-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ocx+Vcz4yHl20daOrWY/KvI81MrbfDLUNNGV+Zw4ol8J07jDhp9WNO7VnImddPmU BYndaNMLRYa5UjcTPrRVdg== 0000900092-03-000033.txt : 20030312 0000900092-03-000033.hdr.sgml : 20030312 20030312144105 ACCESSION NUMBER: 0000900092-03-000033 CONFORMED SUBMISSION TYPE: N-CSR/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030312 EFFECTIVENESS DATE: 20030312 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MERRILL LYNCH INVESTMENT MANAGERS FUNDS INC CENTRAL INDEX KEY: 0001119261 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-CSR/A SEC ACT: 1940 Act SEC FILE NUMBER: 811-10053 FILM NUMBER: 03600732 BUSINESS ADDRESS: STREET 1: 800 SCUDDERS ROAD STREET 2: SUITE 4000 CITY: PLAINSBORO STATE: NJ ZIP: 08536 BUSINESS PHONE: 6092820785 MAIL ADDRESS: STREET 1: 800 SCUDDERS ROAD STREET 2: SUITE 4000 CITY: PLAINSBORO STATE: NJ ZIP: 08536 N-CSR/A 1 ml6970.txt ML TOTAL RETURN 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 Merrill Lynch Total Return Bond Fund Address: P.O. Box 9011 Princeton, NJ 08543-9011 Name and address of agent for service: Terry K. Glenn, President, Merrill Lynch Total Return Bond Fund, 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: 06/30/03 Date of reporting period: 07/01/02 - 12/31/02 Item 1 - Is shareholder report attached? - Y (BULL LOGO) Merrill Lynch Investment Managers Semi-Annual Report December 31, 2002 Merrill Lynch Total Return Bond Fund www.mlim.ml.com This report is not authorized for use as an offer of sale or a solicitation of an offer to buy shares of the Fund unless accompanied or preceded by the Fund's current prospectus. Past performance results shown in this report should not be considered a representation of future performance. Investment return and principal value of shares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Statements and other information herein are as dated and are subject to change. Merrill Lynch Total Return Bond Fund of Merrill Lynch Investment Managers Funds, Inc. Box 9011 Princeton, NJ 08543-9011 Printed on post-consumer recycled paper MERRILL LYNCH TOTAL RETURN BOND FUND Officers and Directors/Trustees Terry K. Glenn, President and Director/Trustee James H. Bodurtha, Director/Trustee Joe Grills, Director/Trustee Herbert I. London, Director/Trustee Andre F. Perold, Director/Trustee Roberta Cooper Ramo, Director/Trustee Robert S. Salomon, Jr., Director/Trustee Melvin R. Seiden, Director/Trustee Stephen B. Swensrud, Director/Trustee Patrick Maldari, Vice President James J. Pagano, Vice President Donald C. Burke, Vice President and Treasurer Phillip S. Gillespie, Secretary Effective January 1, 2003, Melvin R. Seiden, Director/Trustee of Merrill Lynch Total Return Bond Fund, retired. The Fund's Board of Directors/Trustees wishes Mr. Seiden well in his retirement. Custodian Brown Brothers Harriman & Co. 40 Water Street Boston, MA 02109-3661 Transfer Agent Financial Data Services, Inc. 4800 Deer Lake Drive East Jacksonville, FL 32246-6484 800-637-3863 Merrill Lynch Total Return Bond Fund, December 31, 2002 DEAR SHAREHOLDER Economic Environment The U.S. economy grew throughout 2002, although the pace of the growth had been quite uneven from quarter to quarter. For the year as a whole, the economy quite likely grew at an annual pace of approximately 3.0%--modest for sure, but hardly the source for "double-dip" recessionary concerns that dominated the headlines from time to time. Inflation remained virtually non-existent, with the core personal consumption expenditure deflator, the inflation gauge watched by the Federal Reserve Board, rising by only 1.8%. In past economic recoveries, businesses have contributed significantly to growth. However, the continuing corporate profit drought in the face of significant excess capacity left businesses holding back on capital spending and achieving productivity gains through paring down payrolls. The consumer sector, on the other hand, held up remarkably well, despite the weak employment outlook, declining equity markets, and terrorism and geopolitical concerns adding to the decline in consumer confidence. Nevertheless, the sharp drop in mortgage rates during the past year contributed to a healthy housing market and a refinancing boom, helping out the consumer, while heavy economic incentives (such as zero-cost financing) helped keep consumption of durable goods, such as automobiles, robust. Looking ahead, we anticipate the economy to grow at a sub-par rate of below 3% in 2003, with risks to the forecast more evenly balanced. While the prospects for a strong fiscal stimulus package from Washington, D.C. have improved markedly, the timing of the legislation, its scope and its potential positive impact on the economy over the near term remain uncertain. At the same time, the possible end of the mortgage refinancing boom and a murky labor market could further erode consumer confidence, posing downside risks to the economy. Capital spending by businesses is also likely to remain somewhat subdued as the sectors that have contributed historically to capital spending--telecommunications, utility and energy--work out past excesses. Government spending is not likely to contribute very much, given the potential for the growing fiscal deficits at state and local government levels somewhat offsetting the spending from Washington. Interest Rates Interest rates essentially followed the economic news through most of the six months ended December 31, 2002. The Federal Reserve Board started the period with the Federal Funds rate at 1.75%, with a balanced view of risk. However, with the economy showing signs of stress in the third quarter, at the Federal Open Market Committee (FOMC) meeting, the Federal Reserve Board changed its bias once again toward "weakness" in the economy. Amid growing deflationary concerns, and the potential for the economy to slip back into a recession, the Federal Reserve Board surprised investors at its November FOMC meeting, by lowering the Federal Funds rate by 50 basis points (.50%) to 1.25%, but changing the bias once again to "balanced." Most Treasury yields reacted to the changing economic prospects throughout the period. Sensing a strong recovery, Treasury yields fell sharply from early April, with most of the declines occurring in the third quarter through October 10, 2002. During this period, two-year note yields declined by 197 basis points, ten-year notes by 177 basis points and 30-year bonds by 111 basis points. Although yields have backed up toward year end, for the year as a whole, the investment-grade sector in general had a solid year. Going forward, we expect the Federal Reserve Board to remain on hold, at least through the first half of 2003. While a slow growing economy with little threat of inflation should keep interest rates range bound, the risks to the fixed income markets have become somewhat asymmetric. The growing budget deficits at the Federal and state levels, along with the absolute low levels of current interest rates, not to mention the stellar performance of the fixed market over the past three years, give us little reason to hope for a sustained drop in interest rates. Accordingly, we anticipate interest rates to have an upward bias and the yield curve to have a bearish steepening bias over the next few months. Portfolio Matters For the six months ended December 31, 2002, the Fund's Class A, Class B, Class C and Class D Shares had total returns of +6.19%, +5.28%, +5.28% and +5.67%, respectively, compared to its unmanaged benchmark, the Lehman Brothers Aggregate Bond Index, which had a total return of +6.23% for the same six-month period. (Fund results shown do not reflect sales charges and would be lower if sales charges were included. Complete performance information can be found on pages 4 and 5 of this report to shareholders.) Entering the six-month period ended December 31, 2002, the portfolio held overweights of 3% - 8% in the major credit sectors, including corporate bonds, mortgage-backed securities and commercial mortgage- backed securities. However, the warning signals that began to emerge near the end of the first half caused us to question our optimistic view of the economy and the markets. After peaking at about 10,350, the Dow Jones Industrial Average plunged more than 2,500 points in just over eight weeks. Consumer confidence, estimates of gross domestic product growth and Treasury yields also fell, and by the beginning of August the markets were in a crisis mode. Although we made major adjustments in portfolio construction, reducing our corporate and mortgage overweights to neutral and adding duration, performance suffered as market liquidity dried up. This caused our restructuring to take longer than expected, and execution delays invariably cost money in such volatile market conditions. Although the corporate sector suffered a total of more than 400 basis points of negative excess returns during June and July, careful management of our holdings substantially limited the effects of the down move. Portfolio performance during this period enabled the Fund to make up ground compared to its peers. In the last quarter of 2002, the summer's extreme volatility had given way to a market in which Treasury yields have traded in a narrow range. As was true at the beginning of the period, the credit sectors have again taken a leading role. While we have reestablished overweight positions in the corporate and mortgage sectors, we remain mindful of the potential for a return of volatility. As such, the overweights are smaller--about 2% - 3%--and more liquid, which enables us to move quickly back to a neutral profile should it become necessary. We have continued to actively manage portfolio duration and to aggressively finance our "to be announced" mortgage holdings, which are safe strategies designed to incrementally increase Fund performance. Going forward, we seek to maintain a portfolio profile reflective of our pro-cyclical bias--spread sector overweights and duration less than that of the benchmark. While we believe there is a high probability that there will be a military confrontation with Iraq during the first quarter of 2003, we anticipate that this will ultimately result in a decline in volatility as uncertainty is removed from the markets. We expect this to provide the basis for solid, if unspectacular, economic growth as the year progresses. In Conclusion On September 30, 2002, the Fund's Board of Directors approved a plan of reorganization, subject to shareholder approval and certain other conditions, among the Fund, Mercury Total Return Bond Fund, Merrill Lynch Global Bond Fund For Investment and Retirement, The Corporate Fund Accumulation Program, Inc., the Core Bond Portfolio of Merrill Lynch Bond Fund, Inc. (the "Core Bond Portfolio") and the Portfolio whereby the Core Bond Portfolio will acquire all of the assets and will assume all of the liabilities of the Fund in exchange for newly issued shares of the Core Bond Portfolio. We thank you for your investment in Merrill Lynch Total Return Bond Fund. Sincerely, (Terry K. Glenn) Terry K. Glenn President and Director (Patrick Maldari) Patrick Maldari Portfolio Manager (James J. Pagano) James J. Pagano Portfolio Manager February 4, 2003 Merrill Lynch Total Return Bond Fund, December 31, 2002 PERFORMANCE DATA About Fund Performance Investors are able to purchase shares of the Fund through the Merrill Lynch Select Pricing SM System, which offers four pricing alternatives: * Class A Shares incur a maximum initial sales charge (front-end load) of 4.25% and bear no ongoing distribution or account maintenance fees. Class A Shares are available only to eligible investors. * Effective December 1, 2002, Class B Shares are subject to a maximum contingent deferred sales charge of 4%, declining to 0% after six years. All Class B shares purchased prior to December 1, 2002 will maintain the four-year schedule. In addition, Class B Shares are subject to a distribution fee of 0.75% and an account maintenance fee of 0.25%. These shares automatically convert to Class D Shares after approximately ten years. (There is no initial sales charge for automatic share conversions.) * Class C Shares are subject to a distribution fee of 0.75% and an account maintenance fee of 0.25%. In addition, Class C Shares are subject to a 1% contingent deferred sales charge if redeemed within one year of purchase. * Class D Shares incur a maximum initial sales charge of 4.25% and an account maintenance fee of 0.25% (but no distribution fee). The performance results depicted on pages 4 and 5 are those of Merrill Lynch Total Return Bond Fund and, prior to October 6, 2000, a predecessor Fund investing in the same underlying portfolio and with the same fees as Merrill Lynch Total Return Bond Fund. Performance results prior to October 6, 2000 reflect the annual operating expenses of the predecessor Fund. If Merrill Lynch Total Return Bond 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 actual operating expenses of Merrill Lynch Total Return Bond Fund. The Fund commenced operations on October 6, 2000. None of the past results shown should be considered a representation of future performance. 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 gains distributions at net asset value on the ex-dividend date. The Portfolio's investment adviser pays annual operating expenses of the Fund's Class A, Class B, Class C and Class D Shares in excess of .65%, 1.65%, 1.65% and .90%, respectively, of the average net assets of each Class. If the investment adviser did not pay such expenses, net returns would be lower. 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. Average Annual Total Return % Return Without % Return With Sales Charge Sales Charge** Class A Shares* One Year Ended 12/31/02 +9.75% +5.09% Five Years Ended 12/31/02 +6.65 +5.73 Inception (12/06/94) through 12/31/02 +8.57 +7.99 *Maximum sales charge is 4.25%. **Assuming maximum sales charge. % Return % Return Without CDSC With CDSC** Class B Shares* One Year Ended 12/31/02 +8.28% +4.28% Inception (10/06/00) through 12/31/02 +8.52 +7.30 *Maximum contingent deferred sales charge is 4% and is reduced to 0% after six years. **Assuming payment of applicable contingent deferred sales charge. % Return % Return Without CDSC With CDSC** Class C Shares* One Year Ended 12/31/02 +8.28% +7.28% Inception (10/06/00) through 12/31/02 +8.53 +8.53 *Maximum contingent deferred sales charge is 1% and is reduced to 0% after one year. **Assuming payment of applicable contingent deferred sales charge. % Return Without % Return With Sales Charge Sales Charge** Class D Shares* One Year Ended 12/31/02 +9.09% +4.45% Inception (6/02/99) through 12/31/02 +7.08 +5.79 *Maximum sales charge is 4.25%. **Assuming maximum sales charge. Recent Performance Results
6-Month 12-Month Since Inception Standardized As of December 31, 2002 Total Return Total Return Total Return 30-Day Yield ML Total Return Bond Fund Class A Shares* +6.19% +9.75% +94.15% 3.47% ML Total Return Bond Fund Class B Shares* +5.28 +8.28 +20.06 2.66 ML Total Return Bond Fund Class C Shares* +5.28 +8.28 +20.07 2.65 ML Total Return Bond Fund Class D Shares* +5.67 +9.09 +27.75 3.25 Lehman Brothers Aggregate Bond Index** +6.23 +10.25 +93.69/+34.21/+23.77 -- *Investment results shown do not reflect sales charges; results shown would be lower if a sales charge were included. Total investment returns are based on changes in net asset values for the periods shown, and assume reinvestment of all dividends and capital gains distributions at net asset value on the payable date. The Fund's since inception periods are from 12/06/94 for Class A Shares, from 10/06/00 for Class B and Class C Shares, and from 6/02/99 for Class D Shares. **This unmanaged market-weighted Index is comprised of investment- grade corporate bonds (rated BBB or better), mortgages and U.S. Treasury and government agency issues with at least one year to maturity. Since inception total returns are from 12/31/94, 6/30/99 and 10/31/00, respectively.
Merrill Lynch Total Return Bond Fund, December 31, 2002 STATEMENT OF ASSETS AND LIABILITIES
MERRILL LYNCH TOTAL RETURN BOND FUND As of December 31, 2002 Assets: Investment in Total Return Bond Master Portfolio, at value (identified cost--$46,562,574) $ 47,590,687 Receivable from administrator 46,100 -------------- Total assets 47,636,787 -------------- Liabilities: Payables: Dividends and distributions to shareholders $ 76,787 Distributor 30,855 107,642 -------------- Accrued expenses 81,541 -------------- Total liabilities 189,183 -------------- Net Assets: Net assets $ 47,447,604 ============== Net Assets Class A Shares of Common Stock, $.01 par value, 100,000,000 Consist of: shares authorized $ 1,035 Class B Shares of Common Stock, $.01 par value, 200,000,000 shares authorized 14,855 Class C Shares of Common Stock, $.01 par value, 100,000,000 shares authorized 16,176 Class D Shares of Common Stock, $.01 par value, 100,000,000 shares authorized 11,601 Paid-in capital in excess of par 46,220,826 Undistributed investment income--net $ 3,009 Undistributed realized capital gains on investments from the Portfolio--net 151,989 Unrealized appreciation on investments from the Portfolio--net 1,028,113 -------------- Total accumulated earnings--net 1,183,111 -------------- Net assets $ 47,447,604 ============== Net Asset Class A--Based on net assets of $1,130,344 and 103,471 Value: shares outstanding $ 10.92 ============== Class B--Based on net assets of $16,131,227 and 1,485,519 shares outstanding $ 10.86 ============== Class C--Based on net assets of $17,573,195 and 1,617,633 shares outstanding $ 10.86 ============== Class D--Based on net assets of $12,612,838 and 1,160,100 shares outstanding $ 10.87 ============== See Notes to Financial Statements.
STATEMENT OF OPERATIONS
MERRILL LYNCH TOTAL RETURN BOND FUND For the Six Months Ended December 31, 2002 Investment Net investment income allocated from the Portfolio: Income from the Interest $ 1,016,596 Portfolio--Net: Dividends 8,316 Expenses (100,418) -------------- Net investment income from the Portfolio 924,494 -------------- Expenses: Account maintenance and distribution fees--Class C $ 75,809 Account maintenance and distribution fees--Class B 71,081 Administration fees 52,273 Printing and shareholder reports 24,881 Registration fees 20,962 Account maintenance fees--Class D 14,215 Transfer agent fees--Class C 8,667 Professional fees 8,598 Transfer agent fees--Class B 8,134 Transfer agent fees--Class D 6,527 Transfer agent fees--Class A 612 Other 3,210 -------------- Total expenses before reimbursement 294,969 Reimbursement of expenses (98,372) -------------- Total expenses after reimbursement 196,597 -------------- Investment income--net 727,897 -------------- Realized & Realized gain on investments from the Portfolio--net 568,896 Unrealized Change in unrealized appreciation on investments from the Portfolio--net 817,095 Gain from the -------------- Portfolio--Net: Total realized and unrealized gain on investments from the Portfolio--net 1,385,991 -------------- Net Increase in Net Assets Resulting from Operations $ 2,113,888 ============== See Notes to Financial Statements.
Merrill Lynch Total Return Bond Fund, December 31, 2002 STATEMENTS OF CHANGES IN NET ASSETS
For the Six For the MERRILL LYNCH Months Ended Year Ended TOTAL RETURN December 31 June 30, BOND FUND Increase (Decrease) in Net Assets: 2002 2002 Operations: Investment income--net $ 727,897 $ 752,065 Realized gain (loss) on investments from the Portfolio--net 568,896 (147,374) Change in unrealized appreciation/depreciation on investments from the Portfolio--net 817,095 224,559 -------------- -------------- Net increase in net assets resulting from operations 2,113,888 829,250 -------------- -------------- Dividends & Investment income--net: Distributions to Class A (22,638) (21,127) Shareholders: Class B (229,585) (258,324) Class C (244,136) (158,109) Class D (227,671) (320,034) Realized gain on investments from the Portfolio--net: Class A (4,527) (473) Class B (63,181) (7,467) Class C (68,860) (3,664) Class D (46,670) (9,703) -------------- -------------- Net decrease in net assets resulting from dividends and distributions to shareholders (907,268) (778,901) -------------- -------------- Capital Share Net increase in net assets derived from capital share transactions 14,807,219 28,178,439 Transactions: -------------- -------------- Net Assets: Total increase in net assets 16,013,839 28,228,788 Beginning of period 31,433,765 3,204,977 -------------- -------------- End of period* $ 47,447,604 $ 31,433,765 ============== ============== *Undistributed (accumulated) investment income (loss)--net $ 3,009 $ (858) ============== ============== See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
Class A The following per share data and ratios For the Six For the For the have been derived from information Months Year Period MERRILL LYNCH provided in the financial statements. Ended Ended Oct. 6, 2000++ TOTAL RETURN Dec. 31, June 30, to June 30, BOND FUND Increase (Decrease) in Net Asset Value: 2002 2002 2001 Per Share Net asset value, beginning of period $ 10.55 $ 10.20 $ 10.00 Operating ---------- ---------- ---------- Performance: Investment income--net .23+++++ .51+++++ .45 Realized and unrealized gain on investments from the Portfolio--net .41 .42 .17 ---------- ---------- ---------- Total from investment operations .64 .93 .62 ---------- ---------- ---------- Less dividends and distributions: Investment income--net (.23) (.57) (.42) Realized gain on investments--net (.04) (.01) -- ---------- ---------- ---------- Total dividends and distributions (.27) (.58) (.42) ---------- ---------- ---------- Net asset value, end of period $ 10.92 $ 10.55 $ 10.20 ========== ========== ========== Total Based on net asset value per share 6.19%+++ 9.30% 6.23%+++ Investment ========== ========== ========== Return:** Ratios to Expenses, net of reimbursement++++ .65%* .65% .65%* Average ========== ========== ========== Net Assets: Expenses++++ 1.12%* 1.54% 19.00%* ========== ========== ========== Investment income--net 4.26%* 5.07% 6.56%* ========== ========== ========== Supplemental Net assets, end of period (in thousands) $ 1,131 $ 875 $ 64 Data: ========== ========== ========== Class B The following per share data and ratios For the Six For the For the have been derived from information Months Year Period MERRILL LYNCH provided in the financial statements. Ended Ended Oct. 6, 2000++ TOTAL RETURN Dec. 31, June 30, to June 30, BOND FUND Increase (Decrease) in Net Asset Value: 2002 2002 2001 Per Share Net asset value, beginning of period $ 10.53 $ 10.18 $ 10.00 Operating ---------- ---------- ---------- Performance: Investment income--net .18+++++ .44+++++ .35 Realized and unrealized gain on investments from the Portfolio--net .37 .39 .18 ---------- ---------- ---------- Total from investment operations .55 .83 .53 ---------- ---------- ---------- Less dividends and distributions: Investment income--net (.18) (.47) (.35) Realized gain on investments--net (.04) (.01) -- ---------- ---------- ---------- Total dividends and distributions (.22) (.48) (.35) ---------- ---------- ---------- Net asset value, end of period $ 10.86 $ 10.53 $ 10.18 ========== ========== ========== Total Based on net asset value per share 5.28%+++ 8.21% 5.39%+++ Investment ========== ========== ========== Return:** Ratios to Expenses, net of reimbursement++++ 1.65%* 1.65% 1.65%* Average ========== ========== ========== Net Assets: Expenses++++ 2.12%* 2.58% 20.00%* ========== ========== ========== Investment income--net 3.25%* 4.22% 5.32%* ========== ========== ========== Supplemental Net assets, end of period (in thousands) $ 16,131 $ 10,113 $ 2,077 Data: ========== ========== ========== *Annualized. **Total investment returns exclude the effects of sales charges. The Portfolio's investment adviser reimbursed a portion of the Fund's expenses. Without such reimbursement, the Fund's performance would have been lower. ++Commencement of operations. ++++Includes the Fund's share of the Portfolio's allocated expenses. +++Aggregate total investment return. +++++Based on average shares outstanding. See Notes to Financial Statements.
Merrill Lynch Total Return Bond Fund, December 31, 2002 FINANCIAL HIGHLIGHTS (concluded)
Class C The following per share data and ratios For the Six For the For the have been derived from information Months Year Period MERRILL LYNCH provided in the financial statements. Ended Ended Oct. 6, 2000++ TOTAL RETURN Dec. 31, June 30, to June 30, BOND FUND Increase (Decrease) in Net Asset Value: 2002 2002 2001 Per Share Net asset value, beginning of period $ 10.53 $ 10.18 $ 10.00 Operating ---------- ---------- ---------- Performance: Investment income--net .18+++++ .40+++++ .36 Realized and unrealized gain on investments from the Portfolio--net .37 .47 .17 ---------- ---------- ---------- Total from investment operations .55 .87 .53 ---------- ---------- ---------- Less dividends and distributions: Investment income--net (.18) (.51) (.35) Realized gain on investments--net (.04) (.01) -- ---------- ---------- ---------- Total dividends and distributions (.22) (.52) (.35) ---------- ---------- ---------- Net asset value, end of period $ 10.86 $ 10.53 $ 10.18 ========== ========== ========== Total Based on net asset value per share 5.28%+++ 8.22% 5.39%+++ Investment ========== ========== ========== Return:** Ratios to Expenses, net of reimbursement++++ 1.65%* 1.64% 1.65%* Average ========== ========== ========== Net Assets: Expenses++++ 2.12%* 2.51% 20.00%* ========== ========== ========== Investment income--net 3.24%* 4.07% 5.44%* ========== ========== ========== Supplemental Net assets, end of period (in thousands) $ 17,573 $ 10,339 $ 259 Data: ========== ========== ========== Class D The following per share data and ratios For the Six For the For the have been derived from information Months Year Period MERRILL LYNCH provided in the financial statements. Ended Ended Oct. 6, 2000++ TOTAL RETURN Dec. 31, June 30, to June 30, BOND FUND Increase (Decrease) in Net Asset Value: 2002 2002 2001 Per Share Net asset value, beginning of period $ 10.54 $ 10.19 $ 10.00 Operating ---------- ---------- ---------- Performance: Investment income--net .22+++++ .51+++++ .42 Realized and unrealized gain on investments from the Portfolio--net .37 .41 .17 ---------- ---------- ---------- Total from investment operations .59 .92 .59 ---------- ---------- ---------- Less dividends and distributions: Investment income--net (.22) (.56) (.40) Realized gain on investments--net (.04) (.01) -- ---------- ---------- ---------- Total dividends and distributions (.26) (.57) (.40) ---------- ---------- ---------- Net asset value, end of period $ 10.87 $ 10.54 $ 10.19 ========== ========== ========== Total Based on net asset value per share 5.67%+++ 9.03% 5.97%+++ Investment ========== ========== ========== Return:** Ratios to Expenses, net of reimbursement++++ .90%* .90% .90%* Average ========== ========== ========== Net Assets: Expenses++++ 1.37%* 1.80% 19.25%* ========== ========== ========== Investment income--net 4.03%* 4.85% 6.19%* ========== ========== ========== Supplemental Net assets, end of period (in thousands) $ 12,613 $ 10,107 $ 805 Data: ========== ========== ========== *Annualized. **Total investment returns exclude the effects of sales charges. The Portfolio's investment adviser reimbursed a portion of the Fund's expenses. Without such reimbursement, the Fund's performance would have been lower. ++Commencement of operations. ++++Includes the Fund's share of the Portfolio's allocated expenses. +++Aggregate total investment return. +++++Based on average shares outstanding. See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS MERRILL LYNCH TOTAL RETURN BOND FUND 1. Significant Accounting Policies: Merrill Lynch Total Return Bond Fund (the "Fund") is a fund of Merrill Lynch Investment Managers Funds, Inc. (the "Company"). The Company is 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 Total Return bond Master Portfolio (the "Portfolio") of the Fund Asset Management Master Trust (the "Trust"), which has the same investment objective as the Fund. The value of the Fund's investment in the Portfolio reflects the Fund's proportionate interest in the net assets of the Portfolio. The performance of the Fund is directly affected by the performance of the Portfolio. The financial statements of the Portfolio, including the Schedule of Investments, are included elsewhere in this report and should be read in conjunction with the Fund's financial statements. The Fund's financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, which may require the use of management accruals and estimates. These unaudited financial statements reflect all adjustments, which are, in the opinion of management, necessary to a fair statement of the results for the interim period presented. All such adjustments are of a normal, recurring nature. The percentage of the Portfolio owned by the Fund at December 31, 2002 was 28.0%. The Fund offers four classes of shares under the Merrill Lynch Select Pricing SM System. Shares of Class A and Class D are sold with a front-end sales charge. Shares of Class B and Class C may be subject to a contingent deferred sales charge. All classes of shares have identical voting, dividend, liquidation and other rights and the same terms and conditions, except that Class B, Class C and Class D Shares bear certain expenses related to the account maintenance of such shares, and Class B and Class C Shares also bear certain expenses related to the distribution of such shares and the additional incremental transfer agency costs resulting from the deferred sales charge arrangements. Each class has exclusive voting rights with respect to matters relating to its account maintenance and distribution expenditures. Income, expenses (other than expenses attributable to a specific class) and realized and unrealized gains and losses on investments and foreign currency transactions are allocated daily to each class based on its relative net assets. The following is a summary of significant accounting policies followed by the Fund. (a) Valuation of investments--The Fund records its investment in the Portfolio at fair value. Valuation of securities held by the Portfolio is discussed in Note 1a of the Portfolio's Notes to Financial Statements, which are included elsewhere in this report. (b) Investment income and expenses--The Fund records daily its proportionate share of the Portfolio's income, expenses and realized and unrealized gains and losses. In addition, the Fund accrues its own expenses. (c) Income taxes--It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to shareholders. Therefore, no Federal income tax provision is required. (d) Prepaid registration fees--Prepaid registration fees are charged to expenses as the related shares are issued. (e) Dividends and distributions--Dividends from net investment income are declared daily and paid monthly. Distributions of capital gains are recorded on the ex-dividend dates. (f) Investment transactions--Investment transactions in the Portfolio are accounted for on a trade date basis. 2. Transactions with Affiliates: The Company has also entered into an Administration Agreement with 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. FAM has contractually agreed to pay all annual operating expenses of the Fund's Class A, Class B, Class C and Class D Shares in excess of .65%, 1.65%, 1.65% and .90%, respectively, as applied to the daily net assets of each Class through December 31, 2002. For the six months ended December 31, 2002, FAM earned fees of $52,273, all of which was waived. Also, FAM reimbursed the Fund $46,099 for additional expenses. Merrill Lynch Total Return Bond Fund, December 31, 2002 NOTES TO FINANCIAL STATEMENTS (concluded) MERRILL LYNCH TOTAL RETURN BOND FUND The Company has also entered into a Distribution Agreement and Distribution Plans with FAM Distributors, Inc. ("FAMD" or the "Distributor"), which is 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 annual rates based upon the average daily net assets of the shares as follows: Account Distribution Maintenance Fee Fee Class B .25% .75% Class C .25% .75% Class D .25% -- Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), a subsidiary of ML & Co., also provides account maintenance and distribution services to the Fund. The ongoing account maintenance fee compensates the Distributor and MLPF&S for providing account maintenance services to Class B, Class C and Class D shareholders. The ongoing distribution fee compensates the Distributor and MLPF&S for providing shareholder and distribution-related services to Class B and Class C shareholders. For the six months ended December 31, 2002, FAMD earned underwriting discounts and MLPF&S earned dealer concessions on sales of the Fund's Class D Shares as follows: FAMD MLPF&S Class D $1,419 $10,647 For the six months ended December 31, 2002, MLPF&S received contingent deferred sales charges of $19,528 and $6,497 relating to transactions in Class B and Class C 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. 3. Investments: Increases and decreases in the Fund's investment in the Portfolio for the six months ended December 31, 2002 were $16,352,862 and $2,563,507, respectively. 4. Capital Share Transactions: Net increase in net assets derived from capital share transactions was $14,807,219 and $28,178,439 for the six months ended December 31, 2002 and for the year ended June 30, 2002, respectively. Transactions in capital shares for each class were as follows: Class A Shares for the Six Months Dollar Ended December 31, 2002 Shares Amount Shares sold 36,007 $ 387,254 Shares issued to shareholders in reinvestment of dividends and distributions 1,915 20,690 ------------ ------------ Total issued 37,922 407,944 Shares redeemed (17,341) (186,779) ------------ ------------ Net increase 20,581 $ 221,165 ============ ============ Class A Shares for the Year Dollar Ended June 30, 2002 Shares Amount Shares sold 90,986 $ 959,466 Shares issued to shareholders in reinvestment of dividends and distributions 1,235 12,923 ------------ ------------ Total issued 92,221 972,389 Shares redeemed (15,606) (163,062) ------------ ------------ Net increase 76,615 $ 809,327 ============ ============ Class B Shares for the Six Months Dollar Ended December 31, 2002 Shares Amount Shares sold 616,009 $ 6,590,580 Shares issued to shareholders in reinvestment of dividends and distributions 17,458 187,825 ------------ ------------ Total issued 633,467 6,778,405 Automatic conversion of shares (149) (1,608) Shares redeemed (108,658) (1,161,842) ------------ ------------ Net increase 524,660 $ 5,614,955 ============ ============ Class B Shares for the Year Dollar Ended June 30, 2002 Shares Amount Shares sold 957,144 $ 10,042,376 Shares issued to shareholders in reinvestment of dividends and distributions 13,945 145,691 ------------ ------------ Total issued 971,089 10,188,067 Automatic conversion of shares (43) (451) Shares redeemed (214,241) (2,238,470) ------------ ------------ Net increase 756,805 $ 7,949,146 ============ ============ Class C Shares for the Six Months Dollar Ended December 31, 2002 Shares Amount Shares sold 714,038 $ 7,643,374 Shares issued to shareholders in reinvestment of dividends and distributions 23,413 251,913 ------------ ------------ Total issued 737,451 7,895,287 Shares redeemed (101,725) (1,090,138) ------------ ------------ Net increase 635,726 $ 6,805,149 ============ ============ Class C Shares for the Year Dollar Ended June 30, 2002 Shares Amount Shares sold 1,021,783 $ 10,711,445 Shares issued to shareholders in reinvestment of dividends and distributions 10,172 106,321 ------------ ------------ Total issued 1,031,955 10,817,766 Shares redeemed (75,484) (790,676) ------------ ------------ Net increase 956,471 $ 10,027,090 ============ ============ Class D Shares for the Six Months Dollar Ended December 31, 2002 Shares Amount Shares sold 205,462 $ 2,212,857 Automatic conversion of shares 149 1,608 Shares issued to shareholders in reinvestment of dividends and distributions 23,530 253,006 ------------ ------------ Total issued 229,141 2,467,471 Shares redeemed (28,113) (301,521) ------------ ------------ Net increase 201,028 $ 2,165,950 ============ ============ Class D Shares for the Year Dollar Ended June 30, 2002 Shares Amount Shares sold 977,576 $ 10,422,064 Automatic conversion of shares 43 451 Shares issued to shareholders in reinvestment of dividends and distributions 27,083 283,035 ------------ ------------ Total issued 1,004,702 10,705,550 Shares redeemed (124,615) (1,312,674) ------------ ------------ Net increase 880,087 $ 9,392,876 ============ ============ 5. Reorganization Plan: On September 30, 2002, the Fund's Board of Directors approved a plan of reorganization, subject to shareholder approval and certain other conditions, among the Fund, Mercury Total Return Bond Fund, Merrill Lynch Global Bond Fund For Investment and Retirement, The Corporate Fund Accumulation Program, Inc., the Core Bond Portfolio of Merrill Lynch Bond Fund, Inc. (the "Core Bond Portfolio") and the Portfolio whereby the Core Bond Portfolio will acquire all of the assets and will assume all of the liabilities of the Fund in exchange for newly issued shares of the Core Bond Portfolio. Merrill Lynch Total Return Bond Fund, December 31, 2002 SCHEDULE OF INVESTMENTS (in U.S. dollars)
Total Return Bond Master Portfolio Face Industries Amount Investments Value CORPORATE Aerospace & $ 170,000 Martin Marietta Corp., 7.375% due 4/15/2013 $ 199,423 BONDS & Defense--0.2% 210,000 Raytheon Company, 6.75% due 3/15/2018 220,070 NOTES--40.3% ------------ 419,493 Automotive--6.7% 260,000 American Honda Finance, 1.65% due 10/03/2005 (a)(c) 259,751 Chrysler Financial Company LLC (a): 274,000 1.60% due 2/03/2003 273,912 274,000 1.59% due 3/06/2003 273,806 Daimler-Chrysler NA Holdings: 2,154,000 7.125% due 4/10/2003 2,176,677 260,000 6.40% due 5/15/2006 280,269 245,000 7.30% due 1/15/2012 274,927 95,000 Ford Motor Company, 7.45% due 7/16/2031 82,638 Ford Motor Credit Company: 3,000,000 2.493% due 4/17/2003 (a) 2,993,589 945,000 6.50% due 1/25/2007 933,394 240,000 7.25% due 10/25/2011 233,202 General Motors Acceptance Corp.: 3,000,000 2.115% due 7/21/2003 (a) 2,977,371 390,000 6.875% due 8/28/2012 384,443 226,000 8% due 11/01/2031 227,231 ------------ 11,371,210 Banking--3.0% 350,000 BB&T Corporation, 4.75% due 10/01/2012 351,255 405,000 Bank of America Corporation, 5.125% due 11/15/2014 411,905 205,000 The Bank of New York, 5.20% due 7/01/2007 220,677 415,000 BankAmerica Corp., 5.875% due 2/15/2009 455,384 Capital One Bank: 40,000 6.50% due 7/30/2004 39,120 160,000 6.875% due 2/01/2006 154,792 105,000 Hudson United Bancorp Inc., 8.20% due 9/15/2006 114,584 550,000 KFW International Finance, 2.50% due 10/17/2005 553,455 180,000 MBNA America Bank NA, 7.125% due 11/15/2012 188,372 MBNA Corporation: 320,000 6.25% due 1/17/2007 334,049 100,000 5.625% due 11/30/2007 102,132 160,000 Marshall & Ilsley Bank, 4.125% due 9/04/2007 165,208 150,000 Regions Financial Corporation, 6.375% due 5/15/2012 167,289 200,000 Suntrust Bank, 5.45% due 12/01/2017 197,500 480,000 US Bancorp, 1.56% due 9/16/2005 (a) 480,302 240,000 Wachovia Corporation, 4.95% due 11/01/2006 256,096 Washington Mutual Inc.: 175,000 7.50% due 8/15/2006 196,781 310,000 4.375% due 1/15/2008 315,881 360,000 Wells Fargo & Co., 5.125% due 2/15/2007 386,645 ------------ 5,091,427 Beverage Brewing & 220,000 Coors Brewing Company, 6.375% due 5/15/2012 245,860 Distilling--0.1% Broadcasting/ 300,000 Liberty Media Corporation, 7.875% due 7/15/2009 325,355 Media--0.2% Building & 290,000 Toll Brothers Inc., 6.875% due 11/15/2012 (c) 298,652 Construction--0.2% Cable & 254,000 AOL Time Warner Inc., 6.875% due 5/01/2012 268,250 Media--0.9% Clear Channel Communications: 190,000 7.875% due 6/15/2005 208,015 205,000 7.65% due 9/15/2010 232,235 280,000 Cox Communications Inc., 7.125% due 10/01/2012 311,006 205,000 USA Interactive, 7% due 1/15/2013 (c) 211,975 235,000 Viacom Inc., 7.875% due 7/30/2030 292,535 ------------ 1,524,016 Canadian 475,000 Province of Ontario, 3.50% due 9/17/2007 482,524 Provinces--0.6% 370,000 Province of Quebec, 5% due 7/17/2009 395,372 75,000 Province of Saskatchewan, 8% due 7/15/2004 81,609 ------------ 959,505 Cellular AT&T Wireless Services Inc.: Telephones--0.2% 164,000 8.125% due 5/01/2012 164,820 138,000 8.75% due 3/01/2031 135,240 ------------ 300,060 Chemicals--0.1% 100,000 Methanex Corporation, 8.75% due 8/15/2012 106,000 133,000 Praxair Inc., 6.375% due 4/01/2012 148,679 ------------ 254,679 Commercial 250,000 Cendant Corporation, 6.875% due 8/15/2006 259,416 Services & Supplies--0.2% Communications--0.4% 700,000 GTE Corporation, 6.84% due 4/15/2018 727,012 Consumer--0.2% 390,000 SC Johnson & Son Inc., 5% due 12/15/2012 (c) 393,645 Containers--0.1% 120,000 Sealed Air Corporation, 6.95% due 5/15/2009 (c) 122,838 Diversified--0.2% 305,000 Codelco Inc., 6.375% due 11/30/2012 (c) 319,688 Diversified Citigroup Inc.: Financials--1.7% 250,000 5.70% due 2/06/2004 260,039 260,000 5.75% due 5/10/2006 282,250 530,000 7.25% due 10/01/2010 615,261 140,000 6.50% due 1/18/2011 157,080 311,000 6.625% due 6/15/2032 339,527 1,245,000 General Electric Capital Corp., 5.45% due 1/15/2013 1,293,226 ------------ 2,947,383
Merrill Lynch Total Return Bond Fund, December 31, 2002 SCHEDULE OF INVESTMENTS (continued) (in U.S. dollars)
Total Return Bond Master Portfolio (continued) Face Industries Amount Investments Value CORPORATE Diversified $ 255,000 Cooper Industries Inc., 5.50% due 11/01/2009 $ 265,774 BONDS & NOTES Manufacturing--0.2% (continued) Diversified 265,000 Verizon Global Funding Corporation, 7.375% due 9/01/2012 304,893 Telecommunication Services--0.2% Drug/ 59,000 Eli Lilly & Company, 7.125% due 6/01/2025 69,641 Pharmaceuticals--0.0% Electric--0.6% Florida Power & Light: 90,000 4.85% due 2/01/2013 91,938 140,000 5.85% due 2/01/2033 143,399 230,000 Georgia Power Company, 5.125% due 11/15/2012 237,999 265,000 PSE&G Power, 6.95% due 6/01/2012 269,064 250,000 Southern Power Company, 6.25% due 7/15/2012 264,131 ------------ 1,006,531 Electric 105,000 Exelon Corporation, 6.75% due 5/01/2011 114,934 Utilities--0.1% Energy 200,000 Mid-American Energy Holdings, 5.875% due 10/01/2012 (c) 202,746 Sources--0.1% Finance--2.4% 110,000 Boeing Capital Corporation, 7.10% due 9/27/2005 119,154 370,000 Equifax Inc., 4.95% due 11/01/2007 (c) 376,474 Household Finance Corporation: 1,550,000 2.91% due 12/16/2004 1,548,808 735,000 5.875% due 2/01/2009 754,408 505,000 7% due 5/15/2012 553,121 250,000 International Lease Finance Corporation, 4.375% due 12/15/2005 252,988 550,000 Mellon Funding Corporation, 5% due 12/01/2014 559,017 ------------ 4,163,970 Financial-- 750,000 Goldman Sachs Group, Inc., 6.875% due 1/15/2011 837,180 Other--0.5% Financial 370,000 CountryWide Home Loan, 5.625% due 7/15/2009 391,513 Services--0.8% 795,000 Lehman Brothers Holdings, Inc., 6.625% due 1/18/2012 879,930 ------------ 1,271,443 Food--0.0% 55,000 SuperValu Inc., 7.50% due 5/15/2012 59,284 Food 255,000 Archer-Daniels-Midland, 5.935% due 10/01/2032 254,439 Distribution--0.2% Foreign 190,000 Republic of Finland, 5.875% due 2/27/2006 208,089 Government 415,000 Republic of Italy, 4.375% due 10/25/2006 437,886 Obligations--0.7% 470,000 United Mexican States, 9.875% due 2/01/2010 576,972 ------------ 1,222,947 Gaming & 510,000 Circus Circus Enterprises, Inc., 6.70% due 11/15/2096 512,385 Lodging--0.3% Health Care--0.2% 310,000 HCA Inc., 6.30% due 10/01/2012 312,648 Home 160,000 Newell Rubbermaid Inc., 4.625% due 12/15/2009 163,219 Furnishings--0.1% Hotels & 350,000 Hilton Hotels Corporation, 7.625% due 12/01/2012 353,448 Motels--0.2% Industrial-- Tele-Communications Inc.: Other--0.6% 300,000 8.25% due 1/15/2003 300,088 635,000 9.80% due 2/01/2012 763,285 ------------ 1,063,373 Industrial-- Aramark Services Inc.: Services--0.5% 265,000 6.75% due 8/01/2004 275,715 250,000 6.375% due 2/15/2008 258,838 360,000 First Data Corporation, 6.75% due 7/15/2005 391,804 ------------ 926,357 Industrials--0.4% 50,000 Abitibi Consolidated Inc., 8.55% due 8/01/2010 55,493 50,000 Domtar Inc., 7.875% due 10/15/2011 58,438 85,000 Norsk Hydro A/S, 6.36% due 1/15/2009 92,207 188,000 Phillip Morris Companies, Inc., 8.25% due 10/15/2003 194,805 310,000 Tyson Foods, Inc., 6.625% due 10/01/2004 329,611 ------------ 730,554 Insurance--0.2% 170,000 John Hancock Financial Services, 5.625% due 12/01/2008 178,233 130,000 Progressive Corporation, 6.25% due 12/01/2032 133,377 ------------ 311,610 Machinery--0.0% 75,000 Emerson Electric Company, 6% due 8/15/2032 76,144 Metals & 175,000 Alcoa Inc., 1.70% due 12/06/2004 (a) 175,449 Mining--0.1% Multi-Sector 420,000 Lehman Brothers, TRAINS, 6.259% due 8/15/2008 (a)(c)(d) 432,499 Holdings--2.4% Morgan Stanley TRACERS (c)(e): 2,850,000 5.854% due 3/01/2007 (a) 3,036,761 570,000 6.726% due 6/15/2012 627,450 ------------ 4,096,710 Oil--0.5% Anadarko Finance Company: 90,000 6.75% due 5/01/2011 101,410 75,000 7.50% due 5/01/2031 89,179 260,000 Colonial Pipeline, 7.63% due 4/15/2032 (c) 310,312 420,000 Motiva Enterprises LLC, 5.20% due 9/15/2012 (c) 419,300 ------------ 920,201 Oil--Integrated--0.1% Texaco Capital Inc.: 55,000 8.625% due 6/30/2010 69,288 55,000 8.625% due 11/15/2031 77,872 ------------ 147,160 Paper 140,000 UPM-Kymmene Corporation, 5.625% due 12/01/2014 (c) 145,274 Products--0.1% Pipelines--Gas--0.4% Kinder Morgan Energy: 180,000 5.35% due 8/15/2007 188,353 430,000 6.75% due 3/15/2011 467,088 ------------ 655,441
Merrill Lynch Total Return Bond Fund, December 31, 2002 SCHEDULE OF INVESTMENTS (continued) (in U.S. dollars)
Total Return Bond Master Portfolio (continued) Face Industries Amount Investments Value CORPORATE Pipelines--Oil & $ 230,000 Consolidated Natural Gas, 5.375% due 11/01/2006 $ 243,130 BONDS & NOTES Gas--0.1% (concluded) Real Estate 675,000 Avalonbay Communities, 6.58% due 2/15/2004 707,839 Investment 140,000 Developers Divers Realty, 6.625% due 1/15/2008 140,757 Trust--1.6% 420,000 EOP Operating LP, 7.375% due 11/15/2003 437,013 65,000 Health Care Properties Inc., 7.48% due 4/05/2004 68,595 Health Care Properties Investors Inc.: 155,000 6.50% due 2/15/2006 160,981 280,000 6.45% due 6/25/2012 282,077 185,000 Nationwide Health Properties, 6.59% due 7/07/2038 191,619 790,000 Prologis Trust, 7% due 10/01/2003 812,258 ------------ 2,801,139 Retail-- 160,000 Limited Brands Inc., 6.125% due 12/01/2012 168,422 Apparel--0.1% Retail-- 100,000 Kohl's Corporation, 6% due 1/15/2033 100,531 Stores--0.1% Savings & Loan 325,000 Golden West Financial Corporation, 4.75% due 10/01/2012 326,799 Associations--0.2% Special 245,000 Principal Life Global, 6.25% due 2/15/2012 (c) 259,698 Services--0.2% Supranational--0.8% 235,000 Corporacion Andina de Fomento, 6.875% due 3/15/2012 246,362 1,000,000 European Investment Bank, 7.125% due 9/18/2006 1,157,690 ------------ 1,404,052 Telephone--0.9% 390,000 CenturyTel Inc., 7.875% due 8/15/2012 (c) 461,593 France Telecom: 90,000 9.25% due 3/01/2011 104,064 85,000 10% due 3/01/2031 103,473 240,000 Koninklijke (KPN) NV, 8% due 10/01/2010 268,800 275,000 US West Communications, 7.20% due 11/01/2004 261,250 250,000 Verizon New York Inc., 6.875% due 4/01/2012 280,847 ------------ 1,480,027 Telephone 105,000 AT&T Corporation, 7.30% due 11/15/2011 114,766 Service--0.6% 70,000 Alltel Corporation, 7% due 7/01/2012 80,672 530,000 British Telecom PLC, 8.375% due 12/15/2010 635,416 190,000 Deutsche Telekom International Finance, 8.50% due 6/15/2010 218,829 ------------ 1,049,683 Transportation--0.3% 155,000 Continental Airlines, 6.563% due 2/15/2012 165,670 Southwest Airlines Co.: 50,000 8% due 3/01/2005 55,326 200,000 7.875% due 9/01/2007 225,088 ------------ 446,084 U.S. Government 4,280,000 Fannie Mae, 7% due 7/15/2005 4,798,436 Agency--5.2% 3,600,000 Freddie Mac, 7% due 7/15/2005 4,038,473 ------------ 8,836,909 Utilities-- Sprint Capital Corporation: Communication--0.6% 705,000 5.70% due 11/15/2003 701,475 395,000 8.375% due 3/15/2012 393,025 ------------ 1,094,500 Utilities-- 140,000 Alabama Power Capital Trust, 5.50% due 10/01/2042 (a) 140,777 Electric & 545,000 Cincinnati Gas & Electric Company, 5.70% due 9/15/2012 558,652 Gas--1.7% Commonwealth Edison Company: 75,000 6.15% due 3/15/2012 82,975 210,000 6.95% due 7/15/2018 231,059 380,000 Consolidated Edison Company of New York, 4.875% due 2/01/2013 385,269 Dominion Resources Inc.: 430,000 8.125% due 6/15/2010 500,262 120,000 6.75% due 12/15/2032 123,157 640,000 FirstEnergy Corp., 6.45% due 11/15/2011 636,700 210,000 Mississippi Power, 6.05% due 5/01/2003 212,535 ------------ 2,871,386 Waste Disposal 530,000 Waste Management Inc., 7.375% due 8/01/2010 579,894 Services--0.3% Yankee-- 85,000 BSCH Issuances Ltd., 7.625% due 9/14/2010 96,682 Corporates--0.7% Korea Development Bank: 150,000 7.125% due 4/22/2004 159,455 265,000 4.25% due 11/13/2007 269,064 Pemex Project Funding Master Trust: 280,000 9.125% due 10/13/2010 320,600 260,000 7.375% due 12/15/2014 (c) 266,500 ------------ 1,112,301 Total Corporate Bonds & Notes (Cost--$66,479,592) 68,698,549 GOVERNMENT Collateralized Freddie Mac: AGENCY Mortgage 350,933 5.57% due 7/15/2022 353,310 MORTGAGE- Obligations--0.3% 104,698 24.917% due 6/15/2029 105,681 BACKED ------------ SECURITIES++-- 458,991 25.8% Pass-Through Fannie Mae: Securities--25.5% 337,138 7% due 9/01/2031 354,617 4,782,954 6.50% due 12/01/2031 4,982,377 770,734 7% due 7/01/2032 810,692 5,413,019 7% due 8/01/2032 5,693,461
Merrill Lynch Total Return Bond Fund, December 31, 2002 SCHEDULE OF INVESTMENTS (continued) (in U.S. dollars)
Total Return Bond Master Portfolio (continued) Face Industries Amount Investments Value GOVERNMENT Pass-Through Freddie Mac Participation Certificates--Gold Program: AGENCY Securities $ 1,657,975 6.50% due 5/01/2016 $ 1,754,146 MORTGAGE-BACKED (concluded) 6,895,550 6% due 4/01/2017 7,215,393 SECURITIES++ 2,313,277 7.50% due 1/01/2030 2,462,216 (concluded) 910,000 5% due TBA (b) 934,473 910,000 5.50% TBA (b) 929,078 3,400,000 6% due TBA (b) 3,521,224 8,561,047 6.50% due TBA (b) 8,909,353 3,300,000 7% due 10/01/2031 3,468,489 2,343,289 Government National Mortgage Association, 6.50% due 10/15/2031 2,462,065 ------------ 43,497,584 Total Government Agency Mortgage-Backed Securities (Cost--$43,302,106) 43,956,575 GOVERNMENT Fannie Mae: AGENCY 2,600,000 5.25% due 6/15/2006 2,833,334 OBLIGATIONS-- 730,000 7.125% due 3/15/2007 854,035 14.6% 1,570,000 6.375% due 6/15/2009 1,816,658 1,100,000 6% due 5/15/2011 1,243,399 1,700,000 6.50% due TBA (b) 1,767,983 1,810,000 7.125% due 1/15/2030 2,233,618 2,050,000 Freddie Mac, 6.625% due 9/15/2009 2,404,732 Freddie Mac Participation Certificates--Gold Program (b): 7,600,000 6% due TBA 7,868,592 3,600,000 7.50% due TBA 3,811,133 Total Government Agency Obligations (Cost--$24,004,928) 24,833,484 ASSET-BACKED 1,077,000 CIT Equipment Collateral, 2002-VT1 A2, 2.90% due SECURITIES--6.9% 6/21/2004 1,082,499 California Infrastructure PG&E: 400,000 1997-1 A6, 6.38% due 9/25/2008 436,856 550,000 1997-1 A7, 6.42% due 9/25/2008 598,710 738,912 EQCC Home Equity Loan Trust, 1999-1 A3F, 5.915% due 11/20/2024 753,898 Household Automotive Trust: 1,400,000 2002-1 A2, 2.75% due 5/17/2005 1,408,649 800,000 2002-3 A3A, 2.75% due 6/18/2007 811,808 1,088,340 Household Home Equity Loan Trust, 2002-2 A, 1.688% due 4/20/2032 (a) 1,086,474 1,350,000 Ikon Receivables LLC, 2002-1 A2, 2.91% due 2/15/2005 1,355,645 547,898 MBNA Master Credit Card Trust, 1999-F B, 1.79% due 1/16/2007 (a) 547,788 1,248,978 Option One Mortgage Loan Trust, 2002-4 A, 1.68% due 7/25/2032 (a) 1,244,525 1,300,000 Residential Asset Securities Corporation, 2002-KS8 A2, 3.04% due 6/25/2023 1,310,156 1,100,000 Superior Wholesale Inventory Financing Trust, 2001-A7, 1.77% due 6/15/2006 (a) 1,097,426 Total Asset-Backed Securities (Cost--$12,586,152) 11,734,434 NON-AGENCY Collateralized 514,656 ABN AMro Mortgage Corporation, 2001-8 2A1, 6.50% MORTGAGE-BACKED Mortgage due 1/25/2032 520,698 SECURITIES-- Obligations--5.1% 332,204 Bank of America Mortgage Securities, 2002-IA 1B, 12.1% 4.64% due 8/25/2032 334,441 59,585 Blackrock Capital Finance LP, 1997-R2 AP, 9.03% due 12/25/2035 (a)(c) 63,211 200,000 CMC Securities Corporation IV, 1994-G A4, 7% due 9/25/2024 203,853 1,097,414 Chase Mortgage Finance Corporation, 1999-S4 A1, 6.50% due 4/25/2029 1,127,132 91,801 Collateralized Mortgage Obligation Trust, 57 D, 9.90% due 2/01/2019 92,316 150,055 GE Capital Mortgage Services, Inc., 1994-24 A4, 7% due 7/25/2024 152,627 Housing Securities Inc.: 186,053 1994-1 AB2, 6.50% due 3/25/2009 130,470 104,324 1994-2 B1, 6.50% due 7/25/2009 82,481 145,443 Independent National Mortgage Corporation, 1995-F A5, 8.25% due 5/25/2010 145,219 260,036 Ocwen Residential MBS Corporation, 1998-R2 AP, 7.124% due 11/25/2034 (a)(c) 264,546 891,341 Structured Asset Securities Corporation, 2002-9 A2, 1.72% due 10/25/2027 (a) 884,857 Washington Mutual Inc.: 600,000 2000-1 B1, 5.42% due 1/25/2040 (a)(c) 597,563 900,000 2002-AR4 A7, 5.58% due 4/25/2032 922,755 957,046 2002-S3 1A1, 6.50% due 6/25/2032 982,152 Wells Fargo Mortgage-Backed Securities Trust: 1,771,374 2002-3 A1, 5.50% due 3/25/2032 1,803,347 435,732 2002-A A2, 5.90% due 3/25/2032 437,112 ------------ 8,744,780 Commercial 2,500,000 Bank of America-First Union NB, 2001-3 A2, 5.464% Mortgage-Backed due 4/11/2037 2,671,107 Securities--7.0% 750,000 CS First Boston Mortgage Securities Corporation, 1995-WF1 D, 7.532% due 12/21/2027 791,052 2,150,622 First Union NB-Bank of America Commercial Mortgage Trust, 2001-C1 A1, 5.711% due 3/15/2033 (a) 2,313,736 2,024,506 GS Mortgage Securities Corporation II, 1998-C1 A1, 6.06% due 10/18/2030 (a) 2,147,506 1,600,000 Greenwich Capital Commercial Funding Corporation, 2002-C1-A4, 4.948% due 11/11/2025 1,633,250 1,250,000 LB-UBS Commercial Mortgage Trust, 2002-C1 A3, 6.226% due 3/15/2026 1,392,928 827,282 Nomura Asset Securities Corporation, 1995-MD3 A1B, 8.15% due 3/04/2020 911,032 ------------ 11,860,611 Total Non-Agency Mortgage-Baked Securities (Cost--$19,012,133) 20,605.391 Shares Held PREFERRED 500 Home Ownership Funding 2(c) 309,758 STOCKS - 0.2% Total Preferred Stocks (Cost - $500,000) 309,758
Merrill Lynch Total Return Bond Fund, December 31, 2002 SCHEDULE OF INVESTMENTS (concluded) (in U.S. dollars)
Total Return Bond Master Portfolio (concluded) Face Amount Investments Value U.S. TREASURY U.S. Treaury U.S. Treasury Bonds: OBLIGATIONS-- Bonds--3.7% $ 930,000 7.50% due 11/15/2016 $ 1,216,193 9.8% 570,000 8.125% due 8/15/2019 793,948 1,980,000 7.25% due 8/15/2022 2,576,861 430,000 6.25% due 8/15/2023 505,183 430,000 6.625% due 2/15/2027 531,218 610,000 5.375% due 2/15/2031 664,995 ------------ 6,288,398 U.S. Treasury US Treasury Notes: Notes--6.1% 215,000 1.875% due 9/30/2004 216,503 650,000 7.50% due 2/15/2005 728,863 2,500,000 6.50% due 5/15/2005 2,775,098 410,000 5.75% due 11/15/2005 453,226 1,080,000 6.25% due 2/15/2007 1,239,089 600,000 3.25% due 8/15/2007 614,860 1,330,000 6.125% due 8/15/2007 1,529,396 200,000 3% due 11/15/2007 202,406 950,000 4.75% due 11/15/2008 1,036,984 570,000 6.50% due 2/15/2010 681,328 820,000 5% due 2/15/2011 900,975 ------------ 10,378,728 Total U.S. Treasury Obligations (Cost--$16,096,692) 16,667,126 SHORT-TERM Commercial 5,000,000 Conoco Inc., 1.45% due 1/14/2003 4,997,583 INVESTMENTS-- Paper*--5.8% 4,815,000 Ryder System, 1.40% due 1/02/2003 4,815,000 5.8% Total Short-Term Investments (Cost - $9,812,583) 9,812,583 Total Investments (Cost - $191,794,186)--115.5% 196,617,900 Liabilities in Excess of Other Assets--(15.5)% (26,408,990) ------------ Net Assets - 100.0% $170,208,910 ============ (a)Floating rate note. (b)Represents a "to-be-announced" (TBA) transaction. The Portfolio has committed to purchasing securities for which all specific information is not available at this time. (c)The security may be offered and sold to "qualified institutional buyers" under Rule 144A of the Securities Act of 1933. (d)Target Return Index Securities (TRAINS). (e)Tradable Custodial Receipts (TRACERS). ++Mortgage-Backed Securities are subject to principal paydowns as a result of prepayments or refinancings of the underlying mortgage instruments. As a result, the average life may be substantially less than the original maturity. *Commercial Paper is traded on a discount basis; the interest rates shown reflect the discount rates paid at the time of purchase by the Portfolio. See Notes to Financial Statements.
STATEMENT OF ASSETS AND LIABILITIES
TOTAL RETURN BOND MASTER PORTFOLIO As of December 31, 2002 Assets: Investments, at value (identified cost--$191,794,186) $ 196,617,900 Receivables: Securities sold $ 26,576,779 Interest 1,835,272 Contributions 1,109,515 Paydowns 554,732 30,076,298 -------------- Prepaid expenses and other assets 112,302 -------------- Total assets 226,806,500 -------------- Liabilities: Payables: Securities purchased 54,060,667 Custodian bank 1,971,116 Withdrawals 502,053 Investment adviser 43,221 56,577,057 -------------- Accrued expenses 20,680 -------------- Total liabilities 56,597,737 -------------- Net Assets: Net assets $ 170,208,763 ============== Net Assets Investors' capital $ 165,385,049 Consist of: Unrealized appreciation on investments--net 4,823,714 -------------- Net assets $ 170,208,763 ============== See Notes to Financial Statements.
Merrill Lynch Total Return Bond Fund, December 31, 2002 STATEMENT OF OPERATIONS
TOTAL RETURN BOND MASTER PORTFOLIO For the Six Months Ended December 31, 2002 Investment Interest $ 4,123,847 Income: Dividends 33,716 -------------- Total income 4,157,563 -------------- Expenses: Investment advisory fees $ 253,777 Accounting services 77,873 Custodian fees 32,431 Professional fees 20,502 Pricing fees 10,272 Trustees' fees and expenses 4,970 Other 6,314 -------------- Total expenses 406,139 -------------- Investment income--net 3,751,424 -------------- Realized & Realized gain on investments--net 2,366,756 Unrealized Change in unrealized appreciation on investments--net 3,404,790 Gain on -------------- Investments--Net: Total realized and unrealized gain on investments--net 5,771,546 -------------- Net Increase in Net Assets Resulting from Operations $ 9,522,970 ============== See Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
For the Six For the TOTAL RETURN Months Ended Year Ended BOND MASTER December 31, June 30, PORTFOLIO Increase (Decrease) in Net Assets: 2002 2002 Operations: Investment income--net $ 3,751,424 $ 8,726,128 Realized gain on investments--net 2,366,756 2,570,410 Change in unrealized appreciation/depreciation on investments--net 3,404,790 2,102,703 -------------- -------------- Net increase in net assets resulting from operations 9,522,970 13,399,241 -------------- -------------- Capital Proceeds from contributions 41,385,059 119,146,818 Transactions: Fair value of withdrawals (34,642,875) (135,833,885) -------------- -------------- Net increase (decrease) in net assets derived from capital contributions 6,742,184 (16,687,067) -------------- -------------- Net Assets: Total increase (decrease) in net assets 16,265,154 (3,287,826) Beginning of period 153,943,609 157,231,435 -------------- -------------- End of period $ 170,208,763 $ 153,943,609 ============== ============== See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
For the Six For the For the Period TOTAL RETURN Months Ended Year Ended October 6, 2000++ BOND MASTER The following ratios have been derived from December 31, June 30, to June 30, PORTFOLIO information provided in the financial statements. 2002 2002 2001 Total Investment 6.38%+++ 9.97% -- Return:** ========== ========== ========== Ratios to Expenses .48%* .48% .42%* Average ========== ========== ========== Net Assets: Investment income--net 4.43%* 5.53% 6.59%* ========== ========== ========== Supplemental Net assets, end of period (in thousands) $ 170,209 $ 153,944 $ 157,231 Data: ========== ========== ========== Portfolio turnover 195.58% 208.91% 276.08% ========== ========== ========== *Annualized. **Total return is required to be disclosed for fiscal years beginning after December 15, 2000. ++Commencement of operations. +++Aggregate total investment return. See Notes to Financial Statements.
Merrill Lynch Total Return Bond Fund, December 31, 2002 NOTES TO FINANCIAL STATEMENTS TOTAL RETURN BOND MASTER PORTFOLIO 1. Significant Accounting Policies: Total Return Bond Master Portfolio (the "Portfolio") is a fund of Fund Asset Management Master Trust (the "Master Trust"). The Master Trust is registered under the Investment Company Act of 1940 and is organized as a Delaware business 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 accounting principles generally accepted in the United States of America, which may require the use of management accruals and estimates. These unaudited financial statements reflect all adjustments, which are, in the opinion of management, necessary to a fair statement of the results for the interim period presented. All such adjustments are of a normal, recurring nature. The following is a summary of significant accounting policies followed by the Portfolio. (a) Valuation of investments--Portfolio securities that are traded on stock exchanges are valued at the last sale price on the exchange on which such securities are traded, as of the close of business on the day the securities are being valued or, lacking any sales, at the last available bid price. Securities that are traded in the over- the-counter market are valued at the last available bid price prior to the time of valuation. In cases where securities are traded on more than one exchange, the securities are valued on the exchange designated by or under the authority of the Board of Trustees as the primary market. Securities that are traded both in the over-the- counter market and on a stock exchange are valued according to the broadest and most representative market. Short-term securities are valued at amortized cost, which approximates market value. Other investments are stated at market value. Securities and assets for which market quotations are not readily available are valued at fair market value, as determined in good faith by or under the direction of the Master Trust's Board of Trustees. (b) Derivative financial instruments--The Portfolio may engage in various portfolio strategies to increase or decrease the level of risk to which the Portfolio is exposed more quickly and efficiently than transactions in other types of instruments. Losses may arise due to changes in the value of the contract or if the counterparty does not perform under the contract. * Financial futures contracts--The Portfolio may purchase or sell financial futures contracts and options on such futures contracts for the purpose of hedging the market risk on existing securities or the intended purchase of securities. 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 value of the contract. Such receipts or payments are known as variation margin and are recorded by the Portfolio as unrealized gains or losses. When the contract is closed, the Portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. * Options--The Portfolio is authorized to 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). (c) Income taxes--The Portfolio is classified as a partnership for Federal income tax purposes. As such, each investor in the Portfolio is treated as owner of its proportionate share of the net assets, income, expenses and realized and unrealized gains and losses of the Portfolio. Accordingly, as a "pass through" entity, the Portfolio pays no income dividends or capital gains distributions. 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. (d) 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. Dividend income is recorded on the ex-dividend dates. Interest income (including amortization of premium and discount) is recognized on the accrual basis. (e) Prepaid registration fees--Prepaid registration fees are charged to expenses as the related shares are issued. (f) Custodian bank--The Fund recorded an amount payable to the custodian bank reflecting an overnight overdraft, which resulted from a failed trade that settled the next day. 2. Investment Advisory Agreement and Transactions with Affiliates: The Master 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 at an annual rate of .30% of the average daily value of the Portfolio's net assets. For the six months ended December 31, 2002, the Fund reimbursed FAM $1,889 for certain accounting services. Certain officers and/or trustees of the MasterTrust are officers and/or directors of FAM, PSI, and/or ML & Co. 3. Investments: Purchases and sales of investments, excluding short-term securities, for the six months ended December 31, 2002 were $357,875,294 and $364,006,934, respectively. Net realized gains (losses) for the six months ended December 31, 2002 and net unrealized gains as of December 31, 2002 were as follows: Realized Unrealized Gains (Losses) Gains Long-term investments $ 2,398,660 $ 4,823,714 Options written 37,520 -- Financial futures contracts (69,424) -- ------------- ------------- Total investments $ 2,366,756 $ 4,823,714 ============= ============= As of December 31, 2002, net unrealized appreciation for Federal income tax purposes aggregated $4,767,281, of which $5,100,871 related to appreciated securities and $333,590 related to depreciated securities. At December 31, 2002, the aggregate cost of investments for Federal income tax purposes was $191,850,619. 4. Short-Term Borrowings: The Master Trust, along with certain other funds managed by FAM and its affiliates, is a party to a credit agreement with Bank One, N.A. and certain other lenders. Effective November 29, 2002, in conjunction with the renewal for one year at the same terms, the total commitment was reduced from $1,000,000,000 to $500,000,000. 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 .09% per annum based on the Portfolio's pro rata share of the unused portion of the credit agreement. Amounts borrowed under the credit agreement bear interest at a rate equal to, at each fund's election, the Federal Funds rate plus .50% or a base rate as determined by Bank One, N.A. The Portfolio did not borrow under the credit agreement during the six months ended December 31, 2002. Item 2 - Did registrant adopt 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, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party? If not, why not? Briefly describe any amendments or waivers that occurred during the period. State here if code of ethics/amendments/waivers are on website and give website address-. State here if fund will send code of ethics to shareholders without charge upon request--N/A (not answered until July 15, 2003 and only annually for funds) Item 3 - Did the registrant's board of directors determine that the registrant either: (i) has at least one audit committee financial expert serving on its audit committee; or (ii) does not have an audit committee financial expert serving on its audit committee? If yes, disclose name of financial expert and whether he/she is "independent," (fund may, but is not required, to disclose name/independence of more than one financial expert) If no, explain why not. -N/A (not answered until July 15, 2003 and only annually for funds) Item 4 - Disclose annually only (not answered until December 15, 2003) (a) Audit Fees - Disclose aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of the registrant's annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years. N/A. (b) Audit-Related Fees - Disclose aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant's financial statements and are not reported under paragraph (a) of this Item. Registrants shall describe the nature of the services comprising the fees disclosed under this category. N/A. (c) Tax Fees - Disclose aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning. Registrants shall describe the nature of the services comprising the fees disclosed under this category. N/A. (d) All Other Fees - Disclose aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant, other than the services reported in paragraphs (a) through (c) of this Item. Registrants shall describe the nature of the services comprising the fees disclosed under this category. N/A. (e)(1) Disclose the audit committee's pre-approval policies and procedures described in paragraph (c)(7) of Rule 2-01 of Regulation S-X. N/A. (e)(2) Disclose the percentage of services described in each of paragraphs (b) through (d) of this Item that were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. N/A. (f) If greater than 50%, disclose the percentage of hours expended on the principal accountant's engagement to audit the registrant's financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant's full-time, permanent employees. N/A. (g) Disclose the aggregate non-audit fees billed by the registrant's accountant for services rendered to the registrant, and rendered to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant for each of the last two fiscal years of the registrant. N/A. (h) Disclose whether the registrant's audit committee has considered whether the provision of non-audit services that were rendered to the registrant's investment adviser (not including any subadviser whose role is primarily portfolio management and is subcontracted with or overseen by another 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. N/A. Items 5-6 - Reserved Item 7 - For closed-end funds that contain voting securities in their portfolio, describe the policies and procedures that it uses to determine how to vote proxies relating to those portfolio securities. N/A. Item 8--Reserved Item 9(a) - Disclose the conclusions of the registrant's principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, about the effectiveness of the registrant's disclosure controls and procedures (as defined in Rule 30a-2(c) under the Act (17 CFR 270.30a-2(c))) based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph. N/A. Item 9(b)--There were no significant changes in the registrant's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Item 10 - Exhibits 10(a) - Attach code of ethics or amendments/waivers, unless code of ethics or amendments/waivers is on website or offered to shareholders upon request without charge. N/A. 10(b) - Attach certifications (4 in total pursuant to Sections 302 and 906 for CEO/CFO). 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 Total Return Bond Fund By: _/s/ Terry K. Glenn_______ Terry K. Glenn, President of Merrill Lynch Total Return Bond Fund Date: February 18, 2003 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: _/s/ Terry K. Glenn________ Terry K. Glenn, President of Merrill Lynch Total Return Bond Fund Date: February 18, 2003 By: _/s/ Donald C. Burke________ Donald C. Burke Chief Financial Officer of Merrill Lynch Total Return Bond Fund Date: February 18, 2003 EX-99.CERT 3 ex99cert.txt EX-99 CERT EX-99. CERT CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Donald C. Burke, Chief Financial Officer of Merrill Lynch Total Return Bond Fund, certify that: 1. I have reviewed this report on Form N-CSR of Merrill Lynch Total Return Bond Fund and Master Total Return Bond Fund; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; and 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report. Date: February 18, 2003 /s/ Donald C. Burke_____ Donald C. Burke, Chief Financial Officer of Merrill Lynch Total Return Bond Fund Exhibit 99.1 Certification Pursuant to Section 906 of the Sarbanes Oxley Act I, Donald C. Burke, Chief Financial Officer of Merrill Lynch Total Return Bond Fund (the "Fund"), certify that: 1. The N-CSR of the Fund (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Fund. Dated: February 18, 2003 _/s/ Donald C. Burke____ Donald C. Burke, Chief Financial Officer of Merrill Lynch Total Return Bond Fund EX-99. CERT CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Terry K. Glenn, President of Merrill Lynch Total Return Bond Fund, certify that: 1. I have reviewed this report on Form N-CSR of Merrill Lynch Total Return Bond Fund and Master Total Return Bond Fund; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; and 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report. Date: February 18, 2003 /s/ Terry K. Glenn___ Terry K. Glenn, President of Merrill Lynch Total Return Bond Fund Exhibit 99.1 Certification Pursuant to Section 906 of the Sarbanes Oxley Act I, Terry K. Glenn, President of Merrill Lynch Total Return Bond Fund (the "Fund"), certify that: 1. The N-CSR of the Fund (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Fund. Dated: February 18, 2003 _/s/ Terry K. Glenn_____ Terry K. Glenn, President of Merrill Lynch Total Return Bond Fund -----END PRIVACY-ENHANCED MESSAGE-----