UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-10053
811-10089
Name of Fund: Merrill Lynch Low Duration Fund of Merrill Lynch Investment
Managers Funds, Inc. Low Duration Master Portfolio of Fund Asset
Management Master Trust
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Robert C. Doll, Jr., 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: 06/30/06
Date of reporting period: 07/01/05 - 12/31/05
Item 1 - Report to Stockholders
Merrill Lynch
Low Duration Fund
Of Merrill Lynch Investment Managers Funds, Inc.
Semi-Annual Report
December 31, 2005
A Letter From the President
[PHOTO OMITTED]
Dear Shareholder
On balance, 2005 was a year of "muddling through" for the U.S. financial
markets, as oil prices reached new record highs, the Federal Reserve Board (the
Fed) increased the target federal funds rate from 2.25% to 4.25%, the housing
market and the consumer finally showed some signs of slowing, and Hurricanes
Katrina and Rita ravaged the Gulf Coast, causing yet untold economic damage.
Although they struggled, stocks managed to post their third straight year of
positive performance. The year was equally uncertain for fixed income markets,
which were bemused by a flattening yield curve and a number of significant
credit events that brought a slowdown in high yield market returns. Notably, the
one-year results for the major asset classes -- stocks, bonds and cash -- were
the closest they have been in more than 100 years. For the 12- and six-month
periods ended December 31, 2005, most of the major market indexes managed to
land in positive territory:
Total Returns as of December 31, 2005 6-month 12-month
===============================================================================================
U.S. equities (Standard & Poor's 500 Index) + 5.77% + 4.91%
- -----------------------------------------------------------------------------------------------
Small-cap U.S. equities (Russell 2000 Index) + 5.88 + 4.55
- -----------------------------------------------------------------------------------------------
International equities (MSCI Europe Australasia Far East Index) +14.88 +13.54
- -----------------------------------------------------------------------------------------------
Fixed income (Lehman Brothers Aggregate Bond Index) - 0.08 + 2.43
- -----------------------------------------------------------------------------------------------
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index) + 0.60 + 3.51
- -----------------------------------------------------------------------------------------------
High yield bonds (Credit Suisse First Boston High Yield Index) + 1.48 + 2.26
- -----------------------------------------------------------------------------------------------
In hindsight, these numbers are reasonably good given the headwinds facing the
markets in 2005. U.S. equities found support in strong corporate earnings, low
core inflation and healthy company balance sheets. Strength in the global
economy and non-U.S. equity markets helped, as did robust dividend-distribution,
share-buyback and merger-and-acquisition activity. International stocks had an
excellent year, with many markets benefiting from strong economic statistics,
trade surpluses and solid finances. In the U.S. bond market, long-term yields
remained low and, at year-end, the Treasury curve appeared ready to invert.
As 2006 begins, the largest question marks center on the Fed's future moves, the
U.S. consumer's ability (or inability) to continue spending, the direction of
the U.S. dollar following a year of appreciation and the potential for continued
strong economic and corporate earnings growth. As you turn the calendar and
consider how these factors might impact your investments, remember that the new
year is a good time to meet with your financial advisor to review your financial
goals, and to make portfolio changes where necessary. For investing insights and
timely "food for thought" for investors, we also invite you to visit Shareholder
magazine at www.mlim.ml.com/shareholdermagazine.
As always, we thank you for trusting Merrill Lynch Investment Managers with your
investment assets, and we look forward to serving you in the new year and
beyond.
Sincerely,
/s/ Robert C. Doll, Jr.
Robert C. Doll, Jr.
President and Director/Trustee
2 MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2005
We are pleased to present to you the management team of
Merrill Lynch Low Duration Fund
[PHOTO OMITTED]
Senior Portfolio Managers Pat Maldari, who joined Merrill Lynch Investment
Managers in 1984, and Jim Pagano, who joined Merrill Lynch Investment Managers
in 1997, co-head Merrill Lynch Low Duration Fund. Mr. Maldari received a
bachelor's degree from Montclair State University. He is a CFA(R) charterholder
and a member of the CFA Institute 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. Maldari and Mr. Pagano's team also
includes John Burger and Frank Viola, the corporate bond and mortgage-backed
managers, respectively. Mr. Burger earned a bachelor's degree from Cornell
University. He is a CFA charterholder and a member of the CFA Institute and
NYSSA. Mr. Viola earned a bachelor's degree from The Pennsylvania State
University. He is a CFA charterholder, an associate of the Society of Actuaries
and a member of the American Academy of Actuaries.
================================================================================
Table of Contents Page
- --------------------------------------------------------------------------------
A Letter From the President .............................................. 2
A Discussion With Your Fund's Portfolio Managers ......................... 4
Performance Data ......................................................... 6
Disclosure of Expenses ................................................... 8
Fund Financial Statements ................................................ 9
Fund Financial Highlights ................................................ 12
Fund Notes to Financial Statements ....................................... 17
Portfolio Information .................................................... 19
Master Portfolio Schedule of Investments ................................. 20
Master Portfolio Financial Statements .................................... 25
Master Portfolio Financial Highlights .................................... 28
Master Portfolio Notes to Financial Statements ........................... 29
Disclosure of Investment Advisory Agreement .............................. 32
Officers & Directors/Trustees ............................................ 34
CFA(R) and Chartered Financial Analyst(R) are trademarks owned by the CFA
Institute
MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2005 3
A Discussion With Your Fund's Portfolio Managers
We continued to look to credit and spread product for yield enhancement
and total return potential, as the flat Treasury yield curve offered very little
value.
How did the Fund perform during the period in light of the existing market
conditions?
For the six-month period ended December 31, 2005, Merrill Lynch Low Duration
Fund's Class A, Class B, Class C, Class I and Class R Shares had total returns
of +.61%, +.28%, +.38%, +.85% and +.58%, respectively. For the same period, the
Fund's unmanaged benchmark, the Merrill Lynch 1 - 3 Year Corporate and
Government Index, returned +.79%. (Fund results shown do not reflect sales
charges and would be lower if sales charges were included. Complete performance
information can be found on pages 6 and 7 of this report to shareholders.)
The Federal Reserve Board (the Fed) advanced its monetary tightening campaign
throughout the period, increasing the federal funds rate four times from 3.25%
to 4.25%. Yields at the short end of the curve continued to follow the federal
funds rate higher as long-term bond yields rose much more modestly. The yield
curve, which had flattened considerably throughout the past year, had mildly
inverted by December 31, with the two-year Treasury yielding 4.41% versus the
10-year Treasury yield of 4.39%. Because bond prices move in the opposite
direction of yields, this indicates that longer-dated issues significantly
outperformed shorter-dated securities for the period. In all, the two-year
Treasury yield increased 75 basis points (.75%) over the past six months while
the 10-year Treasury yield rose a more moderate 45 basis points.
What factors most influenced Fund performance?
After maintaining a curve flattening bias in the first half of 2005, we began to
neutralize our yield curve positioning during the six-month period. After
Hurricane Katrina devastated the U.S. Gulf Coast region in late August, we
expected that interest rates on the long end would start to rise in relation to
short-term interest rates. In retrospect, our move toward neutral was premature,
as the curve continued to flatten. The markets and the economy viewed the
hurricane as a temporary shock and, after rising briefly, long-term interest
rates declined through year-end.
Offsetting this was the Portfolio's short duration profile and our focus on
spread sectors. Duration is a measure of an investment's sensitivity to interest
rate changes. By maintaining a duration shorter than that of the benchmark for
much of the period, we were able to cushion the Portfolio's underlying value as
short-term interest rates rose significantly. Our considerable exposure to
credit and spread sectors, at roughly 90% of the Portfolio versus 40% for the
benchmark, benefited performance as well. Because they are not as affected by
interest rate changes as Treasury securities, these sectors of the market are
less susceptible to the price risk associated with rising interest rates.
What changes were made to the Portfolio during the period?
We reduced the Portfolio's exposure to corporate bonds by approximately 5%, from
roughly 40% of net assets to approximately 35%. Much of the reduction came in
the auto sector, which experienced significant credit deterioration and spread
widening in the spring as earnings disappointments in the industry began to take
a toll. We also reduced exposure to non-investment grade corporate bonds in the
portfolio, namely Nationwide Health Properties, Inc. and Media General, Inc.
This brought the Portfolio's position in high yield bonds from 2.6% of net
assets to less than 1%. Within the corporate sector, we currently favor
higher-quality credits with an emphasis on real estate investment trusts (REITs)
and media.
The assets from the sale of the corporate bonds were applied to Treasury issues,
increasing our allocation from 1% of net assets to 9.3%. This reallocation was
mainly initiated because spreads in the corporate sector continued to tighten
and in some cases had moved through our level of fair value. Some of the cash
from the sale of our corporate bonds also was redeployed into structured fixed
income assets, such as asset-backed securities (ABS), which were particularly
attractive given their high credit quality (AAA rating) and their attractive
yields.
4 MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2005
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 and long ends of
the curve, allowing us to avoid the area of the curve most affected by the
flattening phenomenon. Our cash position over the course of the six-month period
averaged 5%.
Notably, we extended duration within the corporate sector of the portfolio in an
effort to add incremental yield to the portfolio. We felt that this represented
good relative value because, as the Treasury curve flattens, the credit curve
(which is not correlated to Treasury securities) tends to steepen. In terms of
the overall duration of the Portfolio, we had extended it above the benchmark
briefly as the yield on the two-year Treasury note moved above 4%. Later in the
period, as long-term interest rates remained low and the curve failed to
steepen, we let the Portfolio's duration drift back down closer to that of the
benchmark. As of December 31, 2005, the Portfolio's duration was 1.61 years,
compared to 1.68 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?
We anticipate that the U.S. economy will enter a mid-cycle slowdown by the
second half of 2006. The U.S. consumer has supported the economy for some time.
In our view, the resilience of the consumer sector is likely to be tested by
high energy prices, higher interest rates and changes in the banking industry
aimed at curtailing "speculative borrowing," thereby limiting consumers' ability
to continue tapping into the equity of their homes.
In this environment, we believe that high-quality spread sectors should continue
to do well on a relative basis. In a mid-cycle slowdown, combined with a
steepening Treasury yield curve, we would expect the credit curve to flatten,
allowing high-quality spread sectors to perform well. We ended the period with a
nearly 90% allocation to spread sectors, consisting of 33% corporate bonds, 30%
ABS, 17% mortgage-backed securities (MBS) and 6.7% collateralized MBS.
The Portfolio's duration profile at period-end was close to that of its
benchmark. We would look to increase duration when the yield on the 10-year
Treasury note moves into the 4.5% - 5% range. Before this occurs, we would
expect the yield curve to invert temporarily, with the short end offering higher
yields than the long end. For its part, the Fed is likely to continue increasing
short-term interest rates in the early months of 2006 before pausing to evaluate
the impact of its measured interest rate hiking campaign.
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
January 10, 2006
MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 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 Effective December 28, 2005, Class I Shares are no longer subject to any
front-end sales charge. Class I Shares bear no ongoing distribution or
account maintenance fees and are available only to eligible investors. Had
the sales charge been included, the Fund's Class I Shares' performance
would have been lower.
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, Class B, Class C and Class I Shares
depicted on pages 6 and 7 are those of Merrill Lynch Low Duration Fund and,
prior to October 6, 2000, a predecessor Fund investing in the same underlying
portfolio and with the same fees as Merrill Lynch Low Duration Fund. Performance
results prior to October 6, 2000 reflect the annual operating expenses of the
predecessor Fund. If Merrill Lynch Low Duration Fund's operating expenses were
reflected, the results may have been less than those shown for this time period.
Performance results after October 6, 2000 include the actual operating expenses
of Merrill Lynch Low Duration Fund. The Fund commenced operations on October 6,
2000.
None of the past results shown should be considered a representation of future
performance. Current performance may be lower or higher than the performance
data quoted. Refer to www.mlim.ml.com to obtain performance data current to the
most recent month-end. Performance results do not reflect the deduction of taxes
that a shareholder would pay on fund distributions or the redemption of fund
shares. Figures shown in each of the following tables assume reinvestment of all
dividends and capital gain distributions, if any, at net asset value on the
payable date. Investment return and principal value of shares will fluctuate so
that shares, when redeemed, may be worth more or less than their original cost.
Dividends paid to each class of shares will vary because of the different levels
of account maintenance, distribution and transfer agency fees applicable to each
class, which are deducted from the income available to be paid to shareholders.
6 MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2005
Performance Data (concluded)
Recent Performance Results*
6-Month 12-Month 10-Year Standardized
As of December 31, 2005 Total Return Total Return Total Return 30-Day Yield
=========================================================================================================================
ML Low Duration Fund Class A Shares* +0.61% +1.43% +55.57% 3.55%
- -------------------------------------------------------------------------------------------------------------------------
ML Low Duration Fund Class B Shares* +0.28 +0.77 +45.71 2.98
- -------------------------------------------------------------------------------------------------------------------------
ML Low Duration Fund Class C Shares* +0.38 +0.77 +45.64 2.98
- -------------------------------------------------------------------------------------------------------------------------
ML Low Duration Fund Class I Shares* +0.85 +1.69 +59.60 3.79
- -------------------------------------------------------------------------------------------------------------------------
ML Low Duration Fund Class R Shares* +0.58 +1.27 +52.91 3.41
- -------------------------------------------------------------------------------------------------------------------------
Merrill Lynch 1 - 3 Year Corporate & Government Index** +0.79 +1.75 +63.36 --
- -------------------------------------------------------------------------------------------------------------------------
* 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.
** 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.
Average Annual Total Return
Return Without Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
One Year Ended 12/31/05 +1.43% -1.62%
- --------------------------------------------------------------------------------
Five Years Ended 12/31/05 +3.41 +2.78
- --------------------------------------------------------------------------------
Ten Years Ended 12/31/05 +4.52 +4.20
- --------------------------------------------------------------------------------
* Maximum sales charge is 3%.
** Assuming maximum sales charge.
Return Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
One Year Ended 12/31/05 +0.77% -3.17%
- --------------------------------------------------------------------------------
Five Years Ended 12/31/05 +2.74 +2.38
- --------------------------------------------------------------------------------
Ten Years Ended 12/31/05 +3.84 +3.84
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 4% and is reduced to 0% after
six years.
** Assuming payment of applicable contingent deferred sales charge.
Return Return
Without CDSC With CDSC**
================================================================================
Class C Shares*
================================================================================
One Year Ended 12/31/05 +0.77% -0.21%
- --------------------------------------------------------------------------------
Five Years Ended 12/31/05 +2.75 +2.75
- --------------------------------------------------------------------------------
Ten Years Ended 12/31/05 +3.83 +3.83
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 1% and is reduced to 0% after
one year.
** Assuming payment of applicable contingent deferred sales charge.
- --------------------------------------------------------------------------------
Class I Shares Return
================================================================================
One Year Ended 12/31/05 +1.69%
- --------------------------------------------------------------------------------
Five Years Ended 12/31/05 +3.69
- --------------------------------------------------------------------------------
Ten Years Ended 12/31/05 +4.79
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class R Shares Return
================================================================================
One Year Ended 12/31/05 +1.27%
- --------------------------------------------------------------------------------
Five Years Ended 12/31/05 +3.31
- --------------------------------------------------------------------------------
Ten Years Ended 12/31/05 +4.34
- --------------------------------------------------------------------------------
MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2005 7
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
12b-1 fees, and other Fund expenses. The following example (which is based on a
hypothetical investment of $1,000 invested on July 1, 2005 and held through
December 31, 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 July 1, 2005 to
July 1, 2005 December 31, 2005 December 31, 2005
======================================================================================================================
Actual
======================================================================================================================
Class A $1,000 $1,006.10 $4.70
- ----------------------------------------------------------------------------------------------------------------------
Class B $1,000 $1,002.80 $8.16
- ----------------------------------------------------------------------------------------------------------------------
Class C $1,000 $1,003.80 $8.17
- ----------------------------------------------------------------------------------------------------------------------
Class I $1,000 $1,008.50 $3.43
- ----------------------------------------------------------------------------------------------------------------------
Class R $1,000 $1,005.80 $5.98
======================================================================================================================
Hypothetical (5% annual return before expenses)**
======================================================================================================================
Class A $1,000 $1,020.81 $4.74
- ----------------------------------------------------------------------------------------------------------------------
Class B $1,000 $1,017.35 $8.22
- ----------------------------------------------------------------------------------------------------------------------
Class C $1,000 $1,017.35 $8.22
- ----------------------------------------------------------------------------------------------------------------------
Class I $1,000 $1,022.09 $3.45
- ----------------------------------------------------------------------------------------------------------------------
Class R $1,000 $1,019.54 $6.02
- ----------------------------------------------------------------------------------------------------------------------
* For each class of the Fund, expenses are equal to the annualized expense
ratio for the class (.92% for Class A, 1.60% for Class B, 1.60% for Class
C, .67% for Class I and 1.17% for Class R), multiplied by the average
account value over the period, multiplied by 186/365 (to reflect the
one-half year period shown). Because the Fund is a feeder fund, the
expense table example reflects the expenses of both the feeder fund and
master 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.
8 MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2005
Statement of Assets and Liabilities Merrill Lynch Low Duration Fund
As of December 31, 2005
===================================================================================================================================
Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Investment in Low Duration Master Portfolio (the "Portfolio"), at value
(identified cost--$690,786,658) ............................................. $ 681,152,072
Prepaid expenses ............................................................. 33,091
-------------
Total assets ................................................................. 681,185,163
-------------
===================================================================================================================================
Liabilities
- -----------------------------------------------------------------------------------------------------------------------------------
Payables:
Dividends to shareholders ................................................. $ 461,994
Distributor ............................................................... 250,966
Other affiliates .......................................................... 205,765
Administrator ............................................................. 135,421 1,054,146
-------------
Accrued expenses ............................................................. 108,041
-------------
Total liabilities ............................................................ 1,162,187
-------------
===================================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets ................................................................... $ 680,022,976
=============
===================================================================================================================================
Net Assets Consist of
- -----------------------------------------------------------------------------------------------------------------------------------
Class A Shares of Common Stock, $.01 par value, 100,000,000 shares authorized $ 247,442
Class B Shares of Common Stock, $.01 par value, 200,000,000 shares authorized 77,178
Class C Shares of Common Stock, $.01 par value, 100,000,000 shares authorized 157,340
Class I Shares of Common Stock, $.01 par value, 100,000,000 shares authorized 194,016
Class R Shares of Common Stock, $.01 par value, 200,000,000 shares authorized 4,462
Paid-in capital in excess of par ............................................. 712,802,830
Accumulated distributions in excess of investment income--net ................ $ (266,579)
Accumulated realized capital losses allocated from the Portfolio--net ........ (23,559,127)
Unrealized depreciation allocated from the Portfolio--net .................... (9,634,586)
-------------
Total accumulated losses--net ................................................ (33,460,292)
-------------
Net Assets ................................................................... $ 680,022,976
=============
===================================================================================================================================
Net Asset Value
- -----------------------------------------------------------------------------------------------------------------------------------
Class A--Based on net assets of $247,457,572 and 24,744,236 shares outstanding $ 10.00
=============
Class B--Based on net assets of $77,013,881 and 7,717,818 shares outstanding . $ 9.98
=============
Class C--Based on net assets of $156,959,194 and 15,733,954 shares outstanding $ 9.98
=============
Class I--Based on net assets of $194,137,298 and 19,401,612 shares outstanding $ 10.01
=============
Class R--Based on net assets of $4,455,031 and 446,157 shares outstanding .... $ 9.99
=============
See Notes to Financial Statements.
MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2005 9
Statement of Operations Merrill Lynch Low Duration Fund
For the Six Months Ended December 31, 2005
===================================================================================================================================
Investment Income
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income allocated from the Portfolio:
Interest .................................................................. $ 14,564,478
Dividends ................................................................. 84,715
Securities lending--net ................................................... 51,368
Expenses .................................................................. (998,876)
-------------
Total income ................................................................. 13,701,685
-------------
===================================================================================================================================
Expenses
- -----------------------------------------------------------------------------------------------------------------------------------
Administration fees .......................................................... $ 897,702
Account maintenance and distribution fees--Class C ........................... 775,844
Account maintenance and distribution fees--Class B ........................... 398,913
Account maintenance fees--Class A ............................................ 309,204
Transfer agent fees--Class A ................................................. 136,441
Transfer agent fees--Class C ................................................. 115,300
Transfer agent fees--Class I ................................................. 113,003
Transfer agent fees--Class B ................................................. 59,929
Registration fees ............................................................ 53,043
Printing and shareholder reports ............................................. 50,185
Professional fees ............................................................ 12,979
Account maintenance and distribution fees--Class R ........................... 11,939
Transfer agent fees--Class R ................................................. 2,636
Other ........................................................................ 8,755
-------------
Total expenses ............................................................... 2,945,873
-------------
Investment income--net ....................................................... 10,755,812
-------------
===================================================================================================================================
Realized & Unrealized Loss Allocated from the Portfolio--Net
- -----------------------------------------------------------------------------------------------------------------------------------
Realized loss on:
Investments--net .......................................................... (1,553,793)
Futures contracts and swaps--net .......................................... (745,673) (2,299,466)
-------------
Change in unrealized appreciation/depreciation on investments, futures
contracts, swaps and options--net ........................................... (4,461,017)
-------------
Total realized and unrealized loss--net ...................................... (6,760,483)
-------------
Net Increase in Net Assets Resulting from Operations ......................... $ 3,995,329
=============
See Notes to Financial Statements.
10 MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2005
Statements of Changes in Net Assets Merrill Lynch Low Duration Fund
For the Six For the
Months Ended Year Ended
December 31, June 30,
Increase (Decrease) in Net Assets: 2005 2005
===================================================================================================================================
Operations
- -----------------------------------------------------------------------------------------------------------------------------------
Investment income--net ....................................................... $ 10,755,812 $ 19,140,966
Realized loss--net ........................................................... (2,299,466) (5,914,342)
Change in unrealized appreciation/depreciation--net .......................... (4,461,017) 760,100
-------------------------------
Net increase in net assets resulting from operations ......................... 3,995,329 13,986,724
-------------------------------
===================================================================================================================================
Dividends to Shareholders
- -----------------------------------------------------------------------------------------------------------------------------------
Investment income--net:
Class A ................................................................... (3,935,183) (5,925,410)
Class B ................................................................... (1,124,019) (2,340,210)
Class C ................................................................... (2,190,061) (4,298,932)
Class I ................................................................... (3,535,653) (6,691,826)
Class R ................................................................... (70,183) (85,901)
-------------------------------
Net decrease in net assets resulting from dividends to shareholders .......... (10,855,099) (19,342,279)
-------------------------------
===================================================================================================================================
Capital Share Transactions
- -----------------------------------------------------------------------------------------------------------------------------------
Net decrease in net assets derived from capital share transactions ........... (38,637,576) (8,275,277)
-------------------------------
===================================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Total decrease in net assets ................................................. (45,497,346) (13,630,832)
Beginning of period .......................................................... 725,520,322 739,151,154
-------------------------------
End of period* ............................................................... $ 680,022,976 $ 725,520,322
===============================
* Accumulated distributions in excess of investment income--net ........... $ (266,579) $ (167,292)
===============================
See Notes to Financial Statements.
MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2005 11
Financial Highlights Merrill Lynch Low Duration Fund
Class A
----------------------------------------------------------------------
For the Six For the Year Ended
Months Ended June 30,
The following per share data and ratios have been derived December 31, -----------------------------------------------------
from information provided in the financial statements. 2005 2005 2004 2003 2002
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period .... $ 10.10 $ 10.16 $ 10.38 $ 10.16 $ 10.19
---------------------------------------------------------------------
Investment income--net*** ............... .16 .27 .29 .31 .34
Realized and unrealized gain (loss)--net (.10) (.05) (.22) .23 .12
---------------------------------------------------------------------
Total from investment operations ........ .06 .22 .07 .54 .46
---------------------------------------------------------------------
Less dividends and distributions:
Investment income--net ................. (.16) (.28) (.29) (.32) (.48)
Realized gain--net ..................... -- -- -- -- (.01)
---------------------------------------------------------------------
Total dividends and distributions ....... (.16) (.28) (.29) (.32) (.49)
---------------------------------------------------------------------
Net asset value, end of period .......... $ 10.00 $ 10.10 $ 10.16 $ 10.38 $ 10.16
=====================================================================
==================================================================================================================================
Total Investment Return**
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ...... .61%@@ 2.14% .66% 5.36% 4.53%
=====================================================================
==================================================================================================================================
Ratios to Average Net Assets@
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of waiver and reimbursement
and excluding reorganization expenses .. .92%* .93% .89% .95% .83%
=====================================================================
Expenses ................................ .92%* .93% .89% 1.00% 1.02%
=====================================================================
Investment income--net .................. 3.17%* 2.69% 2.78% 3.03% 4.04%
=====================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $247,458 $235,886 $125,950 $152,780 $110,014
=====================================================================
Portfolio turnover of the Portfolio ..... 27.53% 74.53% 107.13% 198.09% 70.92%
=====================================================================
* Annualized.
** Total investment returns exclude the effects of sales charges.
*** Based on average shares outstanding.
@ Includes the Fund's share of the Portfolio's allocated expenses and/or
investment income--net.
@@ Aggregate total investment return.
See Notes to Financial Statements.
12 MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2005
Financial Highlights (continued) Merrill Lynch Low Duration Fund
Class B
----------------------------------------------------------------------
For the Six For the Year Ended
Months Ended June 30,
The following per share data and ratios have been derived December 31, -----------------------------------------------------
from information provided in the financial statements. 2005 2005 2004 2003 2002
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period .... $ 10.08 $ 10.14 $ 10.37 $ 10.14 $ 10.18
---------------------------------------------------------------------
Investment income--net*** ............... .13 .20 .22 .24 .37
Realized and unrealized gain (loss)--net (.10) (.05) (.23) .24 .01
---------------------------------------------------------------------
Total from investment operations ........ .03 .15 (.01) .48 .38
---------------------------------------------------------------------
Less dividends and distributions:
Investment income--net ................. (.13) (.21) (.22) (.25) (.41)
Realized gain--net ..................... -- -- -- -- (.01)
---------------------------------------------------------------------
Total dividends and distributions ....... (.13) (.21) (.22) (.25) (.42)
---------------------------------------------------------------------
Net asset value, end of period .......... $ 9.98 $ 10.08 $ 10.14 $ 10.37 $ 10.14
=====================================================================
==================================================================================================================================
Total Investment Return**
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ...... .28%@@ 1.46% (.11%) 4.77% 3.75%
=====================================================================
==================================================================================================================================
Ratios to Average Net Assets@
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of waiver and reimbursement
and excluding reorganization expenses .. 1.60%* 1.61% 1.56% 1.61% 1.48%
=====================================================================
Expenses ................................ 1.60%* 1.61% 1.56% 1.66% 1.70%
=====================================================================
Investment income--net .................. 2.49%* 2.00% 2.12% 2.00% 3.75%
=====================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 77,014 $ 97,090 $130,802 $139,688 $ 64,457
=====================================================================
Portfolio turnover of the Portfolio ..... 27.53% 74.53% 107.13% 198.09% 70.92%
=====================================================================
* Annualized.
** Total investment returns exclude the effects of sales charges.
*** Based on average shares outstanding.
@ Includes the Fund's share of the Portfolio's allocated expenses and/or
investment income--net.
@@ Aggregate total investment return.
See Notes to Financial Statements.
MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2005 13
Financial Highlights (continued) Merrill Lynch Low Duration Fund
Class C
----------------------------------------------------------------------
For the Six For the Year Ended
Months Ended June 30,
The following per share data and ratios have been derived December 31, -----------------------------------------------------
from information provided in the financial statements. 2005 2005 2004 2003 2002
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period .... $ 10.07 $ 10.13 $ 10.36 $ 10.14 $ 10.18
---------------------------------------------------------------------
Investment income--net*** ............... .13 .20 .22 .24 .35
Realized and unrealized gain (loss)--net (.09) (.05) (.23) .23 .03
---------------------------------------------------------------------
Total from investment operations ........ .04 .15 (.01) .47 .38
---------------------------------------------------------------------
Less dividends and distributions:
Investment income--net ................. (.13) (.21) (.22) (.25) (.41)
Realized gain--net ..................... -- -- -- -- (.01)
---------------------------------------------------------------------
Total dividends and distributions ....... (.13) (.21) (.22) (.25) (.42)
---------------------------------------------------------------------
Net asset value, end of period .......... $ 9.98 $ 10.07 $ 10.13 $ 10.36 $ 10.14
=====================================================================
==================================================================================================================================
Total Investment Return**
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ...... .38%@@ 1.46% (.11%) 4.68% 3.75%
=====================================================================
==================================================================================================================================
Ratios to Average Net Assets@
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of waiver and reimbursement
and excluding reorganization expenses .. 1.60%* 1.60% 1.56% 1.61% 1.48%
=====================================================================
Expenses ................................ 1.60%* 1.60% 1.56% 1.66% 1.68%
=====================================================================
Investment income--net .................. 2.50%* 2.01% 2.12% 2.37% 3.62%
=====================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $156,959 $179,290 $239,263 $263,066 $126,380
=====================================================================
Portfolio turnover of the Portfolio ..... 27.53% 74.53% 107.13% 198.09% 70.92%
=====================================================================
* Annualized.
** Total investment returns exclude the effects of sales charges.
*** Based on average shares outstanding.
@ Includes the Fund's share of the Portfolio's allocated expenses and/or
investment income--net.
@@ Aggregate total investment return.
See Notes to Financial Statements.
14 MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2005
Financial Highlights (continued) Merrill Lynch Low Duration Fund
Class I
----------------------------------------------------------------------
For the Six For the Year Ended
Months Ended June 30,
The following per share data and ratios have been derived December 31, -----------------------------------------------------
from information provided in the financial statements. 2005 2005 2004 2003 2002
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period .... $ 10.10 $ 10.16 $ 10.39 $ 10.17 $ 10.21
---------------------------------------------------------------------
Investment income--net*** ............... .17 .30 .31 .31 .45
Realized and unrealized gain (loss)--net (.08) (.06) (.23) .25 .02
---------------------------------------------------------------------
Total from investment operations ........ .09 .24 .08 .56 .47
---------------------------------------------------------------------
Less dividends and distributions:
Investment income--net ................. (.18) (.30) (.31) (.34) (.50)
Realized gain--net ..................... -- -- -- -- (.01)
---------------------------------------------------------------------
Total dividends and distributions ....... (.18) (.30) (.31) (.34) (.51)
---------------------------------------------------------------------
Net asset value, end of period .......... $ 10.01 $ 10.10 $ 10.16 $ 10.39 $ 10.17
=====================================================================
==================================================================================================================================
Total Investment Return**
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ...... .85%@@ 2.39% .81% 5.61% 4.68%
=====================================================================
==================================================================================================================================
Ratios to Average Net Assets@
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of waiver and reimbursement
and excluding reorganization expenses .. .67%* .69% .65% .70% .58%
=====================================================================
Expenses ................................ .67%* .69% .65% .75% .78%
=====================================================================
Investment income--net .................. 3.42%* 2.93% 3.00% 3.29% 4.51%
=====================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $194,137 $208,777 $240,749 $182,654 $ 23,325
=====================================================================
Portfolio turnover of the Portfolio ..... 27.53% 74.53% 107.13% 198.09% 70.92%
=====================================================================
* Annualized.
** Total investment returns exclude the effects of sales charges. Effective
December 28, 2005, Class I Shares are no longer subject to any front-end
sales charge.
*** Based on average shares outstanding.
@ Includes the Fund's share of the Portfolio's allocated expenses and/or
investment income--net.
@@ Aggregate total investment return.
See Notes to Financial Statements.
MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2005 15
Financial Highlights (concluded) Merrill Lynch Low Duration Fund
Class R
------------------------------------------------------
For the For the
For the Six Year Ended Period
Months Ended June 30, Jan. 3, 2003+
The following per share data and ratios have been derived December 31, ---------------------- to June 30,
from information provided in the financial statements. 2005 2005 2004 2003
=====================================================================================================================
Per Share Operating Performance
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ...... $ 10.08 $ 10.14 $ 10.37 $ 10.29
-----------------------------------------------------
Investment income--net** .................. .16 .18 .17 .18
Realized and unrealized gain (loss)--net .. (.10) .01 (.11) .08
-----------------------------------------------------
Total from investment operations .......... .06 .19 .06 .26
-----------------------------------------------------
Less dividends from investment income--net (.15) (.25) (.29) (.18)
-----------------------------------------------------
Net asset value, end of period ............ $ 9.99 $ 10.08 $ 10.14 $ 10.37
=====================================================
=====================================================================================================================
Total Investment Return
- ---------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ........ .58%@ 1.88% .56% 2.55%@
=====================================================
=====================================================================================================================
Ratios to Average Net Assets++
- ---------------------------------------------------------------------------------------------------------------------
Expenses, excluding reorganization expenses 1.17%* 1.19% 1.16% 1.19%*
=====================================================
Expenses .................................. 1.17%* 1.19% 1.16% 1.28%*
=====================================================
Investment income--net .................... 2.99%* 2.46% 2.42% 2.74%*
=====================================================
=====================================================================================================================
Supplemental Data
- ---------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) .. $ 4,455 $ 4,477 $ 2,387 --@@
=====================================================
Portfolio turnover of the Portfolio ....... 27.53% 74.53% 107.13% 198.09%
=====================================================
* Annualized.
** Based on average shares outstanding.
+ Commencement of operations.
++ Includes the Fund's share of the Portfolio's allocated expenses and/or
investment income--net.
@ Aggregate total investment return.
@@ Amount is less than $1,000.
See Notes to Financial Statements.
16 MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2005
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
December 31, 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. These unaudited financial statements reflect all adjustments,
which are, in the opinion of management, necessary to present a fair statement
of the results for the interim period. All such adjustments are of a normal,
recurring nature. The Fund offers multiple classes of shares. Effective December
28, 2005, Class I Shares are no longer subject to any front-end sales charge.
Class A is sold with a front-end sales charge. Shares of Class B and Class C may
be subject to a contingent deferred sales charge. Class I Shares are sold only
to certain retirement plans and investment programs. 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.
2. Transactions with Affiliates:
The Company has entered into an Administration Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), a wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."),
which is the limited partner. The Fund pays a monthly fee at an annual rate of
..25% of the Fund's average daily net assets for the performance of
administrative services (other than investment advice and related portfolio
activities) necessary for the operation of the Fund.
The Company has also entered into a Distribution Agreement and Distribution
Plans with FAM Distributors, Inc. ("FAMD" or the "Distributor"), an indirect,
wholly-owned subsidiary of Merrill Lynch Group, Inc. Pursuant to the
Distribution Plans adopted by the Company in accordance with Rule 12b-1 under
the Investment Company Act of 1940, the Fund pays the Distributor ongoing
account maintenance and
MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2005 17
Notes to Financial Statements (continued) Merrill Lynch Low Duration Fund
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 six months ended December 31, 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 ........................................ $ 9,966 $52,502
Class I ........................................ $ 5,775 $ 7,995
- --------------------------------------------------------------------------------
For the six months ended December 31, 2005, MLPF&S received contingent deferred
sales charges of $97,293 and $15,851 relating to transactions in Class B and
Class C Shares, respectively. Furthermore, MLPF&S received contingent deferred
sales charges of $985 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 decrease in net assets derived from capital share transactions was
$38,637,576 and $8,275,277 for the six months ended December 31, 2005 and for
the year ended June 30, 2005, respectively.
Transactions in capital shares for each class were as follows:
- -------------------------------------------------------------------------------
Class A Shares for the Six Months Dollar
Ended December 31, 2005 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 3,760,066 $ 37,783,497
Automatic conversion of shares ......... 57,927 581,500
Shares issued to shareholders in
reinvestment of dividends ............ 341,634 3,427,773
---------------------------------
Total issued ........................... 4,159,627 41,792,770
Shares redeemed ........................ (2,778,436) (27,907,323)
---------------------------------
Net increase ........................... 1,381,191 $ 13,885,447
=================================
- -------------------------------------------------------------------------------
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 B Shares for the Six Months Dollar
Ended December 31, 2005 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 386,390 $ 3,869,627
Shares issued to shareholders in
reinvestment of dividends ............ 74,894 750,002
---------------------------------
Total issued ........................... 461,284 4,619,629
---------------------------------
Automatic conversion of shares ......... (58,042) (581,500)
Shares redeemed ........................ (2,320,677) (23,245,468)
---------------------------------
Total redeemed ......................... (2,378,719) (23,826,968)
---------------------------------
Net decrease ........................... (1,917,435) $ (19,207,339)
=================================
- -------------------------------------------------------------------------------
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 C Shares for the Six Months Dollar
Ended December 31, 2005 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 1,821,318 $ 18,249,015
Shares issued to shareholders in
reinvestment of dividends ............ 164,183 1,643,501
---------------------------------
Total issued ........................... 1,985,501 19,892,516
Shares redeemed ........................ (4,049,790) (40,549,050)
---------------------------------
Net decrease ........................... (2,064,289) $ (20,656,534)
=================================
18 MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2005
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 I Shares for the Six Months Dollar
Ended December 31, 2005 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 1,290,737 $ 12,966,053
Shares issued to shareholders in
reinvestment of dividends ............ 311,179 3,124,284
---------------------------------
Total issued ........................... 1,601,916 16,090,337
Shares redeemed ........................ (2,864,385) (28,770,464)
---------------------------------
Net decrease ........................... (1,262,469) $ (12,680,127)
=================================
- -------------------------------------------------------------------------------
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 R Shares for the Six Months Dollar
Ended December 31, 2005 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 229,962 $ 2,301,194
Share issued to shareholders in
reinvestment of dividends ............ 7,261 72,720
---------------------------------
Total issued ........................... 237,223 2,373,914
Shares redeemed ........................ (235,278) (2,352,937)
---------------------------------
Net increase ........................... 1,945 $ 20,977
=================================
- -------------------------------------------------------------------------------
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
=================================
4. Capital Loss Carryforward:
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.
Portfolio Information as of December 31, 2005 Low Duration Master Portfolio
Percent of
Asset Mix Total Investments
- --------------------------------------------------------------------------------
Corporate Bonds ................................................. 32.2%
Non-Government Agency Mortgage-Backed Securities ................ 19.2
Government Agency Mortgage-Backed Securities .................... 12.7
Government & Agency Obligations ................................. 9.2
Asset-Backed Securities ......................................... 7.9
Preferred Securities ............................................ 2.1
Other* .......................................................... 16.7
- --------------------------------------------------------------------------------
* Includes portfolio holdings in short-term investments and options.
MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2005 19
Schedule of Investments Low Duration Master Portfolio (in U.S. dollars)
Face
Amount Asset-Backed Securities+ Value
====================================================================================
California Infrastructure Series 1997-1:
$ 416,166 PG&E-1 Class A7, 6.42% due 9/25/2008 $ 419,317
384,126 SCE-1 Class A6, 6.38% due 9/25/2008 387,255
4,100,000 Capital One Auto Finance Trust Series 2003-A
Class A4A, 2.47% due 1/15/2010 4,026,397
6,600,000 Chase Credit Card Master Trust Series 2003-1
Class C, 5.469% due 4/15/2008 (a) 6,602,707
2,589,585 Chase Funding Mortgage Loan Asset-Backed
Certificates Series 1999-4 Class IA6,
7.407% due 9/25/2011 2,600,073
Chase Manhattan Auto Owner Trust Class CTFS:
1,066,013 Series 2002-B, 4.24% due 1/15/2009 1,065,473
1,162,085 Series 2003-A, 2.04% due 12/15/2009 1,137,687
47,745 Cityscape Home Equity Loan Trust Series 1996-4
Class A10, 7.40% due 9/25/2027 (b) 47,600
2,014,107 First Franklin Mortgage Loan Asset-Backed
Certificates Series 2003-FF5 Class A2,
4.739% due 3/25/2034 (a) 2,015,419
8,500,000 First National Master Note Trust Series 2003-2
Class C, 3.70% due 4/15/2009 8,404,365
1,122,144 GMAC Mortgage Corp. Loan Trust Series 2003-HE2
Class A2, 3.14% due 6/25/2025 1,115,260
348,039 Ikon Receivables Series 2003-1 Class A3B,
2.33% due 12/15/2007 346,866
4,100,000 MBNA Credit Card Master Note Trust Series 2001-C3
Class C3, 6.55% due 12/15/2008 4,137,405
10,550,000 Residential Asset Mortgage Products, Inc.
Series 2003-RZ3 Class A6, 3.40% due 3/25/2033 10,138,806
WFS Financial Owner Trust:
699,558 Series 2003-2 Class B, 2.48% due 12/20/2010 691,311
3,471,289 Series 2003-4 Class B, 2.73% due 5/20/2011 3,403,485
10,800,000 Series 2004-4 Class A4, 3.44% due 5/17/2012 10,507,715
650,812 Whole Auto Loan Trust Series 2004-1 Class D,
5.60% due 3/15/2011 648,849
- ------------------------------------------------------------------------------------
Total Asset-Backed Securities
(Cost--$58,573,673)--8.5% 57,695,990
====================================================================================
====================================================================================
Government & Agency Obligations
====================================================================================
4,530,000 Fannie Mae, 4% due 2/28/2007 4,490,748
U.S. Treasury Notes:
9,940,000 3.625% due 4/30/2007 9,835,938
50,000,000 4% due 8/31/2007 (i) 49,667,950
2,900,000 2.625% due 5/15/2008 (d) 2,785,813
- ------------------------------------------------------------------------------------
Total Government & Agency Obligations
(Cost--$67,571,751)--9.8% 66,780,449
====================================================================================
====================================================================================
Government Agency
Mortgage-Backed Securities+
====================================================================================
Fannie Mae Guaranteed Pass-Through Certificates:
541,332 6.50% due 8/01/2032 - 9/01/2032 556,380
5,398,234 8% due 7/01/2027 - 11/01/2032 5,765,610
Fannie Mae Trust:
8,500,000 Series 2003-17 Class QR, 4.5% due 11/25/2025 8,444,719
4,256,235 Series 2003-48 Class HA, 4% due 3/25/2017 4,128,440
5,103,614 Series 2003-48 Class HA, 3.5% due 11/25/2017 4,872,777
30,798,334 Freddie Mac Mortgage Participation Certificates,
5% due 9/01/2019 - 5/01/2020 30,503,955
Freddie Mac Multiclass Certificates:
3,559,448 Series 2590 Class XR, 3.25% due 12/15/2013 3,434,859
7,749,337 Series 2651 Class GA, 2.75% due 7/15/2018 7,172,150
9,119,314 Series 2673 Class ML, 4% due 12/15/2022 8,963,131
6,496,250 Series 2677 Class HB, 4% due 3/15/2014 6,307,820
Ginnie Mae Trust:
3,340,705 Series 2002-83 Class A, 3.313% due 4/16/2017 3,256,457
87,808,353 Series 2002-94 Class XB, 2.349%
due 11/16/2007 (a)(c) 1,215,768
7,853,159 Series 2005-9 Class A, 4.026% due 5/16/2022 7,667,107
- ------------------------------------------------------------------------------------
Total Government Agency Mortgage-Backed
Securities (Cost--$94,960,005)--13.5% 92,289,173
====================================================================================
====================================================================================
Non-Government Agency
Mortgage-Backed Securities+
====================================================================================
Collateralized Mortgage Obligations--15.3%
Ameriquest Mortgage Securities, Inc.
Series 2004-FR1:
141,985 Class A3, 2.65% due 5/25/2034 141,529
11,000,000 Class A5, 4.455% due 5/25/2034 10,878,281
131,703 BlackRock Capital Finance LP Series 1997-R2
Class AP, 6.993% due 12/25/2035 (a)(b) 131,782
5,192,432 COMM Series 2004-LB4A Class A1, 3.566%
due 10/15/2037 5,084,078
4,331,343 CS First Boston Mortgage Securities Corp. Series
2004-C3 Class A2, 3.913% due 7/15/2036 4,240,512
1,250,000 Capital Auto Receivables Asset Trust Series 2004-2
Class D, 5.82% due 5/15/2012 (b) 1,240,176
Countrywide Asset-Backed Certificates (a):
3,200,000 Series 2004-12 Class AF2, 3.631% due 5/25/2024 3,165,224
10,500,000 Series 2004-13 Class AF3, 3.989% due 12/25/2034 10,387,439
9,750,000 First Horizon Asset Backed Securities Trust Series
2004-HE4 Class A2, 4.07% due 7/25/2019 9,510,103
5,908,000 GSAA Home Equity Trust Series 2005-12 Class AF2,
4.972% due 9/25/2035 (a) 5,908,000
7,500,000 GSAA Trust Series 2004-10 Class AF2, 4.22%
due 8/25/2034 (a) 7,428,418
20 MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2005
Schedule of Investments (continued)
Low Duration Master Portfolio (in U.S. dollars)
Face Non-Government Agency
Amount Mortgage-Backed Securities+ Value
====================================================================================
Collateralized Mortgage Obligations (concluded)
$ 7,730,793 JPMorgan Mortgage Trust Series 2005-A6
Class 7A1, 4.995% due 8/25/2035 (a) $ 7,642,435
6,922,013 LB-UBS Commercial Mortgage Trust Series 2004-C7
Class A1, 3.625% due 10/15/2029 6,745,809
370,011 Ocwen Residential MBS Corp. Series 1998-R2
Class AP, 6.803% due 11/25/2034 (a)(b) 347,810
Popular ABS Mortgage Pass-Through Trust (a):
4,520,000 Series 2004-5 Class AF2, 3.735% due 12/25/2034 4,463,075
3,500,000 Series 2005-1 Class AF3, 4.142% due 5/25/2035 3,430,805
6,191,786 Residential Accredit Loans, Inc. Series 2005-QS12
Class A8, 4.729% due 8/25/2035 (a) 6,183,209
37,534 Salomon Brothers Mortgage Securities
Series 1986-1 Class A, 6% due 12/25/2011 37,417
Structured Mortgage Asset Residential Trust:
6,616 Series 1991-1 Class H, 8.25% due 6/25/2022 6,667
2,928 Series 1992-3A Class AA, 8% due 10/25/2007 2,951
77,333 Walsh Acceptance Series 1997-2 Class A, 6.379%
due 3/01/2027 (a) 37,120
Washington Mutual (a):
51,431 Series 2000-1 Class B1, 8.379% due 1/25/2040 (b) 51,463
17,670,284 Series 2004-AR3 Class A1, 3.918% due 6/25/2034 17,021,788
------------
104,086,091
- ------------------------------------------------------------------------------------
Commercial Mortgage-Backed Securities--2.0%
1,393,419 Bank of America Commercial Mortgage, Inc. Series
2000-1 Class A1A, 7.109% due 11/15/2008 1,431,332
4,819,558 Bank of America Mortgage Securities Series
2003-J Class 2A1, 4.108% due 11/25/2033 (a) 4,727,958
152,366 First Union National Bank--Bank of America
Commercial Mortgage Trust Series 2001-C1
Class A1, 5.71% due 3/15/2033 152,826
7,625,684 Greenwich Capital Commercial Funding Corp. Series
2004-GG1 Class A2, 3.835% due 6/10/2036 7,482,035
------------
13,794,151
- ------------------------------------------------------------------------------------
Stripped Mortgage-Backed Securities (c)--3.3%
81,673,710 CS First Boston Mortgage Securities Corp.
Series 2003-CPN1 Class ASP, 1.584%
due 3/15/2035 (a) 3,748,219
28,440,215 Greenwich Capital Commercial Funding Corp. Series
2002-C1 Class XP, 2.059% due 1/11/2035 (a) 2,157,512
78,251,515 LB-UBS Commercial Mortgage Trust Series
2002-C4 Class XCP, 1.475% due 10/15/2035 (a) 3,439,639
National Collegiate Student Loan Trust Class AIO:
16,400,000 Series 2005-2, 7.73% due 3/25/2012 4,817,500
33,292,725 Series 2005-GT1, 6.75% due 12/25/2009 7,940,814
------------
22,103,684
- ------------------------------------------------------------------------------------
Total Non-Government Agency
Mortgage-Backed Securities
(Cost--$142,681,988)--20.6% 139,983,926
====================================================================================
====================================================================================
Corporate Bonds
====================================================================================
Aerospace & Defense--0.4%
1,250,000 Goodrich Corp., 6.45% due 4/15/2008 1,285,351
1,700,000 Raytheon Co., 6.75% due 8/15/2007 1,741,599
------------
3,026,950
====================================================================================
Airlines--0.4%
707,743 American Airlines, Inc. Series 2003-1, 3.857%
due 1/09/2012 682,159
1,862,990 Systems 2001 Asset Trust Pass Through Trusts,
6.664% due 9/15/2013 (b) 1,982,500
------------
2,664,659
====================================================================================
Automobiles--0.5%
3,400,000 DaimlerChrysler NA Holding Corp., 4.75%
due 1/15/2008 3,368,982
====================================================================================
Beverages--0.1%
850,000 Coca-Cola Enterprises, Inc., 5.375% due 8/15/2006 852,991
====================================================================================
Biotechnology--0.3%
1,800,000 Amgen, Inc., 4% due 11/18/2009 1,745,482
====================================================================================
Capital Markets--1.3%
1,070,000 The Bank of New York Co., Inc., 3.80% due 2/01/2008 1,047,705
2,400,000 The Bear Stearns Cos., Inc., 7.80% due 8/15/2007 2,506,860
1,000,000 Credit Suisse First Boston USA, Inc., 4.70%
due 6/01/2009 991,939
2,220,000 Goldman Sachs Group, Inc., 4.125% due 1/15/2008 2,185,919
2,510,000 Lehman Brothers Holdings, Inc., 3.60% due 3/13/2009 2,415,325
------------
9,147,748
====================================================================================
Chemicals--0.3%
1,165,000 Potash Corp. of Saskatchewan Inc., 7.125%
due 6/15/2007 1,198,057
500,000 Praxair, Inc., 6.625% due 10/15/2007 515,802
------------
1,713,859
====================================================================================
Commercial Banks--3.3%
3,000,000 Bank of America Corp., 4.75% due 10/15/2006 2,999,004
2,050,000 First Tennessee Bank NA, 5.316% due 12/08/2008 2,050,348
2,000,000 FleetBoston Financial Corp., 3.85% due 2/15/2008 1,960,506
2,425,000 HBOS Treasury Services Plc, 3.50% due 11/30/2007 (b) 2,366,524
3,500,000 Keycorp, 4.394% due 7/23/2007 (a) 3,508,029
2,425,000 PNC Funding Corp., 4.20% due 3/10/2008 2,389,015
Popular North America, Inc.:
1,545,000 5.20% due 12/12/2007 1,543,506
670,000 3.875% due 10/01/2008 647,496
1,260,000 Sovereign Bank, 4% due 2/01/2008 1,235,260
2,500,000 US Bank NA, 4.125% due 3/17/2008 2,470,110
1,500,000 Wachovia Corp., 6.15% due 3/15/2009 1,555,221
------------
22,725,019
====================================================================================
Commercial Services & Supplies--0.5%
3,300,000 Cendant Corp., 4.89% due 8/17/2006 3,264,855
====================================================================================
MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2005 21
Schedule of Investments (continued)
Low Duration Master Portfolio (in U.S. dollars)
Face
Amount Corporate Bonds Value
====================================================================================
Communications Equipment--0.2%
$ 1,250,000 Harris Corp., 6.35% due 2/01/2028 $ 1,306,447
====================================================================================
Consumer Finance--1.1%
1,310,000 Capital One Bank, 4.875% due 5/15/2008 1,304,668
3,500,000 HSBC Finance Corp., 4.125% due 12/15/2008 3,417,596
3,060,000 MBNA Corp., 5.625% due 11/30/2007 3,097,739
------------
7,820,003
====================================================================================
Containers & Packaging--0.6%
3,950,000 Bemis Co., 6.50% due 8/15/2008 4,086,508
====================================================================================
Diversified Financial Services--3.6%
5,000,000 Ford Motor Credit Co., 6.875% due 2/01/2006 4,989,250
2,700,000 General Electric Capital Corp. Series A, 3.75%
due 12/15/2009 2,590,434
1,210,000 General Motors Acceptance Corp., 6.125% due 8/28/2007 1,121,642
2,970,000 JPMorgan Chase & Co., 5.25% due 5/30/2007 2,983,457
Links Finance Corp. (a):
1,500,000 4.741% due 9/15/2010 1,499,789
1,500,000 Series 54, 4.12% due 9/15/2010 1,499,789
1,500,000 Series 55, 4.741% due 9/15/2010 1,496,773
Sigma Finance Corp. (a)(e):
5,500,000 6.84% due 8/15/2011 5,500,000
2,700,000 6.927% due 3/31/2014 2,730,062
------------
24,411,196
====================================================================================
Diversified Telecommunication Services--2.5%
1,960,000 BellSouth Corp., 4.465% due 11/15/2007 (a) 1,963,422
2,500,000 Deutsche Telekom International Finance BV,
3.875% due 7/22/2008 2,441,790
2,500,000 France Telecom SA, 7.45% due 3/01/2006 2,510,027
1,810,000 SBC Communications, Inc., 4.125% due 9/15/2009 1,747,778
1,500,000 TELUS Corp., 7.50% due 6/01/2007 1,548,953
2,250,000 Telecom Italia Capital SA, 4% due 11/15/2008 2,182,034
Verizon Global Funding Corp.:
1,250,000 7.60% due 3/15/2007 1,285,300
3,225,000 4% due 1/15/2008 3,162,890
------------
16,842,194
====================================================================================
Electric Utilities--2.3%
1,485,000 American Electric Power Co., Inc., 4.709%
due 8/16/2007 1,475,803
1,615,000 CC Funding Trust I, 6.90% due 2/16/2007 1,646,065
2,430,000 Entergy Gulf States, Inc., 3.60% due 6/01/2008 2,336,734
1,700,000 FirstEnergy Corp., 5.50% due 11/15/2006 1,706,110
3,330,000 National Rural Utilities Cooperative Finance Corp.,
3.25% due 10/01/2007 3,236,077
1,970,000 Pepco Holdings, Inc., 5.50% due 8/15/2007 1,981,922
2,500,000 Southern California Edison Co., 4.43%
due 1/13/2006 (a) 2,499,913
685,000 Xcel Energy, Inc., 3.40% due 7/01/2008 660,155
------------
15,542,779
====================================================================================
Food Products--0.5%
3,415,000 Cadbury Schweppes US Finance LLC, 3.875%
due 10/01/2008 (b) 3,316,378
====================================================================================
Gas Utilities--1.1%
1,495,000 KeySpan Corp., 4.90% due 5/16/2008 1,494,408
4,040,000 Nisource Finance Corp., 4.95% due 11/23/2009 (a) 4,052,665
2,070,000 Panhandle Eastern Pipe Line Series B, 2.75%
due 3/15/2007 2,012,837
------------
7,559,910
====================================================================================
Health Care Providers & Services--0.3%
1,940,000 WellPoint, Inc., 3.75% due 12/14/2007 1,896,913
====================================================================================
Hotels, Restaurants & Leisure--0.9%
1,000,000 Carnival Corp., 3.75% due 11/15/2007 977,524
2,420,000 Harrah's Operating Co., Inc., 7.125% due 6/01/2007 2,481,410
1,800,000 Hilton Hotels Corp., 7.95% due 4/15/2007 1,856,966
915,000 Mandalay Resort Group, 6.45% due 2/01/2006 915,000
------------
6,230,900
====================================================================================
Household Durables--1.1%
1,095,000 Centex Corp., 4.50% due 8/01/2007 (a) 1,094,539
4,075,000 DR Horton, Inc., 7.50% due 12/01/2007 4,230,685
2,420,000 Pulte Homes, Inc., 4.875% due 7/15/2009 2,370,598
------------
7,695,822
====================================================================================
Industrial Conglomerates--0.5%
Tyco International Group SA:
3,000,000 6.375% due 2/15/2006 3,004,899
500,000 6.125% due 11/01/2008 510,388
------------
3,515,287
====================================================================================
Insurance--2.0%
1,570,000 AON Corp., 6.95% due 1/15/2007 1,596,191
1,960,000 Hartford Financial Services Group, Inc., 4.70%
due 9/01/2007 1,948,499
565,000 Marsh & McLennan Cos., Inc., 5.15% due 9/15/2010 561,243
385,000 Monumental Global Funding II, 3.85% due 3/03/2008 (b) 376,722
2,490,000 The Phoenix Cos., Inc., 6.675% due 2/16/2008 2,513,314
1,470,000 Protective Life Secured Trust, 3.66% due 1/14/2008 (a) 1,471,740
Prudential Financial, Inc.:
3,200,000 4.104% due 11/15/2006 3,178,982
500,000 3.75% due 5/01/2008 487,356
1,250,000 The St. Paul Travelers Cos., Inc., 5.01%
due 8/16/2007 1,249,408
------------
13,383,455
====================================================================================
Machinery--0.1%
360,000 Timken Co., 6.75% due 8/21/2006 361,296
====================================================================================
Media--2.8%
2,420,000 Clear Channel Communications, Inc., 4.625%
due 1/15/2008 2,386,802
Comcast Cable Communications:
1,440,000 6.375% due 1/30/2006 1,441,771
2,600,000 8.375% due 5/01/2007 2,711,309
1,200,000 6.20% due 11/15/2008 1,231,844
1,815,000 Cox Communications, Inc., 7.75% due 8/15/2006 1,841,076
2,600,000 Media General, Inc., 6.95% due 9/01/2006 2,620,504
1,220,000 News America, Inc., 6.75% due 1/09/2038 1,289,963
2,000,000 Time Warner Companies, Inc., 8.18% due 8/15/2007 2,092,060
3,545,000 Time Warner, Inc., 6.15% due 5/01/2007 3,588,990
------------
19,204,319
====================================================================================
22 MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2005
Schedule of Investments (continued)
Low Duration Master Portfolio (in U.S. dollars)
Face
Amount Corporate Bonds Value
====================================================================================
Metals & Mining--0.4%
$ 2,745,000 Textron Financial Corp., 2.75% due 6/01/2006 $ 2,724,094
====================================================================================
Multi-Utilities--1.4%
400,000 Ameren Corp., 4.263% due 5/15/2007 394,270
Dominion Resources, Inc.:
1,010,000 Series B, 4.64% due 5/15/2006 (a) 1,010,892
2,000,000 Series D, 5.125% due 12/15/2009 1,994,154
2,500,000 PSEG Power LLC, 6.875% due 4/15/2006 2,512,948
4,040,000 Sempra Energy, 4.621% due 5/17/2007 4,011,369
------------
9,923,633
====================================================================================
Multiline Retail--0.1%
600,000 Target Corp., 5.40% due 10/01/2008 609,767
====================================================================================
Oil, Gas & Consumable Fuels--1.6%
2,500,000 Burlington Resources Finance Co., 5.60%
due 12/01/2006 2,512,312
1,600,000 Conoco Funding Co., 5.45% due 10/15/2006 1,606,264
2,250,000 Midamerican Energy Holdings Co., 4.625%
due 10/01/2007 2,233,739
814,583 Pemex Finance Ltd., 8.45% due 2/15/2007 825,686
3,430,000 Pemex Project Funding Master Trust, 5.791%
due 6/15/2010 (a)(b) 3,550,050
------------
10,728,051
====================================================================================
Pharmaceuticals--0.2%
1,500,000 Abbott Laboratories, 5.625% due 7/01/2006 1,506,969
====================================================================================
Real Estate--0.7%
Nationwide Health Properties, Inc.:
1,400,000 7.60% due 11/20/2028 1,591,015
1,400,000 6.59% due 7/07/2038 1,463,224
2,000,000 Westfield Capital Corp. Ltd., 4.56%
due 11/02/2007 (a)(b) 2,004,810
------------
5,059,049
====================================================================================
Road & Rail--1.2%
6,800,000 CSX Corp., 7.45% due 5/01/2007 7,009,025
870,000 Norfolk Southern Corp., 7.35% due 5/15/2007 897,798
------------
7,906,823
====================================================================================
Software--0.3%
2,015,000 Computer Associates International, Inc., 4.75%
due 12/01/2009 (b) 1,964,861
====================================================================================
Thrifts & Mortgage Finance--1.0%
2,150,000 Countrywide Home Loans, Inc., 4.25% due 12/19/2007 2,120,070
1,450,000 Golden West Financial Corp., 5.50% due 8/08/2006 1,455,861
3,325,000 Washington Mutual, Inc., 5.625% due 1/15/2007 3,343,314
------------
6,919,245
====================================================================================
Wireless Telecommunication Services--0.8%
5,200,000 Sprint Capital Corp., 6% due 1/15/2007 5,250,851
- ------------------------------------------------------------------------------------
Total Corporate Bonds
(Cost--$235,981,640)--34.4% 234,277,295
====================================================================================
====================================================================================
Preferred Securities
- ------------------------------------------------------------------------------------
Shares
Held Preferred Stocks
====================================================================================
Diversified Financial Services--0.3%
17,700 CIT Group, Inc. Series B, 5.189% 1,780,510
- ------------------------------------------------------------------------------------
Total Preferred Stocks
(Cost--$1,770,000)--0.3% 1,780,510
====================================================================================
Face
Amount Trust Preferreds
====================================================================================
Aerospace & Defense--1.2%
8,490,000 RC Trust I, 7% due 5/15/2006 8,465,545
====================================================================================
Electric Utilities--0.8%
5,120,000 PPL Capital Funding Trust I, 7.29% due 5/18/2006 5,151,078
- ------------------------------------------------------------------------------------
Total Trust Preferreds
(Cost--$13,776,385)--2.0% 13,616,623
====================================================================================
Total Preferred Securities
(Cost--$15,546,385)--2.3% 15,397,133
====================================================================================
====================================================================================
Short-Term Securities
====================================================================================
Commercial Paper*
25,074,000 Fairway Finance Co., LLC, 4.32% due 1/20/2006 25,022,849
30,000,000 Rabobank USA Financial Corp., 4.26% due 1/03/2006 30,000,000
------------
55,022,849
====================================================================================
Time Deposits
182,528 Brown Brothers Harriman & Co., 3.30% due 1/03/2006 182,528
====================================================================================
U.S. Government Agency Obligations*
15,600,000 Federal Home Loan Bank System, 3.30% due 1/03/2006 15,600,000
====================================================================================
Beneficial
Interest
====================================================================================
$51,375,000 Merrill Lynch Liquidity Series, LLC
Money Market Series (f)(g) 51,375,000
- ------------------------------------------------------------------------------------
Total Short-Term Securities
(Cost--$122,180,377)--17.9% 122,180,377
====================================================================================
Total Investments
(Cost--$737,495,819)--107.0% 728,604,343
====================================================================================
====================================================================================
Number of
Contracts Options Written
====================================================================================
Call Options Written--(0.0%)
67++ Pay a fixed rate of 4.25% and receive a floating
rate based on 3-month LIBOR, expiring
January 2006, Broker UBS Warburg (h) (13,400)
====================================================================================
Put Options Written--(0.1%)
67++ Receive a fixed rate of 4.25% and pay a floating
rate based on 3-month LIBOR, expiring
January 2006, Broker UBS Warburg (h) (422,100)
- ------------------------------------------------------------------------------------
Total Options Written
(Premiums Received--$262,975)--(0.1%) (435,500)
====================================================================================
Total Investments, Net of Options Written
(Cost--$737,232,844**)--106.9% 728,168,843
Liabilities in Excess of Other Assets--(6.9%) (47,016,771)
------------
Net Assets--100.0% $681,152,072
============
MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2005 23
Schedule of Investments (concluded)
Low Duration Master Portfolio (in U.S. dollars)
* Commercial Paper and certain Government Agency Obligations are traded on a
discount basis; the interest rates shown reflect the discount rates paid
at the time of purchase.
** The cost and unrealized appreciation (depreciation) of investments, net of
options written, as of December 31, 2005, as computed for federal income
tax purposes, were as follows:
Aggregate cost .......................................... $737,227,325
============
Gross unrealized appreciation ........................... $ 720,593
Gross unrealized depreciation ........................... (9,779,075)
------------
Net unrealized depreciation ............................. $ (9,058,482)
============
+ 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.
++ One contract represents a notional amount of $1,000,000.
(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 a portion of security held as collateral in connection with open
financial futures contracts.
(e) Restricted securities as to resale, representing 1.2% of net assets, were
as follows:
--------------------------------------------------------------------------
Acquisition
Issue Date Cost Value
--------------------------------------------------------------------------
Sigma Finance Corp.:
6.84% due 8/15/2011 2/13/2005 $5,500,000 $5,500,000
6.927% due 3/31/2014 3/26/2005 2,700,000 2,730,062
--------------------------------------------------------------------------
Total $8,200,000 $8,230,062
===========================
(f) Investments in companies considered to be an affiliate of the Portfolio,
for purposes of Section 2(a)(3) of the Investment Company Act of 1940,
were as follows:
--------------------------------------------------------------------------
Net Dividend
Affiliate Activity Income
--------------------------------------------------------------------------
Merrill Lynch Liquidity Series, LLC
Money Market Series $51,375,000 $51,368
--------------------------------------------------------------------------
(g) Security was purchased with the cash proceeds from securities loans.
(h) This European style swaption, which can be exercised only on the
expiration date, represents a standby commitment whereby the writer of the
option is obligated to enter into a predetermined interest rate swap
contract upon exercise of swaption.
(i) Security, or a portion of security, is on loan.
o For Portfolio compliance purposes, the Portfolio's industry
classifications refer to 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
industry sub-classifications for reporting ease. Industries are shown as a
percent of net assets.
o Financial futures contracts purchased as of December 31, 2005 were as
follows:
--------------------------------------------------------------------------
Number of Expiration Face Unrealized
Contracts Issue Date Value Depreciation
--------------------------------------------------------------------------
1,150 Two-Year U.S.
Treasury Note March 2006 $236,303,224 $(337,599)
--------------------------------------------------------------------------
Total $(337,599)
=========
o Financial futures contracts sold as of December 31, 2005 were as follows:
--------------------------------------------------------------------------
Number of Expiration Face Unrealized
Contracts Issue Date Value Depreciation
--------------------------------------------------------------------------
1,276 Five-Year U.S.
Treasury Note March 2006 $135,486,933 $(207,692)
--------------------------------------------------------------------------
Total $(207,692)
=========
o Swaps outstanding as of December 31, 2005 were as follows:
------------------------------------------------------------------------------------
Unrealized
Notional Appreciation
Amount (Depreciation)
------------------------------------------------------------------------------------
Bought credit default protection on Aon Corp.
and pay 0.37%
Broker, Morgan Stanley Capital Services Inc.
Expires January 2007 $ 1,725,000 $ (5,434)
Pay a fixed rate of 2.8025% and receive a
floating rate based on 3-month LIBOR
Broker, JPMorgan Chase Bank
Expires January 2007 $ 1,725,000 35,125
Sold credit default protection on WFS Financial
Owner Trust Series 2003-2 Class C and
receive 0.41%
Broker, Morgan Stanley Capital Services Inc.
Expires December 2010 $ 2,718,133 3,028
Receive a floating rate based on 1-month
LIBOR plus 0.47%, which is capped at a fixed
coupon of 6% and pay a floating rate
based on 1-month LIBOR
Broker, Credit Suisse First Boston International
Expires June 2011 $37,500,000 (58,013)
------------------------------------------------------------------------------------
Total $(25,294)
========
See Notes to Financial Statements.
24 MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2005
Statement of Assets and Liabilities Low Duration Master Portfolio
As of December 31, 2005
==========================================================================================================================
Assets
- --------------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value (including securities
loaned of $49,667,500) (identified cost--$686,120,819) .............. $ 677,229,343
Investments in affiliated securities, at value
(identified cost--$51,375,000) ...................................... 51,375,000
Unrealized appreciation on swaps ..................................... 38,153
Cash ................................................................. 1,706
Receivables:
Interest .......................................................... $ 5,390,722
Contributions ..................................................... 1,384,965
Securities lending ................................................ 11,599
Paydowns .......................................................... 6,542
Swaps ............................................................. 1,798
Securities sold ................................................... 1,674 6,797,300
-------------
Prepaid expenses and other assets .................................... 2,982
-------------
Total assets ......................................................... 735,444,484
-------------
==========================================================================================================================
Liabilities
- --------------------------------------------------------------------------------------------------------------------------
Collateral on securities loaned, at value ............................ 51,375,000
Unrealized depreciation on swaps ..................................... 63,447
Options written, at value (premiums received--$262,975) .............. 435,500
Payables:
Withdrawals ....................................................... 2,205,727
Investment adviser ................................................ 113,921
Variation margin .................................................. 30,030
Other affiliates .................................................. 7,440
Swaps ............................................................. 949 2,358,067
-------------
Accrued expenses and other liabilities ............................... 60,398
-------------
Total liabilities .................................................... 54,292,412
-------------
==========================================================================================================================
Net Assets
- --------------------------------------------------------------------------------------------------------------------------
Net assets ........................................................... $ 681,152,072
=============
==========================================================================================================================
Net Assets Consist of
- --------------------------------------------------------------------------------------------------------------------------
Investor's capital ................................................... $ 690,786,658
Unrealized depreciation--net ......................................... (9,634,586)
-------------
Net Assets ........................................................... $ 681,152,072
=============
See Notes to Financial Statements.
MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2005 25
Statement of Operations Low Duration Master Portfolio
For the Six Months Ended December 31, 2005
==========================================================================================================================
Investment Income
- --------------------------------------------------------------------------------------------------------------------------
Interest ............................................................. $ 14,564,478
Dividends ............................................................ 84,715
Securities lending--net .............................................. 51,368
-------------
Total income ......................................................... 14,700,561
-------------
==========================================================================================================================
Expenses
- --------------------------------------------------------------------------------------------------------------------------
Investment advisory fees ............................................. $ 754,631
Accounting services .................................................. 143,258
Professional fees .................................................... 29,014
Custodian fees ....................................................... 28,397
Trustees' fees and expenses .......................................... 15,665
Pricing fees ......................................................... 11,539
Printing and shareholder reports ..................................... 1,524
Other ................................................................ 14,848
-------------
Total expenses ....................................................... 998,876
-------------
Investment income--net ............................................... 13,701,685
-------------
==========================================================================================================================
Realized & Unrealized Loss--Net
- --------------------------------------------------------------------------------------------------------------------------
Realized loss on:
Investments--net .................................................. (1,553,793)
Futures contracts and swaps--net .................................. (745,673) (2,299,466)
-------------
Change in unrealized appreciation/depreciation on:
Investments--net .................................................. (3,768,609)
Futures contracts and swaps--net .................................. (519,883)
Options written--net .............................................. (172,525) (4,461,017)
------------------------------
Total realized and unrealized loss--net .............................. (6,760,483)
-------------
Net Increase in Net Assets Resulting from Operations ................. $ 6,941,202
=============
See Notes to Financial Statements.
26 MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2005
Statements of Changes in Net Assets Low Duration Master Portfolio
For the Six For the
Months Ended Year Ended
December 31, June 30,
Increase (Decrease) in Net Assets: 2005 2005
==========================================================================================================================
Operations
- --------------------------------------------------------------------------------------------------------------------------
Investment income--net ............................................... $ 13,701,685 $ 25,892,730
Realized loss--net ................................................... (2,299,466) (5,914,342)
Change in unrealized appreciation/depreciation--net .................. (4,461,017) 760,100
------------------------------
Net increase in net assets resulting from operations ................. 6,941,202 20,738,488
------------------------------
==========================================================================================================================
Capital Transactions
- --------------------------------------------------------------------------------------------------------------------------
Proceeds from contributions .......................................... 75,169,386 298,036,322
Fair value of withdrawals ............................................ (127,492,745) (332,264,392)
------------------------------
Net decrease in net assets derived from capital transactions ......... (52,323,359) (34,228,070)
------------------------------
==========================================================================================================================
Net Assets
- --------------------------------------------------------------------------------------------------------------------------
Total decrease in net assets ......................................... (45,382,157) (13,489,582)
Beginning of period .................................................. 726,534,229 740,023,811
------------------------------
End of period ........................................................ $ 681,152,072 $ 726,534,229
==============================
See Notes to Financial Statements.
MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2005 27
Financial Highlights Low Duration Master Portfolio
For the Six For the Year Ended
Months Ended June 30,
The following ratios have been derived from December 31, -----------------------------------------------------
information provided in the financial statements. 2005 2005 2004 2003 2002
===================================================================================================================================
Total Investment Return
- -----------------------------------------------------------------------------------------------------------------------------------
Total investment return ................ 1.05%+ 2.80% 1.18% 6.05% 5.59%
=====================================================================
===================================================================================================================================
Ratios to Average Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses ............................... .28%* .28% .28% .28% .32%
=====================================================================
Investment income--net ................. 3.81%* 3.34% 3.39% 3.73% 5.03%
=====================================================================
===================================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $681,152 $726,534 $740,024 $739,334 $512,335
=====================================================================
Portfolio turnover ..................... 27.53% 74.53% 107.13% 198.09% 70.92%
=====================================================================
* Annualized.
+ Aggregate total investment return.
See Notes to Financial Statements.
28 MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 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. These unaudited
financial statements reflect all adjustments, which are, in the opinion of
management, necessary to present a fair statement of the results for the interim
period. All such adjustments are of a normal, recurring nature. The following is
a summary of significant accounting policies followed by the Portfolio.
(a) Valuation of investments -- 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 based upon quoted fair valuations received daily by the Fund from a
pricing service or 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.
MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2005 29
Notes to Financial Statements (continued) Low Duration Master Portfolio
o Financial futures contracts -- The Portfolio may purchase or sell
financial futures contracts and options on such futures contracts. Futures
contracts are contracts for delayed delivery of securities at a specific
future date and at a specific price or yield. Upon entering into a
contract, the Portfolio deposits and maintains as collateral such initial
margin as required by the exchange on which the transaction is effected.
Pursuant to the contract, the Portfolio agrees to receive from or pay to
the broker an amount of cash equal to the daily fluctuation in the value
of the contract. Such receipts or payments are known as variation margin
and are recorded by the Portfolio as unrealized gains or losses. When the
contract is closed, the Portfolio records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened
and the value at the time it was closed.
o Options -- The Portfolio may purchase and write call and put options. When
the Portfolio writes an option, an amount equal to the premium received by
the Portfolio is reflected as an asset and an equivalent liability. The
amount of the liability is subsequently marked-to-market to reflect the
current market value of the option written. When a security is purchased
or sold through an exercise of an option, the related premium paid (or
received) is added to (or deducted from) the basis of the security
acquired or deducted from (or added to) the proceeds of the security sold.
When an option expires (or the Portfolio enters into a closing
transaction), the Portfolio realizes a gain or loss on the option to the
extent of the premiums received or paid (or a gain or loss to the extent
that the cost of the closing transaction exceeds the premium paid or
received).
Written and purchased options are non-income producing investments.
o Swaps -- The Portfolio may enter into swap agreements, which are
over-the-counter contracts in which the Portfolio and a counterparty agree
to make periodic net payments on a specified notional amount. The net
payments can be made for a set period of time or may be triggered by a
predetermined credit event. The net periodic payments may be based on a
fixed or variable interest rate; the change in market value of a specified
security, basket of securities, or index; or the return generated by a
security. 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 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.
The Portfolio invests in foreign securities, which may involve a number of risk
factors and special considerations not present with investments in securities of
U.S. corporations.
(d) Income taxes -- The Portfolio is considered a "pass-through" entity for
federal income tax purposes. As such, each investor in the Portfolio is treated
as an 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
30 MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2005
Notes to Financial Statements (concluded) Low Duration Master Portfolio
investment, net of any amount rebated to the borrower. Loans of securities are
terminable at any time and the borrower, after notice, is required to return
borrowed securities within five business days. The Portfolio may pay reasonable
finder's, lending agent, administrative and custodial fees in connection with
its loans. In the event that the borrower defaults on its obligation to return
borrowed securities because of insolvency or for any other reason, the Portfolio
could experience delays and costs in gaining access to the collateral. The
Portfolio also could suffer a loss where the value of the collateral falls below
the market value of the borrowed securities, in the event of borrower default or
in the event of losses on investments made with cash collateral.
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 six months ended December 31, 2005,
MLIM, LLC received $23,469 in securities lending agent fees.
For the six months ended December 31, 2005, the Portfolio reimbursed FAM $7,447
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 six months ended December 31, 2005 were
$175,759,255 and $205,633,613, respectively.
Transactions in call options written for the six months ended December 31, 2005
were as follows:
- --------------------------------------------------------------------------------
Number of Premiums
Contracts+ Received
- --------------------------------------------------------------------------------
Outstanding call options written,
beginning of period .......................... -- --
Options written ................................ 67 $67,000
----------------------
Outstanding call options written,
end of period ................................ 67 $67,000
======================
+ One contract represents a notional amount of $1,000,000.
Transactions in put options written for the six months ended December 31, 2005
were as follows:
- --------------------------------------------------------------------------------
Number of Premiums
Contracts+ Received
- --------------------------------------------------------------------------------
Outstanding put options written,
beginning of period ........................ -- --
Options written .............................. 67 $195,975
----------------------
Outstanding put options written,
end of period .............................. 67 $195,975
======================
+ One contract represents a notional amount of $1,000,000.
4. Short-Term Borrowings:
The Trust, on behalf of the Portfolio, along with certain other funds managed by
FAM and its affiliates, is a party to a $500,000,000 credit agreement with a
group of lenders. The Portfolio may borrow under the credit agreement to fund
shareholder redemptions and for other lawful purposes other than for leverage.
The Portfolio may borrow up to the maximum amount allowable under the
Portfolio's current prospectus and statement of additional information, subject
to various other legal, regulatory or contractual limits. The Portfolio pays a
commitment fee of .07% per annum based on the Portfolio's pro rata share of the
unused portion of the credit agreement. Amounts borrowed under the credit
agreement bear interest at a rate equal to, at each Portfolio's election, the
federal funds rate plus .50% or a base rate as defined in the credit agreement.
The Portfolio did not borrow under the credit agreement during the six months
ended December 31, 2005. On November 23, 2005, the credit agreement was renewed
for one year under substantially the same terms.
MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2005 31
Disclosure of Investment Advisory Agreement
Activities and Composition of the Board of Directors
All but one member of the Fund's Board of Directors and Fund Asset Management
Master Trust's (the "Trust") Board of Trustees, the members of which are
identical, is a non-interested director and trustee as that term is defined in
the Investment Company Act of 1940, whose only association with Fund Asset
Management, L.P. (the "Investment Adviser") or other Merrill Lynch affiliates is
as a director and trustee of the Fund and the Trust, and of certain other funds
advised by the Investment Adviser or its affiliates. We refer to these persons
as independent directors throughout this report. The Co-chairmen of each Board
are independent directors. New director nominees are chosen as nominees by a
Nominating Committee comprised of independent directors. All independent
directors also are members of each Board's Audit Committee. The independent
directors meet in executive session at each regular Board meeting. Each Board
and each Board's Audit Committee meet in person for at least two days each
quarter and conduct other in-person and telephone meetings throughout the year,
some of which are formal Board meetings and some of which are informational
meetings. The independent counsel to the independent directors attends all
in-person Board and Audit Committee meetings and other meetings at the request
of the independent directors.
Investment Advisory Agreements -- Matters Considered by the Board
Every year, each Board considers approval of the investment advisory agreement
with respect to the Trust and the Fund (together, the "Investment Advisory
Agreement") and throughout each year, reviews and evaluates the performance of
and services provided by the Investment Adviser. Each Board assesses the nature,
scope and quality of the services provided to the Trust and/or the Fund by the
personnel of the Investment Adviser and its affiliates, including administrative
services, shareholder services, oversight of fund accounting, marketing services
and assistance in meeting legal and regulatory requirements. Each Board also
receives and assesses information regarding the services provided to the Trust
and the Fund by certain unaffiliated service providers.
At various times throughout the year, each Board also considers a range of
information in connection with its oversight of the services provided by the
Investment Adviser and its affiliates. Among the matters considered with respect
to each Fund are: (a) fees (in addition to management fees) paid to the
Investment Adviser and its affiliates by the Trust and the Fund, such as
transfer agency fees and fees for marketing and distribution; (b) Trust/Fund
operating expenses paid to third parties; (c) the resources devoted to and
compliance reports relating to the Trust's and the Fund's investment objective,
policies and restrictions, and its compliance with its Code of Ethics and the
Investment Adviser's compliance policies and procedures; and (d) the nature,
cost and character of non-investment management services provided by the
Investment Adviser and its affiliates.
Each Board believes that the Investment Adviser is one of the most experienced
global asset management firms and considers the overall quality of services
provided by the Investment Adviser to be of high quality. Each Board also
believes that the Investment Adviser is financially sound and well managed and
notes that the Investment Adviser is affiliated with one of America's largest
financial firms. Each Board works closely with the Investment Adviser in
overseeing the Investment Adviser's efforts to achieve good performance. As part
of this effort, each Board discusses portfolio manager effectiveness and, when
performance is not satisfactory, discusses with the Investment Adviser taking
steps such as changing investment personnel.
Annual Consideration of Approval by the Board of Directors
In the period prior to the Board meeting to consider renewal of the Investment
Advisory Agreement, each Board requests and receives materials specifically
relating to the Investment Advisory Agreement. These materials include (a)
information compiled by Lipper Inc. ("Lipper") on the fees and expenses and the
investment performance of the Fund as compared to a comparable group of funds as
classified by Lipper; (b) sales and redemption data for the Fund; (c) a
discussion by the Trust's/Fund's portfolio management team regarding investment
strategies used by the Trust/Fund during its most recent fiscal year; (d)
information on the profitability to the Investment Adviser and its affiliates of
the Investment Advisory Agreement, and other relationships with the Trust and
the Fund; and (e) information provided by the Investment Adviser concerning
investment advisory fees charged to institutional clients under similar
investment mandates. The Board also considers other matters it deems important
to the approval process such as payments made to the Investment Adviser or its
affiliates relating to the distribution of Fund shares, services related to the
valuation and pricing of portfolio holdings, the portfolio turnover statistics
of the Fund, and direct and indirect benefits to the Investment Adviser and its
affiliates from their relationship with the Trust and the Fund.
Certain Specific Renewal Data
In connection with the most recent renewal of the Trust's/Fund's Investment
Advisory Agreement in November
32 MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2005
2005, the independent directors' and Board's review included the following:
The Investment Adviser's Services and Fund Performance -- Each Board reviewed
the nature, extent and quality of services provided by the Investment Adviser,
including the investment advisory services and the resulting performance of the
Fund. Each Board focused primarily on the Investment Adviser's investment
advisory services and the Fund's investment performance. Each Board compared the
Fund's performance -- both including and excluding the effects of the fees and
expenses of the Trust and the Fund -- to the performance of a comparable group
of mutual funds, and the performance of a relevant index or combination of
indexes. While each Board reviews performance data at least quarterly,
consistent with the Investment Adviser's investment goals, the Board attaches
more importance to performance over relatively long periods of time, typically
three to five years. For the periods ended August 31, 2005, the Fund's
performance after fees and expenses ranked in the second quintile for the
one-year period and in the first quintile for the three-year period. The Fund
did not have five years of performance as of that date. Considering these
factors, the Board concluded that the nature and quality of these services
supported the continuation of the Investment Advisory Agreements.
The Investment Adviser's Personnel and Investment Process -- Each Board reviewed
the investment objectives and strategies of the Trust and the Fund. Each Board
discussed with senior management of the Investment Adviser responsible for
investment operations and the senior management of the Investment Adviser's
equity investing group the strategies being used to achieve the stated
objectives. Among other things, each Board considered the size, education and
experience of the Investment Adviser's investment staff, its use of technology,
and the Investment Adviser's approach to training and retaining portfolio
managers and other research, advisory and management personnel. The Board also
reviews the Investment Adviser's compensation policies and practices with
respect to the Fund's portfolio managers. The Board also considered the
experience of the Fund's portfolio managers and noted that each member of the
team has at least eight years' experience as a portfolio manager analyzing and
investing in taxable fixed income securities. Moreover, the Investment Adviser
and its investment staff have extensive experience in analyzing and managing the
types of investments used by the Fund. The Board concluded that the Fund
benefits from that expertise.
Management Fees and Other Expenses -- Each Board reviewed the Trust's and the
Fund's contractual management fee rate and actual management fee rate as a
percentage of total assets at common asset levels -- the actual rate includes
advisory and administrative service fees and the effects of any fee waivers --
compared to the other funds in its Lipper category. It also compared the
Trust's/Fund's total expenses to those of other, comparable funds. Each Board
considered the services provided to and the fees charged by the Investment
Adviser to institutional clients with similar investment mandates and noted that
the fees charged by the Investment Adviser to the institutional clients were
less than those being charged to the Trust and the Fund, but determined that the
Investment Adviser provided less extensive services to the institutional
clients. The Board noted that the Fund's contractual and actual management fee
rates were equal to the median management fees charged by comparable funds, as
determined by Lipper, while total expenses were higher than the median total
expenses charged by such comparable funds. The Board has concluded that the
Fund's management fee rate (including waivers) and overall expense ratio are
reasonable when compared to those of other comparable funds.
Profitability -- The Board considered the cost of the services provided to the
Trust and/or the Fund by the Investment Adviser and the Investment Adviser's and
its affiliates' profits relating to the management and distribution of the Fund
and the MLIM/FAM-advised funds. As part of its analysis, the Board reviewed the
Investment Adviser's methodology in allocating its costs to the management of
the Trust and the Fund and concluded that there was a reasonable basis for the
allocation. The Board considered federal court decisions discussing an
investment adviser's profitability and profitability levels considered to be
reasonable in those decisions.
Economies of Scale -- The Boards considered the extent to which economies of
scale might be realized as the assets of the Trust and Fund increase and whether
there should be changes in the management fee rate or structure in order to
enable the Trust and the Fund to participate in these economies of scale. While
there was no evidence to date that the Fund's assets have reached a level where
such economies are effectively available, the Board will continue to seek
information relating to economies of scale. The Board determined that the
management fee structure was reasonable and that no changes were currently
necessary.
Conclusion
After the independent directors deliberated in executive session, the Board of
the Trust and of the Fund including all of the independent directors, approved
the renewal of the existing Investment Advisory Agreement, concluding that the
advisory fee was reasonable in relation to the services provided and that a
contract renewal was in the best interests of the shareholders.
MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2005 33
Officers and Directors/Trustees
Robert C. Doll, Jr., President and Director/Trustee
James H. Bodurtha, Director/Trustee
Kenneth A. Froot, Director/Trustee
Joe Grills, Director/Trustee
Herbert I. London, Director/Trustee
Roberta Cooper Ramo, Director/Trustee
Robert S. Salomon, Jr., Director/Trustee
Stephen B. Swensrud, Director/Trustee
Donald C. Burke, Vice President and Treasurer
John D. Burger, Vice President
Patrick Maldari, Vice President
James J. Pagano, Vice President
Frank Viola, Vice President
Jeffrey Hiller, Chief Compliance Officer
Alice A. Pellegrino, Secretary
Custodian
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109-3661
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
800-637-3863
- --------------------------------------------------------------------------------
Effective January 1, 2006, Stephen B. Swensrud retired as Director of Merrill
Lynch Low Duration Fund and Trustee of Low Duration Master Portfolio. The
Fund's/Trust's Board of Directors/Trustees wishes Mr. Swensrud well in his
retirement.
- --------------------------------------------------------------------------------
34 MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2005
Availability of Quarterly Schedule of Investments
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The Fund's Forms N-Q are available on the SEC's Web site at
http://www.sec.gov. The Fund's Forms N-Q may also be reviewed and copied at the
SEC's Public Reference Room in Washington, DC. Information on the operation of
the Public Reference Room may be obtained by calling 1-800-SEC-0330.
Electronic Delivery
The Fund offers electronic delivery of communications to its shareholders. In
order to receive this service, you must register your account and provide us
with e-mail information. To sign up for this service, simply access this Web
site at http://www.icsdelivery.com/live and follow the instructions. When you
visit this site, you will obtain a personal identification number (PIN). You
will need this PIN should you wish to update your e-mail address, choose to
discontinue this service and/or make any other changes to the service. This
service is not available for certain retirement accounts at this time.
MERRILL LYNCH LOW DURATION FUND DECEMBER 31, 2005 35
[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 1-800-637-3863; (2) at
www.mutualfunds.ml.com; and (3) on the Securities and Exchange Commission's Web
site at http://www.sec.gov. Information about how the Fund voted proxies
relating to securities held in the Fund's portfolio during the most recent
12-month period ended June 30 is available (1) at www.mutualfunds.ml.com and (2)
on the Securities and Exchange Commission's Web site at http://www.sec.gov.
Merrill Lynch Low Duration Fund of
Merrill Lynch Investment Managers Funds, Inc.
Box 9011
Princeton, NJ
08543-9011
#ML -- 3070 -- 12/05
Item 2 - Code of Ethics - Not Applicable to this semi-annual report
Item 3 - Audit Committee Financial Expert - Not Applicable to this semi-annual
report
Item 4 - Principal Accountant Fees and Services - Not Applicable to this
semi-annual report
Item 5 - Audit Committee of Listed Registrants - Not Applicable
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable
Item 8 - Portfolio Managers of Closed-End Management Investment Companies - Not
Applicable
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 10 - Submission of Matters to a Vote of Security Holders - Not Applicable
Item 11 - Controls and Procedures
11(a) - The registrant's certifying officers have reasonably designed such
disclosure controls and procedures to ensure material information
relating to the registrant is made known to us by others particularly
during the period in which this report is being prepared. The
registrant's certifying officers have determined that the registrant's
disclosure controls and procedures are effective based on our evaluation
of these controls and procedures as of a date within 90 days prior to
the filing date of this report.
11(b) - There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR
270.30a-3(d)) that occurred during the last fiscal half-year of the
period covered by this report that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting.
Item 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - Not Applicable to this semi-annual report
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(b) - Certifications - Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Merrill Lynch Low Duration Fund of Merrill Lynch Investment Managers Funds, Inc.
and Low Duration Master Portfolio of Fund Asset Management Master Trust
By: /s/ Robert C. Doll, Jr.
-----------------------------
Robert C. Doll, Jr.,
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: February 21, 2006
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: February 21, 2006
By: /s/ Donald C. Burke
-----------------------------
Donald C. Burke,
Chief Financial Officer of
Merrill Lynch Low Duration Fund of Merrill Lynch Investment Managers
Funds, Inc. and Low Duration Master Portfolio of Fund Asset Management
Master Trust
Date: February 21, 2006