-----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, G1R5mxb3o6/KAgZgKK/a+PTVyQzrOnEhvbA4zA2FBqgBTW4XsYNZePjwaeVrCrgL bZfbYqZXPx7fOhNtfazNRA== 0001193805-04-001268.txt : 20040902 0001193805-04-001268.hdr.sgml : 20040902 20040902102426 ACCESSION NUMBER: 0001193805-04-001268 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20040630 FILED AS OF DATE: 20040902 DATE AS OF CHANGE: 20040902 EFFECTIVENESS DATE: 20040902 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 SEC ACT: 1940 Act SEC FILE NUMBER: 811-10053 FILM NUMBER: 041012602 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 1 e400720_ncsr-mllowduration.txt ANNUAL REPORT 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: Terry K. Glenn, President, Merrill Lynch Low Duration Fund of Merrill Lynch Investment Managers Funds, Inc. and Low Duration Master Portfolio of Fund Asset Management Master Trust, 800 Scudders Mill Road, Plainsboro, NJ, 08536. Mailing address: P.O. Box 9011, Princeton, NJ, 08543-9011 Registrant's telephone number, including area code: (609) 282-2800 Date of fiscal year end: 06/30/04 Date of reporting period: 07/01/03 - 06/30/04 Item 1 - Report to Stockholders [LOGO] Merrill Lynch Investment Managers www.mlim.ml.com Merrill Lynch Low Duration Fund Annual Report June 30, 2004 [LOGO] Merrill Lynch Investment Managers A Letter From the President [PHOTO] Dear Shareholder As we ended the current period, all eyes were on the Federal Reserve Board (the Fed). In a much-anticipated move, the Fed raised the Federal Funds rate on June 30 for the first time in four years, bringing the target rate to 1.25%, up from a 45-year low of 1%. The 25 basis point (.25%) increase was the first, but is not expected to be the last, this year as the Fed moves to "normalize" interest rates in the face of increasing inflation. The Fed has reiterated its intention to take a "measured" approach to interest rate increases in an effort to avoid upsetting the economy or the financial markets. Still, in its very deliberate wording, the Fed has stated that it may move more aggressively if inflation and economic growth indicate the need. In any case, interest rates are likely to remain low by historical standards for some time, particularly if the Fed does maintain its commitment to a gradual tightening. To provide some perspective, the Federal Funds rate was at 6.5% before the current easing cycle began in 2001 and had reached double-digits in the late 1970s and early 1980s. The transition to higher interest rates can cause concern among equity and fixed income investors alike. As interest rates rise, fixed income securities may become a more attractive investment option and thereby pressure equity prices. Higher interest rates also translate into increases in business costs, potentially cutting into corporate profits. For bond investors, rising interest rates means the value of older bonds declines because they carry the former lower interest rates. June month-end also brought the transfer of power in Iraq. Like the Fed tightening, this was a pivotal event. However, the outcome and the market repercussions are less easy to predict. We do know that markets will always fluctuate and that there are many uncertainties -- including the possibility of geopolitical events -- that can translate into negative market movements. Still, many of the world's economies are much stronger today than they were just one year ago. With this in mind, we encourage you to revisit your portfolio and your asset allocation strategy to ensure you are well positioned to take advantage of the opportunities that lie ahead. Importantly, you should consult with your financial advisor, who can help you assess the market and economic environment and then develop a strategy most suitable for your circumstances and financial goals. We thank you for trusting Merrill Lynch Investment Managers with your investment assets, and we look forward to serving you in the months and years ahead. Sincerely, /s/ Terry K. Glenn Terry K. Glenn President and Director/Trustee 2 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004 We are pleased to present to you the management team of Merrill Lynch Low Duration Fund [PHOTO] [PHOTO] Patrick Maldari Senior Portfolio Manager [PHOTO] James J. Pagano Senior Portfolio Manager Senior Portfolio Managers Pat Maldari and Jim Pagano co-head the Merrill Lynch Low Duration Fund team. Mr. Maldari, who joined Merrill Lynch Investment Managers in 1984, received a bachelor's degree from Montclair State University. He is a CFA(R) charterholder and a member of the Association for Investment Management and Research (AIMR) and the New York Society of Security Analysts (NYSSA). Mr. Pagano joined Merrill Lynch Investment Managers in 1997. He received a bachelor's degree from the United States Naval Academy and is a CFA charterholder. The portfolio management team also includes John Burger and Frank Viola, the corporate bond and mortgage-backed managers, respectively. Mr. Burger earned a bachelor's degree from Cornell University. He is a CFA charterholder and a member of the AIMR and NYSSA. Mr. Viola earned a bachelor's degree from The Pennsylvania State University. He is a CFA charterholder, an associate of the Society of Actuaries and a member of the American Academy of Actuaries. The team has a combined 65 years of investment experience. ================================================================================ Table of Contents - -------------------------------------------------------------------------------- A Letter From the President ............................................ 2 A Discussion With Your Fund's Portfolio Managers ....................... 4 Performance Data ....................................................... 6 Fund Financial Statements .............................................. 12 Fund Financial Highlights .............................................. 15 Fund Notes to Financial Statements ..................................... 20 Important Tax Information .............................................. 23 Master Schedule of Investments ......................................... 24 Master Portfolio Financial Statements .................................. 31 Master Portfolio Financial Highlights .................................. 34 Master Portfolio Notes to Financial Statements ......................... 35 Report of Independent Registered Public Accounting Firm ................ 23, 39 Officers & Directors/Trustees .......................................... 40 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004 3 [LOGO] Merrill Lynch Investment Managers A Discussion With Your Fund's Portfolio Managers The Fund continued to pursue its goal of enhancing total return and preserving capital, and benefited most during the period from its exposure to spread sectors. How did the Fund perform during the period in light of the existing market conditions? For the 12-month period ended June 30, 2004, Merrill Lynch Low Duration Fund's Class A, Class B, Class C, Class I and Class R Shares had total returns of +.66%, -.11%, -.11%, +.81% and +.56%, respectively. (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 - 11 of this report to shareholders.) Fund results were generally in line with the benchmark, the Merrill Lynch 1 - 3 Year Corporate and Government Index, which returned +.73% for the same period. In July 2003, as the period began, the yield on the 10-year Treasury note stood at 3.56%. As the U.S. economy began heating up, and as investors began to factor in rising inflation and the potential for increased interest rates, the yield on the 10-year Treasury climbed more than 100 basis points (1.00%) to end the period at 4.65%. It appeared that investors had been factoring in increases in short-term interest rates by the Federal Reserve Board (the Fed), while also responding to inflationary pressures. Under these conditions, we attempted to insulate the Fund from the effects of rising rates through a dual strategy of shortening duration and focusing on spread sectors -- those areas of the fixed income market with a lower correlation to Treasury issues. This strategy allowed the portfolio to benefit from overweight positions in those sectors of the fixed income market that we believed were best positioned to benefit from an improving economy. Duration is a gauge of an investment's sensitivity to interest rate changes, measured in years. The lower (or "shorter") the duration of a portfolio, the less it will be impacted by interest rate volatility. During the period under review, we positioned the Fund to have a shorter-than-benchmark duration. The Federal Funds Futures curve is forecasting several additional interest rate increases over the next year, and we believe the Fed is poised to continue raising interest rates through the remainder of 2004 and into 2005. In such an environment, a shorter duration should help protect the portfolio from the negative price impact associated with rising interest rates. We also were able to avoid some of the interest rate volatility that occurred during the period by maintaining a significant position in spread sectors (corporate bonds and mortgage securities). These sectors are not as dramatically affected by interest rate changes as Treasury securities; therefore, they are less susceptible to interest rate risk. Additionally, when the U.S. economy is improving or expanding, spread sectors, and particularly lower-quality corporate bonds, tend to outperform Treasury securities. Our emphasis on spread sectors included a focus on corporate bonds (both investment grade and high yield) and a significant overweight position in BBB-rated securities, relative to the benchmark. We also focused on agency mortgage collateral and collateralized mortgage obligations (CMOs), non-agency CMOs, asset-backed securities and commercial mortgage-backed securities. By investing in all of these sectors, our goal was to find investment opportunities across a variety of markets to add value to the Fund. In general, we were overweight in all of these sectors relative to the benchmark, as an average of 90% of net assets was in spread sectors. As a result, we also had an underweight position in Treasury issues relative to the benchmark, based on our belief that Treasury securities offered less value to investors. During the year, this strategy did contribute to relative performance as corporate bonds posted superior returns compared to Treasury securities. Investment grade corporate bonds, measured by the Merrill Lynch 1 - 3 Year Corporate Index, returned +1.56% for the 12 months ended June 30, 2004, while Treasury securities, measured by the Merrill Lynch 1 - 3 Year Treasury Index, returned +.50%. What changes were made to the portfolio during the period? As indicated above, we felt that a significant opportunity existed in the corporate bond market, particularly in the lower-quality area of the corporate market. Therefore, we reduced our allocation in A-rated corporates from 17% of net assets to 12% and increased our exposure to BBB-rated securities from 23% to 28%. Most of the BBB opportunities we found were in the automobile and real estate sectors of the market. 4 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004 As mentioned earlier, we also reduced the duration of the Fund during the year. At the beginning of the period, the Fund's duration was neutral versus the benchmark. We moved this range closer to 10% short versus the benchmark in February in anticipation of rising interest rates. On July 1, 2003, the Fund had a duration of 1.72 years, compared to a similar duration of 1.65 years for the Merrill Lynch 1 - 3 Year Corporate and Government Bond Index. One year later, on June 30, 2004, the Fund had a duration of 1.47 years, compared to 1.75 for the Index. How would you characterize the Fund's position at the close of the period? Given our outlook for improving economic conditions, the Fund remained positioned to take advantage of opportunities in higher-beta sectors such as BBB-rated securities and high yield bonds that have greater sensitivity to the overall economy. We expect that these sectors will perform well relative to U.S. Treasury issues when the economy is expanding. During the past year, interest rates moved below what we initially thought was the lower end of their trading ranges, which was 4.65% for the 10-year Treasury and 3.70% for the five-year Treasury. These moves occurred as a result of economic releases that were weaker than consensus expectations, most notably a disappointing employment report. Economic data suggests that U.S. gross domestic product growth might not move to the 4.5% to 5% range that the consensus previously was expecting, but could be a more sustainable 3.5% to 4% rate. Such an environment should continue to exert upward pressure on Treasury yields, and could push the yield on the 10-year Treasury to the 5% range. We continue to believe that the prevailing economic environment will continue to be supportive of spread sectors and, more specifically, of lower-quality spread sectors. Therefore, we plan to continue to focus our efforts in these areas. Given our forecast for an environment of increasing interest rates, we also plan to continue to maintain a below-benchmark duration to help protect the portfolio from undue interest rate risk. As always, we will continue to closely monitor economic and market trends and will make additional changes to the Fund's strategy, as appropriate, in our efforts to capitalize on investment opportunities. Patrick Maldari Vice President and Portfolio Manager James J. Pagano Vice President and Portfolio Manager July 12, 2004 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004 5 [LOGO] Merrill Lynch Investment Managers Performance Data About Fund Performance Investors are able to purchase shares of the Fund through multiple pricing alternatives: o Class A Shares incur a maximum initial sales charge of 3% and an account maintenance fee of 0.25% (but no distribution fee). o 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 0.65% and an account maintenance fee of 0.25%. 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% 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. o Class I Shares incur a maximum initial sales charge (front-end load) of 3% and bear no ongoing distribution or account maintenance fees. Class I Shares are available only to eligible investors. o Class R Shares do not incur a maximum sales charge (front-end load) or deferred sales charge. These shares are subject to a distribution fee of 0.25% and an account maintenance fee of 0.25%. Class R Shares are available only to certain retirement plans. The performance results depicted on pages 7 - 10 are those of Merrill Lynch Low Duration Fund and, prior to October 6, 2000, a predecessor Fund investing in the same underlying portfolio and with the same fees as Merrill Lynch Low Duration Fund. Performance results prior to October 6, 2000 reflect the annual operating expenses of the predecessor Fund. If Merrill Lynch Low Duration Fund's operating expenses were reflected, the results may have been less than those shown for this time period. Performance results after October 6, 2000 include the actual operating expenses of Merrill Lynch Low Duration Fund. The Fund commenced operations on October 6, 2000. None of the past results shown should be considered a representation of future performance. Current performance may be lower or higher than the performance data quoted. Refer to www.mlim.ml.com to obtain more current performance information. 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, 2004 Performance Data (continued) Recent Performance Results*
10-Year/ 6-Month 12-Month Since Inception Standardized As of June 30, 2004 Total Return Total Return Total Return 30-Day Yield ==================================================================================================================================== ML Low Duration Fund Class A Shares* +0.07% +0.66% +23.88% 2.12% - ------------------------------------------------------------------------------------------------------------------------------------ ML Low Duration Fund Class B Shares* -0.36 -0.11 +14.18 1.53 - ------------------------------------------------------------------------------------------------------------------------------------ ML Low Duration Fund Class C Shares* -0.36 -0.11 +14.01 1.53 - ------------------------------------------------------------------------------------------------------------------------------------ ML Low Duration Fund Class I Shares* +0.09 +0.81 +79.23 2.37 - ------------------------------------------------------------------------------------------------------------------------------------ ML Low Duration Fund Class R Shares* -0.16 +0.56 + 3.13 1.94 - ------------------------------------------------------------------------------------------------------------------------------------ Merrill Lynch 1 - 3 Year Corporate & Government Index** -0.02 +0.73 +77.94/+28.86/+21.55/+3.03 -- - ------------------------------------------------------------------------------------------------------------------------------------
* Investment results shown do not reflect sales charges; results shown would be lower if a sales charge was 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 ex-dividend date. The Fund's 10-year/since inception periods are 10 years for Class I Shares, from 9/24/99 for Class A Shares, from 10/06/00 for Class B & Class C Shares and from 1/03/03 for Class R Shares. ** This unmanaged Index is comprised of investment grade corporate bonds and U.S. Treasury and agency securities with a maturity ranging from one year to three years. Ten-year/since inception total returns are for 10 years, from 9/24/99, from 10/06/00 and from 1/03/03, respectively. MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004 7 [LOGO] Merrill Lynch Investment Managers Performance Data (continued) Total Return Based on a $10,000 Investment--Class A Shares A line graph depicting the growth of an investment in the Fund's Class A Shares compared to growth of an investment in the Merrill Lynch 1-3 Year Corporate & Government Index. Values are from September 24, 1999 through June 2004:
9/24/99** 6/00 6/01 6/02 6/03 6/04 ML Low Duration Fund+-- Class A Shares* $ 9,700 $10,070 $10,830 $11,320 $11,927 $12,006 9/30/99** 6/00 6/01 6/02 6/03 6/04 Merrill Lynch 1-3 Year Corporate and Government Index++ $10,000 $10,365 $11,342 $12,116 $12,798 $12,891
* Assuming maximum sales charge, transaction costs and other operating expenses, including advisory fees. ** Commencement of operations. + The Fund invests all of its assets in Low Duration Master Portfolio of Fund Asset Management Master Trust. The Portfolio invests in bonds of varying maturities with a portfolio duration of one to three years. ++ This unmanaged Index is comprised of investment grade corporate bonds and U.S. Treasury and agency securities with a maturity ranging from one year to three years. Past performance is not indicative of future results. Average Annual Total Return Return Without Return With Sales Charge Sales Charge** ================================================================================ Class A Shares* ================================================================================ One Year Ended 6/30/04 +0.66% -2.36% - -------------------------------------------------------------------------------- Inception (9/24/99) through 6/30/04 +4.59 +3.93 - -------------------------------------------------------------------------------- * Maximum sales charge is 3%. ** Assuming maximum sales charge. 8 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004 Performance Data (continued) Total Return Based on a $10,000 Investment--Class B & Class C Shares A line graph depicting the growth of an investment in the Fund's Class B & Class C Shares compared to growth of an investment in the Merrill Lynch 1-3 Year Corporate & Government Index. Values are from October 6, 2000 through June 2004:
10/06/00** 6/01 6/02 6/03 6/04 ML Low Duration Fund+-- Class B Shares* $10,000 $10,516 $10,910 $11,431 $11,118 ML Low Duration Fund+-- Class C Shares* $10,000 $10,510 $10,904 $11,414 $11,401 Merrill Lynch 1-3 Year Corporate and Government Index++ $10,000 $10,694 $11,423 $12,067 $12,155
* Assuming maximum sales charge, transaction costs and other operating expenses, including advisory fees. ** Commencement of operations. + The Fund invests all of its assets in Low Duration Master Portfolio of Fund Asset Management Master Trust. The Portfolio invests in bonds of varying maturities with a portfolio duration of one to three years. ++ This unmanaged Index is comprised of investment grade corporate bonds and U.S. Treasury and agency securities with a maturity ranging from one year to three years. Past performance is not indicative of future results. Average Annual Total Return Return Return Without CDSC With CDSC** ================================================================================ Class B Shares* ================================================================================ One Year Ended 6/30/04 -0.11% -4.02% - -------------------------------------------------------------------------------- Inception (10/06/00) through 6/30/04 +3.62 +2.88 - -------------------------------------------------------------------------------- * Maximum contingent deferred sales charge is 4% and is reduced to 0% after six years. ** Assuming payment of applicable contingent deferred sales charge. Return Return Without CDSC With CDSC** ================================================================================ Class C Shares* ================================================================================ One Year Ended 6/30/04 -0.11% -1.09% - -------------------------------------------------------------------------------- Inception (10/06/00) through 6/30/04 +3.58 +3.58 - -------------------------------------------------------------------------------- * 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, 2004 9 [LOGO] Merrill Lynch Investment Managers Performance Data (continued) Total Return Based on a $10,000 Investment--Class I Shares A line graph depicting the growth of an investment in the Fund's Class I Shares compared to growth of an investment in the Merrill Lynch 1-3 Year Corporate & Government Index. Values are from June 1994 through June 2004:
6/94 6/95 6/96 6/97 6/98 ML Low Duration Fund+-- Class I Shares* $ 9,700 $10,693 $11,494 $12,390 $13,251 Merrill Lynch 1-3 Year Corporate and Government Index++ $10,000 $10,782 $11,378 $12,134 $12,965 6/99 6/00 6/01 6/02 6/03 6/04 ML Low Duration Fund+-- Class I Shares* $13,693 $14,431 $15,603 $16,333 $17,250 $17,389 Merrill Lynch 1-3 Year Corporate and Government Index++ $13,635 $14,305 $15,654 $16,721 $17,663 $17,792
* Assuming maximum sales charge, transaction costs and other operating expenses, including advisory fees. + The Fund invests all of its assets in Low Duration Master Portfolio of Fund Asset Management Master Trust. The Portfolio invests in bonds of varying maturities with a portfolio duration of one to three years. ++ This unmanaged Index is comprised of investment grade corporate bonds and U.S. Treasury and agency securities with a maturity ranging from one year to three years. Past performance is not indicative of future results. Average Annual Total Return Return Without Return With Sales Charge Sales Charge** ================================================================================ Class I Shares* ================================================================================ One Year Ended 6/30/04 +0.81% -2.21% - -------------------------------------------------------------------------------- Five Years Ended 6/30/04 +4.89 +4.25 - -------------------------------------------------------------------------------- Ten Years Ended 6/30/04 +6.01 +5.69 - -------------------------------------------------------------------------------- * Maximum sales charge is 3%. ** Assuming maximum sales charge. 10 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004 Performance Data (concluded) Total Return Based on a $10,000 Investment--Class R Shares A line graph depicting the growth of an investment in the Fund's Class R Shares compared to growth of an investment in the Merrill Lynch 1-3 Year Corporate & Government Index. Values are from January 3, 2003 through June 2004: 1/03/03** 6/03 6/04 ML Low Duration Fund+-- Class R Shares* $10,000 $12,255 $10,313 2/04/03 6/03 6/04 Merrill Lynch 1-3 Year Corporate & Government Index++ $10,000 $12,228 $10,303 * Assuming maximum sales charge, transaction costs and other operating expenses, including advisory fees. ** Commencement of operations. + The Fund invests all of its assets in Low Duration Master Portfolio of Fund Asset Management Master Trust. The Portfolio invests in bonds of varying maturities with a portfolio duration of one to three years. ++ This unmanaged Index is comprised of investment grade corporate bonds and U.S. Treasury and agency securities with a maturity ranging from one year to three years. Past performance is not indicative of future results. Average Annual Total Return Class R Shares Return ================================================================================ One Year Ended 6/30/04 +0.56% - -------------------------------------------------------------------------------- Inception (1/03/03) through 6/30/04 +3.13 - -------------------------------------------------------------------------------- MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004 11 [LOGO] Merrill Lynch Investment Managers Statement of Assets and Liabilities Merrill Lynch Low Duration Fund As of June 30, 2004 ============================================================================================================================= Assets - ----------------------------------------------------------------------------------------------------------------------------- Investment in Low Duration Master Portfolio, at value (identified cost--$745,957,480) .................................. $ 740,023,811 Prepaid expenses .................................................. 26,900 ------------- Total assets ...................................................... 740,050,711 ------------- ============================================================================================================================= Liabilities - ----------------------------------------------------------------------------------------------------------------------------- Payables: Dividends to shareholders ...................................... $ 430,726 Distributor .................................................... 302,988 Other affiliates ............................................... 128,400 Administrator .................................................. 15,189 877,303 ------------- Accrued expenses .................................................. 22,254 ------------- Total liabilities ................................................. 899,557 ------------- ============================================================================================================================= Net Assets - ----------------------------------------------------------------------------------------------------------------------------- Net assets ........................................................ $ 739,151,154 ============= ============================================================================================================================= Net Assets Consist of - ----------------------------------------------------------------------------------------------------------------------------- Class A Shares of Common Stock, $.01 par value, 100,000,000 shares authorized ................................................ $ 124,014 Class B Shares of Common Stock, $.01 par value, 200,000,000 shares authorized ................................................ 129,023 Class C Shares of Common Stock, $.01 par value, 100,000,000 shares authorized ................................................ 236,083 Class I Shares of Common Stock, $.01 par value, 100,000,000 shares authorized ................................................ 236,847 Class R Shares of Common Stock, $.01 par value, 200,000,000 shares authorized ................................................ 2,353 Paid-in capital in excess of par .................................. 759,664,084 Accumulated distributions in excess of investment income--net ..... $ (120,892) Accumulated realized capital losses on investments and foreign currency transactions allocated from the Portfolio--net .......... (15,186,689) Unrealized depreciation on investments allocated from the Portfolio--net ................................................... (5,933,669) ------------- Total accumulated losses--net ..................................... (21,241,250) ------------- Net Assets ........................................................ $ 739,151,154 ============= ============================================================================================================================= Net Asset Value - ----------------------------------------------------------------------------------------------------------------------------- Class A--Based on net assets of $125,950,264 and 12,401,374 shares outstanding ............................................... $ 10.16 ============= Class B--Based on net assets of $130,802,191 and 12,902,340 shares outstanding ............................................... $ 10.14 ============= Class C--Based on net assets of $239,262,807 and 23,608,299 shares outstanding ............................................... $ 10.13 ============= Class I--Based on net assets of $240,749,275 and 23,684,728 shares outstanding ............................................... $ 10.16 ============= Class R--Based on net assets of $2,386,617 and 235,295 shares outstanding ...................................................... $ 10.14 =============
See Notes to Financial Statements. 12 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004 Statement of Operations Merrill Lynch Low Duration Fund For the Year Ended June 30, 2004 ============================================================================================================================= Investment Income Allocated from the Portfolio--Net - ----------------------------------------------------------------------------------------------------------------------------- Net investment income allocated from the Portfolio: Interest ....................................................... $ 27,602,162 Dividends ...................................................... 201,047 Securities lending--net ........................................ 21,885 Expenses ....................................................... (2,096,563) ------------- Net investment income allocated from the Portfolio ................ 25,728,531 ------------- ============================================================================================================================= Expenses - ----------------------------------------------------------------------------------------------------------------------------- Account maintenance and distribution fees--Class C ................ $ 2,283,227 Administration fees ............................................... 1,891,232 Account maintenance and distribution fees--Class B ................ 1,218,199 Account maintenance fees--Class A ................................. 357,294 Transfer agent fees--Class C ...................................... 282,722 Transfer agent fees--Class I ...................................... 217,334 Transfer agent fees--Class B ...................................... 156,088 Transfer agent fees--Class A ...................................... 137,999 Registration fees ................................................. 117,623 Printing and shareholder reports .................................. 53,645 Account maintenance and distribution fees--Class R ................ 7,157 Transfer agent fees--Class R ...................................... 1,462 ------------- Total expenses .................................................... 6,723,982 ------------- Investment income--net ............................................ 19,004,549 ------------- ============================================================================================================================= Realized & Unrealized Loss on Investments Allocated from the Portfolio--Net - ----------------------------------------------------------------------------------------------------------------------------- Realized loss on investments allocated from the Portfolio--net .... (2,237,834) Change in unrealized appreciation/depreciation on investments allocated from the Portfolio--net ................................ (14,412,826) ------------- Total realized and unrealized loss on investments allocated from the Portfolio--net .......................................... (16,650,660) ------------- Net Increase in Net Assets Resulting from Operations .............. $ 2,353,889 =============
See Notes to Financial Statements. MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004 13 [LOGO] Merrill Lynch Investment Managers Statements of Changes in Net Assets Merrill Lynch Low Duration Fund
For the Year Ended June 30, ------------------------------- Increase (Decrease) in Net Assets: 2004 2003 ============================================================================================================================= Operations - ----------------------------------------------------------------------------------------------------------------------------- Investment income--net ............................................ $ 19,004,549 $ 12,780,582 Realized gain (loss) on investments allocated from the Portfolio--net ................................................... (2,237,834) 1,729,075 Change in unrealized appreciation/depreciation on investments allocated from the Portfolio--net ................................ (14,412,826) 7,502,338 ------------------------------- Net increase in net assets resulting from operations .............. 2,353,889 22,011,995 ------------------------------- ============================================================================================================================= Dividends to Shareholders - ----------------------------------------------------------------------------------------------------------------------------- Investment income--net: Class A ........................................................ (4,000,377) (3,951,943) Class B ........................................................ (2,888,117) (2,616,559) Class C ........................................................ (5,423,362) (4,992,750) Class I ........................................................ (6,749,059) (1,467,547) Class R ........................................................ (35,048) (2) ------------------------------- Net decrease in net assets resulting from dividends to shareholders (19,095,963) (13,028,801) ------------------------------- ============================================================================================================================= Capital Share Transactions - ----------------------------------------------------------------------------------------------------------------------------- Net increase in net assets derived from capital share transactions 17,705,029 405,029,497 ------------------------------- ============================================================================================================================= Net Assets - ----------------------------------------------------------------------------------------------------------------------------- Total increase in net assets ...................................... 962,955 414,012,691 Beginning of year ................................................. 738,188,199 324,175,508 ------------------------------- End of year* ...................................................... $ 739,151,154 $ 738,188,199 =============================== * Accumulated distributions in excess of investment income--net $ (120,892) $ (97,547) ===============================
See Notes to Financial Statements. 14 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004 Financial Highlights Merrill Lynch Low Duration Fund
Class A ----------------------------------------------------------------- The following per share data and ratios have been derived For the Year Ended For the Period from information provided in the financial statements. June 30, October 6, 2000+ ----------------------------------------------- to June 30, Increase (Decrease) in Net Asset Value: 2004 2003@@ 2002@@ 2001@@ ================================================================================================================================== Per Share Operating Performance - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period . $ 10.38 $ 10.16 $ 10.19 $ 10.00 ----------------------------------------------------------------- Investment income--net ............... .29++ .31++ .34++ .36 Realized and unrealized gain (loss) on investments and foreign currency transactions allocated from the Portfolio--net ...................... (.22) .23 .12 .19 ----------------------------------------------------------------- Total from investment operations ..... .07 .54 .46 .55 ----------------------------------------------------------------- Less dividends and distributions: Investment income--net ............ (.29) (.32) (.48) (.36) Realized gain on investments allocated from the Portfolio--net -- -- (.01) -- ----------------------------------------------------------------- Total dividends and distributions .... (.29) (.32) (.49) (.36) ----------------------------------------------------------------- Net asset value, end of period ....... $ 10.16 $ 10.38 $ 10.16 $ 10.19 ================================================================= ================================================================================================================================== Total Investment Return** - ---------------------------------------------------------------------------------------------------------------------------------- Based on net asset value per share ... .66% 5.36% 4.53% 5.58%@ ================================================================= ================================================================================================================================== Ratios to Average Net Assets - ---------------------------------------------------------------------------------------------------------------------------------- Expenses, net of waiver and reimbursement and excluding reorganization expenses+++ .......... .89% .95% .83% .83%* ================================================================= Expenses+++ .......................... .89% 1.00% 1.02% 8.76%* ================================================================= Investment income--net ............... 2.78% 3.03% 4.04% 5.75%* ================================================================= ================================================================================================================================== Supplemental Data - ---------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) ...................... $ 125,950 $ 152,780 $ 110,014 $ 268 ================================================================= Portfolio turnover of Low Duration Master Portfolio .................... 107.13% 198.09% 70.92% 192.04% =================================================================
* Annualized. ** Total investment returns exclude the effect of sales charges. If applicable, 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. ++ Based on average shares outstanding. +++ Includes the Fund's share of the Portfolio's allocated expenses. @ Aggregate total investment return. @@ Effective April 14, 2003, Class D Shares were redesignated Class A Shares. See Notes to Financial Statements. MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004 15 [LOGO] Merrill Lynch Investment Managers Financial Highlights (continued) Merrill Lynch Low Duration Fund
Class B ----------------------------------------------------------------- The following per share data and ratios have been derived For the Year Ended For the Period from information provided in the financial statements. June 30, October 6, 2000+ ----------------------------------------------- to June 30, Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001 ================================================================================================================================== Per Share Operating Performance - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period . $ 10.37 $ 10.14 $ 10.18 $ 10.00 ----------------------------------------------------------------- Investment income--net ............... .22++ .24++ .37++ .33 Realized and unrealized gain (loss) on investments and foreign currency transactions allocated from the Portfolio--net ...................... (.23) .24 .01 .18 ----------------------------------------------------------------- Total from investment operations ..... (.01) .48 .38 .51 ----------------------------------------------------------------- Less dividends and distributions: Investment income--net ............ (.22) (.25) (.41) (.33) Realized gain on investments allocated from the Portfolio--net -- -- (.01) -- ----------------------------------------------------------------- Total dividends and distributions .... (.22) (.25) (.42) (.33) ----------------------------------------------------------------- Net asset value, end of period ....... $ 10.14 $ 10.37 $ 10.14 $ 10.18 ================================================================= ================================================================================================================================== Total Investment Return** - ---------------------------------------------------------------------------------------------------------------------------------- Based on net asset value per share ... (.11%) 4.77% 3.75% 5.16%@ ================================================================= ================================================================================================================================== Ratios to Average Net Assets - ---------------------------------------------------------------------------------------------------------------------------------- Expenses, net of waiver and reimbursement and excluding reorganization expenses+++ .......... 1.56% 1.61% 1.48% 1.48%* ================================================================= Expenses+++ .......................... 1.56% 1.66% 1.70% 9.41%* ================================================================= Investment income--net ............... 2.12% 2.36% 3.75% 5.10%* ================================================================= ================================================================================================================================== Supplemental Data - ---------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) ...................... $ 130,802 $ 139,688 $ 64,457 $ 5,016 ================================================================= Portfolio turnover of Low Duration Master Portfolio .................... 107.13% 198.09% 70.92% 192.04% =================================================================
* Annualized. ** Total investment returns exclude the effect of sales charges. If applicable, 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. ++ Based on average shares outstanding. +++ Includes the Fund's share of the Portfolio's allocated expenses. @ Aggregate total investment return. See Notes to Financial Statements. 16 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004 Financial Highlights (continued) Merrill Lynch Low Duration Fund
Class C ----------------------------------------------------------------- The following per share data and ratios have been derived For the Year Ended For the Period from information provided in the financial statements. June 30, October 6, 2000+ ----------------------------------------------- to June 30, Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001 ================================================================================================================================== Per Share Operating Performance - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period . $ 10.36 $ 10.14 $ 10.18 $ 10.00 ----------------------------------------------------------------- Investment income--net ............... .22++ .24++ .35++ .32 Realized and unrealized gain (loss) on investments and foreign currency transactions allocated from the Portfolio--net ...................... (.23) .23 .03 .18 ----------------------------------------------------------------- Total from investment operations ..... (.01) .47 .38 .50 ----------------------------------------------------------------- Less dividends and distributions: Investment income--net ............ (.22) (.25) (.41) (.32) Realized gain on investments allocated from the Portfolio--net -- -- (.01) -- ----------------------------------------------------------------- Total dividends and distributions .... (.22) (.25) (.42) (.32) ----------------------------------------------------------------- Net asset value, end of period ....... $ 10.13 $ 10.36 $ 10.14 $ 10.18 ================================================================= ================================================================================================================================== Total Investment Return** - ---------------------------------------------------------------------------------------------------------------------------------- Based on net asset value per share ... (.11%) 4.68% 3.75% 5.10%@ ================================================================================================================================== Ratios to Average Net Assets - ---------------------------------------------------------------------------------------------------------------------------------- Expenses, net of waiver and reimbursement and excluding reorganization expenses+++ .......... 1.56% 1.61% 1.48% 1.48%* ================================================================= Expenses+++ .......................... 1.56% 1.66% 1.68% 9.41%* ================================================================= Investment income--net ............... 2.12% 2.37% 3.62% 5.10%* ================================================================= ================================================================================================================================== Supplemental Data - ---------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) ...................... $ 239,263 $ 263,066 $ 126,380 $ 4,754 ================================================================= Portfolio turnover of Low Duration Master Portfolio .................... 107.13% 198.09% 70.92% 192.04% =================================================================
* Annualized. ** Total investment returns exclude the effect of sales charges. If applicable, 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. ++ Based on average shares outstanding. +++ Includes the Fund's share of the Portfolio's allocated expenses. @ Aggregate total investment return. See Notes to Financial Statements. MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004 17 [LOGO] Merrill Lynch Investment Managers Financial Highlights (continued) Merrill Lynch Low Duration Fund
Class I ----------------------------------------------------------------- The following per share data and ratios have been derived For the Year Ended For the Period from information provided in the financial statements. June 30, October 6, 2000+ ----------------------------------------------- to June 30, Increase (Decrease) in Net Asset Value: 2004 2003@@ 2002@@ 2001@@ ================================================================================================================================== Per Share Operating Performance - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period . $ 10.39 $ 10.17 $ 10.21 $ 10.00 ----------------------------------------------------------------- Investment income--net ............... .31++ .31++ .45++ .40 Realized and unrealized gain (loss) on investments and foreign currency transactions allocated from the Portfolio--net ...................... (.23) .25 .02 .19 ----------------------------------------------------------------- Total from investment operations ..... .08 .56 .47 .59 ----------------------------------------------------------------- Less dividends and distributions: Investment income--net ............ (.31) (.34) (.50) (.38) Realized gain on investments allocated from the Portfolio--net -- -- (.01) -- ----------------------------------------------------------------- Total dividends and distributions .... (.31) (.34) (.51) (.38) ----------------------------------------------------------------- Net asset value, end of period ....... $ 10.16 $ 10.39 $ 10.17 $ 10.21 ================================================================= ================================================================================================================================== Total Investment Return** - ---------------------------------------------------------------------------------------------------------------------------------- Based on net asset value per share ... .81% 5.61% 4.68% 5.95%@ ================================================================= ================================================================================================================================== Ratios to Average Net Assets - ---------------------------------------------------------------------------------------------------------------------------------- Expenses, net of waiver and reimbursement and excluding reorganization expenses+++ .......... .65% .70% .58% .58%* ================================================================= Expenses+++ .......................... .65% .75% .78% 8.51%* ================================================================= Investment income--net ............... 3.00% 3.29% 4.51% 6.00%* ================================================================= ================================================================================================================================== Supplemental Data - ---------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) ...................... $ 240,749 $ 182,654 $ 23,325 $ 1,156 ================================================================= Portfolio turnover of Low Duration Master Portfolio .................... 107.13% 198.09% 70.92% 192.04% =================================================================
* Annualized. ** Total investment returns exclude the effect of sales charges. If applicable, 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. ++ Based on average shares outstanding. +++ Includes the Fund's share of the Portfolio's allocated expenses. @ Aggregate total investment return. @@ Effective April 14, 2003, Class A Shares were redesignated Class I Shares. See Notes to Financial Statements. 18 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004 Financial Highlights (concluded) Merrill Lynch Low Duration Fund
Class R ----------------------------- The following per share data and ratios have been derived For the For the Period from information provided in the financial statements. Year Ended January 3, 2003+ June 30, to June 30, Increase (Decrease) in Net Asset Value: 2004 2003 ============================================================================================================== Per Share Operating Performance - -------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period .............. $ 10.37 $ 10.29 ---------------------------- Investment income--net@ ........................... .17 .18 Realized and unrealized gain (loss) on investments allocated from the Portfolio--net .... (.11) .08 ---------------------------- Total from investment operations .................. .06 .26 ---------------------------- Less dividends from investment income--net ........ (.29) (.18) ---------------------------- Net asset value, end of period .................... $ 10.14 $ 10.37 ============================ ============================================================================================================== Total Investment Return** - -------------------------------------------------------------------------------------------------------------- Based on net asset value per share ................ .56% 2.55%++ ============================ ============================================================================================================== Ratios to Average Net Assets - -------------------------------------------------------------------------------------------------------------- Expenses, excluding reorganization expenses+++ .... 1.16% 1.19%* ============================ Expenses+++ ....................................... 1.16% 1.28%* ============================ Investment income--net ............................ 2.42% 2.74%* ============================ ============================================================================================================== Supplemental Data - -------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) .......... $ 2,387 --@@ ============================ Portfolio turnover of Low Duration Master Portfolio 107.13% 198.09% ============================
* Annualized. ** Total investment returns exclude the effect of sales charges. + Commencement of operations. ++ Aggregate total investment return. +++ Includes the Fund's share of the Portfolio's allocated expenses. @ Based on average shares outstanding. @@ Amount is less than $1,000. See Notes to Financial Statements. MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004 19 [LOGO] Merrill Lynch Investment Managers 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 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, 2004 was 100%. The Fund's financial statements are prepared in conformity with U.S. generally accepted accounting principles, which may require the use of management accruals and estimates. Actual results may differ from these estimates. The Fund offers multiple classes of shares. Shares of Class A and Class I are sold with a front-end sales charge. Shares of Class B and Class C may be subject to a contingent deferred sales charge. Class R Shares are sold only to certain retirement plans. All classes of shares have identical voting, dividend, liquidation and other rights and the same terms and conditions, except that Class A, Class B, Class C and Class R Shares bear certain expenses related to the account maintenance of such shares, and Class B, Class C and Class R Shares also bear certain expenses related to the distribution of such shares. Each class has exclusive voting rights with respect to matters relating to its account maintenance and distribution expenditures. 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 expense as the related shares are issued. (e) Dividends and distributions -- Dividends from net investment income are declared daily and paid monthly. Distributions of capital gains are recorded on the ex-dividend dates. (f) Investment transactions -- Investment transactions in the Portfolio are accounted for on a trade date basis. (g) Reclassifications -- U.S. generally accepted accounting principles require that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. Accordingly, during the current year, $131,784 has been reclassified between accumulated realized capital losses on investments and accumulated distributions in excess of investment income and $63,715 has been reclassified between accumulated distributions in excess of investment income and paid-in capital in excess of par as a result of permanent differences attributable to swap transactions and non-deductible expenses. These reclassifications have no effect on net assets or net asset values per share. 2. Transactions with Affiliates: The Company has entered into an Administration Agreement with Fund Asset Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc. ("PSI"), a wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the limited partner. The Fund pays a monthly fee at an annual rate of ..25% of the Fund's average daily net assets for the performance of administrative services (other than investment advice and related portfolio activities) necessary for the operation of the Fund. The Company has also entered into a Distribution Agreement and Distributions Plans with FAM Distributors, Inc. ("FAMD" or the "Distributor"), an indirect, wholly-owned subsidiary of Merrill Lynch Group, Inc. 20 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004 Notes to Financial Statements (continued) Merrill Lynch Low Duration Fund Pursuant to the Distribution Plans adopted by the Company in accordance with Rule 12b-1 under the Investment Company Act of 1940, the Fund pays the Distributor ongoing account maintenance and distribution fees. The fees are accrued daily and paid monthly at annual rates based upon the average daily net assets of the shares as follows: - -------------------------------------------------------------------------------- Account Distribution Maintenance Fee Fee - -------------------------------------------------------------------------------- Class A .......................... .25% -- Class B .......................... .25% .65% Class C .......................... .25% .65% Class R .......................... .25% .25% - -------------------------------------------------------------------------------- Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), a subsidiary of ML & Co., also provides account maintenance and distribution services to the Fund. The ongoing account maintenance fee compensates the Distributor and MLPF&S for providing account maintenance services to Class A, Class B, Class C and Class R shareholders. The ongoing distribution fee compensates the Distributor and MLPF&S for providing shareholder and distribution-related services to Class B, Class C and Class R shareholders. For the year ended June 30, 2004, FAMD earned underwriting discounts and direct commissions and MLPF&S earned dealer concessions on sales of the Fund's Class A Shares and Class I as follows: - -------------------------------------------------------------------------------- FAMD MLPF&S - -------------------------------------------------------------------------------- Class A .......................... $18,785 $96,205 Class I .......................... $21,360 $ 805 - -------------------------------------------------------------------------------- For the year ended June 30, 2004, MLPF&S received contingent deferred sales charges of $374,992 and $236,445 relating to transactions in Class B and Class C Shares, respectively. Furthermore, MLPF&S received contingent deferred sales charges of $137,258 relating to transactions subject to front-end sales charge waivers in Class A Shares. Financial Data Services, Inc. ("FDS"), an indirect, wholly-owned subsidiary of ML & Co., is the Fund's transfer agent. Certain officers and/or directors of the Company are officers and/or directors of FAM, PSI, FAMD, FDS, and/or ML & Co. 3. Capital Share Transactions: Net increase in net assets derived from capital share transactions was $17,705,029 and $405,029,497 for the years ended June 30, 2004 and June 30, 2003, respectively. Transactions in capital shares for each class were as follows: - -------------------------------------------------------------------------------- Class A Shares for the Year Dollar Ended June 30, 2004 Shares Amount - -------------------------------------------------------------------------------- Shares sold ............................ 6,751,453 $ 69,487,712 Automatic conversion of shares ......... 198,530 2,041,041 Shares issued to shareholders in reinvestment of dividends ........... 188,339 1,934,770 ------------------------------- Total issued ........................... 7,138,322 73,463,523 Shares redeemed ........................ (9,449,863) (97,055,497) ------------------------------- Net decrease ........................... (2,311,541) $ (23,591,974) =============================== - -------------------------------------------------------------------------------- Class A Shares for the Year Dollar Ended June 30, 2003 Shares Amount - -------------------------------------------------------------------------------- Shares sold ............................ 5,435,945 $ 56,020,611 Automatic conversion of shares ......... 385,549 3,939,699 Shares issued resulting from reorganization ...................... 773,210 8,068,892 Shares issued to shareholders in reinvestment of dividends ........... 197,594 2,035,808 ------------------------------- Total issued ........................... 6,792,298 70,065,010 Shares redeemed ........................ (2,908,773) (29,990,966) ------------------------------- Net increase ........................... 3,883,525 $ 40,074,044 =============================== - -------------------------------------------------------------------------------- Class B Shares for the Year Dollar Ended June 30, 2004 Shares Amount - -------------------------------------------------------------------------------- Shares sold ............................ 4,428,310 $ 45,418,908 Shares issued to shareholders in reinvestment of dividends ........... 174,633 1,791,016 ------------------------------- Total issued ........................... 4,602,943 47,209,924 Automatic conversion of shares ......... (198,908) (2,041,041) Shares redeemed ........................ (4,977,663) (51,045,687) ------------------------------- Net decrease ........................... (573,628) $ (5,876,804) =============================== - -------------------------------------------------------------------------------- Class B Shares for the Year Dollar Ended June 30, 2003 Shares Amount - -------------------------------------------------------------------------------- Shares sold ............................ 9,970,842 $ 102,372,451 Shares issued resulting from reorganization ...................... 148,975 1,551,900 Shares issued to shareholders in reinvestment of dividends ........... 151,779 1,562,601 ------------------------------- Total issued ........................... 10,271,596 105,486,952 Automatic conversion of shares ......... (386,259) (3,939,699) Shares redeemed ........................ (2,765,779) (28,468,694) ------------------------------- Net increase ........................... 7,119,558 $ 73,078,559 =============================== - -------------------------------------------------------------------------------- Class C Shares for the Year Dollar Ended June 30, 2004 Shares Amount - -------------------------------------------------------------------------------- Shares sold ............................ 8,767,567 $ 89,913,446 Shares issued to shareholders in reinvestment of dividends ........... 365,930 3,751,864 ------------------------------- Total issued ........................... 9,133,497 93,665,310 Shares redeemed ........................ (10,910,203) (111,867,835) ------------------------------- Net decrease ........................... (1,776,706) $ (18,202,525) =============================== MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004 21 [LOGO] Merrill Lynch Investment Managers Notes to Financial Statements (concluded) Merrill Lynch Low Duration Fund - -------------------------------------------------------------------------------- Class C Shares for the Year Dollar Ended June 30, 2003 Shares Amount - -------------------------------------------------------------------------------- Shares sold ............................ 18,094,112 $ 185,812,014 Shares issued resulting from reorganization ...................... 38,920 405,345 Shares issued to shareholders in reinvestment of dividends ........... 329,001 3,385,682 ------------------------------- Total issued ........................... 18,462,033 189,603,041 Shares redeemed ........................ (5,542,453) (57,048,508) ------------------------------- Net increase ........................... 12,919,580 $ 132,554,533 =============================== - -------------------------------------------------------------------------------- Class I Shares for the Year Dollar Ended June 30, 2004 Shares Amount - -------------------------------------------------------------------------------- Shares sold ............................ 15,956,616 $ 164,260,583 Shares issued to shareholders in reinvestment of dividends ........... 514,339 5,286,505 ------------------------------- Total issued ........................... 16,470,955 169,547,088 Shares redeemed ........................ (10,359,777) (106,588,614) ------------------------------- Net increase ........................... 6,111,178 $ 62,958,474 =============================== - -------------------------------------------------------------------------------- Class I Shares for the Year Dollar Ended June 30, 2003 Shares Amount - -------------------------------------------------------------------------------- Shares sold ............................ 5,633,201 $ 58,229,344 Shares issued resulting from reorganization ...................... 12,582,078 131,422,146 Shares issued to shareholders in reinvestment of dividends ........... 92,757 962,617 ------------------------------- Total issued ........................... 18,308,036 190,614,107 Shares redeemed ........................ (3,028,336) (31,291,850) ------------------------------- Net increase ........................... 15,279,700 $ 159,322,257 =============================== - -------------------------------------------------------------------------------- Class R Shares for the Year Dollar Ended June 30, 2004 Shares Amount - -------------------------------------------------------------------------------- Shares sold ............................ 354,789 $ 3,644,203 Shares issued to shareholders in reinvestment of dividends ........... 3,279 33,588 ------------------------------- Total issued ........................... 358,068 3,677,791 Shares redeemed ........................ (122,783) (1,259,933) ------------------------------- Net increase ........................... 235,285 $ 2,417,858 =============================== - -------------------------------------------------------------------------------- Class R Shares for the Period Dollar January 3, 2003+ to June 30, 2003 Shares Amount - -------------------------------------------------------------------------------- Shares sold ............................ 9 $ 100 Shares issued to shareholders in reinvestment of dividends ........... 1 4 ------------------------------- Net increase ........................... 10 $ 104 =============================== + Commencement of operations. 4. Distributions to Shareholders: The tax character of distributions paid during the fiscal years ended June 30, 2004 and June 30, 2003 was as follows: - -------------------------------------------------------------------------------- 6/30/2004 6/30/2003 - -------------------------------------------------------------------------------- Distributions paid from: Ordinary income ....................... $19,095,963 $13,028,801 ------------------------------ Total taxable distributions .............. $19,095,963 $13,028,801 ============================== As of June 30, 2004, the components of accumulated losses on a tax basis were as follows: - -------------------------------------------------------------------------------- Undistributed ordinary income--net ...................... $ -- Undistributed long-term capital gains--net .............. -- ------------ Total undistributed earnings--net ....................... -- Capital loss carryforward ............................... (13,013,037)* Unrealized losses--net .................................. (8,228,213)** ------------ Total accumulated losses--net ........................... $(21,241,250) ============ * On June 30, 2004, the Fund had a net capital loss carryforward of $13,013,037, of which $2,721,252 expires in 2007, $6,549,324 expires in 2008, $1,140,537 expires in 2009, $971,617 expires in 2011 and $1,630,307 expires in 2012. This amount will be available to offset like amounts of any future taxable gains. ** The difference between book-basis and tax-basis net unrealized losses is attributable primarily to distributions applicable to 2004 for tax purposes, the tax deferral of losses on wash sales, the tax deferral of losses on straddles, the realization for tax purposes of unrealized losses on certain futures contracts and the deferral of post-October capital losses for tax purposes. 22 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004 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, 2004, 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as 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, 2004, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the indicated periods in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Philadelphia, Pennsylvania August 16, 2004 Important Tax Information (unaudited) Of the ordinary income distributions paid monthly by Merrill Lynch Low Duration Fund during the taxable year ended June 30, 2004, 2.64% was attributable to federal obligations. The law varies in each state as to whether and what percentage of dividend income attributable to federal obligations is exempt from state income tax. We recommend that you consult your tax adviser to determine if any portion of the dividends you received is exempt from state income taxes. Please retain this information for your records. MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004 23 [LOGO] Merrill Lynch Investment Managers Schedule of Investments Low Duration Master Portfolio (in U.S. dollars)
S&P Moody's Face Ratings+ Ratings+ Amount Asset-Backed Securities++ Value ==================================================================================================================================== AAA Aaa $ 2,656 Advanta Mortgage Loan Trust, Series 1998-2, Class A17, 6.05% due 9/25/2018 $ 2,659 AAA Aaa 1,934,728 CIT Equipment Collateral, Series 2002-VT1, Class A3, 4.03% due 1/20/2006 1,949,756 AAA Aaa 5,845,771 CIT Group Home Equity Loan Trust, Series 2003-1, Class A2, 2.35% due 4/20/2027 5,837,942 California Infrastructure, Series 1997-1: AAA Aaa 1,430,398 PG&E-1, Class A7, 6.42% due 9/25/2008 1,492,666 AAA Aaa 1,199,399 SCE-1, Class A6, 6.38% due 9/25/2008 1,253,115 AAA Aaa 4,100,000 Capital One Auto Finance Trust, Series 2003-A, Class A4A, 2.47% due 1/15/2010 3,999,912 NR* NR* 7,000,000 Capital One Master Trust, Series 2000-4, Class C, 2.039% due 8/15/2008 (a)(c) 7,013,125 BBB Baa2 6,600,000 Chase Credit Card Master Trust, Series 2003-1, Class C, 2.339% due 4/15/2008 (a) 6,667,265 Chase Funding Mortgage Loan Asset-Backed Certificates: AAA NR* 4,172,074 Series 1999-4, Class IA6, 7.407% due 9/25/2011 4,365,379 AAA Aaa 3,061,505 Series 2002-3, Class 1A3, 3.55% due 3/25/2022 3,068,922 Chase Manhattan Auto Owner Trust: A A2 3,447,942 Series 2002-B, 4.24% due 1/15/2009 3,499,081 A A2 2,150,000 Series 2003-A, 2.04% due 12/15/2009 2,112,332 AAA Aaa 452,894 CityScape Home Equity Loan Trust, Series 1996-4, Class A10, 7.40% due 9/25/2027 (c) 452,485 AAA Aaa 163,374 Countrywide Home Equity Loan Trust, Series 1999-A, 1.559% due 4/15/2025 (a) 163,452 Countrywide Home Loans, Inc.: AAA NR* 383,063 Series 2002-32, Class 1A1, 6% due 11/25/2032 382,677 AAA Aaa 5,283,778 Series 2003-R4, Class 1A1A, 2.216% due 7/25/2019 5,252,852 AAA Aaa 5,000,000 DaimlerChrysler Auto Trust, Series 2001-D, Class A4, 3.78% due 2/06/2007 5,056,136 First Franklin Mortgage Loan Trust (a): AAA Aaa 6,934,457 Series 2002-FF4, Class 2A2, 2.80% due 2/25/2033 6,968,025 AAA Aaa 7,898,702 Series 2003-FF5, Class A2, 2.82% due 3/25/2034 7,965,030 BBB Baa2 8,500,000 First National Master Note Trust, Series 2003-2, Class C, 3.70% due 4/15/2009 8,502,451 AAA Aaa 7,300,000 GMAC Mortgage Corporation Loan Trust, Series 2003-HE2, Class A2, 3.14% due 6/25/2025 7,307,255 AAA Aaa 1,837,315 Harley-Davidson Motorcycle Trust, Series 2001-2, Class A2, 4.72% due 6/15/2009 1,872,661 AAA Aaa 3,189,918 IKON Receivables LLC, Series 2003-1, Class A3B, 2.33% due 12/15/2007 3,190,177 AAA Aaa 335,764 John Deere Owner Trust, Series 2001-A, Class A3, 3.26% due 10/17/2005 336,261 AAA Aaa 1,725,911 M & I Auto Loan Trust, Series 2001-1, Class A4, 4.97% due 3/20/2007 1,748,767 MBNA Credit Card Master Note Trust: BBB Baa2 4,100,000 Series 2001-C3, Class C3, 6.55% due 12/15/2008 4,325,443 BBB Baa2 7,000,000 Series 2002-C5, Class C5, 4.05% due 1/15/2008 7,090,677 AAA Aaa 1,957,712 PSE&G Transition Funding LLC, Series 2001-1, Class A2, 5.74% due 3/15/2007 1,991,969 AAA Aaa 1,965,701 Residential Asset Securities Corporation, Series 2002-KS8, Class A2, 3.04% due 5/25/2023 1,965,864 AAA Aaa 25,342 USAA Auto Owner Trust, Series 2001-2, Class A3, 3.20% due 2/15/2006 25,342 WFS Financial Owner Trust, Class B: AA Aa2 1,705,509 Series 2003-2, 2.48% due 12/20/2010 1,700,797 AA Aa2 8,500,000 Series 2003-4, 2.73% due 5/20/2011 8,464,103 A Aa3 1,125,913 Whole Auto Loan Trust, Series 2002-1, Class B, 2.91% due 4/15/2009 1,129,304 ---------------------------------------------------------------------------------------------------------- Total Asset-Backed Securities (Cost--$117,247,586)--15.8% 117,153,882 ========================================================================================================== Government & Agency Obligations ==================================================================================================================================== AAA Aaa 17,500,000 Federal Home Loan Mortgage Corporation, 1.75% due 8/15/2005 17,384,167 AAA Aaa 17,500,000 Federal National Mortgage Association, 1.875% due 9/15/2005 17,387,510 U.S. Treasury Notes: AAA Aaa 4,303,000 1.875% due 9/30/2004 (b) 4,308,379 AAA Aaa 4,530,000 7% due 7/15/2006 4,908,151 AAA Aaa 2,900,000 2.625% due 5/15/2008 2,809,036 ---------------------------------------------------------------------------------------------------------- Total Government & Agency Obligations (Cost--$47,253,814)--6.3% 46,797,243 ==========================================================================================================
24 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004 Schedule of Investments (continued) Low Duration Master Portfolio (in U.S. dollars)
S&P Moody's Face Ratings+ Ratings+ Amount Government Agency Mortgage-Backed Securities++ Value ==================================================================================================================================== Federal Home Loan Mortgage Corporation: AAA Aaa $ 2,870,096 2.182% due 9/27/2007 $ 2,867,142 AAA Aaa 11,389,955 2.75% due 7/15/2018 10,661,296 AAA Aaa 5,916,982 3.25% due 12/15/2013 5,754,014 AAA Aaa 6,496,250 4% due 3/15/2014 6,295,983 AAA Aaa 9,119,314 4% due 12/15/2022 9,066,370 AAA Aaa 35,583,000 5% due 7/15/2019 35,594,102 AAA Aaa 12,177,177 6% due 5/01/2016--6/01/2017 12,708,679 AAA Aaa 3,105,265 6.50% due 8/01/2016--2/01/2017 3,280,975 Federal National Mortgage Association: AAA Aaa 5,522,852 2.01% due 11/25/2033 5,492,423 AAA Aaa 8,210,491 3.50% due 11/25/2017 7,986,348 AAA Aaa 6,248,648 4% due 3/25/2017 6,119,566 AAA Aaa 8,500,000 4.50% due 11/25/2025 8,333,663 AAA Aaa 1,917,761 5% due 3/25/2018 1,910,298 AAA Aaa 1,181,839 6.50% due 8/01/2032--9/01/2032 1,231,900 AAA Aaa 13,302,773 8% due 7/01/2027--11/01/2032 14,441,088 Government National Mortgage Association: AAA Aaa 144,187,444 2.349% due 11/16/2007 (a)(d) 4,526,044 AAA Aaa 5,125,754 2.848% due 6/16/2018 5,045,687 AAA Aaa 4,440,831 3.313% due 4/16/2017 4,404,163 ---------------------------------------------------------------------------------------------------------- Total Government Agency Mortgage-Backed Securities (Cost--$147,076,162)--19.7% 145,719,741 ========================================================================================================== Non-Government Agency Mortgage-Backed Securities++ ==================================================================================================================================== Collateralized Mortgage NR* Aaa 178,607 BlackRock Capital Finance LP, Series 1997-R2, Class AP, Obligations--4.5% 8.448% due 12/25/2035 (a)(c) 182,179 NR* NR* 36,980 Housing Securities Inc., Series 1994-2, Class B1, 6.50% due 7/25/2009 32,595 NR* Aaa 657,373 Ocwen Residential MBS Corporation, Series 1998-R2, Class AP, 6.898% due 11/25/2034 (a)(c) 650,800 AAA NR* 833,670 PNC Mortgage Securities Corp., Series 1999-4, Class 1A5, 6.20% due 6/25/2029 837,027 AAA Aaa 5,000,000 Permanent Financing PLC, Series 1, Class 2A, 4.20% due 6/10/2007 5,075,651 NR* Aaa 62,527 Salomon Brothers Mortgage Securities VI, Series 1986-1, Class A, 6% due 12/25/2011 62,450 AAA Aaa 2,767,173 Structured Asset Securities Corporation, Series 2002-19, Class A1, 4.20% due 10/25/2032 2,777,742 Structured Mortgage Asset Residential Trust: AAA Aaa 7,247 Series 1991-1, Class H, 8.25% due 6/25/2022 7,660 AAA Aaa 6,345 Series 1992-3A, Class AA, 8% due 10/25/2007 6,594 NR* NR* 155,268 Walsh Acceptance, Series 1997-2, Class A, 2.30% due 3/01/2027 (a)(c) 81,516 Washington Mutual, Inc. (a): BB NR* 526,598 Series 2000-1, Class B1, 5.30% due 1/25/2040 (c) 522,072 AAA Aaa 23,660,809 Series 2004-AR3, Class A1, 3.92% due 6/25/2034 23,390,482 ------------- 33,626,768 ==================================================================================================================================== Commercial AAA Aaa 2,215,814 Banc of America Commercial Mortgage Inc., Series 2000-1, Mortgage-Backed Class A1A, 7.109% due 11/15/2008 2,380,880 Securities--3.9% NR* Aaa 7,074,790 Banc of America Mortgage Securities, Series 2003-J, Class 2A1, 4.181% due 11/25/2033 (a) 7,055,103 AAA Aaa 1,515,941 CS First Boston Mortgage Securities Corp., Series 2001-CK6, Class A1, 4.393% due 7/15/2006 1,534,085 NR* Aaa 952,468 First Union NB--Bank of America Commercial Mortgage Trust, Series 2001-C1, Class A1, 5.711% due 3/15/2033 992,416 AAA NR* 1,898,588 GS Mortgage Securities Corporation II, Series 1998-C1, Class A1, 6.06% due 10/18/2030 1,945,576 AAA Aaa 8,300,000 Greenwich Capital Commercial Funding Corporation, Series 2004-GG1, Class A2, 3.835% due 6/10/2036 8,266,954 AAA NR* 2,036,465 Nomura Asset Securities Corporation, Series 1995-MD3, Class A1B, 8.15% due 3/04/2020 2,089,692 AAA Aaa 4,329,078 Saxon Asset Securities Trust, Series 2002-3, Class AV, 1.70% due 12/25/2032 (a) 4,338,409 ------------- 28,603,115
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004 25 [LOGO] Merrill Lynch Investment Managers Schedule of Investments (continued) Low Duration Master Portfolio (in U.S. dollars)
S&P Moody's Face Ratings+ Ratings+ Amount Non-Government Agency Mortgage-Backed Securities++ Value ==================================================================================================================================== Stripped AAA Aaa $ 86,381,527 CS First Boston Mortgage Securities Corp., Series Mortgage-Backed 2003-CPN1, Class ASP, 1.584% due 3/15/2035 (a)(d) $ 5,582,933 Securities--1.9% AAA Aaa 35,000,000 Greenwich Capital Commercial Funding Corporation, Series 2002-C1, Class XP, 2.059% due 1/11/2035 (a)(d) 3,063,641 AAA NR* 85,000,000 LB-UBS Commercial Mortgage Trust, Series 2002-C4, Class XCP, 1.475% due 10/15/2035 (a)(d) 5,196,501 ------------- 13,843,075 ---------------------------------------------------------------------------------------------------------- Total Non-Government Agency Mortgage-Backed Securities (Cost--$76,867,447)--10.3% 76,072,958 ========================================================================================================== Industry@ Corporate Bonds & Notes ==================================================================================================================================== Aerospace & BBB- Baa3 1,250,000 Goodrich Corporation, 6.45% due 4/15/2008 1,338,492 Defense--0.5% AAA Aaa 2,156,594 Systems 2001 Asset Trust, 6.664% due 9/15/2013 (c) 2,325,823 ------------- 3,664,315 ==================================================================================================================================== Building BB+ Ba1 2,500,000 D.R. Horton, Inc., 7.50% due 12/01/2007 2,700,000 Products--0.4% ==================================================================================================================================== Cable--U.S.--1.2% BBB Baa3 1,440,000 Comcast Cable Communications, Inc., 6.375% due 1/30/2006 1,507,748 BB- Ba3 2,600,000 EchoStar DBS Corporation, 4.36% due 10/01/2008 (a) 2,707,250 BBB Baa3 4,500,000 TCI Communications Inc., 8.35% due 2/15/2005 4,666,433 ------------- 8,881,431 ==================================================================================================================================== Canadian BB Ba2 1,700,000 Abitibi-Consolidated Inc., 6.95% due 12/15/2006 (2) 1,742,281 Corporates**--0.2% ==================================================================================================================================== Containers--0.4% BBB Baa3 2,885,000 Sealed Air Corporation, 5.375% due 4/15/2008 2,983,485 ==================================================================================================================================== Finance--2.3% Household Finance Corporation: A A1 500,000 6.50% due 1/24/2006 527,027 A A1 2,085,000 6.50% due 11/15/2008 2,252,747 A A1 3,500,000 4.125% due 12/15/2008 3,450,016 Sigma Finance Incorporated: AAA Aaa 5,500,000 1.12% due 8/15/2011 5,500,000 AAA Aaa 2,700,000 2.38% due 3/31/2014 (a) 2,698,750 A- A3 2,745,000 Textron Financial Corporation, 2.75% due 6/01/2006 2,721,602 ------------- 17,150,142 ==================================================================================================================================== Finance-- A+ Aa2 5,000,000 Bank of America Corporation, 4.75% due 10/15/2006 5,161,025 Banks--3.5% BBB- Baa2 1,310,000 Capital One Bank, 4.875% due 5/15/2008 1,324,086 BB+ Baa3 2,680,000 FirstBank Puerto Rico, 7.625% due 12/20/2005 2,807,257 FleetBoston Financial Corporation: A+ Aa2 1,000,000 7.25% due 9/15/2005 1,053,790 A+ Aa2 4,500,000 3.85% due 2/15/2008 4,482,405 A+ A1 1,500,000 Mellon Bank, NA, 7% due 3/15/2006 1,609,392 BBB+ A3 670,000 Popular North America, Inc., 3.875% due 10/01/2008 655,924 A+ Aa3 5,000,000 U.S. Bancorp, 6.875% due 12/01/2004 5,100,260 A- A3 825,000 Washington Mutual, Inc., 5.625% due 1/15/2007 863,055 AA- Aa1 3,050,000 Wells Fargo & Company, 6.625% due 7/15/2004 3,053,941 ------------- 26,111,135 ==================================================================================================================================== Finance-- AA- Aa1 5,000,000 Associates Corporation of North America, 6% due 7/15/2005 5,170,990 Other--12.2% A A1 2,400,000 The Bear Stearns Companies Inc., 7.80% due 8/15/2007 2,676,382 A A3 1,125,000 Boeing Capital Corporation, 7.10% due 9/27/2005 1,187,990 A- A3 1,600,000 Conoco Funding Company, 5.45% due 10/15/2006 1,674,774 A A3 4,650,000 Countrywide Home Loans, Inc., 4.25% due 12/19/2007 4,696,212 A+ Aa3 3,000,000 Credit Suisse First Boston (USA) Inc., 4.70% due 6/01/2009 3,008,811 BBB+ Baa2 4,500,000 Deutsche Telekom International Finance BV, 8.25% due 6/15/2005 4,731,421 Ford Motor Credit Company: BBB- A3 2,000,000 7.50% due 3/15/2005 2,066,620 BBB- A3 5,500,000 2.036% due 6/30/2005 (a) 5,495,715
26 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004 Schedule of Investments (continued) Low Duration Master Portfolio (in U.S. dollars)
S&P Moody's Face Industry@ Ratings+ Ratings+ Amount Corporate Bonds & Notes Value ==================================================================================================================================== Finance--Other Ford Motor Credit Company (concluded): (concluded) BBB- A3 $ 5,250,000 7.60% due 8/01/2005 $ 5,496,036 BBB- A3 4,000,000 6.875% due 2/01/2006 4,195,588 BBB- A3 6,000,000 6.50% due 1/25/2007 6,304,362 BBB- A3 2,500,000 7.75% due 2/15/2007 2,694,835 General Motors Acceptance Corporation: BBB A3 5,750,000 7.50% due 7/15/2005 6,006,542 BBB A3 9,750,000 6.125% due 8/28/2007 10,173,706 A+ A1 1,450,000 Golden West Financial Corporation, 5.50% due 8/08/2006 1,521,717 The Goldman Sachs Group, Inc.: A+ Aa3 2,000,000 7.50% due 1/28/2005 2,059,016 A+ Aa3 2,220,000 4.125% due 1/15/2008 2,226,724 AA- A1 1,900,000 International Lease Finance Corporation, 2.95% due 5/23/2006 1,887,428 A+ Aa3 2,970,000 J.P. Morgan Chase & Co., 5.25% due 5/30/2007 3,099,712 BBB Baa2 3,060,000 MBNA Corporation, 5.625% due 11/30/2007 3,197,501 A+ Aa3 2,500,000 Morgan Stanley, 7.75% due 6/15/2005 2,621,825 A+ A1 3,400,000 Natural Rural Utilities Cooperative Finance Corporation, 3.25% due 10/01/2007 3,332,881 Pemex Finance Ltd.: A- Baa1 36,000 9.14% due 8/15/2004 36,019 A- Baa1 1,792,083 8.45% due 2/15/2007 1,919,070 A- A3 500,000 Prudential Financial, Inc., 3.75% due 5/01/2008 492,744 A+ A2 2,250,000 Verizon Global Funding Corporation, 6.75% due 12/01/2005 2,371,405 ------------- 90,346,026 ==================================================================================================================================== Gaming--0.1% BB+ Ba2 915,000 Mandalay Resort Group, 6.45% due 2/01/2006 940,163 ==================================================================================================================================== Industrial--Consumer A A2 1,250,000 Brown-Forman Corporation, 3% due 3/15/2008 1,207,989 Goods--1.2% BBB Baa2 1,200,000 ConAgra Foods, Inc., 7.40% due 9/15/2004 1,211,714 A A2 2,975,000 Fortune Brands, Inc., 2.875% due 12/01/2006 2,943,602 AA Aa2 3,350,000 GlaxoSmithKline Capital PLC, 2.375% due 4/16/2007 3,257,419 ------------- 8,620,724 ==================================================================================================================================== Industrial-- BBB Baa2 3,000,000 DTE Energy Company, 2.324% due 6/01/2007 (a) 2,996,250 Energy--1.3% BBB Baa2 2,960,000 Halliburton Company, 1.92% due 1/26/2007 (a)(c) 2,957,141 BBB Baa3 3,400,000 Panhandle Eastern Pipe Line Company, LLC, 2.75% due 3/15/2007 3,262,630 ------------- 9,216,021 ==================================================================================================================================== Industrial-- DaimlerChrysler NA Holding Corporation: Manufacturing--2.6% BBB A3 4,200,000 3.40% due 12/15/2004 4,211,474 BBB A3 1,200,000 6.40% due 5/15/2006 1,262,995 BBB- Baa3 4,245,000 Lear Corporation, 7.96% due 5/15/2005 4,426,351 BBB Baa3 2,000,000 Northrop Grumman Corporation, 8.625% due 10/15/2004 2,036,300 BBB- Baa3 915,000 Raytheon Company, 6.50% due 7/15/2005 947,159 BBB- Baa2 3,000,000 Staples, Inc., 7.125% due 8/15/2007 3,274,317 NR* Ba1 360,000 The Timken Company, 6.75% due 8/21/2006 375,607 BBB Baa3 3,000,000 Tyco International Group SA, 6.375% due 2/15/2006 3,149,718 ------------- 19,683,921 ==================================================================================================================================== Industrial-- Cendant Corporation: Services--3.3% BBB Baa1 1,100,000 6.875% due 8/15/2006 1,175,352 BBB Baa1 3,300,000 4.89% due 8/17/2006 3,346,134 BBB+ Baa2 1,350,000 Fiserv, Inc., 4% due 4/15/2008 1,339,577 BBB- Ba1 4,000,000 HCA Inc., 7.125% due 6/01/2006 4,225,368 BBB- Baa3 1,000,000 InterActiveCorp, 6.75% due 11/15/2005 1,039,210 BBB- Baa3 6,800,000 Liberty Media Corporation, 3.02% due 9/17/2006 (a) 6,926,004 BBB Ba1 2,500,000 Manor Care, Inc., 7.50% due 6/15/2006 2,662,500 BBB- Baa3 1,250,000 News America Incorporated, 6.75% due 1/09/2038 1,366,691 BBB+ Baa1 1,100,000 PHH Corporation, 6% due 3/01/2008 1,162,176 BBB+ Baa1 1,000,000 Time Warner Inc., 5.625% due 5/01/2005 1,024,492 ------------- 24,267,504 ==================================================================================================================================== Industrial-- AAA Aaa 869,487 American Airlines, Inc., 3.857% due 7/09/2010 839,805 Transportation--0.4% BBB Baa2 2,000,000 CSX Corporation, 6.46% due 6/22/2005 2,066,278 ------------- 2,906,083
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004 27 [LOGO] Merrill Lynch Investment Managers Schedule of Investments (continued) Low Duration Master Portfolio (in U.S. dollars)
S&P Moody's Face Industry@ Ratings+ Ratings+ Amount Corporate Bonds & Notes Value ==================================================================================================================================== Insurance--1.3% A- Baa2 $ 1,570,000 Aon Corporation, 6.70% due 1/15/2007 $ 1,677,716 A- A3 2,000,000 The Hartford Financial Services Group, Inc., 4.70% due 9/01/2007 2,049,506 A+ A2 3,500,000 Marsh & McLennan Companies, Inc., 3.625% due 2/15/2008 3,452,043 A A2 2,300,000 MetLife, Inc., 3.911% due 5/15/2005 2,330,638 AA Aa3 385,000 Monumental Global Funding II, 3.85% due 3/03/2008 (c) 384,116 ------------- 9,894,019 ==================================================================================================================================== Leisure--0.5% A- A3 3,500,000 Carnival Corporation, 3.75% due 11/15/2007 3,460,411 ==================================================================================================================================== Paper--0.4% BB+ Ba2 2,800,000 Boise Cascade Corporation, 7.66% due 5/27/2005 2,891,000 ==================================================================================================================================== Real Estate Investment BBB Baa3 5,000,000 Developers Diversified Realty Corporation, 6.95% Trust--3.5% due 7/23/2004 5,012,205 BBB+ Baa1 950,000 Duke Realty Limited Partnership, 6.875% due 3/15/2005 978,626 BBB- Baa3 4,000,000 IRT Property Company, 7.77% due 4/01/2006 4,279,264 Nationwide Health Properties, Inc.: BBB- Baa3 1,400,000 7.60% due 11/20/2028 1,485,975 BBB- Baa3 5,000,000 6.90% due 10/01/2037 5,069,380 BBB- Baa3 1,400,000 6.59% due 7/07/2038 1,413,626 AAA Aaa 6,951,000 SUSA Partnership, LP, 6.95% due 7/01/2006 7,466,702 ------------- 25,705,778 ==================================================================================================================================== Retail--Stores--0.4% BBB- Baa3 2,750,000 Yum! Brands, Inc., 8.50% due 4/15/2006 2,990,273 ==================================================================================================================================== Utilities-- BBB Baa2 1,250,000 Harris Corporation, 6.35% due 2/01/2028 1,311,906 Communication--1.8% BBB- Baa3 5,200,000 Sprint Capital Corporation, 6% due 1/15/2007 5,445,575 BBB Baa3 1,500,000 TELUS Corporation, 7.50% due 6/01/2007 1,633,693 BBB+ Baa2 5,000,000 Telecom Italia Capital SA, 4% due 11/15/2008 (c) 4,911,720 ------------- 13,302,894 ==================================================================================================================================== Utilities--Electric & A A2 2,500,000 Alabama Power Company, 2.80% due 12/01/2006 2,466,760 Gas--4.2% BBB Baa3 1,465,000 American Electric Power Company, Inc., 6.125% due 5/15/2006 1,537,906 BBB Baa2 1,060,000 Appalachian Power Company, 3.60% due 5/15/2008 1,033,505 A A1 4,645,000 Boston Edison Company, 1.64% due 10/15/2005 (a) 4,666,367 BBB Baa2 4,450,000 Conectiv, 5.30% due 6/01/2005 4,537,176 A- A3 645,000 Detroit Edison Company, 5.05% due 10/01/2005 661,056 Dominion Resources, Inc.: BBB+ Baa1 2,500,000 7.625% due 7/15/2005 2,626,227 BBB+ Baa1 1,030,000 1.55% due 5/15/2006 (a) 1,031,507 A- A2 2,125,000 FPL Group Capital Inc., 1.886% due 3/30/2005 (a) 2,129,037 BBB Baa1 2,500,000 PSE&G Power LLC, 6.875% due 4/15/2006 2,652,333 Southern California Edison Company: NR* Baa2 2,500,000 1.89% due 1/13/2006 (a) 2,503,257 BBB Baa2 2,500,000 8% due 2/15/2007 2,761,658 BB- Ba2 1,480,000 Westar Energy, Inc., 9.75% due 5/01/2007 1,685,861 BBB- Baa1 685,000 Xcel Energy, Inc., 3.40% due 7/01/2008 661,196 ------------- 30,953,846 ==================================================================================================================================== Yankee A- Baa1 3,500,000 British Telecommunications PLC, 7.875% due 12/15/2005 (3) 3,742,070 Corporates**--1.5% BBB+ Baa2 2,500,000 France Telecom, 8.20% due 3/01/2006 (3) 2,680,347 Pemex Project Funding Master Trust (a)(c)(1): BBB- Baa1 1,520,000 3.078% due 1/07/2005 1,532,160 BBB- Baa1 3,500,000 2.82% due 6/15/2010 3,515,750 ------------- 11,470,327 ---------------------------------------------------------------------------------------------------------- Total Corporate Bonds & Notes (Cost--$317,697,041)--43.2% 319,881,779 ========================================================================================================== Shares Held Common Stocks ==================================================================================================================================== Utilities-- 73,047 MCI, Inc. (e) 1,054,068 Communication--0.2% ---------------------------------------------------------------------------------------------------------- Total Common Stocks (Cost--$5,181,369)--0.2% 1,054,068
28 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004 Schedule of Investments (continued) Low Duration Master Portfolio (in U.S. dollars) Preferred Securities
Shares Industry@ Held Preferred Stocks Value ==================================================================================================================================== Finance--Other--0.1% 1,500 Home Ownership Funding Corporation II (c) $ 651,305 ---------------------------------------------------------------------------------------------------------- Total Preferred Stocks (Cost--$1,500,000)--0.1% 651,305 ========================================================================================================== S&P Moody's Face Ratings+ Ratings+ Amount Trust Preferred ==================================================================================================================================== Aerospace & NR* NR* $ 8,490,000 RC Trust I, 7% due 5/15/2006 9,019,010 Defense--1.2% ==================================================================================================================================== Utilities--Electric & BB+ Ba1 5,120,000 PPL Capital Funding, Inc., 7.29% due 5/18/2006 5,375,437 Gas--0.7% ---------------------------------------------------------------------------------------------------------- Total Trust Preferred (Cost--$14,425,132)--1.9% 14,394,447 ========================================================================================================== Total Preferred Securities (Cost--$15,925,132)--2.0% 15,045,752 ========================================================================================================== Beneficial Interest Other Interests (f) ==================================================================================================================================== Utilities-- $ 5,000 WorldCom, Inc. (Escrow Notes) 0 Communication--0.0% ---------------------------------------------------------------------------------------------------------- Total Other Interests (Cost--$0)--0.0% 0 ========================================================================================================== Face Amount Short-Term Investments ==================================================================================================================================== Commercial $ 8,000,000 Aspen Funding Corp., 1.08% due 7/06/2004 7,998,800 Paper***--6.9% 20,000,000 Compass Securitization LLC, 1.20% due 7/14/2004 19,991,333 22,640,000 UBS AG, 1.42% due 7/01/2004 22,640,000 ------------- 50,630,133 ==================================================================================================================================== Time Deposits--0.0% 157,502 Brown Brothers Harriman & Co. (BBH), 0.76% due 7/01/2004 157,502 ---------------------------------------------------------------------------------------------------------- Total Short-Term Investments (Cost--$50,787,635)--6.9% 50,787,635 ========================================================================================================== Number of Contracts Options Purchased ==================================================================================================================================== Call Options 1,937 Eurodollar Futures, expiring July 2004 at USD 98.25, Purchased--0.0% Broker Credit Suisse First Boston 12,106 1,937 Eurodollar Futures, expiring July 2004 at USD 98.5, Broker Credit Suisse First Boston 12,106 57@@ London InterBank Offered Rate (LIBOR) Linked Floor, expiring April 2005 at USD 1.5, Broker J.P. Morgan Chase Bank 969 ------------- 25,181 ==================================================================================================================================== Put Options 214 U.S. Treasury Notes, expiring July 2004 at USD 107, Purchased--0.0% Broker Credit Suisse First Boston 26,750 ---------------------------------------------------------------------------------------------------------- Total Options Purchased (Premiums Paid--$441,199)--0.0% 51,931 ========================================================================================================== Total Investments (Cost--$778,477,385)--104.4% 772,564,989 ==========================================================================================================
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004 29 [LOGO] Merrill Lynch Investment Managers Schedule of Investments (concluded) Low Duration Master Portfolio (in U.S. dollars)
Number of Contracts Options Written Value ==================================================================================================================================== Call Options 3,876 Eurodollar Futures, expiring July 2004 at USD 98.38, Written--0.0% Broker Credit Suisse First Boston $ (24,225) 214 U.S. Treasury Notes, expiring July 2004 at USD 110, Broker Credit Suisse First Boston (96,969) ---------------------------------------------------------------------------------------------------------- Total Options Written (Premiums Received--$307,162)--0.0% (121,194) ==================================================================================================================================== Total Investments, Net of Options Written (Cost--$778,170,223)--104.4% 772,443,795 Liabilities in Excess of Other Assets--(4.4%) (32,419,984) ------------- Net Assets--100.0% $740,023,811 ============
* Not Rated. ** Corresponding industry groups for foreign securities: (1) Financial Institution. (2) Industrial. (3) Telecommunications. *** 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. + Ratings of issues are unaudited. ++ Asset-Backed and Mortgage-Backed Obligations are subject to principal paydowns as a result of prepayments or refinancings of the underlying instruments. As a result, the average life may be substantially less than the original maturity. @ For Portfolio compliance purposes, "Industry" means any one or more of the industry sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by Portfolio management. This definition may not apply for purposes of this report, which may combine such industry sub-classifications for reporting ease. These industry classifications are unaudited. @@ One contract represents a notional amount of $1,000,000. (a) Floating rate note. (b) All or a portion of security held as collateral in connection with open financial futures contracts. (c) The security may be offered and sold to "qualified institutional buyers" under Rule 144A of the Securities Act of 1933. (d) Represents the interest only portion of a mortgage-backed obligation. (e) Non-income producing security. (f) Other interests represent beneficial interests in liquidating trusts and other reorganization entities and are non-income producing. Investments in companies considered to be an affiliate of the Portfolio (such companies are defined as "Affiliated Companies" in Section 2(a)(3) of the Investment Company Act of 1940) are as follows: -------------------------------------------------------------------------- Interest/ Net Dividend Affiliate Activity Income -------------------------------------------------------------------------- Merrill Lynch Liquidity Series, LLC Money Market Series -- $ 399 Merrill Lynch Premier Institutional Fund -- $21,486 -------------------------------------------------------------------------- Financial futures contracts sold as of June 30, 2004 were as follows: -------------------------------------------------------------------------- Number of Expiration Face Unrealized Contracts Issue Date Value Depreciation -------------------------------------------------------------------------- 651 Five-Year U.S. Treasury Note September 2004 $70,495,891 $ (259,672) -------------------------------------------------------------------------- Swap contracts outstanding as of June 30, 2004 were as follows: -------------------------------------------------------------------------- Unrealized Notional Appreciation/ Amount Depreciation -------------------------------------------------------------------------- Sold credit default protection on WFS Financial Owner Trust and receive .41% interest Broker, Morgan Stanley Capital Services Inc. Expires December 2010 $ 6,626,753 -- Bought credit default protection on AON Corp. and pay 2.8025% interest Broker, J.P. Morgan Chase Bank Expires January 2007 $ 1,725,000 $ 23,242 Bought credit default protection on AON Corp. and pay .37% interest Broker, Morgan Stanley Capital Services Inc. Expires January 2007 $ 1,725,000 (337) Receive a variable rate return based on 3-month USD LIBOR, plus .56%, which is capped at a fixed coupon of 8% and callable quarterly beginning September 2004 and pay floating rate based on 3-month USD LIBOR Broker, J.P. Morgan Chase Bank Expires June 2010 $17,250,000 31,246 Receive a variable rate return based on 3-month USD LIBOR, plus .42%, which is capped at a fixed coupon of 8% and callable quarterly beginning September 2004 and pay floating rate based on 3-month USD LIBOR Broker, J.P. Morgan Chase Bank Expires March 2010 $16,650,000 (1,720) -------------------------------------------------------------------------- Total $ 52,431 =========== See Notes to Financial Statements. 30 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004 Statement of Assets and Liabilities Low Duration Master Portfolio As of June 30, 2004 ============================================================================================================================ Assets - ---------------------------------------------------------------------------------------------------------------------------- Investments in unaffiliated securities, at value (identified cost--$778,036,186) ............................................. $ 772,513,058 Options purchased, at value (premiums paid--$441,199) ............ 51,931 Unrealized appreciation on swaps ................................. 52,768 Cash ............................................................. 295 Receivables: Interest ...................................................... $ 5,798,183 Securities sold ............................................... 1,342,800 Contributions ................................................. 844,639 Paydowns ...................................................... 9,282 Securities lending--net ....................................... 1,271 7,996,175 ------------- Prepaid expenses ................................................. 2,977 ------------- Total assets ..................................................... 780,617,204 ------------- ============================================================================================================================ Liabilities - ---------------------------------------------------------------------------------------------------------------------------- Unrealized depreciation on swaps ................................. 337 Options written, at value (premiums received--$307,162) .......... 121,194 Payables: Securities purchased .......................................... 36,664,078 Withdrawals ................................................... 3,399,277 Variation margin .............................................. 325,500 Investment adviser ............................................ 12,760 Swaps ......................................................... 6,241 Other affiliates .............................................. 3,991 40,411,847 ------------- Accrued expenses ................................................. 60,015 ------------- Total liabilities ................................................ 40,593,393 ------------- ============================================================================================================================ Net Assets - ---------------------------------------------------------------------------------------------------------------------------- Net assets ....................................................... $ 740,023,811 ============= ============================================================================================================================ Net Assets Consist of - ---------------------------------------------------------------------------------------------------------------------------- Investors' capital ............................................... $ 745,957,480 Unrealized depreciation on investments--net ...................... (5,933,669) ------------- Net Assets ....................................................... $ 740,023,811 =============
See Notes to Financial Statements. MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004 31 [LOGO] Merrill Lynch Investment Managers Statement of Operations Low Duration Master Portfolio For the Year Ended June 30, 2004 ============================================================================================================================ Investment Income - ---------------------------------------------------------------------------------------------------------------------------- Interest ......................................................... $ 27,602,162 Dividends ........................................................ 201,047 Securities lending--net .......................................... 21,885 ------------- Total income ..................................................... 27,825,094 ------------- ============================================================================================================================ Expenses - ---------------------------------------------------------------------------------------------------------------------------- Investment advisory fees ......................................... $ 1,589,610 Accounting services .............................................. 291,879 Custodian fees ................................................... 61,909 Professional fees ................................................ 55,521 Trustees' fees and expenses ...................................... 32,597 Pricing fees ..................................................... 26,432 Printing and shareholder reports ................................. 5,206 Other ............................................................ 33,409 ------------- Total expenses ................................................... 2,096,563 ------------- Investment income--net ........................................... 25,728,531 ------------- ============================================================================================================================ Realized & Unrealized Loss on Investments--Net - ---------------------------------------------------------------------------------------------------------------------------- Realized loss on investments--net ................................ (2,237,834) Change in unrealized appreciation/depreciation on investments--net (14,412,834) ------------- Total realized and unrealized loss on investments--net ........... (16,650,668) ------------- Net Increase in Net Assets Resulting from Operations ............. $ 9,077,863 =============
See Notes to Financial Statements. 32 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004 Statements of Changes in Net Assets Low Duration Master Portfolio
For the Year Ended June 30, ------------------------------- Increase (Decrease) in Net Assets: 2004 2003 ============================================================================================================================ Operations - ---------------------------------------------------------------------------------------------------------------------------- Investment income--net ........................................... $ 25,728,531 $ 24,364,515 Realized gain (loss) on investments--net ......................... (2,237,834) 2,412,393 Change in unrealized appreciation/depreciation on investments--net (14,412,834) 11,367,228 ------------------------------- Net increase in net assets resulting from operations ............. 9,077,863 38,144,136 ------------------------------- ============================================================================================================================ Capital Transactions - ---------------------------------------------------------------------------------------------------------------------------- Proceeds from contributions ...................................... 385,522,595 905,711,132 Fair value of withdrawals ........................................ (393,910,819) (716,855,965) ------------------------------- Net increase (decrease) in net assets derived from capital transactions .................................................... (8,388,224) 188,855,167 ------------------------------- ============================================================================================================================ Net Assets - ---------------------------------------------------------------------------------------------------------------------------- Total increase in net assets ..................................... 689,639 226,999,303 Beginning of year ................................................ 739,334,172 512,334,869 ------------------------------- End of year ...................................................... $ 740,023,811 $ 739,334,172 ===============================
See Notes to Financial Statements. MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004 33 [LOGO] Merrill Lynch Investment Managers Financial Highlights Low Duration Master Portfolio
For the Year Ended For the Period June 30, October 6, 2000+ The following ratios have been derived ------------------------------------------- to June 30, from information provided in the financial statements. 2004 2003 2002 2001 ============================================================================================================================== Total Investment Return** - ------------------------------------------------------------------------------------------------------------------------------ Total investment return ................ 1.18% 6.05% 5.59% -- =========================================================== ============================================================================================================================== Ratios to Average Net Assets - ------------------------------------------------------------------------------------------------------------------------------ Expenses ............................... .28% .28% .32% .30%* =========================================================== Investment income--net ................. 3.39% 3.73% 5.03% 6.78%* =========================================================== ============================================================================================================================== Supplemental Data - ------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in thousands) $ 740,024 $ 739,334 $ 512,335 $ 305,514 =========================================================== Portfolio turnover ..................... 107.13% 198.09% 70.92% 192.04% ===========================================================
* Annualized. ** Total return is required to be disclosed for fiscal years beginning after December 15, 2000. + Commencement of operations. See Notes to Financial Statements. 34 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004 Notes to Financial Statements Low Duration Master Portfolio 1. Significant Accounting Policies: Low Duration Master Portfolio (the "Portfolio") is a fund of Fund Asset Management Master Trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended, and is organized as a Delaware statutory trust. The Declaration of Trust permits the Trustees to issue nontransferable interests in the Portfolio, subject to certain limitations. The Portfolio's financial statements are prepared in conformity with U.S. generally accepted accounting principles, which may require the use of management accruals and estimates. Actual results may differ from these estimates. The following is a summary of significant accounting policies followed by the Portfolio. (a) Valuation of investments -- Equity securities that are held by the Portfolio that are traded on stock exchanges or the Nasdaq National Market are valued at the last sale price or official close price on the exchange, as of the close of business on the day the securities are being valued or, lacking any sales, at the last available bid price for long positions, and at the last available ask price for short positions. In cases where equity securities are traded on more than one exchange, the securities are valued on the exchange designated as the primary market by or under the authority of the Board of Trustees of the Trust. Long positions traded in the over-the-counter ("OTC") market, Nasdaq Small Cap or Bulletin Board are valued at the last available bid price or yield equivalent 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 ask 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. Options written are valued at the last sale price in the case of exchange-traded options or, in the case of options traded in the OTC market, the last ask price. Options purchased are valued at their last sale price in the case of exchange-traded options or, in the case of options traded in the OTC market, the last bid price. Swap agreements are valued daily based upon quotations from market makers. Financial futures contracts and options thereon, which are traded on exchanges, are valued at their last sale price as of the close of such exchanges. Obligations with remaining maturities of 60 days or less are valued at amortized cost unless the Investment Adviser believes that this method no longer produces fair valuations. Repurchase agreements are valued at cost plus accrued interest. The Portfolio employs pricing services to provide certain securities prices for the Portfolio. Securities and 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, including valuations furnished by the pricing services retained by the Portfolio, which may use a matrix system for valuations. The procedures of a pricing service and its valuations are reviewed by the officers of the Portfolio under the general supervision of the Trust's Board of Trustees. Such valuations and procedures will be reviewed periodically by the Board of Trustees of the Trust. Generally, trading in foreign securities, as well as U.S. government securities and money market instruments, is substantially completed each day at various times prior to the close of business on the New York Stock Exchange ("NYSE"). The values of such securities used in computing the net assets of the Portfolio are determined as of such times. Foreign currency exchange rates also are generally determined prior to the close of business on the NYSE. Occasionally, events affecting the values of such securities and such exchange rates may occur between the times at which they are determined and the close of business on the NYSE that may not be reflected in the computation of the Portfolio's net assets. If events (for example, a company announcement, market volatility or a natural disaster) occur during such periods that are expected to materially affect the value of such securities, those securities may be valued at their fair value as determined in good faith by the Trust's Board of Trustees or by the Investment Adviser using a pricing service and/or procedures approved by the Trust's Board of Trustees. (b) Derivative financial instruments -- The Portfolio may engage in various portfolio investment strategies both to increase the return of the Portfolio and to hedge, or protect, its exposure to interest rate movements and movements in the securities markets. Losses may arise due to changes in the value of the contract or if the counterparty does not perform under the contract. MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004 35 [LOGO] Merrill Lynch Investment Managers Notes to Financial Statements (continued) Low Duration Master Portfolio o Financial futures contracts -- The Portfolio may purchase or sell financial futures contracts and options on such futures contracts. Futures contracts are contracts for delayed delivery of securities at a specific future date and at a specific price or yield. Upon entering into a contract, the Portfolio deposits and maintains as collateral such initial margin as required by the exchange on which the transaction is effected. Pursuant to the contract, the Portfolio agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Portfolio as unrealized gains or losses. When the contract is closed, the Portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. o Options -- The Portfolio may purchase and write call and put options. When the Portfolio writes an option, an amount equal to the premium received by the Portfolio is reflected as an asset and an equivalent liability. The amount of the liability is subsequently marked-to-market to reflect the current market value of the option written. When a security is purchased or sold through an exercise of an option, the related premium paid (or received) is added to (or deducted from) the basis of the security acquired or deducted from (or added to) the proceeds of the security sold. When an option expires (or the Portfolio enters into a closing transaction), the Portfolio realizes a gain or loss on the option to the extent of the premiums received or paid (or a gain or loss to the extent that the cost of the closing transaction exceeds the premium paid or received). Written and purchased options are non-income producing investments. o Swaps -- The Portfolio may enter into swap agreements, which are over-the-counter contracts in which the Portfolio and a counterparty agree to make periodic net payments on a specified notional amount. The net payments can be made for a set period of time or may be triggered by a pre-determined credit event. The net periodic payments may be based on a fixed or variable interest rate; the change in market value of a specified security, basket of securities, or index; or the return generated by a security. (c) Foreign currency transactions -- Transactions denominated in foreign currencies are recorded at the exchange rate prevailing when recognized. Assets and liabilities denominated in foreign currencies are valued at the exchange rate at the end of the period. Foreign currency transactions are the result of settling (realized) or valuing (unrealized) assets or liabilities expressed in foreign currencies into U.S. dollars. Realized and unrealized gains or losses from investments include the effects of foreign exchange rates on investments. (d) Income taxes -- The Portfolio is considered as a "pass through" entity for federal income tax purposes. As such, each investor in the Portfolio is treated as owner of its proportionate share of the net assets, income, expenses and realized and unrealized gains and losses of the Portfolio. Therefore, no federal income tax provision is required. It is intended that the Portfolio's assets will be managed so an investor in the Portfolio can satisfy the requirements of subchapter M of the Internal Revenue Code. (e) Security transactions and investment income -- Security transactions are accounted for on the date the securities are purchased or sold (the trade dates). Realized gains and losses on security transactions are determined on the identified cost basis. Interest income is recognized on the accrual basis. (f) Securities lending -- The Portfolio may lend securities to financial institutions that provide cash or securities issued or guaranteed by the U.S. government as collateral, which will be maintained at all times in an amount equal to at least 100% of the current market value of the loaned securities. The market value of the loaned securities is determined at the close of business of the Portfolio and any additional required collateral is delivered to the Portfolio on the next business day. Where the Portfolio receives securities as collateral for the loaned securities, its collects a fee from the borrower. The Portfolio typically receives the income on the loaned securities but does not receive the income on the collateral. Where the Portfolio receives cash collateral, it may invest such collateral and retain the amount earned on such investment, net of any amount rebated to the borrower. Loans of securities are terminable at any time and the borrower, after notice, is required to return borrowed securities within five business days. The Portfolio may pay reasonable finder's, lending agent, administrative and custodial fees in connection with its loans. In the event that the borrower defaults on its 36 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004 Notes to Financial Statements (continued) Low Duration Master Portfolio obligation to return borrowed securities because of insolvency or for any other reason, the Portfolio could experience delays and costs in gaining access to the collateral. The Portfolio also could suffer a loss where the value of the collateral falls below the market value of the borrowed securities, in the event of borrower default or in the event of losses on investments made with cash collateral. 2. Investment Advisory Agreement and Transactions with Affiliates: The Trust has entered into an Investment Advisory Agreement for the Portfolio with Fund Asset Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc. ("PSI"), an indirect, wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the limited partner. FAM is responsible for the management of the Portfolio's investments and provides the necessary personnel, facilities, equipment and certain other services necessary to the operations of the Portfolio. For such services, the Portfolio pays a monthly fee based upon the average daily value of the Portfolio's net assets at the annual rate of 0.21%. The Portfolio has received an exemptive order from the Securities and Exchange Commission permitting it to lend portfolio securities to Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), a subsidiary of ML & Co., or its affiliates. Pursuant to that order, the Portfolio also has retained Merrill Lynch Investment Managers, LLC ("MLIM, LLC"), an affiliate of FAM, as the securities lending agent for a fee based on a Portfolio, invest cash collateral received by the Portfolio for such loans, among other things, in a private investment company managed by MLIM, LLC or in registered money market funds advised by FAM or its affiliates. For the year ended June 30, 2004, MLIM, LLC received $9,386 in securities lending agent fees. For the year ended June 30, 2004, the Portfolio reimbursed FAM $15,360 for certain accounting services. Certain officers and/or trustees of the Trust are officers and/or directors of FAM, PSI, and/or ML & Co. 3. Investments: Purchases and sales of investments, excluding short-term securities, for the year ended June 30, 2004 were $788,064,464 and $784,486,330, respectively. Net realized gains (losses) for the year ended June 30, 2004 and net unrealized appreciation/depreciation as of June 30, 2004 were as follows: - -------------------------------------------------------------------------------- Unrealized Realized Appreciation/ Gains (Losses) Depreciation - -------------------------------------------------------------------------------- Long-term investments .................. $(1,595,582) $(5,523,128) Short-term investments ................. 5,025 -- Options purchased ...................... 226,147 (389,268) Options written ........................ (467,885) 185,968 Swaps .................................. 568,849 52,431 Financial futures contracts ............ (974,388) (259,672) ------------------------------- Total investments ...................... $(2,237,834) $(5,933,669) =============================== As of June 30, 2004, net unrealized depreciation for federal income tax purposes aggregated $5,729,987, of which $5,222,820 related to appreciated securities and $10,952,807 related to depreciated securities. At June 30, 2004, the aggregate cost of investments, net of options written for federal income tax purposes was $778,173,782. MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004 37 [LOGO] Merrill Lynch Investment Managers Notes to Financial Statements (concluded) Low Duration Master Portfolio Transactions in call options written for the year ended June 30, 2004 were as follows: - -------------------------------------------------------------------------------- Number of Premiums Contracts Received - -------------------------------------------------------------------------------- Outstanding call options written, beginning of year ................. 127 $ 15,304 Options written ...................... 4,129 1,901,899 Options closed ....................... (39) (1,594,737) Options expired ...................... (127) (15,304) ------------------------------- Outstanding call options written, end of year ....................... 4,090 $ 307,162 =============================== Transactions in put options written for the year ended June 30, 2004 were as follows: - -------------------------------------------------------------------------------- Number of Premiums Contracts Received - -------------------------------------------------------------------------------- Outstanding put options written, beginning of year ................. 127 $ 91,503 Options written ...................... 25 1,315,913 Options closed ....................... (152) (1,407,416) ------------------------------- Outstanding put options written, end of year ....................... -- $ -- =============================== 4. Short-Term Borrowings: The Trust, on behalf of the Portfolio, along with certain other funds managed by FAM and its affiliates, is a party to a $500,000,000 credit agreement with Bank One, N.A. and certain other lenders. The Portfolio may borrow under the credit agreement to fund investor withdrawals 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. On November 28, 2003, the credit agreement was renewed for one year under the same terms. The Portfolio did not borrow under the credit agreement during the year ended June 30, 2004. 38 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004 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, 2004, 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of June 30, 2004, by correspondence with the custodian and others. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as 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 Low Duration Master Portfolio at June 30, 2004, the results of its operations, the changes in its net assets and the financial highlights for each of the indicated periods in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Philadelphia, Pennsylvania August 16, 2004 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004 39 [LOGO] Merrill Lynch Investment Managers Officers and Directors/Trustees (unaudited)
Number of Portfolios in Other Public Fund Complex Directorships Position(s) Length of Overseen by Held by Held with Time Director/ Director/ Name Address & Age Fund Served Principal Occupation(s) During Past 5 Years Trustee Trustee ==================================================================================================================================== Interested Director/Trustee - ------------------------------------------------------------------------------------------------------------------------------------ Terry K. P.O. Box 9011 President 2000 to President of the Merrill Lynch Investment Managers, 123 Funds None Glenn* Princeton, NJ and present L.P. ("MLIM")/Fund Asset Management, L.P. 158 Portfolios 08543-9011 Director/ ("FAM")--Advised Funds since 1999; Chairman Age: 63 Trustee (Americas Region) of MLIM from 2000 to 2002; Executive Vice President of MLIM and FAM (which terms as used herein include their corporate predecessors) from 1983 to 2002; President of FAM Distributors, Inc. ("FAMD") from 1986 to 2002 and Director thereof from 1991 to 2002; Executive Vice President and Director of Princeton Services, Inc. ("Princeton Services") from 1993 to 2002; President of Princeton Administrators, L.P. from 1989 to 2002; Director of Financial Data Services, Inc. since 1985. ------------------------------------------------------------------------------------------------------------------------ * Mr. Glenn 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. Glenn is an "interested person," as described in the Investment Company Act, of the Fund based on his present and former positions with MLIM, FAM, FAMD, Princeton Services and Princeton Administrators, L.P. The Director's term is unlimited. Directors serve until their resignation, removal or death, or until December 31 of the year in which they turn 72. As Fund President, Mr. Glenn serves at the pleasure of the Board of Directors/Trustees. ==================================================================================================================================== Independent Directors/Trustees* - ------------------------------------------------------------------------------------------------------------------------------------ James H. P.O. Box 9095 Director/ 2002 to Director, The China Business Group, Inc. since 38 Funds None Bodurtha Princeton, NJ Trustee present 1996 and Executive Vice President thereof from 55 Portfolios 08543-9095 1996 to 2003; Chairman of the Board, Berkshire Age: 60 Holding Corporation since 1980; Partner, Squire, Sanders & Dempsey from 1980 to 1993. - ------------------------------------------------------------------------------------------------------------------------------------ Joe Grills P.O. Box 9095 Director/ 1996 to Member of the Committee of Investment of 38 Funds Kimco Princeton, NJ Trustee present Employee Benefit Assets of the Association of 55 Portfolios Realty 08543-9095 Financial Professionals ("CIEBA") since 1986; Corporation Age: 69 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 Management Company since 1992 and Vice Chairman thereof since 1998; 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 and Vice Chairman thereof since 2002; 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.
40 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004 Officers and Directors/Trustees (unaudited) (continued)
Number of Portfolios in Other Public Fund Complex Directorships Position(s) Length of Overseen by Held by Held with Time Director/ Director/ Name Address & Age Fund Served Principal Occupation(s) During Past 5 Years Trustee Trustee ==================================================================================================================================== Independent Directors/Trustees* (concluded) - ------------------------------------------------------------------------------------------------------------------------------------ Herbert I. P.O. Box 9095 Director/ 2002 to John M. Olin Professor of Humanities, New York 38 Funds None London Princeton, NJ Trustee present University since 1993 and Professor thereof since 55 Portfolios 08543-9095 1980; President, Hudson Institute since 1997 Age: 65 and Trustee thereof since 1980; Dean, Gallatin Division of New York University from 1976 to 1993; Distinguished Fellow, Herman Kahn Chair, Hudson Institute from 1984 to 1985; Director, Damon Corp. from 1991 to 1995; Overseer, Center for Naval Analyses from 1983 to 1993; Limited Partner, Hypertech LP since 1996. - ------------------------------------------------------------------------------------------------------------------------------------ Andre F. P.O. Box 9095 Director/ 2002 to Harvard Business School: George Gund Professor 38 Funds None Perold Princeton, NJ Trustee present of Finance and Banking since 2000; Senior 55 Portfolios 08543-9095 Associate Dean, Director of Faculty Recruiting Age: 52 since 2001; Finance Area Chair from 1996 to 2001; Sylvan C. Coleman Professor of Financial Management from 1993 to 2000; Director, Genbel Securities Limited and Gensee Bank from 1999 to 2003; Director, Stockback, Inc. from 2000 to 2002; Director, Sanlam Limited from 2001 to 2003; Trustee, Commonfund from 1989 to 2001; Director, Sanlam Investment Management from 1999 to 2001; Director, Bulldogresearch.com from 2000 to 2001; Director, Quantec Limited from 1991 to 1999; Director and Chairman of the Board of UNX Inc. since 2003. - ------------------------------------------------------------------------------------------------------------------------------------ Roberta P.O. Box 9095 Director/ 2002 to Shareholder, Modrall, Sperling, Roehl, Harris & 38 Funds None Cooper Princeton, NJ Trustee present Sisk, P.A. since 1993; President, American Bar 55 Portfolios Ramo 08543-9095 Association from 1995 to 1996 and Member of Age: 61 the Board of Governors thereof from 1994 to 1997; Shareholder, Poole, Kelly & Ramo, Attorneys at Law, P.C. from 1977 to 1993; Director, Coopers, Inc. since 1999; 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. - ------------------------------------------------------------------------------------------------------------------------------------ Robert S. P.O. Box 9095 Director/ 2002 to Principal of STI Management (investment adviser) 38 Funds None Salomon, Princeton, NJ Trustee present since 1994; Chairman and CEO of Salomon 55 Portfolios Jr. 08543-9095 Brothers Asset Management from 1992 until 1995; Age: 67 Chairman of Salomon Brothers equity mutual funds from 1992 until 1995; regular columnist with Forbes magazine from 1992 to 2002; Director of Stock Research and U.S. Equity Strategist at Salomon Brothers from 1975 until 1991; Trustee, Commonfund from 1980 to 2001. - ------------------------------------------------------------------------------------------------------------------------------------ Stephen B. P.O. Box 9095 Director/ 2002 to Chairman of Fernwood Associates (investment 39 Funds None Swensrud Princeton, NJ Trustee present adviser) since 1996; Principal, Fernwood Associates 56 Portfolios 08543-9095 (financial consultants) since 1975; Chairman of Age: 71 R.P.P. Corporation (manufacturing company) since 1978; Director of International Mobile Communications, Incorporated (telecommunications company) since 1998. ------------------------------------------------------------------------------------------------------------------------ * The Director's/Trustee's term is unlimited. Directors/Trustees serve until their resignation, removal or death, or until December 31 of the year in which they turn 72.
MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004 41 [LOGO] Merrill Lynch Investment Managers Officers and Directors/Trustees (unaudited) (concluded)
Position(s) Length of Held with Time Name Address & Age Fund Served Principal Occupation(s) During Past 5 Years ==================================================================================================================================== Fund Officers* - ------------------------------------------------------------------------------------------------------------------------------------ Donald C. P.O. Box 9011 Vice 2002 to First Vice President of MLIM and FAM since 1997 and Treasurer thereof Burke Princeton, NJ President present since 1999; Senior Vice President and Treasurer of Princeton Services since 08543-9011 and 1999; Vice President of FAMD since 1999; Director of MLIM Taxation Age: 44 Treasurer since 1990. - ------------------------------------------------------------------------------------------------------------------------------------ Patrick P.O. Box 9011 Vice 2002 to Managing Director of MLIM since 2000; Director (Global Fixed Income) of MLIM from Maldari Princeton, NJ President present 1998 to 2000. 08543-9011 Age: 42 - ------------------------------------------------------------------------------------------------------------------------------------ James P.O. Box 9011 Vice 2002 to Director of MLIM since 2004; Vice President of MLIM from 1996 to 2004. Pagano Princeton, NJ President present 08543-9011 Age: 41 - ------------------------------------------------------------------------------------------------------------------------------------ Phillip S. P.O. Box 9011 Secretary 2002 to First Vice President of MLIM since 2001; Director (Legal Advisory) of MLIM from Gillespie Princeton, NJ present 2000 to 2001; Vice President of MLIM from 1999 to 2000 and Attorney associated with 08543-9011 MLIM since 1998. Age: 40 ------------------------------------------------------------------------------------------------------------------------ * Officers of the Fund serve at the pleasure of the Board of Directors/Trustees. - ------------------------------------------------------------------------------------------------------------------------------------ Further information about the Fund's Officers and Directors/Trustees is available in the Fund's Statement of Additional Information, which can be obtained without charge by calling 1-800-MER-FUND. - ------------------------------------------------------------------------------------------------------------------------------------
Custodian Brown Brothers Harriman & Co. 40 Water Street Boston, MA 02109-3661 Transfer Agent Financial Data Services, Inc. 4800 Deer Lake Drive East Jacksonville, FL 32246-06484 800-637-3863 42 MERRILL LYNCH LOW DURATION FUND JUNE 30, 2004 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 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, 2004 43 [LOGO] Merrill Lynch Investment Managers www.mlim.ml.com This report is not authorized for use as an offer of sale or a solicitation of an offer to buy shares of the Fund unless accompanied or preceded by the Fund's current prospectus. Past performance results shown in this report should not be considered a representation of future performance. Investment return and principal value of shares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Statements and other information herein are as dated and are subject to change. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available (1) without charge, upon request, by calling toll-free 1-800-MER-FUND (1-800-637-3863); (2) at www.mutualfunds.ml.com; and (3) on the Securities and Exchange Commission's Web site at http://www.sec.gov. Information about how the Fund voted proxies relating to securities held in the Fund's portfolio during the most recent 12-month period ended June 30 is available (1) at www.mutualfunds.ml.com and (2) on the Securities and Exchange Commission's Web site at http://www.sec.gov. Merrill Lynch Low Duration Fund of Merrill Lynch Investment Managers Funds, Inc. Box 9011 Princeton, NJ 08543-9011 #ML -- 3070 -- 6/04 Item 2 - Code of Ethics - The registrant has adopted a code of ethics, as of the end of the period covered by this report, that applies to the registrant's principal executive officer, principal financial officer and principal accounting officer, or persons performing similar functions. A copy of the code of ethics is available without charge upon request by calling toll-free 1-800-MER-FUND (1-800-637-3863). Item 3 - Audit Committee Financial Expert - The registrant's board of directors has determined that (i) the registrant has the following audit committee financial experts serving on its audit committee and (ii) each audit committee financial expert is independent: (1) Joe Grills, (2) Andre F. Perold, (3) Robert S. Salomon, Jr., and (4) Stephen B. Swensrud. Item 4 - Principal Accountant Fees and Services (a) Audit Fees - Merrill Lynch Low Duration Fund Fiscal Year Ending June 30, 2004 - $0 Fiscal Year Ending June 30, 2003 - $0 Low Duration Master Portfolio Fiscal Year Ending June 30, 2004 - $33,000 Fiscal Year Ending June 30, 2003 - $30,000 (b) Audit-Related Fees - Merrill Lynch Low Duration Fund Fiscal Year Ending June 30, 2004 - $0 Fiscal Year Ending June 30, 2003 - $0 Low Duration Master Portfolio Fiscal Year Ending June 30, 2004 - $0 Fiscal Year Ending June 30, 2003 - $0 (c) Tax Fees - Merrill Lynch Low Duration Fund Fiscal Year Ending June 30, 2004 - $0 Fiscal Year Ending June 30, 2003 - $0 Low Duration Master Portfolio Fiscal Year Ending June 30, 2004 - $5,200 Fiscal Year Ending June 30, 2003 - $5,000 The nature of the services include tax compliance, tax advice and tax planning. (d) All Other Fees - Merrill Lynch Low Duration Fund Fiscal Year Ending June 30, 2004 - $0 Fiscal Year Ending June 30, 2003 - $0 Low Duration Master Portfolio Fiscal Year Ending June 30, 2004 - $0 Fiscal Year Ending June 30, 2003 - $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) Merrill Lynch Low Duration Fund Fiscal Year Ending June 30, 2004 - $0 Fiscal Year Ending June 30, 2003 - $100,000 Low Duration Master Portfolio Fiscal Year Ending June 30, 2004 - $5,200 Fiscal Year Ending June 30, 2003 - $105,000 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) - $541,640, 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 - Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers - Not Applicable Item 9 - Submission of Matters to a Vote of Security Holders - Not Applicable Item 10 - Controls and Procedures 10(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. 10(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 11 - Exhibits attached hereto 11(a)(1) - Code of Ethics - See Item 2 11(a)(2) - Certifications - Attached hereto 11(a)(3) - Not Applicable 11(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/ Terry K. Glenn ------------------------------ Terry K. Glenn, President of Merrill Lynch Low Duration Fund of Merrill Lynch Investment Managers Funds, Inc. and Low Duration Master Portfolio of Fund Asset Management Master Trust Date: August 13, 2004 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 Low Duration Fund of Merrill Lynch Investment Managers Funds, Inc. and Low Duration Master Portfolio of Fund Asset Management Master Trust Date: August 13, 2004 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 13, 2004
EX-99.CERT 2 e400720_ex99-cert.txt CERTIFICATION PURSUANT TO SECTION 302 EX-99. CERT CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - -------------------------------------------------------------------------------- I, Terry K. Glenn, President of Merrill Lynch Low Duration Fund of Merrill Lynch Investment Managers Funds, Inc. and Low Duration Master Portfolio of Fund Asset Management Master Trust, certify that: 1. I have reviewed this report on Form N-CSR of Merrill Lynch Low Duration Fund of Merrill Lynch Investment Managers Funds, Inc. and Low Duration Master Portfolio of Fund Asset Management Master Trust (together, the "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; 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 Fund as of, and for, the periods presented in this report; 4. The Fund's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the Fund and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Fund, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the Fund's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and c) disclosed in this report any change in the Fund's internal control over financial reporting that occurred during the Fund's most recent fiscal half-year (the Fund's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Fund's internal control over financial reporting; and 5. The Fund's other certifying officer(s) and I have disclosed to the Fund's auditors and the audit committee of the Fund's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Fund's ability to record, process, summarize, and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Fund's internal control over financial reporting. Date: August 13, 2004 /s/ Terry K. Glenn ----------------------------------- Terry K. Glenn, President of Merrill Lynch Low Duration Fund of Merrill Lynch Investment Managers Funds, Inc. and Low Duration Master Portfolio of Fund Asset Management Master Trust 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 Low Duration Fund of Merrill Lynch Investment Managers Funds, Inc. and Low Duration Master Portfolio of Fund Asset Management Master Trust, certify that: 1. I have reviewed this report on Form N-CSR of Merrill Lynch Low Duration Fund of Merrill Lynch Investment Managers Funds, Inc. and Low Duration Master Portfolio of Fund Asset Management Master Trust (together, the "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; 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 Fund as of, and for, the periods presented in this report; 4. The Fund's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the Fund and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Fund, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the Fund's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and c) disclosed in this report any change in the Fund's internal control over financial reporting that occurred during the Fund's most recent fiscal half-year (the Fund's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Fund's internal control over financial reporting; and 5. The Fund's other certifying officer(s) and I have disclosed to the Fund's auditors and the audit committee of the Fund's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Fund's ability to record, process, summarize, and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Fund's internal control over financial reporting. Date: August 13, 2004 /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 EX-99.1350 CERT 3 e400720_ex99-1350cert.txt CERTIFICATION PURSUANT TO SECTION 906 Exhibit 99.1350CERT Certification Pursuant to Section 906 of the Sarbanes Oxley Act I, Terry K. Glenn, President of Merrill Lynch Low Duration Fund of Merrill Lynch Investment Managers Funds, Inc. and Low Duration Master Portfolio of Fund Asset Management Master Trust (together, 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: August 13, 2004 /s/ Terry K. Glenn ----------------------------------- Terry K. Glenn, President of Merrill Lynch Low Duration Fund of Merrill Lynch Investment Managers Funds, Inc. and Low Duration Master Portfolio of Fund Asset Management Master Trust A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Merrill Lynch Low Duration Fund of Merrill Lynch Investment Managers Funds, Inc. and Low Duration Master Portfolio of Fund Asset Management Master Trust and will be retained by Merrill Lynch Low Duration Fund of Merrill Lynch Investment Managers Funds, Inc. and Low Duration Master Portfolio of Fund Asset Management Master Trust and furnished to the Securities and Exchange Commission or its staff upon request. Exhibit 99.1350CERT Certification Pursuant to Section 906 of the Sarbanes Oxley Act I, 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 (together, 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: August 13, 2004 /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 A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Merrill Lynch Low Duration Fund of Merrill Lynch Investment Managers Funds, Inc. and Low Duration Master Portfolio of Fund Asset Management Master Trust and will be retained by Merrill Lynch Low Duration Fund of Merrill Lynch Investment Managers Funds, Inc. and Low Duration Master Portfolio of Fund Asset Management Master Trust and furnished to the Securities and Exchange Commission or its staff upon request.
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