UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-10053
811-10089
Name of Fund: Merrill Lynch Low Duration Fund of Merrill Lynch Investment
Managers Funds, Inc. Low Duration Master Portfolio of Fund Asset
Management Master Trust
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Robert C. Doll, Jr., Chief Executive
Officer, 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 - 06/30/05
Item 1 - Report to Stockholders
Merrill Lynch
Low Duration Fund
Of Merrill Lynch Investment Managers Funds, Inc.
Annual Report
June 30, 2005
A Letter From the President
[PHOTO OMITTED]
Dear Shareholder
The financial markets continued to face a number of crosscurrents over the past
several months. On June 30, 2005, the Federal Reserve Board (the Fed) increased
the federal funds rate for the ninth consecutive time since June 2004, bringing
the target short-term interest rate to 3.25%. During the same week, first
quarter 2005 U.S. gross domestic product growth was revised upward to 3.8% --
behind the 4.4% annualized growth rate recorded for all of 2004 but ahead of
many economists' expectations. Signs of a slowing economy, coupled with easing
inflationary fears, have prompted some observers to believe that the Fed may
soon end its monetary tightening campaign.
After ending 2004 in a strong rally, U.S. equity markets have struggled to
record meaningful gains in 2005. Continued high oil prices and Fed interest rate
hikes have exerted downward pressure on stocks. Offsetting this somewhat have
been surprisingly strong corporate earnings and lower long-term bond yields.
Outside U.S. borders, results have been mixed. Several European markets have
been performing well despite ongoing economic problems. In Asia, many markets
have benefited from higher economic growth rates and relatively attractive
valuations, although Japanese stocks have struggled as a result of slowing
exports and high oil prices.
In the bond markets, the yield curve flattening "conundrum" continued. As
short-term yields increased in concert with Fed interest rate hikes, yields on
longer-term bonds declined (as their prices, which move opposite yields,
increased). Over the past year, the two-year Treasury yield rose 96 basis points
(.96%) while the 10-year Treasury yield declined 68 basis points. At period-end,
the spread between the two-year and 10-year Treasury yields was just 28 basis
points.
Amid these conditions, the major market benchmarks posted six-month and 12-month
returns as follows:
Total Returns as of June 30, 2005 6-month 12-month
=====================================================================================
U.S. equities (Standard & Poor's 500 Index) -0.81% + 6.32%
- -------------------------------------------------------------------------------------
Small-cap U.S. equities (Russell 2000 Index) -1.25% + 9.45%
- -------------------------------------------------------------------------------------
International equities (MSCI Europe Australasia Far East Index) -1.17% +13.65%
- -------------------------------------------------------------------------------------
Fixed income (Lehman Brothers Aggregate Bond Index) +2.51% + 6.80%
- -------------------------------------------------------------------------------------
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index) +2.89% + 8.24%
- -------------------------------------------------------------------------------------
High yield bonds (Credit Suisse First Boston High Yield Index) +0.77% +10.10%
- -------------------------------------------------------------------------------------
Entering the second half of 2005, we expect more of the same type of "muddle
through" environment that has befallen financial markets in the first half of
the year. Nevertheless, opportunities do exist and we encourage you to work with
your financial advisor to diversify your portfolio among a variety of asset
types. This can help to diffuse risk while also tapping into the potential
benefits of a broader range of investment alternatives. We thank you for
trusting Merrill Lynch Investment Managers with your investment assets, and we
look forward to serving you in the months and years ahead.
Sincerely,
/s/ Robert C. Doll, Jr.
Robert C. Doll, Jr.
President and Director/Trustee
2 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2005
We are pleased to present to you the management team of
Merrill Lynch Low Duration Fund
[PHOTO OMITTED]
Portfolio Managers Pat Maldari, who joined Merrill Lynch Investment Managers
(MLIM) in 1984, and Jim Pagano, who joined MLIM in 1997, co-head Merrill Lynch
Low Duration Fund along with Portfolio Managers John Burger and Frank Viola. Mr.
Maldari 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 received a bachelor's degree from the United States Naval Academy and is
a CFA charterholder.
Mr. Burger, who joined MLIM in 1992, earned a bachelor's degree from Cornell
University. He is a CFA charterholder and a member of the AIMR and NYSSA. Mr.
Viola, who joined MLIM in 1997, 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.
================================================================================
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 ................................................... 11
Fund Financial Statements ................................................ 12
Fund Financial Highlights ................................................ 15
Fund Notes to Financial Statements ....................................... 20
Important Tax Information ................................................ 24
Portfolio Information .................................................... 24
Master Portfolio Schedule of Investments ................................. 25
Master Portfolio Financial Statements .................................... 32
Master Portfolio Financial Highlights .................................... 34
Master Portfolio Notes to Financial Statements ........................... 35
Officers & Directors/Trustees ............................................ 39
CFA(R) and Chartered Financial Analyst(R) are trademarks owned by the
Association for Investment Management and Research.
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2005 3
A Discussion With Your Fund's Portfolio Managers
As the short end of the Treasury yield curve continued to be affected by
Federal Reserve Board (the Fed) interest rate hikes, we maintained a short
duration bias and ample exposure to spread product in an effort to protect the
Fund's net asset value and enhance returns.
How did the Fund perform during the fiscal year in light of the existing market
conditions?
For the 12-month period ended June 30, 2005, Merrill Lynch Low Duration Fund's
Class A, Class B, Class C, Class I and Class R Shares had total returns of
+2.14%, +1.46%, +1.46%, +2.39% and +1.88%, respectively. For the same period,
the Fund's unmanaged benchmark, the Merrill Lynch 1 - 3 Year Corporate and
Government Index, returned +2.19%. (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 - 10 of this report to shareholders.)
During the past 12 months, the Fed continued on its monetary tightening
campaign, increasing the federal funds rate in nine consecutive moves of 25
basis points (.25%) each. This brought the target short-term interest rate from
1% in June 2004 to 3.25% on June 30, 2005. As expected, yields at the short end
of the curve followed the federal funds rate higher. However, long-term bond
yields remained stubbornly low and, ultimately, declined over the past year. The
result has been a considerable flattening of the yield curve, in what Fed
Chairman Alan Greenspan has described as a "conundrum."
The yield on the two-year Treasury note rose 96 basis points during the year,
from 2.70% on June 30, 2004, to 3.66% at period-end. The 10-year Treasury yield,
in the meantime, fell 68 basis points from 4.62% on June 30, 2004, to 3.94% at
period-end. This brought the spread between two-year and 10-year Treasury notes
from 192 basis points one year ago to just 28 basis points at June 30, 2005.
Because bond prices move in the opposite direction of yields, longer-dated
issues significantly outperformed shorter-dated securities for the year.
The portfolio was positioned for the yield curve flattening, as we expected
interest rates on the short end to rise significantly. Thus, we were underweight
at the short end of the yield curve (where prices fell coincident with the rise
in interest rates) and overweight securities with longer-dated maturities. In
addition, the portfolio's duration (a measure of interest rate sensitivity) was
10% - 20% shorter than that of the benchmark throughout much of the year. This
helped to protect the Fund's underlying value as short-term interest rates rose.
Finally, we maintained our considerable exposure to credit and spread sectors,
at roughly 90% of the portfolio. Because they are not as affected by interest
rate changes as Treasury securities, these sectors of the market are less
susceptible to interest rate risk. Additionally, when the U.S. economy is
improving or expanding, spread sectors, and particularly lower-quality corporate
bonds, tend to outperform Treasury securities. Thus, our significant
overweighting of spread sectors continued to benefit relative performance
throughout the year.
What changes were made to the portfolio during the year?
We reduced our exposure to corporate bonds from roughly 40% of net assets to
approximately 34% by period-end. Our valuation assessment indicated that these
bonds were less attractive than holding cash, so we were comfortable increasing
our cash position while seeking out more attractive investment opportunities. In
fact, holding cash in the prevailing environment offered some opportunities as
short-term interest rates increased. We used the cash to create a "barbell"
strategy -- one in which assets were concentrated at the short end and long end
of the curve, allowing us to avoid the area of the curve most affected by the
flattening phenomenon. Some of the cash from the sale of our corporate bonds
also was redeployed into structured fixed income assets, such as asset-back
securities (ABS), which were particularly attractive given their high credit
quality (AAA rating) and their attractive yields. Our commitment to ABS
increased from 25% of net assets at the beginning of the year to 30% at
period-end.
Much of the reduction in corporate exposure came in the auto sector, as earnings
disappointments in the industry began to have an effect on these credits, and in
cable and media. While reducing our corporate exposure, we also improved the
overall credit quality of the corporate bonds we retained in the portfolio. We
believe this makes for a much less volatile product.
4 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2005
As mentioned earlier, we maintained the portfolio's relatively short duration
throughout the year. The lower (or shorter) the duration of a portfolio, the
less it will be impacted by interest rate changes. With the Fed committed to a
"measured" program of interest rate hikes, we felt that the short duration was a
prudent strategy. As of June 30, 2005, the portfolio's duration was 1.5 years,
compared to 1.72 years for the Merrill Lynch 1 - 3 Year Corporate and Government
Index.
How would you characterize the portfolio's position at the close of the period?
The very short end of the yield curve, where Merrill Lynch Low Duration Fund
participates, will continue to be affected by Fed actions. Thus, we continue to
monitor economic data and Fed language for signs that it is near the end of its
monetary tightening campaign. For now, the Fed appears willing to continue
raising interest rates, perhaps culminating in a year-end federal funds rate in
the area of 3.75%.
Under these circumstances, we maintained our short duration bias at period-end.
We are also prepared for a continuation of the yield curve flattening trend, as
the higher federal funds rate will continue to put upward pressure on short-term
interest rates, more so than on long-term interest rates. In fact, we believe
the Fed wants to flatten the yield curve to widen credit spreads and also wants
interest rates higher to take some of the steam out of the red-hot housing
market.
Overall, we would describe our position as defensive both in terms of relatively
low interest rate risk and a conservative asset allocation consisting of limited
exposure to corporate, high yield and mortgage-backed securities. Essentially,
we are awaiting opportunities to enter riskier asset classes and to bring the
portfolio's duration profile closer to that of the benchmark. These
opportunities may present themselves in the form of higher interest rates or a
widening in credit spreads, which would prompt us to be more aggressive.
As always, we will continue to closely monitor economic and market trends and
will make changes to the Fund's strategy, as appropriate, in our efforts to
enhance investment opportunities.
John Burger
Vice President and Portfolio Manager
Patrick Maldari
Vice President and Portfolio Manager
James J. Pagano
Vice President and Portfolio Manager
Frank Viola
Vice President and Portfolio Manager
July 12, 2005
- --------------------------------------------------------------------------------
We are pleased to announce that John Burger and Frank Viola have joined Patrick
Maldari and James Pagano in the day-to-day management of Merrill Lynch Low
Duration Fund. Mr. Burger has been a Director with Merrill Lynch Investment
Managers (MLIM) since 2000 and Vice President thereof from 1998 to 2000. Mr.
Viola has been a Director with MLIM since 1997.
- --------------------------------------------------------------------------------
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2005 5
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. 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. Prior to inception,
Class R Share performance results are those of Class I Shares (which have
no distribution or account maintenance fees) restated for Class R Share
fees.
The performance results for Class A and Class I Shares depicted on pages 7 - 10
are those of Merrill Lynch Low Duration Fund and, prior to October 6, 2000, a
predecessor Fund investing in the same underlying portfolio and with the same
fees as Merrill Lynch Low Duration Fund. Performance results prior to October 6,
2000 reflect the annual operating expenses of the predecessor Fund. If Merrill
Lynch Low Duration Fund's operating expenses were reflected, the results may
have been less than those shown for this time period. Performance results after
October 6, 2000 include the actual operating expenses of Merrill Lynch Low
Duration Fund. The Fund commenced operations on October 6, 2000.
None of the past results shown should be considered a representation of future
performance. Current performance may be lower or higher than the performance
data quoted. Refer to www.mlim.ml.com to obtain 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 JUNE 30, 2005
Performance Data (continued)
Recent Performance Results*
10-Year/
6-Month 12-Month Since Inception Standardized
As of June 30, 2005 Total Return Total Return Total Return 30-Day Yield
=========================================================================================================================
ML Low Duration Fund Class A Shares* +0.82% +2.14% +26.53% 2.84%
- -------------------------------------------------------------------------------------------------------------------------
ML Low Duration Fund Class B Shares* +0.48 +1.46 +15.85 2.25
- -------------------------------------------------------------------------------------------------------------------------
ML Low Duration Fund Class C Shares* +0.38 +1.46 +15.67 2.26
- -------------------------------------------------------------------------------------------------------------------------
ML Low Duration Fund Class I Shares* +0.84 +2.39 +66.47 3.08
- -------------------------------------------------------------------------------------------------------------------------
ML Low Duration Fund Class R Shares* +0.69 +1.88 +63.78 2.68
- -------------------------------------------------------------------------------------------------------------------------
Merrill Lynch 1 - 3 Year Corporate & Government Index** +0.95 +2.19 +68.65/+31.68/+24.21 --
- -------------------------------------------------------------------------------------------------------------------------
* 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 & Class R Shares, from 9/24/99
for Class A Shares and from 10/06/00 for Class B and Class C 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 and from 10/06/00, respectively.
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2005 7
Performance Data (continued)
Total Return Based on a $10,000 Investment--Class A Shares
A line graph depicting the growth of an investment in the Fund's Class A Shares
compared to growth of an investment in the Merrill Lynch 1-3 Year Corporate &
Government Index. Values are from September 24, 1999 through June 2005:
9/24/99** 6/00 6/01 6/02 6/03 6/04 6/05
ML Low Duration Fund+--
Class A Shares* $ 9,700 $10,069 $10,840 $11,330 $11,938 $12,016 $12,273
9/24/99** 6/00 6/01 6/02 6/03 6/04 6/05
Merrill Lynch 1-3 Year Corporate
and Government Index++ $10,000 $10,360 $11,337 $12,110 $12,792 $12,886 $13,168
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
** Commencement of operations.
+ The Fund invests all of its assets in Low Duration Master Portfolio of
Fund Asset Management Master Trust. The Portfolio invests in bonds of
varying maturities with a portfolio duration of one to three years.
++ This unmanaged Index is comprised of investment grade corporate bonds and
U.S. Treasury and agency securities with a maturity ranging from one year
to three years.
Past performance is not indicative of future results
Average Annual Total Return
Return Without Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
One Year Ended 6/30/05 +2.14% -0.93%
- --------------------------------------------------------------------------------
Five Years Ended 6/30/05 +4.04 +3.41
- --------------------------------------------------------------------------------
Inception (9/24/99)
through 6/30/05 +4.16 +3.62
- --------------------------------------------------------------------------------
* Maximum sales charge is 3%.
** Assuming maximum sales charge.
8 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2005
Performance Data (continued)
Total Return Based on a $10,000 Investment--Class B & Class C Shares
A line graph depicting the growth of an investment in the Fund's Class B & Class
C Shares compared to growth of an investment in the Merrill Lynch 1-3 Year
Corporate & Government Index. Values are from October 6, 2000 through June 2005:
10/06/00** 6/01 6/02 6/03 6/04 6/05
ML Low Duration Fund+--
Class B Shares* $10,000 $10,516 $10,910 $11,431 $11,418 $11,385
ML Low Duration Fund+--
Class C Shares* $10,000 $10,510 $10,904 $11,414 $11,401 $11,567
10/06/00** 6/01 6/02 6/03 6/04 6/05
Merrill Lynch 1-3 Year Corporate
and Government Index++ $10,000 $10,694 $11,423 $12,067 $12,155 $12,421
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
** Commencement of operations.
+ The Fund invests all of its assets in Low Duration Master Portfolio of
Fund Asset Management Master Trust. The Portfolio invests in bonds of
varying maturities with a portfolio duration of one to three years.
++ This unmanaged Index is comprised of investment grade corporate bonds and
U.S. Treasury and agency securities with a maturity ranging from one year
to three years.
Past performance is not indicative of future results.
Average Annual Total Return
Return Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
One Year Ended 6/30/05 +1.46% -2.52%
- --------------------------------------------------------------------------------
Inception (10/06/00)
through 6/30/05 +3.16 +2.78
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 4% and is reduced to 0% after
six years.
** Assuming payment of applicable contingent deferred sales charge.
Return Return
Without CDSC With CDSC**
================================================================================
Class C Shares*
================================================================================
One Year Ended 6/30/05 +1.46% +0.46%
- --------------------------------------------------------------------------------
Inception (10/06/00)
through 6/30/05 +3.13 +3.13
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 1% and is reduced to 0% after
one year.
** Assuming payment of applicable contingent deferred sales charge.
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2005 9
Performance Data (concluded)
Total Return Based on a $10,000 Investment--Class I & Class R Shares
A line graph depicting the growth of an investment in the Fund's Class I & Class
R Shares compared to growth of an investment in the Merrill Lynch 1-3 Year
Corporate & Government Index. Values are from June 1995 through June 2005:
6/95 6/96 6/97 6/98 6/99
ML Low Duration
Fund+--
Class I Shares* $ 9,700 $10,426 $11,239 $12,020 $12,421
ML Low Duration
Fund+--
Class R Shares* $10,000 $10,749 $11,586 $12,391 $12,805
Merrill Lynch 1-3 Year Corporate
and Government Index++ $10,000 $10,553 $11,254 $12,025 $12,648
6/00 6/01 6/02 6/03 6/04 6/05
ML Low Duration
Fund+--
Class I Shares* $13,090 $14,151 $14,812 $15,643 $15,770 $16,148
ML Low Duration
Fund+--
Class R Shares* $13,495 $14,536 $15,140 $15,986 $16,076 $16,376
Merrill Lynch 1-3 Year Corporate
and Government Index++ $13,269 $14,520 $15,510 $16,383 $16,503 $16,865
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
+ The Fund invests all of its assets in Low Duration Master Portfolio of
Fund Asset Management Master Trust. The Portfolio invests in bonds of
varying maturities with a portfolio duration of one to three years.
++ This unmanaged Index is comprised of investment grade corporate bonds and
U.S. Treasury and agency securities with a maturity ranging from one year
to three years.
Past performance is not indicative of future results.
Average Annual Total Return
Return Without Return With
Sales Charge Sales Charge**
================================================================================
Class I Shares*
================================================================================
One Year Ended 6/30/05 +2.39% -0.68%
- --------------------------------------------------------------------------------
Five Years Ended 6/30/05 +4.29 +3.65
- --------------------------------------------------------------------------------
Ten Years Ended 6/30/05 +5.23 +4.91
- --------------------------------------------------------------------------------
* Maximum sales charge is 3%.
** Assuming maximum sales charge.
Class R Shares Return
================================================================================
One Year Ended 6/30/05 +1.88%
- --------------------------------------------------------------------------------
Five Years Ended 6/30/05 +3.95
- --------------------------------------------------------------------------------
Ten Years Ended 6/30/05 +5.06
- --------------------------------------------------------------------------------
10 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2005
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 January 1, 2005 and held through
June 30, 2005) 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 January 1, 2005 to
January 1, 2005 June 30, 2005 June 30, 2005
=========================================================================================================
Actual
=========================================================================================================
Class A $1,000 $1,008.20 $4.68
- ---------------------------------------------------------------------------------------------------------
Class B $1,000 $1,004.80 $7.96
- ---------------------------------------------------------------------------------------------------------
Class C $1,000 $1,003.80 $7.96
- ---------------------------------------------------------------------------------------------------------
Class I $1,000 $1,008.40 $3.45
- ---------------------------------------------------------------------------------------------------------
Class R $1,000 $1,006.90 $5.91
=========================================================================================================
Hypothetical (5% annual return before expenses)**
=========================================================================================================
Class A $1,000 $1,019.86 $4.71
- ---------------------------------------------------------------------------------------------------------
Class B $1,000 $1,016.58 $8.01
- ---------------------------------------------------------------------------------------------------------
Class C $1,000 $1,016.58 $8.01
- ---------------------------------------------------------------------------------------------------------
Class I $1,000 $1,021.09 $3.47
- ---------------------------------------------------------------------------------------------------------
Class R $1,000 $1,018.64 $5.94
- ---------------------------------------------------------------------------------------------------------
* For each class of the Fund, expenses are equal to the annualized expense
ratio for the class (.95% for Class A, 1.62% for Class B, 1.62% for Class
C, .70% for Class I and 1.20% for Class R), multiplied by the average
account value over the period, multiplied by 179/365 (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 portfolio 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.
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2005 11
Statement of Assets and Liabilities Merrill Lynch Low Duration Fund
As of June 30, 2005
======================================================================================================================
Assets
- ----------------------------------------------------------------------------------------------------------------------
Investment in Low Duration Master Portfolio
(the "Portfolio"), at value (identified cost--$731,707,798) $ 726,534,229
Prepaid expenses ........................................... 33,092
-------------
Total assets ............................................... 726,567,321
-------------
======================================================================================================================
Liabilities
- ----------------------------------------------------------------------------------------------------------------------
Payables:
Dividends to shareholders ............................... $ 436,736
Distributor ............................................. 258,310
Other affiliates ........................................ 137,496
Administrator ........................................... 125,014 957,556
-------------
Accrued expenses ........................................... 89,443
-------------
Total liabilities .......................................... 1,046,999
-------------
======================================================================================================================
Net Assets
- ----------------------------------------------------------------------------------------------------------------------
Net assets ................................................. $ 725,520,322
=============
======================================================================================================================
Net Assets Consist of
- ----------------------------------------------------------------------------------------------------------------------
Class A Shares of Common Stock, $.01 par value, 100,000,000
shares authorized ......................................... $ 233,630
Class B Shares of Common Stock, $.01 par value, 200,000,000
shares authorized ......................................... 96,353
Class C Shares of Common Stock, $.01 par value, 100,000,000
shares authorized ......................................... 177,982
Class I Shares of Common Stock, $.01 par value, 100,000,000
shares authorized ......................................... 206,641
Class R Shares of Common Stock, $.01 par value, 200,000,000
shares authorized ......................................... 4,442
Paid-in capital in excess of par ........................... 751,401,796
Accumulated distributions in excess of investment
income--net ............................................... $ (167,292)
Accumulated realized capital losses allocated from the
Portfolio--net ............................................ (21,259,661)
Unrealized depreciation allocated from the Portfolio--net .. (5,173,569)
-------------
Total accumulated losses--net .............................. (26,600,522)
-------------
Net Assets ................................................. $ 725,520,322
=============
======================================================================================================================
Net Asset Value
- ----------------------------------------------------------------------------------------------------------------------
Class A--Based on net assets of $235,885,698 and 23,363,045
shares outstanding ........................................ $ 10.10
=============
Class B--Based on net assets of $97,089,568 and 9,635,253
shares outstanding ........................................ $ 10.08
=============
Class C--Based on net assets of $179,290,373 and 17,798,243
shares outstanding ........................................ $ 10.07
=============
Class I--Based on net assets of $208,777,317 and 20,664,081
shares outstanding ........................................ $ 10.10
=============
Class R--Based on net assets of $4,477,366 and 444,212
shares outstanding ........................................ $ 10.08
=============
See Notes to Financial Statements.
12 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2005
Statement of Operations Merrill Lynch Low Duration Fund
For the Year Ended June 30, 2005
======================================================================================================================
Investment Income
- ----------------------------------------------------------------------------------------------------------------------
Net investment income allocated from the Portfolio:
Interest ................................................ $ 27,818,264
Dividends ............................................... 200,085
Securities lending--net ................................. 6,513
Expenses ................................................ (2,132,132)
-------------
Total income ............................................... 25,892,730
-------------
======================================================================================================================
Expenses
- ----------------------------------------------------------------------------------------------------------------------
Administration fees ........................................ $ 1,937,550
Account maintenance and distribution fees--Class C ......... 1,907,063
Account maintenance and distribution fees--Class B ......... 1,040,494
Account maintenance fees--Class A .......................... 543,698
Transfer agent fees--Class C ............................... 304,235
Transfer agent fees--Class I ............................... 283,723
Transfer agent fees--Class A ............................... 270,140
Transfer agent fees--Class B ............................... 168,779
Printing and shareholder reports ........................... 116,271
Registration fees .......................................... 101,177
Professional fees .......................................... 32,070
Account maintenance and distribution fees--Class R ......... 17,182
Transfer agent fees--Class R ............................... 4,384
Other ...................................................... 24,998
-------------
Total expenses ............................................. 6,751,764
-------------
Investment income--net ..................................... 19,140,966
-------------
======================================================================================================================
Realized & Unrealized Gain (Loss) Allocated from the Portfolio--Net
- ----------------------------------------------------------------------------------------------------------------------
Realized gain (loss) on:
Investments--net ........................................ (4,970,491)
Futures contracts and swaps --net ....................... (2,659,646)
Options written--net .................................... 1,715,795 (5,914,342)
-------------
Change in unrealized appreciation/depreciation on
investments, futures contracts, swaps and options--net .... 760,100
-------------
Total realized and unrealized loss--net .................... (5,154,242)
-------------
Net Increase in Net Assets Resulting from Operations ....... $ 13,986,724
=============
See Notes to Financial Statements.
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2005 13
Statements of Changes in Net Assets Merrill Lynch Low Duration Fund
For the Year Ended
June 30,
-------------------------------
Increase (Decrease) in Net Assets: 2005 2004
======================================================================================================================
Operations
- ----------------------------------------------------------------------------------------------------------------------
Investment income--net ..................................... $ 19,140,966 $ 19,004,549
Realized loss--net ......................................... (5,914,342) (2,237,834)
Change in unrealized appreciation/depreciation--net ........ 760,100 (14,412,826)
-------------------------------
Net increase in net assets resulting from operations ....... 13,986,724 2,353,889
-------------------------------
======================================================================================================================
Dividends to Shareholders
- ----------------------------------------------------------------------------------------------------------------------
Investment income--net:
Class A ................................................. (5,925,410) (4,000,377)
Class B ................................................. (2,340,210) (2,888,117)
Class C ................................................. (4,298,932) (5,423,362)
Class I ................................................. (6,691,826) (6,749,059)
Class R ................................................. (85,901) (35,048)
-------------------------------
Net decrease in net assets resulting from dividends to
shareholders .............................................. (19,342,279) (19,095,963)
-------------------------------
======================================================================================================================
Capital Share Transactions
- ----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets derived from capital
share transactions ........................................ (8,275,277) 17,705,029
-------------------------------
======================================================================================================================
Net Assets
- ----------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets .................... (13,630,832) 962,955
Beginning of year .......................................... 739,151,154 738,188,199
-------------------------------
End of year* ............................................... $ 725,520,322 $ 739,151,154
===============================
* Accumulated distributions in excess of investment
income--net .......................................... $ (167,292) $ (120,892)
===============================
See Notes to Financial Statements.
14 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2005
Financial Highlights Merrill Lynch Low Duration Fund
Class A
-----------------------------------------------------------------------
For the
Period
For the Year Ended October 6,
June 30, 2000+
The following per share data and ratios have been derived -------------------------------------------------------- to June 30,
from information provided in the financial statements. 2005 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 .................. .27++ .29++ .31++ .34++ .36
Realized and unrealized gain (loss)--net (.05) (.22) .23 .12 .19
-----------------------------------------------------------------------
Total from investment operations ........ .22 .07 .54 .46 .55
-----------------------------------------------------------------------
Less dividends and distributions:
Investment income--net ................. (.28) (.29) (.32) (.48) (.36)
Realized gain--net ..................... -- -- -- (.01) --
-----------------------------------------------------------------------
Total dividends and distributions ....... (.28) (.29) (.32) (.49) (.36)
-----------------------------------------------------------------------
Net asset value, end of period .......... $ 10.10 $ 10.16 $ 10.38 $ 10.16 $ 10.19
=======================================================================
==================================================================================================================================
Total Investment Return**
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ...... 2.14% .66% 5.36% 4.53% 5.58%@
=======================================================================
==================================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of waiver and reimbursement
and excluding reorganization expenses+++ .93% .89% .95% .83% .83%*
=======================================================================
Expenses+++ ............................. .93% .89% 1.00% 1.02% 8.76%*
=======================================================================
Investment income--net .................. 2.69% 2.78% 3.03% 4.04% 5.75%*
=======================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $235,886 $125,950 $152,780 $110,014 $ 268
=======================================================================
Portfolio turnover of the Portfolio ..... 74.53% 107.13% 198.09% 70.92% 192.04%
=======================================================================
* Annualized.
** Total investment returns exclude the effects of sales charges.
+ Commencement of operations.
++ Based on average shares outstanding.
+++ Includes the Fund's share of the Portfolio's allocated expenses.
@ Aggregate total investment return.
See Notes to Financial Statements.
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2005 15
Financial Highlights (continued) Merrill Lynch Low Duration Fund
Class B
-----------------------------------------------------------------------
For the
Period
For the Year Ended October 6,
June 30, 2000+
The following per share data and ratios have been derived -------------------------------------------------------- to June 30,
from information provided in the financial statements. 2005 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 .................. .20++ .22++ .24++ .37++ .33
Realized and unrealized gain (loss)--net (.05) (.23) .24 .01 .18
-----------------------------------------------------------------------
Total from investment operations ........ .15 (.01) .48 .38 .51
-----------------------------------------------------------------------
Less dividends and distributions:
Investment income--net ................. (.21) (.22) (.25) (.41) (.33)
Realized gain--net ..................... -- -- -- (.01) --
-----------------------------------------------------------------------
Total dividends and distributions ....... (.21) (.22) (.25) (.42) (.33)
-----------------------------------------------------------------------
Net asset value, end of period .......... $ 10.08 $ 10.14 $ 10.37 $ 10.14 $ 10.18
=======================================================================
==================================================================================================================================
Total Investment Return**
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ...... 1.46% (.11%) 4.77% 3.75% 5.16%@
=======================================================================
==================================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of waiver and reimbursement
and excluding reorganization expenses+++ 1.61% 1.56% 1.61% 1.48% 1.48%*
=======================================================================
Expenses+++ ............................. 1.61% 1.56% 1.66% 1.70% 9.41%*
=======================================================================
Investment income--net .................. 2.00% 2.12% 2.00% 3.75% 5.10%*
=======================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 97,090 $130,802 $139,688 $ 64,457 $ 5,016
=======================================================================
Portfolio turnover of the Portfolio ..... 74.53% 107.13% 198.09% 70.92% 192.04%
=======================================================================
* Annualized.
** Total investment returns exclude the effects of sales charges.
+ Commencement of operations.
++ Based on average shares outstanding.
+++ Includes the Fund's share of the Portfolio's allocated expenses.
@ Aggregate total investment return.
See Notes to Financial Statements.
16 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2005
Financial Highlights (continued) Merrill Lynch Low Duration Fund
Class C
-----------------------------------------------------------------------
For the
Period
For the Year Ended October 6,
June 30, 2000+
The following per share data and ratios have been derived -------------------------------------------------------- to June 30,
from information provided in the financial statements. 2005 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 .................. .20++ .22++ .24++ .35++ .32
Realized and unrealized gain (loss)--net (.05) (.23) .23 .03 .18
-----------------------------------------------------------------------
Total from investment operations ........ .15 (.01) .47 .38 .50
-----------------------------------------------------------------------
Less dividends and distributions:
Investment income--net ................. (.21) (.22) (.25) (.41) (.32)
Realized gain--net ..................... -- -- -- (.01) --
-----------------------------------------------------------------------
Total dividends and distributions ....... (.21) (.22) (.25) (.42) (.32)
-----------------------------------------------------------------------
Net asset value, end of period .......... $ 10.07 $ 10.13 $ 10.36 $ 10.14 $ 10.18
=======================================================================
==================================================================================================================================
Total Investment Return**
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ...... 1.46% (.11%) 4.68% 3.75% 5.10%@
=======================================================================
==================================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of waiver and reimbursement
and excluding reorganization expenses+++ 1.60% 1.56% 1.61% 1.48% 1.48%*
=======================================================================
Expenses+++ ............................. 1.60% 1.56% 1.66% 1.68% 9.41%*
=======================================================================
Investment income--net .................. 2.01% 2.12% 2.37% 3.62% 5.10%*
=======================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $179,290 $239,263 $263,066 $126,380 $ 4,754
=======================================================================
Portfolio turnover of the Portfolio ..... 74.53% 107.13% 198.09% 70.92% 192.04%
=======================================================================
* Annualized.
** Total investment returns exclude the effects of sales charges.
+ Commencement of operations.
++ Based on average shares outstanding.
+++ Includes the Fund's share of the Portfolio's allocated expenses.
@ Aggregate total investment return.
See Notes to Financial Statements.
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2005 17
Financial Highlights (continued) Merrill Lynch Low Duration Fund
Class I
-----------------------------------------------------------------------
For the
Period
For the Year Ended October 6,
June 30, 2000+
The following per share data and ratios have been derived -------------------------------------------------------- to June 30,
from information provided in the financial statements. 2005 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 .................. .30++ .31++ .31++ .45++ .40
Realized and unrealized gain (loss)--net (.06) (.23) .25 .02 .19
-----------------------------------------------------------------------
Total from investment operations ........ .24 .08 .56 .47 .59
-----------------------------------------------------------------------
Less dividends and distributions:
Investment income--net ................. (.30) (.31) (.34) (.50) (.38)
Realized gain--net ..................... -- -- -- (.01) --
-----------------------------------------------------------------------
Total dividends and distributions ....... (.30) (.31) (.34) (.51) (.38)
-----------------------------------------------------------------------
Net asset value, end of period .......... $ 10.10 $ 10.16 $ 10.39 $ 10.17 $ 10.21
=======================================================================
==================================================================================================================================
Total Investment Return**
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ...... 2.39% .81% 5.61% 4.68% 5.95%@
=======================================================================
==================================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of waiver and reimbursement
and excluding reorganization expenses+++ .69% .65% .70% .58% .58%*
=======================================================================
Expenses+++ ............................. .69% .65% .75% .78% 8.51%*
=======================================================================
Investment income--net .................. 2.93% 3.00% 3.29% 4.51% 6.00%*
=======================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $208,777 $240,749 $182,654 $ 23,325 $ 1,156
=======================================================================
Portfolio turnover of the Portfolio ..... 74.53% 107.13% 198.09% 70.92% 192.04%
=======================================================================
* Annualized.
** Total investment returns exclude the effects of sales charges.
+ 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.
18 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2005
Financial Highlights (concluded) Merrill Lynch Low Duration Fund
Class R
----------------------------------------------------
For the For the
Year Ended Period
June 30, January 3, 2003+
The following per share data and ratios have been derived --------------------------------- to June 30,
from information provided in the financial statements. 2005 2004 2003
=====================================================================================================================
Per Share Operating Performance
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ........ $ 10.14 $ 10.37 $ 10.29
----------------------------------------------------
Investment income--net*** ................... .18 .17 .18
Realized and unrealized gain (loss)--net .... .01 (.11) .08
----------------------------------------------------
Total from investment operations ............ .19 .06 .26
----------------------------------------------------
Less dividends from investment income--net .. (.25) (.29) (.18)
----------------------------------------------------
Net asset value, end of period .............. $ 10.08 $ 10.14 $ 10.37
====================================================
=====================================================================================================================
Total Investment Return**
- ---------------------------------------------------------------------------------------------------------------------
Based on net asset value per share .......... 1.88% .56% 2.55%@
====================================================
=====================================================================================================================
Ratios to Average Net Assets
- ---------------------------------------------------------------------------------------------------------------------
Expenses, excluding reorganization expenses++ 1.19% 1.16% 1.19%*
====================================================
Expenses++ .................................. 1.19% 1.16% 1.28%*
====================================================
Investment income--net ...................... 2.46% 2.42% 2.74%*
====================================================
=====================================================================================================================
Supplemental Data
- ---------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) .... $ 4,477 $ 2,387 --@@
====================================================
Portfolio turnover of the Portfolio ......... 74.53% 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.
@ Aggregate total investment return.
@@ Amount is less than $1,000.
See Notes to Financial Statements.
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2005 19
Notes to Financial Statements Merrill Lynch Low Duration Fund
1. Significant Accounting Policies:
Merrill Lynch Low Duration Fund (the "Fund") is a fund of Merrill Lynch
Investment Managers Funds, Inc. (the "Company"). The Company is registered under
the Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company, which is organized as a Maryland Corporation. The
Fund seeks to achieve its investment objective by investing all of its assets in
Low Duration Master Portfolio (the "Portfolio") of Fund Asset Management Master
Trust, which has the same investment objective 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. The percentage of the Portfolio owned by the Fund at June
30, 2005 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 1(a) of the Portfolio's Notes to Financial Statements, which are included
elsewhere in this report.
(b) Investment income and expenses -- The Fund records daily its proportionate
share of the Portfolio's income, expenses and realized and unrealized gains and
losses. In addition, the Fund accrues its own expenses.
(c) Income taxes -- It is the Fund's policy to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders. Therefore,
no federal income tax provision is required.
(d) Prepaid registration fees -- Prepaid registration fees are charged to
expense as the related shares are issued.
(e) Dividends and distributions -- Dividends from net investment income are
declared daily and paid monthly. Distributions of capital gains are recorded on
the ex-dividend dates.
(f) Investment transactions -- Investment transactions in the Portfolio are
accounted for on a trade date basis.
(g) Reclassifications -- U.S. generally accepted accounting principles require
that certain components of net assets be adjusted to reflect permanent
differences between financial and tax reporting. Accordingly, during the current
year, $158,630 has been reclassified between accumulated net realized capital
losses and accumulated distributions in excess of net investment income and
$3,717 has been reclassified between accumulated distributions in excess of net
investment income and paid-in capital in excess of par as a result of permanent
differences attributable to swap agreements and non-deductible expenses. These
reclassifications have no effect on net assets or net asset values per share.
2. Transactions with Affiliates:
The Company has entered into an Administration Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), a wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."),
which is the limited partner. The Fund pays a monthly fee at an annual rate of
..25% of the Fund's average daily net assets for the performance of
administrative services (other than investment advice and related portfolio
activities) necessary for the operation of the Fund.
The Company has also entered into a Distribution Agreement and Distribution
Plans with FAM Distributors, Inc. ("FAMD" or the "Distributor"), an indirect,
wholly-owned subsidiary of Merrill Lynch Group, Inc.
20 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2005
Notes to Financial Statements (continued) Merrill Lynch Low Duration Fund
Pursuant to the Distribution Plans adopted by the Company in accordance with
Rule 12b-1 under the Investment Company Act of 1940, the Fund pays the
Distributor ongoing account maintenance and distribution fees. The fees are
accrued daily and paid monthly at annual rates based upon the average daily net
assets of the shares as follows:
- --------------------------------------------------------------------------------
Account Distribution
Maintenance Fee Fee
- --------------------------------------------------------------------------------
Class A ................................ .25% --
Class B ................................ .25% .65%
Class C ................................ .25% .65%
Class R ................................ .25% .25%
- --------------------------------------------------------------------------------
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("MLPF&S"), an affiliate of FAM, also provides account
maintenance and distribution services to the Fund. The ongoing account
maintenance fee compensates the Distributor and MLPF&S for providing account
maintenance services to Class A, Class B, Class C and Class R shareholders. The
ongoing distribution fee compensates the Distributor and MLPF&S for providing
shareholder and distribution-related services to Class B, Class C and Class R
shareholders.
For the year ended June 30, 2005, 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 ............................ $15,282 $75,832
Class I ............................ $ 7,359 $ 2,500
- --------------------------------------------------------------------------------
For the year ended June 30, 2005, MLPF&S received contingent deferred sales
charges of $300,888 and $71,526 relating to transactions in Class B and Class C
Shares, respectively. Furthermore, MLPF&S received contingent deferred sales
charges of $33,220 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 (decrease) in net assets derived from capital share transactions
was $(8,275,277) and $17,705,029 for the years ended June 30, 2005 and June 30,
2004, respectively.
Transactions in capital shares for each class were as follows:
- --------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended June 30, 2005 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 17,336,740 $ 176,836,015
Automatic conversion of shares ......... 175,765 1,785,466
Shares issued to shareholders in
reinvestment of dividends ........... 439,054 4,450,526
---------------------------------
Total issued ........................... 17,951,559 183,072,007
Shares redeemed ........................ (6,989,888) (70,905,321)
---------------------------------
Net increase ........................... 10,961,671 $ 112,166,686
=================================
- --------------------------------------------------------------------------------
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 Year Dollar
Ended June 30, 2005 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 1,428,872 $ 14,486,775
Shares issued to shareholders in
reinvestment of dividends ........... 146,594 1,485,026
---------------------------------
Total issued ........................... 1,575,466 15,971,801
---------------------------------
Automatic conversion of shares ......... (176,112) (1,785,466)
Shares redeemed ........................ (4,666,441) (47,275,320)
---------------------------------
Total redeemed ......................... (4,842,553) (49,060,786)
---------------------------------
Net decrease ........................... (3,267,087) $ (33,088,985)
=================================
- --------------------------------------------------------------------------------
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)
=================================
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2005 21
Notes to Financial Statements (concluded) Merrill Lynch Low Duration Fund
- --------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended June 30, 2005 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 4,528,896 $ 45,877,649
Shares issued to shareholders in
reinvestment of dividends ........... 298,884 3,026,777
---------------------------------
Total issued ........................... 4,827,780 48,904,426
Shares redeemed ........................ (10,637,836) (107,717,469)
---------------------------------
Net decrease ........................... (5,810,056) $ (58,813,043)
=================================
- --------------------------------------------------------------------------------
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 Year Dollar
Ended June 30, 2005 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 4,011,080 $ 40,763,412
Shares issued to shareholders in
reinvestment of dividends ........... 544,115 5,526,158
---------------------------------
Total issued ........................... 4,555,195 46,289,570
Shares redeemed ........................ (7,575,842) (76,949,280)
---------------------------------
Net decrease ........................... (3,020,647) $ (30,659,710)
=================================
- --------------------------------------------------------------------------------
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 Year Dollar
Ended June 30, 2005 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 543,812 $ 5,499,643
Shares issued to shareholders in
reinvestment of dividends ........... 8,336 84,341
---------------------------------
Total issued ........................... 552,148 5,583,984
Shares redeemed ........................ (343,231) (3,464,209)
---------------------------------
Net increase ........................... 208,917 $ 2,119,775
=================================
- --------------------------------------------------------------------------------
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. Distributions to Shareholders:
The tax character of distributions paid during the fiscal years ended June 30,
2005 and June 30, 2004 was as follows:
- --------------------------------------------------------------------------------
6/30/2005 6/30/2004
- --------------------------------------------------------------------------------
Distributions paid from:
Ordinary income ...................... $ 19,342,279 $ 19,095,963
----------------------------------
Total taxable distributions ............ $ 19,342,279 $ 19,095,963
==================================
As of June 30, 2005, the components of accumulated losses on a tax basis were as
follows:
- -----------------------------------------------------------------------------
Accumulated ordinary loss--net ......................... $ (167,292)
Undistributed long-term capital gains--net ............. --
------------
Total accumulated losses--net .......................... (167,292)
Capital loss carryforward ............................... (19,263,407)*
Unrealized losses--net ................................. (7,169,823)**
------------
Total accumulated losses--net .......................... $(26,600,522)
============
* On June 30, 2005, the Fund had a net capital loss carryforward of
$19,263,407, 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, $1,630,307
expires in 2012 and $6,250,370 expires in 2013. This amount will be
available to offset like amounts of any future taxable gains.
** The difference between book-basis and tax-basis net unrealized losses is
attributable primarily to the tax deferral of losses on straddles, the
realization for tax purposes of unrealized gains (losses) on certain
futures contracts, the deferral of post-October capital losses for tax
purposes and other book/tax temporary differences.
22 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2005
Report of Independent Registered Public Accounting Firm
Merrill Lynch Low Duration Fund
To the Board of Directors of Merrill Lynch
Investment Managers Funds, Inc. and Share-
holders of Merrill Lynch Low Duration Fund:
We have audited the accompanying statement of assets and liabilities of Merrill
Lynch Low Duration Fund as of June 30, 2005, the related statement of operations
for the year then ended, the statements of changes in net assets for each of the
two years in the period then ended, and the financial highlights for each of the
periods indicated therein. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. We were
not engaged to perform an audit of the Fund's internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purposes of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Merrill Lynch Low Duration Fund at June 30, 2005, and the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the indicated periods in conformity with U.S. generally accepted accounting
principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
August 16, 2005
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2005 23
Important Tax Information Merrill Lynch Low Duration Fund
Of the ordinary income distributions paid monthly by Merrill Lynch Low Duration
Fund during the taxable year ended June 30, 2005, 2.75% was attributable to
federal obligations.
The law varies in each state as to whether and what percentage of dividend
income attributable to federal obligations is exempt from state income tax. We
recommend that you consult your tax adviser to determine if any portion of the
dividends you received is exempt from state income taxes.
Portfolio Information as of June 30, 2005 Low Duration Master Portfolio
Percent of
Asset Mix Total Investments
- --------------------------------------------------------------------------------
Corporate Bonds .................................................. 34.9%
Non-Government Agency Mortgage-Backed Securities ................. 19.8
Government Agency Mortgage-Backed Securities ..................... 15.9
Asset-Backed Securities .......................................... 9.6
Government & Agency Obligations .................................. 7.2
Preferred Securities ............................................. 2.0
Other* ........................................................... 10.6
- --------------------------------------------------------------------------------
* Includes portfolio holdings in short-term investments.
24 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2005
Schedule of Investments Low Duration Master Portfolio (in U.S. dollars)
Face
Amount Asset-Backed Securities+ Value
==========================================================================================================================
$ 305,492 CIT Group Home Equity Loan Trust Series 2003-1 Class A2, 2.35%
due 4/20/2027 $ 304,898
California Infrastructure Series 1997-1:
760,030 PG&E-1 Class A7, 6.42% due 9/25/2008 773,097
666,062 SCE-1 Class A6, 6.38% due 9/25/2008 678,010
4,100,000 Capital One Auto Finance Trust Series 2003-A Class A4A, 2.47%
due 1/15/2010 4,031,913
7,000,000 Capital One Master Trust Series 2000-4 Class C, 4.02%
due 8/15/2008 (a)(b) 7,024,063
6,600,000 Chase Credit Card Master Trust Series 2003-1 Class C, 4.32%
due 4/15/2008 (a) 6,630,619
2,857,639 Chase Funding Mortgage Loan Asset-Backed Certificates Series 1999-4
Class IA6, 7.407% due 9/25/2011 2,906,344
Chase Manhattan Auto Owner Trust Class CTFS:
1,678,482 Series 2002-B, 4.24% due 1/15/2009 1,681,539
1,591,755 Series 2003-A, 2.04% due 12/15/2009 1,559,964
236,713 Cityscape Home Equity Loan Trust Series 1996-4 Class A10, 7.40%
due 9/25/2027 (b) 236,182
4,240,536 First Franklin Mortgage Loan Asset-Backed Certificates Series 2003-FF5
Class A2, 2.82% due 3/25/2034 (a) 4,237,465
8,500,000 First National Master Note Trust Series 2003-2 Class C, 3.70%
due 4/15/2009 8,450,039
2,851,166 GMAC Mortgage Corp. Loan Trust Series 2003-HE2 Class A2, 3.14%
due 6/25/2025 2,835,437
1,177,364 Ikon Receivables Series 2003-1 Class A3B, 2.33% due 12/15/2007 1,170,644
MBNA Credit Card Master Note Trust:
4,100,000 Series 2001-C3 Class C3, 6.55% due 12/15/2008 4,205,900
7,000,000 Series 2002-C5 Class C5, 4.05% due 1/15/2008 7,004,731
33,292,725 National Collegiate Student Loan Trust Series 2005-GT1 Class AIO, 6.75%
due 12/25/2009 8,947,420
WFS Financial Owner Trust Class B:
971,751 Series 2003-2, 2.48% due 12/20/2010 961,549
4,690,828 Series 2003-4, 2.73% due 5/20/2011 4,629,641
950,000 Whole Auto Loan Trust Series 2004-1 Class D, 5.60% due 3/15/2011 956,164
- --------------------------------------------------------------------------------------------------------------------------
Total Asset-Backed Securities (Cost--$69,818,838)--9.5% 69,225,619
==========================================================================================================================
Government & Agency Obligations
==========================================================================================================================
17,500,000 Fannie Mae, 1.875% due 9/15/2005 17,440,203
17,500,000 Federal Home Loan Bank System, 1.75% due 8/15/2005 17,462,883
U.S. Treasury Notes:
4,530,000 7% due 7/15/2006 4,686,955
9,940,000 3.625% due 4/30/2007 9,934,563
2,900,000 2.625% due 5/15/2008 (d) 2,818,098
- --------------------------------------------------------------------------------------------------------------------------
Total Government & Agency Obligations (Cost--$52,628,079)--7.2% 52,342,702
==========================================================================================================================
Government Agency Mortgage-Backed Obligations+
==========================================================================================================================
Fannie Mae Guaranteed Pass-Through Certificates:
755,514 6.50% due 8/01/2032--9/01/2032 783,397
6,826,599 8% due 7/01/2027--11/01/2032 7,342,666
Fannie Mae Trust:
8,500,000 Series 2003-17 Class QR, 4.50% due 11/25/2025 8,507,285
4,923,869 Series 2003-23 Class AB, 4% due 3/25/2017 4,844,901
6,077,716 Series 2003-48 Class HA, 3.50% due 11/25/2017 5,964,398
Freddie Mac Mortgage Participation Certificates:
33,669,180 5% due 9/01/2019--5/01/2020 34,065,911
8,951,937 6% due 5/01/2016--6/01/2017 9,256,381
2,270,092 6.50% due 8/01/2016--2/01/2017 2,362,412
Freddie Mac Multiclass Certificates :
4,357,173 Series 2590 Class XR, 3.25% due 12/15/2013 4,272,842
8,810,182 Series 2651 Class GA, 2.75% due 7/15/2018 8,401,044
9,119,314 Series 2673 Class ML, 4% due 12/15/2022 9,033,218
6,496,250 Series 2677 Class HB, 4% due 3/15/2014 6,423,727
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2005 25
Schedule of Investments (continued)
Low Duration Master Portfolio (in U.S. dollars)
Face
Amount Government Agency Mortgage-Backed Obligations+ Value
==========================================================================================================================
Ginnie Mae Trust:
$ 4,194,524 Series 2002-83 Class A, 3.313% due 4/16/2017 $ 4,127,604
95,353,364 Series 2002-94 Class XB, 2.349% due 11/16/2007 (a) 1,997,758
8,002,559 Series 2005-9 Class A, 4.026% due 5/16/2022 7,935,947
- --------------------------------------------------------------------------------------------------------------------------
Total Government Agency Mortgage-Backed Securities
(Cost--$116,573,916)--15.9% 115,319,491
==========================================================================================================================
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 9,054,825
Obligations--16.0% 11,000,000 Class A5, 4.455% due 5/25/2034 10,935,041
146,493 BlackRock Capital Finance LP Series 1997-R2 Class AP, 7.314%
due 12/25/2035 (a)(b) 146,493
7,109,546 COMM Series 2004-LB4A Class A1, 3.566% due 10/15/2037 7,029,275
4,500,000 CS First Boston Mortgage Securities Corp. Series 2004-C3 Class A2,
3.913% due 7/15/2036 4,471,120
1,250,000 Capital Auto Receivables Asset Trust Series 2004-2 Class D, 5.82%
due 5/15/2012 (b) 1,258,158
Countrywide Asset-Backed Certificates (a):
3,200,000 Series 2004-12 Class AF2, 3.631% due 5/25/2024 3,165,577
10,500,000 Series 2004-13 Class AF3, 3.989% due 12/25/2034 10,371,278
9,750,000 First Horizon Asset-Backed Securities Trust Series 2004-HE4 Class A2,
4.07% due 7/25/2019 9,595,465
7,500,000 GSAA Trust Series 2004-10 Class AF2, 4.22% due 8/25/2034 (a) 7,471,340
7,613,591 LB-UBS Commercial Mortgage Trust Series 2004-C7 Class A1, 3.625%
due 10/15/2029 7,528,482
16,400,000 National Collegiate Student Loan Trust Series 2005-2 Class AIO, 5%
due 3/25/2012 5,369,360
478,043 Ocwen Residential MBS Corp. Series 1998-R2 Class AP, 5.70%
due 11/25/2034 (a)(b) 458,922
Popular ABS Mortgage Pass-Through Trust (a):
4,520,000 Series 2004-5 Class AF2, 3.735% due 12/25/2035 4,477,400
3,500,000 Series 2005-1 Class AF3, 4.142% due 5/25/2035 3,474,853
44,829 Salomon Brothers Mortgage Securities Series 1986-1 Class A, 6%
due 12/25/2011 44,722
568,458 Structured Asset Securities Corp. Series 2002-19 Class A1, 4.20%
due 10/25/2032 567,343
Structured Mortgage Asset Residential Trust:
6,844 Series 1991-1 Class H, 8.25% due 6/25/2022 7,018
4,112 Series 1992-3A Class AA, 8% due 10/25/2007 4,186
10,800,000 WFS Financial Owner Trust Series 2004-4 Class A4, 3.44% due 5/17/2012 10,662,823
91,921 Walsh Acceptance Series 1997-2 Class A, 5.314% due 3/01/2027 (b) 48,259
Washington Mutual (a):
179,836 Series 2000-1 Class B1, 7.31% due 1/25/2040 (b) 179,499
19,729,699 Series 2004-AR3 Class A1, 3.918% due 6/25/2034 19,368,659
476,744 Whole Auto Loan Trust Series 2002-1 Class B, 2.91% due 4/15/2009 475,465
------------
116,165,563
==========================================================================================================================
Commercial 1,519,589 Bank of America Commercial Mortgage, Inc. Series 2000-1 Class A1A,
Mortgage-Backed 7.109% due 11/15/2008 1,594,755
Securities--2.3% 5,450,069 Bank of America Mortgage Securities Series 2003-J Class 2A1,
4.126% due 11/25/2033 (a) 5,405,154
421,990 First Union National Bank -- Bank of America Commercial Mortgage Trust
Series 2001-C1 Class A1, 5.71% due 3/15/2033 432,749
333,372 GS Mortgage Securities Corp. II Series 1998-C1 Class A1, 6.06%
due 10/18/2030 334,013
8,288,938 Greenwich Capital Commercial Funding Corp. Series 2004-GG1 Class A2,
3.835% due 6/10/2036 8,241,628
650,936 Saxon Asset Securities Trust Series 2002-3 Class AV, 3.71%
due 12/25/2032 (a) 651,371
------------
16,659,670
- --------------------------------------------------------------------------------------------------------------------------
26 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2005
Schedule of Investments (continued)
Low Duration Master Portfolio (in U.S. dollars)
Face
Amount Non-Government Agency Mortgage-Backed Securities+ Value
==========================================================================================================================
Stripped $81,673,710 CS First Boston Mortgage Securities Corp. Series 2003-CPN1 Class ASP,
Mortgage-Backed 1.584% due 3/15/2035 (a)(c) $ 4,381,378
Securities--1.5% 32,015,392 Greenwich Capital Commercial Funding Corp. Series 2002-C1 Class XP,
2.059% due 1/11/2035 (a)(c) 2,466,527
85,000,000 LB-UBS Commercial Mortgage Trust Series 2002-C4 Class XCP,
1.475% due 10/15/2035 (a)(c) 4,038,682
------------
10,886,587
- --------------------------------------------------------------------------------------------------------------------------
Total Non-Government Agency Mortgage-Backed Securities
(Cost--$145,398,843)--19.8% 143,711,820
==========================================================================================================================
Industry++ Corporate Bonds
==========================================================================================================================
Aerospace & 1,250,000 Goodrich Corp., 6.45% due 4/15/2008 1,312,457
Defense--0.8% 1,985,000 Northrop Grumman Corp., 4.079% due 11/16/2006 1,979,265
247,000 Raytheon Co., 6.50% due 7/15/2005 247,168
1,873,252 Systems 2001 AT LLC, 6.664% due 9/15/2013 (b) 2,043,043
------------
5,581,933
- --------------------------------------------------------------------------------------------------------------------------
Airlines--0.1% 777,919 American Airlines, Inc. Series 2003-1, 3.857% due 1/09/2012 763,402
- --------------------------------------------------------------------------------------------------------------------------
Automobiles--0.1% 700,000 DaimlerChrysler NA Holding Corp., 4.75% due 1/15/2008 702,705
- --------------------------------------------------------------------------------------------------------------------------
Beverages--0.1% 850,000 Coca-Cola Enterprises, Inc., 5.375% due 8/15/2006 859,840
- --------------------------------------------------------------------------------------------------------------------------
Biotechnology--0.2% 1,800,000 Amgen, Inc., 4% due 11/18/2009 1,786,408
- --------------------------------------------------------------------------------------------------------------------------
Capital 1,070,000 The Bank of New York Co., Inc., 3.80% due 2/01/2008 1,061,348
Markets--1.6% 2,400,000 The Bear Stearns Cos., Inc., 7.80% due 8/15/2007 2,570,681
1,000,000 Credit Suisse First Boston USA, Inc., 4.70% due 6/01/2009 1,016,177
2,220,000 Goldman Sachs Group, Inc., 4.125% due 1/15/2008 2,218,728
4,500,000 Lehman Brothers Holdings, Inc., 6.25% due 5/15/2006 4,582,624
------------
11,449,558
- --------------------------------------------------------------------------------------------------------------------------
Chemicals--0.2% 1,165,000 Potash Corp. of Saskatchewan Inc., 7.125% due 6/15/2007 1,225,306
500,000 Praxair, Inc., 6.625% due 10/15/2007 526,329
------------
1,751,635
- --------------------------------------------------------------------------------------------------------------------------
Commercial 3,000,000 Bank of America Corp., 4.75% due 10/15/2006 3,031,065
Banks--4.1% 2,680,000 FirstBank Puerto Rico, 7.625% due 12/20/2005 2,700,515
2,000,000 FleetBoston Financial Corp., 3.85% due 2/15/2008 1,981,860
2,425,000 HBOS Treasury Services Plc, 3.50% due 11/30/2007 (b) 2,393,955
3,500,000 HSBC Finance Corp., 4.125% due 12/15/2008 3,477,526
3,500,000 Keycorp, 3.361% due 7/23/2007 (a) 3,503,727
1,470,000 Mellon Bank NA, 7% due 3/15/2006 1,498,567
2,425,000 PNC Funding Corp., 4.20% due 3/10/2008 2,425,732
670,000 Popular North America, Inc., 3.875% due 10/01/2008 662,787
1,260,000 Sovereign Bank, 4% due 2/01/2008 1,248,780
2,500,000 US Bank NA, 4.125% due 3/17/2008 2,501,170
1,500,000 Wachovia Corp., 6.15% due 3/15/2009 1,603,588
3,000,000 Wells Fargo Co., 3.50% due 4/04/2008 2,950,707
------------
29,979,979
- --------------------------------------------------------------------------------------------------------------------------
Commercial Cendant Corp.:
Services & 3,300,000 6.875% due 8/15/2006 3,267,165
Supplies--0.7% 1,000,000 4.89% due 8/17/2006 1,043,118
1,100,000 6.25% due 1/15/2008 1,130,875
------------
5,441,158
- --------------------------------------------------------------------------------------------------------------------------
Communications 2,990,000 Alltel Corp., 4.656% due 5/17/2007 3,013,471
Equipment--0.6% 1,250,000 Harris Corp., 6.35% due 2/01/2028 1,355,891
------------
4,369,362
- --------------------------------------------------------------------------------------------------------------------------
Consumer 1,310,000 Capital One Bank, 4.875% due 5/15/2008 1,329,548
Finance--0.6% 3,060,000 MBNA Corp., 5.625% due 11/30/2007 3,160,429
------------
4,489,977
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2005 27
Schedule of Investments (continued)
Low Duration Master Portfolio (in U.S. dollars)
Face
Industry++ Amount Corporate Bonds Value
==========================================================================================================================
Containers & $ 2,885,000 Sealed Air Corp., 5.375% due 4/15/2008 $ 2,954,436
Packaging--0.4%
- --------------------------------------------------------------------------------------------------------------------------
Diversified 2,500,000 Associates Corp. of North America, 6% due 7/15/2005 2,501,500
Financial 8,000,000 Citigroup, Inc., 6.75% due 12/01/2005 8,094,936
Services--6.5% 5,000,000 Ford Motor Credit Co., 6.875% due 2/01/2006 5,049,975
2,700,000 General Electric Capital Corp. Series A, 3.75% due 12/15/2009 2,651,543
5,750,000 General Motors Acceptance Corp., 7.50% due 7/15/2005 5,752,484
3,985,000 International Lease Finance Corp., 2.95% due 5/23/2006 3,950,323
JPMorgan Chase & Co.:
5,000,000 5.625% due 8/15/2006 5,087,550
2,970,000 5.25% due 5/30/2007 3,032,073
Sigma Finance Corp. (a):
5,500,000 5.768% due 8/15/2011 (e) 5,500,000
2,700,000 5.89% due 3/31/2014 2,725,874
3,000,000 Westfield Capital Corp. Ltd., 3.51% due 11/02/2007 (a)(b) 3,004,365
------------
47,350,623
- --------------------------------------------------------------------------------------------------------------------------
Diversified 1,960,000 BellSouth Corp., 3.393% due 11/15/2007 (a) 1,962,005
Telecommunication 3,500,000 British Telecommunications Plc, 7.875% due 12/15/2005 3,561,064
Services--3.6% 2,500,000 France Telecom SA, 7.45% due 3/01/2006 2,554,767
1,810,000 SBC Communications, Inc., 4.125% due 9/15/2009 1,795,000
5,200,000 Sprint Capital Corp., 6% due 1/15/2007 5,328,679
1,500,000 TELUS Corp., 7.50% due 6/01/2007 1,586,851
750,000 Telecom Italia Capital SA, 4% due 11/15/2008 738,674
8,250,000 Verizon Global Funding Corp., 6.75% due 12/01/2005 8,345,065
------------
25,872,105
- --------------------------------------------------------------------------------------------------------------------------
Electric 2,500,000 Alabama Power Co. Series Y, 2.80% due 12/01/2006 2,458,245
Utilities--2.8% 400,000 Ameren Corp., 4.263% due 5/15/2007 400,336
1,485,000 American Electric Power Co., Inc., 4.709% due 8/16/2007 1,496,723
4,550,000 Boston Edison Co., 3.641% due 10/15/2005 (a) 4,555,378
1,615,000 CC Funding Trust I, 6.90% due 2/16/2007 1,682,165
3,000,000 DTE Energy Co., 4.28% due 6/01/2007 (a) 3,009,180
645,000 Detroit Edison Co., 5.05% due 10/01/2005 646,736
3,330,000 National Rural Utilities Cooperative Finance Corp., 3.25% due 10/01/2007 3,261,965
2,500,000 Southern California Edison Co., 3.44% due 1/13/2006 (a) 2,503,100
685,000 Xcel Energy, Inc., 3.40% due 7/01/2008 667,555
------------
20,681,383
- --------------------------------------------------------------------------------------------------------------------------
Gas Utilities--0.8% 1,495,000 KeySpan Corp., 4.90% due 5/16/2008 (a) 1,521,106
4,040,000 Nisource Finance Corp., 3.854% due 11/23/2009 (a) 4,054,988
------------
5,576,094
- --------------------------------------------------------------------------------------------------------------------------
Health Care 2,010,000 Manor Care, Inc., 7.50% due 6/15/2006 2,062,007
Providers & 1,940,000 WellPoint, Inc., 3.75% due 12/14/2007 1,915,023
Services--0.6%
------------
3,977,030
- --------------------------------------------------------------------------------------------------------------------------
Hotels, 1,000,000 Carnival Corp., 3.75% due 11/15/2007 990,123
Restaurants & 1,800,000 Hilton Hotels Corp., 7.95% due 4/15/2007 1,902,620
Leisure--0.5% 915,000 Mandalay Resort Group, 6.45% due 2/01/2006 924,150
------------
3,816,893
- --------------------------------------------------------------------------------------------------------------------------
Household 1,095,000 Centex Corp., 2.993% due 8/01/2007 (a) 1,095,187
Durables--0.5% 2,500,000 DR Horton, Inc., 7.50% due 12/01/2007 2,645,832
------------
3,741,019
- --------------------------------------------------------------------------------------------------------------------------
28 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2005
Schedule of Investments (continued)
Low Duration Master Portfolio (in U.S. dollars)
Face
Industry++ Amount Corporate Bonds Value
==========================================================================================================================
Household $ 2,745,000 Textron Financial Corp., 2.75% due 6/01/2006 $ 2,718,374
Products--0.8% 3,000,000 Tyco International Group SA, 6.375% due 2/15/2006 3,040,128
------------
5,758,502
- --------------------------------------------------------------------------------------------------------------------------
Insurance--1.4% 1,570,000 AON Corp., 6.70% due 1/15/2007 1,619,956
1,960,000 Hartford Financial Services Group, Inc., 4.70% due 9/01/2007 1,970,163
385,000 Monumental Global Funding II, 3.85% due 3/03/2008 (b) 381,580
1,470,000 Protective Life Secured Trust, 3.22% due 1/14/2008 (a) 1,469,938
Prudential Financial, Inc.:
3,200,000 4.104% due 11/15/2006 3,208,874
500,000 3.75% due 5/01/2008 495,586
1,250,000 The St. Paul Travelers Cos., Inc., 5.01% due 8/16/2007 1,265,581
------------
10,411,678
- --------------------------------------------------------------------------------------------------------------------------
Machinery--0.1% 360,000 Timken Co., 6.75% due 8/21/2006 366,339
- --------------------------------------------------------------------------------------------------------------------------
Media--1.5% 1,440,000 Comcast Cable Communications, 6.375% due 1/30/2006 1,460,252
1,815,000 Cox Communications Inc., 7.75% due 8/15/2006 1,874,173
2,000,000 Historic TW, Inc., 8.18% due 8/15/2007 2,151,538
1,000,000 IAC/InterActiveCorp, 6.75% due 11/15/2005 1,008,098
2,600,000 Media General, Inc., 6.95% due 9/01/2006 2,661,038
1,220,000 News America, Inc., 6.75% due 1/09/2038 1,385,383
------------
10,540,482
- --------------------------------------------------------------------------------------------------------------------------
Multi-Utilities & Dominion Resources, Inc. Series B:
Unregulated 1,010,000 7.625% due 7/15/2005 1,012,203
Power--1.7% 4,410,000 3.568% due 5/15/2006 (a) 4,413,965
2,500,000 PSEG Power LLC, 6.875% due 4/15/2006 2,551,890
4,040,000 Sempra Energy, 4.621% due 5/17/2007 4,059,077
------------
12,037,135
- --------------------------------------------------------------------------------------------------------------------------
Multiline 600,000 Target Corp., 5.40% due 10/01/2008 623,912
Retail--0.1%
- --------------------------------------------------------------------------------------------------------------------------
Oil, Gas & 2,500,000 Burlington Resources Finance Co., 5.60% due 12/01/2006 2,538,970
Consumable 1,600,000 Conoco Funding Co., 5.45% due 10/15/2006 1,628,859
Fuels--1.5% 2,070,000 Panhandle Eastern Pipe Line Series B, 2.75% due 3/15/2007 2,015,977
1,140,417 Pemex Finance Ltd., 8.45% due 2/15/2007 1,175,701
3,430,000 Pemex Project Funding Master Trust, 4.71% due 6/15/2010 (a)(b) 3,538,045
------------
10,897,552
- --------------------------------------------------------------------------------------------------------------------------
Pharmaceuticals--0.6% 4,000,000 Abbott Laboratories, 5.625% due 7/01/2006 4,066,904
- --------------------------------------------------------------------------------------------------------------------------
Real Estate--0.4% Nationwide Health Properties, Inc.:
1,400,000 7.60% due 11/20/2028 1,627,738
1,400,000 6.59% due 7/07/2038 1,520,897
------------
3,148,635
- --------------------------------------------------------------------------------------------------------------------------
Road & Rail--0.6% 3,500,000 Burlington Northern Santa Fe Corp., 6.375% due 12/15/2005 3,536,368
870,000 Norfolk Southern Corp., 7.35% due 5/15/2007 918,279
------------
4,454,647
- --------------------------------------------------------------------------------------------------------------------------
Software--0.3% 2,015,000 Computer Associates International, Inc., 4.75% due 12/01/2009 (b) 2,008,586
- --------------------------------------------------------------------------------------------------------------------------
Thrifts & Mortgage 2,150,000 Countrywide Home Loans, Inc., 4.25% due 12/19/2007 2,147,947
Finance--1.0% 1,450,000 Golden West Financial Corp., 5.50% due 8/08/2006 1,473,410
3,325,000 Washington Mutual, Inc., 5.625% due 1/15/2007 3,398,323
------------
7,019,680
- --------------------------------------------------------------------------------------------------------------------------
Total Corporate Bonds (Cost--$252,636,283)--34.8% 252,479,591
==========================================================================================================================
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2005 29
Schedule of Investments (continued)
Low Duration Master Portfolio (in U.S. dollars)
Preferred Securities
Industry++ Shares Held Preferred Stocks Value
==========================================================================================================================
Real Estate--0.1% 1,500 Home Ownership Funding Corp. II, 13.338% (b) $ 505,945
- --------------------------------------------------------------------------------------------------------------------------
Total Preferred Stocks (Cost--$1,500,000)--0.1% 505,945
==========================================================================================================================
Face
Amount Trust Preferreds
==========================================================================================================================
Aerospace & $ 8,490,000 RC Trust I, 7% due 5/15/2006 8,603,054
Defense--1.2%
- --------------------------------------------------------------------------------------------------------------------------
Electric 5,120,000 PPL Capital Funding Trust I, 7.29% due 5/18/2006 5,243,187
Utilities--0.7%
- --------------------------------------------------------------------------------------------------------------------------
Total Trust Preferreds (Cost--$13,998,317)--1.9% 13,846,241
==========================================================================================================================
Total Preferred Securities (Cost--$15,498,317)--2.0% 14,352,186
==========================================================================================================================
Short-Term Securities
==========================================================================================================================
Commercial 19,000,000 DNB NOR Bank ASA, 2.23% due 7/20/2005 18,967,083
Paper*--7.9% 8,500,000 PACCAR Financial Corp., 3.23% due 7/29/2005 8,478,646
30,000,000 Rabobank USA Financial Corp., 3.24% due 7/13/2005 29,967,600
------------
57,413,329
- --------------------------------------------------------------------------------------------------------------------------
Time Deposits--0.0% 8,148 Brown Brothers Harriman & Co., 2.70% due 7/01/2005 8,148
- --------------------------------------------------------------------------------------------------------------------------
U.S. Government 19,200,000 Federal Home Loan Bank System, 3.001% due 7/01/2005 19,200,000
Agency
Obligations*--2.6%
- --------------------------------------------------------------------------------------------------------------------------
Total Short-Term Securities (Cost--$76,621,477)--10.5% 76,621,477
==========================================================================================================================
Total Investments (Cost--$729,175,753**)--99.7% 724,052,886
Other Assets Less Liabilities--0.3% 2,481,343
------------
Net Assets--100.0% $726,534,229
============
30 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2005
Schedule of Investments (concluded)
Low Duration Master Portfolio (in U.S. dollars)
* Commercial Paper and certain U.S. Government Agency Obligations are traded
on a discount basis; the interest rate shown reflects the discount rate
paid at the time of purchase by the Portfolio.
** The cost and unrealized appreciation (depreciation) of investments as of
June 30, 2005, as computed for federal income tax purposes, were as
follows:
Aggregate cost ........................................... $729,170,234
============
Gross unrealized appreciation ............................ $ 1,993,586
Gross unrealized depreciation ............................ (7,110,934)
------------
Net unrealized depreciation .............................. $ (5,117,348)
============
+ Asset-backed and mortgage-backed obligations are subject to principal
paydowns as a result of prepayments or refinancings of the underlying
instruments. As a result, the average life may be substantially less than
the original maturity.
++ For Portfolio compliance purposes, "Industry" means any one or more of the
industry sub-classifications used by one or more widely recognized market
indexes or ratings group indexes, and/or as defined by Portfolio
management. This definition may not apply for purposes of this report
which may combine such industry sub-classifications for reporting ease.
(a) Floating rate note.
(b) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(c) Represents the interest only portion of a mortgage-backed obligation.
(d) All or portion of security held as collateral in connection with open
financial futures contracts.
(e) Restricted security as to resale, representing 0.8% of net assets, were as
follows:
--------------------------------------------------------------------------
Acquisition
Issue Date Cost Value
--------------------------------------------------------------------------
Sigma Finance Corp.,
5.768% due 8/15/2011 2/13/2005 $5,500,000 $5,500,000
--------------------------------------------------------------------------
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 June 30, 2005 were as follows:
-------------------------------------------------------------------------
Number of Expiration Face Unrealized
Contracts Issue Date Value Depreciation
-------------------------------------------------------------------------
219 Two-Year
U.S. Treasury
Note September 2005 $45,481,624 $ (1,938)
180 Five-Year
U.S. Treasury
Note September 2005 $19,693,624 (93,315)
-------------------------------------------------------------------------
Total $ (95,253)
==========
Swaps outstanding as of June 30, 2005 were as follows:
--------------------------------------------------------------------------
Unrealized
Notional Appreciation
Amount (Depreciation)
--------------------------------------------------------------------------
Bought credit default protection on
Aon Corp. and pay .37%
Broker, Morgan Stanley Capital
Services Inc.
Expires January 2007 $ 1,725,000 $ (6,193)
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 30,206
Sold credit default protection on
WFS Financial Owner Trust
Series 2003-2 Class C and
receive .41%
Broker, Morgan Stanley Capital
Services Inc.
Expires December 2010 $ 3,775,740 3,507
Receive a floating rate based on
1-month USD LIBOR plus .47%,
which is capped at a fixed coupon
of 6% from 12/16/05 through
expiration and pay a floating rate
based on 1-month USD LIBOR
Broker, Credit Suisse
First Boston International
Expires June 2011 $37,500,000 17,031
-------------------------------------------------------------------------
Total $44,551
=======
See Notes to Financial Statements.
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2005 31
Statement of Assets and Liabilities Low Duration Master Portfolio
As of June 30, 2005
======================================================================================================================
Assets
- ----------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value
(identified cost--$729,175,753) ........................... $ 724,052,886
Unrealized appreciation on swaps--net ...................... 47,237
Cash ....................................................... 2,946
Receivables:
Interest ................................................ $ 4,743,466
Contributions ........................................... 856,260
Variation margin ........................................ 28,125
Paydowns ................................................ 4,626 5,632,477
-------------
Prepaid expenses ........................................... 2,977
-------------
Total assets ............................................... 729,738,523
-------------
======================================================================================================================
Liabilities
- ----------------------------------------------------------------------------------------------------------------------
Unrealized depreciation on swaps--net ...................... 2,686
Payables:
Withdrawals ............................................. 3,009,323
Investment adviser ...................................... 105,081
Other affiliates ........................................ 8,127
Swaps ................................................... 3,849 3,126,380
-------------
Accrued expenses and other liabilities ..................... 75,228
-------------
Total liabilities .......................................... 3,204,294
-------------
======================================================================================================================
Net Assets
- ----------------------------------------------------------------------------------------------------------------------
Net assets ................................................. $ 726,534,229
=============
======================================================================================================================
Net Assets Consist of
- ----------------------------------------------------------------------------------------------------------------------
Investors' capital ......................................... $ 731,707,798
Unrealized depreciation--net ............................... (5,173,569)
-------------
Net Assets ................................................. $ 726,534,229
=============
See Notes to Financial Statements.
32 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2005
Statement of Operations Low Duration Master Portfolio
For the Year Ended June 30, 2005
======================================================================================================================
Investment Income
- ----------------------------------------------------------------------------------------------------------------------
Interest ................................................... $ 27,818,264
Dividends .................................................. 200,085
Securities lending--net .................................... 6,513
-------------
Total income ............................................... 28,024,862
-------------
======================================================================================================================
Expenses
- ----------------------------------------------------------------------------------------------------------------------
Investment advisory fees ................................... $ 1,627,351
Accounting services ........................................ 303,631
Custodian fees ............................................. 61,328
Professional fees .......................................... 55,719
Trustees' fees and expenses ................................ 29,963
Pricing fees ............................................... 24,740
Printing and shareholder reports ........................... 4,674
Other ...................................................... 24,726
-------------
Total expenses ............................................. 2,132,132
-------------
Investment income--net ..................................... 25,892,730
-------------
======================================================================================================================
Realized & Unrealized Gain (Loss)--Net
- ----------------------------------------------------------------------------------------------------------------------
Realized gain (loss) on:
Investments--net ........................................ (4,970,491)
Futures contracts and swaps--net ........................ (2,659,646)
Options written--net .................................... 1,715,795 (5,914,342)
-------------
Change in unrealized appreciation/depreciation on:
Investments--net ........................................ 789,529
Futures contracts and swaps--net ........................ 156,539
Options written--net .................................... (185,968) 760,100
-------------------------------
Total realized and unrealized loss--net .................... (5,154,242)
-------------
Net Increase in Net Assets Resulting from Operations ....... $ 20,738,488
=============
See Notes to Financial Statements.
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2005 33
Statements of Changes in Net Assets Low Duration Master Portfolio
For the Year Ended
June 30,
-------------------------------
Increase (Decrease) in Net Assets: 2005 2004
======================================================================================================================
Operations
- ----------------------------------------------------------------------------------------------------------------------
Investment income--net ..................................... $ 25,892,730 $ 25,728,531
Realized loss--net ......................................... (5,914,342) (2,237,834)
Change in unrealized appreciation/depreciation--net ........ 760,100 (14,412,834)
-------------------------------
Net increase in net assets resulting from operations ....... 20,738,488 9,077,863
-------------------------------
======================================================================================================================
Capital Transactions
- ----------------------------------------------------------------------------------------------------------------------
Proceeds from contributions ................................ 298,036,322 385,522,595
Fair value of withdrawals .................................. (332,264,392) (393,910,819)
-------------------------------
Net decrease in net assets derived from capital transactions (34,228,070) (8,388,224)
-------------------------------
======================================================================================================================
Net Assets
- ----------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets .................... (13,489,582) 689,639
Beginning of year .......................................... 740,023,811 739,334,172
-------------------------------
End of year ................................................ $ 726,534,229 $ 740,023,811
===============================
See Notes to Financial Statements.
Financial Highlights Low Duration Master Portfolio
For the
Period
For the Year Ended October 6,
June 30, 2000+
The following ratios have been derived ------------------------------------------------------- to June 30,
from information provided in the financial statements. 2005 2004 2003 2002 2001
==================================================================================================================================
Total Investment Return**
- ----------------------------------------------------------------------------------------------------------------------------------
Total investment return ................ 2.80% 1.18% 6.05% 5.59% --
=======================================================================
==================================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses ............................... .28% .28% .28% .32% .30%*
=======================================================================
Investment income--net ................. 3.34% 3.39% 3.73% 5.03% 6.78%*
=======================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $726,534 $740,024 $739,334 $512,335 $305,514
=======================================================================
Portfolio turnover ..................... 74.53% 107.13% 198.09% 70.92% 192.04%
=======================================================================
* Annualized.
** Total return is required to be disclosed for fiscal years beginning after
December 15, 2000.
+ Commencement of operations.
See Notes to Financial Statements.
34 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2005
Notes to Financial Statements Low Duration Master Portfolio
1. Significant Accounting Policies:
Low Duration Master Portfolio ("the "Portfolio") is a fund of Fund Asset
Management Master Trust (the "Trust"). The Trust is registered under the
Investment Company Act of 1940, as amended, and is organized as a Delaware
statutory trust. The Declaration of Trust permits the Trustees to issue
nontransferable interests in the Portfolio, subject to certain limitations. The
Portfolio's financial statements are prepared in conformity with U.S. generally
accepted accounting principles, which may require the use of management accruals
and estimates. Actual results may differ from these estimates. The following is
a summary of significant accounting policies followed by the Portfolio.
(a) Valuation of investments -- Debt securities are traded primarily in the
over-the-counter ("OTC") markets and are valued at the last available bid price
in the OTC 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 sale price in the case of exchange-traded options. In the
case of options traded in the 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 Fund 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 asked 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 assets of the
Portfolio are determined as of such times. Foreign currency exchange rates also
are generally determined prior to the close of business on the NYSE.
Occasionally, events affecting the values of such securities and such exchange
rates may occur between the times at which they are determined and the close of
business on the NYSE that may not be reflected in the computation of the
Portfolio's net assets. If events (for example, a company announcement, market
volatility or a natural disaster) occur during such periods that are expected to
materially affect the value of such securities, those securities may be valued
at their fair value as determined in good faith by the Trust's Board of Trustees
or by the Investment Adviser using a pricing service and/or procedures approved
by the Trust's Board of Trustees.
(b) Derivative financial instruments -- The Portfolio may engage in various
portfolio investment strategies both to increase the return of the Portfolio and
to hedge, or protect, its exposure to interest rate movements and movements in
the securities markets. Losses may arise due to changes in the value of the
contract or if the counterparty does not perform under the contract.
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
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2005 35
Notes to Financial Statements (continued) Low Duration Master Portfolio
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. These periodic payments received or made by the Portfolio are
recorded in the accompanying Statement of Operations as realized gains or
losses, respectively. Gains or losses are realized upon termination of the
swap agreements. Swaps are marked-to-market daily based on dealer-supplied
valuations and changes in value are recorded as unrealized appreciation
(depreciation). Risks include changes in the returns of the underlying
instruments, failure of the counterparties to perform under the contracts'
terms and the possible lack of liquidity with respect to the swap
agreements.
(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 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
36 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2005
Notes to Financial Statements (concluded) Low Duration Master Portfolio
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"), an affiliate of FAM, 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 year ended June 30, 2005, MLIM, LLC
received $2,784 in securities lending agent fees.
For the year ended June 30, 2005, the Portfolio reimbursed FAM $17,128 for
certain accounting services.
Certain officers and/or trustees of the Trust are officers and/or directors of
FAM, PSI, ML & Co., and/or MLIM, LLC.
3. Investments:
Purchases and sales (including paydowns and maturities) of investments,
excluding short-term securities, for the year ended June 30, 2005 were
$516,434,211 and $576,672,657, respectively.
Transactions in call options written for the year ended June 30, 2005 were as
follows:
- --------------------------------------------------------------------------------
Number of Premiums
Contracts Received
- --------------------------------------------------------------------------------
Outstanding call options written,
beginning of year ...................... 4,090 $ 307,162
Options expired .......................... (4,090) 307,162
-----------------------------
Outstanding call options written,
end of year ............................ -- $ --
=============================
Transactions in put options written for the year ended June 30, 2005 were as
follows:
- --------------------------------------------------------------------------------
Number of Premiums
Contracts Received
- --------------------------------------------------------------------------------
Outstanding put options written,
beginning of year ...................... -- --
Options written .......................... 67 $ 2,278,695
Options closed ........................... (67) (2,278,695)
-----------------------------
Outstanding put options written,
end of year ............................ -- $ --
=============================
4. Short-Term Borrowings:
The Trust, on behalf of the Portfolio, along with certain other funds managed by
FAM and its affiliates, is a party to a $500,000,000 credit agreement with a
group of lenders, which expires November 2005. 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 year ended June 30, 2005.
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2005 37
Report of Independent Registered Public Accounting Firm
Low Duration Master Portfolio
To the Board of Trustees of Fund Asset
Management Master Trust and Investor of
Low Duration Master Portfolio:
We have audited the accompanying statement of assets and liabilities of Low
Duration Master Portfolio, including the schedule of investments, as of June 30,
2005, the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the periods indicated therein.
These financial statements and financial highlights are the responsibility of
the Portfolio's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. We were
not engaged to perform an audit of the Fund's internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purposes of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of June 30, 2005, by correspondence with the custodian and
others. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Low
Duration Master Portfolio at June 30, 2005, the results of its operations, the
changes in its net assets and the financial highlights for each of the indicated
periods in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
August 16, 2005
38 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2005
Officers and Directors/Trustees
Number of
Portfolios in Other Public
Fund Complex Directorships
Position(s) Length of Overseen Held by
Held with Time by Director/ Director/
Name Address & Age Fund/Trust Served Principal Occupation(s) During Past 5 Years Trustee Trustee
====================================================================================================================================
Interested Director/Trustees
- ------------------------------------------------------------------------------------------------------------------------------------
Robert C. P.O. Box 9011 President 2005 to President of the MLIM/FAM-advised funds since 2005; 125 Funds None
Doll, Jr.* Princeton, NJ and present President of MLIM and FAM since 2001; Co-Head 169 Portfolios
08543-9011 Director/ (Americas Region) thereof from 2000 to 2001 and
Age: 50 Trustee Senior Vice President from 1999 to 2001; President
and Director of Princeton Services, Inc. ("Princeton
Services") since 2001; President of Princeton
Administrators, L.P. ("Princeton Administrators") since
2001; Chief Investment Officer of Oppenheimer
Funds, Inc. in 1999 and Executive Vice President
thereof from 1991 to 1999.
------------------------------------------------------------------------------------------------------------------------
* Mr. Doll is a director, trustee or member of an advisory board of certain other investment companies for which MLIM or
FAM acts as investment adviser. Mr. Doll is an "interested person," as defined in the Investment Company Act, of the
Fund based on his current positions with MLIM, FAM, Princeton Services and Princeton Administrators.
Directors/Trustees serve until their resignation, removal or death, or until December 31 of the year in which they
turn 72. As Fund President, Mr. Doll serves at the pleasure of the Board of Directors/Trustees.
====================================================================================================================================
Independent Directors/Trustees*
- ------------------------------------------------------------------------------------------------------------------------------------
James H. P.O. Box 9095 Director/ 2002 to Director, The China Business Group, Inc. since 38 Funds None
Bodurtha** Princeton, NJ Trustee present 1996 and Executive Vice President thereof from 55 Portfolios
08543-9095 1996 to 2003; Chairman of the Board, Berkshire
Age: 61 Holding Corporation since 1980; Partner, Squire,
Sanders & Dempsey from 1980 to 1993.
- ------------------------------------------------------------------------------------------------------------------------------------
Kenneth A. P.O. Box 9095 Director/ 2005 to Professor, Harvard University since 1992; Professor, 38 Funds None
Froot Princeton, NJ Trustee present Massachusetts Institute of Technology from 55 Portfolios
08543-9095 1986 to 1992.
Age: 47
- ------------------------------------------------------------------------------------------------------------------------------------
Joe P.O. Box 9095 Director/ 1996 to Member of the Committee of Investment of 38 Funds Kimco
Grills** Princeton, NJ Trustee present Employee Benefit Assets of the Association of 55 Portfolios Realty
08543-9095 Financial Professionals ("CIEBA") since 1986; Corporation
Age: 70 Member of CIEBA's Executive Committee since 1988
and its Chairman from 1991 to 1992; Assistant
Treasurer of International Business Machines
Corporation ("IBM") and Chief Investment Officer of
IBM Retirement Funds from 1986 to 1993; Member of
the Investment Advisory Committee of the State of
New York Common Retirement Fund since 1989; Member
of the Investment Advisory Committee of the Howard
Hughes Medical Institute from 1997 to 2000;
Director, Duke University Management Company from
1992 to 2004, Vice Chairman thereof from 1998 to
2004 and Director Emeritus thereof since 2004;
Director, LaSalle Street Fund from 1995 to 2001;
Director, Kimco Realty Corporation since 1997;
Member of the Investment Advisory Committee of the
Virginia Retirement System since 1998; Vice Chairman
thereof from 2002 to 2005 and Chairman thereof since
2005; Director, Montpelier Foundation since 1998 and
its Vice Chairman since 2000; Member of the
Investment Committee of the Woodberry Forest School
since 2000; Member of the Investment Committee of
the National Trust for Historic Preservation since
2000.
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2005 39
Officers and Directors/Trustees (continued)
Number of
Portfolios in Other Public
Fund Complex Directorships
Position(s) Length of Overseen Held by
Held with Time by Director/ Director/
Name Address & Age Fund/Trust Served Principal Occupation(s) During Past 5 Years Trustee Trustee
====================================================================================================================================
Independent Directors/Trustees* (concluded)
- ------------------------------------------------------------------------------------------------------------------------------------
Herbert I. P.O. Box 9095 Director/ 2002 to John M. Olin Professor of Humanities, New York 38 Funds None
London Princeton, NJ Trustee present University since 1993 and Professor thereof since 55 Portfolios
08543-9095 1980; President, Hudson Institute since 1997
Age: 66 and Trustee thereof since 1980; Dean, Gallatin
Division of New York University from 1976 to 1993;
Distinguished Fellow, Herman Kahn Chair, Hudson
Institute from 1984 to 1985; Director, Damon Corp.
from 1991 to 1995; Overseer, Center for Naval
Analyses from 1983 to 1993.
- ------------------------------------------------------------------------------------------------------------------------------------
Roberta P.O. Box 9095 Director/ 2002 to Shareholder, Modrall, Sperling, Roehl, Harris & 38 Funds None
Cooper Princeton, NJ Trustee present Sisk, P.A. since 1993; President, American Bar 55 Portfolios
Ramo 08543-9095 Association from 1995 to 1996 and Member of
Age: 62 the Board of Governors thereof from 1994 to 1997;
Shareholder, Poole, Kelly & Ramo, Attorneys at Law,
P.C. from 1977 to 1993; Director, ECMC Group
(service provider to students, schools and lenders)
since 2001; Director, United New Mexico Bank
(now Wells Fargo) from 1983 to 1988; Director,
First National Bank of New Mexico (now Wells
Fargo) from 1975 to 1976; Vice President, American
Law Institute since 2004.
- ------------------------------------------------------------------------------------------------------------------------------------
Robert S. P.O. Box 9095 Director/ 2002 to Principal of STI Management (investment adviser) 38 Funds None
Salomon, Princeton, NJ Trustee present since 1994; Chairman and CEO of Salomon Brothers 55 Portfolios
Jr. 08543-9095 Asset Management from 1992 to 1995; Chairman
Age: 68 of Salomon Brothers Equity Mutual Funds from
1992 to 1995; regular columnist with Forbes from
1992 to 2002; Director of Stock Research and U.S.
Equity Strategist at Salomon Brothers Inc. from 1975
to 1991; Trustee, Commonfund from 1980 to 2001.
- ------------------------------------------------------------------------------------------------------------------------------------
Stephen B. P.O. Box 9095 Director/ 2002 to Chairman of Fernwood Advisors, Inc. (investment 39 Funds None
Swensrud Princeton, NJ Trustee present adviser) since 1996; Principal, Fernwood Associates 56 Portfolios
08543-9095 (financial consultants) since 1975; Chairman of
Age: 72 R.P.P. Corporation (manufacturing company)
since 1978; Director of International Mobile
Communications, Incorporated (telecommunications)
since 1998.
------------------------------------------------------------------------------------------------------------------------
* Directors/Trustees serve until their resignation, removal or death, or until December 31 of the year in which they
turn 72.
** Co-Chairman of the Board and the Audit Committee.
40 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2005
Officers and Directors/Trustees (concluded)
Position(s) Length of
Held with Time
Name Address & Age Fund/Trust Served Principal Occupation(s) During Past 5 Years
====================================================================================================================================
Fund Officers*
- ------------------------------------------------------------------------------------------------------------------------------------
Donald C. P.O. Box 9011 Vice 2002 to First Vice President of MLIM and FAM since 1997 and Treasurer thereof since 1999;
Burke Princeton, NJ President present Senior Vice President and Treasurer of Princeton Services since 1999 and Director
08543-9011 and since 2004; Vice President of FAM Distributors, Inc. ("FAMD") since 1999; Vice
Age: 45 Treasurer President of MLIM and FAM from 1990 to 1997; Director of Taxation of MLIM from 1990
to 2001; Vice President, Treasurer and Secretary of the IQ Funds since 2004.
- ------------------------------------------------------------------------------------------------------------------------------------
John D. P.O. Box 9011 Vice 2005 to Managing Director of MLIM since 2004; Director (Global Fixed Income) of MLIM from
Burger Princeton, NJ President present 1998 to 2004 and Vice President of MLIM from 1993 to 1998.
08543-9011
Age: 43
- ------------------------------------------------------------------------------------------------------------------------------------
Patrick P.O. Box 9011 Vice 2002 to Managing Director of MLIM since 2000; Director (Global Fixed Income) of MLIM from
Maldari Princeton, NJ President present 1997 to 2000.
08543-9011
Age: 43
- ------------------------------------------------------------------------------------------------------------------------------------
James P.O. Box 9011 Vice 2002 to Director of MLIM since 2004; Vice President of MLIM from 1997 to 2004.
Pagano Princeton, NJ President present
08543-9011
Age: 42
- ------------------------------------------------------------------------------------------------------------------------------------
Frank P.O. Box 9011 Vice 2005 to Managing Director of MLIM since 2002; Head of the Global Fixed Income Structured
Viola Princeton, NJ President present Asset Team since 2002; Director (Global Fixed Income) of MLIM from 2000 to 2001 and
08543-9011 Vice President from 1997 to 2000.
Age: 40
- ------------------------------------------------------------------------------------------------------------------------------------
Jeffrey P.O. Box 9011 Chief 2004 to Chief Compliance Officer of the MLIM/FAM-advised funds and First Vice President and
Hiller Princeton, NJ Compliance present Chief Compliance Officer of MLIM (Americas Region) since 2004; Chief Compliance
08543-9011 Officer Officer of the IQ Funds since 2004; Global Director of Compliance at Morgan Stanley
Age: 53 Investment Management from 2002 to 2004; Managing Director and Global Director of
Compliance at Citigroup Asset Management from 2000 to 2002; Chief Compliance
Officer at Soros Fund Management in 2000; Chief Compliance Officer at Prudential
Financial from 1995 to 2000; Senior Counsel in the Commission's Division of
Enforcement in Washington, D.C. from 1990 to 1995.
- ------------------------------------------------------------------------------------------------------------------------------------
Alice A. P.O. Box 9011 Secretary 2004 to Director (Legal Advisory) of MLIM since 2002; Vice President of MLIM from 1999 to
Pellegrino Princeton, NJ present 2002; Attorney associated with MLIM since 1997; Secretary of MLIM, FAM, FAMD and
08543-9011 Princeton Services since 2004.
Age: 45
------------------------------------------------------------------------------------------------------------------------
* Officers of the Fund serve at the pleasure of the Board of Directors/Trustees.
- ------------------------------------------------------------------------------------------------------------------------------------
Further information about the Fund's Officers and Directors/Trustees is available in the Fund's Statement of Additional
Information, which can be obtained without charge by calling 1-800-MER-FUND.
- ------------------------------------------------------------------------------------------------------------------------------------
Custodian
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109-3661
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-06484
800-637-3863
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2005 41
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.
42 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2005
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 JUNE 30, 2005 43
[LOGO] Merrill Lynch Investment Managers
www.mlim.ml.com
- --------------------------------------------------------------------------------
Mercury Advisors
A Division of Merrill Lynch Investment Managers
www.mercury.ml.com
This report is not authorized for use as an offer of sale or a solicitation of
an offer to buy shares of the Fund unless accompanied or preceded by the Fund's
current prospectus. Past performance results shown in this report should not be
considered a representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost. Statements and other information
herein are as dated and are subject to change.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available (1) without
charge, upon request, by calling toll-free 1-800-MER-FUND (1-800-637-3863); (2)
at www.mutualfunds.ml.com; and (3) on the Securities and Exchange Commission's
Web site at http://www.sec.gov. Information about how the Fund voted proxies
relating to securities held in the Fund's portfolio during the most recent
12-month period ended June 30 is available (1) at www.mutualfunds.ml.com and (2)
on the Securities and Exchange Commission's Web site at http://www.sec.gov.
Merrill Lynch Low Duration Fund of
Merrill Lynch Investment Managers Funds, Inc.
Box 9011
Princeton, NJ
08543-9011
#ML -- 3070 -- 6/05
Item 2 - Code of Ethics - The registrant has adopted a code of ethics, as of the
end of the period covered by this report, that applies to the
registrant's principal executive officer, principal financial officer
and principal accounting officer, or persons performing similar
functions. A copy of the code of ethics is available without charge
upon request by calling toll-free 1-800-MER-FUND (1-800-637-3863).
Item 3 - Audit Committee Financial Expert - The registrant's board of directors
has determined that (i) the registrant has the following audit
committee financial experts serving on its audit committee and (ii)
each audit committee financial expert is independent: (1) Joe Grills,
(2) Andre F. Perold (resigned as of October 1, 2004), (3) Robert S.
Salomon, Jr., and (4) Stephen B. Swensrud.
Item 4 - Principal Accountant Fees and Services
Low Duration Fund of Merrill Lynch Investment Managers Funds, Inc.
(a) Audit Fees - Fiscal Year Ending June 30, 2005 - $0
Fiscal Year Ending June 30, 2004 - $0
(b) Audit-Related Fees - Fiscal Year Ending June 30, 2005 - $0
Fiscal Year Ending June 30, 2004 - $0
(c) Tax Fees - Fiscal Year Ending June 30, 2005 - $0
Fiscal Year Ending June 30, 2004 - $0
(d) All Other Fees - Fiscal Year Ending June 30, 2005 - $0
Fiscal Year Ending June 30, 2004 - $0
Low Duration Master Portfolio of Fund Asset Management Master Trust
(a) Audit Fees - Fiscal Year Ending June 30, 2005 - $38,000
Fiscal Year Ending June 30, 2004 - $33,000
(b) Audit-Related Fees - Fiscal Year Ending June 30, 2005 - $0
Fiscal Year Ending June 30, 2004 - $0
(c) Tax Fees - Fiscal Year Ending June 30, 2005 - $5,700
Fiscal Year Ending June 30, 2004 - $5,200
The nature of the services include tax compliance, tax advice and tax
planning.
(d) All Other Fees - Fiscal Year Ending June 30, 2005 - $0
Fiscal Year Ending June 30, 2004 - $0
(e)(1) The registrant's audit committee (the "Committee") has adopted
policies and procedures with regard to the pre-approval of services.
Audit, audit-related and tax compliance services provided to the
registrant on an annual basis require specific pre-approval by the
Committee. The Committee also must approve other non-audit services
provided to the registrant and those non-audit services provided to the
registrant's affiliated service providers that relate directly to the
operations and the financial reporting of the registrant. Certain of
these non-audit services that the Committee believes are a) consistent
with the SEC's auditor independence rules and b) routine and recurring
services that will not impair the independence of the independent
accountants may be approved by the Committee without consideration on a
specific case-by-case basis ("general pre-approval").
However, such services will only be deemed pre-approved provided that
any individual project does not exceed $5,000 attributable to the
registrant or $50,000 for all of the registrants the Committee
oversees. Any proposed services exceeding the pre-approved cost levels
will require specific pre-approval by the Committee, as will any other
services not subject to general pre-approval (e.g., unanticipated but
permissible services). The Committee is informed of each service
approved subject to general pre-approval at the next regularly
scheduled in-person board meeting.
(e)(2) 0%
(f) Not Applicable
(g) Fiscal Year Ending June 30, 2005 - $5,700
Fiscal Year Ending June 30, 2004 - $5,200
(h) The registrant's audit committee has considered and determined that
the provision of non-audit services that were rendered to the
registrant's investment adviser and any entity controlling, controlled
by, or under common control with the investment adviser that provides
ongoing services to the registrant that were not pre-approved pursuant
to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible
with maintaining the principal accountant's independence.
Regulation S-X Rule 2-01(c)(7)(ii) - $0, 0%
Item 5 - Audit Committee of Listed Registrants - Not Applicable
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable
Item 8 - 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 second fiscal half-year of the
period covered by this report that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting.
Item 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - See Item 2
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.,
Chief Executive Officer of
Merrill Lynch Low Duration Fund of Merrill Lynch Investment Managers Funds,
Inc. and Low Duration Master Portfolio of Fund Asset Management Master Trust
Date: August 19, 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.,
Chief Executive Officer of
Merrill Lynch Low Duration Fund of Merrill Lynch Investment Managers Funds,
Inc. and Low Duration Master Portfolio of Fund Asset Management Master Trust
Date: August 19, 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: August 19, 2005