UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-10053
811-10089
Name of Fund: Merrill Lynch Low Duration Fund of Merrill Lynch Investment
Managers Funds, Inc.
Low Duration Master Portfolio of Fund Asset Management Master
Trust
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Robert C. Doll, Jr., Chief Executive
Officer, Merrill Lynch Low Duration Fund of Merrill Lynch Investment
Managers Funds, Inc. and Low Duration Master Portfolio of Fund Asset
Management Master Trust, 800 Scudders Mill Road, Plainsboro, NJ 08536.
Mailing address: P.O. Box 9011, Princeton, NJ 08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 06/30/06
Date of reporting period: 07/01/05 - 06/30/06
Item 1 - Report to Stockholders
Annual Report
June 30, 2006
Merrill Lynch
Low Duration Fund
Of Merrill Lynch Investment Managers Funds, Inc.
A Letter From the President
[PHOTO OMITTED]
Dear Shareholder
By now, you have probably heard of the important changes unfolding at Merrill
Lynch Investment Managers ("MLIM"). We have been communicating with
shareholders, via letters like this and in a detailed proxy mailing, about
MLIM's impending union with another highly regarded investment manager --
BlackRock, Inc. ("BlackRock"). This transaction marks the next chapter in MLIM's
growth story and, we believe, will be a benefit to our investors.
MLIM, a division of Merrill Lynch with over $583 billion in assets under
management, is a leading investment manager offering more than 100 investment
strategies in vehicles ranging from mutual funds to institutional portfolios.
BlackRock, with $464.1 billion in assets under management, is one of the largest
publicly traded investment management firms in the United States managing assets
on behalf of institutional and individual investors worldwide through a variety
of equity, fixed income, liquidity and alternative investment products. At the
completion of the transaction, which is expected by the end of third quarter
2006, the resultant firm will be a top-10 investment manager worldwide with over
$1 trillion in assets under management.*
The combined company, to be known as BlackRock, will provide a wide selection of
high-quality investment solutions across a range of asset classes and investment
styles. The organization will have over 4,500 employees in 18 countries and a
major presence in key markets worldwide. MLIM and BlackRock possess
complementary capabilities that together create a well-rounded organization
uniting some of the finest money managers in the industry. The firms share
similar values and beliefs -- each strives for excellence in all areas, and both
make investment performance their single most important mission. As such, our
combination only reinforces our commitment to shareholders.
Most of MLIM's investment products -- including mutual funds, separately managed
accounts, annuities and variable insurance funds -- eventually will carry the
"BlackRock" name. This will be reflected in newspaper and online information
sources beginning in October. Your account statements will reflect the BlackRock
name beginning with the October month-end reporting period. Unless otherwise
communicated via a proxy statement, your funds will maintain the same investment
objectives that they do today. Importantly, the MLIM/BlackRock union will not
affect your brokerage account or your relationship with your financial advisor.
If you are a client of Merrill Lynch, you will remain a client of Merrill Lynch.
As always, we thank you for entrusting us with your investment assets. We look
forward to continuing to serve your investment needs with even greater strength
and scale as the new BlackRock.
Sincerely,
/s/ Robert C. Doll, Jr.
Robert C. Doll, Jr.
President and Chief Investment Officer
Merrill Lynch Investment Managers
* $1.047 trillion in assets under management as of June 30, 2006.
Data, including assets under management, are as of June 30, 2006.
2 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2006
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
Announcement to Shareholders ............................................. 6
Performance Data ......................................................... 6
Disclosure of Expenses ................................................... 9
Fund Financial Statements ................................................ 10
Fund Financial Highlights ................................................ 13
Fund Notes to Financial Statements ....................................... 16
Portfolio Information .................................................... 20
Master Portfolio Schedule of Investments ................................. 21
Master Portfolio Financial Statements .................................... 26
Master Portfolio Financial Highlights .................................... 28
Master Portfolio Notes to Financial Statements ........................... 29
Disclosure of New Investment Advisory Agreement .......................... 33
Officers & Directors/Trustees ............................................ 38
CFA(R) and Chartered Financial Analyst(R) are trademarks owned by the CFA
Institute.
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2006 3
A Discussion With Your Fund's Portfolio Managers
We continued to emphasize high-quality credit and spread product for yield
enhancement and total return potential in the portfolio, as the Treasury yield
curve remained flat to inverted, offering little investment value.
How did the Fund perform during the fiscal year in light of the existing market
conditions?
For the 12-month period ended June 30, 2006, Merrill Lynch Low Duration Fund's
Class A, Class B, Class C, Class I and Class R Shares had total returns of
+1.84%, +1.07%, +1.17%, +2.11% and +1.58%, respectively. For the same period,
the Fund's unmanaged benchmark, the Merrill Lynch 1 - 3 Year Corporate and
Government Index, returned +1.94%. (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 - 8 of this report to shareholders.)
It was a challenging period for fixed income investment. The Federal Reserve
Board (the Fed), in its continuing effort to stave off inflation, advanced its
measured program of monetary tightening. During this period, the Fed increased
the federal funds rate (the short-term interest rate target) eight times,
bringing the target rate from 3.25% to 5.25%. In all, the Fed has increased
interest rates 17 times since June 2004, for a total increase in the federal
funds rate of 4.25%. In response to the most recent interest rate hikes, and
despite some uncertain rhetoric from new Fed Chairman Ben Bernanke, yields rose
all along the curve. After flattening considerably during the course of the
Fed's interest rate-hiking campaign, the Treasury yield curve inverted
intermittently throughout the latter six months of the year, with short-term
yields exceeding longer-term yields.
Because bond prices move in the opposite direction of yields, the rising
interest rates exerted significant downward price pressure on fixed income
securities. In all, six-month Treasury bill yields rose 190 basis points (1.90%)
to 5.24% while 10-year yields rose 121 basis points to 5.15%. These yields
reflect the inverted shape of the curve at period-end. Amid these conditions,
many fixed income asset classes posted negative returns.
What factors most influenced Fund performance?
The Fund provided competitive returns for the period relative to its benchmark.
Performance continued to benefit from our short duration profile, which served
to limit the Fund's sensitivity to interest rate risk. This helped to protect
the portfolio's underlying value as rates rose all along the curve.
Additionally, our yield curve strategy, which included a continued
underweighting of the short end, proved advantageous as the two-year sector of
the curve continued to suffer under the weight of a higher federal funds rate.
Also benefiting performance versus the benchmark was our overweight exposure to
credit and spread sectors, including asset-backed securities (ABS),
mortgage-backed securities (MBS), collateralized MBS (CMBS) and corporate bonds.
We maintained a position in these sectors representing roughly 80% of portfolio
assets throughout the period. This compares to the index's composition of 40%
spread sectors and 60% Treasury and agency securities. Because they are not as
affected by interest rate changes as Treasury securities, these sectors of the
market are less susceptible to interest rate risk and offer excess return versus
Treasuries. We focused particularly on high-quality spread sectors, including
ABS (19%) and CMBS (6%).
What changes were made to the portfolio during the period?
In the first half of the year, we reduced the Fund'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. The assets from the sale of the corporate
bonds were applied to Treasury issues, increasing our allocation from 1% of net
4 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2006
assets to 9% at period-end. 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 ABS,
which were particularly attractive given their high credit quality (AAA rating)
and their attractive yields. In the second half of the year, we maintained a
consistent weighting in investment grade corporate bonds of about 33% of net
assets, but moved up slightly in credit quality.
Overall, we continue to favor higher-quality credits with an emphasis on
structured assets, such as ABS, CMBS and MBS. In particular, we added to our
position in mortgage product, particularly in the home equity loan sector. We
increased our allocation to MBS from 16% of net assets one year ago to 19% at
period-end. In our view, mortgage product offers attractive yield while
providing consistent cash flow.
In terms of duration, we remained short relative to our benchmark throughout the
year. By period-end, the Fund's duration, at 1.55 years, was approximately 10%
underweight relative to the index's duration of 1.72 years. We believe this is
the appropriate posture given the relative flatness of the yield curve.
How would you characterize the Fund's position at the close of the period?
We expect economic growth to cool in the face of a weakening housing market and
high energy prices, both of which are expected to put a damper on the consumer
and its support of the market. A slowdown in economic activity should help to
calm some of the inflation fears propagated by the Fed. While this gives us
reason for optimism, we believe a relatively conservative approach is warranted
amid the current economic uncertainty.
This conservative approach is evident in our relatively short duration profile
and emphasis on higher-quality spread product, including CMBS, ABS and
investment grade corporate bonds. We remain especially cautious in our approach
to the corporate sector, selectively adding individual credits without exposing
the Portfolio to too much risk. In a mid-cycle economic slowdown, combined with
a steepening Treasury curve, we would expect the credit curve to flatten,
allowing high-quality spread sectors to perform well on a relative basis. We
ended the period with an 80% allocation to spread sectors, consisting of 33%
corporate bonds, 19% ABS, 19% MBS and 6% CMBS.
Overall, we continue to monitor Fed language and the economic data and stand
ready to adjust our strategy as conditions warrant.
John Burger
Vice President and Portfolio Manager
Patrick Maldari
Vice President and Portfolio Manager
James J. Pagano
Vice President and Portfolio Manager
Frank Viola
Vice President and Portfolio Manager
July 13, 2006
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2006 5
Announcement to Shareholders
On February 15, 2006, BlackRock, Inc. ("BlackRock") and Merrill Lynch & Co.,
Inc. ("Merrill Lynch") entered into an agreement to contribute Merrill Lynch's
investment management business, Merrill Lynch Investment Managers, L.P. and
certain affiliates (including Fund Asset Management, L.P. and Merrill Lynch
Investment Managers International Limited), to BlackRock to create a new
independent company ("New BlackRock") that will be one of the world's largest
asset management firms with over $1 trillion in assets under management (based
on combined assets under management as of June 30, 2006) (the "Transaction").
The Transaction is expected to close at the end of the third quarter of 2006, at
which time the new company will operate under the BlackRock name. The
Fund's/Trust's Board of Directors/Trustees has approved a new investment
advisory agreement with BlackRock Advisors, Inc. or its successor on
substantially the same terms and for the same advisory fee as the current
investment advisory agreement with the Investment Adviser. If the new agreement
is approved by the Fund's/Trust's shareholders, BlackRock Advisors, Inc. or its
successor is expected to become the investment adviser of the Fund/Trust upon
the closing of the Transaction.
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 7 and 8 are those of Merrill Lynch Low Duration Fund and,
prior to October 6, 2000, a predecessor Fund investing in the same underlying
portfolio and with the same fees as Merrill Lynch Low Duration Fund. Performance
results prior to October 6, 2000 reflect the annual operating expenses of the
predecessor Fund. If Merrill Lynch Low Duration Fund's operating expenses were
reflected, the results may have been less than those shown for this time period.
Performance results after October 6, 2000 include the actual operating expenses
of Merrill Lynch Low Duration Fund. The Fund commenced operations on October 6,
2000.
None of the past results shown should be considered a representation of future
performance. Current performance may be lower or higher than the performance
data quoted. Refer to www.mlim.ml.com to obtain performance data current to the
most recent month-end. Performance results do not reflect the deduction of taxes
that a shareholder would pay on fund distributions or the redemption of fund
shares. Figures shown in each of the following tables assume reinvestment of all
dividends and capital gain distributions, if any, at net asset value on the
payable date. Investment return and principal value of shares will fluctuate so
that shares, when redeemed, may be worth more or less than their original cost.
Dividends paid to each class of shares will vary because of the different levels
of account maintenance, distribution and transfer agency fees applicable to each
class, which are deducted from the income available to be paid to shareholders.
6 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2006
Performance Data (continued)
Total Return Based on a $10,000 Investment
A line graph depicting the growth of an investment in the Fund's Class A, Class
B, Class C, Class I and Class R Shares compared to growth of an investment in
the Merrill Lynch 1-3 Year Corporate & Government Index. Values are from June
1996 through June 2006:
ML Low Duration ML Low Duration ML Low Duration
Fund +-- Fund +-- Fund +--
Class A Shares* Class B Shares* Class C Shares*
6/96 $9,700 $10,000 $10,000
6/97 $10,430 $10,683 $10,683
6/98 $11,217 $11,324 $11,324
6/99 $11,470 $11,598 $11,598
6/00 $12,058 $12,114 $12,114
6/01 $12,980 $12,965 $12,958
6/02 $13,568 $13,452 $13,444
6/03 $14,295 $14,094 $14,072
6/04 $14,389 $14,078 $14,057
6/05 $14,697 $14,283 $14,262
6/06 $14,967 $14,436 $14,429
Merrill Lynch 1 - 3
ML Low Duration ML Low Duration Year Corporate &
Fund +-- Fund +-- Government
Class I Shares* Class R Shares* Index++
6/96 $10,000 $10,000 $10,000
6/97 $10,779 $10,726 $10,664
6/98 $11,528 $11,414 $11,395
6/99 $11,913 $11,737 $11,985
6/00 $12,555 $12,308 $12,574
6/01 $13,572 $13,239 $13,759
6/02 $14,207 $13,789 $14,698
6/03 $15,004 $14,558 $15,525
6/04 $15,126 $14,639 $15,639
6/05 $15,488 $14,915 $15,981
6/06 $15,814 $15,151 $16,292
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
+ The Fund invests all of its assets in Low Duration Master Portfolio of
Fund Asset Management Master Trust. The Portfolio invests in bonds of
varying maturities with a portfolio duration of one to three years.
++ This unmanaged Index is comprised of investment grade corporate bonds and
U.S. Treasury and agency securities with a maturity ranging from one year
to three years.
Past performance is not indicative of future results.
Average Annual Total Return
Return Without Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
One Year Ended 6/30/06 +1.84% -1.22%
- --------------------------------------------------------------------------------
Five Years Ended 6/30/06 +2.89 +2.26
- --------------------------------------------------------------------------------
Ten Years Ended 6/30/06 +4.43 +4.12
- --------------------------------------------------------------------------------
Return Return
Without CDSC With CDSC+++
================================================================================
Class B Shares+
================================================================================
One Year Ended 6/30/06 +1.07% -2.86%
- --------------------------------------------------------------------------------
Five Years Ended 6/30/06 +2.17 +1.81
- --------------------------------------------------------------------------------
Ten Years Ended 6/30/06 +3.74 +3.74
- --------------------------------------------------------------------------------
Return Return
Without CDSC With CDSC+++
================================================================================
Class C Shares++
================================================================================
One Year Ended 6/30/06 +1.17% +0.19%
- --------------------------------------------------------------------------------
Five Years Ended 6/30/06 +2.17 +2.17
- --------------------------------------------------------------------------------
Ten Years Ended 6/30/06 +3.73 +3.73
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class I Shares Return
================================================================================
One Year Ended 6/30/06 +2.11%
- --------------------------------------------------------------------------------
Five Years Ended 6/30/06 +3.10
- --------------------------------------------------------------------------------
Ten Years Ended 6/30/06 +4.69
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class R Shares Return
================================================================================
One Year Ended 6/30/06 +1.58%
- --------------------------------------------------------------------------------
Five Years Ended 6/30/06 +2.74
- --------------------------------------------------------------------------------
Ten Years Ended 6/30/06 +4.24
- --------------------------------------------------------------------------------
* Maximum sales charge is 3%.
** Assuming maximum sales charge.
+ Maximum contingent deferred sales charge is 4% and is reduced to 0% after
six years.
++ Maximum contingent deferred sales charge is 1% and is reduced to 0% after
one year.
+++ Assuming payment of applicable contingent deferred sales charge.
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2006 7
Performance Data (concluded)
Recent Performance Results*
6-Month 12-Month 10-Year Standardized
As of June 30, 2006 Total Return Total Return Total Return 30-Day Yield
============================================================================================================================
ML Low Duration Fund Class A Shares* +1.23% +1.84% +54.30% 3.91%
- ----------------------------------------------------------------------------------------------------------------------------
ML Low Duration Fund Class B Shares* +0.78 +1.07 +44.36 3.34
- ----------------------------------------------------------------------------------------------------------------------------
ML Low Duration Fund Class C Shares* +0.78 +1.17 +44.29 3.35
- ----------------------------------------------------------------------------------------------------------------------------
ML Low Duration Fund Class I Shares* +1.25 +2.11 +58.14 4.28
- ----------------------------------------------------------------------------------------------------------------------------
ML Low Duration Fund Class R Shares* +1.00 +1.58 +51.51 3.78
- ----------------------------------------------------------------------------------------------------------------------------
Merrill Lynch 1 - 3 Year Corporate & Government Index** +1.14 +1.94 +62.92 --
- ----------------------------------------------------------------------------------------------------------------------------
* 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 payable 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.
8 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2006
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 January 1, 2006 and held through
June 30, 2006) is intended to assist shareholders both in calculating expenses
based on an investment in the Fund and in comparing these expenses with similar
costs of investing in other mutual funds.
The first table below provides information about actual account values and
actual expenses. In order to estimate the expenses a shareholder paid during the
period covered by this report, shareholders can divide their account value by
$1,000 and then multiply the result by the number in the first line under the
heading entitled "Expenses Paid During the Period."
The second table below provides information about hypothetical account values
and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses. In order to assist
shareholders in comparing the ongoing expenses of investing in this Fund and
other funds, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in other funds' shareholder reports.
The expenses shown in the table are intended to highlight shareholders' ongoing
costs only and do not reflect any transactional expenses, such as sales charges,
redemption fees or exchange fees. Therefore, the second table is useful in
comparing ongoing expenses only, and will not help shareholders determine the
relative total expenses of owning different funds. If these transactional
expenses were included, shareholder expenses would have been higher.
Expenses Paid
Beginning Ending During the Period*
Account Value Account Value January 1, 2006 to
January 1, 2006 June 30, 2006 June 30, 2006
==============================================================================================================================
Actual
==============================================================================================================================
Class A $ 1,000 $1,012.30 $ 4.54
- ------------------------------------------------------------------------------------------------------------------------------
Class B $ 1,000 $1,007.80 $ 7.92
- ------------------------------------------------------------------------------------------------------------------------------
Class C $ 1,000 $1,007.80 $ 7.87
- ------------------------------------------------------------------------------------------------------------------------------
Class I $ 1,000 $1,012.50 $ 3.29
- ------------------------------------------------------------------------------------------------------------------------------
Class R $ 1,000 $1,010.00 $ 5.78
==============================================================================================================================
Hypothetical (5% annual return before expenses)**
==============================================================================================================================
Class A $ 1,000 $1,020.29 $ 4.56
- ------------------------------------------------------------------------------------------------------------------------------
Class B $ 1,000 $1,016.92 $ 7.95
- ------------------------------------------------------------------------------------------------------------------------------
Class C $ 1,000 $1,016.96 $ 7.90
- ------------------------------------------------------------------------------------------------------------------------------
Class I $ 1,000 $1,021.53 $ 3.31
- ------------------------------------------------------------------------------------------------------------------------------
Class R $ 1,000 $1,019.05 $ 5.81
- ------------------------------------------------------------------------------------------------------------------------------
* For each class of the Fund, expenses are equal to the annualized expense
ratio for the class (.91% for Class A, 1.59% for Class B, 1.58% for Class
C, .66% for Class I and 1.16% for Class R), multiplied by the average
account value over the period, multiplied by 181/365 (to reflect the
one-half year period shown). Because the Fund is a feeder fund, the
expense table example reflects the expenses of both the feeder fund and
master portfolio in which it invests.
** Hypothetical 5% annual return before expenses is calculated by pro-rating
the number of days in the most recent fiscal half year divided by 365.
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2006 9
Statement of Assets and Liabilities Merrill Lynch Low Duration Fund
As of June 30, 2006
=============================================================================================================================
Assets
- -----------------------------------------------------------------------------------------------------------------------------
Investment in Low Duration Master Portfolio (the "Portfolio"), at value
(identified cost--$692,408,115) ............................................... $678,829,932
Prepaid expenses ................................................................ 18,321
------------
Total assets .................................................................... 678,848,253
------------
=============================================================================================================================
Liabilities
- -----------------------------------------------------------------------------------------------------------------------------
Payables:
Dividends to shareholders .................................................... $ 670,246
Distributor .................................................................. 221,752
Administrator ................................................................ 130,120
Other affiliates ............................................................. 72,588 1,094,706
------------
Accrued expenses ................................................................ 13,663
------------
Total liabilities ............................................................... 1,108,369
------------
=============================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------
Net assets ...................................................................... $677,739,884
============
=============================================================================================================================
Net Assets Consist of
- -----------------------------------------------------------------------------------------------------------------------------
Class A Shares of Common Stock, $.01 par value, 100,000,000 shares authorized ... $ 269,152
Class B Shares of Common Stock, $.01 par value, 200,000,000 shares authorized ... 61,048
Class C Shares of Common Stock, $.01 par value, 100,000,000 shares authorized ... 143,363
Class I Shares of Common Stock, $.01 par value, 100,000,000 shares authorized ... 204,589
Class R Shares of Common Stock, $.01 par value, 200,000,000 shares authorized ... 4,386
Paid-in capital in excess of par ................................................ 714,952,704
Accumulated distributions in excess of investment income--net ................... $ (165,146)
Accumulated realized capital losses allocated from the Portfolio--net ........... (24,152,029)
Unrealized depreciation allocated from the Portfolio--net ....................... (13,578,183)
------------
Total accumulated losses--net ................................................... (37,895,358)
------------
Net Assets ...................................................................... $677,739,884
============
=============================================================================================================================
Net Asset Value
- -----------------------------------------------------------------------------------------------------------------------------
Class A--Based on net assets of $267,411,038 and 26,915,199 shares outstanding .. $ 9.94
============
Class B--Based on net assets of $60,518,852 and 6,104,784 shares outstanding .... $ 9.91
============
Class C--Based on net assets of $142,082,770 and 14,336,305 shares outstanding .. $ 9.91
============
Class I--Based on net assets of $203,376,727 and 20,458,863 shares outstanding .. $ 9.94
============
Class R--Based on net assets of $4,350,497 and 438,558 shares outstanding ....... $ 9.92
============
See Notes to Financial Statements.
10 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2006
Statement of Operations Merrill Lynch Low Duration Fund
For the Year Ended June 30, 2006
=============================================================================================================================
Investment Income
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income allocated from the Portfolio:
Interest ............................................................ $ 29,516,929
Dividends ........................................................... 130,637
Securities lending--net ............................................. 87,485
Expenses ............................................................ (1,930,131)
------------
Total income ........................................................... 27,804,920
------------
=============================================================================================================================
Expenses
- -----------------------------------------------------------------------------------------------------------------------------
Administration fees .................................................... $ 1,737,750
Account maintenance and distribution fees--Class C ..................... 1,441,857
Account maintenance and distribution fees--Class B ..................... 701,528
Account maintenance fees--Class A ...................................... 627,732
Transfer agent fees--Class A ........................................... 270,059
Transfer agent fees--Class I ........................................... 216,715
Transfer agent fees--Class C ........................................... 213,463
Transfer agent fees--Class B ........................................... 105,389
Printing and shareholder reports ....................................... 86,944
Registration fees ...................................................... 77,874
Professional fees ...................................................... 25,557
Account maintenance and distribution fees--Class R ..................... 23,152
Transfer agent fees--Class R ........................................... 5,007
Other .................................................................. 17,646
------------
Total expenses ......................................................... 5,550,673
------------
Investment income--net ................................................. 22,254,247
------------
=============================================================================================================================
Realized & Unrealized Loss Allocated from the Portfolio--Net
- -----------------------------------------------------------------------------------------------------------------------------
Realized loss on:
Investments--net .................................................... (1,869,642)
Futures contracts and swaps--net .................................... (392,151)
Options written--net ................................................ (170,012) (2,431,805)
------------
Change in unrealized appreciation/depreciation on:
Investments--net .................................................... (8,341,382)
Futures contracts and swaps--net .................................... (63,232) (8,404,614)
------------------------------
Total realized and unrealized loss--net ................................ (10,836,419)
------------
Net Increase in Net Assets Resulting from Operations ................... $ 11,417,828
============
See Notes to Financial Statements.
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2006 11
Statements of Changes in Net Assets Merrill Lynch Low Duration Fund
For the Year Ended
June 30,
------------------------------
Increase (Decrease) in Net Assets: 2006 2005
=============================================================================================================================
Operations
- -----------------------------------------------------------------------------------------------------------------------------
Investment income--net ................................................. $ 22,254,247 $ 19,140,966
Realized loss--net ..................................................... (2,431,805) (5,914,342)
Change in unrealized appreciation/depreciation--net .................... (8,404,614) 760,100
------------------------------
Net increase in net assets resulting from operations ................... 11,417,828 13,986,724
------------------------------
=============================================================================================================================
Dividends to Shareholders
- -----------------------------------------------------------------------------------------------------------------------------
Investment income--net:
Class A ............................................................. (8,619,359) (5,925,410)
Class B ............................................................. (2,128,686) (2,340,210)
Class C ............................................................. (4,405,599) (4,298,932)
Class I ............................................................. (7,412,136) (6,691,826)
Class R ............................................................. (146,884) (85,901)
------------------------------
Net decrease in net assets resulting from dividends to shareholders .... (22,712,664) (19,342,279)
------------------------------
=============================================================================================================================
Capital Share Transactions
- -----------------------------------------------------------------------------------------------------------------------------
Net decrease in net assets derived from capital share transactions ..... (36,485,602) (8,275,277)
------------------------------
=============================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------
Total decrease in net assets ........................................... (47,780,438) (13,630,832)
Beginning of year ...................................................... 725,520,322 739,151,154
------------------------------
End of year* ........................................................... $677,739,884 $725,520,322
==============================
* Accumulated distributions in excess of investment income--net ..... $ (165,146) $ (167,292)
==============================
See Notes to Financial Statements.
12 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2006
Financial Highlights Merrill Lynch Low Duration Fund
Class A
The following per share data -------------------------------------------------------------------------------
and ratios have been derived For the Year Ended June 30,
from information provided in -------------------------------------------------------------------------------
the financial statements. 2006 2005 2004 2003 2002
============================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ...... $ 10.10 $ 10.16 $ 10.38 $ 10.16 $ 10.19
-------------------------------------------------------------------------------
Investment income--net* ................. .34 .27 .29 .31 .34
Realized and unrealized gain (loss)--net (.16) (.05) (.22) .23 .12
-------------------------------------------------------------------------------
Total from investment operations ........ .18 .22 .07 .54 .46
-------------------------------------------------------------------------------
Less dividends and distributions:
Investment income--net ............... (.34) (.28) (.29) (.32) (.48)
Realized gain--net ................... -- -- -- -- (.01)
-------------------------------------------------------------------------------
Total dividends and distributions ....... (.34) (.28) (.29) (.32) (.49)
-------------------------------------------------------------------------------
Net asset value, end of year ............ $ 9.94 $ 10.10 $ 10.16 $ 10.38 $ 10.16
===============================================================================
============================================================================================================================
Total Investment Return**
- ----------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ...... 1.84% 2.14% .66% 5.36% 4.53%
===============================================================================
============================================================================================================================
Ratios to Average Net Assets+
- ----------------------------------------------------------------------------------------------------------------------------
Expenses, net of waiver and reimbursement
and excluding reorganization expenses . .91% .93% .89% .95% .83%
===============================================================================
Expenses ................................ .91% .93% .89% 1.00% 1.02%
===============================================================================
Investment income--net .................. 3.37% 2.69% 2.78% 3.03% 4.04%
===============================================================================
============================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) .. $ 267,411 $ 235,886 $ 125,950 $ 152,780 $ 110,014
===============================================================================
Portfolio turnover of the Portfolio ..... 79.97% 74.53% 107.13% 198.09% 70.92%
===============================================================================
Class B
The following per share data ---------------------------------------------------------------------------------
and ratios have been derived For the Year Ended June 30,
from information provided in ---------------------------------------------------------------------------------
the financial statements. 2006 2005 2004 2003 2002
==============================================================================================================================
Per Share Operating Performance
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ...... $ 10.08 $ 10.14 $ 10.37 $ 10.14 $ 10.18
---------------------------------------------------------------------------------
Investment income--net* ................. .27 .20 .22 .24 .37
Realized and unrealized gain (loss)--net (.16) (.05) (.23) .24 .01
---------------------------------------------------------------------------------
Total from investment operations ........ .11 .15 (.01) .48 .38
---------------------------------------------------------------------------------
Less dividends and distributions:
Investment income--net ............... (.28) (.21) (.22) (.25) (.41)
Realized gain--net ................... -- -- -- -- (.01)
---------------------------------------------------------------------------------
Total dividends and distributions ....... (.28) (.21) (.22) (.25) (.42)
---------------------------------------------------------------------------------
Net asset value, end of year ............ $ 9.91 $ 10.08 $ 10.14 $ 10.37 $ 10.14
=================================================================================
==============================================================================================================================
Total Investment Return**
- ------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ...... 1.07% 1.46% (.11%) 4.77% 3.75%
=================================================================================
==============================================================================================================================
Ratios to Average Net Assets+
- ------------------------------------------------------------------------------------------------------------------------------
Expenses, net of waiver and reimbursement
and excluding reorganization expenses . 1.59% 1.61% 1.56% 1.61% 1.48%
=================================================================================
Expenses ................................ 1.59% 1.61% 1.56% 1.66% 1.70%
=================================================================================
Investment income--net .................. 2.67% 2.00% 2.12% 2.00% 3.75%
=================================================================================
==============================================================================================================================
Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) .. $ 60,519 $ 97,090 $ 130,802 $ 139,688 $ 64,457
=================================================================================
Portfolio turnover of the Portfolio ..... 79.97% 74.53% 107.13% 198.09% 70.92%
=================================================================================
* Based on average shares outstanding.
** Total investment returns exclude the effects of sales charges.
+ Includes the Fund's share of the Portfolio's allocated expenses and/or
investment income--net.
See Notes to Financial Statements.
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2006 13
Financial Highlights (continued) Merrill Lynch Low Duration Fund
Class C
The following per share data -------------------------------------------------------------------------------
and ratios have been derived For the Year Ended June 30,
from information provided in -------------------------------------------------------------------------------
the financial statements. 2006 2005 2004 2003 2002
============================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ...... $ 10.07 $ 10.13 $ 10.36 $ 10.14 $ 10.18
-------------------------------------------------------------------------------
Investment income--net* ................. .27 .20 .22 .24 .35
Realized and unrealized gain (loss)--net (.15) (.05) (.23) .23 .03
-------------------------------------------------------------------------------
Total from investment operations ........ .12 .15 (.01) .47 .38
-------------------------------------------------------------------------------
Less dividends and distributions:
Investment income--net ............... (.28) (.21) (.22) (.25) (.41)
Realized gain--net ................... -- -- -- -- (.01)
-------------------------------------------------------------------------------
Total dividends and distributions ....... (.28) (.21) (.22) (.25) (.42)
-------------------------------------------------------------------------------
Net asset value, end of year ............ $ 9.91 $ 10.07 $ 10.13 $ 10.36 $ 10.14
===============================================================================
============================================================================================================================
Total Investment Return**
- ----------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ...... 1.17% 1.46% (.11%) 4.68% 3.75%
===============================================================================
============================================================================================================================
Ratios to Average Net Assets+
- ----------------------------------------------------------------------------------------------------------------------------
Expenses, net of waiver and reimbursement
and excluding reorganization expenses . 1.59% 1.60% 1.56% 1.61% 1.48%
===============================================================================
Expenses ................................ 1.59% 1.60% 1.56% 1.66% 1.68%
===============================================================================
Investment income--net .................. 2.68% 2.01% 2.12% 2.37% 3.62%
===============================================================================
============================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) .. $ 142,083 $ 179,290 $ 239,263 $ 263,066 $ 126,380
===============================================================================
Portfolio turnover of the Portfolio ..... 79.97% 74.53% 107.13% 198.09% 70.92%
===============================================================================
Class I
The following per share data ---------------------------------------------------------------------------------
and ratios have been derived For the Year Ended June 30,
from information provided in ---------------------------------------------------------------------------------
the financial statements. 2006 2005 2004 2003 2002
==============================================================================================================================
Per Share Operating Performance
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ...... $ 10.10 $ 10.16 $ 10.39 $ 10.17 $ 10.21
---------------------------------------------------------------------------------
Investment income--net* ................. .36 .30 .31 .31 .45
Realized and unrealized gain (loss)--net (.15) (.06) (.23) .25 .02
---------------------------------------------------------------------------------
Total from investment operations ........ .21 .24 .08 .56 .47
---------------------------------------------------------------------------------
Less dividends and distributions:
Investment income--net ............... (.37) (.30) (.31) (.34) (.50)
Realized gain--net ................... -- -- -- -- (.01)
---------------------------------------------------------------------------------
Total dividends and distributions ....... (.37) (.30) (.31) (.34) (.51)
---------------------------------------------------------------------------------
Net asset value, end of year ............ $ 9.94 $ 10.10 $ 10.16 $ 10.39 $ 10.17
=================================================================================
==============================================================================================================================
Total Investment Return**
- ------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ...... 2.11% 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 .................. 3.61% 2.93% 3.00% 3.29% 4.51%
=================================================================================
==============================================================================================================================
Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) .. $ 203,377 $ 208,777 $ 240,749 $ 182,654 $ 23,325
=================================================================================
Portfolio turnover of the Portfolio ..... 79.97% 74.53% 107.13% 198.09% 70.92%
=================================================================================
* Based on average shares outstanding.
** 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.
+ Includes the Fund's share of the Portfolio's allocated expenses and/or
investment income--net.
See Notes to Financial Statements.
14 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2006
Financial Highlights (concluded) Merrill Lynch Low Duration Fund
Class R
--------------------------------------------------------
For the
For the Year Ended Period
June 30, Jan. 3, 2003+
The following per share data and ratios have been derived --------------------------------------- to June 30,
from information provided in the financial statements. 2006 2005 2004 2003
========================================================================================================================
Per Share Operating Performance
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ....................... $ 10.08 $ 10.14 $ 10.37 $ 10.29
--------------------------------------------------------
Investment income--net** ................................... .32 .18 .17 .18
Realized and unrealized gain (loss)--net ................... (.16) .01 (.11) .08
--------------------------------------------------------
Total from investment operations ........................... .16 .19 .06 .26
--------------------------------------------------------
Less dividends from investment income--net ................. (.32) (.25) (.29) (.18)
--------------------------------------------------------
Net asset value, end of period ............................. $ 9.92 $ 10.08 $ 10.14 $ 10.37
========================================================
========================================================================================================================
Total Investment Return
- ------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ......................... 1.58% 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 ..................................... 3.15% 2.46% 2.42% 2.74%*
========================================================
========================================================================================================================
Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) ................... $ 4,350 $ 4,477 $ 2,387 --@@
========================================================
Portfolio turnover of the Portfolio ........................ 79.97% 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.
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2006 15
Notes to Financial Statements Merrill Lynch Low Duration Fund
1. Significant Accounting Policies:
Merrill Lynch Low Duration Fund (the "Fund") is a fund of Merrill Lynch
Investment Managers Funds, Inc. (the "Company"). The Company is registered under
the Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company, which is organized as a Maryland Corporation. The
Fund seeks to achieve its investment objective by investing all of its assets in
Low Duration Master Portfolio (the "Portfolio") of Fund Asset Management Master
Trust, which has the same investment objective and strategies as the Fund. The
value of the Fund's investment in the Portfolio reflects the Fund's
proportionate interest in the net assets of the Portfolio. The performance of
the Fund is directly affected by the performance of the Portfolio. The financial
statements of the Portfolio, including the Schedule of Investments, are included
elsewhere in this report and should be read in conjunction with the Fund's
financial statements. The percentage of the Portfolio owned by the Fund at June
30, 2006 was 100%. The Fund's financial statements are prepared in conformity
with U.S. generally accepted accounting principles, which may require the use of
management accruals and estimates. Actual results may differ from these
estimates. The Fund offers multiple classes of shares. Effective December 28,
2005, Class I Shares are no longer subject to any front-end sales charge. Class
A Shares are sold with a front-end sales charge. Shares of Class B and Class C
may be subject to a contingent deferred sales charge. Class I Shares are sold
only to certain eligible investors. Class R Shares are sold only to certain
retirement plans. All classes of shares have identical voting, dividend,
liquidation and other rights and the same terms and conditions, except that
Class A, Class B, Class C and Class R Shares bear certain expenses related to
the account maintenance of such shares, and Class B, Class C and Class R Shares
also bear certain expenses related to the distribution of such shares. Each
class has exclusive voting rights with respect to matters relating to its
account maintenance and distribution expenditures (except that Class B
shareholders may vote on certain changes to the Class A distribution plan).
Income, expenses (other than expenses attributable to a specific class) and
realized and unrealized gains and losses are allocated daily to each class based
on its relative net assets. The following is a summary of significant accounting
policies followed by the Fund.
(a) Valuation of investments -- The Fund records its investment in the Portfolio
at fair value. Valuation of securities held by the Portfolio is discussed in
Note 1(a) of the Portfolio's Notes to Financial Statements, which are included
elsewhere in this report.
(b) Investment income and expenses -- The Fund records daily its proportionate
share of the Portfolio's income, expenses and realized and unrealized gains and
losses. In addition, the Fund accrues its own expenses.
(c) Income taxes -- It is the Fund's policy to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders. Therefore,
no federal income tax provision is required.
(d) Prepaid registration fees -- Prepaid registration fees are charged to
expense as the related shares are issued.
(e) Dividends and distributions -- Dividends from net investment income are
declared daily and paid monthly. Distributions of capital gains are recorded on
the ex-dividend dates.
(f) Investment transactions -- Investment transactions in the Portfolio are
accounted for on a trade-date basis.
(g) Reclassification -- U.S. generally accepted accounting principles require
that certain components of net assets be adjusted to reflect permanent
differences between financial and tax reporting. Accordingly, during the current
year, $460,563 has been reclassified between accumulated net realized capital
losses allocated from the portfolio and accumulated distributions in excess of
net investment income as a result of permanent differences attributable to swap
agreements and net paydown loss. This reclassification has no effect on net
assets or net asset values per share.
2. Transactions with Affiliates:
The Company has entered into an Administration Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), a wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."),
which is the limited partner. The Fund pays a monthly fee at an annual rate of
..25% of the Fund's average daily net assets for the performance of
administrative services (other than investment advice and related portfolio
activities) necessary for the operation of the Fund.
The Company has also entered into a Distribution Agreement and Distribution
Plans with FAM Distributors, Inc. ("FAMD" or the "Distributor"), an indirect,
wholly-owned subsidiary of Merrill Lynch Group, Inc. Pursuant to the
Distribution Plans adopted by the Company in accordance with Rule 12b-1 under
the Investment Company Act of 1940, the Fund pays the Distributor ongoing
account maintenance and distribution fees. The fees are accrued daily and paid
monthly at
16 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2006
Notes to Financial Statements (continued) Merrill Lynch Low Duration Fund
annual rates based upon the average daily net assets of the shares as follows:
- --------------------------------------------------------------------------------
Account Distribution
Maintenance Fee Fee
- --------------------------------------------------------------------------------
Class A ................................ .25% --
Class B ................................ .25% .65%
Class C ................................ .25% .65%
Class R ................................ .25% .25%
- --------------------------------------------------------------------------------
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("MLPF&S"), an affiliate of FAM, also provides account
maintenance and distribution services to the Fund. The ongoing account
maintenance fee compensates the Distributor and MLPF&S for providing account
maintenance services to Class A, Class B, Class C and Class R shareholders. The
ongoing distribution fee compensates the Distributor and MLPF&S for providing
shareholder and distribution-related services to Class B, Class C and Class R
shareholders.
For the year ended June 30, 2006, 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 ............................ $ 21,015 $106,729
Class I ............................ $ 5,781 $ 7,995
- --------------------------------------------------------------------------------
For the year ended June 30, 2006, MLPF&S received contingent deferred sales
charges of $159,578 and $28,279 relating to transactions in Class B and Class C
Shares, respectively. Furthermore, MLPF&S received contingent deferred sales
charges of $1,333 and $29 relating to transactions subject to front-end sales
charge waivers in Class A and Class I Shares, respectively.
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.
In February 2006, ML & Co. and BlackRock, Inc. entered into an agreement to
contribute ML & Co.'s investment management business, including FAM, to the
investment management business of BlackRock, Inc. The transaction is expected to
close at the end of the third quarter of 2006.
3. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions was
$36,485,602 and $8,275,277 for the years ended June 30, 2006 and June 30, 2005,
respectively.
Transactions in capital shares for each class were as follows:
- -------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended June 30, 2006 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 7,868,571 $ 78,742,195
Automatic conversion of shares ......... 165,449 1,653,466
Shares issued to shareholders in
reinvestment of dividends ............ 720,378 7,200,366
---------------------------------
Total issued ........................... 8,754,398 87,596,027
Shares redeemed ........................ (5,202,244) (52,071,208)
---------------------------------
Net increase ........................... 3,552,154 $ 35,524,819
=================================
- -------------------------------------------------------------------------------
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 Year Dollar
Ended June 30, 2006 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 764,008 $ 7,626,851
Shares issued to shareholders in
reinvestment of dividends ............ 138,454 1,381,959
---------------------------------
Total issued ........................... 902,462 9,008,810
---------------------------------
Automatic conversion of shares ......... (165,800) (1,653,466)
Shares redeemed ........................ (4,267,131) (42,618,020)
---------------------------------
Total redeemed ......................... (4,432,931) (44,271,486)
---------------------------------
Net decrease ........................... (3,530,469) $ (35,262,676)
=================================
- -------------------------------------------------------------------------------
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 Year Dollar
Ended June 30, 2006 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 4,003,186 $ 39,947,150
Shares issued to shareholders in
reinvestment of dividends ............ 318,879 3,180,745
---------------------------------
Total issued ........................... 4,322,065 43,127,895
Shares redeemed ........................ (7,784,003) (77,684,767)
---------------------------------
Net decrease ........................... (3,461,938) $ (34,556,872)
=================================
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2006 17
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 Year Dollar
Ended June 30, 2006 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 4,589,347 $ 45,878,308
Shares issued to shareholders in
reinvestment of dividends ............ 629,194 6,294,006
---------------------------------
Total issued ........................... 5,218,541 52,172,314
Shares redeemed ........................ (5,423,759) (54,309,989)
---------------------------------
Net decrease ........................... (205,218) $ (2,137,675)
=================================
- -------------------------------------------------------------------------------
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 Year Dollar
Ended June 30, 2006 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 340,042 $ 3,397,077
Shares issued to shareholders in
reinvestment of dividends ............ 14,555 145,278
---------------------------------
Total issued ........................... 354,597 3,542,355
Shares redeemed ........................ (360,251) (3,595,553)
---------------------------------
Net decrease ........................... (5,654) $ (53,198)
=================================
- -------------------------------------------------------------------------------
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. Distributions to Shareholders:
The tax character of distributions paid during the fiscal years ended June 30,
2006 and June 30, 2005 was as follows:
- --------------------------------------------------------------------------------
6/30/2006 6/30/2005
- --------------------------------------------------------------------------------
Distributions paid from:
Ordinary income ........................ $22,712,664 $19,342,279
------------------------------
Total taxable distributions .............. $22,712,664 $19,342,279
==============================
As of June 30, 2006, the components of accumulated losses on a tax basis were as
follows:
- -----------------------------------------------------------------------------
Accumulated distributions in excess of investment
income--net ............................................ $ (165,146)
Undistributed long-term capital gains--net ............... --
------------
Accumulated distributions in excess of investment
income--net ............................................ (165,146)
Capital loss carryforward ................................ (22,115,369)*
Unrealized losses--net ................................... (15,614,843)**
------------
Total accumulated losses--net ............................ $(37,895,358)
============
* On June 30, 2006, the Fund had a net capital loss carryforward of
$22,115,369, 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, $6,250,370 expires in 2013 and $2,851,962 expires in
2014. This amount will be available to offset like amounts of any future
taxable gains.
** The difference between book-basis and tax-basis net unrealized losses is
attributable primarily to the realization for tax purposes of unrealized
gains (losses) on certain futures contracts, the deferral of post-October
capital losses for tax purposes and other book/tax temporary differences.
5. Change in Independent Registered Public Accounting Firm:
Effective August 28, 2006, Ernst & Young LLP ("E&Y") resigned as Independent
Registered Public Accounting Firm of the Fund.
E&Y's report on the financial statements of the Fund for the past five fiscal
years did not contain an adverse opinion or a disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope or accounting principles.
In connection with its audits for the two most recent fiscal years through June
30, 2006 (1) there were no disagreements with E&Y on any matter of accounting
principle or practices, financial statement disclosure or auditing scope or
procedure, whereby such disagreements, if not resolved to the satisfaction of
E&Y, would have caused them to make reference to the subject matter of the
disagreements in connection with their report on the financial statements for
such years; and (2) there have been no reportable events (as defined in Item
304(a)(1)(v) of Regulation S-K).
The Fund engaged Deloitte & Touche LLP as the Fund's Independent Registered
Public Accounting Firm for the fiscal year ending June 30, 2007.
18 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2006
Report of Independent Registered Public Accounting Firm
Merrill Lynch Low Duration Fund
To the Board of Directors of Merrill Lynch Investment Managers Funds, Inc. and
Shareholders of Merrill Lynch Low Duration Fund:
We have audited the accompanying statement of assets and liabilities of Merrill
Lynch Low Duration Fund as of June 30, 2006, the related statement of operations
for the year then ended, the statements of changes in net assets for each of the
two years in the period then ended and the financial highlights for each of the
periods indicated therein. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. We were
not engaged to perform an audit of the Fund's internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purposes of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Merrill Lynch Low Duration Fund at June 30, 2006, and the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the indicated periods in conformity with U.S. generally accepted accounting
principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
August 9, 2006
Important Tax Information (unaudited)
Of the ordinary income distributions paid monthly by Merrill Lynch Low Duration
Fund of Merrill Lynch Investment Managers Funds, Inc. during the year ended June
30, 2006, 3.25% was attributable to federal obligations. In calculating the
foregoing percentage, Fund expenses have been allocated on a pro rata basis.
The law varies in each state as to whether and what percentage of dividend
income attributable to federal obligations is exempt from state income tax. We
recommend that you consult your tax adviser to determine if any portion of the
dividends you received is exempt from state income taxes.
The following information is provided with respect to the ordinary income
distributions paid monthly by Merrill Lynch Low Duration Fund of Merrill Lynch
Investment Managers Funds, Inc. for the fiscal year ended June 30, 2006:
- --------------------------------------------------------------------------------
Interest-Related Dividends for Non-U.S. Residents
- --------------------------------------------------------------------------------
Month Paid: July 2005 ...................................... 73.35%*
August 2005 - December 2005 .................... 86.75%*
January 2006 - June 2006 ....................... 81.27%*
- --------------------------------------------------------------------------------
* Represents the portion of the taxable ordinary income dividends eligible
for exemption from U.S. withholding tax for nonresident aliens and foreign
corporations.
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2006 19
Portfolio Information as of June 30, 2006 Low Duration Master Portfolio
Percent of
Asset Mix Total Investments
- --------------------------------------------------------------------------------
Corporate Bonds .................................................. 33.1%
Non-Government Agency Mortgage-Backed Securities ................. 20.0
Government Agency Mortgage-Backed Securities ..................... 11.7
Government & Agency Obligations .................................. 9.2
Asset-Backed Securities .......................................... 8.3
Preferred Stocks ................................................. 0.2
Other* ........................................................... 17.5
- --------------------------------------------------------------------------------
* Includes portfolio holdings in short-term investments.
20 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2006
Schedule of Investments Low Duration Master Portfolio (in U.S. dollars)
Face
Amount Asset-Backed Securities+ Value
====================================================================================
$ 3,700,000 Asset Backed Funding Certificates Series 2005-HE2
Class M9, 7.231% due 6/25/2035 (a) $ 3,726,135
California Infrastructure Series 1997-1:
89,682 PG&E-1 Class A7, 6.42% due 9/25/2008 89,885
132,741 SCE-1 Class A6, 6.38% due 9/25/2008 133,037
3,169,407 Capital One Auto Finance Trust Series 2003-A
Class A4A, 2.47% due 1/15/2010 3,106,089
2,061,099 Chase Funding Mortgage Loan Asset-Backed
Certificates Series 1999-4 Class IA6, 7.407%
due 9/25/2011 2,056,726
812,006 Chase Manhattan Auto Owner Trust Series 2003-A
Class CTFS, 2.04% due 12/15/2009 788,695
378,646 First Franklin Mortgage Loan Asset-Backed
Certificates Series 2003-FF5 Class A2, 5.731%
due 3/25/2034 (a) 377,452
9,750,000 First Horizon Asset Backed Securities Trust
Series 2004-HE4 Class A2, 4.07% due 7/25/2019 9,507,814
5,731,200 GCO Slims Trust Series 2006-1A Class NOTE,
5.72% due 3/01/2022 (b) 5,586,129
178,135 GMAC Mortgage Corp. Loan Trust Series 2003-HE2
Class A2, 3.14% due 6/25/2025 177,460
4,100,000 MBNA Credit Card Master Note Trust Series
2001-C3 Class C3, 6.55% due 12/15/2008 4,102,221
10,550,000 Residential Asset Mortgage Products, Inc.
Series 2003-RZ3 Class A6, 3.40% due 3/25/2033 9,679,489
6,705,811 Soundview Home Equity Loan Trust Series 2003-2
Class A2, 5.973% due 11/25/2033 (a) 6,752,508
WFS Financial Owner Trust:
490,596 Series 2003-2 Class B, 2.48% due 12/20/2010 486,057
2,546,359 Series 2003-4 Class B, 2.73% due 5/20/2011 2,495,584
10,800,000 Series 2004-4 Class A4, 3.44% due 5/17/2012 10,374,840
381,201 Whole Auto Loan Trust Series 2004-1 Class D,
5.60% due 3/15/2011 379,560
- ------------------------------------------------------------------------------------
Total Asset-Backed Securities
(Cost -- $61,411,997) -- 8.8% 59,819,681
====================================================================================
Government & Agency Obligations
====================================================================================
4,530,000 Fannie Mae, 4% due 2/28/2007 4,484,655
U.S. Treasury Notes:
9,940,000 3.625% due 4/30/2007 9,804,876
50,000,000 4% due 8/31/2007 (i) 49,294,900
2,900,000 2.625% due 5/15/2008 (d) 2,769,161
- ------------------------------------------------------------------------------------
Total Government & Agency Obligations
(Cost -- $67,516,055) -- 9.8% 66,353,592
====================================================================================
Government Agency
Mortgage-Backed Securities+
====================================================================================
Fannie Mae Guaranteed Pass-Through Certificates:
452,002 6.50% due 8/01/2032 - 9/01/2032 456,033
4,244,141 8% due 7/01/2027 - 11/01/2032 4,480,510
Fannie Mae Trust:
8,500,000 Series 2003-17 Class QR, 4.50%
due 11/25/2025 8,371,243
3,775,125 Series 2003-23 Class AB, 4% due 3/25/2017 3,617,013
4,406,486 Series 2003-48 Class HA, 3.50%
due 11/25/2017 4,132,568
28,635,107 Freddie Mac Mortgage Participation Certificates,
5% due 9/01/2019 - 5/01/2020 27,593,667
Freddie Mac Multiclass Certificates:
3,096,416 Series 2590 Class XR, 3.25% due 12/15/2013 2,958,925
7,043,953 Series 2651 Class GA, 2.75% due 7/15/2018 6,404,512
9,119,314 Series 2673 Class ML, 4% due 12/15/2022 8,910,804
6,496,250 Series 2677 Class HB, 4% due 3/15/2014 6,237,008
Ginnie Mae Trust:
3,211,367 Series 2002-83 Class A, 3.313%
due 4/16/2017 3,111,616
56,577,972 Series 2002-94 Class XB, 2.349%
due 11/16/2007 787,944
7,699,780 Series 2005-9 Class A, 4.026% due 5/16/2022 7,440,356
- ------------------------------------------------------------------------------------
Total Government Agency Mortgage-Backed
Securities (Cost -- $88,462,107) -- 12.4% 84,502,199
====================================================================================
Non-Government Agency
Mortgage-Backed Securities+
====================================================================================
Collateralized Mortgage Obligations -- 16.8%
11,000,000 Ameriquest Mortgage Securities, Inc. Series
2004-FR1 Class A5, 4.455% due 5/25/2034 10,667,914
109,921 BlackRock Capital Finance LP Series 1997-R2
Class AP, 6.721% due 12/25/2035 (a)(b) 109,921
4,489,159 COMM Series 2004-LB4A Class A1, 3.566%
due 10/15/2037 4,373,026
3,945,723 CS First Boston Mortgage Securities Corp.
Series 2004-C3 Class A2, 3.913% due 7/15/2036 3,831,385
1,250,000 Capital Auto Receivables Asset Trust Series 2004-2
Class D, 5.82% due 5/15/2012 (b) 1,222,826
10,500,000 Countrywide Asset-Backed Certificates Series
2004-13 Class AF3, 3.989% due 12/25/2034 (a) 10,392,138
8,500,000 First National Master Note Trust Series 2003-2
Class C, 3.70% due 4/15/2009 8,435,488
GSAA Trust Class AF2 (a):
6,191,949 Series 2004-10 , 4.22% due 8/25/2034 6,114,041
5,908,000 Series 2005-12 , 4.972% due 9/25/2035 5,785,215
8,915,737 JPMorgan Mortgage Trust Series 2005-A2
Class 4A1, 5.209% due 4/25/2035 (a) 8,557,752
6,185,127 LB-UBS Commercial Mortgage Trust Series
2004-C7 Class A1, 3.625% due 10/15/2029 5,978,281
19,324,750 Morgan Stanley Mortgage Loan Trust Series
2006-3AR Class 2A3, 5.912% due 3/25/2036 (a) 19,264,513
316,360 Ocwen Residential MBS Corp. Series 1998-R2
Class AP, 6.92% due 11/25/2034 (a)(b) 253,088
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2006 21
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)
Popular ABS Mortgage Pass-Through Trust (a):
$ 4,520,000 Series 2004-5 Class AF2, 3.735%
due 12/25/2034 $ 4,482,476
3,500,000 Series 2005-1 Class AF3, 4.142%
due 5/25/2035 3,422,561
5,476,736 Residential Accredit Loans, Inc. Series 2005-QS12
Class A8, 5.50% due 8/25/2035 (a) 5,480,980
31,005 Salomon Brothers Mortgage Securities Series 1986-1
Class A, 6% due 12/25/2011 30,900
Structured Mortgage Asset Residential Trust:
6,376 Series 1991-1 Class H, 8.25% due 6/25/2022 6,344
1,695 Series 1992-3A Class AA, 8% due 10/25/2007 1,696
67,061 Walsh Acceptance Series 1997-2 Class A, 7.323%
due 3/01/2027 (a)(b) 26,825
Washington Mutual (a):
3,666 Series 2000-1 Class B1, 9.323%
due 1/25/2040 (b) 3,665
16,499,379 Series 2004-AR3 Class A1, 3.918%
due 6/25/2034 15,844,253
------------
114,285,288
====================================================================================
Commercial Mortgage-Backed Securities -- 1.7%
861,597 Banc of America Commercial Mortgage, Inc.
Series 2000-1 Class A1A, 7.109%
due 11/15/2008 871,770
4,324,074 Bank of America Mortgage Securities Series 2003-J
Class 2A1, 4.094% due 11/25/2033 (a) 4,210,998
6,841,262 Greenwich Capital Commercial Funding Corp.
Series 2004-GG1 Class A2, 3.835%
due 6/10/2036 6,673,251
------------
11,756,019
====================================================================================
Stripped Mortgage-Backed Securities (c) -- 2.9%
77,225,777 CS First Boston Mortgage Securities Corp.
Series 2003-CPN1 Class ASP, 1.584%
due 3/15/2035 (a) 3,179,331
28,440,215 Greenwich Capital Commercial Funding Corp.
Series 2002-C1 Class XP, 2.059%
due 1/11/2035 (a) 1,900,768
78,251,515 LB-UBS Commercial Mortgage Trust Series
2002-C4 Class XCP, 1.475% due 10/15/2035 (a) 2,896,409
National Collegiate Student Loan Trust Class AIO:
16,400,000 Series 2005-2 , 7.73% due 3/25/2012 4,315,250
33,292,725 Series 2005-GT1, 6.75% due 12/25/2009 7,053,896
------------
19,345,654
- ------------------------------------------------------------------------------------
Total Non-Government Agency
Mortgage-Backed Securities
(Cost -- $148,724,168) -- 21.4% 145,386,961
====================================================================================
Corporate Bonds
====================================================================================
Aerospace & Defense -- 0.6%
1,250,000 Goodrich Corp., 6.45% due 4/15/2008 1,262,315
Raytheon Co.:
1,700,000 6.75% due 8/15/2007 1,716,510
880,000 6.15% due 11/01/2008 888,602
------------
3,867,427
====================================================================================
Airlines -- 0.4%
689,360 American Airlines, Inc. Series 2003-1, 3.857%
due 1/09/2012 651,445
1,806,006 Systems 2001 Asset Trust Pass-Through Trusts,
6.664% due 9/15/2013 (b) 1,859,680
------------
2,511,125
====================================================================================
Automobiles -- 0.8%
DaimlerChrysler NA Holding Corp.:
3,400,000 4.75% due 1/15/2008 3,344,407
2,000,000 4.05% due 6/04/2008 1,933,714
------------
5,278,121
====================================================================================
Biotechnology -- 0.2%
1,800,000 Amgen, Inc., 4% due 11/18/2009 1,711,003
====================================================================================
Capital Markets -- 1.3%
1,070,000 The Bank of New York Co., Inc., 3.80%
due 2/01/2008 1,041,212
2,400,000 The Bear Stearns Cos., Inc., 7.80% due 8/15/2007 2,453,760
1,000,000 Credit Suisse First Boston USA, Inc., 4.70%
due 6/01/2009 973,458
2,220,000 Goldman Sachs Group, Inc., 4.125% due 1/15/2008 2,172,476
2,510,000 Lehman Brothers Holdings, Inc., 3.60%
due 3/13/2009 2,380,333
------------
9,021,239
- ------------------------------------------------------------------------------------
Chemicals -- 0.2%
1,165,000 Potash Corp. of Saskatchewan Inc., 7.125%
due 6/15/2007 1,178,049
500,000 Praxair, Inc., 6.625% due 10/15/2007 505,566
------------
1,683,615
====================================================================================
Commercial Banks -- 3.4%
2,050,000 First Tennessee Bank NA, 5.316% due 12/08/2008 2,023,875
2,000,000 FleetBoston Financial Corp., 3.85% due 2/15/2008 1,946,122
2,425,000 HBOS Treasury Services Plc, 3.50%
due 11/30/2007 (b) 2,357,842
3,500,000 KeyCorp, 5.29% due 7/23/2007 (a) 3,507,402
1,210,000 M&I Marshall & Ilsley Bank, 4.40% due 3/15/2010 1,161,589
2,425,000 PNC Funding Corp., 4.20% due 3/10/2008 2,364,899
Popular North America, Inc.:
1,545,000 5.20% due 12/12/2007 1,527,359
670,000 3.875% due 10/01/2008 641,038
1,260,000 Sovereign Bank, 4% due 2/01/2008 1,227,192
2,500,000 US Bank NA, 4.125% due 3/17/2008 2,441,248
1,500,000 Wachovia Corp., 6.15% due 3/15/2009 1,516,626
2,200,000 Wells Fargo & Co., 4% due 8/15/2008 2,127,198
------------
22,842,390
====================================================================================
Commercial Services & Supplies -- 0.8%
3,300,000 Cendant Corp., 4.89% due 8/17/2006 3,289,968
2,010,000 International Lease Finance Corp., 4.35%
due 9/15/2008 1,951,957
------------
5,241,925
====================================================================================
22 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2006
Schedule of Investments (continued)
Low Duration Master Portfolio (in U.S. dollars)
Face
Amount Corporate Bonds Value
====================================================================================
Communications Equipment -- 0.1%
$ 955,000 Cisco Systems, Inc., 5.269% due 2/20/2009 (a) $ 955,944
====================================================================================
Consumer Finance -- 1.4%
Capital One Bank:
1,310,000 4.875% due 5/15/2008 1,290,595
1,600,000 4.25% due 12/01/2008 1,547,629
3,500,000 HSBC Finance Corp., 4.125% due 12/15/2008 3,382,467
3,060,000 MBNA Corp., 5.625% due 11/30/2007 3,057,766
------------
9,278,457
====================================================================================
Containers & Packaging -- 0.6%
3,950,000 Bemis Co., 6.50% due 8/15/2008 3,998,182
====================================================================================
Diversified Financial Services -- 4.1%
3,800,000 Citigroup, Inc., 3.50% due 2/01/2008 3,679,867
2,700,000 General Electric Capital Corp. Series A, 3.75%
due 12/15/2009 2,540,689
1,335,000 General Motors Acceptance Corp., 6.125%
due 8/28/2007 1,321,039
JPMorgan Chase & Co.:
2,970,000 5.25% due 5/30/2007 2,956,216
4,800,000 3.625% due 5/01/2008 4,626,946
Links Finance Corp. (a):
1,500,000 5.579% due 9/15/2010 1,500,251
1,500,000 Series 54, 5.579% due 9/15/2010 1,500,250
1,500,000 Series 55, 5.579% due 9/15/2010 1,497,477
Sigma Finance Corp. (e):
5,500,000 7.67% due 8/15/2011 5,500,000
2,700,000 5.499% due 3/31/2014 (a) 2,705,246
------------
27,827,981
====================================================================================
Diversified Telecommunication Services -- 2.5%
1,960,000 BellSouth Corp., 5.295% due 11/15/2007 (a) 1,962,444
2,500,000 Deutsche Telekom International Finance BV,
3.875% due 7/22/2008 2,416,275
1,810,000 SBC Communications, Inc., 4.125% due 9/15/2009 1,719,603
4,250,000 TELUS Corp., 7.50% due 6/01/2007 4,312,199
2,250,000 Telecom Italia Capital SA, 4% due 11/15/2008 2,158,400
Verizon Global Funding Corp.:
1,250,000 7.60% due 3/15/2007 1,265,398
3,225,000 4% due 1/15/2008 3,143,530
------------
16,977,849
====================================================================================
Electric Utilities -- 2.3%
1,485,000 American Electric Power Co., Inc., 4.709%
due 8/16/2007 1,466,822
1,615,000 CC Funding Trust I, 6.90% due 2/16/2007 1,624,062
2,430,000 Entergy Gulf States, Inc., 3.60% due 6/01/2008 2,321,481
1,700,000 FirstEnergy Corp., 5.50% due 11/15/2006 1,697,982
3,330,000 National Rural Utilities Cooperative Finance Corp.,
3.25% due 10/01/2007 3,234,402
1,970,000 Pepco Holdings, Inc., 5.50% due 8/15/2007 1,962,924
1,000,000 Progress Energy Inc., 5.85% due 10/30/2008 1,000,052
1,925,000 Southern California Edison Co., 5.249%
due 2/02/2009 (a) 1,925,087
685,000 Xcel Energy, Inc., 3.40% due 7/01/2008 653,548
------------
15,886,360
====================================================================================
Food Products -- 0.5%
3,415,000 Cadbury Schweppes US Finance LLC, 3.875%
due 10/01/2008 (b) 3,274,285
====================================================================================
Gas Utilities -- 1.1%
1,495,000 KeySpan Corp., 4.90% due 5/16/2008 1,473,133
4,040,000 NiSource Finance Corp., 5.764%
due 11/23/2009 (a) 4,044,428
2,070,000 Panhandle Eastern Pipe Line Series B, 2.75%
due 3/15/2007 2,025,888
------------
7,543,449
====================================================================================
Health Care Providers & Services -- 0.9%
4,020,000 Columbia/HCA-The Healthcare Co., 7%
due 7/01/2007 4,042,677
1,940,000 WellPoint, Inc., 3.75% due 12/14/2007 1,885,015
------------
5,927,692
====================================================================================
Hotels, Restaurants & Leisure -- 0.8%
1,000,000 Carnival Corp., 3.75% due 11/15/2007 971,601
2,420,000 Harrah's Operating Co., Inc., 7.125%
due 6/01/2007 2,441,676
1,800,000 Hilton Hotels Corp., 7.95% due 4/15/2007 1,824,750
------------
5,238,027
====================================================================================
Household Durables -- 1.1%
1,095,000 Centex Corp., 5.399% due 8/01/2007 (a) 1,095,430
4,075,000 DR Horton, Inc., 7.50% due 12/01/2007 4,142,983
2,420,000 Pulte Homes, Inc., 4.875% due 7/15/2009 2,334,453
------------
7,572,866
====================================================================================
Industrial Conglomerates -- 0.2%
1,280,000 Textron, Inc., 6.375% due 11/15/2008 1,298,536
500,000 Tyco International Group SA, 6.125%
due 11/01/2008 503,004
------------
1,801,540
====================================================================================
Insurance -- 2.3%
1,570,000 AON Corp., 6.95% due 1/15/2007 1,577,924
1,960,000 Hartford Financial Services Group, Inc., 4.70%
due 9/01/2007 1,935,808
385,000 Monumental Global Funding II, 3.85%
due 3/03/2008 (b) 373,604
2,490,000 The Phoenix Cos., Inc., 6.675% due 2/16/2008 2,495,974
1,470,000 Protective Life Secured Trust, 5.148%
due 1/14/2008 (a) 1,472,306
Prudential Financial, Inc.:
3,200,000 4.104% due 11/15/2006 3,184,118
1,500,000 3.75% due 5/01/2008 1,448,592
1,910,000 RenaissanceRe Holdings Ltd., 7% due 7/15/2008 1,941,114
1,250,000 The St. Paul Travelers Cos., Inc., 5.01%
due 8/16/2007 1,235,731
------------
15,665,171
====================================================================================
Machinery -- 0.1%
375,000 John Deere Capital Corp., 5.40% due 4/07/2010 370,428
360,000 Timken Co., 6.75% due 8/21/2006 359,904
------------
730,332
====================================================================================
Media -- 2.6%
2,420,000 Clear Channel Communications, Inc., 4.625%
due 1/15/2008 2,369,991
Comcast Cable Communications:
2,600,000 8.375% due 5/01/2007 2,654,714
1,200,000 6.20% due 11/15/2008 1,211,882
1,815,000 Cox Communications, Inc., 7.75% due 8/15/2006 1,818,091
2,600,000 Media General, Inc., 6.95% due 9/01/2006 2,602,153
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2006 23
Schedule of Investments (continued)
Low Duration Master Portfolio (in U.S. dollars)
Face
Amount Corporate Bonds Value
====================================================================================
Media (concluded)
$ 1,220,000 News America, Inc., 6.75% due 1/09/2038 $ 1,238,010
2,000,000 Time Warner Companies, Inc., 8.18% due 8/15/2007 2,051,858
3,545,000 Time Warner, Inc., 6.15% due 5/01/2007 3,557,159
------------
17,503,858
====================================================================================
Multi-Utilities -- 1.3%
400,000 Ameren Corp., 4.263% due 5/15/2007 394,673
Dominion Resources, Inc.:
2,395,000 5.687% due 5/15/2008 2,387,568
2,000,000 Series D, 5.125% due 12/15/2009 1,950,398
4,040,000 Sempra Energy, 4.621% due 5/17/2007 4,000,634
------------
8,733,273
====================================================================================
Multiline Retail -- 0.1%
600,000 Target Corp., 5.40% due 10/01/2008 597,894
====================================================================================
Oil, Gas & Consumable Fuels -- 1.6%
2,500,000 Burlington Resources Finance Co., 5.60%
due 12/01/2006 2,498,792
MidAmerican Energy Holdings Co.:
2,250,000 4.625% due 10/01/2007 2,218,633
2,000,000 3.50% due 5/15/2008 1,918,836
488,750 Pemex Finance Ltd., 8.45% due 2/15/2007 493,745
3,430,000 Pemex Project Funding Master Trust, 6.629%
due 6/15/2010 (a)(b) 3,502,030
------------
10,632,036
====================================================================================
Real Estate Investment Trusts (REITs) -- 0.7%
Nationwide Health Properties, Inc.:
1,400,000 7.60% due 11/20/2028 1,482,422
1,400,000 6.59% due 7/07/2038 1,393,580
2,000,000 Westfield Capital Corp. Ltd., 5.449%
due 11/02/2007 (a)(b) 2,004,868
------------
4,880,870
====================================================================================
Road & Rail -- 1.1%
6,800,000 CSX Corp., 7.45% due 5/01/2007 6,890,420
870,000 Norfolk Southern Corp., 7.35% due 5/15/2007 881,475
------------
7,771,895
====================================================================================
Software -- 0.6%
3,850,000 Oracle Corp. and Ozark Holding, Inc., 5.28%
due 1/13/2009 (a) 3,852,325
====================================================================================
Thrifts & Mortgage Finance -- 0.9%
2,150,000 Countrywide Home Loans, Inc., 4.25%
due 12/19/2007 2,106,407
4,390,000 Residential Capital Corp., 6.125% due 11/21/2008 4,339,124
------------
6,445,531
====================================================================================
Wireless Telecommunication Services -- 0.8%
5,200,000 Sprint Capital Corp., 6% due 1/15/2007 5,206,973
- ------------------------------------------------------------------------------------
Total Corporate Bonds
(Cost -- $243,830,507) -- 35.4% 240,459,635
====================================================================================
Shares
Held Preferred Stocks
====================================================================================
Diversified Financial Services -- 0.3%
17,700 CIT Group, Inc. Series B, 5.189% 1,728,517
- ------------------------------------------------------------------------------------
Total Preferred Stocks
(Cost -- $1,770,000) -- 0.3% 1,728,517
====================================================================================
Face
Amount Short-Term Securities
====================================================================================
Commercial Paper*
Rabobank USA Financial Corp.:
$ 2,400,000 5.25% due 7/03/2006 2,400,000
33,000,000 5.24% due 7/07/2006 32,980,787
------------
35,380,787
====================================================================================
Time Deposits
69,797 Brown Brothers Harriman & Co., 4.50%
due 7/03/2006 69,797
====================================================================================
U.S. Government Agency Obligations*
40,900,000 Federal Home Loan Bank System, 5.13%
due 7/13/2006 40,841,831
====================================================================================
Beneficial
Interest
====================================================================================
$51,000,000 Merrill Lynch Liquidity Series, LLC
Money Market Series, 5.22% (f)(g)(h) 51,000,000
- ------------------------------------------------------------------------------------
Total Short-Term Securities
(Cost -- $127,292,415) -- 18.8% 127,292,415
====================================================================================
Total Investments (Cost -- $739,007,249**) -- 106.9% 725,543,000
Liabilities in Excess of Other Assets -- (6.9%) (46,713,068)
------------
Net Assets -- 100.0% $678,829,932
============
24 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2006
Schedule of Investments (concluded) Low Duration Master Portfolio
(in U.S. dollars)
* Commercial Paper and certain U.S. Government Agency Obligations are traded
on a discount basis; the interest rates shown reflect the discount rates
paid at the time of purchase.
** The cost and unrealized appreciation (depreciation) of investments, as of
June 30, 2006, as computed for federal income tax purposes, were as
follows:
Aggregate cost .................................... $ 739,004,953
=============
Gross unrealized appreciation ..................... $ 349,954
Gross unrealized depreciation ..................... (13,811,907)
-------------
Net unrealized depreciation ....................... $ (13,461,953)
=============
+ 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.
(a) Floating rate security.
(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.:
7.67% due 8/15/2011 2/13/2004 $5,500,000 $5,500,000
5.499% due 3/31/2014 3/26/2004 2,700,000 2,705,246
--------------------------------------------------------------------------
Total $8,200,000 $8,205,246
===========================
(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 Interest
Affiliate Activity Income
--------------------------------------------------------------------------
Merrill Lynch Liquidity Series, LLC
Money Market Series $51,000,000 $87,485
--------------------------------------------------------------------------
(g) Security was purchased with the cash proceeds from securities loans.
(h) Represents the current yield as of 6/30/2006.
(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. These industry classifications are unaudited.
o Financial futures contracts purchased as of June 30, 2006 were as follows:
--------------------------------------------------------------------------
Number of Expiration Face Unrealized
Contracts Issue Date Value Depreciation
--------------------------------------------------------------------------
581 2-Year U.S.
Treasury Note September 2006 $118,215,511 $(399,605)
--------------------------------------------------------------------------
o Financial futures contracts sold as of June 30, 2006 were as follows:
--------------------------------------------------------------------------
Number of Expiration Face Unrealized
Contracts Issue Date Value Appreciation
--------------------------------------------------------------------------
803 5-Year U.S.
Treasury Note September 2006 $83,517,068 $481,849
--------------------------------------------------------------------------
o Swaps outstanding as of June 30, 2006 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 $ (2,505)
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 25,501
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 $ 1,906,000 684
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 (219,858)
------------------------------------------------------------------------------------
Total $ (196,178)
============
See Notes to Financial Statements.
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2006 25
Statement of Assets and Liabilities Low Duration Master Portfolio
As of June 30, 2006
=============================================================================================================================
Assets
- -----------------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value (including securities
loaned of $49,294,500) (identified cost -- $688,007,249) ...................... $674,543,000
Investments in affiliated securities, at value (identified cost -- $51,000,000) . 51,000,000
Unrealized appreciation on swaps ................................................ 26,185
Cash ............................................................................ 768
Receivables:
Interest ..................................................................... $ 5,112,054
Contributions ................................................................ 1,778,310
Principal paydowns ........................................................... 8,715
Swaps ........................................................................ 4,581
Securities lending ........................................................... 2,073 6,905,733
------------
Prepaid expenses and other assets ............................................... 3,240
------------
Total assets .................................................................... 732,478,926
------------
=============================================================================================================================
Liabilities
- -----------------------------------------------------------------------------------------------------------------------------
Collateral on securities loaned, at value ....................................... 51,000,000
Unrealized depreciation on swaps ................................................ 222,363
Payables:
Withdrawals .................................................................. 2,088,404
Investment adviser ........................................................... 109,441
Variation margin ............................................................. 97,422
Other affiliates ............................................................. 3,372
Swaps ........................................................................ 1,347 2,299,986
------------
Accrued expenses ................................................................ 126,645
------------
Total liabilities ............................................................... 53,648,994
------------
=============================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------
Net assets ...................................................................... $678,829,932
============
=============================================================================================================================
Net Assets Consist of
- -----------------------------------------------------------------------------------------------------------------------------
Investor's capital .............................................................. $692,408,115
Unrealized depreciation -- net .................................................. (13,578,183)
------------
Net Assets ...................................................................... $678,829,932
============
See Notes to Financial Statements.
26 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2006
Statement of Operations Low Duration Master Portfolio
For the Year Ended June 30, 2006
=============================================================================================================================
Investment Income
- -----------------------------------------------------------------------------------------------------------------------------
Interest ........................................................................ $ 29,516,929
Dividends ....................................................................... 130,637
Securities lending -- net ....................................................... 87,485
------------
Total income .................................................................... 29,735,051
------------
=============================================================================================================================
Expenses
- -----------------------------------------------------------------------------------------------------------------------------
Investment advisory fees ........................................................ $ 1,460,904
Accounting services ............................................................. 269,992
Custodian fees .................................................................. 59,905
Professional fees ............................................................... 59,299
Trustees' fees and expenses ..................................................... 30,580
Pricing fees .................................................................... 22,103
Printing and shareholder reports ................................................ 1,294
Other ........................................................................... 26,054
------------
Total expenses .................................................................. 1,930,131
------------
Investment income -- net ........................................................ 27,804,920
------------
=============================================================================================================================
Realized & Unrealized Loss -- Net
- -----------------------------------------------------------------------------------------------------------------------------
Realized loss on:
Investments -- net ........................................................... (1,869,642)
Futures contracts and swaps -- net ........................................... (392,151)
Options written -- net ....................................................... (170,012) (2,431,805)
------------
Change in unrealized appreciation/depreciation on:
Investments -- net ........................................................... (8,341,382)
Futures contracts and swaps -- net ........................................... (63,232) (8,404,614)
------------------------------
Total realized and unrealized loss -- net ....................................... (10,836,419)
------------
Net Increase in Net Assets Resulting from Operations ............................ $ 16,968,501
============
See Notes to Financial Statements.
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2006 27
Statements of Changes in Net Assets Low Duration Master Portfolio
For the Year Ended
June 30,
------------------------------
Increase (Decrease) in Net Assets: 2006 2005
=============================================================================================================================
Operations
- -----------------------------------------------------------------------------------------------------------------------------
Investment income -- net ........................................................ $ 27,804,920 $ 25,892,730
Realized loss -- net ............................................................ (2,431,805) (5,914,342)
Change in unrealized appreciation/depreciation -- net ........................... (8,404,614) 760,100
------------------------------
Net increase in net assets resulting from operations ............................ 16,968,501 20,738,488
------------------------------
=============================================================================================================================
Capital Transactions
- -----------------------------------------------------------------------------------------------------------------------------
Proceeds from contributions ..................................................... 175,591,581 298,036,322
Fair value of withdrawals ....................................................... (240,264,379) (332,264,392)
------------------------------
Net decrease in net assets derived from capital transactions .................... (64,672,798) (34,228,070)
------------------------------
=============================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------
Total decrease in net assets .................................................... (47,704,297) (13,489,582)
Beginning of year ............................................................... 726,534,229 740,023,811
------------------------------
End of year ..................................................................... $678,829,932 $726,534,229
==============================
See Notes to Financial Statements.
Financial Highlights Low Duration Master Portfolio
For the Year Ended June 30,
The following ratios have been derived from ---------------------------------------------------------------------------
information provided in the financial statements. 2006 2005 2004 2003 2002
================================================================================================================================
Total Investment Return
- --------------------------------------------------------------------------------------------------------------------------------
Total investment return ............... 2.50% 2.80% 1.18% 6.05% 5.59%
===========================================================================
================================================================================================================================
Ratios to Average Net Assets
- --------------------------------------------------------------------------------------------------------------------------------
Expenses .............................. .28% .28% .28% .28% .32%
===========================================================================
Investment income -- net .............. 4.00% 3.34% 3.39% 3.73% 5.03%
===========================================================================
================================================================================================================================
Supplemental Data
- --------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) $ 678,830 $ 726,534 $ 740,024 $ 739,334 $ 512,335
===========================================================================
Portfolio turnover .................... 79.97% 74.53% 107.13% 198.09% 70.92%
===========================================================================
See Notes to Financial Statements.
28 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2006
Notes to Financial Statements Low Duration Master Portfolio
1. Significant Accounting Policies:
Low Duration Master Portfolio ("the "Portfolio") is a fund of Fund Asset
Management Master Trust (the "Trust"). The Trust is registered under the
Investment Company Act of 1940, as amended, and is organized as a Delaware
statutory trust. The Declaration of Trust permits the Trustees to issue
nontransferable interests in the Portfolio, subject to certain limitations. The
Portfolio's financial statements are prepared in conformity with U.S. generally
accepted accounting principles, which may require the use of management accruals
and estimates. Actual results may differ from these estimates. The following is
a summary of significant accounting policies followed by the Portfolio.
(a) Valuation of investments -- Debt securities are traded primarily in the
over-the-counter ("OTC") markets and are valued at the last available bid price
in the OTC market or on the basis of values obtained by a pricing service.
Pricing services use valuation matrixes that incorporate both dealer-supplied
valuations and valuation models. The procedures of the pricing service and its
valuations are reviewed by the officers of the Trust under the general direction
of the Board of Trustees. Such valuations and procedures will be reviewed
periodically by the Board of Trustees of the Trust. Financial futures contracts
and options thereon, which are traded on exchanges, are valued at their closing
prices as of the close of such exchanges. Options written or purchased are
valued at the last sale price in the case of exchange-traded options. In the
case of options traded in the OTC market, valuation is the last asked price
(options written) or the last bid price (options purchased). Swap agreements are
valued 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.
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
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2006 29
Notes to Financial Statements (continued) Low Duration Master Portfolio
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 OTC
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, it collects a fee from the borrower. The
Portfolio typically receives the income on the loaned securities but does not
receive the income on the collateral. Where the Portfolio receives cash
collateral, it may invest such collateral and retain the amount earned on such
investment, net of any amount rebated to the borrower. Loans of securities are
terminable at any time and the borrower, after notice, is required to return
borrowed securities within five business days. The Portfolio may pay reasonable
finder's, lending agent, administrative and custodial fees in connection with
its loans. In the event that the borrower defaults on its obligation to return
borrowed securities because of insolvency or for any other reason, the Portfolio
could experience delays and costs in gaining access to the collateral. The
Portfolio also could suffer a loss where the value of the collateral falls below
the market value of the borrowed securities, in the event of borrower default or
in the event of losses on investments made with cash collateral.
30 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2006
Notes to Financial Statements (continued) Low Duration Master Portfolio
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 Merrill Lynch Investment Managers, L.P. ("MLIM"), an affiliate of
FAM. For the year ended June 30, 2006, MLIM, LLC received $38,486 in securities
lending agent fees.
In addition, MLPF&S received $2,898 in commissions on the execution of portfolio
security transactions for the Portfolio for the year ended June 30, 2006.
For the year ended June 30, 2006, the Portfolio reimbursed FAM $15,736 for
certain accounting services.
Certain officers and/or trustees of the Trust are officers and/or directors of
FAM, PSI, ML & Co., MLIM, and/or MLIM, LLC.
In February 2006, ML & Co. and BlackRock, Inc. entered into an agreement to
contribute ML & Co.'s investment management business, including FAM, to the
investment management business of BlackRock, Inc. The transaction is expected to
close at the end of the third quarter of 2006.
3. Investments:
Purchases and sales (including paydowns and maturities) of investments,
excluding short-term securities, for the year ended June 30, 2006 were
$502,687,093 and $531,468,698, respectively.
Transactions in call options written for the year ended June 30, 2006 were as
follows:
- -------------------------------------------------------------------------------
Number of Premiums
Contracts* Received
- -------------------------------------------------------------------------------
Outstanding call options written, beginning of year .. -- --
Options written ...................................... 67 $ 67,000
Options closed ....................................... (67) (67,000)
----------------------
Outstanding call options written, end of year ........ -- $ --
======================
* One contract represents a notional amount of $1,000,000.
Transactions in put options written for the year ended June 30, 2006 were as
follows:
- -------------------------------------------------------------------------------
Number of Premiums
Contracts* Received
- -------------------------------------------------------------------------------
Outstanding put options written, beginning of year . -- --
Options written .................................... 67 $ 195,975
Options closed ..................................... (67) (195,975)
----------------------
Outstanding put options written, end of year ....... -- $ --
======================
* 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, which expires November 2006. The Portfolio may borrow under
the credit agreement to fund shareholder redemptions and for other lawful
purposes other than for leverage. The Portfolio may borrow up to the maximum
amount allowable under the Portfolio's current prospectus and statement of
additional information, subject to various other legal, regulatory or
contractual limits. The Portfolio pays a commitment fee of .07% per annum based
on the Portfolio's pro rata share of the unused portion of the credit agreement.
Amounts borrowed under the credit agreement bear interest at a rate equal to, at
each Portfolio's election, the federal funds rate plus .50% or a base rate as
defined in the credit agreement. The Portfolio did not borrow under the credit
agreement during the year ended June 30, 2006.
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2006 31
Notes to Financial Statements (concluded) Low Duration Master Portfolio
5. Change in Independent Registered Public Accounting Firm:
Effective August 28, 2006, Ernst & Young LLP ("E&Y") resigned as Independent
Registered Public Accounting Firm of the Fund.
E&Y's report on the financial statements of the Fund for the past five fiscal
years did not contain an adverse opinion or a disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope or accounting principles.
In connection with its audits for the two most recent fiscal years through June
30, 2006 (1) there were no disagreements with E&Y on any matter of accounting
principle or practices, financial statement disclosure or auditing scope or
procedure, whereby such disagreements, if not resolved to the satisfaction of
E&Y, would have caused them to make reference to the subject matter of the
disagreements in connection with their report on the financial statements for
such years; and (2) there have been no reportable events (as defined in Item
304(a)(1)(v) of Regulation S-K).
The Fund engaged Deloitte & Touche LLP as the Fund's Independent Registered
Public Accounting Firm for the fiscal year ending June 30, 2007.
Report of Independent Registered Public Accounting Firm
Low Duration Master Portfolio
To the Board of Trustees of Fund Asset Management Master Trust and Investor of
Low Duration Master Portfolio:
We have audited the accompanying statement of assets and liabilities of Low
Duration Master Portfolio, including the schedule of investments, as of June 30,
2006, the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended and the financial highlights for each of the periods indicated therein.
These financial statements and financial highlights are the responsibility of
the Portfolio's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. We were
not engaged to perform an audit of the Fund's internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purposes of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of June 30, 2006, by correspondence with the custodian and
brokers. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Low
Duration Master Portfolio at June 30, 2006, the results of its operations, the
changes in its net assets and the financial highlights for each of the indicated
periods in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
August 9, 2006
32 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2006
Disclosure of New Investment Advisory Agreement
New BlackRock Investment Advisory Agreement -- Matters Considered by Each Board
In connection with the Transaction between Merrill Lynch and BlackRock, the
Board of Trustees of Fund Asset Management Master Trust (the "Trust") considered
a new investment advisory agreement (the "New Investment Advisory Agreement")
between the Trust and BlackRock Advisors, Inc. or its successor ("BlackRock
Advisors"). Because Merrill Lynch Investment Managers Funds, Inc. (the "Fund")
is a feeder fund that invests all of its assets in the Trust, the Board of
Directors of the Fund also considered the New Investment Advisory Agreement.
When voting with respect to the New Investment Advisory Agreement, the Fund
votes its interest in the Trust proportionately to the voting instructions
received from Fund shareholders. If the New Investment Advisory Agreement is
approved by shareholders of the Fund and the Trust's other feeder fund, it will
become effective upon the closing of the Transaction, which is expected in the
third quarter of 2006.
Each Board discussed the New Investment Advisory Agreement at telephonic and
in-person meetings held during April and May 2006. Each Board, including the
independent directors/trustees, approved the New Investment Advisory Agreement
at a meeting held on May 9, 2006. The Fund's Board also approved the issuance of
new classes of shares and new distribution arrangements with respect to these
new share classes, including higher distribution fees for certain new share
classes, to take effect after the closing of the Transaction. The Fund's Board
also approved revised front-end sales charge schedules with respect to certain
classes of shares of the Fund.
To assist each Board in its consideration of the New Investment Advisory
Agreement, BlackRock provided materials and information about BlackRock,
including its financial condition and asset management capabilities and
organization, and Merrill Lynch provided materials and information about the
Transaction. The independent directors/trustees, through their independent legal
counsel, also requested and received additional information from Merrill Lynch
and BlackRock in connection with their consideration of the New Investment
Advisory Agreement. The additional information was provided in advance of the
May 9, 2006 meetings. In addition, the independent directors/trustees consulted
with their counsel and counsel for the Fund and Trust on numerous occasions,
discussing, among other things, the legal standards and certain other
considerations relevant to each Board's deliberations.
At each Board meeting, the directors/trustees discussed with Merrill Lynch
management and certain BlackRock representatives the Transaction, its strategic
rationale and BlackRock's general plans and intentions regarding the Fund and
the Trust. At these Board meetings, representatives of Merrill Lynch and
BlackRock made presentations to and responded to questions from each Board. Each
Board also inquired about the plans for and anticipated roles and
responsibilities of certain employees and officers of the Investment Adviser and
certain affiliates being transferred to BlackRock in connection with the
Transaction. The independent directors/trustees also conferred separately and
with their counsel about the Transaction and other matters related to the
Transaction on a number of occasions, including in connection with the April and
May 2006 meetings. After the presentations and after reviewing the written
materials provided, the independent directors/ trustees met in executive
sessions with their counsel to consider the New Investment Advisory Agreement.
In connection with each Board's review of the New Investment Advisory Agreement,
Merrill Lynch and/or BlackRock advised the Board about a variety of matters. The
advice included the following, among other matters:
o that there is not expected to be any diminution in the nature, quality and
extent of services provided to the Fund and the Trust and their
shareholders by BlackRock Advisors, including compliance services;
o that operation of New BlackRock as an independent investment management
firm will enhance its ability to attract and retain talented
professionals;
o that the Fund and Trust should benefit from having access to BlackRock's
state of the art technology and risk management analytic tools, including
investment tools, provided under the BlackRock Solutions(R) brand name;
o that BlackRock has no present intention to alter any applicable expense
waivers, expense caps or reimbursements currently in effect and, while it
reserves the right to do so in the future, it would seek the approval of
each Board before making any changes;
o that BlackRock and Merrill Lynch will enter into an agreement, for an
initial three-year period and automatically renewable from year to year
thereafter, in connection with the Transaction under which Merrill
Lynch-affiliated broker-dealers will continue to offer the Fund as an
investment product;
o that BlackRock Advisors will have substantially the same access to the
Merrill Lynch sales force when distributing
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2006 33
Disclosure of New Investment Advisory Agreement (continued)
shares of the Fund as is currently provided to the Investment Adviser and
that other arrangements between the Investment Adviser and Merrill Lynch
sales channels will be preserved;
o that the Fund will have access to BlackRock's network of third party
brokers, retirement plan platforms and registered investment advisers;
o that in connection with the Transaction, Merrill Lynch and BlackRock have
agreed to conduct, and use reasonable best efforts to cause their
respective affiliates to conduct, their respective businesses in
compliance with the conditions of Section 15(f) of the Investment Company
Act of 1940 (the "1940 Act") in relation to any public funds advised by
BlackRock or the Investment Adviser (or its affiliates), respectively; and
o that Merrill Lynch and BlackRock would derive benefits from the
Transaction and that, as a result, they have a different financial
interest in the matters that were being considered than do Fund or Trust
shareholders.
Each Board considered the information provided by Merrill Lynch and BlackRock
above, and, among other factors, the following:
o the potential benefits to Fund and Trust shareholders from being part of a
combined fund family with BlackRock-sponsored funds, including possible
economies of scale and access to investment opportunities;
o the potential for expanding distribution of Fund shares through improved
access to third party distribution;
o the reputation, financial strength and resources of BlackRock and its
investment advisory subsidiaries and the anticipated financial strength
and resources of New BlackRock;
o the compliance policies and procedures of BlackRock Advisors;
o the terms and conditions of the New Investment Advisory Agreement,
including the fact that the schedule of the Fund's/Trust's total advisory
and administrative fees will not increase by virtue of the New Investment
Advisory Agreement, but will remain the same;
o that in November 2005, each Board performed a full annual review of the
investment advisory agreement currently in effect for the Fund/Trust (the
"Current Investment Advisory Agreement") as required by the 1940 Act and
has determined that the Investment Adviser has the capabilities, resources
and personnel necessary to provide the advisory and administrative
services currently provided to the Fund/Trust; and that the advisory
and/or management fees paid by the Trust, taking into account any
applicable agreed-upon fee waivers and breakpoints, represent reasonable
compensation to the Investment Adviser in light of the services provided,
the costs to the Investment Adviser of providing those services, economies
of scale, the fees and other expenses paid by similar funds (including
information provided by Lipper Inc. ["Lipper"]), and such other matters as
the directors/trustees have considered relevant in the exercise of their
reasonable judgment; and
o that Merrill Lynch agreed to pay all expenses of the Fund and Trust in
connection with each Board's consideration of the New Investment Advisory
Agreement and related agreements and all costs of shareholder approval of
the New Investment Advisory Agreement and as a result neither the Fund nor
Trust would bear costs in obtaining shareholder approval of the New
Investment Advisory Agreement.
Certain of these considerations are discussed in more detail below.
In its review of the New Investment Advisory Agreement, each Board assessed the
nature, scope and quality of the services to be provided to the Fund and the
Trust by the personnel of BlackRock Advisors and its affiliates, including
administrative services, shareholder services, oversight of fund accounting,
marketing services and assistance in meeting legal and regulatory requirements.
In its review of the New Investment Advisory Agreement, each Board also
considered a range of information in connection with its oversight of the
services to be provided by BlackRock Advisors and its affiliates. Among the
matters considered were: (a) fees (in addition to management fees) to be paid to
BlackRock Advisors and its affiliates by the Fund and Trust; (b) Fund and Trust
operating expenses paid to third parties; (c) the resources devoted to and
compliance reports relating to the Fund's and Trust's investment objectives,
policies and restrictions, and their compliance with their Code of Ethics and
BlackRock Advisors' compliance policies and procedures; and (d) the nature, cost
and character of non-investment management services to be provided by BlackRock
Advisors and its affiliates.
34 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2006
In the period prior to the Board meetings to consider renewal of the Current
Investment Advisory Agreement, each Board had requested and received materials
specifically relating to the Current Investment Advisory Agreement. These
materials included (a) information compiled by 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) a discussion by the Trust's portfolio
management team on investment strategies used by the Trust during its most
recent fiscal year; (c) information on the profitability to the Investment
Adviser of the Current Investment Advisory Agreement and other payments received
by the Investment Adviser and its affiliates from the Fund and the Trust; and
(d) information provided by the Investment Adviser concerning services related
to the valuation and pricing of Trust portfolio holdings, the Trust's portfolio
turnover statistics, and direct and indirect benefits to the Investment Adviser
and its affiliates from their relationship with the Fund and the Trust.
In its deliberations, each Board considered information received in connection
with its most recent continuation of the Current Investment Advisory Agreement,
in addition to information provided by BlackRock and BlackRock Advisors in
connection with its evaluation of the terms and conditions of the New Investment
Advisory Agreement. The directors/trustees did not identify any particular
information that was all-important or controlling. Each Board, including a
majority of the Board's independent directors/trustees, concluded that the terms
of the New Investment Advisory Agreement are appropriate, that the fees to be
paid are reasonable in light of the services to be provided to the Fund/Trust,
and that the New Investment Advisory Agreement should be approved and
recommended to Fund/Trust shareholders.
Nature, Quality and Extent of Services Provided -- 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 and Trust, as well as the nature, quality and extent of services expected
to be provided by BlackRock Advisors. Each Board focused primarily on the
Investment Adviser's investment advisory services and the investment performance
of the Fund and Trust, but also considered certain areas in which both the
Investment Adviser and the Fund/Trust receive services as part of the Merrill
Lynch complex. Each Board compared the performance of the Fund -- both including
and excluding the effects of fees and expenses -- 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.
In evaluating the nature, quality and extent of the services to be provided by
BlackRock Advisors under the New Investment Advisory Agreement, each Board
considered, among other things, the expected impact of the Transaction on the
operations, facilities, organization and personnel of New BlackRock and how it
would affect the Fund and the Trust; the ability of BlackRock Advisors to
perform its duties after the Transaction; and any anticipated changes to the
current investment and other practices of the Fund or Trust.
Each Board was given information with respect to the potential benefits to the
Fund and Trust and their shareholders from having access to BlackRock's state of
the art technology and risk management analytic tools, including the investment
tools provided under the BlackRock Solutions brand name.
Each Board was advised that, as a result of Merrill Lynch's equity interest in
BlackRock after the Transaction, the Fund and Trust will continue to be subject
to restrictions concerning certain transactions involving Merrill Lynch
affiliates (for example, transactions with a Merrill Lynch broker-dealer acting
as principal) absent revised or new regulatory relief. Each Board was advised
that a revision of existing regulatory relief with respect to these restrictions
was being sought from the Securities and Exchange Commission and were advised of
the possibility of receipt of such revised regulatory relief. There can be no
assurance that such relief will be obtained.
Based on their review of the materials provided and the assurances they had
received from the management of Merrill Lynch and of BlackRock, the
directors/trustees determined that the nature and quality of services to be
provided to the Fund/Trust under the New Investment Advisory Agreement were
expected to be as good or better than that provided under the Current Investment
Advisory Agreement. It was noted, however, that it is expected that there will
be changes in personnel following the Transaction and the combination of the
operations of the Investment Adviser and its affiliates with those of BlackRock.
Each Board noted that if current portfolio managers or other personnel cease to
be available, the Board would consider all available options, which could
include seeking the investment advisory or other services of BlackRock
affiliates. Accordingly, each Board concluded that, overall, the Board was
satisfied at the present time with assurances from BlackRock and BlackRock
Advisors as to the expected nature, extent and quality of the services to be
provided to the Fund/Trust under the New Investment Advisory Agreement.
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2006 35
Disclosure of New Investment Advisory Agreement (concluded)
Costs of Services Provided and Profitability -- It was noted that, in
conjunction with the recent review of the Current Investment Advisory Agreement,
each Board had received, among other things, a report from Lipper comparing the
Fund's fees, expenses and performance to those of a peer group selected by
Lipper, and information as to the fees charged by the Investment Adviser or its
affiliates to other registered investment company clients for investment
management services. Each Board reviewed the Fund's/Trust'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 the Fund's Lipper category. They also compared the Fund's
total expenses to those of other comparable funds. The information showed that
the Fund had fees and expenses within the range of fees and expenses of
comparable funds. Each Board considered the services to be provided by and the
fees to be charged by BlackRock Advisors to other funds with similar investment
mandates and noted that the fees charged by BlackRock Advisors in those cases,
including fee waivers and expense reimbursements, were generally comparable to
those being charged to the Fund/Trust. Each Board also noted that, as a general
matter, according to the information provided by BlackRock, fees charged to
institutional clients were lower than the fees charged to the Fund, but
BlackRock Advisors provided less extensive services to such clients. Each Board
concluded that the Fund's/Trust's management fee and fee rate and overall
expense ratio are reasonable compared to those of other comparable funds.
In evaluating the costs of the services to be provided by BlackRock Advisors
under the New Investment Advisory Agreement, each Board considered, among other
things, whether advisory and administrative fees or other expenses would change
as a result of the Transaction.
Based on its review of the materials provided and the fact that each New
Investment Advisory Agreement, as well as a new administrative agreement between
the Fund and BlackRock Advisors as administrator, is substantially similar to
its corresponding current agreement in all material respects, including the rate
of compensation, each Board determined that the Transaction should not increase
the total fees payable, including any fee waivers and expense reimbursements,
for advisory and administrative services. Each Board noted that it was not
possible to predict how the Transaction would affect BlackRock Advisors'
profitability from its relationship with the Fund and Trust.
Each Board discussed with BlackRock Advisors its general methodology to be used
in determining its profitability with respect to its relationship with the Fund
and Trust and noted that the Board expects to receive profitability information
from BlackRock Advisors on at least an annual basis.
Fees and Economies of Scale -- Each Board considered the extent to which
economies of scale might be realized as the assets of the Fund and Trust
increase and whether there should be changes in the management fee rate or
structure in order to enable the Fund and Trust to participate in these
economies of scale. Each Board determined that changes were not currently
necessary and that the Fund and Trust appropriately participated in these
economies of scale.
In reviewing the Transaction, each Board considered, among other things, whether
advisory and administrative fees or other expenses would change as a result of
the Transaction. Based on the fact that the New Investment Advisory Agreement
and administrative agreement are substantially similar to the Current Investment
Advisory Agreement and administrative agreement in all material respects,
including the rate of compensation, each Board determined that as a result of
the Transaction, the Fund's/Trust's total advisory and administrative fees would
be no higher than the fees under the Current Investment Advisory Agreement. Each
Board concluded that, because the rates for advisory and administrative fees for
the Fund/Trust would be no higher than current fee rates, the proposed
management fee structure, including any fee waivers, was reasonable and that no
additional changes were currently necessary.
Fall-Out Benefits -- The directors considered whether the Fund would generate
any fall-out benefits to BlackRock Advisors. Fall-out benefits are indirect
profits from other activities that accrue to the adviser or its affiliates
solely because of the existence of the Fund. In evaluating the fall-out benefits
to be received by BlackRock Advisors under the New Investment Advisory
Agreement, each Board considered whether the Transaction would have an impact on
the fall-out benefits received by the Investment Adviser by virtue of the
Current Investment Advisory Agreement. Based on their review of the materials
provided, including materials received in connection with their most recent
approval or continuance of the Current Investment Advisory Agreement, and their
discussions with management of the Investment Adviser and BlackRock, the
directors/trustees determined that those benefits could include increased
ability for BlackRock to distribute shares of its funds and other investment
products. Each Board noted that any such benefits were difficult to quantify
36 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2006
with certainty at this time, and indicated that the Board would continue to
evaluate them going forward.
Investment Performance -- Each Board considered investment performance for the
Fund and Trust. Each Board compared the performance of the Fund and Trust --
both including and excluding the effects of fees and expenses -- to the
performance of a comparable group of mutual funds, and the performance of a
relevant index or combination of indexes. The comparative information received
from Lipper showed Fund performance at various levels within the range of
performance of comparable funds over different time periods. Each Board believed
the Fund's performance was satisfactory. Also, each Board took into account the
investment performance of funds currently advised by BlackRock Advisors. Each
Board considered comparative information from Lipper which showed that the
performance of the funds advised by BlackRock Advisors was within the range of
performance of comparable funds over different time periods. Each Board noted
BlackRock's considerable investment management experience and capabilities, but
was unable to predict what effect, if any, consummation of the Transaction would
have on the future performance of the Fund.
Conclusion -- After the independent directors of the Fund and independent
trustees of the Trust deliberated in executive session, each entire Board,
including the independent directors/trustees, approved the New Investment
Advisory Agreement, concluding that the advisory fee rate was reasonable in
relation to the services provided and that the New Investment Advisory Agreement
was in the best interests of the shareholders. In approving the New Investment
Advisory Agreement, each Board noted that it anticipated reviewing the
continuance of the agreement in advance of the expiration of the initial
two-year period.
Contingent BlackRock Subadvisory Agreement -- Matters Considered by Each Board
At the telephonic and in-person meetings held during April and May 2006 at which
each Board discussed and approved the New Investment Advisory Agreement, the
Board, including the independent directors/trustees, also discussed and approved
a contingent subadvisory agreement (the "Contingent Subadvisory Agreement")
between the Investment Adviser and BlackRock Advisors (the "BlackRock
Subadviser"). The Contingent Subadvisory Agreement is intended to ensure that
the Trust operates with efficient portfolio management services until the
closing of the Transaction, in the event that each Board deems it necessary and
in the best interests of the Fund and Trust and their shareholders that the
BlackRock Subadviser assist in managing the operations of the Trust during the
interim period until the closing of the Transaction. If shareholders approve the
Contingent Subadvisory Agreement, it will take effect only upon recommendation
from the Investment Adviser and upon subsequent approval of each Board in the
period up to the closing of the Transaction. The effectiveness of the Contingent
Subadvisory Agreement, therefore, would be contingent on further Board approval
after shareholders approve it. Pursuant to the Contingent Subadvisory Agreement,
the BlackRock Subadviser would receive a monthly fee from the Investment Adviser
equal to 50% of the advisory fee received by the Investment Adviser. The
Investment Adviser would pay the BlackRock Subadviser out of its own resources.
There would be no increase in Fund expenses as a result of the Contingent
Subadvisory Agreement.
In making its approval at the May in-person meeting, each Board considered the
Contingent Subadvisory Agreement in conjunction with the New Investment Advisory
Agreement and reviewed the same information and factors discussed above, and
came to the same conclusions. Each Board also considered in conjunction with the
Contingent Subadvisory Agreement the necessity of ensuring that the Trust
operates with effective management services until the closing of the
Transaction. In reviewing the subadvisory fee rate provided in the Contingent
Subadvisory Agreement, each Board took note of the fact that both the Investment
Adviser and the BlackRock Subadviser would have significant responsibilities
under their respective advisory agreements. The Investment Adviser would remain
responsible for oversight of the operations and administration of the Fund and
Trust, and the BlackRock Subadviser would provide advisory services to the Trust
under the Contingent Subadvisory Agreement. Each Board also took into account
the expected short duration of the term of any Contingent Subadvisory Agreement
and the fact that total advisory fees paid by the Fund and Trust would not
increase as a result of the Contingent Subadvisory Agreement. Under all of the
circumstances, each Board concluded that it was a reasonable allocation of fees
for the BlackRock Subadviser to receive 50% of the advisory fee paid by the
Trust to the Investment Adviser.
After the independent directors/trustees deliberated in executive session, each
entire Board, including the independent directors/trustees, approved the
Contingent Subadvisory Agreement, concluding that the advisory fee was
reasonable in relation to the services provided and that the Contingent
Subadvisory Agreement was in the best interests of shareholders.
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2006 37
Officers and Directors/Trustees
Number of
Portfolios in Other Public
Fund Complex Directorships
Position(s) Length of Overseen Held by
Held with Time by Director/ Director/
Name Address & Age Fund/Trust Served Principal Occupation(s) During Past 5 Years Trustee Trustee
====================================================================================================================================
Interested Director/Trustees
- ------------------------------------------------------------------------------------------------------------------------------------
Robert C. P.O. Box 9011 President 2005 to President of the MLIM/FAM-advised funds since 2005; 131 Funds None
Doll, Jr.* Princeton, NJ and present President and Chief Investment Officer of MLIM and 178 Portfolios
08543-9011 Director/ FAM since 2001; Co-Head (Americas Region) thereof
Age: 51 Trustee from 2000 to 2001 and Senior Vice President from
1999 to 2001; President and Director of Princeton
Services, Inc. ("Princeton Services") since 2001;
President of Princeton Administrators, L.P.
("Princeton Administrators") since 2001; Chief
Investment Officer of OppenheimerFunds, Inc. in 1999
and Executive Vice President thereof from 1991 to
1999.
------------------------------------------------------------------------------------------------------------------------
* Mr. Doll is a director, trustee or member of an advisory board of certain other investment companies for which
MLIM or FAM acts as investment adviser. Mr. Doll is an "interested person," as defined in the Investment Company
Act, of the Fund based on his positions with MLIM, FAM, Princeton Services and Princeton Administrators.
Directors/Trustees serve until their resignation, removal or death, or until December 31 of the year in which they
turn 72. As Fund President, Mr. Doll serves at the pleasure of the Board of Directors/Trustees.
38 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2006
Officers and Directors/Trustees (continued)
Number of
Portfolios in Other Public
Fund Complex Directorships
Position(s) Length of Overseen Held by
Held with Time by Director/ Director/
Name Address & Age Fund/Trust Served Principal Occupation(s) During Past 5 Years Trustee Trustee
====================================================================================================================================
Independent Directors/Trustees*
- ------------------------------------------------------------------------------------------------------------------------------------
James H. P.O. Box 9095 Director/ 2002 to Director, The China Business Group, Inc. since 1996 39 Funds None
Bodurtha** Princeton, NJ Trustee present and Executive Vice President thereof from 1996 to 59 Portfolios
08543-9095 2003; Chairman of the Board, Berkshire Holding
Age: 62 Corporation since 1980; Partner, Squire, Sanders &
Dempsey from 1980 to 1993.
- ------------------------------------------------------------------------------------------------------------------------------------
Kenneth A. P.O. Box 9095 Director/ 2005 to Professor, Harvard University since 1992; Professor, 39 Funds None
Froot Princeton, NJ Trustee present Massachusetts Institute of Technology from 59 Portfolios
08543-9095 1986 to 1992.
Age: 48
- ------------------------------------------------------------------------------------------------------------------------------------
Joe P.O. Box 9095 Director/ 2000 to Member of the Committee of Investment of Employee 39 Funds Kimco
Grills** Princeton, NJ Trustee present Benefit Assets of the Association of Financial 59 Portfolios Realty
08543-9095 Professionals ("CIEBA") since 1986; Corporation
Age: 71 Member of CIEBA's Executive Committee since
1988 and its Chairman from 1991 to 1992;
Assistant Treasurer of International Business
Machines Corporation ("IBM") and Chief
Investment Officer of IBM Retirement Funds
from 1986 to 1993; Member of the Investment
Advisory Committee of the State of New York
Common Retirement Fund since 1989; Member
of the Investment Advisory Committee of the
Howard Hughes Medical Institute from 1997 to
2000; Director, Duke University Management
Company from 1992 to 2004, Vice Chairman
thereof from 1998 to 2004, and Director Emeritus
thereof since 2004; Director, LaSalle Street Fund
from 1995 to 2001; Director, Kimco Realty
Corporation since 1997; Member of the
Investment Advisory Committee of the Virginia
Retirement System since 1998, Vice Chairman
thereof from 2002 to 2005, and Chairman thereof
since 2005; Director, Montpelier Foundation since
1998 and its Vice Chairman since 2000; Member
of the Investment Committee of the Woodberry Forest
School since 2000; Member of the Investment Committee
of the National Trust for Historic Preservation
since 2000.
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2006 39
Officers and Directors/Trustees (continued)
Number of
Portfolios in Other Public
Fund Complex Directorships
Position(s) Length of Overseen Held by
Held with Time by Director/ Director/
Name Address & Age Fund/Trust Served Principal Occupation(s) During Past 5 Years Trustee Trustee
====================================================================================================================================
Independent Directors/Trustees* (concluded)
- ------------------------------------------------------------------------------------------------------------------------------------
Herbert I. P.O. Box 9095 Director/ 2002 to Chairman of the Board of Directors of Vigilant 39 Funds None
London Princeton, NJ Trustee present Research, Inc. since 2006; Director of Reflex 59 Portfolios
08543-9095 Security since 2006; Director of Cerego, LLC since
Age: 67 2006; Director of InnoCentive, Inc. since 2006;
Professor Emeritus, New York University since 2005;
John M. Olin Professor of Humanities,
New York University from 1993 to 2005; and Professor
thereof from 1980 to 2005; President, Hudson
Institute since 1997 and Trustee thereof since 1980;
Dean, Gallatin Division of New York University from
1976 to 1993; Distinguished Fellow, Herman Kahn
Chair, Hudson Institute from 1984 to 1985; Director,
Damon Corp.1991 to 1995; Overseer, Center for Naval
Analyses from 1983 to 1993.
- ------------------------------------------------------------------------------------------------------------------------------------
Roberta P.O. Box 9095 Director/ 2002 to Shareholder, Modrall, Sperling, Roehl, Harris & 39 Funds None
Cooper Princeton, NJ Trustee present Sisk, P.A. since 1993; President, American Bar 59 Portfolios
Ramo 08543-9095 Association from 1995 to 1996 and Member of
Age: 63 the Board of Governors thereof from 1994 to
1997; Shareholder, Poole, Kelly & Ramo, Attorneys
at Law, P.C. from 1977 to 1993; Director of ECMC
Group (service provider to students, schools and
lenders) since 2001; Director, United New Mexico
Bank (now Wells Fargo) from 1983 to 1988;
Director, First National Bank of New Mexico
(now Wells Fargo) from 1975 to 1976; Vice
President, American Law Institute since 2004.
- ------------------------------------------------------------------------------------------------------------------------------------
Robert S. P.O. Box 9095 Director/ 2002 to Principal of STI Management (investment adviser) 39 Funds None
Salomon, Princeton, NJ Trustee present from 1994 to 2005; Chairman and CEO of Salomon 59 Portfolios
Jr. 08543-9095 Brothers Asset Management Inc. from 1992 to
Age: 69 1995; Chairman of Salomon Brothers Equity Mutual
Funds from 1992 to 1995; regular columnist with
Forbes Magazine from 1992 to 2002; Director of
Stock Research and U.S. Equity Strategist at Salomon
Brothers Inc. from 1975 to 1991; Trustee, Commonfund
from 1980 to 2001.
------------------------------------------------------------------------------------------------------------------------
* Directors/Trustees serve until their resignation, removal or death, or until December 31 of the year in which they
turn 72.
** Co-Chairman of the Board of Directors/Trustees and the Audit Committee.
40 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2006
Officers and Directors/Trustees (concluded)
Position(s) Length of
Held with Time
Name Address & Age Fund/Trust Served Principal Occupation(s) During Past 5 Years
====================================================================================================================================
Fund Officers*
- ------------------------------------------------------------------------------------------------------------------------------------
Donald C. P.O. Box 9011 Vice 2002 to Managing Director of MLIM and FAM since 2006 and Treasurer thereof since 1999;
Burke Princeton, NJ President present First Vice President of MLIM and FAM from 1997 to 2005; Senior Vice President and
08543-9011 and Treasurer of Princeton Services since 1999 and Director since 2004; Vice President
Age: 46 Treasurer of FAM Distributors, Inc. ("FAMD") since 1999 and Director since 2004; Vice
President of MLIM and FAM from 1990 to 1997; Director of Taxation of MLIM from
1990 to 2001; Vice President, Treasurer and Secretary of the IQ Funds since 2004.
- ------------------------------------------------------------------------------------------------------------------------------------
John D. P.O. Box 9011 Vice 2005 to Managing Director (Global Fixed Income) of MLIM since 2004; Director of MLIM from
Burger Princeton, NJ President present 1998 to 2004; Vice President of MLIM from 1993 to 1998.
08543-9011
Age: 44
- ------------------------------------------------------------------------------------------------------------------------------------
Patrick P.O. Box 9011 Vice 2002 to Managing Director (Global Fixed Income) of MLIM since 2000; Director of MLIM from
Maldari Princeton, NJ President present 1997 to 2000.
08543-9011
Age: 44
- ------------------------------------------------------------------------------------------------------------------------------------
James P.O. Box 9011 Vice 2002 to Director (Global Fixed Income) of MLIM since 2004; Vice President of MLIM from 1997
Pagano Princeton, NJ President present to 2004.
08543-9011
Age: 43
- ------------------------------------------------------------------------------------------------------------------------------------
Frank P.O. Box 9011 Vice 2005 to Managing Director (Global Fixed Income) of MLIM since 2002; Head of the Global
Viola Princeton, NJ President present Fixed Income Structured Asset Team since 2002; Director of MLIM from 2000 to 2001
08543-9011 and Vice President from 1997 to 2000.
Age: 41
- ------------------------------------------------------------------------------------------------------------------------------------
Jeffrey P.O. Box 9011 Chief 2004 to Chief Compliance Officer of the MLIM/FAM-advised funds and First Vice President and
Hiller Princeton, NJ Compliance present Chief Compliance Officer of MLIM (Americas Region) since 2004; Chief Compliance
08543-9011 Officer Officer of the IQ Funds since 2004; Global Director of Compliance at Morgan Stanley
Age: 54 Investment Management from 2002 to 2004; Managing Director and Global Director of
Compliance at Citigroup Asset Management from 2000 to 2002; Chief Compliance
Officer at Soros Fund Management in 2000; Chief Compliance Officer at Prudential
Financial from 1995 to 2000; Senior Counsel in the Securities and Exchange
Commission's Division of Enforcement in Washington, D.C. from 1990 to 1995.
- ------------------------------------------------------------------------------------------------------------------------------------
Alice A. P.O. Box 9011 Secretary 2004 to Director (Legal Advisory) of MLIM since 2002; Vice President of MLIM from 1999 to
Pellegrino Princeton, NJ present 2002; Attorney associated with MLIM since 1997; Secretary of MLIM, FAM, FAMD and
08543-9011 Princeton Services since 2004.
Age: 46
------------------------------------------------------------------------------------------------------------------------
* Officers of the Fund serve at the pleasure of the Board of Directors/Trustees.
- ------------------------------------------------------------------------------------------------------------------------------------
Further information about the Fund's Officers and Directors/Trustees is available in the Fund's Statement of Additional
Information, which can be obtained without charge by calling 1-800-637-3863.
- ------------------------------------------------------------------------------------------------------------------------------------
Custodian
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109-3661
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-06484
800-637-3863
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2006 41
Availability of Quarterly Schedule of Investments
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The Fund's Forms N-Q are available on the SEC's Web site at
http://www.sec.gov. The Fund's Forms N-Q may also be reviewed and copied at the
SEC's Public Reference Room in Washington, DC. Information on the operation of
the Public Reference Room may be obtained by calling 1-800-SEC-0330.
42 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2006
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 JUNE 30, 2006 43
[LOGO] Merrill Lynch Investment Managers
www.mlim.ml.com
- --------------------------------------------------------------------------------
Mercury Advisors
A Division of Merrill Lynch Investment Managers
www.mercury.ml.com
This report is not authorized for use as an offer of sale or a solicitation of
an offer to buy shares of the Fund unless accompanied or preceded by the Fund's
current prospectus. Past performance results shown in this report should not be
considered a representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost. Statements and other information
herein are as dated and are subject to change.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available (1) without
charge, upon request, by calling toll-free 1-800-637-3863; (2) at
www.mutualfunds.ml.com; and (3) on the Securities and Exchange Commission's Web
site at http://www.sec.gov. Information about how the Fund voted proxies
relating to securities held in the Fund's portfolio during the most recent
12-month period ended June 30 is available (1) at www.mutualfunds.ml.com and (2)
on the Securities and Exchange Commission's Web site at http://www.sec.gov.
Merrill Lynch Low Duration Fund of
Merrill Lynch Investment Managers Funds, Inc.
Box 9011
Princeton, NJ 08543-9011
#ML -- 3070 -- 6/06
Item 2 - Code of Ethics - The registrant has adopted a code of ethics, as of the
end of the period covered by this report, that applies to the
registrant's principal executive officer, principal financial officer
and principal accounting officer, or persons performing similar
functions. A copy of the code of ethics is available without charge
upon request by calling toll-free 1-800-MER-FUND (1-800-637-3863).
Item 3 - Audit Committee Financial Expert - The registrant's board of directors
has determined that (i) the registrant has the following audit
committee financial experts serving on its audit committee and (ii)
each audit committee financial expert is independent: (1) Joe Grills,
(2) Robert S. Salomon, Jr., and (3) Stephen B. Swensrud (retired as of
December 31, 2005).
Item 4 - Principal Accountant Fees and Services
Merrill Lynch Low Duration Fund of Merrill Lynch Investment Managers
Funds, Inc.
(a) Audit Fees - Fiscal Year Ending June 30, 2006 - $0
Fiscal Year Ending June 30, 2005 - $0
(b) Audit-Related Fees - Fiscal Year Ending June 30, 2006 - $0
Fiscal Year Ending June 30, 2005 - $0
(c) Tax Fees - Fiscal Year Ending June 30, 2006 - $0
Fiscal Year Ending June 30, 2005 - $0
The nature of the services include tax compliance, tax advice and tax
planning.
(d) All Other Fees - Fiscal Year Ending June 30, 2006 - $0
Fiscal Year Ending June 30, 2005 - $0
Low Duration Master Portfolio of Fund Asset Management Master Trust
(a) Audit Fees - Fiscal Year Ending June 30, 2006 - $41,000
Fiscal Year Ending June 30, 2005 - $38,000
(b) Audit-Related Fees - Fiscal Year Ending June 30, 2006 - $0
Fiscal Year Ending June 30, 2005 - $0
(c) Tax Fees - Fiscal Year Ending June 30, 2006 - $6,000
Fiscal Year Ending June 30, 2005 - $5,700
The nature of the services include tax compliance, tax advice and tax
planning.
(d) All Other Fees - Fiscal Year Ending June 30, 2006 - $0
Fiscal Year Ending June 30, 2005 - $0
(e)(1) The registrant's audit committee (the "Committee") has adopted
policies and procedures with regard to the pre-approval of services.
Audit, audit-related and tax compliance services provided to the
registrant on an annual basis require specific pre-approval by the
Committee. The Committee also must approve other non-audit services
provided to the registrant and those non-audit services provided to the
registrant's affiliated service providers that relate directly to the
operations and the financial reporting of the registrant. Certain of
these non-audit services that the Committee believes are a) consistent
with the SEC's auditor independence rules and b) routine and recurring
services that will not impair the independence of the independent
accountants may be approved by the Committee without consideration on a
specific case-by-case basis ("general pre-approval"). However, such
services will only be deemed pre-approved provided that any individual
project does not exceed $5,000 attributable to the registrant or
$50,000 for all of the registrants the Committee oversees. Any proposed
services exceeding the pre-approved cost levels will require specific
pre-approval by the Committee, as will any other services not subject
to general pre-approval (e.g., unanticipated but permissible services).
The Committee is informed of each service approved subject to general
pre-approval at the next regularly scheduled in-person board meeting.
(e)(2) 0%
(f) Not Applicable
(g) Fiscal Year Ending June 30, 2006 - $6,000
Fiscal Year Ending June 30, 2005 - $5,700
(h) The registrant's audit committee has considered and determined that
the provision of non-audit services that were rendered to the
registrant's investment adviser and any entity controlling, controlled
by, or under common control with the investment adviser that provides
ongoing services to the registrant that were not pre-approved pursuant
to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible
with maintaining the principal accountant's independence.
Regulation S-X Rule 2-01(c)(7)(ii) - $0, 0%
Item 5 - Audit Committee of Listed Registrants - Not Applicable
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable
Item 8 - Portfolio Managers of Closed-End Management Investment Companies - Not
Applicable
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 10 - Submission of Matters to a Vote of Security Holders - Not Applicable
Item 11 - Controls and Procedures
11(a) - The registrant's certifying officers have reasonably designed such
disclosure controls and procedures to ensure material information
relating to the registrant is made known to us by others particularly
during the period in which this report is being prepared. The
registrant's certifying officers have determined that the registrant's
disclosure controls and procedures are effective based on our evaluation
of these controls and procedures as of a date within 90 days prior to
the filing date of this report.
11(b) - There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR
270.30a-3(d)) that occurred during the second fiscal half-year of the
period covered by this report that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting.
Item 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - See Item 2
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(b) - Certifications - Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Merrill Lynch Low Duration Fund of Merrill Lynch Investment Managers Funds, Inc.
and Low Duration Master Portfolio of Fund Asset Management Master Trust
By: /s/ Robert C. Doll, Jr.
--------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
Merrill Lynch Low Duration Fund of Merrill Lynch Investment Managers
Funds, Inc. and Low Duration Master Portfolio of Fund Asset Management
Master Trust
Date: August 23, 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: August 23, 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: August 23, 2006