UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-10053
811-10089
Name of Fund: Merrill Lynch Low Duration Fund of Merrill Lynch Investment
Managers Funds, Inc.
Low Duration Master Portfolio of Fund Asset Management
Master Trust
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. and Low
Duration Master Portfolio of Fund Asset Management Master Trust, 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 - 06/30/04
Item 1 - Report to Stockholders
[LOGO] Merrill Lynch Investment Managers www.mlim.ml.com
Merrill Lynch
Low Duration Fund
Annual Report
June 30, 2004
[LOGO] Merrill Lynch Investment Managers
A Letter From the President
[PHOTO]
Dear Shareholder
As we ended the current period, all eyes were on the Federal Reserve Board (the
Fed). In a much-anticipated move, the Fed raised the Federal Funds rate on June
30 for the first time in four years, bringing the target rate to 1.25%, up from
a 45-year low of 1%. The 25 basis point (.25%) increase was the first, but is
not expected to be the last, this year as the Fed moves to "normalize" interest
rates in the face of increasing inflation. The Fed has reiterated its intention
to take a "measured" approach to interest rate increases in an effort to avoid
upsetting the economy or the financial markets. Still, in its very deliberate
wording, the Fed has stated that it may move more aggressively if inflation and
economic growth indicate the need.
In any case, interest rates are likely to remain low by historical standards for
some time, particularly if the Fed does maintain its commitment to a gradual
tightening. To provide some perspective, the Federal Funds rate was at 6.5%
before the current easing cycle began in 2001 and had reached double-digits in
the late 1970s and early 1980s.
The transition to higher interest rates can cause concern among equity and fixed
income investors alike. As interest rates rise, fixed income securities may
become a more attractive investment option and thereby pressure equity prices.
Higher interest rates also translate into increases in business costs,
potentially cutting into corporate profits. For bond investors, rising interest
rates means the value of older bonds declines because they carry the former
lower interest rates.
June month-end also brought the transfer of power in Iraq. Like the Fed
tightening, this was a pivotal event. However, the outcome and the market
repercussions are less easy to predict. We do know that markets will always
fluctuate and that there are many uncertainties -- including the possibility of
geopolitical events -- that can translate into negative market movements. Still,
many of the world's economies are much stronger today than they were just one
year ago. With this in mind, we encourage you to revisit your portfolio and your
asset allocation strategy to ensure you are well positioned to take advantage of
the opportunities that lie ahead. Importantly, you should consult with your
financial advisor, who can help you assess the market and economic environment
and then develop a strategy most suitable for your circumstances and financial
goals.
We thank you for trusting Merrill Lynch Investment Managers with your investment
assets, and we look forward to serving you in the months and years ahead.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President and Director/Trustee
2 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004
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 Managers ....................... 4
Performance Data ....................................................... 6
Fund Financial Statements .............................................. 12
Fund Financial Highlights .............................................. 15
Fund Notes to Financial Statements ..................................... 20
Important Tax Information .............................................. 23
Master Schedule of Investments ......................................... 24
Master Portfolio Financial Statements .................................. 31
Master Portfolio Financial Highlights .................................. 34
Master Portfolio Notes to Financial Statements ......................... 35
Report of Independent Registered Public Accounting Firm ................ 23, 39
Officers & Directors/Trustees .......................................... 40
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004 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 exposure to
spread sectors.
How did the Fund perform during the period in light of the existing market
conditions?
For the 12-month period ended June 30, 2004, Merrill Lynch Low Duration Fund's
Class A, Class B, Class C, Class I and Class R Shares had total returns of
+.66%, -.11%, -.11%, +.81% and +.56%, respectively. (Fund results shown do not
reflect sales charges and would be lower if sales charges were included.
Complete performance information can be found on pages 6 - 11 of this report to
shareholders.) Fund results were generally in line with the benchmark, the
Merrill Lynch 1 - 3 Year Corporate and Government Index, which returned +.73%
for the same period.
In July 2003, as the period began, the yield on the 10-year Treasury note stood
at 3.56%. As the U.S. economy began heating up, and as investors began to factor
in rising inflation and the potential for increased interest rates, the yield on
the 10-year Treasury climbed more than 100 basis points (1.00%) to end the
period at 4.65%. It appeared that investors had been factoring in increases in
short-term interest rates by the Federal Reserve Board (the Fed), while also
responding to inflationary pressures. Under these conditions, we attempted to
insulate the Fund from the effects of rising rates through a dual strategy of
shortening duration and focusing on spread sectors -- those areas of the fixed
income market with a lower correlation to Treasury issues. This strategy allowed
the portfolio to benefit from overweight positions in those sectors of the fixed
income market that we believed were best positioned to benefit from an improving
economy.
Duration is a gauge of an investment's sensitivity to interest rate changes,
measured in years. The lower (or "shorter") the duration of a portfolio, the
less it will be impacted by interest rate volatility. During the period under
review, we positioned the Fund to have a shorter-than-benchmark duration. The
Federal Funds Futures curve is forecasting several additional interest rate
increases over the next year, and we believe the Fed is poised to continue
raising interest rates through the remainder of 2004 and into 2005. In such an
environment, a shorter duration should help protect the portfolio from the
negative price impact associated with rising interest rates.
We also were able to avoid some of the interest rate volatility that occurred
during the period by maintaining a significant position in spread sectors
(corporate bonds and mortgage securities). These sectors are not as dramatically
affected by interest rate changes as Treasury securities; therefore, they are
less susceptible to interest rate risk. Additionally, when the U.S. economy is
improving or expanding, spread sectors, and particularly lower-quality corporate
bonds, tend to outperform Treasury securities. Our emphasis on spread sectors
included a focus on corporate bonds (both investment grade and high yield) and a
significant overweight position in BBB-rated securities, relative to the
benchmark. We also focused on agency mortgage collateral and collateralized
mortgage obligations (CMOs), non-agency CMOs, asset-backed securities and
commercial mortgage-backed securities. By investing in all of these sectors, our
goal was to find investment opportunities across a variety of markets to add
value to the Fund. In general, we were overweight in all of these sectors
relative to the benchmark, as an average of 90% of net assets was in spread
sectors. As a result, we also had an underweight position in Treasury issues
relative to the benchmark, based on our belief that Treasury securities offered
less value to investors.
During the year, this strategy did contribute to relative performance as
corporate bonds posted superior returns compared to Treasury securities.
Investment grade corporate bonds, measured by the Merrill Lynch 1 - 3 Year
Corporate Index, returned +1.56% for the 12 months ended June 30, 2004, while
Treasury securities, measured by the Merrill Lynch 1 - 3 Year Treasury Index,
returned +.50%.
What changes were made to the portfolio during the period?
As indicated above, we felt that a significant opportunity existed in the
corporate bond market, particularly in the lower-quality area of the corporate
market. Therefore, we reduced our allocation in A-rated corporates from 17% of
net assets to 12% and increased our exposure to BBB-rated securities from 23% to
28%. Most of the BBB opportunities we found were in the automobile and real
estate sectors of the market.
4 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004
As mentioned earlier, we also reduced the duration of the Fund during the year.
At the beginning of the period, the Fund's duration was neutral versus the
benchmark. We moved this range closer to 10% short versus the benchmark in
February in anticipation of rising interest rates. On July 1, 2003, the Fund had
a duration of 1.72 years, compared to a similar duration of 1.65 years for the
Merrill Lynch 1 - 3 Year Corporate and Government Bond Index. One year later, on
June 30, 2004, the Fund had a duration of 1.47 years, compared to 1.75 for the
Index.
How would you characterize the Fund's position at the close of the period?
Given our outlook for improving economic conditions, the Fund remained
positioned to take advantage of opportunities in higher-beta sectors such as
BBB-rated securities and high yield bonds that have greater sensitivity to the
overall economy. We expect that these sectors will perform well relative to U.S.
Treasury issues when the economy is expanding.
During the past year, interest rates moved below what we initially thought was
the lower end of their trading ranges, which was 4.65% for the 10-year Treasury
and 3.70% for the five-year Treasury. These moves occurred as a result of
economic releases that were weaker than consensus expectations, most notably a
disappointing employment report. Economic data suggests that U.S. gross domestic
product growth might not move to the 4.5% to 5% range that the consensus
previously was expecting, but could be a more sustainable 3.5% to 4% rate. Such
an environment should continue to exert upward pressure on Treasury yields, and
could push the yield on the 10-year Treasury to the 5% range.
We continue to believe that the prevailing economic environment will continue to
be supportive of spread sectors and, more specifically, of lower-quality spread
sectors. Therefore, we plan to continue to focus our efforts in these areas.
Given our forecast for an environment of increasing interest rates, we also plan
to continue to maintain a below-benchmark duration to help protect the portfolio
from undue interest rate risk.
As always, we will continue to closely monitor economic and market trends and
will make additional changes to the Fund's strategy, as appropriate, in our
efforts to capitalize on investment opportunities.
Patrick Maldari
Vice President and Portfolio Manager
James J. Pagano
Vice President and Portfolio Manager
July 12, 2004
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004 5
[LOGO] Merrill Lynch Investment Managers
Performance Data
About Fund Performance
Investors are able to purchase shares of the Fund through multiple pricing
alternatives:
o Class A Shares incur a maximum initial sales charge of 3% and an account
maintenance fee of 0.25% (but no distribution fee).
o Effective December 1, 2002, Class B Shares are subject to a maximum
contingent deferred sales charge of 4%, declining to 0% after six years.
All Class B Shares purchased prior to December 1, 2002 will maintain the
four-year schedule. In addition, Class B Shares are subject to a
distribution fee of 0.65% and an account maintenance fee of 0.25%. These
shares automatically convert to Class A Shares after approximately 10
years. (There is no initial sales charge for automatic share conversions.)
o Class C Shares are subject to a distribution fee of 0.65% and an account
maintenance fee of 0.25%. In addition, Class C Shares are subject to a 1%
contingent deferred sales charge if redeemed within one year of purchase.
o Class I Shares incur a maximum initial sales charge (front-end load) of 3%
and bear no ongoing distribution or account maintenance fees. Class I
Shares are available only to eligible investors.
o Class R Shares do not incur a maximum sales charge (front-end load) or
deferred sales charge. These shares are subject to a distribution fee of
0.25% and an account maintenance fee of 0.25%. Class R Shares are
available only to certain retirement plans.
The performance results depicted on pages 7 - 10 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 gain distributions, if any, at net asset value on the
payable 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 JUNE 30, 2004
Performance Data (continued)
Recent Performance Results*
10-Year/
6-Month 12-Month Since Inception Standardized
As of June 30, 2004 Total Return Total Return Total Return 30-Day Yield
====================================================================================================================================
ML Low Duration Fund Class A Shares* +0.07% +0.66% +23.88% 2.12%
- ------------------------------------------------------------------------------------------------------------------------------------
ML Low Duration Fund Class B Shares* -0.36 -0.11 +14.18 1.53
- ------------------------------------------------------------------------------------------------------------------------------------
ML Low Duration Fund Class C Shares* -0.36 -0.11 +14.01 1.53
- ------------------------------------------------------------------------------------------------------------------------------------
ML Low Duration Fund Class I Shares* +0.09 +0.81 +79.23 2.37
- ------------------------------------------------------------------------------------------------------------------------------------
ML Low Duration Fund Class R Shares* -0.16 +0.56 + 3.13 1.94
- ------------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch 1 - 3 Year Corporate & Government Index** -0.02 +0.73 +77.94/+28.86/+21.55/+3.03 --
- ------------------------------------------------------------------------------------------------------------------------------------
* 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.
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004 7
[LOGO] Merrill Lynch Investment Managers
Performance Data (continued)
Total Return Based on a $10,000 Investment--Class A Shares
A line graph depicting the growth of an investment in the Fund's Class A Shares
compared to growth of an investment in the Merrill Lynch 1-3 Year Corporate &
Government Index. Values are from September 24, 1999 through June 2004:
9/24/99** 6/00 6/01 6/02 6/03 6/04
ML Low Duration Fund+--
Class A Shares* $ 9,700 $10,070 $10,830 $11,320 $11,927 $12,006
9/30/99** 6/00 6/01 6/02 6/03 6/04
Merrill Lynch 1-3 Year Corporate
and Government Index++ $10,000 $10,365 $11,342 $12,116 $12,798 $12,891
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
** Commencement of operations.
+ The Fund invests all of its assets in Low Duration Master Portfolio of
Fund Asset Management Master Trust. The Portfolio invests in bonds of
varying maturities with a portfolio duration of one to three years.
++ This unmanaged Index is comprised of investment grade corporate bonds and
U.S. Treasury and agency securities with a maturity ranging from one year
to three years.
Past performance is not indicative of future results.
Average Annual Total Return
Return Without Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
One Year Ended 6/30/04 +0.66% -2.36%
- --------------------------------------------------------------------------------
Inception (9/24/99)
through 6/30/04 +4.59 +3.93
- --------------------------------------------------------------------------------
* Maximum sales charge is 3%.
** Assuming maximum sales charge.
8 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004
Performance Data (continued)
Total Return Based on a $10,000 Investment--Class B & Class C Shares
A line graph depicting the growth of an investment in the Fund's Class B & Class
C Shares compared to growth of an investment in the Merrill Lynch 1-3 Year
Corporate & Government Index. Values are from October 6, 2000 through June 2004:
10/06/00** 6/01 6/02 6/03 6/04
ML Low Duration Fund+--
Class B Shares* $10,000 $10,516 $10,910 $11,431 $11,118
ML Low Duration Fund+--
Class C Shares* $10,000 $10,510 $10,904 $11,414 $11,401
Merrill Lynch 1-3 Year Corporate
and Government Index++ $10,000 $10,694 $11,423 $12,067 $12,155
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
** Commencement of operations.
+ The Fund invests all of its assets in Low Duration Master Portfolio of
Fund Asset Management Master Trust. The Portfolio invests in bonds of
varying maturities with a portfolio duration of one to three years.
++ This unmanaged Index is comprised of investment grade corporate bonds and
U.S. Treasury and agency securities with a maturity ranging from one year
to three years.
Past performance is not indicative of future results.
Average Annual Total Return
Return Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
One Year Ended 6/30/04 -0.11% -4.02%
- --------------------------------------------------------------------------------
Inception (10/06/00)
through 6/30/04 +3.62 +2.88
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 4% and is reduced to 0% after
six years.
** Assuming payment of applicable contingent deferred sales charge.
Return Return
Without CDSC With CDSC**
================================================================================
Class C Shares*
================================================================================
One Year Ended 6/30/04 -0.11% -1.09%
- --------------------------------------------------------------------------------
Inception (10/06/00)
through 6/30/04 +3.58 +3.58
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 1% and is reduced to 0% after
one year.
** Assuming payment of applicable contingent deferred sales charge.
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004 9
[LOGO] Merrill Lynch Investment Managers
Performance Data (continued)
Total Return Based on a $10,000 Investment--Class I Shares
A line graph depicting the growth of an investment in the Fund's Class I Shares
compared to growth of an investment in the Merrill Lynch 1-3 Year Corporate &
Government Index. Values are from June 1994 through June 2004:
6/94 6/95 6/96 6/97 6/98
ML Low Duration Fund+--
Class I Shares* $ 9,700 $10,693 $11,494 $12,390 $13,251
Merrill Lynch 1-3 Year Corporate
and Government Index++ $10,000 $10,782 $11,378 $12,134 $12,965
6/99 6/00 6/01 6/02 6/03 6/04
ML Low Duration Fund+--
Class I Shares* $13,693 $14,431 $15,603 $16,333 $17,250 $17,389
Merrill Lynch 1-3 Year Corporate
and Government Index++ $13,635 $14,305 $15,654 $16,721 $17,663 $17,792
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
+ The Fund invests all of its assets in Low Duration Master Portfolio of
Fund Asset Management Master Trust. The Portfolio invests in bonds of
varying maturities with a portfolio duration of one to three years.
++ This unmanaged Index is comprised of investment grade corporate bonds and
U.S. Treasury and agency securities with a maturity ranging from one year
to three years.
Past performance is not indicative of future results.
Average Annual Total Return
Return Without Return With
Sales Charge Sales Charge**
================================================================================
Class I Shares*
================================================================================
One Year Ended 6/30/04 +0.81% -2.21%
- --------------------------------------------------------------------------------
Five Years Ended 6/30/04 +4.89 +4.25
- --------------------------------------------------------------------------------
Ten Years Ended 6/30/04 +6.01 +5.69
- --------------------------------------------------------------------------------
* Maximum sales charge is 3%.
** Assuming maximum sales charge.
10 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004
Performance Data (concluded)
Total Return Based on a $10,000 Investment--Class R Shares
A line graph depicting the growth of an investment in the Fund's Class R Shares
compared to growth of an investment in the Merrill Lynch 1-3 Year Corporate &
Government Index. Values are from January 3, 2003 through June 2004:
1/03/03** 6/03 6/04
ML Low Duration Fund+--
Class R Shares* $10,000 $12,255 $10,313
2/04/03 6/03 6/04
Merrill Lynch 1-3 Year Corporate
& Government Index++ $10,000 $12,228 $10,303
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
** Commencement of operations.
+ The Fund invests all of its assets in Low Duration Master Portfolio of
Fund Asset Management Master Trust. The Portfolio invests in bonds of
varying maturities with a portfolio duration of one to three years.
++ This unmanaged Index is comprised of investment grade corporate bonds and
U.S. Treasury and agency securities with a maturity ranging from one year
to three years.
Past performance is not indicative of future results.
Average Annual Total Return
Class R Shares Return
================================================================================
One Year Ended 6/30/04 +0.56%
- --------------------------------------------------------------------------------
Inception (1/03/03)
through 6/30/04 +3.13
- --------------------------------------------------------------------------------
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004 11
[LOGO] Merrill Lynch Investment Managers
Statement of Assets and Liabilities Merrill Lynch Low Duration Fund
As of June 30, 2004
=============================================================================================================================
Assets
- -----------------------------------------------------------------------------------------------------------------------------
Investment in Low Duration Master Portfolio, at value
(identified cost--$745,957,480) .................................. $ 740,023,811
Prepaid expenses .................................................. 26,900
-------------
Total assets ...................................................... 740,050,711
-------------
=============================================================================================================================
Liabilities
- -----------------------------------------------------------------------------------------------------------------------------
Payables:
Dividends to shareholders ...................................... $ 430,726
Distributor .................................................... 302,988
Other affiliates ............................................... 128,400
Administrator .................................................. 15,189 877,303
-------------
Accrued expenses .................................................. 22,254
-------------
Total liabilities ................................................. 899,557
-------------
=============================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------
Net assets ........................................................ $ 739,151,154
=============
=============================================================================================================================
Net Assets Consist of
- -----------------------------------------------------------------------------------------------------------------------------
Class A Shares of Common Stock, $.01 par value, 100,000,000
shares authorized ................................................ $ 124,014
Class B Shares of Common Stock, $.01 par value, 200,000,000
shares authorized ................................................ 129,023
Class C Shares of Common Stock, $.01 par value, 100,000,000
shares authorized ................................................ 236,083
Class I Shares of Common Stock, $.01 par value, 100,000,000
shares authorized ................................................ 236,847
Class R Shares of Common Stock, $.01 par value, 200,000,000
shares authorized ................................................ 2,353
Paid-in capital in excess of par .................................. 759,664,084
Accumulated distributions in excess of investment income--net ..... $ (120,892)
Accumulated realized capital losses on investments and foreign
currency transactions allocated from the Portfolio--net .......... (15,186,689)
Unrealized depreciation on investments allocated from the
Portfolio--net ................................................... (5,933,669)
-------------
Total accumulated losses--net ..................................... (21,241,250)
-------------
Net Assets ........................................................ $ 739,151,154
=============
=============================================================================================================================
Net Asset Value
- -----------------------------------------------------------------------------------------------------------------------------
Class A--Based on net assets of $125,950,264 and 12,401,374
shares outstanding ............................................... $ 10.16
=============
Class B--Based on net assets of $130,802,191 and 12,902,340
shares outstanding ............................................... $ 10.14
=============
Class C--Based on net assets of $239,262,807 and 23,608,299
shares outstanding ............................................... $ 10.13
=============
Class I--Based on net assets of $240,749,275 and 23,684,728
shares outstanding ............................................... $ 10.16
=============
Class R--Based on net assets of $2,386,617 and 235,295 shares
outstanding ...................................................... $ 10.14
=============
See Notes to Financial Statements.
12 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004
Statement of Operations Merrill Lynch Low Duration Fund
For the Year Ended June 30, 2004
=============================================================================================================================
Investment Income Allocated from the Portfolio--Net
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income allocated from the Portfolio:
Interest ....................................................... $ 27,602,162
Dividends ...................................................... 201,047
Securities lending--net ........................................ 21,885
Expenses ....................................................... (2,096,563)
-------------
Net investment income allocated from the Portfolio ................ 25,728,531
-------------
=============================================================================================================================
Expenses
- -----------------------------------------------------------------------------------------------------------------------------
Account maintenance and distribution fees--Class C ................ $ 2,283,227
Administration fees ............................................... 1,891,232
Account maintenance and distribution fees--Class B ................ 1,218,199
Account maintenance fees--Class A ................................. 357,294
Transfer agent fees--Class C ...................................... 282,722
Transfer agent fees--Class I ...................................... 217,334
Transfer agent fees--Class B ...................................... 156,088
Transfer agent fees--Class A ...................................... 137,999
Registration fees ................................................. 117,623
Printing and shareholder reports .................................. 53,645
Account maintenance and distribution fees--Class R ................ 7,157
Transfer agent fees--Class R ...................................... 1,462
-------------
Total expenses .................................................... 6,723,982
-------------
Investment income--net ............................................ 19,004,549
-------------
=============================================================================================================================
Realized & Unrealized Loss on Investments Allocated from the Portfolio--Net
- -----------------------------------------------------------------------------------------------------------------------------
Realized loss on investments allocated from the Portfolio--net .... (2,237,834)
Change in unrealized appreciation/depreciation on investments
allocated from the Portfolio--net ................................ (14,412,826)
-------------
Total realized and unrealized loss on investments allocated
from the Portfolio--net .......................................... (16,650,660)
-------------
Net Increase in Net Assets Resulting from Operations .............. $ 2,353,889
=============
See Notes to Financial Statements.
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004 13
[LOGO] Merrill Lynch Investment Managers
Statements of Changes in Net Assets Merrill Lynch Low Duration Fund
For the Year Ended
June 30,
-------------------------------
Increase (Decrease) in Net Assets: 2004 2003
=============================================================================================================================
Operations
- -----------------------------------------------------------------------------------------------------------------------------
Investment income--net ............................................ $ 19,004,549 $ 12,780,582
Realized gain (loss) on investments allocated from the
Portfolio--net ................................................... (2,237,834) 1,729,075
Change in unrealized appreciation/depreciation on investments
allocated from the Portfolio--net ................................ (14,412,826) 7,502,338
-------------------------------
Net increase in net assets resulting from operations .............. 2,353,889 22,011,995
-------------------------------
=============================================================================================================================
Dividends to Shareholders
- -----------------------------------------------------------------------------------------------------------------------------
Investment income--net:
Class A ........................................................ (4,000,377) (3,951,943)
Class B ........................................................ (2,888,117) (2,616,559)
Class C ........................................................ (5,423,362) (4,992,750)
Class I ........................................................ (6,749,059) (1,467,547)
Class R ........................................................ (35,048) (2)
-------------------------------
Net decrease in net assets resulting from dividends to shareholders (19,095,963) (13,028,801)
-------------------------------
=============================================================================================================================
Capital Share Transactions
- -----------------------------------------------------------------------------------------------------------------------------
Net increase in net assets derived from capital share transactions 17,705,029 405,029,497
-------------------------------
=============================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------
Total increase in net assets ...................................... 962,955 414,012,691
Beginning of year ................................................. 738,188,199 324,175,508
-------------------------------
End of year* ...................................................... $ 739,151,154 $ 738,188,199
===============================
* Accumulated distributions in excess of investment income--net $ (120,892) $ (97,547)
===============================
See Notes to Financial Statements.
14 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004
Financial Highlights Merrill Lynch Low Duration Fund
Class A
-----------------------------------------------------------------
The following per share data and ratios have been derived For the Year Ended For the Period
from information provided in the financial statements. June 30, October 6, 2000+
----------------------------------------------- to June 30,
Increase (Decrease) in Net Asset Value: 2004 2003@@ 2002@@ 2001@@
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period . $ 10.38 $ 10.16 $ 10.19 $ 10.00
-----------------------------------------------------------------
Investment income--net ............... .29++ .31++ .34++ .36
Realized and unrealized gain (loss) on
investments and foreign currency
transactions allocated from the
Portfolio--net ...................... (.22) .23 .12 .19
-----------------------------------------------------------------
Total from investment operations ..... .07 .54 .46 .55
-----------------------------------------------------------------
Less dividends and distributions:
Investment income--net ............ (.29) (.32) (.48) (.36)
Realized gain on investments
allocated from the Portfolio--net -- -- (.01) --
-----------------------------------------------------------------
Total dividends and distributions .... (.29) (.32) (.49) (.36)
-----------------------------------------------------------------
Net asset value, end of period ....... $ 10.16 $ 10.38 $ 10.16 $ 10.19
=================================================================
==================================================================================================================================
Total Investment Return**
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ... .66% 5.36% 4.53% 5.58%@
=================================================================
==================================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of waiver and
reimbursement and excluding
reorganization expenses+++ .......... .89% .95% .83% .83%*
=================================================================
Expenses+++ .......................... .89% 1.00% 1.02% 8.76%*
=================================================================
Investment income--net ............... 2.78% 3.03% 4.04% 5.75%*
=================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) ...................... $ 125,950 $ 152,780 $ 110,014 $ 268
=================================================================
Portfolio turnover of Low Duration
Master Portfolio .................... 107.13% 198.09% 70.92% 192.04%
=================================================================
* Annualized.
** Total investment returns exclude the effect 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 JUNE 30, 2004 15
[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 Year Ended For the Period
from information provided in the financial statements. June 30, October 6, 2000+
----------------------------------------------- to June 30,
Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period . $ 10.37 $ 10.14 $ 10.18 $ 10.00
-----------------------------------------------------------------
Investment income--net ............... .22++ .24++ .37++ .33
Realized and unrealized gain (loss) on
investments and foreign currency
transactions allocated from the
Portfolio--net ...................... (.23) .24 .01 .18
-----------------------------------------------------------------
Total from investment operations ..... (.01) .48 .38 .51
-----------------------------------------------------------------
Less dividends and distributions:
Investment income--net ............ (.22) (.25) (.41) (.33)
Realized gain on investments
allocated from the Portfolio--net -- -- (.01) --
-----------------------------------------------------------------
Total dividends and distributions .... (.22) (.25) (.42) (.33)
-----------------------------------------------------------------
Net asset value, end of period ....... $ 10.14 $ 10.37 $ 10.14 $ 10.18
=================================================================
==================================================================================================================================
Total Investment Return**
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ... (.11%) 4.77% 3.75% 5.16%@
=================================================================
==================================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of waiver and
reimbursement and excluding
reorganization expenses+++ .......... 1.56% 1.61% 1.48% 1.48%*
=================================================================
Expenses+++ .......................... 1.56% 1.66% 1.70% 9.41%*
=================================================================
Investment income--net ............... 2.12% 2.36% 3.75% 5.10%*
=================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) ...................... $ 130,802 $ 139,688 $ 64,457 $ 5,016
=================================================================
Portfolio turnover of Low Duration
Master Portfolio .................... 107.13% 198.09% 70.92% 192.04%
=================================================================
* Annualized.
** Total investment returns exclude the effect 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.
16 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004
Financial Highlights (continued) Merrill Lynch Low Duration Fund
Class C
-----------------------------------------------------------------
The following per share data and ratios have been derived For the Year Ended For the Period
from information provided in the financial statements. June 30, October 6, 2000+
----------------------------------------------- to June 30,
Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period . $ 10.36 $ 10.14 $ 10.18 $ 10.00
-----------------------------------------------------------------
Investment income--net ............... .22++ .24++ .35++ .32
Realized and unrealized gain (loss) on
investments and foreign currency
transactions allocated from the
Portfolio--net ...................... (.23) .23 .03 .18
-----------------------------------------------------------------
Total from investment operations ..... (.01) .47 .38 .50
-----------------------------------------------------------------
Less dividends and distributions:
Investment income--net ............ (.22) (.25) (.41) (.32)
Realized gain on investments
allocated from the Portfolio--net -- -- (.01) --
-----------------------------------------------------------------
Total dividends and distributions .... (.22) (.25) (.42) (.32)
-----------------------------------------------------------------
Net asset value, end of period ....... $ 10.13 $ 10.36 $ 10.14 $ 10.18
=================================================================
==================================================================================================================================
Total Investment Return**
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ... (.11%) 4.68% 3.75% 5.10%@
==================================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of waiver and
reimbursement and excluding
reorganization expenses+++ .......... 1.56% 1.61% 1.48% 1.48%*
=================================================================
Expenses+++ .......................... 1.56% 1.66% 1.68% 9.41%*
=================================================================
Investment income--net ............... 2.12% 2.37% 3.62% 5.10%*
=================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) ...................... $ 239,263 $ 263,066 $ 126,380 $ 4,754
=================================================================
Portfolio turnover of Low Duration
Master Portfolio .................... 107.13% 198.09% 70.92% 192.04%
=================================================================
* Annualized.
** Total investment returns exclude the effect 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 JUNE 30, 2004 17
[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 Year Ended For the Period
from information provided in the financial statements. June 30, October 6, 2000+
----------------------------------------------- to June 30,
Increase (Decrease) in Net Asset Value: 2004 2003@@ 2002@@ 2001@@
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period . $ 10.39 $ 10.17 $ 10.21 $ 10.00
-----------------------------------------------------------------
Investment income--net ............... .31++ .31++ .45++ .40
Realized and unrealized gain (loss) on
investments and foreign currency
transactions allocated from the
Portfolio--net ...................... (.23) .25 .02 .19
-----------------------------------------------------------------
Total from investment operations ..... .08 .56 .47 .59
-----------------------------------------------------------------
Less dividends and distributions:
Investment income--net ............ (.31) (.34) (.50) (.38)
Realized gain on investments
allocated from the Portfolio--net -- -- (.01) --
-----------------------------------------------------------------
Total dividends and distributions .... (.31) (.34) (.51) (.38)
-----------------------------------------------------------------
Net asset value, end of period ....... $ 10.16 $ 10.39 $ 10.17 $ 10.21
=================================================================
==================================================================================================================================
Total Investment Return**
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ... .81% 5.61% 4.68% 5.95%@
=================================================================
==================================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of waiver and
reimbursement and excluding
reorganization expenses+++ .......... .65% .70% .58% .58%*
=================================================================
Expenses+++ .......................... .65% .75% .78% 8.51%*
=================================================================
Investment income--net ............... 3.00% 3.29% 4.51% 6.00%*
=================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) ...................... $ 240,749 $ 182,654 $ 23,325 $ 1,156
=================================================================
Portfolio turnover of Low Duration
Master Portfolio .................... 107.13% 198.09% 70.92% 192.04%
=================================================================
* Annualized.
** Total investment returns exclude the effect 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.
18 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004
Financial Highlights (concluded) Merrill Lynch Low Duration Fund
Class R
-----------------------------
The following per share data and ratios have been derived For the For the Period
from information provided in the financial statements. Year Ended January 3, 2003+
June 30, to June 30,
Increase (Decrease) in Net Asset Value: 2004 2003
==============================================================================================================
Per Share Operating Performance
- --------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period .............. $ 10.37 $ 10.29
----------------------------
Investment income--net@ ........................... .17 .18
Realized and unrealized gain (loss) on
investments allocated from the Portfolio--net .... (.11) .08
----------------------------
Total from investment operations .................. .06 .26
----------------------------
Less dividends from investment income--net ........ (.29) (.18)
----------------------------
Net asset value, end of period .................... $ 10.14 $ 10.37
============================
==============================================================================================================
Total Investment Return**
- --------------------------------------------------------------------------------------------------------------
Based on net asset value per share ................ .56% 2.55%++
============================
==============================================================================================================
Ratios to Average Net Assets
- --------------------------------------------------------------------------------------------------------------
Expenses, excluding reorganization expenses+++ .... 1.16% 1.19%*
============================
Expenses+++ ....................................... 1.16% 1.28%*
============================
Investment income--net ............................ 2.42% 2.74%*
============================
==============================================================================================================
Supplemental Data
- --------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) .......... $ 2,387 --@@
============================
Portfolio turnover of Low Duration Master Portfolio 107.13% 198.09%
============================
* Annualized.
** Total investment returns exclude the effect 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 JUNE 30, 2004 19
[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.
The percentage of the Portfolio owned by the Fund at June 30, 2004 was 100%. The
Fund's financial statements are prepared in conformity with U.S. generally
accepted accounting principles, which may require the use of management accruals
and estimates. Actual results may differ from these estimates. The 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.
(g) Reclassifications -- U.S. generally accepted accounting principles require
that certain components of net assets be adjusted to reflect permanent
differences between financial and tax reporting. Accordingly, during the current
year, $131,784 has been reclassified between accumulated realized capital losses
on investments and accumulated distributions in excess of investment income and
$63,715 has been reclassified between accumulated distributions in excess of
investment income and paid-in capital in excess of par as a result of permanent
differences attributable to swap transactions and non-deductible expenses. These
reclassifications have no effect on net assets or net asset values per share.
2. Transactions with Affiliates:
The Company has entered into an Administration Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), a wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."),
which is the limited partner. The Fund pays a monthly fee at an annual rate of
..25% of the Fund's average daily net assets for the performance of
administrative services (other than investment advice and related portfolio
activities) necessary for the operation of the Fund.
The Company has also entered into a Distribution Agreement and Distributions
Plans with FAM Distributors, Inc. ("FAMD" or the "Distributor"), an indirect,
wholly-owned subsidiary of Merrill Lynch Group, Inc.
20 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004
Notes to Financial Statements (continued) Merrill Lynch Low Duration Fund
Pursuant to the Distribution Plans adopted by the Company in accordance with
Rule 12b-1 under the Investment Company Act of 1940, the Fund pays the
Distributor ongoing account maintenance and distribution fees. The fees are
accrued daily and paid monthly at annual rates based upon the average daily net
assets of the shares as follows:
- --------------------------------------------------------------------------------
Account Distribution
Maintenance Fee Fee
- --------------------------------------------------------------------------------
Class A .......................... .25% --
Class B .......................... .25% .65%
Class C .......................... .25% .65%
Class R .......................... .25% .25%
- --------------------------------------------------------------------------------
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("MLPF&S"), a subsidiary of ML & Co., also provides account
maintenance and distribution services to the Fund. The ongoing account
maintenance fee compensates the Distributor and MLPF&S for providing account
maintenance services to Class A, Class B, Class C and Class R shareholders. The
ongoing distribution fee compensates the Distributor and MLPF&S for providing
shareholder and distribution-related services to Class B, Class C and Class R
shareholders.
For the year ended June 30, 2004, FAMD earned underwriting discounts and direct
commissions and MLPF&S earned dealer concessions on sales of the Fund's Class A
Shares and Class I as follows:
- --------------------------------------------------------------------------------
FAMD MLPF&S
- --------------------------------------------------------------------------------
Class A .......................... $18,785 $96,205
Class I .......................... $21,360 $ 805
- --------------------------------------------------------------------------------
For the year ended June 30, 2004, MLPF&S received contingent deferred sales
charges of $374,992 and $236,445 relating to transactions in Class B and Class C
Shares, respectively. Furthermore, MLPF&S received contingent deferred sales
charges of $137,258 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
$17,705,029 and $405,029,497 for the years ended June 30, 2004 and June 30,
2003, respectively.
Transactions in capital shares for each class were as follows:
- --------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended June 30, 2004 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 6,751,453 $ 69,487,712
Automatic conversion of shares ......... 198,530 2,041,041
Shares issued to shareholders in
reinvestment of dividends ........... 188,339 1,934,770
-------------------------------
Total issued ........................... 7,138,322 73,463,523
Shares redeemed ........................ (9,449,863) (97,055,497)
-------------------------------
Net decrease ........................... (2,311,541) $ (23,591,974)
===============================
- --------------------------------------------------------------------------------
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
===============================
- --------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended June 30, 2004 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 4,428,310 $ 45,418,908
Shares issued to shareholders in
reinvestment of dividends ........... 174,633 1,791,016
-------------------------------
Total issued ........................... 4,602,943 47,209,924
Automatic conversion of shares ......... (198,908) (2,041,041)
Shares redeemed ........................ (4,977,663) (51,045,687)
-------------------------------
Net decrease ........................... (573,628) $ (5,876,804)
===============================
- --------------------------------------------------------------------------------
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 Year Dollar
Ended June 30, 2004 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 8,767,567 $ 89,913,446
Shares issued to shareholders in
reinvestment of dividends ........... 365,930 3,751,864
-------------------------------
Total issued ........................... 9,133,497 93,665,310
Shares redeemed ........................ (10,910,203) (111,867,835)
-------------------------------
Net decrease ........................... (1,776,706) $ (18,202,525)
===============================
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004 21
[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 Year Dollar
Ended June 30, 2004 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 15,956,616 $ 164,260,583
Shares issued to shareholders in
reinvestment of dividends ........... 514,339 5,286,505
-------------------------------
Total issued ........................... 16,470,955 169,547,088
Shares redeemed ........................ (10,359,777) (106,588,614)
-------------------------------
Net increase ........................... 6,111,178 $ 62,958,474
===============================
- --------------------------------------------------------------------------------
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
===============================
- --------------------------------------------------------------------------------
Class R Shares for the Year Dollar
Ended June 30, 2004 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 354,789 $ 3,644,203
Shares issued to shareholders in
reinvestment of dividends ........... 3,279 33,588
-------------------------------
Total issued ........................... 358,068 3,677,791
Shares redeemed ........................ (122,783) (1,259,933)
-------------------------------
Net increase ........................... 235,285 $ 2,417,858
===============================
- --------------------------------------------------------------------------------
Class R Shares for the Period Dollar
January 3, 2003+ to June 30, 2003 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 9 $ 100
Shares issued to shareholders in
reinvestment of dividends ........... 1 4
-------------------------------
Net increase ........................... 10 $ 104
===============================
+ Commencement of operations.
4. Distributions to Shareholders:
The tax character of distributions paid during the fiscal years ended June 30,
2004 and June 30, 2003 was as follows:
- --------------------------------------------------------------------------------
6/30/2004 6/30/2003
- --------------------------------------------------------------------------------
Distributions paid from:
Ordinary income ....................... $19,095,963 $13,028,801
------------------------------
Total taxable distributions .............. $19,095,963 $13,028,801
==============================
As of June 30, 2004, the components of accumulated losses on a tax basis were as
follows:
- --------------------------------------------------------------------------------
Undistributed ordinary income--net ...................... $ --
Undistributed long-term capital gains--net .............. --
------------
Total undistributed earnings--net ....................... --
Capital loss carryforward ............................... (13,013,037)*
Unrealized losses--net .................................. (8,228,213)**
------------
Total accumulated losses--net ........................... $(21,241,250)
============
* On June 30, 2004, the Fund had a net capital loss carryforward of
$13,013,037, of which $2,721,252 expires in 2007, $6,549,324 expires in
2008, $1,140,537 expires in 2009, $971,617 expires in 2011 and $1,630,307
expires in 2012. This amount will be available to offset like amounts of
any future taxable gains.
** The difference between book-basis and tax-basis net unrealized losses is
attributable primarily to distributions applicable to 2004 for tax
purposes, the tax deferral of losses on wash sales, the tax deferral of
losses on straddles, the realization for tax purposes of unrealized losses
on certain futures contracts and the deferral of post-October capital
losses for tax purposes.
22 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004
Report of Independent Registered Public Accounting Firm
Merrill Lynch Low Duration Fund
To the Board of Directors of Merrill Lynch Investment Managers Funds, Inc. and
Shareholders of Merrill Lynch Low Duration Fund:
We have audited the accompanying statement of assets and liabilities of Merrill
Lynch Low Duration Fund as of June 30, 2004, the related statement of operations
for the year then ended, the statements of changes in net assets for each of the
two years in the period then ended, and the financial highlights for each of the
periods indicated therein. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and financial highlights. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Merrill Lynch Low Duration Fund at June 30, 2004, and the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the indicated periods in conformity with U.S. generally accepted accounting
principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
August 16, 2004
Important Tax Information (unaudited)
Of the ordinary income distributions paid monthly by Merrill Lynch Low Duration
Fund during the taxable year ended June 30, 2004, 2.64% was attributable to
federal obligations.
The law varies in each state as to whether and what percentage of dividend
income attributable to federal obligations is exempt from state income tax. We
recommend that you consult your tax adviser to determine if any portion of the
dividends you received is exempt from state income taxes.
Please retain this information for your records.
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004 23
[LOGO] Merrill Lynch Investment Managers
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 $ 2,656 Advanta Mortgage Loan Trust, Series 1998-2, Class A17,
6.05% due 9/25/2018 $ 2,659
AAA Aaa 1,934,728 CIT Equipment Collateral, Series 2002-VT1, Class A3,
4.03% due 1/20/2006 1,949,756
AAA Aaa 5,845,771 CIT Group Home Equity Loan Trust, Series 2003-1, Class
A2, 2.35% due 4/20/2027 5,837,942
California Infrastructure, Series 1997-1:
AAA Aaa 1,430,398 PG&E-1, Class A7, 6.42% due 9/25/2008 1,492,666
AAA Aaa 1,199,399 SCE-1, Class A6, 6.38% due 9/25/2008 1,253,115
AAA Aaa 4,100,000 Capital One Auto Finance Trust, Series 2003-A, Class A4A,
2.47% due 1/15/2010 3,999,912
NR* NR* 7,000,000 Capital One Master Trust, Series 2000-4, Class C, 2.039%
due 8/15/2008 (a)(c) 7,013,125
BBB Baa2 6,600,000 Chase Credit Card Master Trust, Series 2003-1, Class C,
2.339% due 4/15/2008 (a) 6,667,265
Chase Funding Mortgage Loan Asset-Backed Certificates:
AAA NR* 4,172,074 Series 1999-4, Class IA6, 7.407% due 9/25/2011 4,365,379
AAA Aaa 3,061,505 Series 2002-3, Class 1A3, 3.55% due 3/25/2022 3,068,922
Chase Manhattan Auto Owner Trust:
A A2 3,447,942 Series 2002-B, 4.24% due 1/15/2009 3,499,081
A A2 2,150,000 Series 2003-A, 2.04% due 12/15/2009 2,112,332
AAA Aaa 452,894 CityScape Home Equity Loan Trust, Series 1996-4, Class
A10, 7.40% due 9/25/2027 (c) 452,485
AAA Aaa 163,374 Countrywide Home Equity Loan Trust, Series 1999-A, 1.559%
due 4/15/2025 (a) 163,452
Countrywide Home Loans, Inc.:
AAA NR* 383,063 Series 2002-32, Class 1A1, 6% due 11/25/2032 382,677
AAA Aaa 5,283,778 Series 2003-R4, Class 1A1A, 2.216% due 7/25/2019 5,252,852
AAA Aaa 5,000,000 DaimlerChrysler Auto Trust, Series 2001-D, Class A4,
3.78% due 2/06/2007 5,056,136
First Franklin Mortgage Loan Trust (a):
AAA Aaa 6,934,457 Series 2002-FF4, Class 2A2, 2.80% due 2/25/2033 6,968,025
AAA Aaa 7,898,702 Series 2003-FF5, Class A2, 2.82% due 3/25/2034 7,965,030
BBB Baa2 8,500,000 First National Master Note Trust, Series 2003-2, Class C,
3.70% due 4/15/2009 8,502,451
AAA Aaa 7,300,000 GMAC Mortgage Corporation Loan Trust, Series 2003-HE2,
Class A2, 3.14% due 6/25/2025 7,307,255
AAA Aaa 1,837,315 Harley-Davidson Motorcycle Trust, Series 2001-2, Class
A2, 4.72% due 6/15/2009 1,872,661
AAA Aaa 3,189,918 IKON Receivables LLC, Series 2003-1, Class A3B, 2.33%
due 12/15/2007 3,190,177
AAA Aaa 335,764 John Deere Owner Trust, Series 2001-A, Class A3, 3.26%
due 10/17/2005 336,261
AAA Aaa 1,725,911 M & I Auto Loan Trust, Series 2001-1, Class A4, 4.97%
due 3/20/2007 1,748,767
MBNA Credit Card Master Note Trust:
BBB Baa2 4,100,000 Series 2001-C3, Class C3, 6.55% due 12/15/2008 4,325,443
BBB Baa2 7,000,000 Series 2002-C5, Class C5, 4.05% due 1/15/2008 7,090,677
AAA Aaa 1,957,712 PSE&G Transition Funding LLC, Series 2001-1, Class A2,
5.74% due 3/15/2007 1,991,969
AAA Aaa 1,965,701 Residential Asset Securities Corporation, Series
2002-KS8, Class A2, 3.04% due 5/25/2023 1,965,864
AAA Aaa 25,342 USAA Auto Owner Trust, Series 2001-2, Class A3, 3.20%
due 2/15/2006 25,342
WFS Financial Owner Trust, Class B:
AA Aa2 1,705,509 Series 2003-2, 2.48% due 12/20/2010 1,700,797
AA Aa2 8,500,000 Series 2003-4, 2.73% due 5/20/2011 8,464,103
A Aa3 1,125,913 Whole Auto Loan Trust, Series 2002-1, Class B, 2.91%
due 4/15/2009 1,129,304
----------------------------------------------------------------------------------------------------------
Total Asset-Backed Securities (Cost--$117,247,586)--15.8% 117,153,882
==========================================================================================================
Government & Agency Obligations
====================================================================================================================================
AAA Aaa 17,500,000 Federal Home Loan Mortgage Corporation, 1.75%
due 8/15/2005 17,384,167
AAA Aaa 17,500,000 Federal National Mortgage Association, 1.875%
due 9/15/2005 17,387,510
U.S. Treasury Notes:
AAA Aaa 4,303,000 1.875% due 9/30/2004 (b) 4,308,379
AAA Aaa 4,530,000 7% due 7/15/2006 4,908,151
AAA Aaa 2,900,000 2.625% due 5/15/2008 2,809,036
----------------------------------------------------------------------------------------------------------
Total Government & Agency Obligations
(Cost--$47,253,814)--6.3% 46,797,243
==========================================================================================================
24 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004
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
====================================================================================================================================
Federal Home Loan Mortgage Corporation:
AAA Aaa $ 2,870,096 2.182% due 9/27/2007 $ 2,867,142
AAA Aaa 11,389,955 2.75% due 7/15/2018 10,661,296
AAA Aaa 5,916,982 3.25% due 12/15/2013 5,754,014
AAA Aaa 6,496,250 4% due 3/15/2014 6,295,983
AAA Aaa 9,119,314 4% due 12/15/2022 9,066,370
AAA Aaa 35,583,000 5% due 7/15/2019 35,594,102
AAA Aaa 12,177,177 6% due 5/01/2016--6/01/2017 12,708,679
AAA Aaa 3,105,265 6.50% due 8/01/2016--2/01/2017 3,280,975
Federal National Mortgage Association:
AAA Aaa 5,522,852 2.01% due 11/25/2033 5,492,423
AAA Aaa 8,210,491 3.50% due 11/25/2017 7,986,348
AAA Aaa 6,248,648 4% due 3/25/2017 6,119,566
AAA Aaa 8,500,000 4.50% due 11/25/2025 8,333,663
AAA Aaa 1,917,761 5% due 3/25/2018 1,910,298
AAA Aaa 1,181,839 6.50% due 8/01/2032--9/01/2032 1,231,900
AAA Aaa 13,302,773 8% due 7/01/2027--11/01/2032 14,441,088
Government National Mortgage Association:
AAA Aaa 144,187,444 2.349% due 11/16/2007 (a)(d) 4,526,044
AAA Aaa 5,125,754 2.848% due 6/16/2018 5,045,687
AAA Aaa 4,440,831 3.313% due 4/16/2017 4,404,163
----------------------------------------------------------------------------------------------------------
Total Government Agency Mortgage-Backed Securities
(Cost--$147,076,162)--19.7% 145,719,741
==========================================================================================================
Non-Government Agency Mortgage-Backed Securities++
====================================================================================================================================
Collateralized Mortgage NR* Aaa 178,607 BlackRock Capital Finance LP, Series 1997-R2, Class AP,
Obligations--4.5% 8.448% due 12/25/2035 (a)(c) 182,179
NR* NR* 36,980 Housing Securities Inc., Series 1994-2, Class B1, 6.50%
due 7/25/2009 32,595
NR* Aaa 657,373 Ocwen Residential MBS Corporation, Series 1998-R2, Class
AP, 6.898% due 11/25/2034 (a)(c) 650,800
AAA NR* 833,670 PNC Mortgage Securities Corp., Series 1999-4, Class 1A5,
6.20% due 6/25/2029 837,027
AAA Aaa 5,000,000 Permanent Financing PLC, Series 1, Class 2A, 4.20%
due 6/10/2007 5,075,651
NR* Aaa 62,527 Salomon Brothers Mortgage Securities VI, Series 1986-1,
Class A, 6% due 12/25/2011 62,450
AAA Aaa 2,767,173 Structured Asset Securities Corporation, Series 2002-19,
Class A1, 4.20% due 10/25/2032 2,777,742
Structured Mortgage Asset Residential Trust:
AAA Aaa 7,247 Series 1991-1, Class H, 8.25% due 6/25/2022 7,660
AAA Aaa 6,345 Series 1992-3A, Class AA, 8% due 10/25/2007 6,594
NR* NR* 155,268 Walsh Acceptance, Series 1997-2, Class A, 2.30%
due 3/01/2027 (a)(c) 81,516
Washington Mutual, Inc. (a):
BB NR* 526,598 Series 2000-1, Class B1, 5.30% due 1/25/2040 (c) 522,072
AAA Aaa 23,660,809 Series 2004-AR3, Class A1, 3.92% due 6/25/2034 23,390,482
-------------
33,626,768
====================================================================================================================================
Commercial AAA Aaa 2,215,814 Banc of America Commercial Mortgage Inc., Series 2000-1,
Mortgage-Backed Class A1A, 7.109% due 11/15/2008 2,380,880
Securities--3.9% NR* Aaa 7,074,790 Banc of America Mortgage Securities, Series 2003-J, Class
2A1, 4.181% due 11/25/2033 (a) 7,055,103
AAA Aaa 1,515,941 CS First Boston Mortgage Securities Corp., Series
2001-CK6, Class A1, 4.393% due 7/15/2006 1,534,085
NR* Aaa 952,468 First Union NB--Bank of America Commercial Mortgage
Trust, Series 2001-C1, Class A1, 5.711% due 3/15/2033 992,416
AAA NR* 1,898,588 GS Mortgage Securities Corporation II, Series 1998-C1,
Class A1, 6.06% due 10/18/2030 1,945,576
AAA Aaa 8,300,000 Greenwich Capital Commercial Funding Corporation, Series
2004-GG1, Class A2, 3.835% due 6/10/2036 8,266,954
AAA NR* 2,036,465 Nomura Asset Securities Corporation, Series 1995-MD3,
Class A1B, 8.15% due 3/04/2020 2,089,692
AAA Aaa 4,329,078 Saxon Asset Securities Trust, Series 2002-3, Class AV,
1.70% due 12/25/2032 (a) 4,338,409
-------------
28,603,115
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004 25
[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 Non-Government Agency Mortgage-Backed Securities++ Value
====================================================================================================================================
Stripped AAA Aaa $ 86,381,527 CS First Boston Mortgage Securities Corp., Series
Mortgage-Backed 2003-CPN1, Class ASP, 1.584% due 3/15/2035 (a)(d) $ 5,582,933
Securities--1.9% AAA Aaa 35,000,000 Greenwich Capital Commercial Funding Corporation, Series
2002-C1, Class XP, 2.059% due 1/11/2035 (a)(d) 3,063,641
AAA NR* 85,000,000 LB-UBS Commercial Mortgage Trust, Series 2002-C4, Class
XCP, 1.475% due 10/15/2035 (a)(d) 5,196,501
-------------
13,843,075
----------------------------------------------------------------------------------------------------------
Total Non-Government Agency Mortgage-Backed Securities
(Cost--$76,867,447)--10.3% 76,072,958
==========================================================================================================
Industry@ Corporate Bonds & Notes
====================================================================================================================================
Aerospace & BBB- Baa3 1,250,000 Goodrich Corporation, 6.45% due 4/15/2008 1,338,492
Defense--0.5% AAA Aaa 2,156,594 Systems 2001 Asset Trust, 6.664% due 9/15/2013 (c) 2,325,823
-------------
3,664,315
====================================================================================================================================
Building BB+ Ba1 2,500,000 D.R. Horton, Inc., 7.50% due 12/01/2007 2,700,000
Products--0.4%
====================================================================================================================================
Cable--U.S.--1.2% BBB Baa3 1,440,000 Comcast Cable Communications, Inc., 6.375% due 1/30/2006 1,507,748
BB- Ba3 2,600,000 EchoStar DBS Corporation, 4.36% due 10/01/2008 (a) 2,707,250
BBB Baa3 4,500,000 TCI Communications Inc., 8.35% due 2/15/2005 4,666,433
-------------
8,881,431
====================================================================================================================================
Canadian BB Ba2 1,700,000 Abitibi-Consolidated Inc., 6.95% due 12/15/2006 (2) 1,742,281
Corporates**--0.2%
====================================================================================================================================
Containers--0.4% BBB Baa3 2,885,000 Sealed Air Corporation, 5.375% due 4/15/2008 2,983,485
====================================================================================================================================
Finance--2.3% Household Finance Corporation:
A A1 500,000 6.50% due 1/24/2006 527,027
A A1 2,085,000 6.50% due 11/15/2008 2,252,747
A A1 3,500,000 4.125% due 12/15/2008 3,450,016
Sigma Finance Incorporated:
AAA Aaa 5,500,000 1.12% due 8/15/2011 5,500,000
AAA Aaa 2,700,000 2.38% due 3/31/2014 (a) 2,698,750
A- A3 2,745,000 Textron Financial Corporation, 2.75% due 6/01/2006 2,721,602
-------------
17,150,142
====================================================================================================================================
Finance-- A+ Aa2 5,000,000 Bank of America Corporation, 4.75% due 10/15/2006 5,161,025
Banks--3.5% BBB- Baa2 1,310,000 Capital One Bank, 4.875% due 5/15/2008 1,324,086
BB+ Baa3 2,680,000 FirstBank Puerto Rico, 7.625% due 12/20/2005 2,807,257
FleetBoston Financial Corporation:
A+ Aa2 1,000,000 7.25% due 9/15/2005 1,053,790
A+ Aa2 4,500,000 3.85% due 2/15/2008 4,482,405
A+ A1 1,500,000 Mellon Bank, NA, 7% due 3/15/2006 1,609,392
BBB+ A3 670,000 Popular North America, Inc., 3.875% due 10/01/2008 655,924
A+ Aa3 5,000,000 U.S. Bancorp, 6.875% due 12/01/2004 5,100,260
A- A3 825,000 Washington Mutual, Inc., 5.625% due 1/15/2007 863,055
AA- Aa1 3,050,000 Wells Fargo & Company, 6.625% due 7/15/2004 3,053,941
-------------
26,111,135
====================================================================================================================================
Finance-- AA- Aa1 5,000,000 Associates Corporation of North America, 6% due 7/15/2005 5,170,990
Other--12.2% A A1 2,400,000 The Bear Stearns Companies Inc., 7.80% due 8/15/2007 2,676,382
A A3 1,125,000 Boeing Capital Corporation, 7.10% due 9/27/2005 1,187,990
A- A3 1,600,000 Conoco Funding Company, 5.45% due 10/15/2006 1,674,774
A A3 4,650,000 Countrywide Home Loans, Inc., 4.25% due 12/19/2007 4,696,212
A+ Aa3 3,000,000 Credit Suisse First Boston (USA) Inc., 4.70%
due 6/01/2009 3,008,811
BBB+ Baa2 4,500,000 Deutsche Telekom International Finance BV, 8.25%
due 6/15/2005 4,731,421
Ford Motor Credit Company:
BBB- A3 2,000,000 7.50% due 3/15/2005 2,066,620
BBB- A3 5,500,000 2.036% due 6/30/2005 (a) 5,495,715
26 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004
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 Ford Motor Credit Company (concluded):
(concluded) BBB- A3 $ 5,250,000 7.60% due 8/01/2005 $ 5,496,036
BBB- A3 4,000,000 6.875% due 2/01/2006 4,195,588
BBB- A3 6,000,000 6.50% due 1/25/2007 6,304,362
BBB- A3 2,500,000 7.75% due 2/15/2007 2,694,835
General Motors Acceptance Corporation:
BBB A3 5,750,000 7.50% due 7/15/2005 6,006,542
BBB A3 9,750,000 6.125% due 8/28/2007 10,173,706
A+ A1 1,450,000 Golden West Financial Corporation, 5.50% due 8/08/2006 1,521,717
The Goldman Sachs Group, Inc.:
A+ Aa3 2,000,000 7.50% due 1/28/2005 2,059,016
A+ Aa3 2,220,000 4.125% due 1/15/2008 2,226,724
AA- A1 1,900,000 International Lease Finance Corporation, 2.95%
due 5/23/2006 1,887,428
A+ Aa3 2,970,000 J.P. Morgan Chase & Co., 5.25% due 5/30/2007 3,099,712
BBB Baa2 3,060,000 MBNA Corporation, 5.625% due 11/30/2007 3,197,501
A+ Aa3 2,500,000 Morgan Stanley, 7.75% due 6/15/2005 2,621,825
A+ A1 3,400,000 Natural Rural Utilities Cooperative Finance Corporation,
3.25% due 10/01/2007 3,332,881
Pemex Finance Ltd.:
A- Baa1 36,000 9.14% due 8/15/2004 36,019
A- Baa1 1,792,083 8.45% due 2/15/2007 1,919,070
A- A3 500,000 Prudential Financial, Inc., 3.75% due 5/01/2008 492,744
A+ A2 2,250,000 Verizon Global Funding Corporation, 6.75% due 12/01/2005 2,371,405
-------------
90,346,026
====================================================================================================================================
Gaming--0.1% BB+ Ba2 915,000 Mandalay Resort Group, 6.45% due 2/01/2006 940,163
====================================================================================================================================
Industrial--Consumer A A2 1,250,000 Brown-Forman Corporation, 3% due 3/15/2008 1,207,989
Goods--1.2% BBB Baa2 1,200,000 ConAgra Foods, Inc., 7.40% due 9/15/2004 1,211,714
A A2 2,975,000 Fortune Brands, Inc., 2.875% due 12/01/2006 2,943,602
AA Aa2 3,350,000 GlaxoSmithKline Capital PLC, 2.375% due 4/16/2007 3,257,419
-------------
8,620,724
====================================================================================================================================
Industrial-- BBB Baa2 3,000,000 DTE Energy Company, 2.324% due 6/01/2007 (a) 2,996,250
Energy--1.3% BBB Baa2 2,960,000 Halliburton Company, 1.92% due 1/26/2007 (a)(c) 2,957,141
BBB Baa3 3,400,000 Panhandle Eastern Pipe Line Company, LLC, 2.75%
due 3/15/2007 3,262,630
-------------
9,216,021
====================================================================================================================================
Industrial-- DaimlerChrysler NA Holding Corporation:
Manufacturing--2.6% BBB A3 4,200,000 3.40% due 12/15/2004 4,211,474
BBB A3 1,200,000 6.40% due 5/15/2006 1,262,995
BBB- Baa3 4,245,000 Lear Corporation, 7.96% due 5/15/2005 4,426,351
BBB Baa3 2,000,000 Northrop Grumman Corporation, 8.625% due 10/15/2004 2,036,300
BBB- Baa3 915,000 Raytheon Company, 6.50% due 7/15/2005 947,159
BBB- Baa2 3,000,000 Staples, Inc., 7.125% due 8/15/2007 3,274,317
NR* Ba1 360,000 The Timken Company, 6.75% due 8/21/2006 375,607
BBB Baa3 3,000,000 Tyco International Group SA, 6.375% due 2/15/2006 3,149,718
-------------
19,683,921
====================================================================================================================================
Industrial-- Cendant Corporation:
Services--3.3% BBB Baa1 1,100,000 6.875% due 8/15/2006 1,175,352
BBB Baa1 3,300,000 4.89% due 8/17/2006 3,346,134
BBB+ Baa2 1,350,000 Fiserv, Inc., 4% due 4/15/2008 1,339,577
BBB- Ba1 4,000,000 HCA Inc., 7.125% due 6/01/2006 4,225,368
BBB- Baa3 1,000,000 InterActiveCorp, 6.75% due 11/15/2005 1,039,210
BBB- Baa3 6,800,000 Liberty Media Corporation, 3.02% due 9/17/2006 (a) 6,926,004
BBB Ba1 2,500,000 Manor Care, Inc., 7.50% due 6/15/2006 2,662,500
BBB- Baa3 1,250,000 News America Incorporated, 6.75% due 1/09/2038 1,366,691
BBB+ Baa1 1,100,000 PHH Corporation, 6% due 3/01/2008 1,162,176
BBB+ Baa1 1,000,000 Time Warner Inc., 5.625% due 5/01/2005 1,024,492
-------------
24,267,504
====================================================================================================================================
Industrial-- AAA Aaa 869,487 American Airlines, Inc., 3.857% due 7/09/2010 839,805
Transportation--0.4% BBB Baa2 2,000,000 CSX Corporation, 6.46% due 6/22/2005 2,066,278
-------------
2,906,083
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004 27
[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
====================================================================================================================================
Insurance--1.3% A- Baa2 $ 1,570,000 Aon Corporation, 6.70% due 1/15/2007 $ 1,677,716
A- A3 2,000,000 The Hartford Financial Services Group, Inc., 4.70%
due 9/01/2007 2,049,506
A+ A2 3,500,000 Marsh & McLennan Companies, Inc., 3.625% due 2/15/2008 3,452,043
A A2 2,300,000 MetLife, Inc., 3.911% due 5/15/2005 2,330,638
AA Aa3 385,000 Monumental Global Funding II, 3.85% due 3/03/2008 (c) 384,116
-------------
9,894,019
====================================================================================================================================
Leisure--0.5% A- A3 3,500,000 Carnival Corporation, 3.75% due 11/15/2007 3,460,411
====================================================================================================================================
Paper--0.4% BB+ Ba2 2,800,000 Boise Cascade Corporation, 7.66% due 5/27/2005 2,891,000
====================================================================================================================================
Real Estate Investment BBB Baa3 5,000,000 Developers Diversified Realty Corporation, 6.95%
Trust--3.5% due 7/23/2004 5,012,205
BBB+ Baa1 950,000 Duke Realty Limited Partnership, 6.875% due 3/15/2005 978,626
BBB- Baa3 4,000,000 IRT Property Company, 7.77% due 4/01/2006 4,279,264
Nationwide Health Properties, Inc.:
BBB- Baa3 1,400,000 7.60% due 11/20/2028 1,485,975
BBB- Baa3 5,000,000 6.90% due 10/01/2037 5,069,380
BBB- Baa3 1,400,000 6.59% due 7/07/2038 1,413,626
AAA Aaa 6,951,000 SUSA Partnership, LP, 6.95% due 7/01/2006 7,466,702
-------------
25,705,778
====================================================================================================================================
Retail--Stores--0.4% BBB- Baa3 2,750,000 Yum! Brands, Inc., 8.50% due 4/15/2006 2,990,273
====================================================================================================================================
Utilities-- BBB Baa2 1,250,000 Harris Corporation, 6.35% due 2/01/2028 1,311,906
Communication--1.8% BBB- Baa3 5,200,000 Sprint Capital Corporation, 6% due 1/15/2007 5,445,575
BBB Baa3 1,500,000 TELUS Corporation, 7.50% due 6/01/2007 1,633,693
BBB+ Baa2 5,000,000 Telecom Italia Capital SA, 4% due 11/15/2008 (c) 4,911,720
-------------
13,302,894
====================================================================================================================================
Utilities--Electric & A A2 2,500,000 Alabama Power Company, 2.80% due 12/01/2006 2,466,760
Gas--4.2% BBB Baa3 1,465,000 American Electric Power Company, Inc., 6.125%
due 5/15/2006 1,537,906
BBB Baa2 1,060,000 Appalachian Power Company, 3.60% due 5/15/2008 1,033,505
A A1 4,645,000 Boston Edison Company, 1.64% due 10/15/2005 (a) 4,666,367
BBB Baa2 4,450,000 Conectiv, 5.30% due 6/01/2005 4,537,176
A- A3 645,000 Detroit Edison Company, 5.05% due 10/01/2005 661,056
Dominion Resources, Inc.:
BBB+ Baa1 2,500,000 7.625% due 7/15/2005 2,626,227
BBB+ Baa1 1,030,000 1.55% due 5/15/2006 (a) 1,031,507
A- A2 2,125,000 FPL Group Capital Inc., 1.886% due 3/30/2005 (a) 2,129,037
BBB Baa1 2,500,000 PSE&G Power LLC, 6.875% due 4/15/2006 2,652,333
Southern California Edison Company:
NR* Baa2 2,500,000 1.89% due 1/13/2006 (a) 2,503,257
BBB Baa2 2,500,000 8% due 2/15/2007 2,761,658
BB- Ba2 1,480,000 Westar Energy, Inc., 9.75% due 5/01/2007 1,685,861
BBB- Baa1 685,000 Xcel Energy, Inc., 3.40% due 7/01/2008 661,196
-------------
30,953,846
====================================================================================================================================
Yankee A- Baa1 3,500,000 British Telecommunications PLC, 7.875% due 12/15/2005 (3) 3,742,070
Corporates**--1.5% BBB+ Baa2 2,500,000 France Telecom, 8.20% due 3/01/2006 (3) 2,680,347
Pemex Project Funding Master Trust (a)(c)(1):
BBB- Baa1 1,520,000 3.078% due 1/07/2005 1,532,160
BBB- Baa1 3,500,000 2.82% due 6/15/2010 3,515,750
-------------
11,470,327
----------------------------------------------------------------------------------------------------------
Total Corporate Bonds & Notes (Cost--$317,697,041)--43.2% 319,881,779
==========================================================================================================
Shares
Held Common Stocks
====================================================================================================================================
Utilities-- 73,047 MCI, Inc. (e) 1,054,068
Communication--0.2% ----------------------------------------------------------------------------------------------------------
Total Common Stocks (Cost--$5,181,369)--0.2% 1,054,068
28 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004
Schedule of Investments (continued)
Low Duration Master Portfolio (in U.S. dollars)
Preferred Securities
Shares
Industry@ Held Preferred Stocks Value
====================================================================================================================================
Finance--Other--0.1% 1,500 Home Ownership Funding Corporation II (c) $ 651,305
----------------------------------------------------------------------------------------------------------
Total Preferred Stocks (Cost--$1,500,000)--0.1% 651,305
==========================================================================================================
S&P Moody's Face
Ratings+ Ratings+ Amount Trust Preferred
====================================================================================================================================
Aerospace & NR* NR* $ 8,490,000 RC Trust I, 7% due 5/15/2006 9,019,010
Defense--1.2%
====================================================================================================================================
Utilities--Electric & BB+ Ba1 5,120,000 PPL Capital Funding, Inc., 7.29% due 5/18/2006 5,375,437
Gas--0.7% ----------------------------------------------------------------------------------------------------------
Total Trust Preferred (Cost--$14,425,132)--1.9% 14,394,447
==========================================================================================================
Total Preferred Securities (Cost--$15,925,132)--2.0% 15,045,752
==========================================================================================================
Beneficial
Interest Other Interests (f)
====================================================================================================================================
Utilities-- $ 5,000 WorldCom, Inc. (Escrow Notes) 0
Communication--0.0% ----------------------------------------------------------------------------------------------------------
Total Other Interests (Cost--$0)--0.0% 0
==========================================================================================================
Face
Amount Short-Term Investments
====================================================================================================================================
Commercial $ 8,000,000 Aspen Funding Corp., 1.08% due 7/06/2004 7,998,800
Paper***--6.9% 20,000,000 Compass Securitization LLC, 1.20% due 7/14/2004 19,991,333
22,640,000 UBS AG, 1.42% due 7/01/2004 22,640,000
-------------
50,630,133
====================================================================================================================================
Time Deposits--0.0% 157,502 Brown Brothers Harriman & Co. (BBH), 0.76% due 7/01/2004 157,502
----------------------------------------------------------------------------------------------------------
Total Short-Term Investments (Cost--$50,787,635)--6.9% 50,787,635
==========================================================================================================
Number of
Contracts Options Purchased
====================================================================================================================================
Call Options 1,937 Eurodollar Futures, expiring July 2004 at USD 98.25,
Purchased--0.0% Broker Credit Suisse First Boston 12,106
1,937 Eurodollar Futures, expiring July 2004 at USD 98.5,
Broker Credit Suisse First Boston 12,106
57@@ London InterBank Offered Rate (LIBOR) Linked Floor,
expiring April 2005 at USD 1.5, Broker J.P. Morgan Chase
Bank 969
-------------
25,181
====================================================================================================================================
Put Options 214 U.S. Treasury Notes, expiring July 2004 at USD 107,
Purchased--0.0% Broker Credit Suisse First Boston 26,750
----------------------------------------------------------------------------------------------------------
Total Options Purchased (Premiums Paid--$441,199)--0.0% 51,931
==========================================================================================================
Total Investments (Cost--$778,477,385)--104.4% 772,564,989
==========================================================================================================
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004 29
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments (concluded)
Low Duration Master Portfolio (in U.S. dollars)
Number of
Contracts Options Written Value
====================================================================================================================================
Call Options 3,876 Eurodollar Futures, expiring July 2004 at USD 98.38,
Written--0.0% Broker Credit Suisse First Boston $ (24,225)
214 U.S. Treasury Notes, expiring July 2004 at USD 110,
Broker Credit Suisse First Boston (96,969)
----------------------------------------------------------------------------------------------------------
Total Options Written (Premiums Received--$307,162)--0.0% (121,194)
====================================================================================================================================
Total Investments, Net of Options Written (Cost--$778,170,223)--104.4% 772,443,795
Liabilities in Excess of Other Assets--(4.4%) (32,419,984)
-------------
Net Assets--100.0% $740,023,811
============
* Not Rated.
** Corresponding industry groups for foreign securities:
(1) Financial Institution.
(2) Industrial.
(3) 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.
+ Ratings of issues are unaudited.
++ 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.
These industry classifications are unaudited.
@@ One contract represents a notional amount of $1,000,000.
(a) Floating rate note.
(b) All or a portion of security held as collateral in connection with open
financial futures contracts.
(c) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(d) Represents the interest only portion of a mortgage-backed obligation.
(e) Non-income producing security.
(f) Other interests represent beneficial interests in liquidating trusts and
other reorganization entities and are non-income producing.
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:
--------------------------------------------------------------------------
Interest/
Net Dividend
Affiliate Activity Income
--------------------------------------------------------------------------
Merrill Lynch Liquidity Series, LLC
Money Market Series -- $ 399
Merrill Lynch Premier Institutional Fund -- $21,486
--------------------------------------------------------------------------
Financial futures contracts sold as of June 30, 2004 were as follows:
--------------------------------------------------------------------------
Number of Expiration Face Unrealized
Contracts Issue Date Value Depreciation
--------------------------------------------------------------------------
651 Five-Year
U.S. Treasury
Note September 2004 $70,495,891 $ (259,672)
--------------------------------------------------------------------------
Swap contracts outstanding as of June 30, 2004 were as follows:
--------------------------------------------------------------------------
Unrealized
Notional Appreciation/
Amount Depreciation
--------------------------------------------------------------------------
Sold credit default protection on WFS
Financial Owner Trust and receive
.41% interest
Broker, Morgan Stanley Capital Services Inc.
Expires December 2010 $ 6,626,753 --
Bought credit default protection on AON
Corp. and pay 2.8025% interest
Broker, J.P. Morgan Chase Bank
Expires January 2007 $ 1,725,000 $ 23,242
Bought credit default protection on AON
Corp. and pay .37% interest
Broker, Morgan Stanley Capital Services Inc.
Expires January 2007 $ 1,725,000 (337)
Receive a variable rate return based on
3-month USD LIBOR, plus .56%, which
is capped at a fixed coupon of 8%
and callable quarterly beginning
September 2004 and pay floating rate
based on 3-month USD LIBOR
Broker, J.P. Morgan Chase Bank
Expires June 2010 $17,250,000 31,246
Receive a variable rate return based on
3-month USD LIBOR, plus .42%, which
is capped at a fixed coupon of 8% and
callable quarterly beginning September
2004 and pay floating rate based on
3-month USD LIBOR
Broker, J.P. Morgan Chase Bank
Expires March 2010 $16,650,000 (1,720)
--------------------------------------------------------------------------
Total $ 52,431
===========
See Notes to Financial Statements.
30 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004
Statement of Assets and Liabilities Low Duration Master Portfolio
As of June 30, 2004
============================================================================================================================
Assets
- ----------------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value (identified
cost--$778,036,186) ............................................. $ 772,513,058
Options purchased, at value (premiums paid--$441,199) ............ 51,931
Unrealized appreciation on swaps ................................. 52,768
Cash ............................................................. 295
Receivables:
Interest ...................................................... $ 5,798,183
Securities sold ............................................... 1,342,800
Contributions ................................................. 844,639
Paydowns ...................................................... 9,282
Securities lending--net ....................................... 1,271 7,996,175
-------------
Prepaid expenses ................................................. 2,977
-------------
Total assets ..................................................... 780,617,204
-------------
============================================================================================================================
Liabilities
- ----------------------------------------------------------------------------------------------------------------------------
Unrealized depreciation on swaps ................................. 337
Options written, at value (premiums received--$307,162) .......... 121,194
Payables:
Securities purchased .......................................... 36,664,078
Withdrawals ................................................... 3,399,277
Variation margin .............................................. 325,500
Investment adviser ............................................ 12,760
Swaps ......................................................... 6,241
Other affiliates .............................................. 3,991 40,411,847
-------------
Accrued expenses ................................................. 60,015
-------------
Total liabilities ................................................ 40,593,393
-------------
============================================================================================================================
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
Net assets ....................................................... $ 740,023,811
=============
============================================================================================================================
Net Assets Consist of
- ----------------------------------------------------------------------------------------------------------------------------
Investors' capital ............................................... $ 745,957,480
Unrealized depreciation on investments--net ...................... (5,933,669)
-------------
Net Assets ....................................................... $ 740,023,811
=============
See Notes to Financial Statements.
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004 31
[LOGO] Merrill Lynch Investment Managers
Statement of Operations Low Duration Master Portfolio
For the Year Ended June 30, 2004
============================================================================================================================
Investment Income
- ----------------------------------------------------------------------------------------------------------------------------
Interest ......................................................... $ 27,602,162
Dividends ........................................................ 201,047
Securities lending--net .......................................... 21,885
-------------
Total income ..................................................... 27,825,094
-------------
============================================================================================================================
Expenses
- ----------------------------------------------------------------------------------------------------------------------------
Investment advisory fees ......................................... $ 1,589,610
Accounting services .............................................. 291,879
Custodian fees ................................................... 61,909
Professional fees ................................................ 55,521
Trustees' fees and expenses ...................................... 32,597
Pricing fees ..................................................... 26,432
Printing and shareholder reports ................................. 5,206
Other ............................................................ 33,409
-------------
Total expenses ................................................... 2,096,563
-------------
Investment income--net ........................................... 25,728,531
-------------
============================================================================================================================
Realized & Unrealized Loss on Investments--Net
- ----------------------------------------------------------------------------------------------------------------------------
Realized loss on investments--net ................................ (2,237,834)
Change in unrealized appreciation/depreciation on investments--net (14,412,834)
-------------
Total realized and unrealized loss on investments--net ........... (16,650,668)
-------------
Net Increase in Net Assets Resulting from Operations ............. $ 9,077,863
=============
See Notes to Financial Statements.
32 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004
Statements of Changes in Net Assets Low Duration Master Portfolio
For the Year Ended
June 30,
-------------------------------
Increase (Decrease) in Net Assets: 2004 2003
============================================================================================================================
Operations
- ----------------------------------------------------------------------------------------------------------------------------
Investment income--net ........................................... $ 25,728,531 $ 24,364,515
Realized gain (loss) on investments--net ......................... (2,237,834) 2,412,393
Change in unrealized appreciation/depreciation on investments--net (14,412,834) 11,367,228
-------------------------------
Net increase in net assets resulting from operations ............. 9,077,863 38,144,136
-------------------------------
============================================================================================================================
Capital Transactions
- ----------------------------------------------------------------------------------------------------------------------------
Proceeds from contributions ...................................... 385,522,595 905,711,132
Fair value of withdrawals ........................................ (393,910,819) (716,855,965)
-------------------------------
Net increase (decrease) in net assets derived from capital
transactions .................................................... (8,388,224) 188,855,167
-------------------------------
============================================================================================================================
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
Total increase in net assets ..................................... 689,639 226,999,303
Beginning of year ................................................ 739,334,172 512,334,869
-------------------------------
End of year ...................................................... $ 740,023,811 $ 739,334,172
===============================
See Notes to Financial Statements.
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004 33
[LOGO] Merrill Lynch Investment Managers
Financial Highlights Low Duration Master Portfolio
For the Year Ended For the Period
June 30, October 6, 2000+
The following ratios have been derived ------------------------------------------- to June 30,
from information provided in the financial statements. 2004 2003 2002 2001
==============================================================================================================================
Total Investment Return**
- ------------------------------------------------------------------------------------------------------------------------------
Total investment return ................ 1.18% 6.05% 5.59% --
===========================================================
==============================================================================================================================
Ratios to Average Net Assets
- ------------------------------------------------------------------------------------------------------------------------------
Expenses ............................... .28% .28% .32% .30%*
===========================================================
Investment income--net ................. 3.39% 3.73% 5.03% 6.78%*
===========================================================
==============================================================================================================================
Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 740,024 $ 739,334 $ 512,335 $ 305,514
===========================================================
Portfolio turnover ..................... 107.13% 198.09% 70.92% 192.04%
===========================================================
* Annualized.
** Total return is required to be disclosed for fiscal years beginning after
December 15, 2000.
+ Commencement of operations.
See Notes to Financial Statements.
34 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004
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 "Trust"). The 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 U.S. generally
accepted accounting principles, which may require the use of management accruals
and estimates. Actual results may differ from these estimates. 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 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 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 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 Trust's
Board of Trustees. Such valuations and procedures will be reviewed periodically
by the Board of Trustees of the 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 Trust's Board of Trustees or by the Investment
Adviser using a pricing service and/or procedures approved by the 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.
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004 35
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements (continued) Low Duration Master Portfolio
o Financial futures contracts -- The Portfolio may purchase or sell
financial futures contracts and options on such futures contracts. Futures
contracts are contracts for delayed delivery of securities at a specific
future date and at a specific price or yield. Upon entering into a
contract, the Portfolio deposits and maintains as collateral such initial
margin as required by the exchange on which the transaction is effected.
Pursuant to the contract, the Portfolio agrees to receive from or pay to
the broker an amount of cash equal to the daily fluctuation in the value
of the contract. Such receipts or payments are known as variation margin
and are recorded by the Portfolio as unrealized gains or losses. When the
contract is closed, the Portfolio records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened
and the value at the time it was closed.
o Options -- The Portfolio 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 considered as a "pass through" entity for
federal income tax purposes. As such, each investor in the Portfolio is treated
as owner of its proportionate share of the net assets, income, expenses and
realized and unrealized gains and losses of the Portfolio. Therefore, no federal
income tax provision is required. It is intended that the Portfolio's assets
will be managed so an investor in the Portfolio can satisfy the requirements of
subchapter M of the Internal Revenue Code.
(e) Security transactions and investment income -- Security transactions are
accounted for on the date the securities are purchased or sold (the trade
dates). Realized gains and losses on security transactions are determined on the
identified cost basis. Interest income is recognized on the accrual basis.
(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, its 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
36 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004
Notes to Financial Statements (continued) Low Duration Master Portfolio
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.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Trust has entered into an Investment Advisory Agreement for the Portfolio
with Fund Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect, wholly-owned subsidiary of
Merrill Lynch & Co., Inc. ("ML & Co."), which is the limited partner.
FAM is responsible for the management of the Portfolio's investments and
provides the necessary personnel, facilities, equipment and certain other
services necessary to the operations of the Portfolio. For such services, the
Portfolio pays a monthly fee based upon the average daily value of the
Portfolio's net assets at the annual rate of 0.21%.
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 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 year ended June 30, 2004, MLIM, LLC
received $9,386 in securities lending agent fees.
For the year ended June 30, 2004, the Portfolio reimbursed FAM $15,360 for
certain accounting services.
Certain officers and/or trustees of the Trust are officers and/or directors of
FAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended June 30, 2004 were $788,064,464 and $784,486,330, respectively.
Net realized gains (losses) for the year ended June 30, 2004 and net unrealized
appreciation/depreciation as of June 30, 2004 were as follows:
- --------------------------------------------------------------------------------
Unrealized
Realized Appreciation/
Gains (Losses) Depreciation
- --------------------------------------------------------------------------------
Long-term investments .................. $(1,595,582) $(5,523,128)
Short-term investments ................. 5,025 --
Options purchased ...................... 226,147 (389,268)
Options written ........................ (467,885) 185,968
Swaps .................................. 568,849 52,431
Financial futures contracts ............ (974,388) (259,672)
-------------------------------
Total investments ...................... $(2,237,834) $(5,933,669)
===============================
As of June 30, 2004, net unrealized depreciation for federal income tax purposes
aggregated $5,729,987, of which $5,222,820 related to appreciated securities and
$10,952,807 related to depreciated securities. At June 30, 2004, the aggregate
cost of investments, net of options written for federal income tax purposes was
$778,173,782.
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004 37
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements (concluded) Low Duration Master Portfolio
Transactions in call options written for the year ended June 30, 2004 were as
follows:
- --------------------------------------------------------------------------------
Number of Premiums
Contracts Received
- --------------------------------------------------------------------------------
Outstanding call options written,
beginning of year ................. 127 $ 15,304
Options written ...................... 4,129 1,901,899
Options closed ....................... (39) (1,594,737)
Options expired ...................... (127) (15,304)
-------------------------------
Outstanding call options written,
end of year ....................... 4,090 $ 307,162
===============================
Transactions in put options written for the year ended June 30, 2004 were as
follows:
- --------------------------------------------------------------------------------
Number of Premiums
Contracts Received
- --------------------------------------------------------------------------------
Outstanding put options written,
beginning of year ................. 127 $ 91,503
Options written ...................... 25 1,315,913
Options closed ....................... (152) (1,407,416)
-------------------------------
Outstanding put options written,
end of year ....................... -- $ --
===============================
4. Short-Term Borrowings:
The 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 year ended
June 30, 2004.
38 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004
Report of Independent Registered Public Accounting Firm
Low Duration Master Portfolio
To the Board of Trustees of Fund Asset
Management Master Trust and Investor of
Low Duration Master Portfolio:
We have audited the accompanying statement of assets and liabilities of Low
Duration Master Portfolio, including the schedule of investments, as of June 30,
2004, the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the periods indicated therein.
These financial statements and financial highlights are the responsibility of
the Portfolio's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and financial highlights. Our procedures
included confirmation of securities owned as of June 30, 2004, by correspondence
with the custodian and others. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Low
Duration Master Portfolio at June 30, 2004, the results of its operations, the
changes in its net assets and the financial highlights for each of the indicated
periods in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
August 16, 2004
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004 39
[LOGO] Merrill Lynch Investment Managers
Officers and Directors/Trustees (unaudited)
Number of
Portfolios in Other Public
Fund Complex Directorships
Position(s) Length of Overseen by Held by
Held with Time Director/ Director/
Name Address & Age Fund Served Principal Occupation(s) During Past 5 Years Trustee Trustee
====================================================================================================================================
Interested Director/Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
Terry K. P.O. Box 9011 President 2000 to President of the Merrill Lynch Investment Managers, 123 Funds None
Glenn* Princeton, NJ and present L.P. ("MLIM")/Fund Asset Management, L.P. 158 Portfolios
08543-9011 Director/ ("FAM")--Advised Funds since 1999; Chairman
Age: 63 Trustee (Americas Region) of MLIM from 2000 to 2002;
Executive Vice President of MLIM and FAM (which
terms as used herein include their corporate
predecessors) from 1983 to 2002; President of
FAM Distributors, Inc. ("FAMD") from 1986 to 2002
and Director thereof from 1991 to 2002; Executive
Vice President and Director of Princeton Services,
Inc. ("Princeton Services") from 1993 to 2002;
President of Princeton Administrators, L.P. from
1989 to 2002; Director of Financial Data Services,
Inc. since 1985.
------------------------------------------------------------------------------------------------------------------------
* Mr. Glenn is a director, trustee or member of an advisory board of certain other investment companies for which MLIM
or FAM acts as investment adviser. Mr. Glenn is an "interested person," as described in the Investment Company Act, of
the Fund based on his present and former positions with MLIM, FAM, FAMD, Princeton Services and Princeton
Administrators, L.P. The Director's term is unlimited. Directors serve until their resignation, removal or death, or
until December 31 of the year in which they turn 72. As Fund President, Mr. Glenn serves at the pleasure of the Board
of Directors/Trustees.
====================================================================================================================================
Independent Directors/Trustees*
- ------------------------------------------------------------------------------------------------------------------------------------
James H. P.O. Box 9095 Director/ 2002 to Director, The China Business Group, Inc. since 38 Funds None
Bodurtha Princeton, NJ Trustee present 1996 and Executive Vice President thereof from 55 Portfolios
08543-9095 1996 to 2003; Chairman of the Board, Berkshire
Age: 60 Holding Corporation since 1980; Partner, Squire,
Sanders & Dempsey from 1980 to 1993.
- ------------------------------------------------------------------------------------------------------------------------------------
Joe Grills P.O. Box 9095 Director/ 1996 to Member of the Committee of Investment of 38 Funds Kimco
Princeton, NJ Trustee present Employee Benefit Assets of the Association of 55 Portfolios Realty
08543-9095 Financial Professionals ("CIEBA") since 1986; Corporation
Age: 69 Member of CIEBA's Executive Committee since
1988 and its Chairman from 1991 to 1992;
Assistant Treasurer of International Business
Machines Corporation ("IBM") and Chief
Investment Officer of IBM Retirement Funds
from 1986 to 1993; Member of the Investment
Advisory Committee of the State of New York
Common Retirement Fund since 1989; Member
of the Investment Advisory Committee of the
Howard Hughes Medical Institute from 1997 to 2000;
Director, Duke Management Company since 1992 and
Vice Chairman thereof since 1998; Director, LaSalle
Street Fund from 1995 to 2001; Director, Kimco
Realty Corporation since 1997; Member of the
Investment Advisory Committee of the Virginia
Retirement System since 1998 and Vice Chairman
thereof since 2002; Director, Montpelier Foundation
since 1998 and its Vice Chairman since 2000; Member
of the Investment Committee of the Woodberry
Forest School since 2000; Member of the Investment
Committee of the National Trust for Historic
Preservation since 2000.
40 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004
Officers and Directors/Trustees (unaudited) (continued)
Number of
Portfolios in Other Public
Fund Complex Directorships
Position(s) Length of Overseen by Held by
Held with Time Director/ Director/
Name Address & Age Fund Served Principal Occupation(s) During Past 5 Years Trustee Trustee
====================================================================================================================================
Independent Directors/Trustees* (concluded)
- ------------------------------------------------------------------------------------------------------------------------------------
Herbert I. P.O. Box 9095 Director/ 2002 to John M. Olin Professor of Humanities, New York 38 Funds None
London Princeton, NJ Trustee present University since 1993 and Professor thereof since 55 Portfolios
08543-9095 1980; President, Hudson Institute since 1997
Age: 65 and Trustee thereof since 1980; Dean, Gallatin
Division of New York University from 1976 to 1993;
Distinguished Fellow, Herman Kahn Chair, Hudson
Institute from 1984 to 1985; Director, Damon Corp.
from 1991 to 1995; Overseer, Center for Naval
Analyses from 1983 to 1993; Limited Partner,
Hypertech LP since 1996.
- ------------------------------------------------------------------------------------------------------------------------------------
Andre F. P.O. Box 9095 Director/ 2002 to Harvard Business School: George Gund Professor 38 Funds None
Perold Princeton, NJ Trustee present of Finance and Banking since 2000; Senior 55 Portfolios
08543-9095 Associate Dean, Director of Faculty Recruiting
Age: 52 since 2001; Finance Area Chair from 1996 to
2001; Sylvan C. Coleman Professor of Financial
Management from 1993 to 2000; Director,
Genbel Securities Limited and Gensee Bank from
1999 to 2003; Director, Stockback, Inc. from 2000
to 2002; Director, Sanlam Limited from 2001 to
2003; Trustee, Commonfund from 1989 to 2001;
Director, Sanlam Investment Management from
1999 to 2001; Director, Bulldogresearch.com from
2000 to 2001; Director, Quantec Limited from 1991
to 1999; Director and Chairman of the Board of
UNX Inc. since 2003.
- ------------------------------------------------------------------------------------------------------------------------------------
Roberta P.O. Box 9095 Director/ 2002 to Shareholder, Modrall, Sperling, Roehl, Harris & 38 Funds None
Cooper Princeton, NJ Trustee present Sisk, P.A. since 1993; President, American Bar 55 Portfolios
Ramo 08543-9095 Association from 1995 to 1996 and Member of
Age: 61 the Board of Governors thereof from 1994 to 1997;
Shareholder, Poole, Kelly & Ramo, Attorneys at Law,
P.C. from 1977 to 1993; Director, Coopers, Inc.
since 1999; Director of ECMC Group (service provider
to students, schools and lenders) since
2001; Director, United New Mexico Bank (now
Wells Fargo) from 1983 to 1988; Director, First
National Bank of New Mexico (now Wells Fargo)
from 1975 to 1976.
- ------------------------------------------------------------------------------------------------------------------------------------
Robert S. P.O. Box 9095 Director/ 2002 to Principal of STI Management (investment adviser) 38 Funds None
Salomon, Princeton, NJ Trustee present since 1994; Chairman and CEO of Salomon 55 Portfolios
Jr. 08543-9095 Brothers Asset Management from 1992 until 1995;
Age: 67 Chairman of Salomon Brothers equity mutual funds
from 1992 until 1995; regular columnist with Forbes
magazine from 1992 to 2002; Director of Stock
Research and U.S. Equity Strategist at Salomon
Brothers from 1975 until 1991; Trustee, Commonfund
from 1980 to 2001.
- ------------------------------------------------------------------------------------------------------------------------------------
Stephen B. P.O. Box 9095 Director/ 2002 to Chairman of Fernwood Associates (investment 39 Funds None
Swensrud Princeton, NJ Trustee present adviser) since 1996; Principal, Fernwood Associates 56 Portfolios
08543-9095 (financial consultants) since 1975; Chairman of
Age: 71 R.P.P. Corporation (manufacturing company) since
1978; Director of International Mobile
Communications, Incorporated (telecommunications
company) since 1998.
------------------------------------------------------------------------------------------------------------------------
* The Director's/Trustee's term is unlimited. Directors/Trustees serve until their resignation, removal or death, or
until December 31 of the year in which they turn 72.
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004 41
[LOGO] Merrill Lynch Investment Managers
Officers and Directors/Trustees (unaudited) (concluded)
Position(s) Length of
Held with Time
Name Address & Age Fund Served Principal Occupation(s) During Past 5 Years
====================================================================================================================================
Fund Officers*
- ------------------------------------------------------------------------------------------------------------------------------------
Donald C. P.O. Box 9011 Vice 2002 to First Vice President of MLIM and FAM since 1997 and Treasurer thereof
Burke Princeton, NJ President present since 1999; Senior Vice President and Treasurer of Princeton Services since
08543-9011 and 1999; Vice President of FAMD since 1999; Director of MLIM Taxation
Age: 44 Treasurer since 1990.
- ------------------------------------------------------------------------------------------------------------------------------------
Patrick P.O. Box 9011 Vice 2002 to Managing Director of MLIM since 2000; Director (Global Fixed Income) of MLIM from
Maldari Princeton, NJ President present 1998 to 2000.
08543-9011
Age: 42
- ------------------------------------------------------------------------------------------------------------------------------------
James P.O. Box 9011 Vice 2002 to Director of MLIM since 2004; Vice President of MLIM from 1996 to 2004.
Pagano Princeton, NJ President present
08543-9011
Age: 41
- ------------------------------------------------------------------------------------------------------------------------------------
Phillip S. P.O. Box 9011 Secretary 2002 to First Vice President of MLIM since 2001; Director (Legal Advisory) of MLIM from
Gillespie Princeton, NJ present 2000 to 2001; Vice President of MLIM from 1999 to 2000 and Attorney associated with
08543-9011 MLIM since 1998.
Age: 40
------------------------------------------------------------------------------------------------------------------------
* Officers of the Fund serve at the pleasure of the Board of Directors/Trustees.
- ------------------------------------------------------------------------------------------------------------------------------------
Further information about the Fund's Officers and Directors/Trustees is available in the Fund's Statement of Additional
Information, which can be obtained without charge by calling 1-800-MER-FUND.
- ------------------------------------------------------------------------------------------------------------------------------------
Custodian
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109-3661
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-06484
800-637-3863
42 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004
Electronic Delivery
The Fund offers electronic delivery of communications to its shareholders. In
order to receive this service, you must register your account and provide us
with e-mail information. To sign up for this service, simply access this Web
site http://www.icsdelivery.com/live and follow the instructions. When you visit
this site, you will obtain a personal identification number (PIN). You will need
this PIN should you wish to update your e-mail address, choose to discontinue
this service and/or make any other changes to the service. This service is not
available for certain retirement accounts at this time.
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004 43
[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)
at www.mutualfunds.ml.com; and (3) on the Securities and Exchange Commission's
Web site at http://www.sec.gov. Information about how the Fund voted proxies
relating to securities held in the Fund's portfolio during the most recent
12-month period ended June 30 is available (1) at www.mutualfunds.ml.com and (2)
on the Securities and Exchange Commission's Web site at http://www.sec.gov.
Merrill Lynch Low Duration Fund of
Merrill Lynch Investment Managers Funds, Inc.
Box 9011
Princeton, NJ
08543-9011
#ML -- 3070 -- 6/04
Item 2 - Code of Ethics - The registrant has adopted a code of ethics, as of the
end of the period covered by this report, that applies to the
registrant's principal executive officer, principal financial officer
and principal accounting officer, or persons performing similar
functions. A copy of the code of ethics is available without charge
upon request by calling toll-free 1-800-MER-FUND (1-800-637-3863).
Item 3 - Audit Committee Financial Expert - The registrant's board of directors
has determined that (i) the registrant has the following audit
committee financial experts serving on its audit committee and (ii)
each audit committee financial expert is independent: (1) Joe Grills,
(2) Andre F. Perold, (3) Robert S. Salomon, Jr., and (4) Stephen B.
Swensrud.
Item 4 - Principal Accountant Fees and Services
(a) Audit Fees -
Merrill Lynch Low Duration Fund Fiscal Year Ending June 30, 2004 - $0
Fiscal Year Ending June 30, 2003 - $0
Low Duration Master Portfolio Fiscal Year Ending June 30, 2004 -
$33,000
Fiscal Year Ending June 30, 2003 -
$30,000
(b) Audit-Related Fees -
Merrill Lynch Low Duration Fund Fiscal Year Ending June 30, 2004 - $0
Fiscal Year Ending June 30, 2003 - $0
Low Duration Master Portfolio Fiscal Year Ending June 30, 2004 - $0
Fiscal Year Ending June 30, 2003 - $0
(c) Tax Fees -
Merrill Lynch Low Duration Fund Fiscal Year Ending June 30, 2004 - $0
Fiscal Year Ending June 30, 2003 - $0
Low Duration Master Portfolio Fiscal Year Ending June 30, 2004 -
$5,200
Fiscal Year Ending June 30, 2003 -
$5,000
The nature of the services include tax compliance, tax advice and tax
planning.
(d) All Other Fees -
Merrill Lynch Low Duration Fund Fiscal Year Ending June 30, 2004 - $0
Fiscal Year Ending June 30, 2003 - $0
Low Duration Master Portfolio Fiscal Year Ending June 30, 2004 - $0
Fiscal Year Ending June 30, 2003 - $0
(e)(1) The registrant's audit committee (the "Committee") has adopted
policies and procedures with regard to the pre-approval of services.
Audit, audit-related and tax compliance services provided to the
registrant on an annual basis require specific pre-approval by the
Committee. The Committee also must approve other non-audit services
provided to the registrant and those non-audit services provided to the
registrant's affiliated service providers that relate directly to the
operations and the financial reporting of the registrant. Certain of
these non-audit services that the Committee believes are a) consistent
with the SEC's auditor independence rules and b) routine and recurring
services that will not impair the independence of the independent
accountants may be approved by the Committee without consideration on a
specific case-by-case basis ("general pre-approval"). However, such
services will only be deemed pre-approved provided that any individual
project does not exceed $5,000 attributable to the registrant or
$50,000 for all of the registrants the Committee oversees. Any proposed
services exceeding the pre-approved cost levels will require specific
pre-approval by the Committee, as will any other services not subject
to general pre-approval (e.g., unanticipated but permissible services).
The Committee is informed of each service approved subject to general
pre-approval at the next regularly scheduled in-person board meeting.
(e)(2) 0%
(f) Not Applicable
(g)
Merrill Lynch Low Duration Fund Fiscal Year Ending June 30, 2004 - $0
Fiscal Year Ending June 30, 2003 -
$100,000
Low Duration Master Portfolio Fiscal Year Ending June 30, 2004 -
$5,200
Fiscal Year Ending June 30, 2003 -
$105,000
h) The registrant's audit committee has considered and determined that
the provision of non-audit services that were rendered to the
registrant's investment adviser and any entity controlling, controlled
by, or under common control with the investment adviser that provides
ongoing services to the registrant that were not pre-approved pursuant
to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible
with maintaining the principal accountant's independence.
Regulation S-X Rule 2-01(c)(7)(ii) - $541,640, 0%
Item 5 - Audit Committee of Listed Registrants - Not Applicable
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable
Item 8 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 9 - Submission of Matters to a Vote of Security Holders - Not Applicable
Item 10 - Controls and Procedures
10(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.
10(b) - There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR
270.30a-3(d)) that occurred during the second fiscal half-year of the
period covered by this report that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting.
Item 11 - Exhibits attached hereto
11(a)(1) - Code of Ethics - See Item 2
11(a)(2) - Certifications - Attached hereto
11(a)(3) - Not Applicable
11(b) - Certifications - Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Merrill Lynch Low Duration Fund of Merrill Lynch Investment Managers Funds, Inc.
and Low Duration Master Portfolio of Fund Asset Management Master Trust
By: /s/ Terry K. Glenn
------------------------------
Terry K. Glenn,
President of
Merrill Lynch Low Duration Fund of
Merrill Lynch Investment Managers
Funds, Inc. and Low Duration Master
Portfolio of Fund Asset Management
Master Trust
Date: August 13, 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. and Low Duration Master
Portfolio of Fund Asset Management
Master Trust
Date: August 13, 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. and Low Duration Master
Portfolio of Fund Asset Management
Master Trust
Date: August 13, 2004