QUARTERLY REPORT
AUGUST 31, 1999
FUND LOGO
Mercury
Gold and
Mining
Fund
OF MERCURY ASSET
MANAGEMENT FUNDS, INC.
OFFICERS AND DIRECTORS
Jeffrey M. Peek, Director and President
David O. Beim, Director
James T. Flynn, Director
W. Carl Kester, Director
Karen P. Robards, Director
Terry K. Glenn, Director and
Executive Vice President
Peter John Gibbs, Senior Vice President
Donald C. Burke, Vice President and
Treasurer
Robert E. Putney, III, Secretary
Custodian
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(888) 763-2260
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.
The Fund seeks long-term capital growth through investments
primarily in stocks of gold mining companies, and to a lesser extent
of companies engaged in other mining activities located throughout
the world. The Fund will seek to achieve its objective by investing
all of its assets in Mercury Master Gold and Mining Portfolio of
Mercury Asset Management Master Trust, which has the same investment
objective as the Fund. The Fund's investment experience will
correspond to the investment experience of the Portfolio.
Mercury Gold and Mining Fund of
Mercury Asset Management Funds, Inc.
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
MERCURY MASTER GOLD AND MINING
PORTFOLIO
BREAKDOWN OF STOCKS BY SECTOR
As a Percentage of Net Assets as of August 31, 1999
A pie chart depicting portfolio composition according to
sector for the quarter ended August 31, 1999
Gold 76.5%
Platinum 11.6%
Other 5.1%
Silver 3.4%
Cash 2.6%
Diamonds 0.8%
GEOGRAPHIC ASSET MIX
As a Percentage of Net Assets as of August 31, 1999
FTGold Mercury Gold and
Mines Index++ Mining Portfolio
Australasia 12.8% 16.9%
North America 57.0 39.7
Latin America 2.9 7.0
South Africa 25.8 27.6
Africa 1.5 6.2
Cash -- 2.6
Total 100.0% 100.0%
[FN]
++An unmanaged geographically diversified Index of leading gold
mining companies.
August 31, 1999
Mercury Gold and Mining Fund
DEAR SHAREHOLDER
For the three months ended August 31, 1999, Mercury Gold and Mining
Fund's Class I, Class A, Class B and Class C Shares had total
returns of +4.36%, +4.27%, +4.08% and +4.08%, respectively. The
Fund's benchmark unmanaged Financial Times Gold Mines Index had a
total return of +8.03% over the same three-month period. (Investment
results shown do not reflect sales charges and would be lower if
sales charges were included. Complete performance information can be
found on pages 6 and 7 of this report to shareholders.)
Investment Review
At the start of the August quarter, the gold price was US$265 per
ounce, and by August 31, 1999 the price declined to US$255 per
ounce. During the period, the gold price traded in a narrow range,
but reached a new 20-year low of US$252.10 per ounce on August 25,
1999.
Throughout the August quarter, commodity prices generally remained
firm. Base metal prices continued to be strong in what is usually a
seasonally weak period for prices. This strength is supportive of
the growing consensus that metal prices are set to enjoy a sustained
cyclical recovery.
The most notable event in the gold market took place on July 6,
1999, when the Bank of England (BoE) auctioned 25 tonnes of gold.
The auction was the first in a series planned by the BoE to reduce
the UK's gold holdings by around 300 tonnes over the next 18 months.
Despite being several times oversubscribed, the gold price fell back
sharply after the auction. The BoE auctions are set to take place
every two months, with the next auction scheduled for September 21,
1999.
During the August quarter, it became apparent that the likelihood
of gold sales by the International Monetary Fund (IMF) was
significantly reduced. The IMF announced early in 1999 that it
planned to sell 10 million ounces of gold to help fund debt relief
for poorer nations. The news resulted in a fall in the gold price.
Opposition ironically came from many of the countries set to benefit
from the relief fund, since these countries have significant gold
industries. This pressure caused the IMF to rethink its plan, and
the IMF is currently considering other ways that would avoid gold
sales directly on market.
The World Gold Council (WGC) reported continuing strength in demand
for gold. Gold demand rose by 16% year over year in the second
quarter of 1999, thereby setting a new all-time high for any three-
month period. Gold demand for the first half of the year rose to a
new record level of 1,598 tonnes, 35% higher than the first half of
last year. The WGC estimates that gold demand in Southeast Asia is
back to more than 90% of the levels seen before the Asian crisis.
However, Gold Field Mineral Services highlighted in a recent report
on demand trends that gold supply had also risen, reflecting a
record amount of gold hedged by mining companies in the first half
of the year. This report offset the good news from the WGC to some
extent.
August 31, 1999
Mercury Gold and Mining Fund
Another important event during the August quarter was the surge in
corporate activity in the mining sector. Alcan Aluminium Ltd., the
major Canadian aluminium producer, announced an agreed three-way
merger with Pechiney SA and Alusuisse, leading aluminium companies
based in France and Switzerland, respectively. On paper, the new
company will be the world's largest aluminium enterprise and
significant cost savings and synergy benefits are expected. Within
hours of the Alcan news, Alcoa Inc., the world's largest aluminium
company, announced a hostile takeover offer for Reynolds Metals, the
world's third-largest aluminium company. Again, significant cost
savings are expected from this merger.
No sooner had the market begun to digest the shake-up in the global
aluminium industry when Phelps Dodge Corporation, one of the world's
leading copper companies, announced hostile bids for Cyprus Amax
Mineral Company and Asarco Inc., two of Phelps Dodge's rivals in the
United States. Finally, at the end of August, Delta Gold NL
announced that it was making a take-over bid for fellow Australian
gold producer Acacia Resources Limited. Again the rationale was
synergy benefits and cost reductions. In our view, the major
rationalization underway in the mining sector is very positive for
investors. Mining company managements seem at last to be embracing
the concept of shareholder value and focusing corporate strategies
on shareholder returns.
The Portfolio benefited from this corporate action given that it has
combined net assets of 5.8% in Delta and Acacia. We also established
a position in Cyprus Amax on the news of the bid by Phelps Dodge.
Other significant news was the announcement of annual results by
Impala Platinum Holdings Limited. The Portfolio has a 12% weighting
in platinum and palladium shares, and Impala has been the
cornerstone of this exposure. Impala announced that earnings for
year-to-date June 1999 rose by 131% and that the dividend was
increased by 151%. The increase was a result of higher platinum
group metal prices and a weaker South African rand. Impala's chief
executive officer was very upbeat about future earnings prospects,
based on his optimistic view of the platinum market over the next
few years. We look to maintain the Portfolio's exposure in this
exciting area of the metals markets.
Portfolio Activity
Prior to the BoE auction on July 6, 1999, we increased our gold
share weighting from around 60% of net assets to 70%. We took the
view that the BoE news was fully discounted in the price of gold and
gold mining shares. We had earlier cut our gold share exposure back
significantly in response to the BoE's announcement to auction some
of its gold. We subsequently raised the Portfolio's gold exposure
further to 76.5% of net assets by August 31, 1999.
August 31, 1999
Mercury Gold and Mining Fund
In terms of specific stocks, there was a sharp drop in the share
price of Stillwater Mining Company, the world's only pure palladium
company, after the announcement of a profit warning from operational
problems associated with an expansion program. Stillwater's shares
fell by a third on the news, and we took advantage of this
opportunity to significantly increase our position.
Investment Outlook
During the August quarter, gold lease rates rose significantly.
Lease rates, which are now over 3% on a one-year basis, are
currently at their highest level in four years. Higher lease rates
indicate that the physical gold market is experiencing tightness,
which could well lead to a price rise. The last time that lease
rates were so high in late 1995, gold spiked upward by about 10%. We
believe there may be a real chance a similar spike could happen
again. Higher lease rates are stemming from, in part, central banks
asking for the return of gold that has been lent to the market.
Central banks possibly want the gold in their vaults over the year-
end given Year 2000 issues.
What is important is that if lease rates stay at these levels or
trend higher, there will be increasing pressure on gold borrowers to
cover their positions because of the increasing costs of borrowing
the gold. In order to do this, they will need to buy gold. We will
carefully monitor the level of lease rates given that it is such a
useful window into the dynamics of the gold market.
Another supportive factor for gold is the positive outlook for base
metal prices. We believe the bottom has been seen in metal prices
for the cycle. A typical cycle would see metal prices double from
trough to peak. If history were any guide, we would therefore expect
a strong period for metal prices lasting for about two years. It may
sound like a big move in prices, but bear in mind that oil has
already roughly doubled this year. Such a move in metal prices has
very positive ramifications for mining company earnings and share
prices. While such a development is not absolutely certain, it would
be very unusual for gold to move in the opposite direction relative
to other metal prices for long. In our view, strong metal prices
should be good for gold, but gold mining equities are not
discounting this because the BoE news damaged sentiment so
significantly.
With gold close to a 20-year low, we believe that this represents a
buying opportunity. At the current price of US$255 per ounce, over a
third of total world gold production is making a cash loss, and most
companies are losing money on an accounting basis taking into
consideration depreciation. We expect that there will be a major
consolidation in the gold industry, which is likely to be
accompanied by further announcements about gold mine closures. This
is exactly what is already taking place in the copper and aluminium
industries, which has led to higher share prices. We think that
Delta Gold's recent bid for Acacia is just the start of the same
process in the gold industry, which we expect to be equally good for
gold mining company share prices.
August 31, 1999
Mercury Gold and Mining Fund
In Conclusion
The tightness in the gold market stemming from higher lease rates is
an encouraging sign. Combined with a record level of gold demand and
the likelihood that the IMF will not sell any gold at the present
time, the prospects for the gold price look more encouraging.
However, sentiment is still fragile, and the market is vulnerable to
any negative surprises. Nevertheless, even a small improvement in
the gold price from these current low levels would be expected to
translate to substantial gains in gold mining equity shares.
We thank you for your investment in Mercury Gold and Mining Fund,
and we look forward to serving your investment needs in the months
and years ahead.
Sincerely,
(Jeffrey Peek) (Trevor Steel)
Jeffrey Peek Trevor Steel
President Portfolio Manager
September 20, 1999
FUND PERFORMANCE DATA
ABOUT FUND PERFORMANCE
The Fund offers four classes of shares, each with its own sales
charge and expense structure, allowing you to invest in the way that
best suits your needs.
CLASS I SHARES incur a maximum initial sales charge of 5.25% and
bear no ongoing distribution and account maintenance fees. Class I
shares are available only to eligible investors.
CLASS A SHARES incur a maximum initial sales charge of 5.25% and an
account maintenance fee of 0.25% (but no distribution fee).
CLASS B SHARES are subject to a maximum contingent deferred sales
charge of 4% if redeemed during the first two years, decreasing to
3% for each of the next two years and decreasing 1% each year
thereafter to 0% after the sixth year. In addition, Class B shares
are subject to a distribution fee of 0.75% and an account
maintenance fee of 0.25%. These shares automatically convert to
Class A shares after approximately 8 years.
August 31, 1999
Mercury Gold and Mining Fund
FUND PERFORMANCE DATA (CONCLUDED)
CLASS C SHARES are subject to a distribution fee of 0.75% and an
account maintenance fee of 0.25%. In addition, Class C shares may be
subject to a 1% contingent deferred sales charge if redeemed within
one year after purchase.
None of the past results shown should be considered a representation
of future performance. Figures shown in the "Recent Performance
Results" and "Aggregate Total Return" tables assume reinvestment of
all dividends and capital gains distributions at net asset value on
the ex-dividend 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.
RECENT PERFORMANCE RESULTS*
3 Month Since Inception
As of August 31, 1999 Total Return Total Return
Class I + 4.36% + 5.30%
Class A + 4.27 + 5.10
Class B + 4.08 + 4.70
Class C + 4.08 + 4.70
[FN]
*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 the Fund's net asset
values for the periods shown, and assume reinvestment of all
dividends and capital gains at net asset value on the ex-dividend
date. The Fund commenced operations on 2/26/99.
AGGREGATE TOTAL RETURN
% Return % Return
Without Sales With Sales
Class I Shares* Charge Charge**
Inception (2/26/99)
through 6/30/99 + 5.20% - 0.32%
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without With
Class B Shares* CDSC CDSC**
Inception (2/26/99)
through 6/30/99 + 4.80% + 0.80%
[FN]
*Maximum contingent deferred sales charge
is 4% and is reduced to 0% after 6 years.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without Sales With Sales
Class A Shares* Charge Charge**
Inception (2/26/99)
through 6/30/99 + 5.10% - 0.42%
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without With
Class C Shares* CDSC CDSC**
Inception (2/26/99)
through 6/30/99 + 4.80% + 3.80%
[FN]
*Maximum contingent deferred sales charge
is 1% and is reduced to 0% after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
August 31, 1999
Mercury Gold and Mining Fund
SCHEDULE OF INVESTMENTS
<TABLE>
MERCURY MASTER GOLD AND MINING PORTFOLIO
<CAPTION>
In US Dollars
Shares Percent of
Industry Held Investments Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
AFRICA
Ghana
Gold Mines 77,000 Ashanti Goldfields Company
Ltd. (GDR)** $ 666,264 $ 500,500 2.9%
Total Investments in Ghana 666,264 500,500 2.9
Mali
Gold Mines 22,500 Randgold Resources Limited
(GDR)** 97,779 76,500 0.4
145,000 Randgold Resources Limited
(GDR)** 649,430 493,000 2.9
Total Investments in Mali 747,209 569,500 3.3
South Africa
Gold Mines 17,700 AngloGold Limited 755,650 887,984 5.2
450,000 Avgold Limited 218,167 236,862 1.4
292,000 Gold Fields Limited 1,038,004 1,008,636 5.9
131,900 Harmony Gold Mining
Company Limited 619,254 542,397 3.2
138,700 Western Areas Limited 402,436 387,844 2.3
-----------------------------------------------------
3,033,511 3,063,723 18.0
Metals/ 24,370 Anglo American Platinum
Non-Ferrous Corporation Limited 404,497 554,784 3.2
136,485 Gencor Limited 315,904 442,266 2.6
20,300 Impala Platinum Holdings
Limited 358,201 651,123 3.8
-----------------------------------------------------
1,078,602 1,648,173 9.6
Total Investments in
South Africa 4,112,113 4,711,896 27.6
Total Investments in Africa 5,525,586 5,781,896 33.8
LATIN AMERICA
Mexico
Metals/ 220,300 Industrias Penoles SA 643,129 571,078 3.3
Non-Ferrous
Total Investments in Mexico 643,129 571,078 3.3
Peru
Gold Mines 40,900 Compania de Minas
Buenaventura SA (ADR)* 585,362 628,838 3.7
Total Investments in Peru 585,362 628,838 3.7
Total Investments in
Latin America 1,228,491 1,199,916 7.0
</TABLE>
August 31, 1999
Mercury Gold and Mining Fund
SCHEDULE OF INVESTMENTS (CONTINUED)
<TABLE>
In US Dollars
Shares Percent of
Industry Held Investments Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
NORTH AMERICA
Canada
Gold Mines 85,000 Agnico-Eagle Mines Limited $ 476,955 $ 512,735 3.0%
30,000 Barrick Gold Corporation 591,638 581,250 3.4
42,800 Euro-Nevada Mining
Corporation 562,736 514,920 3.0
93,000 Goldcorp Inc. 'A' 476,362 461,260 2.7
272,340 IAMGOLD, International
African Mining Gold
Corporation 664,352 611,487 3.6
150,000 Kinross Gold Corporation 246,067 321,716 1.9
65,400 Meridian Gold Inc. 372,285 344,095 2.0
54,000 Placer Dome Inc. 598,270 560,250 3.3
-----------------------------------------------------
3,988,665 3,907,713 22.9
Metals/ 27,000 Franco-Nevada Mining Corp.
Non-Ferrous Ltd. 416,054 425,268 2.5
Miscella- 22,500 Aber Resources Ltd. 139,917 139,494 0.8
neous 254,400 Asia Pacific Resources Ltd. 541,039 414,338 2.4
Materials & -----------------------------------------------------
Commodities 680,956 553,832 3.2
Total Investments in Canada 5,085,675 4,886,813 28.6
United States
Gold Mines 108,900 Battle Mountain Gold
Company 257,816 190,575 1.1
29,000 Newmont Mining
Corporation 534,287 592,687 3.5
-----------------------------------------------------
792,103 783,262 4.6
Metals/ 35,000 Cyprus Amax Minerals
Non-Ferrous Company 568,852 592,812 3.5
23,400 Stillwater Mining Company 631,333 516,262 3.0
-----------------------------------------------------
1,200,185 1,109,074 6.5
Total Investments in the
United States 1,992,288 1,892,336 11.1
Total Investments in
North America 7,077,963 6,779,149 39.7
</TABLE>
August 31, 1999
Mercury Gold and Mining Fund
SCHEDULE OF INVESTMENTS (CONCLUDED)
<TABLE>
In US Dollars
Shares Percent of
Industry Held Investments Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
PACIFIC BASIN/ASIA
Australia
Gold 483,000 Acacia Resources Limited $ 605,945 $ 573,166 3.4%
Mines 287,900 Delta Gold NL 423,876 405,566 2.4
155,954 Goldfields Limited 98,677 108,454 0.6
1,252,700 Normandy Mining Limited 1,015,623 895,129 5.2
40,000 Sons of Gwalia Limited 103,934 99,528 0.6
Total Investments in
Australia 2,248,055 2,081,843 12.2
Papua New Guinea
Gold
Mines 1,000,000 Lihir Gold Limited 799,462 797,500 4.7
Total Investments in Papua
New Guinea 799,462 797,500 4.7
Total Investments in the
Pacific Basin/Asia 3,047,517 2,879,343 16.9
Face Short-Term
Amount Securities
Commer- US$348,000 General Motors
cial Acceptance Corp.,
Paper*** 5.56% due 9/01/1999 348,000 348,000 2.0
Total Investments in
Short-Term Securities 348,000 348,000 2.0
Total Investments $ 17,227,557 16,988,304 99.4
============
Other Assets Less
Liabilities 96,054 0.6
-------------------------
Net Assets $ 17,084,358 100.0%
=========================
<FN>
*American Depositary Receipts (ADR).
**Global Depositary Receipts (GDR).
***Commercial Paper is traded on a discount basis; the interest rate
shown reflects the discount rate paid at the time of purchase by the
Portfolio.
</TABLE>
August 31, 1999
Mercury Gold and Mining Fund
PORTFOLIO INFORMATION
WORLDWIDE INVESTMENTS AS OF AUGUST 31, 1999
Percent of
Ten Largest Holdings Net Assets
Gold Fields Limited 5.9%
Normandy Mining Limited 5.2
AngloGold Limited 5.2
Lihir Gold Limited 4.7
Impala Platinum Holdings Limited 3.8
Compania de Minas
Buenaventura SA (ADR) 3.7
IAMGOLD, International African
Mining Gold Corporation 3.6
Cyprus Amax Minerals Company 3.5
Newmont Mining Corporation 3.5
Barrick Gold Corporation 3.4
PORTFOLIO CHANGES FOR THE QUARTER
ENDED AUGUST 31, 1999
Additions
*Anglovaal Mining Limited
Battle Mountain Gold Company
Cyprus Amax Minerals Company
Gold Fields Limited
Kinross Gold Corporation
Sons of Gwalia Limited
[FN]
*Added and deleted in the same quarter.
Deletions
Anglo American PLC
*Anglovaal Mining Limited
CONSOL Energy Inc.
Compania de Minas Buenaventura SA
Driefontein Consolidated Limited
Randfontein Estates Limited
August 31, 1999
Mercury Gold and Mining Fund
