UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-10053
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: Robert C. Doll, Jr., 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: 06/30/05
Date of reporting period: 07/01/04 - 12/31/04
Item 1 - Report to Stockholders
[LOGO] Merrill Lynch Investment Managers www.mlim.ml.com
Merrill Lynch
Low Duration Fund
Semi-Annual Report
December 31, 2004
[LOGO] Merrill Lynch Investment Managers
A Letter From the President
[PHOTO]
Dear Shareholder
The U.S. equity market ended 2004 in positive territory, although not without
some suspense along the way. Fixed income markets also performed well, with high
yield bond investors enjoying some of the greatest returns.
Over the past year, the equity market generally found support from a healthy
economic environment, above-average corporate earnings, increased capital
spending and still-low interest rates. Stalling the momentum somewhat throughout
the year was a contentious election, negligible inflation amid a rising federal
funds interest rate, record-high oil prices and the seemingly ever-present
worries over terrorism and the war in Iraq.
Still, the Standard & Poor's 500 Index posted a 12-month return of +10.88% and a
six-month return of +7.19% as of December 31, 2004. The fourth quarter of the
year proved to be the most telling, as the S&P 500 Index was up only 1.51%
year-to-date as of September 30, 2004. As the price of oil relaxed and election
uncertainties subsided, the market headed more convincingly upward in the last
quarter of the year.
Given the relatively positive environment for equities, the favorable
performance of the bond market came as somewhat of a surprise. The Lehman
Brothers Aggregate Bond Index posted a 12-month return of +4.34% and a six-month
return of +4.18% as of December 31, 2004. The tax-exempt market performed just
as well, with a 12-month return of +4.48% and a six-month return of +5.19%, as
measured by the Lehman Brothers Municipal Bond Index. Those comfortable with a
higher degree of risk benefited this past year, as the Credit Suisse First
Boston High Yield Index posted a 12-month return of +11.95% and a six-month
return of +9.26%. Interestingly, as the Federal Reserve Board began raising its
target short-term interest rate, long-term bond yields were little changed. In
fact, the yield on the 10-year Treasury was 4.24% at year-end compared to 4.27%
at December 31, 2003. The yield on the two-year Treasury climbed to 3.08% at
year-end 2004 from 1.84% a year earlier.
As always, our investment professionals are closely monitoring the markets, the
economy and the overall environment in an effort to make well-informed decisions
for the portfolios they manage. For the individual investor, the key to
investment success -- particularly during uncertain times -- is to maintain a
long-term perspective and adhere to the disciplines of asset allocation,
diversification and rebalancing. We encourage you to work with your financial
advisor to ensure these time-tested techniques are incorporated into your
investment plan.
We thank you for trusting Merrill Lynch Investment Managers with your investment
assets, and we look forward to serving you in the new year and beyond.
Sincerely,
/s/ Robert C. Doll, Jr.
Robert C. Doll, Jr.
President and Chief Investment Officer
Merrill Lynch Investment Managers
2 MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2004
We are pleased to present to you the management team of
Merrill Lynch Low Duration Fund
[PHOTO]
Portfolio Managers Pat Maldari and Jim Pagano co-head the Merrill Lynch Low
Duration Fund team on a day-to-day basis. 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 Page
- --------------------------------------------------------------------------------
A Letter From the President .............................................. 2
A Discussion With Your Fund's Portfolio Managers ......................... 4
Performance Data ......................................................... 6
Disclosure of Expenses ................................................... 8
Fund Financial Statements ................................................ 9
Fund Financial Highlights ................................................ 12
Fund Notes to Financial Statements ....................................... 17
Master Portfolio Schedule of Investments ................................. 20
Master Portfolio Financial Statements .................................... 28
Master Portfolio Financial Highlights .................................... 30
Master Portfolio Notes to Financial Statements ........................... 31
Portfolio Information .................................................... 34
Officers & Directors/Trustees ............................................ 34
CFA(R) and Chartered Financial Analyst(R) are trademarks owned by the
Association for Investment Management and Research.
MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 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 made several strategic changes over the past six months
in response to developing market conditions.
How did the Fund perform during the period in light of the existing market
conditions?
For the six-month period ended December 31, 2004, Merrill Lynch Low Duration
Fund's Class A, Class B, Class C, Class I and Class R Shares had total returns
of +1.31%, +.97%, +1.07%, +1.54% and +1.18%, respectively, performing in line
with its unmanaged benchmark, the Merrill Lynch 1 - 3 Year Corporate and
Government Index, which returned +1.23% for the same period. (Fund results shown
do not reflect sales charges and would be lower if sales charges were included.
Complete performance information can be found on pages 6 and 7 of this report to
shareholders.)
During the six-month period, the Federal Reserve Board (the Fed) continued its
policy of hiking interest rates. On June 30, 2004, the federal funds rate was
increased 25 basis points (.25%) to 1.25%, and by the end of the year the Fed
had tightened on four more occasions to bring the rate up to 2.25%. The result
of these moves was that the yield curve flattened considerably over the past six
months. At the beginning of the period, the yield on the 10-year Treasury note
was 4.62%, and by December 31, the yield dropped slightly to 4.24%. On the
shorter end of the yield curve, the opposite occurred, as the yield on the
two-year Treasury note increased from 2.70% on June 30 to end the year at 3.08%.
These moves represent a yield curve flattening of approximately 75 basis points
between the two-year and 10-year Treasury notes.
Inflation also moved up slightly during the period. The key inflation
indicators, including the core personal consumption expenditures deflator and
the consumer price index (both of which measure price changes in consumer goods
and services), showed some increases over the past six months, indicating that
we may be entering a less-friendly inflationary environment. The fact that the
Fed has been moving to raise interest rates in advance of significant
inflationary trends indicates that the central bank is attempting to control
inflation by normalizing interest rates (that is, bringing interest rates in
line with inflation).
In this environment of relatively well-contained inflation and not significantly
higher interest rates, we believed that the credit and spread sectors of the
fixed income market were likely to perform well. These sectors are not as
affected by interest rate changes as are Treasury securities, and are therefore
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. As a result, we continued to
maintain a significant overweight in spread sectors compared to the benchmark.
This strategy did contribute to relative performance as corporate bonds posted
superior returns versus Treasury securities. Investment grade corporate bonds,
as measured by the Merrill Lynch 1 - 3 Year Corporate Index, returned +1.58% for
the six-month period, while Treasury securities, as measured by the Merrill
Lynch 1 - 3 Year Treasury Index, returned +.98%.
What changes were made to the Portfolio during the period?
One of the main changes that we made to the Portfolio over the past six months
was to reduce its exposure to corporate bonds (particularly in the automobile,
real estate and electric utility sectors) in favor of cash. We made these moves
as a result of our valuation assessment, which indicated that these bonds were
less attractive than holding cash.
Duration is a measure of sensitivity to changes in interest rates, measured in
years. The lower (or shorter) the duration of a portfolio, the less it will be
impacted by interest rate changes. During the period, we positioned the
Portfolio 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 2005. In such an environment, a shorter duration should help protect the
portfolio from some of the interest rate risk associated with rising rates.
Although it varied throughout the period, the Portfolio generally maintained its
duration approximately 5% - 12%
4 MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2004
less than the benchmark over the past six months. As of December 31, 2004, the
Portfolio's duration was 1.56 years, compared to 1.68 years for the Merrill
Lynch 1 - 3 Year Corporate and Government Index.
In September, the Fund received a large inflow of cash. As we began to put the
cash to work by buying bonds that we found to be attractively priced, we also
elected to retain some of the cash in the portfolio. Holding cash in the
prevailing environment offered some attractive opportunities as short-term
interest rates increased. As a result, the Portfolio held 9.3% of net assets in
cash at December 31, 2004, up from 2.5% at June 30, 2004. We used this cash to
create a "barbell" strategy -- one where we held a combination of short-term and
longer-term assets in the Portfolio.
Also during the period, we reduced the Portfolio's exposure to mortgage-backed
securities. This move was principally a result of mortgage prepayments -- as
homeowners prepaid and/or refinanced their mortgages, we allowed some of our
mortgage holdings to amortize. In contrast, we increased the Portfolio's
exposure to asset-backed securities from 18% at the beginning of the period to
21% by the end. This move complemented our strategy of buying higher-quality
bonds. In particular, one area on which we focused was in purchasing home equity
loans with a two-year - three-year maturity range.
How would you characterize the Portfolio's position at the close of the period?
We are currently maintaining a bearish bias toward short-term interest rates. We
believe the Fed will continue to raise short-term interest rates until it
believes that inflation is sufficiently under control. As far as duration is
concerned, we start to become interested in adding interest rate exposure as
yields approach the 4.5% area. In fact, we expect gradually higher interest
rates in the months ahead. As for the Fed, we believe it will continue its
measured tightening policy en route to a more "neutral" federal funds rate of
approximately 3% - 3.5%, leaning toward the lower end of this range, by the end
of 2005. We also believe that growth will be lower in 2005 than in 2004.
Therefore, we have positioned the Portfolio to take advantage of an economy that
in our opinion will continue to grow in the 3% area.
Under this scenario, credit fundamentals will continue to be positive, thereby
supporting our overweight to credit and spread sectors in general. However, we
are becoming more cautious regarding the high yield and corporate sectors, and
will be looking for an opportunity to reduce our exposure there. In this
environment, there will likely be modest upward pressure on interest rates, but
technology, global competition and productivity should all help to cap interest
rates in this cycle. With this view in mind, we will look to maintain a slightly
short duration profile relative to the benchmark.
As always, we will continue to closely monitor economic and market trends and
will make additional changes to our strategy, as appropriate, in our efforts to
enhance investment opportunities.
Patrick Maldari
Vice President and Co-Portfolio Manager
James J. Pagano
Vice President and Co-Portfolio Manager
January 10, 2005
MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 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 (front-end load) of 3%
and an account maintenance fee of 0.25% per year (but no distribution
fee).
o 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% per year and an
account maintenance fee of 0.25% per year. 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% per year and an
account maintenance fee of 0.25% per year. 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% per year and an account maintenance fee of 0.25% per year. Class R
Shares are available only to certain retirement plans.
The performance results for Class A and Class I Shares depicted on page 7 are
those of Merrill Lynch Low Duration Fund and, prior to October 6, 2000, a
predecessor Fund investing in the same underlying portfolio and with the same
fees as Merrill Lynch Low Duration Fund. Performance results prior to October 6,
2000 reflect the annual operating expenses of the predecessor Fund. If Merrill
Lynch Low Duration Fund's operating expenses were reflected, the results may
have been less than those shown for this time period. Performance results after
October 6, 2000 include the actual operating expenses of Merrill Lynch Low
Duration Fund. The Fund commenced operations on October 6, 2000.
None of the past results shown should be considered a representation of future
performance. Current performance may be lower or higher than the performance
data quoted. Refer to www.mlim.ml.com to obtain performance data current to the
most recent month-end. 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 DECEMBER 31, 2004
Performance Data (concluded)
Recent Performance Results*
10-Year/
6-Month 12-Month Since Inception Standardized
As of December 31, 2004 Total Return Total Return Total Return 30-Day Yield
==============================================================================================================================
ML Low Duration Fund Class A Shares* +1.31% +1.38% +25.51% 2.45%
- ------------------------------------------------------------------------------------------------------------------------------
ML Low Duration Fund Class B Shares* +0.97 +0.60 +15.29 1.86
- ------------------------------------------------------------------------------------------------------------------------------
ML Low Duration Fund Class C Shares* +1.07 +0.70 +15.23 1.86
- ------------------------------------------------------------------------------------------------------------------------------
ML Low Duration Fund Class I Shares* +1.54 +1.63 +76.94 2.69
- ------------------------------------------------------------------------------------------------------------------------------
ML Low Duration Fund Class R Shares* +1.18 +1.02 + 4.35 2.27
- ------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch 1 - 3 Year Corporate & Government Index** +1.23 +1.21 +78.32/+30.44/+23.04/+4.30 --
- ------------------------------------------------------------------------------------------------------------------------------
* Investment results shown do not reflect sales charges; results shown would
be lower if a sales charge was included. Cumulative 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 and Class C Shares and from 1/03/03
for Class R Shares.
** This unmanaged Index is comprised of investment grade corporate bonds and
U.S. Treasury and agency securities with a maturity ranging from one year
to three years. Ten-year/since inception total returns are for 10 years,
from 9/24/99, from 10/06/00 and from 1/03/03, respectively.
Average Annual Total Return
Return Without Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
One Year Ended 12/31/04 +1.38% -1.66%
- --------------------------------------------------------------------------------
Five Years Ended 12/31/04 +4.48% +3.85%
- --------------------------------------------------------------------------------
Inception (9/24/99)
through 12/31/04 +4.41 +3.80
- --------------------------------------------------------------------------------
* Maximum sales charge is 3%.
** Assuming maximum sales charge.
Return Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
One Year Ended 12/31/04 +0.60% -3.35%
- --------------------------------------------------------------------------------
Inception (10/06/00)
through 12/31/04 +3.42 +2.99
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 4% and is reduced to 0% after
six years.
** Assuming payment of applicable contingent deferred sales charge.
Return Return
Without CDSC With CDSC**
================================================================================
Class C Shares*
================================================================================
One Year Ended 12/31/04 +0.70% -0.29%
- --------------------------------------------------------------------------------
Inception (10/06/00)
through 12/31/04 +3.40 +3.40
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 1% and is reduced to 0% after
one year.
** Assuming payment of applicable contingent deferred sales charge.
Return Without Return With
Sales Charge Sales Charge**
================================================================================
Class I Shares*
================================================================================
One Year Ended 12/31/04 +1.63% -1.41%
- --------------------------------------------------------------------------------
Five Years Ended 12/31/04 +4.73 +4.10
- --------------------------------------------------------------------------------
Ten Years Ended 12/31/04 +5.87 +5.55
- --------------------------------------------------------------------------------
* Maximum sales charge is 3%.
** Assuming maximum sales charge.
- --------------------------------------------------------------------------------
Class R Shares Return
================================================================================
One Year Ended 12/31/04 +1.02%
- --------------------------------------------------------------------------------
Inception (1/03/03)
through 12/31/04 +2.16
- --------------------------------------------------------------------------------
MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2004 7
[LOGO] Merrill Lynch Investment Managers
Disclosure of Expenses
Shareholders of this Fund may incur the following charges: (a) expenses related
to transactions, including sales charges, redemption fees and exchange fees; and
(b) operating expenses including advisory fees, distribution fees including
12(b)-1 fees, and other Fund expenses. The following example (which is based on
a hypothetical investment of $1,000 invested on July 1, 2004 and held through
December 31, 2004) is intended to assist shareholders both in calculating
expenses based on an investment in the Fund and in comparing these expenses with
similar costs of investing in other mutual funds.
The first table below provides information about actual account values and
actual expenses. In order to estimate the expenses a shareholder paid during the
period covered by this report, shareholders can divide their account value by
$1,000 and then multiply the result by the number in the first line under the
heading entitled "Expenses Paid During the Period."
The second table below provides information about hypothetical account values
and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses. In order to assist
shareholders in comparing the ongoing expenses of investing in this Fund and
other funds, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in other funds' shareholder reports.
The expenses shown in the table are intended to highlight shareholders ongoing
costs only and do not reflect any transactional expenses, such as sales charges,
redemption fees or exchange fees. Therefore, the second table is useful in
comparing ongoing expenses only, and will not help shareholders determine the
relative total expenses of owning different funds. If these transactional
expenses were included, shareholder expenses would have been higher.
Expenses Paid
Beginning Ending During the Period*
Account Value Account Value July 1, 2004 to
July 1, 2004 December 31, 2004 December 31, 2004
=========================================================================================================
Actual
=========================================================================================================
Class A $1,000 $1,013.10 $4.67
- ---------------------------------------------------------------------------------------------------------
Class B $1,000 $1,009.70 $8.14
- ---------------------------------------------------------------------------------------------------------
Class C $1,000 $1,010.70 $8.15
- ---------------------------------------------------------------------------------------------------------
Class I $1,000 $1,015.40 $3.44
- ---------------------------------------------------------------------------------------------------------
Class R $1,000 $1,011.80 $6.00
=========================================================================================================
Hypothetical (5% annual return before expenses)**
=========================================================================================================
Class A $1,000 $1,020.84 $4.69
- ---------------------------------------------------------------------------------------------------------
Class B $1,000 $1,017.38 $8.17
- ---------------------------------------------------------------------------------------------------------
Class C $1,000 $1,017.38 $8.17
- ---------------------------------------------------------------------------------------------------------
Class I $1,000 $1,022.07 $3.45
- ---------------------------------------------------------------------------------------------------------
Class R $1,000 $1,019.52 $6.02
- ---------------------------------------------------------------------------------------------------------
* For each class of the Fund, expenses are equal to the annualized expense
ratio for the class (.91% for Class A, 1.59% for Class B, 1.59% for Class
C, .67% for Class I and 1.17% for Class R), multiplied by the average
account value over the period, multiplied by 186/365 (to reflect the
one-half year period shown). Because the Fund is a feeder fund, the
expense table example reflects the expenses of both the feeder fund and
master trust in which it invests.
** Hypothetical 5% annual return before expenses is calculated by pro-rating
the number of days in the most recent fiscal half-year divided by 365.
8 MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2004
Statement of Assets and Liabilities Merrill Lynch Low Duration Fund
As of December 31, 2004
=============================================================================================================================
Assets
- -----------------------------------------------------------------------------------------------------------------------------
Investment in Low Duration Master Portfolio (the "Portfolio"), at
value (identified cost--$810,163,725) ............................ $ 807,969,601
Prepaid expenses and other assets ................................. 40,370
-------------
Total assets ...................................................... 808,009,971
-------------
=============================================================================================================================
Liabilities
- -----------------------------------------------------------------------------------------------------------------------------
Payables:
Dividends to shareholders ...................................... $ 592,085
Distributor .................................................... 327,492
Administrator .................................................. 195,465
Other affiliates ............................................... 138,590
-------------
Total liabilities ................................................. 1,253,632
-------------
=============================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------
Net assets ........................................................ $ 806,756,339
=============
=============================================================================================================================
Net Assets Consist of
- -----------------------------------------------------------------------------------------------------------------------------
Class A Shares of Common Stock, $.01 par value, 100,000,000 shares
authorized ....................................................... $ 246,879
Class B Shares of Common Stock, $.01 par value, 200,000,000 shares
authorized ....................................................... 113,142
Class C Shares of Common Stock, $.01 par value, 100,000,000 shares
authorized ....................................................... 208,669
Class I Shares of Common Stock, $.01 par value, 100,000,000 shares
authorized ....................................................... 222,791
Class R Shares of Common Stock, $.01 par value, 200,000,000 shares
authorized ....................................................... 3,215
Paid-in capital in excess of par .................................. 827,739,837
Accumulated distributions in excess of investment income--net ..... $ (200,352)
Accumulated realized capital losses allocated from the Portfolio--net (19,383,718)
Unrealized depreciation allocated from the Portfolio--net ......... (2,194,124)
-------------
Total accumulated losses--net ..................................... (21,778,194)
-------------
Net Assets ........................................................ $ 806,756,339
=============
=============================================================================================================================
Net Asset Value
- -----------------------------------------------------------------------------------------------------------------------------
Class A--Based on net assets of $250,799,940 and 24,687,866 shares
outstanding ...................................................... $ 10.16
=============
Class B--Based on net assets of $114,711,449 and 11,314,175 shares
outstanding ...................................................... $ 10.14
=============
Class C--Based on net assets of $211,499,974 and 20,866,902 shares
outstanding ...................................................... $ 10.14
=============
Class I--Based on net assets of $226,483,295 and 22,279,116 shares
outstanding ...................................................... $ 10.17
=============
Class R--Based on net assets of $3,261,681 and 321,548 shares
outstanding ...................................................... $ 10.14
=============
See Notes to Financial Statements.
MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2004 9
[LOGO] Merrill Lynch Investment Managers
Statement of Operations Merrill Lynch Low Duration Fund
For the Six Months Ended December 31, 2004
=============================================================================================================================
Investment Income Allocated from the Portfolio--Net
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income allocated from the Portfolio:
Interest ....................................................... $ 13,793,870
Dividends ...................................................... 100,050
Securities lending--net ........................................ 6,513
Expenses ....................................................... (1,114,836)
-------------
Net investment income allocated from the Portfolio ................ 12,785,597
-------------
=============================================================================================================================
Expenses
- -----------------------------------------------------------------------------------------------------------------------------
Account maintenance and distribution fees--Class C ................ $ 1,042,643
Administration fees ............................................... 1,004,337
Account maintenance and distribution fees--Class B ................ 573,547
Account maintenance fees--Class A ................................. 251,097
Transfer agent fees--Class C ...................................... 148,500
Transfer agent fees--Class I ...................................... 133,424
Transfer agent fees--Class A ...................................... 107,177
Transfer agent fees--Class B ...................................... 83,624
Printing and shareholder reports .................................. 54,955
Registration fees ................................................. 51,054
Professional fees ................................................. 17,369
Account maintenance and distribution fees--Class R ................ 6,922
Transfer agent fees--Class R ...................................... 1,521
Other ............................................................. 9,949
-------------
Total expenses .................................................... 3,486,119
-------------
Investment income--net ............................................ 9,299,478
-------------
=============================================================================================================================
Realized & Unrealized Gain (Loss) Allocated from the Portfolio--Net
- -----------------------------------------------------------------------------------------------------------------------------
Realized loss on investments, futures contracts, swaps and
options written allocated from the Portfolio--net ................ (4,197,029)
Change in unrealized appreciation/depreciation on investments,
futures contracts, swaps and options written allocated from
the Portfolio--net ............................................... 3,739,545
-------------
Total realized and unrealized loss allocated from the Portfolio--net (457,484)
-------------
Net Increase in Net Assets Resulting from Operations .............. $ 8,841,994
=============
See Notes to Financial Statements.
10 MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2004
Statements of Changes in Net Assets Merrill Lynch Low Duration Fund
For the Six For the
Months Ended Year Ended
December 31, June 30,
Increase (Decrease) in Net Assets: 2004 2004
=============================================================================================================================
Operations
- -----------------------------------------------------------------------------------------------------------------------------
Investment income--net ............................................ $ 9,299,478 $ 19,004,549
Realized loss allocated from the Portfolio--net ................... (4,197,029) (2,237,834)
Change in unrealized appreciation/depreciation allocated from
the Portfolio--net ............................................... 3,739,545 (14,412,826)
-------------------------------
Net increase in net assets resulting from operations .............. 8,841,994 2,353,889
-------------------------------
=============================================================================================================================
Dividends to Shareholders
- -----------------------------------------------------------------------------------------------------------------------------
Investment income--net:
Class A ........................................................ (2,571,599) (4,000,377)
Class B ........................................................ (1,202,744) (2,888,117)
Class C ........................................................ (2,191,493) (5,423,362)
Class I ........................................................ (3,380,976) (6,749,059)
Class R ........................................................ (32,126) (35,048)
-------------------------------
Net decrease in net assets resulting from dividends to shareholders (9,378,938) (19,095,963)
-------------------------------
=============================================================================================================================
Capital Share Transactions
- -----------------------------------------------------------------------------------------------------------------------------
Net increase in net assets derived from capital share transactions 68,142,129 17,705,029
-------------------------------
=============================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------
Total increase in net assets ...................................... 67,605,185 962,955
Beginning of period ............................................... 739,151,154 738,188,199
-------------------------------
End of period* .................................................... $ 806,756,339 $ 739,151,154
===============================
* Accumulated distributions in excess of investment income--net $ (200,352) $ (120,892)
===============================
See Notes to Financial Statements.
MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2004 11
[LOGO] Merrill Lynch Investment Managers
Financial Highlights Merrill Lynch Low Duration Fund
Class A
--------------------------------------------------------------------
The following per share data and ratios have been derived For the Six For the Year Ended For the Period
from information provided in the financial statements. Months Ended June 30, October 6, 2000+
December 31, -------------------------------------- to June 30,
Increase (Decrease) in Net Asset Value: 2004 2004 2003 2002 2001
=================================================================================================================================
Per Share Operating Performance
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period ........................... $ 10.16 $ 10.38 $ 10.16 $ 10.19 $ 10.00
--------------------------------------------------------------------
Investment income--net ............ .13++ .29++ .31++ .34++ .36
Realized and unrealized gain (loss)
allocated from the Portfolio--net --@ (.22) .23 .12 .19
--------------------------------------------------------------------
Total from investment operations .. .13 .07 .54 .46 .55
--------------------------------------------------------------------
Less dividends and distributions:
Investment income--net ......... (.13) (.29) (.32) (.48) (.36)
Realized gain allocated from the
Portfolio--net ................ -- -- -- (.01) --
--------------------------------------------------------------------
Total dividends and distributions . (.13) (.29) (.32) (.49) (.36)
--------------------------------------------------------------------
Net asset value, end of period .... $ 10.16 $ 10.16 $ 10.38 $ 10.16 $ 10.19
====================================================================
=================================================================================================================================
Total Investment Return**
- ---------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share 1.31%@@ .66% 5.36% 4.53% 5.58%@@
====================================================================
=================================================================================================================================
Ratios to Average Net Assets
- ---------------------------------------------------------------------------------------------------------------------------------
Expenses, net of waiver and
reimbursement and excluding
reorganization expenses+++ ....... .91%* .89% .95% .83% .83%*
====================================================================
Expenses+++ ....................... .91%* .89% 1.00% 1.02% 8.76%*
====================================================================
Investment income--net ............ 2.53%* 2.78% 3.03% 4.04% 5.75%*
====================================================================
=================================================================================================================================
Supplemental Data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) ................... $250,800 $125,950 $152,780 $110,014 $ 268
====================================================================
Portfolio turnover of Low Duration
Master Portfolio ................. 47.02% 107.13% 198.09% 70.92% 192.04%
====================================================================
* Annualized.
** Total investment returns exclude the effect of sales charges. If
applicable, the Fund's administrator 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.
@ Amount is less than $(.01) per share.
@@ Aggregate total investment return.
See Notes to Financial Statements.
12 MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2004
Financial Highlights (continued) Merrill Lynch Low Duration Fund
Class B
--------------------------------------------------------------------
The following per share data and ratios have been derived For the Six For the Year Ended For the Period
from information provided in the financial statements. Months Ended June 30, October 6, 2000+
December 31, -------------------------------------- to June 30,
Increase (Decrease) in Net Asset Value: 2004 2004 2003 2002 2001
=================================================================================================================================
Per Share Operating Performance
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period ........................... $ 10.14 $ 10.37 $ 10.14 $ 10.18 $ 10.00
--------------------------------------------------------------------
Investment income--net ............ .10++ .22++ .24++ .37++ .33
Realized and unrealized gain (loss)
allocated from the Portfolio--net --@ (.23) .24 .01 .18
--------------------------------------------------------------------
Total from investment operations .. .10 (.01) .48 .38 .51
--------------------------------------------------------------------
Less dividends and distributions:
Investment income--net ......... (.10) (.22) (.25) (.41) (.33)
Realized gain allocated from the
Portfolio--net ................ -- -- -- (.01) --
--------------------------------------------------------------------
Total dividends and distributions . (.10) (.22) (.25) (.42) (.33)
--------------------------------------------------------------------
Net asset value, end of period .... $ 10.14 $ 10.14 $ 10.37 $ 10.14 $ 10.18
====================================================================
=================================================================================================================================
Total Investment Return**
- ---------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share .97%@@ (.11%) 4.77% 3.75% 5.16%@@
====================================================================
=================================================================================================================================
Ratios to Average Net Assets
- ---------------------------------------------------------------------------------------------------------------------------------
Expenses, net of waiver and
reimbursement and excluding
reorganization expenses+++ ....... 1.59%* 1.56% 1.61% 1.48% 1.48%*
====================================================================
Expenses+++ ....................... 1.59%* 1.56% 1.66% 1.70% 9.41%*
====================================================================
Investment income--net ............ 1.87%* 2.12% 1.87% 3.75% 5.10%*
====================================================================
=================================================================================================================================
Supplemental Data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) ................... $114,711 $130,802 $139,688 $ 64,457 $ 5,016
====================================================================
Portfolio turnover of Low Duration
Master Portfolio ................. 47.02% 107.13% 198.09% 70.92% 192.04%
====================================================================
* Annualized.
** Total investment returns exclude the effect of sales charges. If
applicable, the Fund's administrator 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.
@ Amount is less than $(.01) per share.
@@ Aggregate total investment return.
See Notes to Financial Statements.
MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2004 13
[LOGO] Merrill Lynch Investment Managers
Financial Highlights (continued) Merrill Lynch Low Duration Fund
Class C
--------------------------------------------------------------------
The following per share data and ratios have been derived For the Six For the Year Ended For the Period
from information provided in the financial statements. Months Ended June 30, October 6, 2000+
December 31, -------------------------------------- to June 30,
Increase (Decrease) in Net Asset Value: 2004 2004 2003 2002 2001
=================================================================================================================================
Per Share Operating Performance
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period ........................... $ 10.13 $ 10.36 $ 10.14 $ 10.18 $ 10.00
--------------------------------------------------------------------
Investment income--net ............ .10++ .22++ .24++ .35++ .32
Realized and unrealized gain (loss)
allocated from the Portfolio--net .01 (.23) .23 .03 .18
--------------------------------------------------------------------
Total from investment operations .. .11 (.01) .47 .38 .50
--------------------------------------------------------------------
Less dividends and distributions:
Investment income--net ......... (.10) (.22) (.25) (.41) (.32)
Realized gain allocated from the
Portfolio--net ................ -- -- -- (.01) --
--------------------------------------------------------------------
Total dividends and distributions . (.10) (.22) (.25) (.42) (.32)
--------------------------------------------------------------------
Net asset value, end of period .... $ 10.14 $ 10.13 $ 10.36 $ 10.14 $ 10.18
====================================================================
=================================================================================================================================
Total Investment Return**
- ---------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share 1.07%@ (.11%) 4.68% 3.75% 5.10%@
====================================================================
=================================================================================================================================
Ratios to Average Net Assets
- ---------------------------------------------------------------------------------------------------------------------------------
Expenses, net of waiver and
reimbursement and excluding
reorganization expenses+++ ....... 1.59%* 1.56% 1.61% 1.48% 1.48%*
====================================================================
Expenses+++ ....................... 1.59%* 1.56% 1.66% 1.68% 9.41%*
====================================================================
Investment income--net ............ 1.87%* 2.12% 2.37% 3.62% 5.10%*
====================================================================
=================================================================================================================================
Supplemental Data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) ................... $211,500 $239,263 $263,066 $126,380 $ 4,754
====================================================================
Portfolio turnover of Low Duration
Master Portfolio ................. 47.02% 107.13% 198.09% 70.92% 192.04%
====================================================================
* Annualized.
** Total investment returns exclude the effect of sales charges. If
applicable, the Fund's administrator 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.
14 MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2004
Financial Highlights (continued) Merrill Lynch Low Duration Fund
Class I
--------------------------------------------------------------------
The following per share data and ratios have been derived For the Six For the Year Ended For the Period
from information provided in the financial statements. Months Ended June 30, October 6, 2000+
December 31, -------------------------------------- to June 30,
Increase (Decrease) in Net Asset Value: 2004 2004 2003 2002 2001
=================================================================================================================================
Per Share Operating Performance
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period ........................... $ 10.16 $ 10.39 $ 10.17 $ 10.21 $ 10.00
--------------------------------------------------------------------
Investment income--net ............ .15++ .31++ .31++ .45++ .40
Realized and unrealized gain (loss)
allocated from the Portfolio--net .01 (.23) .25 .02 .19
--------------------------------------------------------------------
Total from investment operations .. .16 .08 .56 .47 .59
--------------------------------------------------------------------
Less dividends and distributions:
Investment income--net ......... (.15) (.31) (.34) (.50) (.38)
Realized gain allocated from the
Portfolio--net ................ -- -- -- (.01) --
--------------------------------------------------------------------
Total dividends and distributions . (.15) (.31) (.34) (.51) (.38)
--------------------------------------------------------------------
Net asset value, end of period .... $ 10.17 $ 10.16 $ 10.39 $ 10.17 $ 10.21
====================================================================
=================================================================================================================================
Total Investment Return**
- ---------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share 1.54%@ .81% 5.61% 4.68% 5.95%@
====================================================================
=================================================================================================================================
Ratios to Average Net Assets
- ---------------------------------------------------------------------------------------------------------------------------------
Expenses, net of waiver and
reimbursement and excluding
reorganization expenses+++ ....... .67%* .65% .70% .58% .58%*
====================================================================
Expenses+++ ....................... .67%* .65% .75% .78% 8.51%*
====================================================================
Investment income--net ............ 2.79%* 3.00% 3.29% 4.51% 6.00%*
====================================================================
=================================================================================================================================
Supplemental Data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) ................... $226,483 $240,749 $182,654 $ 23,325 $ 1,156
====================================================================
Portfolio turnover of Low Duration
Master Portfolio ................. 47.02% 107.13% 198.09% 70.92% 192.04%
====================================================================
* Annualized.
** Total investment returns exclude the effect of sales charges. If
applicable, the Fund's administrator reimbursed a portion of the Fund's
expenses. Without such reimbursement, the Fund's performance would have
been lower.
+ Commencement of operations.
++ Based on average shares outstanding.
+++ Includes the Fund's share of the Portfolio's allocated expenses.
@ Aggregate total investment return.
See Notes to Financial Statements.
MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2004 15
[LOGO] Merrill Lynch Investment Managers
Financial Highlights (concluded) Merrill Lynch Low Duration Fund
Class R
--------------------------------------------------
For the
The following per share data and ratios have been derived For the Six For the Period
from information provided in the financial statements. Months Ended Year Ended January 3, 2003+
December 31, June 30, to June 30,
Increase (Decrease) in Net Asset Value: 2004 2004 2003
================================================================================================================================
Per Share Operating Performance
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period .............. $ 10.14 $ 10.37 $ 10.29
--------------------------------------------------
Investment income--net*** ......................... .12 .17 .18
Realized and unrealized gain (loss) allocated from
the Portfolio--net ............................... --@ (.11) .08
--------------------------------------------------
Total from investment operations .................. .12 .06 .26
--------------------------------------------------
Less dividends from investment income--net ........ (.12) (.29) (.18)
--------------------------------------------------
Net asset value, end of period .................... $ 10.14 $ 10.14 $ 10.37
==================================================
================================================================================================================================
Total Investment Return**
- --------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ................ 1.18%@@ .56% 2.55%@@
==================================================
================================================================================================================================
Ratios to Average Net Assets
- --------------------------------------------------------------------------------------------------------------------------------
Expenses, excluding reorganization expenses++ ..... 1.17%* 1.16% 1.19%*
==================================================
Expenses++ ........................................ 1.17%* 1.16% 1.28%*
==================================================
Investment income--net ............................ 2.30%* 2.42% 2.74%*
==================================================
================================================================================================================================
Supplemental Data
- --------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) .......... $ 3,262 $ 2,387 --@@@
==================================================
Portfolio turnover of Low Duration Master Portfolio 47.02% 107.13% 198.09%
==================================================
* Annualized.
** Total investment returns exclude the effect of sales charges.
*** Based on average shares outstanding.
+ Commencement of operations.
++ Includes the Fund's share of the Portfolio's allocated expenses.
@ Amount is less than $(.01) per share.
@@ Aggregate total investment return.
@@@ Amount is less than $1,000.
See Notes to Financial Statements.
16 MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2004
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 and strategies 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 and strategies
as the Fund. The value of the Fund's investment in the Portfolio reflects the
Fund's proportionate interest in the net assets of the Portfolio. The
performance of the Fund is directly affected by the performance of the
Portfolio. The financial statements of the Portfolio, including the Schedule of
Investments, are included elsewhere in this report and should be read in
conjunction with the Fund's financial statements. These unaudited financial
statements reflect all adjustments, which are, in the opinion of management,
necessary to present a fair statement of the results of the interim period. All
such adjustments are of a normal, recurring nature. The percentage of the
Portfolio owned by the Fund at December 31, 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 (except that Class B shareholders may vote on certain changes to
the Class A distribution plan). Income, expenses (other than expenses
attributable to a specific class) and realized and unrealized gains and losses
are allocated daily to each class based on its relative net assets. The
following is a summary of significant accounting policies followed by the Fund.
(a) Valuation of investments -- The Fund records its investment in the Portfolio
at fair value. Valuation of securities held by the Portfolio is discussed in
Note 1a of the Portfolio's Notes to Financial Statements, which are included
elsewhere in this report.
(b) Investment income and expenses -- The Fund records daily its proportionate
share of the Portfolio's income, expenses and realized and unrealized gains and
losses. In addition, the Fund accrues its own expenses.
(c) Income taxes -- It is the Fund's policy to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders. Therefore,
no federal income tax provision is required.
(d) Prepaid registration fees -- Prepaid registration fees are charged to
expense as the related shares are issued.
(e) Dividends and distributions -- Dividends from net investment income are
declared daily and paid monthly. Distributions of capital gains are recorded on
the ex-dividend dates.
(f) Investment transactions -- Investment transactions in the Portfolio are
accounted for on a trade date basis.
2. Transactions with Affiliates:
The Company has entered into an Administration Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), a wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."),
which is the limited partner. The Fund pays a monthly fee at an annual rate of
..25% of the Fund's average daily net assets for the performance of
administrative services (other than investment advice and related portfolio
activities) necessary for the operation of the Fund.
The Company has also entered into a Distribution Agreement and Distributions
Plans with FAM Distributors, Inc. ("FAMD" or the "Distributor"), an indirect,
wholly-owned subsidiary of Merrill Lynch Group, Inc.
Pursuant to the Distribution Plans adopted by the Company in accordance with
Rule 12b-1 under the Investment Company Act of 1940, the Fund pays the
Distributor ongoing account maintenance and distribution fees. The fees are
MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2004 17
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements (continued) Merrill Lynch Low Duration Fund
accrued daily and paid monthly at annual rates based upon the average daily net
assets of the shares as follows:
- --------------------------------------------------------------------------------
Account Distribution
Maintenance Fee Fee
- --------------------------------------------------------------------------------
Class A ................................ .25% --
Class B ................................ .25% .65%
Class C ................................ .25% .65%
Class R ................................ .25% .25%
- --------------------------------------------------------------------------------
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("MLPF&S"), a subsidiary of ML & Co., also provides account
maintenance and distribution services to the Fund. The ongoing account
maintenance fee compensates the Distributor and MLPF&S for providing account
maintenance services to Class A, Class B, Class C and Class R shareholders. The
ongoing distribution fee compensates the Distributor and MLPF&S for providing
shareholder and distribution-related services to Class B, Class C and Class R
shareholders.
For the six months ended December 31, 2004, FAMD earned underwriting discounts
and direct commissions and MLPF&S earned dealer concessions on sales of the
Fund's Class A and Class I Shares as follows:
- --------------------------------------------------------------------------------
FAMD MLPF&S
- --------------------------------------------------------------------------------
Class A ............................ $ 6,371 $31,199
Class I ............................ $ 2,842 $ 2,249
- --------------------------------------------------------------------------------
For the six months ended December 31, 2004, MLPF&S received contingent deferred
sales charges of $177,042 and $49,670 relating to transactions in Class B and
Class C Shares, respectively. Furthermore, MLPF&S received contingent deferred
sales charges of $23,421 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
$68,142,129 and $17,705,029 for the six months ended December 31, 2004 and the
year ended June 30, 2004, respectively.
Transactions in capital shares for each class were as follows:
- --------------------------------------------------------------------------------
Class A Shares for the Six Months Dollar
Ended December 31, 2004 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 14,837,863 $ 151,570,114
Automatic conversion of shares ......... 96,933 988,740
Shares issued to shareholders in
reinvestment of dividends ........... 183,166 1,864,569
---------------------------------
Total issued ........................... 15,117,962 154,423,423
Shares redeemed ........................ (2,831,470) (28,829,455)
---------------------------------
Net increase ........................... 12,286,492 $ 125,593,968
=================================
- --------------------------------------------------------------------------------
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 B Shares for the Six Months Dollar
Ended December 31, 2004 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 781,944 $ 7,956,613
Shares issued to shareholders in
reinvestment of dividends ........... 78,199 795,183
---------------------------------
Total issued ........................... 860,143 8,751,796
---------------------------------
Automatic conversion of shares ......... (97,124) (988,740)
Shares redeemed ........................ (2,351,184) (23,908,333)
---------------------------------
Total redeemed ......................... (2,448,308) (24,897,073)
---------------------------------
Net decrease ........................... (1,588,165) $ (16,145,277)
=================================
- --------------------------------------------------------------------------------
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)
---------------------------------
Total redeemed ......................... (5,176,571) 53,086,728
---------------------------------
Net decrease ........................... (573,628) $ (5,876,804)
=================================
- --------------------------------------------------------------------------------
Class C Shares for the Six Months Dollar
Ended December 31, 2004 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 2,333,766 $ 23,733,382
Shares issued to shareholders in
reinvestment of dividends ........... 157,463 1,600,641
---------------------------------
Total issued ........................... 2,491,229 25,334,023
Shares redeemed ........................ (5,232,626) (53,198,351)
---------------------------------
Net decrease ........................... (2,741,397) $ (27,864,328)
=================================
18 MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2004
Notes to Financial Statements (concluded) Merrill Lynch Low Duration Fund
- --------------------------------------------------------------------------------
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)
=================================
- --------------------------------------------------------------------------------
Class I Shares for the Six Months Dollar
Ended December 31, 2004 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 2,219,685 $ 22,633,032
Shares issued to shareholders in
reinvestment of dividends ........... 283,177 2,886,984
---------------------------------
Total issued ........................... 2,502,862 25,520,016
Shares redeemed ........................ (3,908,474) (39,839,537)
---------------------------------
Net decrease ........................... (1,405,612) $ (14,319,521)
=================================
- --------------------------------------------------------------------------------
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 R Shares for the Six Months Dollar
Ended December 31, 2004 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 117,808 $ 1,198,003
Shares issued to shareholders in
reinvestment of dividends ........... 3,288 33,436
---------------------------------
Total issued ........................... 121,096 1,231,439
Shares redeemed ........................ (34,843) (354,152)
---------------------------------
Net increase ........................... 86,253 $ 877,287
=================================
- --------------------------------------------------------------------------------
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
=================================
4. Capital Loss Carryforward:
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.
MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2004 19
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments Low Duration Master Portfolio (in U.S. dollars)
Face
Amount Asset-Backed Securities+ Value
===================================================================================================================================
$ 982 Advanta Mortgage Loan Trust Series 1998-2 Class A17, 6.05% due 9/25/2018 $ 982
459,777 CIT Equipment Collateral Series 2002-VT1 Class A3, 4.03% due 1/20/2006 460,774
2,750,422 CIT Group Home Equity Loan Trust Series 2003-1 Class A2, 2.35% due 4/20/2027 2,743,505
California Infrastructure Series 1997-1:
1,086,143 PG&E-1 Class A7, 6.42% due 9/25/2008 1,118,870
916,675 SCE-1 Class A6, 6.38% due 9/25/2008 945,086
4,100,000 Capital One Auto Finance Trust Series 2003-A Class A4A, 2.47% due 1/15/2010 4,044,614
7,000,000 Capital One Master Trust Series 2000-4 Class C, 3.28% due 8/15/2008 (a)(c) 7,000,000
6,600,000 Chase Credit Card Master Trust Series 2003-1 Class C, 3.58% due 4/15/2008 (a) 6,651,704
Chase Funding Mortgage Loan Asset-Backed Certificates:
3,781,968 Series 1999-4 Class IA6, 7.407% due 9/25/2011 3,905,474
590,471 Series 2002-3 Class 1A3, 3.55% due 3/25/2022 589,675
Chase Manhattan Auto Owner Trust:
2,465,288 Series 2002-B, 4.24% due 1/15/2009 2,484,781
2,097,480 Series 2003-A, 2.04% due 12/15/2009 2,066,272
427,783 Cityscape Home Equity Loan Trust Series 1996-4 Class A10, 7.40%
due 9/25/2027 (c) 427,090
117,553 Countrywide Home Equity Loan Trust Series 1999-A CTFS, 2.80% due 4/15/2025 (a) 117,561
1,930,914 Countrywide Home Loan Mortgage Pass-Through Trust Series 2003-R4 Class 1A1A,
2.216% due 7/25/2019 1,926,582
5,962,143 First Franklin Mortgage Loan Asset-Backed Certificates Series 2003-FF5 Class
A2, 2.82% due 3/25/2034 (a) 5,937,130
8,500,000 First National Master Note Trust Series 2003-2 Class C, 3.70% due 4/15/2009 8,495,357
5,206,231 GMAC Mortgage Corp. Loan Trust Series 2003-HE2 Class A2, 3.14% due 6/25/2025 5,189,683
2,153,091 Ikon Receivables Series 2003-1 Class A3B, 2.33% due 12/15/2007 2,144,356
768,453 M&I Auto Loan Trust Series 2001-1 Class A4, 4.97% due 3/20/2007 (a) 771,298
MBNA Credit Card Master Note Trust:
4,100,000 Series 2001 Class C3, 6.55% due 12/15/2008 4,278,088
7,000,000 Series 2002 Class C5, 4.05% due 1/15/2008 7,038,695
609,321 PSE&G Transition Funding LLC Series 2001-1 Class A2, 5.74% due 3/15/2007 (a) 613,468
WFS Financial Owner Trust Class B:
1,296,455 Series 2003-2, 2.48% due 12/20/2010 1,288,644
6,116,318 Series 2003-4, 2.73% due 5/20/2011 6,069,648
752,248 Whole Auto Loan Trust Series 2002-1 Class B, 2.91% due 4/15/2009 751,149
- -----------------------------------------------------------------------------------------------------------------------------------
Total Asset-Backed Securities (Cost--$77,501,417)--9.5% 77,060,486
===================================================================================================================================
Government & Agency Obligations
===================================================================================================================================
17,500,000 Fannie Mae, 1.875% due 9/15/2005 17,382,295
17,500,000 Federal Home Loan Bank System, 1.75% due 8/15/2005 17,391,605
U.S. Treasury Notes:
4,530,000 7% due 7/15/2006 4,802,860
2,900,000 2.625% due 5/15/2008 (d) 2,835,202
- -----------------------------------------------------------------------------------------------------------------------------------
Total Government & Agency Obligations (Cost--$42,823,478)--5.2% 42,411,962
===================================================================================================================================
20 MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2004
Schedule of Investments (continued)
Low Duration Master Portfolio (in U.S. dollars)
Face
Amount Government Agency Mortgage-Backed Obligations+ Value
===================================================================================================================================
Fannie Mae Guaranteed Pass-Through Certificates:
$ 935,167 6.50% due 8/01/2032--9/01/2032 $ 981,629
9,501,316 8% due 7/01/2027--11/01/2032 10,283,022
Fannie Mae Trust:
8,500,000 Series 2003-17 Class QR, 4.50% due 11/25/2025 8,517,627
5,566,369 Series 2003-23 Class AB, 4% due 3/25/2017 5,532,463
7,135,264 Series 2003-48 Class HA, 3.50% due 11/25/2017 7,051,485
1,956,313 Series 2003-W19 Class 1A1, 2.01% due 11/25/2033 1,951,803
Freddie Mac Mortgage Participation Certificates:
35,409,102 5% due 9/01/2019--11/01/2019 35,976,688
10,420,721 6% due 5/01/2016--6/01/2017 10,915,230
2,586,588 6.50% due 8/01/2016--2/01/2017 2,739,041
Freddie Mac Multiclass Certificates Series 2590 Class XR:
5,116,622 Series 2590 Class XR, 3.25% due 7/15/2013 5,062,320
6,496,250 Series 2677 Class HB, 4% due 3/15/2014 6,462,432
9,965,680 Series 2651 Class GA, 2.75% due 7/15/2018 9,659,434
9,119,314 Series 2673 Class ML, 4% due 12/15/2022 9,109,679
Ginnie Mae Trust:
4,319,497 Series 2002-83 Class A, 3.313% due 4/16/2017 4,292,455
109,764,491 Series 2002-94 Class XB, 2.349% due 11/16/2007 (a)(b) 3,360,045
4,943,184 Series 2003-47 Class A, 2.848% due 6/16/2018 4,861,414
- -----------------------------------------------------------------------------------------------------------------------------------
Total Government Agency Mortgage-Backed Obligations
(Cost--$127,194,628)--15.7% 126,756,767
===================================================================================================================================
Non-Government Agency Mortgage-Backed Securities+
===================================================================================================================================
Collateralized Ameriquest Mortgage Securities Inc. Series 2004-FR1:
Mortgage 9,130,000 Class A3, 2.65% due 5/25/2034 9,010,298
Obligations--14.6% 11,000,000 Class A5, 4.455% due 5/25/2034 10,876,062
166,105 BlackRock Capital Finance LP Series 1997-R2 Class AP,
7.922% due 12/25/2035 (a)(c) 169,427
7,699,361 COMM Series 2004-LB4A Class A1, 3.566% due 10/15/2037 7,652,116
4,500,000 CS First Boston Mortgage Securities Corp. Series 2004-C3 Class A2,
3.913% due 7/15/2036 4,500,808
1,250,000 Capital Auto Receivables Asset Trust Series 2004-2 Class D, 5.82%
due 5/15/2012 (c) 1,250,000
Countrywide Asset-Backed Certificates (a):
3,200,000 Series 2004-12 Class AF2, 3.631% due 5/25/2024 3,200,000
10,500,000 Series 2004-13 Class AF3, 3.989% due 12/25/2034 10,499,822
9,750,000 First Horizon Asset-Backed Securities Trust Series 2004-HE4 Class A2,
4.07% due 7/25/2019 9,750,000
7,500,000 GSAA Trust Series 2004-10 Class AF2, 4.22% due 8/25/2034 (a) 7,456,787
31,364 Housing Securities, Inc. Series 1994-2 Class B1, 6.50% due 7/25/2009 27,110
8,285,472 LB-UBS Commercial Mortgage Trust Series 2004-C7 Class A1,
3.625% due 10/15/2029 8,251,090
609,147 Ocwen Residential MBS Corp. Series 1998-R2 Class AP,
6.324% due 11/25/2034 (a)(c) 593,918
241,843 PNC Mortgage Securities Corp. Series 1999-4 Class 1A5, 6.20% due 6/25/2029 242,793
5,000,000 Permanent Financing Plc Series 1 Class 2A, 4.20% due 6/10/2007 5,027,495
4,520,000 Popular Class ABS Mortgage Pass-Through Trust Series 2004-5 Class AF2,
3.735% due 12/25/2034 (a) 4,503,050
51,834 Salomon Brothers Mortgage Securities Series 1986-1 Class A, 6% due 12/25/2011 51,735
1,633,112 Structured Asset Securities Corp. Series 2002-19 Class A1, 4.20%
due 10/25/2032 1,633,149
Structured Mortgage Asset Residential Trust:
7,050 Series 1991-1 Class H, 8.25% due 6/25/2022 7,282
5,251 Series 1992-3A Class AA, 8% due 10/25/2007 5,396
10,800,000 WFS Financial Owner Trust Series 2004-4 Class A4, 3.44% due 5/17/2012 10,755,360
123,686 Walsh Acceptance Series 1997-2 Class A, 3.418% due 3/01/2027 (a)(c) 64,935
MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2004 21
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments (continued)
Low Duration Master Portfolio (in U.S. dollars)
Face
Amount Non-Government Agency Mortgage-Backed Securities+ Value
===================================================================================================================================
Collateralized Washington Mutual (a):
Mortgage Obligations $ 324,382 Series 2000-1 Class B1, 6.418% due 1/25/2040 (c) $ 321,848
(concluded) 21,417,071 Series 2004-AR3 Class A1, 3.918% due 6/25/2034 20,899,979
950,000 Whole Auto Loan Trust 2004-1 Class D, 5.60% due 3/15/2011 965,373
------------
117,715,833
- -----------------------------------------------------------------------------------------------------------------------------------
Commercial Mortgage- 1,689,578 Bank of America Commercial Mortgage, Inc. Series 2000-1 Class A1A,
Backed Securities-- 7.109% due 11/15/2008 1,801,695
2.7% 6,176,794 Bank of America Mortgage Securities Series 2003-J Class 2A1,
4.15% due 11/25/2033 (a) 6,128,423
662,952 First Union National Bank--Bank of America Commercial Mortgage Trust Series
2001-C1 Class A1, 5.711% due 3/15/2033 (a) 690,526
1,445,007 GS Mortgage Securities Corp. II Series 1998-C1 Class A1, 6.06%
due 10/18/2030 (a) 1,467,640
8,300,000 Greenwich Capital Commercial Funding Corporation Series 2004-GG1 Class A2,
3.835% due 6/10/2036 8,320,078
1,453,127 Nomura Asset Securities Corp. Series 1995-MD3 Class A1B, 8.15% due 4/04/2027 1,466,228
1,909,969 Saxon Asset Securities Trust Series 2002-3 Class AV, 2.818% due 12/25/2032 (a) 1,912,687
------------
21,787,277
- -----------------------------------------------------------------------------------------------------------------------------------
Stripped Mortgage- 86,381,527 CS First Boston Mortgage Securities Corp. Series 2003-CPN1 Class ASP,
Backed Securities-- 1.584% due 3/15/2035 (a)(b) 4,998,873
1.5% 32,015,392 Greenwich Capital Commercial Funding Corp. Series 2002-C1 Class XP,
2.059% due 1/11/2035 (a)(b) 2,763,729
85,000,000 LB-UBS Commercial Mortgage Trust Series 2002-C4 Class XCP,
1.475% due 10/15/2035 (a)(b) 4,645,284
------------
12,407,886
- -----------------------------------------------------------------------------------------------------------------------------------
Total Non-Government Agency Mortgage-Backed Securities
(Cost--$153,088,101)--18.8% 151,910,996
===================================================================================================================================
Industry++ Corporate Bonds
===================================================================================================================================
Aerospace & 1,250,000 Goodrich Corp., 6.45% due 4/15/2008 1,339,944
Defense--0.7% 1,985,000 Northrop Grumman Corp., 4.079% due 11/16/2006 2,005,058
247,000 Raytheon Co., 6.50% due 7/15/2005 251,412
2,025,897 Systems 2001 AT LLC, 6.664% due 9/15/2013 (c) 2,244,795
------------
5,841,209
- -----------------------------------------------------------------------------------------------------------------------------------
Airlines--0.1% 819,274 American Airlines, Inc. Series 2003-1, 3.857% due 1/09/2012 807,420
- -----------------------------------------------------------------------------------------------------------------------------------
Auto Components-- 4,245,000 Lear Corp. Series B, 7.96% due 5/15/2005 4,312,788
0.5%
- -----------------------------------------------------------------------------------------------------------------------------------
Automobiles--0.1% 1,200,000 DaimlerChrysler NA Holding Corp., 6.40% due 5/15/2006 1,248,352
- -----------------------------------------------------------------------------------------------------------------------------------
Beverages--0.1% 850,000 Coca-Cola Enterprises, Inc., 5.375% due 8/15/2006 876,920
- -----------------------------------------------------------------------------------------------------------------------------------
22 MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2004
Schedule of Investments (continued)
Low Duration Master Portfolio (in U.S. dollars)
Face
Industry++ Amount Corporate Bonds Value
===================================================================================================================================
Biotechnology--0.4% $ 3,300,000 Amgen, Inc., 4% due 11/18/2009 (c) $ 3,289,763
- -----------------------------------------------------------------------------------------------------------------------------------
Capital Markets-- 2,400,000 The Bear Stearns Cos., Inc., 7.80% due 8/15/2007 2,649,962
1.9% 1,000,000 Credit Suisse First Boston USA, Inc., 4.70% due 6/01/2009 1,023,208
Goldman Sachs Group, Inc.:
2,000,000 7.50% due 1/28/2005 2,006,228
2,220,000 4.125% due 1/15/2008 2,247,901
4,500,000 Lehman Brothers Holdings, Inc., 6.25% due 5/15/2006 4,683,312
2,500,000 Morgan Stanley, 7.75% due 6/15/2005 2,554,563
------------
15,165,174
- -----------------------------------------------------------------------------------------------------------------------------------
Chemicals--0.1% 500,000 Praxair, Inc., 6.625% due 10/15/2007 537,494
- -----------------------------------------------------------------------------------------------------------------------------------
Commercial Banks-- 3,000,000 Bank of America Corp., 4.75% due 10/15/2006 3,072,378
2.8% 2,680,000 FirstBank Puerto Rico, 7.625% due 12/20/2005 2,737,682
2,000,000 FleetBoston Financial Corp., 3.85% due 2/15/2008 2,009,276
2,475,000 HBOS Treasury Services Plc, 3.50% due 11/30/2007 (c) 2,466,419
Household Finance Corporation:
500,000 6.50% due 1/24/2006 516,884
2,085,000 6.50% due 11/15/2008 2,267,598
3,500,000 4.125% due 12/15/2008 3,514,312
3,500,000 Keycorp, 2.30% due 7/23/2007 (a) 3,500,347
1,500,000 Mellon Bank NA, 7% due 3/15/2006 1,564,440
670,000 Popular North America, Inc., 3.875% due 10/01/2008 669,146
------------
22,318,482
- -----------------------------------------------------------------------------------------------------------------------------------
Commercial Services & Cendant Corp.:
Supplies--0.7% 1,100,000 6.875% due 8/15/2006 1,157,271
3,300,000 4.89% due 8/17/2006 3,332,010
1,000,000 6.25% due 1/15/2008 1,067,218
------------
5,556,499
- -----------------------------------------------------------------------------------------------------------------------------------
Communications 1,250,000 Harris Corp., 6.35% due 2/01/2028 1,323,184
Equipment--0.2%
- -----------------------------------------------------------------------------------------------------------------------------------
Consumer Finance-- 1,310,000 Capital One Bank, 4.875% due 5/15/2008 1,345,394
0.6% 3,060,000 MBNA Corp., 5.625% due 11/30/2007 3,207,679
------------
4,553,073
- -----------------------------------------------------------------------------------------------------------------------------------
Containers & 2,885,000 Sealed Air Corp., 5.375% due 4/15/2008 (c) 2,997,547
Packaging--0.4%
- -----------------------------------------------------------------------------------------------------------------------------------
Diversified Financial 2,500,000 Associates Corp. of N. America, 6% due 7/15/2005 2,539,382
Services--6.8% 8,000,000 Citigroup, Inc., 6.75% due 12/01/2005 8,255,472
Ford Motor Credit Co.:
2,000,000 7.50% due 3/15/2005 2,017,082
4,000,000 6.875% due 2/01/2006 4,120,800
2,500,000 7.75% due 2/15/2007 2,655,715
2,700,000 2.79% due 9/28/2007 (a) 2,680,441
General Motors Acceptance Corp.:
5,750,000 7.50% due 7/15/2005 5,868,450
3,750,000 3.08% due 9/23/2008 (a) 3,654,349
MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2004 23
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments (continued)
Low Duration Master Portfolio (in U.S. dollars)
Face
Industry++ Amount Corporate Bonds Value
===================================================================================================================================
Diversified Financial $ 3,985,000 International Lease Finance Corp., 2.95% due 5/23/2006 $ 3,948,569
Services JPMorgan Chase & Co.:
(concluded) 5,000,000 5.625% due 8/15/2006 5,179,955
2,970,000 5.25% due 5/30/2007 3,087,594
Sigma Finance Corp. (a):
5,500,000 4.79% due 8/15/2011 5,500,000
2,700,000 4.95% due 3/31/2014 (c) 2,716,783
3,000,000 Westfield Capital Corp. Ltd., 2.47% due 11/02/2007 (a)(c) 2,997,918
------------
55,222,510
- -----------------------------------------------------------------------------------------------------------------------------------
Diversified 2,000,000 BellSouth Corp., 2.415% due 11/15/2007 (a) 1,998,724
Telecommunication 3,500,000 British Telecommunications Plc, 7.875% due 12/15/2005 3,650,461
Services--4.1% 4,500,000 Deutsche Telekom International Finance BV, 8.25% due 6/15/2005 4,604,868
2,500,000 France Telecom SA, 7.95% due 3/01/2006 2,624,913
3,310,000 SBC Communications Inc., 4.125% due 9/15/2009 3,303,959
5,200,000 Sprint Capital Corp., 6% due 1/15/2007 5,442,299
1,500,000 TELUS Corp., 7.50% due 6/01/2007 1,629,750
1,500,000 Telecom Italia Capital SA, 4% due 11/15/2008 1,494,263
8,250,000 Verizon Global Funding Corp., 6.75% due 12/01/2005 8,516,987
------------
33,266,224
- -----------------------------------------------------------------------------------------------------------------------------------
Electric Utilities-- 2,500,000 Alabama Power Co. Series Y, 2.80% due 12/01/2006 2,469,142
3.5% 1,465,000 American Electric Power Co., Inc. Series A, 6.125% due 5/15/2006 1,518,301
1,060,000 Appalachian Power Co. Series G, 3.60% due 5/15/2008 1,047,341
4,645,000 Boston Edison Co., 3.16% due 10/15/2005 (a) 4,659,641
4,450,000 Conectiv Series B, 5.30% due 6/01/2005 4,486,134
3,000,000 DTE Energy Co., 3.35% due 6/01/2007 (a) 3,011,037
645,000 Detroit Edison Co., 5.05% due 10/01/2005 654,851
2,125,000 FPL Group Capital, Inc., 2.85% due 3/30/2005 (a) 2,126,494
3,400,000 National Rural Utilities Cooperative Finance Corp., 3.25% due 10/01/2007 3,365,082
2,500,000 Southern California Edison Co., 2.93% due 1/13/2006 (a) 2,508,643
1,480,000 Westar Energy, Inc., 9.75% due 5/01/2007 1,656,428
685,000 Xcel Energy, Inc., 3.40% due 7/01/2008 671,584
------------
28,174,678
- -----------------------------------------------------------------------------------------------------------------------------------
Energy Equipment & 2,960,000 Halliburton Co., 2.86% due 1/26/2007 (a)(c) 2,961,069
Services--0.4%
- -----------------------------------------------------------------------------------------------------------------------------------
Food Products--0.4% 2,880,000 HJ Heinz Co., 6.189% due 12/01/2020 (a)(c) 2,950,690
- -----------------------------------------------------------------------------------------------------------------------------------
Gas Utilities--0.5% 4,125,000 Nisource Finance Corp., 2.915% due 11/23/2009 (a) 4,119,270
- -----------------------------------------------------------------------------------------------------------------------------------
Health Care Providers 4,000,000 HCA, Inc., 5.25% due 11/06/2008 4,023,308
& Services--1.0% 2,010,000 Manor Care, Inc. (OLD), 7.50% due 6/15/2006 2,118,333
1,940,000 WellPoint, Inc., 3.75% due 12/14/2007 (c) 1,938,982
------------
8,080,623
- -----------------------------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & 3,500,000 Carnival Corp., 3.75% due 11/15/2007 3,504,123
Leisure--0.9% 915,000 Mandalay Resort Group, 6.45% due 2/01/2006 935,588
2,750,000 Yum! Brands, Inc., 8.50% due 4/15/2006 2,921,295
------------
7,361,006
- -----------------------------------------------------------------------------------------------------------------------------------
Household Durables-- 2,500,000 DR Horton, Inc., 7.50% due 12/01/2007 2,709,375
0.7% 2,975,000 Fortune Brands, Inc., 2.875% due 12/01/2006 2,947,124
------------
5,656,499
- -----------------------------------------------------------------------------------------------------------------------------------
Household Products-- 1,565,000 Clorox Co., 4.20% due 1/15/2010 (c) 1,572,941
0.2%
- -----------------------------------------------------------------------------------------------------------------------------------
IT Services--0.2% 1,350,000 Fiserv, Inc., 4% due 4/15/2008 1,354,544
- -----------------------------------------------------------------------------------------------------------------------------------
Industrial 2,745,000 Textron Financial Corp., 2.75% due 6/01/2006 2,712,027
Conglomerates--0.7% 3,000,000 Tyco International Group SA, 6.375% due 2/15/2006 3,099,960
------------
5,811,987
- -----------------------------------------------------------------------------------------------------------------------------------
24 MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2004
Schedule of Investments (continued)
Low Duration Master Portfolio (in U.S. dollars)
Face
Industry++ Amount Corporate Bonds Value
===================================================================================================================================
Insurance--1.2% $ 1,570,000 AON Corp., 6.70% due 1/15/2007 $ 1,640,672
2,000,000 Hartford Financial Services Group, Inc., 4.70% due 9/01/2007 2,039,858
2,300,000 Metlife, Inc., 3.911% due 5/15/2005 2,310,263
385,000 Monumental Global Funding II, 3.85% due 3/03/2008 (c) 386,003
Prudential Financial, Inc.:
3,200,000 4.104% due 11/15/2006 3,235,046
500,000 3.75% due 5/01/2008 497,161
------------
10,109,003
- -----------------------------------------------------------------------------------------------------------------------------------
Machinery--0.1% 360,000 Timken Co., 6.75% due 8/21/2006 371,058
- -----------------------------------------------------------------------------------------------------------------------------------
Media--2.1% 2,500,000 Clear Channel Communications, Inc., 6% due 11/01/2006 2,599,642
1,440,000 Comcast Cable Communications, 6.375% due 1/30/2006 1,487,435
2,000,000 Historic TW, Inc., 8.18% due 8/15/2007 2,221,148
1,000,000 IAC/InterActiveCorp, 6.75% due 11/15/2005 1,027,713
2,600,000 Media General, Inc., 6.95% due 9/01/2006 2,714,478
1,250,000 News America, Inc., 6.75% due 1/09/2038 1,405,645
4,500,000 TCI Communications, Inc., 8.35% due 2/15/2005 4,529,457
1,000,000 Time Warner, Inc., 5.625% due 5/01/2005 1,009,209
------------
16,994,727
- -----------------------------------------------------------------------------------------------------------------------------------
Multi-Utilities & Dominion Resources, Inc.:
Unregulated Power-- 4,500,000 7.625% due 7/15/2005 4,606,839
1.0% 1,030,000 2.011% due 5/15/2006 (a) 1,032,170
2,500,000 PSEG Power LLC, 6.875% due 4/15/2006 2,606,150
------------
8,245,159
- -----------------------------------------------------------------------------------------------------------------------------------
Oil & Gas--1.8% 2,500,000 Burlington Resources Finance Co., 5.60% due 12/01/2006 2,589,822
1,600,000 Conoco Funding Co., 5.45% due 10/15/2006 1,657,050
3,400,000 Panhandle Eastern Pipe Line Series B, 2.75% due 3/15/2007 3,329,192
1,466,250 Pemex Finance Ltd., 8.45% due 2/15/2007 1,543,609
Pemex Project Funding Master Trust (a)(c):
1,520,000 3.54% due 1/07/2005 1,520,000
3,500,000 3.188% due 6/15/2010 3,591,000
------------
14,230,673
- -----------------------------------------------------------------------------------------------------------------------------------
Paper & Forest 1,700,000 Abitibi-Consolidated, Inc., 6.95% due 12/15/2006 1,763,750
Products--0.5% 2,320,000 Weyerhaeuser Co., 8.375% due 2/15/2007 2,527,301
------------
4,291,051
- -----------------------------------------------------------------------------------------------------------------------------------
Pharmaceuticals-- 5,000,000 Abbott Laboratories, 5.625% due 7/01/2006 5,169,365
0.6%
- -----------------------------------------------------------------------------------------------------------------------------------
Real Estate--1.0% Nationwide Health Properties, Inc.:
1,400,000 7.60% due 11/20/2028 1,565,714
5,000,000 6.90% due 10/01/2037 5,389,595
1,400,000 6.59% due 7/07/2038 1,475,243
------------
8,430,552
- -----------------------------------------------------------------------------------------------------------------------------------
Road & Rail--0.8% 3,500,000 Burlington Northern Santa Fe Corp., 6.375% due 12/15/2005 3,603,068
2,000,000 CSX Corp., 6.46% due 6/22/2005 2,029,208
870,000 Norfolk Southern Corp., 7.35% due 5/15/2007 941,601
------------
6,573,877
- -----------------------------------------------------------------------------------------------------------------------------------
Software--0.3% 2,060,000 Computer Associates International, Inc., 4.75% due 12/01/2009 (c) 2,075,073
- -----------------------------------------------------------------------------------------------------------------------------------
Specialty Retail--0.6% 2,800,000 OfficeMax, Inc., 7.66% due 5/27/2005 2,863,000
2,000,000 Staples, Inc., 7.125% due 8/15/2007 2,152,474
------------
5,015,474
- -----------------------------------------------------------------------------------------------------------------------------------
Thrifts & Mortgage 4,650,000 Countrywide Home Loans, Inc., 4.25% due 12/19/2007 4,701,973
Finance--1.2% 1,450,000 Golden West Financial Corp., 5.50% due 8/08/2006 1,501,669
3,325,000 Washington Mutual, Inc., 5.625% due 1/15/2007 3,462,678
------------
9,666,320
- -----------------------------------------------------------------------------------------------------------------------------------
Total Corporate Bonds (Cost--$315,242,733)--39.2% 316,532,278
MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2004 25
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments (continued)
Low Duration Master Portfolio (in U.S. dollars)
===================================================================================================================================
Preferred Securities
- -----------------------------------------------------------------------------------------------------------------------------------
Shares
Industry++ Held Preferred Stocks Value
===================================================================================================================================
Real Estate--0.2% 1,500 Home Ownership Funding CP II (c) $ 577,828
- -----------------------------------------------------------------------------------------------------------------------------------
Total Preferred Stocks (Cost--$1,500,000)--0.2% 577,828
===================================================================================================================================
Face
Amount Trust Preferred
===================================================================================================================================
Aerospace & $ 8,490,000 RC Trust I, 7% due 5/15/2006 8,833,300
Defense--1.1%
- -----------------------------------------------------------------------------------------------------------------------------------
Electric 5,120,000 PPL Capital Funding Trust I, 7.29% due 5/18/2006 5,341,286
Utilities--0.6%
- -----------------------------------------------------------------------------------------------------------------------------------
Total Trust Preferred (Cost--$14,211,418)--1.7% 14,174,586
- -----------------------------------------------------------------------------------------------------------------------------------
Total Preferred Securities (Cost--$15,711,418)--1.9% 14,752,414
===================================================================================================================================
Short-Term Investments
===================================================================================================================================
Commercial 40,000,000 Citigroup Global Markets Holdings Inc., 2.28% due 1/03/2005 40,000,000
Paper*--6.2% 10,200,000 SBC Communications Inc., 2.26% due 1/11/2005 10,194,877
------------
50,194,877
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Government Agency 24,500,000 Federal Home Loan Banks, 1% due 1/03/2005 24,500,000
Obligations*--3.1%
- -----------------------------------------------------------------------------------------------------------------------------------
Time Deposits--0.0% 34,778 Brown Brothers Harriman & Co., 1.60% due 1/03/2005 34,778
- -----------------------------------------------------------------------------------------------------------------------------------
Total Short-Term Investments (Cost--$74,729,655)--9.3% 74,729,655
===================================================================================================================================
Number of
Contracts Options Purchased
===================================================================================================================================
Call Options 57@ London InterBank Offered Rate (LIBOR) Linked Floor, expiring April 2005 at
Purchased--0.0% 1.50%, Broker JPMorgan Chase Bank 570
- -----------------------------------------------------------------------------------------------------------------------------------
Put Options 75@ Swaption, expiring October 2005 at 5.34%, Broker JPMorgan Chase Bank 1,057,119
Purchased--0.1%
- -----------------------------------------------------------------------------------------------------------------------------------
Total Options Purchased (Premiums Paid--$1,420,830)--0.1% 1,057,689
- -----------------------------------------------------------------------------------------------------------------------------------
Total Investments (Cost--$807,712,260)--99.7% 805,212,247
===================================================================================================================================
26 MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2004
Schedule of Investments (concluded)
Low Duration Master Portfolio (in U.S. dollars)
Number of
Contracts Options Written Value
===================================================================================================================================
Put Options Written 67@ Swaption, expiring October 2005 at 4.84%, Broker JPMorgan Chase Bank $ (2,002,963)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Options Written (Premiums Received--$2,278,695)--0.3% (2,002,963)
===================================================================================================================================
Total Investments, Net of Options Written (Cost--$805,433,565**)--99.4% 803,209,284
Other Assets Less Liabilities--0.6% 4,760,317
------------
Net Assets--100.0% $807,969,601
============
* Commercial paper and certain U.S. government agency obligations are traded
on a discount basis; the interest rate shown reflects the discount rates
paid at the time of purchase by the Portfolio.
** The cost and unrealized appreciation/depreciation of investments as of
December 31, 2004, as computed for federal income tax purposes, were as
follows:
Aggregate cost .............................. $ 805,437,124
=============
Gross unrealized appreciation ............... $ 3,375,625
Gross unrealized depreciation ............... (5,603,465)
-------------
Net unrealized depreciation ................. $ (2,227,840)
=============
+ 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.
@ One contract represents a notional amount of $1,000,000.
(a) Floating rate note.
(b) Represents the interest only portion of a mortgage-backed obligation.
(c) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(d) All or a portion of security held as collateral in connection with open
financial futures contracts.
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) were as follows:
--------------------------------------------------------------------------
Net Dividend
Affiliate Activity Income
--------------------------------------------------------------------------
Merrill Lynch Premier Institutional Fund -- $6,513
--------------------------------------------------------------------------
Financial futures contracts sold as of December 31, 2004 were as follows:
--------------------------------------------------------------------------
Number of Expiration Face Unrealized
Contracts Issue Date Value Depreciation
--------------------------------------------------------------------------
367 Five-Year
U.S. Treasury
Note March 2005 $40,198,996 $ (36,130)
--------------------------------------------------------------------------
Swaps outstanding as of December 31, 2004 were as follows:
--------------------------------------------------------------------------
Notional Unrealized
Amount Appreciation
--------------------------------------------------------------------------
Bought credit default protection on
Aon Corp. Inc and pay .37%
Broker, Morgan Stanley & Co., Inc.
Expires January 2007 $ 1,725,000 $ 5,121
Receive a floating rate based on 3-month
USD LIBOR, and pay a fixed rate of 2.8025%
Broker, JPMorgan Chase Bank
Expires January 2007 $ 1,725,000 21,408
Receive a floating rate based on 3-month
USD LIBOR, plus .40%, which is capped at
a fixed coupon of 7% and pay a floating
rate based on 3-month USD LIBOR
Broker, JPMorgan Chase Bank
Expires August 2010 $16,650,000 7,389
Receive a floating rate based on 3-month
USD LIBOR, plus .50%, which is capped at
a fixed coupon of 6% until 11/18/2007 and
6.50% through expiration and pay a floating
rate based on 3- month USD LIBOR
Broker, Lehman Brothers Inc.
Expires November 2010 $41,000,000 2,095
Sold credit default protection on
WFS Financial Owner Trust and
receive .41%
Broker, Morgan Stanley & Co., Inc.
Expires December 2010 $ 5,037,000 3,395
Pay a fixed rate of 4.84% and receive a
floating rate based on 3-month USD LIBOR
Broker, JPMorgan Chase Bank
Expires November 2015 $ 9,408,000 26,879
--------------------------------------------------------------------------
Total $ 66,287
========
See Notes to Financial Statements.
MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2004 27
[LOGO] Merrill Lynch Investment Managers
Statement of Assets and Liabilities Low Duration Master Portfolio
As of December 31, 2004
=============================================================================================================================
Assets
- -----------------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value
(identified cost--$806,291,430) .................................. $ 804,154,558
Options purchased, at value (premiums paid--$1,420,830) ........... 1,057,689
Unrealized appreciation on swaps .................................. 66,287
Cash .............................................................. 764
Receivables:
Interest ....................................................... $ 5,998,103
Contributions .................................................. 831,115
Swaps .......................................................... 19,649
Paydowns ....................................................... 14,018
Securities lending ............................................. 22 6,862,907
-------------
Prepaid expenses .................................................. 2,977
-------------
Total assets ...................................................... 812,145,182
-------------
=============================================================================================================================
Liabilities
- -----------------------------------------------------------------------------------------------------------------------------
Options written, at value (premiums received--$2,278,695) ......... 2,002,963
Payables:
Withdrawals .................................................... 1,857,099
Investment adviser ............................................. 164,209
Variation margin ............................................... 51,609
Other affiliates ............................................... 3,882 2,076,799
-------------
Accrued expenses and other liabilities ............................ 95,819
-------------
Total liabilities ................................................. 4,175,581
-------------
=============================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------
Net assets ........................................................ $ 807,969,601
=============
=============================================================================================================================
Net Assets Consist of
- -----------------------------------------------------------------------------------------------------------------------------
Investor's capital ................................................ $ 810,163,725
Unrealized depreciation--net ...................................... (2,194,124)
-------------
Net Assets ........................................................ $ 807,969,601
=============
See Notes to Financial Statements
28 MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2004
Statement of Operations Low Duration Master Portfolio
For the Six Months Ended December 31, 2004
=============================================================================================================================
Investment Income
- -----------------------------------------------------------------------------------------------------------------------------
Interest .......................................................... $ 13,793,870
Dividends ......................................................... 100,050
Securities lending--net ........................................... 6,513
-------------
Total income ...................................................... 13,900,433
-------------
=============================================================================================================================
Expenses
- -----------------------------------------------------------------------------------------------------------------------------
Investment advisory fees .......................................... $ 843,622
Accounting services ............................................... 156,131
Custodian fees .................................................... 36,169
Professional fees ................................................. 31,234
Trustees' fees and expenses ....................................... 16,141
Pricing fees ...................................................... 13,090
Printing and shareholder reports .................................. 2,512
Other ............................................................. 15,937
-------------
Total expenses .................................................... 1,114,836
-------------
Investment income--net ............................................ 12,785,597
-------------
=============================================================================================================================
Realized & Unrealized Gain (Loss)--Net
- -----------------------------------------------------------------------------------------------------------------------------
Realized gain (loss) on:
Investments--net ............................................... (2,293,235)
Future contracts and swaps--net ................................ (2,210,956)
Options written--net ........................................... 307,162 (4,197,029)
-------------
Change in unrealized appreciation/depreciation on:
Investments--net ............................................... 3,412,383
Future contracts and swaps--net ................................ 237,398
Options written--net ........................................... 89,764 3,739,545
-------------------------------
Total realized and unrealized loss--net ........................... (457,484)
-------------
Net Increase in Net Assets Resulting from Operations .............. $ 12,328,113
=============
See Notes to Financial Statements.
MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2004 29
[LOGO] Merrill Lynch Investment Managers
Statements of Changes in Net Assets Low Duration Master Portfolio
For the Six For the
Months Ended Year Ended
December 31, June 30,
Increase (Decrease) in Net Assets: 2004 2004
=============================================================================================================================
Operations
- -----------------------------------------------------------------------------------------------------------------------------
Investment income--net ............................................ $ 12,785,597 $ 25,728,531
Realized loss--net ................................................ (4,197,029) (2,237,834)
Change in unrealized appreciation/depreciation--net ............... 3,739,545 (14,412,834)
-------------------------------
Net increase in net assets resulting from operations .............. 12,328,113 9,077,863
-------------------------------
=============================================================================================================================
Capital Transactions
- -----------------------------------------------------------------------------------------------------------------------------
Proceeds from contributions ....................................... 214,271,957 385,522,595
Fair value of withdrawals ......................................... (158,654,280) (393,910,819)
-------------------------------
Net increase (decrease) in net assets derived from capital
transactions ..................................................... 55,617,677 (8,388,224)
-------------------------------
=============================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------
Total increase in net assets ...................................... 67,945,790 689,639
Beginning of period ............................................... 740,023,811 739,334,172
-------------------------------
End of period ..................................................... $ 807,969,601 $ 740,023,811
===============================
See Notes to Financial Statements.
Financial Highlights Low Duration Master Portfolio
For the Six For the Year Ended For the Period
Months Ended June 30, October 6, 2000+
The following ratios have been derived December 31, -------------------------------------- to June 30,
from information provided in the financial statements. 2004 2004 2003 2002 2001
=================================================================================================================================
Total Investment Return**
- ---------------------------------------------------------------------------------------------------------------------------------
Total investment return ........... 1.74%@ 1.18% 6.05% 5.59% --
====================================================================
=================================================================================================================================
Ratios to Average Net Assets
- ---------------------------------------------------------------------------------------------------------------------------------
Expenses .......................... .28%* .28% .28% .32% .30%*
====================================================================
Investment income--net ............ 3.18%* 3.39% 3.73% 5.03% 6.78%*
====================================================================
=================================================================================================================================
Supplemental Data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) ................... $807,970 $740,024 $739,334 $512,335 $305,514
====================================================================
Portfolio turnover ................ 47.02% 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.
@ Aggregate total investment return.
See Notes to Financial Statements.
30 MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 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. These unaudited
financial statements reflect all adjustments, which are, in the opinion of
management, necessary to present a fair statement of the results for the interim
period. The following is a summary of significant accounting policies followed
by the Portfolio.
(a) Valuation of investments -- Debt securities are traded primarily in the
over-the-counter markets and are valued at the last available bid price in the
over-the-counter market or on the basis of values obtained by a pricing service.
Pricing services use valuation matrixes that incorporate both dealer-supplied
valuations and valuation models. The procedures of the pricing service and its
valuations are reviewed by the officers of the Trust under the general direction
of the Board of Trustees. Such valuations and procedures will be reviewed
periodically by the Board of Trustees of the Trust. Financial futures contracts
and options thereon, which are traded on exchanges, are valued at their closing
prices as of the close of such exchanges. Options written or purchased are
valued at the last sales price in the case of exchange-traded options. In the
case of options traded in the over-the-counter ("OTC") market, valuation is the
last asked price (options written) or the last bid price (options purchased).
Swap agreements are valued by quoted fair valuations received daily by the
Portfolio from the counterparty. Short-term investments with a remaining
maturity of 60 days or less are valued at amortized cost which approximates
market value, under which method the investment is valued at cost and any
premium or discount is amortized on a straight line basis to maturity.
Repurchase agreements are valued at cost plus accrued interest. Investments in
open-end investment companies are valued at their net asset value each business
day. Securities and other 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.
Equity securities that are held by the Portfolio, which 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 OTC market, Nasdaq Small Cap or Bulletin Board are
valued at the last available bid price 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 asked 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.
Generally, trading in foreign securities 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 asset value of
the Portfolio's shares 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 asset value. 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 DECEMBER 31, 2004 31
[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
predetermined credit event. The net periodic payments may be based on a
fixed or variable interest rate; the change in market value of a specified
security, basket of securities, or index; or the return generated by a
security.
(c) Foreign currency transactions -- Transactions denominated in foreign
currencies are recorded at the exchange rate prevailing when recognized. Assets
and liabilities denominated in foreign currencies are valued at the exchange
rate at the end of the period. Foreign currency transactions are the result of
settling (realized) or valuing (unrealized) assets or liabilities expressed in
foreign currencies into U.S. dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates on investments.
(d) Income taxes -- The Portfolio is classified as a partnership for federal
income tax purposes. As such, each investor in the Portfolio is treated as owner
of its proportionate share of the net assets, income, expenses and realized and
unrealized gains and losses of the Portfolio. Therefore, no federal income tax
provision is required. It is intended that the Portfolio's assets will be
managed so an investor in the Portfolio can satisfy the requirements of
subchapter M of the Internal Revenue Code.
(e) Security transactions and investment income -- Security transactions are
accounted for on the date the securities are purchased or sold (the trade
dates). Realized gains and losses on security transactions are determined on the
identified cost basis. Interest income is recognized on the accrual basis.
(f) Securities lending -- The Portfolio may lend securities to financial
institutions that provide cash or securities issued or guaranteed by the U.S.
government as collateral, which will be maintained at all times in an amount
equal to at least 100% of the current market value of the loaned securities. The
market value of the loaned securities is determined at the close of business of
the Portfolio and any additional required collateral is delivered to the
Portfolio on the next business day. Where the Portfolio receives securities as
collateral for the loaned securities, 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 obligation to return
borrowed securities because of
32 MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2004
Notes to Financial Statements (concluded) Low Duration Master Portfolio
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 .21%.
The Portfolio has received an exemptive order from the Securities and Exchange
Commission permitting it to lend portfolio securities to Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S"), a subsidiary of ML & Co., or its
affiliates. Pursuant to that order, the Portfolio also has retained Merrill
Lynch Investment Managers, LLC ("MLIM, LLC"), an affiliate of FAM, as the
securities lending agent for a fee based on a share of the returns on investment
of cash collateral. MLIM, LLC, may, on behalf of the Portfolio, invest cash
collateral received by the Portfolio for such loans, among other things, in a
private investment company managed by MLIM, LLC or in registered money market
funds advised by FAM or its affiliates. For the six months ended December 31,
2004, MLIM, LLC received $2,784 in securities lending agent fees.
For the six months ended December 31, 2004, the Portfolio reimbursed FAM $8,345
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 (including paydowns) of investments, excluding short-term
securities, for the six months ended December 31, 2004 were $363,509,873 and
$328,860,462, respectively.
Transactions in call options written for the six months ended December 31, 2004
were as follows:
- --------------------------------------------------------------------------------
Number of Premiums
Contracts Received
- --------------------------------------------------------------------------------
Outstanding call options written,
beginning of period ..................... 4,090 $(307,162)
Options expired ............................ (4,090) 307,162
--------- ---------
Outstanding call options written,
end of period ........................... -- $ --
========= =========
Transactions in put options written for the six months ended December 31, 2004
were as follows:
- --------------------------------------------------------------------------------
Number of Premiums
Contracts Received
- --------------------------------------------------------------------------------
Outstanding put options written,
beginning of period ...................... -- --
Options written ............................ 67 $2,278,695
--------- ---------
Outstanding put options written,
end of period .............................. 67 $2,278,695
========= =========
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 a
group of lenders. The Portfolio may borrow under the credit agreement to fund
shareholder redemptions and for other lawful purposes other than for leverage.
The Portfolio may borrow up to the maximum amount allowable under the
Portfolio's current prospectus and statement of additional information, subject
to various other legal, regulatory or contractual limits. The Portfolio pays a
commitment fee of .07% 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 Portfolio's election, the
federal funds rate plus .50% or a base rate as defined in the credit agreement.
The Portfolio did not borrow under the credit agreement during the six months
ended December 31, 2004. On November 26, 2004, the credit agreement was renewed
for one year under substantially the same terms.
MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2004 33
[LOGO] Merrill Lynch Investment Managers
Portfolio Information as of December 31, 2004
Percent of
Asset Mix Total Investments
- --------------------------------------------------------------------------------
Corporate Bonds ................................................. 39.4%
Non-Government Agency Mortgage-Backed
Securities .................................................... 18.9
Government Agency Mortgage-Backed Securities .................... 15.8
Asset-Backed Securities ......................................... 9.6
Government & Agency Obligations ................................. 5.3
Preferred Securities ............................................ 1.8
Other* .......................................................... 9.2
- --------------------------------------------------------------------------------
* Includes portfolio holdings in short-term investments and options.
Officers and Directors/Trustees
Terry K. Glenn, President and Director/Trustee
James H. Bodurtha, Director/Trustee
Joe Grills, Director/Trustee
Herbert I. London, Director/Trustee
Roberta Cooper Ramo, Director/Trustee
Robert S. Salomon, Jr., Director/Trustee
Stephen B. Swensrud, Director/Trustee
Patrick Maldari, Vice President
James J. Pagano, Vice President
Donald C. Burke, Vice President and Treasurer
Jeffrey Hiller, Chief Compliance Officer
Alice A. Pellegrino, Secretary
Custodian
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109-3661
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
800-637-3863
- --------------------------------------------------------------------------------
Andre F. Perold resigned as a Director/Trustee of Merrill Lynch Investment
Managers Funds, Inc. and Fund Asset Management Master Trust effective October
22, 2004.
Effective January 1, 2005, Terry K. Glenn retired as President and
Director/Trustee of the Fund and the Trust. The Fund's Board of
Directors/Trustees wishes Mr. Glenn well in his retirement.
Effective January 1, 2005, Robert C. Doll, Jr. became President and
Director/Trustee of the Fund and the Trust.
- --------------------------------------------------------------------------------
34 MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2004
Availability of Quarterly Schedule of Investments
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The Fund's Forms N-Q are available on the SEC's Web site at
http://www.sec.gov. The Fund's Forms N-Q may also be reviewed and copied at the
SEC's Public Reference Room in Washington, DC. Information on the operation of
the Public Reference Room may be obtained by calling 1-800-SEC-0330.
Electronic Delivery
The Fund offers electronic delivery of communications to its shareholders. In
order to receive this service, you must regis-ter your account and provide us
with e-mail information. To sign up for this service, simply access this Web
site at 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 DECEMBER 31, 2004 35
[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 -- 12/04
Item 2 - Code of Ethics - Not Applicable to this semi-annual report
Item 3 - Audit Committee Financial Expert - Not Applicable to this semi-annual
report
Item 4 - Principal Accountant Fees and Services - Not Applicable to this
semi-annual report
Item 5 - Audit Committee of Listed Registrants - Not Applicable
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable
Item 8 - Portfolio Managers of Closed-End Management Investment Companies - Not
Applicable
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 10 - Submission of Matters to a Vote of Security Holders - Not Applicable
Item 11 - Controls and Procedures
11(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.
11(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 last 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 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - Not Applicable to this semi-annual report
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(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/ Robert C. Doll, Jr.
----------------------------
Robert C. Doll, Jr.,
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: February 24, 2005
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/ Robert C. Doll, Jr.
----------------------------
Robert C. Doll, Jr.,
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: February 24, 2005
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: February 24, 2005