Outstanding call options written,
end of period .......................... -- $ --
===========================
Transactions in put options written for the six months ended December 31, 2003
were as follows:
- -------------------------------------------------------------------------------
Number of Premiums
Contracts Received
- -------------------------------------------------------------------------------
Outstanding put options written,
beginning of period .................... 127 $ 91,503
Options written .......................... 25 1,315,913
Options closed ........................... (152) (1,407,416)
---------------------------
Outstanding put options written,
beginning of period .................... -- $ --
===========================
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 28, 2003, the credit agreement was renewed for one year
under the same terms. The Portfolio did not borrow under the credit agreement
during the six months ended December 31, 2003.
MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2003 31
[LOGO] Merrill Lynch Investment Managers www.mlim.ml.com
This report is not authorized for use as an offer of sale or a solicitation of
an offer to buy shares of the Fund unless accompanied or preceded by the Fund's
current prospectus. Past performance results shown in this report should not be
considered a representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost. Statements and other information
herein are as dated and are subject to change.
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
#ML -- 3070 -- 12/03
Item 2 - Code of Ethics - Not Applicable to this semi-annual report
Item 3 - Audit Committee Financial Expert - Not Applicable to this semi-annual
report
Item 4 - Principal Accountant Fees and Services - Not Applicable to this
semi-annual report
Item 5 - Audit Committee of Listed Registrants - Not Applicable
Item 6 - Reserved
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable
Item 8 - Reserved
Item 9 - Controls and Procedures
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.
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 attached hereto
10(a) - Not Applicable
10(b) - 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 of Merrill Lynch Investment Managers
Funds, Inc.
By: /s/ Terry K. Glenn
-------------------------------
Terry K. Glenn,
President of
Merrill Lynch Low Duration Fund of Merrill Lynch Investment Managers
Funds, Inc.
Date: February 23, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by
the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
By: /s/ Terry K. Glenn
-------------------------------
Terry K. Glenn,
President of
Merrill Lynch Low Duration Fund of Merrill Lynch Investment Managers
Funds, Inc.
Date: February 23, 2004
By: /s/ Donald C. Burke
-------------------------------
Donald C. Burke,
Chief Financial Officer of
Merrill Lynch Low Duration Fund of Merrill Lynch Investment Managers
Funds, Inc.
Date: February 23, 2004