ANNUAL REPORT
MAY 31, 1999
Mercury
Pan-European [GRAPHIC OMITTED]
Growth
Fund
OF MERCURY ASSET
MANAGEMENT FUNDS, INC.
--------------------
M E R C U R Y
ASSET MANAGEMENT
--------------------
<PAGE>
MERCURY MASTER
PAN-EUROPEAN GROWTH PORTFOLIO
<TABLE>
<CAPTION>
INDUSTRY WEIGHTINGS RELATIVE TO THE MSCI EUROPE INDEX
=======================================================================================================
As of May 31, 1999 Portfolio Allocation Index Allocation Portfolio Versus Index
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CAPITAL EQUIPMENT
Aerospace & Military Technology 0.1% 0.5% -0.4
Construction & Housing 1.8 0.7 +1.1
Data Processing & Reproduction 0.0 0.0+ 0.0
Electrical & Electronics 6.1 5.2 +0.9
Electronic Components & Instruments 0.0 0.5 -0.5
Energy Equipment & Services 0.0 0.1 -0.1
Industrial Components 0.0 0.6 -0.6
Machinery & Engineering 2.7 1.1 +1.6
- -------------------------------------------------------------------------------------------------------
Total Capital Equipment 10.7 8.7 +2.0
- -------------------------------------------------------------------------------------------------------
CONSUMER GOODS
Appliances & Household Durables 1.1 0.7 +0.4
Automobiles 1.2 2.8 -1.6
Beverages & Tobacco 1.8 1.9 -0.1
Food & Household Products 4.4 3.5 +0.9
Health & Personal Care 8.5 10.9 -2.4
Recreation & Other Consumer Goods 0.0 0.9 -0.9
Textiles & Apparel 0.0 0.1 -0.1
- -------------------------------------------------------------------------------------------------------
Total Consumer Goods 17.0 20.8 -3.8
- -------------------------------------------------------------------------------------------------------
ENERGY
Energy Sources 7.3 8.7 -1.4
Utilities--Electric & Gas 2.8 4.4 -1.6
- -------------------------------------------------------------------------------------------------------
Total Energy 10.1 13.1 -3.0
- -------------------------------------------------------------------------------------------------------
FINANCE
Banking 14.5 15.3 -0.8
Financial Services 0.0 1.3 -1.3
Insurance 6.9 8.2 -1.3
Real Estate 0.0 0.6 -0.6
- -------------------------------------------------------------------------------------------------------
Total Finance 21.4 25.4 -4.0
- -------------------------------------------------------------------------------------------------------
MATERIALS
Building Materials & Components 0.0 1.6 -1.6
Chemicals 3.3 2.0 +1.3
Forest Products & Paper 0.0 0.4 -0.4
Metals/Non-Ferrous 0.8 0.4 +0.4
Metals--Steel 0.5 0.5 0.0
Miscellaneous Materials & Commodities 0.0 0.2 -0.2
- -------------------------------------------------------------------------------------------------------
Total Materials 4.6 5.1 -0.5
- -------------------------------------------------------------------------------------------------------
MULTI-INDUSTRY
Multi-Industry 0.0 0.9 -0.9
- -------------------------------------------------------------------------------------------------------
Total Multi-Industry 0.0 0.9 -0.9
- -------------------------------------------------------------------------------------------------------
SERVICES
Broadcasting & Publishing 5.1 1.5 +3.6
Business/Public Services 8.1 4.9 +3.2
Leisure/Tourism 2.2 1.3 +0.9
Merchandising 8.9 4.7 +4.2
Telecommunications 10.4 12.3 -1.9
Transportation--Airlines 0.0 0.5 -0.5
Transportation--Road & Rail 0.0 0.1 -0.1
Transportation--Shipping 0.0 0.6 -0.6
Wholesale & International Trade 0.0 0.1 -0.1
- -------------------------------------------------------------------------------------------------------
Total Services 34.7 26.0 +8.7
- -------------------------------------------------------------------------------------------------------
CASH/CASH EQUIVALENT 1.5 0.0 +1.5
- -------------------------------------------------------------------------------------------------------
TOTAL 100.0% 100.0%
- -------------------------------------------------------------------------------------------------------
</TABLE>
+ Amount is less than 0.1%.
May 31, 1999 2 Mercury Pan-European Growth Fund
<PAGE>
DEAR SHAREHOLDER
Fiscal Year in Review
We are pleased to provide this first annual report for Mercury
Pan-European Growth Fund. Since inception (October 30, 1998) through May 31,
1999, Mercury Pan-European Growth Fund's Class I, Class A, Class B and Class C
Shares had total returns of +3.10%, +3.00%, +2.50% and +2.50%, respectively.
(Investment results shown do not reflect sales charges and would be lower if
sales charges were included.) This compares with total returns of +4.1% for the
Lipper European Regions Funds average and +5.5% for the unmanaged Morgan Stanley
Capital International (MSCI) Europe Index for the same period. The main reason
for the Fund's underperformance was the decision made in October to maintain a
relatively high cash weighting within the Portfolio. This decision was based on
exceptional market volatility and the risk of further bad news from emerging
markets or the hedge fund industry. The Fund's liquidity was reduced gradually
until the Portfolio reached a fully invested position in the first quarter of
1999.
Since reaching a fully invested position, the Fund has performed in line with
the Index and the Lipper average. The Fund benefited from the performance of
holdings in the telecommunications sector, in particular Telecom Italia SpA and
Mannesmann AG, and from a strong performance by the French financial stocks. On
the negative side, the Fund's performance was held back by disappointing
performance by some of its pharmaceutical investments (in particular Novartis),
by our German financial stocks, and by holdings in the food manufacturers
Koninklijke Numico NV and Nestle SA.
Economic Review
There has been some limited evidence of a pickup in European economic activity
in 1999, as the outlook for global economic activity and, in particular, the
emerging markets improved. However, relative to the level of growth seen in the
United States, conditions in Europe have been unspectacular. Consumer spending
has held up reasonably well, but business confidence remains weak in some of the
larger economies, such as Germany and Italy.
The euro was successfully introduced at the beginning of 1999. However, since
the euro's introduction in January, it has fallen steadily against the US
dollar. There were a number of reasons for this. Most importantly, growth in the
United States was stronger than expected and the Federal Reserve Board indicated
a move toward a tighter monetary stance. Meanwhile, in Europe the lower interest
rates seen at the end of 1998 did not feed through immediately to an economic
pick up. The European Central Bank (ECB) eventually cut rates to 2.5%, causing
the interest rate differential between the euro and the dollar to broaden.
Market Review
The market rally that began in the final quarter of last year continued through
the first four months of 1999, although the gains were eroded for dollar-based
investors by euro weakness. This was against a background of lower interest
rates, an improvement in the
May 31, 1999 3 Mercury Pan-European Growth Fund
<PAGE>
outlook for global economic activity, and a resumption of corporate activity.
The markets then saw a correction in May against a background of a tighter
monetary stance by the Federal Reserve Board, weaker bond markets and only
limited evidence that economic growth was picking up.
For the quarter ended May 31, 1999, the best-performing market was Finland,
driven by a particularly strong performance by Nokia Oyj. The German market
underperformed, reflecting a weaker economic performance, particularly in the
insurance and the utility sectors. In sector terms, there was a high level of
sector rotation, with the market leadership taken up by some of the more
cyclical sectors such as oils (on the back of recovery in the oil price),
metals, construction and media. More recently, however, oil stocks have fallen
back.
Merger and acquisition activity announced in Europe during the early part of the
year continued to be a strong supportive factor for markets. Banking and
financial stocks continued to be in the spotlight during the first quarter of
1999. Outside of the financial sector, telecommunication mergers took place as
Vodafone Group PLC acquired Air Touch Communications, and in Italy, Olivetti SpA
finally gained control of Telecom Italia SpA.
Portfolio Activity
In the first quarter of 1999, we reached a fully invested position. We
concentrated on growth sectors (for example, telecommunications) and sectors we
expected to remain insulated from weak economic growth outside Europe and the
United States, such as broadcasting and publishing, and retail. More recently,
with the recovery of some cyclical sectors, we increased exposure to
economically sensitive sectors where companies exert some pricing power, such as
electricals and capital goods. We remained underweight in companies that produce
goods priced globally, namely steel and chemicals. Our financial weighting has
concentrated on regional and supra-regional banks where there is expected to be
further concentration and potential for corporate activity.
Investment Outlook
Against a backdrop of weaker bond markets, the equity markets have entered a
period of consolidation, and investors will be looking for evidence of an
economic pickup in Europe. Corporate activity continues to underpin the market,
although it is likely that this may slow down toward the end of the year as
"Year 2000" approaches. The long-term trends in Europe, such as management's
focus on shareholder value, and an emerging equity culture remain very much in
place. Share buybacks continue to increase in Europe, and more companies are
introducing stock option plans. Equity mutual fund inflows continue to be
positive. In this environment, we remain confident about the long-term
investment opportunities available in Europe.
May 31, 1999 4 Mercury Pan-European Growth Fund
<PAGE>
In Conclusion
We thank you for your investment in Mercury Pan-European Growth Fund, and we
look forward to serving your investment needs in the months and years ahead.
Sincerely,
/s/ Jeffrey Peek /s/ Andreas E.F. Utermann
Jeffrey Peek Andreas E.F. Utermann
President Portfolio Manager
July 2, 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.
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.
May 31, 1999 5 Mercury Pan-European Growth Fund
<PAGE>
PERFORMANCE DATA (CONTINUED)
TOTAL RETURN BASED ON A $10,000 INVESTMENT
================================================================================
A line graph depicting the growth of an investment in the Fund's Class I, Class
A, Class B & Class C Shares compared to growth of an investment in the MSCI
Europe. Beginning and ending values are:
10/30/98** 5/99
Mercury Pan-European Growth Fund+-- Class I Shares* $ 9,475 $ 9,769
Mercury Pan-European Growth Fund+-- Class A Shares* $ 9,475 $ 9,759
Mercury Pan-European Growth Fund+-- Class B Shares* $10,000 $ 9,850
Mercury Pan-European Growth Fund+-- Class C Shares* $10,000 $10,150
MSCI Europe++ $10,000 $10,549
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
** Commencement of operations.
+ The Fund invests all of its assets in Mercury Master Pan-European Growth
Portfolio. The Portfolio invests primarily in stocks of companies located
in European countries that its management believes are undervalued or have
good prospects for earnings growth.
++ This unmanaged market capitalization-weighted Index is comprised of a
representative sampling of large-, medium- and small-capitalization
companies in developed European countries.
Past performance is not predictive of future results.
May 31, 1999 6 Mercury Pan-European Growth Fund
<PAGE>
PERFORMANCE DATA (CONCLUDED)
AGGREGATE TOTAL RETURN
================================================================================
% Return % Return
Without Sales With Sales
Class I Shares* Charge Charge**
- --------------------------------------------------------------------------------
Inception (10/30/98)
through 3/31/99 +4.90% -0.61%
- --------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
% Return % Return
Without Sales With Sales
Class A Shares* Charge Charge**
- --------------------------------------------------------------------------------
Inception (10/30/98)
through 3/31/99 +4.80% -0.70%
- --------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
% Return % Return
Without With
Class B Shares* CDSC CDSC**
- --------------------------------------------------------------------------------
Inception (10/30/98)
through 3/31/99 +4.50% +0.50%
- --------------------------------------------------------------------------------
* 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 With
Class C Shares* CDSC CDSC**
- --------------------------------------------------------------------------------
Inception (10/30/98)
through 3/31/99 +4.50% +3.50%
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 1% and is reduced to 0% after 1
year.
** Assuming payment of applicable contingent deferred sales charge.
RECENT PERFORMANCE RESULTS*
================================================================================
3 Month Since Inception
Total Return Total Return
- --------------------------------------------------------------------------------
Class I -0.77% +3.10%
- --------------------------------------------------------------------------------
Class A -0.77 +3.00
- --------------------------------------------------------------------------------
Class B -1.06 +2.50
- --------------------------------------------------------------------------------
Class C -1.06 +2.50
- --------------------------------------------------------------------------------
* 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 inception date is 10/30/98.
May 31, 1999 7 Mercury Pan-European Growth Fund
<PAGE>
STATEMENT OF ASSETS
AND LIABILITIES
As of May 31, 1999
- --------------------------------------------------------------------------------
MERCURY PAN-EUROPEAN GROWTH FUND
================================================================================
Assets:
Investment in Mercury Master Pan-European Growth Portfolio,
at value (identified cost--$549,460,648) (Note 1a) $553,196,729
Prepaid registration fees (Note 1d) 129,491
------------
Total assets 553,326,220
------------
- --------------------------------------------------------------------------------
Liabilities:
Payable to distributor (Note 2) 358,285
Payable to administrator (Note 2) 110,155
Accrued expenses 421,716
------------
Total liabilities 890,156
------------
- --------------------------------------------------------------------------------
Net Assets:
Net assets $552,436,064
============
- --------------------------------------------------------------------------------
Net Assets Consist of:
Class I Shares of Common Stock, $0.0001 par value, 100,000,000
shares authorized $ 386
Class A Shares of Common Stock, $0.0001 par value, 100,000,000
shares authorized 809
Class B Shares of Common Stock, $0.0001 par value, 100,000,000
shares authorized 2,796
Class C Shares of Common Stock, $0.0001 par value, 100,000,000
shares authorized 1,392
Paid-in capital in excess of par 541,658,844
Undistributed investment income--net 2,013,145
Undistributed realized capital gains on investments and foreign
currency transactions from the Portfolio--net 5,022,611
Unrealized appreciation on investments and foreign currency
transactions from the Portfolio--net 3,736,081
------------
Net assets $552,436,064
============
- --------------------------------------------------------------------------------
Net Asset Value:
Class I--Based on net assets of $39,780,930 and 3,857,947 shares
outstanding $ 10.31
============
Class A--Based on net assets of $83,315,799 and 8,091,648 shares
outstanding $ 10.30
============
Class B--Based on net assets of $286,612,285 and 27,959,595 shares
outstanding $ 10.25
============
Class C--Based on net assets of $142,727,050 and 13,923,397 shares
outstanding $ 10.25
============
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
May 31, 1999 8 Mercury Pan-European Growth Fund
<PAGE>
STATEMENT OF OPERATIONS
For the Period October 30, 1998+ to May 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MERCURY PAN-EUROPEAN GROWTH FUND
=========================================================================================
<S> <C> <C>
Investment Income (Notes 1b & 1c):
Investment income allocated from the Portfolio (net of
$891,530 foreignwithholding tax) $ 8,860,279
Expenses allocated from the Portfolio (2,849,834)
------------
Net investment income from the Portfolio 6,010,445
------------
- -----------------------------------------------------------------------------------------
Expenses:
Account maintenance and distribution fees--Class B (Note 2) $ 1,631,417
Account maintenance and distribution fees--Class C (Note 2) 820,277
Administration fee (Note 2) 798,588
Registration fees (Note 1d) 305,211
Transfer agent fees--Class B (Note 2) 192,672
Printing and shareholder reports 148,111
Account maintenance fees--Class A (Note 2) 130,978
Transfer agent fees--Class C (Note 2) 98,139
Offering costs 74,000
Transfer agent fees--Class A (Note 2) 51,945
Transfer agent fees--Class I (Note 2) 21,589
Accounting services (Note 2) 1,484
Other 1,848
------------
Total expenses 4,276,259
------------
Investment income--net 1,734,186
------------
- -----------------------------------------------------------------------------------------
Realized & Unrealized Gain from the Portfolio--Net:
Realized gain from the Portfolio on:
Investments--net 5,022,611
Foreign currency transactions--net 189,959 5,212,570
------------
Unrealized appreciation on investments and foreign
currency transactions from the Portfolio--net 3,736,081
------------
Net realized and unrealized gain on investments and
foreign currency transactions from the Portfolio 8,948,651
------------
Net Increase in Net Assets Resulting from Operations $ 10,682,837
============
- -----------------------------------------------------------------------------------------
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
May 31, 1999 9 Mercury Pan-European Growth Fund
<PAGE>
STATEMENT OF CHANGES
IN NET ASSETS
For the Period October 30, 1998+ to May 31, 1999
- --------------------------------------------------------------------------------
MERCURY PAN-EUROPEAN GROWTH FUND
================================================================================
Increase (Decrease) in Net Assets:
- --------------------------------------------------------------------------------
Operations:
Investment income--net $ 1,734,186
Realized gain on investments and foreign currency
transactions from the Portfolio--net 5,212,570
Unrealized appreciation on investments and foreign
currency transactions from the Portfolio--net 3,736,081
------------
Net increase in net assets resulting from operations 10,682,837
------------
- --------------------------------------------------------------------------------
Capital Share Transactions (Note 4):
Net increase in net assets derived from capital share
transactions 541,603,227
------------
- --------------------------------------------------------------------------------
Net Assets:
Total increase in net assets 552,286,064
Beginning of period 150,000
------------
End of period* $552,436,064
============
- --------------------------------------------------------------------------------
* Undistributed investment income--net (Note 1g) $ 2,013,145
============
+ Commencement of operations.
See Notes to Financial Statements.
May 31, 1999 10 Mercury Pan-European Growth Fund
<PAGE>
FINANCIAL HIGHLIGHTS
MERCURY PAN-EUROPEAN GROWTH FUND
- --------------------------------------------------------------------------------
The following per share data and ratios have been derived from information
provided in the financial statements.
<TABLE>
<CAPTION>
For the Period October 30, 1998+ to May 31, 1999
-------------------------------------------------
Increase (Decrease) in Net Asset Value: Class I Class A Class B Class C
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 10.00 $ 10.00 $ 10.00 $ 10.00
-------------------------------------------------
Investment income--net .08 .07 .02 .02
Realized and unrealized gain on investments
and foreign currency transactions from
the Portfolio--net .23 .23 .23 .23
-------------------------------------------------
Total from investment operations .31 .30 .25 .25
-------------------------------------------------
Net asset value, end of period $ 10.31 $ 10.30 $ 10.25 $ 10.25
=================================================
- -----------------------------------------------------------------------------------------------
Total Investment Return:**
Based on net asset value per share 3.10%+++ 3.00%+++ 2.50%+++ 2.50%+++
=================================================
- -----------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses++ 1.41%* 1.66%* 2.43%* 2.43%*
=================================================
Investment income--net 1.42%* 1.05%* .36%* .35%*
=================================================
- -----------------------------------------------------------------------------------------------
Supplemental Data:
Net assets, end of period (in thousands) $ 39,781 $ 83,316 $86,612 $142,727
=================================================
- -----------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
++ Includes the Fund's share of the Portfolio's allocated expenses.
+++ Aggregate total investment return.
See Notes to Financial Statements.
May 31, 1999 11 Mercury Pan-European Growth Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS
MERCURY PAN-EUROPEAN GROWTH FUND
================================================================================
1 Significant Accounting Policies:
Mercury Pan-European Growth Fund (the "Fund") is part of Mercury Asset
Management Funds, Inc. (the "Corporation"). The Fund is registered under
the Investment Company Act of 1940 as a diversified, open-end management
investment company. The Fund seeks to achieve its investment objective by
investing all of its assets in the Mercury Master Pan-European Growth
Portfolio (the "Portfolio") of Mercury Asset Management Master Trust (the
"Trust"), which has the same investment objective as the Fund. The value
of the Fund's investment in the Portfolio reflects the Fund's
proportionate interest in the net assets of the Portfolio. The performance
of the Fund is directly affected by the performance of the Portfolio. The
financial statements of the Portfolio, including the Schedule of
Investments, are included elsewhere in this report and should be read in
conjunction with the Fund's financial statements. Prior to commencement of
operations on October 30, 1998, the Fund had no operations other than
those relating to organizational matters and the issuance of 15,000
capital shares of the Fund on July 29, 1998 to Mercury Asset Management
International Ltd. ("Mercury International") for $150,000. The Fund's
financial statements are prepared in accordance with generally accepted
accounting principles which may require the use of management accruals and
estimates. The Fund offers four classes of shares. Class I and Class A
Shares are sold with a front-end sales charge. Class B and Class C Shares
may be subject to a contingent deferred sales charge. All classes of
shares have identical voting, dividend, liquidation and other rights and
the same terms and conditions, except that Class A, Class B and Class C
Shares bear certain expenses related to the account maintenance of such
shares, and Class B and Class C Shares also bear certain expenses related
to the distribution of such shares. Each class has exclusive voting rights
with respect to matters relating to its account maintenance and
distribution expenditures (except that Class B Shares have certain voting
rights with respect to Class A expenditures). The following is a summary
of significant accounting policies followed by the Fund.
(a) Valuation of investments--Valuation of securities is discussed in Note
1a of the Portfolio's Notes to Financial Statements, which are included
elsewhere in this report.
(b) Income--The Fund's net investment income consists of the Fund's pro
rata share of the net investment income of the Portfolio, less all actual
and accrued expenses of the Fund determined in accordance with generally
accepted accounting principles.
(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
May 31, 1999 12 Mercury Pan-European Growth Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
provision is required. Under the applicable foreign tax law, withholding
taxes may be imposed on interest, dividends and capital gains at various
rates.
(d) Prepaid registration fees--Prepaid registration fees are charged to
expenses as the related shares are issued.
(e) Dividends and distributions--Dividends and distributions paid by the
Fund are recorded on the ex-dividend dates.
(f) Investment transactions--Investment transactions are accounted for on
a trade date basis.
(g) Reclassification--Generally accepted accounting principles require
that certain components of net assets be adjusted to reflect permanent
differences between financial and tax reporting. Accordingly, current
year's permanent book/tax differences of $189,959 have been reclassified
between undistributed net realized capital gains and undistributed net
investment income and $89,000 has been reclassified between paid-in
capital in excess of par and undistributed net investment income. These
reclassifications have no effect on net assets or net asset values per
share.
2 Transactions with Affiliates:
The Corporation 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 0.25% 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 Corporation has also entered into a Distribution Agreement and
Distribution Plans with Mercury Funds Distributor ("MFD" or the
"Distributor"), a division of Princeton Funds Distributor, Inc. ("PFD"), a
wholly-owned subsidiary of Merrill Lynch Group, Inc. Pursuant to the
Distribution Plans adopted by the Corporation 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 0.25% --
--------------------------------------------------------------------------
Class B 0.25% 0.75%
--------------------------------------------------------------------------
Class C 0.25% 0.75%
--------------------------------------------------------------------------
May 31, 1999 13 Mercury Pan-European Growth Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S"), a subsidiary of ML & Co., and
selected dealers also provide account maintenance and distribution
services to the Fund. The ongoing account maintenance fee compensates the
Distributor, MLPF&S and selected dealers for providing account maintenance
services to Class A, Class B and Class C shareholders. The ongoing
distribution fee compensates the Distributor, MLPF&S and selected dealers
for providing shareholder and distribution-related services to Class B and
Class C shareholders.
For the period October 30, 1998 to May 31, 1999, MFD earned underwriting
discounts and MLPF&S earned dealer concessions on sales of the Fund's
Class I and Class A Shares as follows:
MFD MLPF&S
==========================================================================
Class I $ 173 $ 992,524
Class A $26,885 $3,689,274
--------------------------------------------------------------------------
For the period October 30, 1998 to May 31, 1999, MLPF&S received
contingent deferred sales charges of $397,753 and $121,082 relating to
transactions in Class B and Class C Shares, respectively.
Furthermore, MLPF&S received contingent deferred sales charges of $10,000
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.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Corporation are officers and/or
directors or trustees of the Trust, Mercury International, FAM, PSI, PFD,
FDS, and/or ML & Co.
3 Investments:
Increases and decreases in the Fund's investment in the Portfolio for the
period October 30, 1998 to May 31, 1999 were $565,767,262 and $27,529,628,
respectively.
4 Capital Share Transactions:
Net increase in net assets derived from capital share transactions was
$541,603,227 for the period October 30, 1998 to May 31, 1999.
May 31, 1999 14 Mercury Pan-European Growth Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(CONCLUDED)
Transactions in capital shares for each class were as follows:
Class I Shares for the Period October 30,
1998+ to May 31, 1999 Shares Dollar Amount
-----------------------------------------------------------------------------
Shares sold 4,955,745 $ 50,769,993
Shares redeemed (1,101,548) (11,585,701)
----------------------------------
Net increase 3,854,197 $ 39,184,292
==================================
-----------------------------------------------------------------------------
+ Prior to October 30, 1998 (commencement of operations), the Fund issued
3,750 shares to Mercury International for $37,500.
Class A Shares for the Period October 30,
1998+ to May 31, 1999 Shares Dollar Amount
-----------------------------------------------------------------------------
Shares sold 10,324,602 $ 103,931,685
Shares redeemed (2,236,704) (23,289,859)
----------------------------------
Net increase 8,087,898 $ 80,641,826
==================================
-----------------------------------------------------------------------------
+ Prior to October 30, 1998 (commencement of operations), the Fund issued
3,750 shares to Mercury International for $37,500.
Class B Shares for the Period October 30,
1998+ to May 31, 1999 Shares Dollar Amount
-----------------------------------------------------------------------------
Shares sold 29,837,631 $ 301,081,394
Shares redeemed (1,881,787) (19,635,007)
----------------------------------
Net increase 27,955,844 $ 281,446,387
==================================
-----------------------------------------------------------------------------
+ Prior to October 30, 1998 (commencement of operations), the Fund issued
3,750 shares to Mercury International for $37,500.
Class C Shares for the Period October 30,
1998+ to May 31, 1999 Shares Dollar Amount
-----------------------------------------------------------------------------
Shares sold 15,587,252 $ 157,781,489
Shares redeemed (1,667,606) (17,450,767)
----------------------------------
Net increase 13,919,646 $ 140,330,722
==================================
-----------------------------------------------------------------------------
+ Prior to October 30, 1998 (commencement of operations), the Fund issued
3,750 shares to Mercury International for $37,500.
May 31, 1999 15 Mercury Pan-European Growth Fund
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Mercury Pan-European Growth Fund
(One of the Series constituting Mercury Asset Management Funds, Inc.):
We have audited the accompanying statement of assets and liabilities of Mercury
Pan-European Growth Fund as of May 31, 1999, the related statements of
operations and changes in net assets, and the financial highlights for the
period October 30, 1998 (commencement of operations) to May 31, 1999. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
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. 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 audit provides a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Mercury Pan-European
Growth Fund as of May 31, 1999, the results of its operations, the changes in
its net assets, and the financial highlights for the period October 30, 1998
(commencement of operations) to May 31, 1999 in conformity with generally
accepted accounting principles.
Deloitte & Touche llp
Princeton, New Jersey
July 19, 1999
May 31, 1999 16 Mercury Pan-European Growth Fund
<PAGE>
SCHEDULE OF INVESTMENTS
MERCURY MASTER PAN-EUROPEAN GROWTH PORTFOLIO
================================================================================
<TABLE>
<CAPTION>
In US Dollars
---------------------------------------
Value Percent of
Shares Held Investments Cost (Note 1a) Net Assets
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aerospace & Military Technology
France 23,965 +Aerospatiale Matra $ 534,210 $ 532,173 0.1%
- -----------------------------------------------------------------------------------------------
Total Investments in
Aerospace &
Military Technology 534,210 532,173 0.1
- -----------------------------------------------------------------------------------------------
Appliances & Household Durables
Sweden 300,000 Electrolux AB 'B' 4,770,437 5,825,073 1.1
- -----------------------------------------------------------------------------------------------
Total Investments in
Appliances &
Household Durables 4,770,437 5,825,073 1.1
- -----------------------------------------------------------------------------------------------
Automobiles
Germany 40,000 DaimlerChrysler AG 3,193,565 3,458,950 0.6
52,000 Volkswagen AG 3,901,617 3,227,796 0.6
- -----------------------------------------------------------------------------------------------
Total Investments
in Automobiles 7,095,182 6,686,746 1.2
- -----------------------------------------------------------------------------------------------
Banking
Austria 60,000 Bank Austria AG 2,972,343 3,078,570 0.6
- -----------------------------------------------------------------------------------------------
France 40,000 Credit Commercial de France 3,051,840 4,409,900 0.8
25,000 Societe Generale 'A' 4,049,892 4,550,975 0.8
---------------------------------------
7,101,732 8,960,875 1.6
- -----------------------------------------------------------------------------------------------
Germany 60,000 Deutsche Bank AG 3,725,143 3,135,000 0.6
75,000 HypoVereinsbank 5,765,854 4,059,825 0.7
---------------------------------------
9,490,997 7,194,825 1.3
- -----------------------------------------------------------------------------------------------
Ireland 252,868 Allied Irish Banks PLC 4,730,463 3,345,368 0.6
- -----------------------------------------------------------------------------------------------
Italy 1,150,000 Banca Intesa SpA 6,110,980 5,864,540 1.1
900,000 Unicredito Italiano SpA 4,758,648 4,241,655 0.8
---------------------------------------
10,869,628 10,106,195 1.9
- -----------------------------------------------------------------------------------------------
Spain 352,280 Banco Santander
Central Hispano, SA 6,795,630 7,362,652 1.3
- -----------------------------------------------------------------------------------------------
Sweden 821,624 Nordbanken Holding AB 4,800,359 5,078,259 0.9
- -----------------------------------------------------------------------------------------------
Switzerland 130,000 Safra Republic Holdings SA 6,672,642 8,612,500 1.6
32,700 UBS AG (Registered Shares) 9,945,253 9,502,564 1.7
---------------------------------------
16,617,895 18,115,064 3.3
- -----------------------------------------------------------------------------------------------
United 170,000 Barclays PLC 3,680,708 5,152,822 0.9
Kingdom 137,084 HSBC Holdings PLC 3,956,015 4,578,275 0.8
540,000 Lloyds TSB Group PLC 6,890,467 7,133,346 1.3
---------------------------------------
14,527,190 16,864,443 3.0
- -----------------------------------------------------------------------------------------------
Total Investments in Banking 77,906,237 80,106,251 14.5
- -----------------------------------------------------------------------------------------------
</TABLE>
May 31, 1999 17 Mercury Pan-European Growth Fund
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
In US Dollars
---------------------------------------
Shares Held Value Percent of
Face Amount Investments Cost (Note 1a) Net Assets
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Beverages & Tobacco
France 16,000 LVMH (Louis Vuitton
Moet Hennessy) $ 2,969,025 $ 4,465,912 0.8%
- ---------------------------------------------------------------------------------------------------
United 530,000 Diageo PLC 5,685,264 5,571,295 1.0
Kingdom
- ---------------------------------------------------------------------------------------------------
Total Investments in
Beverages & Tobacco 8,654,289 10,037,207 1.8
- ---------------------------------------------------------------------------------------------------
Broadcasting & Publishing
Belgium 80,000 Compagnie Luxembourgeoise
pour l'Audio-Visuel et la
Finance (Audiofina) 3,489,891 3,544,640 0.6
- ---------------------------------------------------------------------------------------------------
Italy 2,700,000 Seat Pagine Gialle SpA 3,314,909 3,682,057 0.7
- ---------------------------------------------------------------------------------------------------
Luxembourg 23,000 +Societe Europeenne
des Satellites 3,348,679 3,253,738 0.6
- -------------------------------------------------------------------------------------------------------
Netherlands 133,168 Wolters Kluwer NV 'A' 6,382,266 5,364,640 1.0
- ---------------------------------------------------------------------------------------------------
United 420,000 Carlton Communications PLC 3,538,095 3,345,707 0.6
Kingdom 407,430 Independent Newspapers PLC 1,861,432 2,097,392 0.4
950,000 Reed International PLC 7,662,052 6,921,187 1.2
---------------------------------------
13,061,579 12,364,286 2.2
- ---------------------------------------------------------------------------------------------------
Total Investments in
Broadcasting & Publishing 29,597,324 28,209,361 5.1
- ---------------------------------------------------------------------------------------------------
Business/Public Services
Austria 100,000 Flughafen Wien AG 4,735,966 4,256,285 0.8
- ---------------------------------------------------------------------------------------------------
France 20,000 Cap Gemini SA 3,136,474 2,886,290 0.5
159,000 Vivendi 11,796,927 11,797,005 2.1
159,000 Vivendi (Rights) (a) 0 164,493 0.0
---------------------------------------
14,933,401 14,847,788 2.6
- ---------------------------------------------------------------------------------------------------
Germany 6,000 SAP AG (Systeme,
Anwendungen, Produkte in
der Datenverarbeitung) 2,460,003 2,087,910 0.4
- ---------------------------------------------------------------------------------------------------
Italy (euro) 2,871,000 Tecnost International NV,
0%* due 6/23/2004 3,065,640 3,024,197 0.5
594,000 Tecnost SpA 1,380,896 1,384,228 0.2
---------------------------------------
4,446,536 4,408,425 0.7
- ---------------------------------------------------------------------------------------------------
Spain 270,000 Autopistas, Concesionaria
Espanola SA 4,013,271 3,450,694 0.6
- -------------------------------------------------------------------------------------------------------
Switzerland 4,759 Adecco SA
(Registered Shares) 1,987,774 2,499,961 0.5
- ---------------------------------------------------------------------------------------------------
</TABLE>
May 31, 1999 18 Mercury Pan-European Growth Fund
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
In US Dollars
---------------------------------------
Value Percent of
Shares Held Investments Cost (Note 1a) Net Assets
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Business/Public Services (CONCLUDED)
United 300,000 BAA PLC $ 3,412,894 $ 3,220,814 0.6%
Kingdom 520,000 Compass Group PLC 5,235,226 5,266,347 1.0
538,000 Hays PLC 4,183,081 5,013,613 0.9
---------------------------------------
12,831,201 13,500,774 2.5
- -----------------------------------------------------------------------------------------------
Total Investments in
Business/Public Services 45,408,152 45,051,837 8.1
- -----------------------------------------------------------------------------------------------
Chemicals
Germany 310,000 Bayer AG 12,653,416 12,083,335 2.1
45,000 Henkel KGaA 3,630,986 2,689,830 0.5
---------------------------------------
16,284,402 14,773,165 2.6
- -----------------------------------------------------------------------------------------------
Netherlands 90,000 Akzo Nobel NV 3,418,619 3,743,190 0.7
- -----------------------------------------------------------------------------------------------
Total Investments
in Chemicals 19,703,021 18,516,355 3.3
- -----------------------------------------------------------------------------------------------
Construction & Housing
France 59,252 Societe Generale
d'Entreprises SA 2,737,058 2,831,526 0.5
- -----------------------------------------------------------------------------------------------
Germany 40,000 Heidelberger Zement AG 2,871,593 3,239,500 0.6
87,500 Hochtief AG 3,286,118 3,858,662 0.7
---------------------------------------
6,157,711 7,098,162 1.3
- -----------------------------------------------------------------------------------------------
Total Investments in
Construction & Housing 8,894,769 9,929,688 1.8
- -----------------------------------------------------------------------------------------------
Electrical & Electronics
Finland 120,000 Nokia Oyj 7,074,782 8,552,280 1.6
- -----------------------------------------------------------------------------------------------
Germany 175,000 Siemens AG 10,798,620 11,795,437 2.1
- -----------------------------------------------------------------------------------------------
Netherlands 60,000 +Koninklijke (Royal) Philips
Electronics NV 3,639,839 5,157,075 0.9
- -----------------------------------------------------------------------------------------------
Sweden 300,000 Telefonaktiebolaget
LM Ericsson 'B' 6,995,345 8,029,155 1.5
- -----------------------------------------------------------------------------------------------
Total Investments in
Electrical & Electronics 28,508,586 33,533,947 6.1
- -----------------------------------------------------------------------------------------------
Energy Sources
France 27,000 Elf Aquitaine SA 3,179,359 3,916,242 0.7
70,000 +Total SA 'B' 8,155,457 8,521,975 1.6
---------------------------------------
11,334,816 12,438,217 2.3
- -----------------------------------------------------------------------------------------------
</TABLE>
May 31, 1999 19 Mercury Pan-European Growth Fund
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
In US Dollars
---------------------------------------
Value Percent of
Shares Held Investments Cost (Note 1a) Net Assets
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Energy Sources (CONCLUDED)
United 980,001 BP Amoco PLC $ 14,992,860 $ 17,527,703 3.2%
Kingdom 1,400,000 Shell Transport &
Trading Company 8,569,520 10,126,789 1.8
---------------------------------------
23,562,380 27,654,492 5.0
- -----------------------------------------------------------------------------------------------
Total Investments in
Energy Sources 34,897,196 40,092,709 7.3
- -----------------------------------------------------------------------------------------------
Food & Household Products
Netherlands 200,000 Koninklijke Numico NV 8,600,504 7,262,750 1.3
- -----------------------------------------------------------------------------------------------
Switzerland 3,200 Nestle SA
(Registered Shares) 6,873,071 5,775,148 1.0
- -----------------------------------------------------------------------------------------------
United 700,000 Cadbury Schweppes PLC 5,355,273 4,743,955 0.9
Kingdom 125,000 PizzaE press PLC 1,578,929 1,867,399 0.3
540,000 Unilever PLC 6,164,619 4,746,918 0.9
---------------------------------------
13,098,821 11,358,272 2.1
- -----------------------------------------------------------------------------------------------
Total Investments in
Food & Household Products 28,572,396 24,396,170 4.4
- -----------------------------------------------------------------------------------------------
Health & Personal Care
Switzerland 9,800 Novartis AG
(Registered Shares) 18,455,694 14,277,975 2.6
850 Roche Holding AG 10,048,819 9,030,901 1.6
---------------------------------------
28,504,513 23,308,876 4.2
- -----------------------------------------------------------------------------------------------
United 135,000 AstraZeneca Group PLC 5,587,866 5,362,979 1.0
Kingdom 420,000 Glaxo Wellcome PLC 13,017,002 11,782,270 2.1
510,000 SmithKline Beecham PLC 6,361,832 6,647,222 1.2
---------------------------------------
24,966,700 23,792,471 4.3
- -----------------------------------------------------------------------------------------------
Total Investments in
Health & Personal Care 53,471,213 47,101,347 8.5
- -----------------------------------------------------------------------------------------------
Insurance
Belgium 230,000 Fortis (B) 8,295,287 7,390,763 1.3
- -----------------------------------------------------------------------------------------------
France 50,000 Axa 6,209,177 5,773,625 1.0
- -----------------------------------------------------------------------------------------------
Germany 18,000 Allianz AG
(Registered Shares) 6,029,822 4,928,220 0.9
- -----------------------------------------------------------------------------------------------
Italy 95,000 Assicurazioni Generali 3,612,594 3,385,278 0.6
- -----------------------------------------------------------------------------------------------
Netherlands 163,000 ING Groep NV 8,925,109 8,729,669 1.6
- -----------------------------------------------------------------------------------------------
United 261,000 Allied Zurich PLC 3,469,382 3,326,589 0.6
Kingdom 581,818 Royal & Sun Alliance
Insurance Group PLC 5,612,086 4,755,855 0.9
---------------------------------------
9,081,468 8,082,444 1.5
- -----------------------------------------------------------------------------------------------
Total Investments
in Insurance 42,153,457 38,289,999 6.9
- -----------------------------------------------------------------------------------------------
</TABLE>
May 31, 1999 20 Mercury Pan-European Growth Fund
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
In US Dollars
---------------------------------------
Value Percent of
Shares Held Investments Cost (Note 1a) Net Assets
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Leisure/Tourism
France 40,000 Accor SA $ 8,441,645 $ 9,831,360 1.8%
- -----------------------------------------------------------------------------------------------
United 1,150,000 Thomson Travel Group PLC 2,716,859 2,541,104 0.4
Kingdom
- -----------------------------------------------------------------------------------------------
Total Investments in
Leisure/Tourism 11,158,504 12,372,464 2.2
- -----------------------------------------------------------------------------------------------
Machinery & Engineering
Austria 44,000 VA Technologie AG 3,565,912 3,701,390 0.7
- -----------------------------------------------------------------------------------------------
France 52,000 Sidel SA 5,070,815 7,227,220 1.3
- -----------------------------------------------------------------------------------------------
Sweden 150,000 Atlas Copco AB 'A' 3,409,552 3,760,933 0.7
- -----------------------------------------------------------------------------------------------
Total Investments in
Machinery & Engineering 12,046,279 14,689,543 2.7
- -----------------------------------------------------------------------------------------------
Merchandising
Belgium 110,000 Delhaize "Le Lion" SA 9,549,618 9,477,627 1.7
- -----------------------------------------------------------------------------------------------
France 34,000 Carrefour SA 4,087,905 4,469,674 0.8
37,500 Etablissements
Economiques du Casino
Guichard-Perrachon SA 3,783,911 3,566,063 0.7
27,369 Guilbert SA 3,739,468 3,969,764 0.7
60,000 Pinault-Printemps-
Redoute SA 10,334,371 10,238,910 1.9
---------------------------------------
21,945,655 22,244,411 4.1
- -----------------------------------------------------------------------------------------------
Germany 22,000 Metro AG 1,429,343 1,390,895 0.2
80,000 Metro AG (Preferred) 3,214,778 2,533,080 0.5
---------------------------------------
4,644,121 3,923,975 0.7
- -----------------------------------------------------------------------------------------------
Netherlands 140,000 Hagemeyer NV 4,577,311 4,498,725 0.8
- -----------------------------------------------------------------------------------------------
United 865,000 Safeway PLC 4,236,694 3,576,861 0.7
Kingdom 1,800,000 Tesco PLC 4,918,835 5,238,326 0.9
---------------------------------------
9,155,529 8,815,187 1.6
- -----------------------------------------------------------------------------------------------
Total Investments
in Merchandising 49,872,234 48,959,925 8.9
- -----------------------------------------------------------------------------------------------
Metals/Non-Ferrous
United 290,000 Rio Tinto PLC
Kingdom (Registered Shares) 3,502,600 4,248,784 0.8
- -----------------------------------------------------------------------------------------------
Total Investments in
Metals/Non-Ferrous 3,502,600 4,248,784 0.8
- -----------------------------------------------------------------------------------------------
Metals--Steel
France 220,000 Usinor SA 3,458,207 3,002,494 0.5
- -----------------------------------------------------------------------------------------------
Total Investments
in Metals--Steel 3,458,207 3,002,494 0.5
- -----------------------------------------------------------------------------------------------
</TABLE>
May 31, 1999 21 Mercury Pan-European Growth Fund
<PAGE>
SCHEDULE OF INVESTMENTS (CONCLUDED)
<TABLE>
<CAPTION>
In US Dollars
---------------------------------------
Value Percent of
Shares Held Investments Cost (Note 1a) Net Assets
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Telecommunications
Germany 130,000 Deutsche Telekom AG $ 4,133,525 $ 5,196,262 0.9%
75,000 Mannesmann AG 8,387,515 10,267,125 1.9
---------------------------------------
12,521,040 15,463,387 2.8
- -----------------------------------------------------------------------------------------------
Greece 140,000 Hellenic Telecommunications
Organization SA (OTE) 3,253,337 3,040,932 0.6
- -----------------------------------------------------------------------------------------------
Italy 910,000 Telecom Italia Mobile
(TIM) SpA 3,450,352 3,062,059 0.6
933,000 Telecom Italia SpA 5,232,290 5,079,672 0.9
---------------------------------------
8,682,642 8,141,731 1.5
- -----------------------------------------------------------------------------------------------
Spain 176,460 +Telefonica SA 7,708,470 8,478,744 1.5
- -----------------------------------------------------------------------------------------------
Switzerland 11,000 Swisscom AG
(Registered Shares) 3,843,245 3,977,646 0.7
- -----------------------------------------------------------------------------------------------
United 280,000 British Telecommunications
Kingdom PLC 3,704,446 4,667,178 0.8
600,000 +Cable & Wireless
Communications PLC 5,320,360 5,697,070 1.0
230,000 +Orange PLC 3,535,562 3,181,905 0.6
255,000 Vodafone Group PLC 4,645,973 4,854,758 0.9
---------------------------------------
17,206,341 18,400,911 3.3
- -----------------------------------------------------------------------------------------------
Total Investments
in Telecommunications 53,215,075 57,503,351 10.4
- -----------------------------------------------------------------------------------------------
Utilities--Electric & Gas
Belgium 16,100 Electrabel SA 5,993,857 4,961,545 0.9
- -----------------------------------------------------------------------------------------------
Germany 110,000 Veba AG 5,954,236 6,287,765 1.1
- -----------------------------------------------------------------------------------------------
Spain 210,000 Endesa SA 5,593,093 4,478,974 0.8
- -----------------------------------------------------------------------------------------------
Total Investments in
Utilities--Electric & Gas 17,541,186 15,728,284 2.8
- -----------------------------------------------------------------------------------------------
Total Investments $540,960,554 544,813,708 98.5
============
Other Assets Less Liabilities 8,383,125 1.5
------------------------
Net Assets $553,196,833 100.0%
========================
- -----------------------------------------------------------------------------------------------
</TABLE>
* As of May 31, 1999, the coupon rate has not been determined.
+ Non-income producing security.
(a) The rights may be exercised until 6/07/99.
See Notes to Financial Statements.
May 31, 1999 22 Mercury Pan-European Growth Fund
<PAGE>
STATEMENT OF ASSETS
AND LIABILITIES
As of May 31, 1999
- --------------------------------------------------------------------------------
MERCURY MASTER PAN-EUROPEAN GROWTH PORTFOLIO
================================================================================
<TABLE>
<S> <C> <C>
Assets:
Investments, at value (identified cost--$540,960,554) (Note 1a) $544,813,708
Receivables:
Securities sold $ 13,809,930
Dividends 3,202,542
Contributions 336,801 17,349,273
------------
Other assets 27,039
------------
Total assets 562,190,020
------------
- ---------------------------------------------------------------------------------------------
Liabilities:
Payables:
Securities purchased 5,680,575
Withdrawals 1,451,980
Custodian bank (Note 1f) 1,287,735
Investment adviser (Note 2) 330,772 8,751,062
------------
Accrued expenses 242,125
------------
Total liabilities 8,993,187
------------
- ---------------------------------------------------------------------------------------------
Net Assets:
Net assets $553,196,833
============
- ---------------------------------------------------------------------------------------------
Net Assets Consist of:
Partners' capital $549,460,752
Unrealized appreciation on investments and foreign currency
transactions--net 3,736,081
------------
Net assets $553,196,833
============
- ---------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
May 31, 1999 23 Mercury Pan-European Growth Fund
<PAGE>
STATEMENT OF OPERATIONS
For the Period October 30, 1998+ to May 31, 1999
- --------------------------------------------------------------------------------
MERCURY MASTER PAN-EUROPEAN GROWTH PORTFOLIO
================================================================================
<TABLE>
<S> <C> <C>
Investment Income (Notes 1d & 1e):
Dividends (net of $891,530 foreign withholding tax) $ 6,754,815
Interest and discount earned 2,105,465
-----------
Total income 8,860,280
-----------
- ----------------------------------------------------------------------------------------
Expenses:
Investment advisory fees (Note 2) $ 2,397,815
Custodian fees 252,586
Accounting services (Note 2) 136,424
Trustees' fees and expenses 25,055
Professional fees 18,410
Offering costs 15,000
Pricing fees 1,394
Other 3,151
-----------
Total expenses 2,849,835
-----------
Investment income--net 6,010,445
-----------
- ----------------------------------------------------------------------------------------
Realized & Unrealized Gain (Loss) on Investments &
Foreign Currency Transactions--Net
(Notes 1b, 1c, 1e & 3):
Realized gain from:
Investments--net 5,022,613
Foreign currency transactions--net 189,960 5,212,573
-----------
Unrealized appreciation/depreciation on:
Investments--net 3,853,154
Foreign currency transactions--net (117,073) 3,736,081
--------------------------
Net realized and unrealized gain on investments and foreign
currency transactions 8,948,654
-----------
Net Increase in Net Assets Resulting from Operations $14,959,099
===========
- ----------------------------------------------------------------------------------------
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
May 31, 1999 24 Mercury Pan-European Growth Fund
<PAGE>
STATEMENT OF CHANGES
IN NET ASSETS
For the Period October 30, 1998+ to May 31, 1999
- --------------------------------------------------------------------------------
MERCURY MASTER PAN-EUROPEAN GROWTH PORTFOLIO
================================================================================
<TABLE>
Increase (Decrease) in Net Assets:
- -----------------------------------------------------------------------------------
<S> <C>
Operations:
Investment income--net $ 6,010,445
Realized gains on investments and foreign currency transactions--net 5,212,573
Unrealized appreciation/depreciation on investments and foreign
currency transactions--net 3,736,081
------------
Net increase in net assets resulting from operations 14,959,099
------------
- -----------------------------------------------------------------------------------
Net Capital Contributions:
Increase in net assets derived from net capital contributions 538,237,734
------------
- -----------------------------------------------------------------------------------
Net Assets:
Total increase in net assets 553,196,833
Beginning of period --
------------
End of period $553,196,833
============
- -----------------------------------------------------------------------------------
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
May 31, 1999 25 Mercury Pan-European Growth Fund
<PAGE>
FINANCIAL HIGHLIGHTS
MERCURY MASTER PAN-EUROPEAN GROWTH PORTFOLIO
================================================================================
The following ratios have been derived from information For the Period
provided in the financial statements. October 30, 1998+
to May 31, 1999
- --------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses .89%*
=============
Investment income--net 1.88%*
=============
- --------------------------------------------------------------------------------
Supplemental Data:
Net assets, end of period (in thousands) $ 553,197
=============
Portfolio turnover 18.95%
=============
- --------------------------------------------------------------------------------
* Annualized.
+ Commencement of operations.
See Notes to Financial Statements.
May 31, 1999 26 Mercury Pan-European Growth Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS
MERCURY MASTER PAN-EUROPEAN GROWTH PORTFOLIO
================================================================================
1 Significant Accounting Policies:
Mercury Master Pan-European Growth Portfolio (the "Portfolio") is part of
Mercury Asset Management Master Trust (the "Trust"). The Trust is
registered under the Investment Company Act of 1940 and is organized as a
Delaware business trust. The Portfolio's financial statements are prepared
in accordance with generally accepted accounting principles which may
require the use of management accruals and estimates. The following is a
summary of significant accounting policies followed by the Portfolio.
(a) Valuation of investments--Portfolio securities that are traded on
stock exchanges are valued at the last sale price 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 the last available
ask price for short positions. Securities traded in the over-the-counter
market are valued at the last available bid price prior to the time of
valuation. Securities traded both in the over-the-counter market and on a
stock exchange are valued according to the broadest and most
representative market. Short positions in securities traded in the
over-the-counter market are valued at the last available ask price prior
to the time of valuation. Options written or purchased are valued at the
last sale price in the case of exchange-traded options. In the case of
options traded in the over-the-counter market, valuation is the last asked
price (options written) or the last bid price (options purchased).
Short-term securities are valued at amortized cost, which approximates
market value. Other investments, including futures contracts and related
options, are stated at market value. Securities and assets for which
market quotations are not readily available are valued at fair market
value, as determined in good faith by or under the direction of the
Trust's Board of Trustees.
(b) Derivative financial instruments--The Portfolio may engage in various
portfolio investment strategies to seek to increase its return by hedging
its holdings against adverse movements in the equity, debt and currency
markets. Losses may arise due to changes in the value of the contract or
if the counterparty does not perform under the contract.
o Financial futures contracts--The Portfolio may purchase or sell
financial futures contracts and options on such futures contracts for the
purpose of hedging the market risk on existing securities or the intended
purchase of securities. Upon entering into a contract, the Portfolio
deposits and maintains as collateral such initial margin as required by
the exchange on which the transaction is effected. Pursuant to the
contract, the Portfolio agrees to receive from or pay to the broker an
amount of cash equal to the daily fluctuation in value of the contract.
Such receipts or payments are known as variation margin and are recorded
by the Portfolio as unrealized gains or losses. When the contract is
closed, the Portfolio records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and
the value at the time it was closed.
May 31, 1999 27 Mercury Pan-European Growth Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
o Options--The Portfolio is authorized to purchase and write call and put
options. When the Portfolio writes an option, an amount equal to the
premium received by the Portfolio is reflected as an asset and an
equivalent liability. The amount of the liability is subsequently marked
to market to reflect the current market value of the option written. When
a security is purchased or sold through an exercise of an option, the
related premium paid (or received) is added to (or deducted from) the
basis of the security acquired or deducted from (or added to) the proceeds
of the security sold. When an option expires (or the Portfolio enters into
a closing transaction), the Portfolio realizes a gain or loss on the
option to the extent of the premiums received or paid (or a gain or loss
to the extent that the cost of the closing transaction exceeds the premium
paid or received).
Written and purchased options are non-income producing investments.
o Forward foreign exchange contracts--The Portfolio is authorized to enter
into forward foreign exchange contracts as a hedge against either specific
transactions or portfolio positions. Such contracts are not entered on the
Portfolios' records. However, the effect on operations is recorded from
the date the Portfolio enters into such contracts.
o Foreign currency options and futures--The Portfolio may also purchase or
sell listed or over-the-counter foreign currency options, foreign currency
futures and related options on foreign currency futures as a short or long
hedge against possible variations in foreign exchange rates. Such
transactions may be effected with respect to hedges on non-US
dollar-denominated securities owned by the Portfolio, sold by the
Portfolio but not yet delivered, or committed or anticipated to be
purchased by the Portfolio.
(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 US dollars. Realized and
unrealized gains or losses from investments include the effects of foreign
exchange rates on investments.
(d) Income taxes--The Portfolio is classified as a partnership for Federal
income tax purposes. As a partnership for Federal income tax purposes, the
Portfolio will not incur Federal income tax liability. Items of
partnership income, gain, loss and deduction will pass through to
investors as partners in the Portfolio. Therefore, no Federal income tax
provision is required. Under the applicable foreign tax law, withholding
taxes may be imposed on interest, dividends, and capital gains at various
rates.
May 31, 1999 28 Mercury Pan-European Growth Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
(e) Security transactions and investment income--Security transactions are
accounted for on the date the securities are purchased or sold (the trade
dates). Dividend income is recorded on the ex-dividend dates. Dividends
from foreign securities where the ex-dividend date may have passed are
subsequently recorded when the Portfolio has determined the ex-dividend
date. Interest income (including amortization of discount) is recognized
on the accrual basis. Realized gains and losses on security transactions
are determined on the identified cost basis.
(f) Custodian bank--The Portfolio recorded an amount payable to the
Custodian Bank reflecting an overnight overdraft which resulted from
management estimates of available cash.
2 Investment Advisory Agreement and Transactions with Affiliates:
The Trust has entered into an Investment Advisory Agreement with Mercury
Asset Management International Ltd. ("Mercury International"), an
affiliate of 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.
Mercury International is responsible for the management of the Portfolios'
investments and provides the necessary personnel, facilities, equipment
and certain other services necessary to the operations of the Portfolio.
For such services, the Portfolio pays a monthly fee at an annual rate of
0.75% of the average daily value of the Portfolios' net assets. The Trust
has entered into a Sub-Advisory Agreement with FAM with respect to the
Portfolio, pursuant to which FAM provides investment advisory services
with respect to the Portfolio's daily cash assets. Mercury International
has agreed to pay FAM a fee in an amount to be determined from time to
time by both parties but in no event in excess of the amount that Mercury
International actually receives for providing services to the Trust
pursuant to the Investment Advisory Agreement.
Accounting services are provided to the Portfolio by FAM at cost.
In addition, MLPF&S received $7,248 in commissions on the execution of
portfolio security transactions for the Portfolio for the period October
30, 1998 to May 31, 1999.
Certain officers and/or trustees of the Trust are officers and/or
directors of Mercury Asset Management Funds, Inc., Mercury International,
FAM, PSI, and/or ML & Co.
3 Investments:
Purchases and sales of investments, excluding short-term securities, for
the period October 30, 1998 to May 31, 1999 were $630,931,546 and
$94,958,327, respectively.
May 31, 1999 29 Mercury Pan-European Growth Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(CONCLUDED)
Net realized gains for the period October 30, 1998 to May 31, 1999 and net
unrealized gains (losses) as of May 31, 1999 were as follows:
Realized Unrealized
Gains Gains (Losses)
--------------------------------------------------------------------------
Long-term Investments $ 4,996,344 $ 3,853,154
Short-term Investments 26,269 --
Foreign currency transactions 189,960 (117,073)
----------------------------
Total $ 5,212,573 $ 3,736,081
============================
--------------------------------------------------------------------------
As of May 31, 1999, net unrealized appreciation for Federal income tax
purposes aggregated $3,742,762, of which $35,657,780 related to
appreciated securities and $31,915,018 related to depreciated securities.
At May 31, 1999, the aggregate cost of investments for Federal income tax
purposes was $541,070,946.
4 Commitments:
At May 31, 1999, the Portfolio had entered into foreign exchange contracts
under which it had agreed to purchase and sell foreign currency with an
approximate value of $1,283,000 and $2,252,000, respectively.
May 31, 1999 30 Mercury Pan-European Growth Fund
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
Mercury Master Pan-European Growth Portfolio
(One of the Series constituting Mercury Asset Management Master Trust):
We have audited the accompanying statement of assets and liabilities of Mercury
Master Pan-European Growth Portfolio, including the schedule of investments, as
of May 31, 1999, the related statements of operations and changes in net assets,
and the financial highlights for the period October 30, 1998 (commencement of
operations) to May 31, 1999. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
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. Our
procedures included confirmation of securities owned at May 31, 1999 by
correspondence with the custodian and brokers; where replies were not received
from brokers, we performed other auditing procedures. 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 audit provides a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Mercury Master
Pan-European Growth Portfolio as of May 31, 1999, the results of its operations,
the changes in its net assets, and the financial highlights for the period
October 30, 1998 (commencement of operations) to May 31, 1999 in conformity with
generally accepted accounting principles.
Deloitte & Touche llp
Princeton, New Jersey
July 19, 1999
May 31, 1999 31 Mercury Pan-European Growth Fund
<PAGE>
PORTFOLIO INFORMATION (UNAUDITED)
WORLDWIDE INVESTMENTS AS OF MAY 31, 1999
================================================================================
Ten Largest Percent of
Equity Holdings Net Assets
- --------------------------------------------------------------------------------
BP Amoco PLC 3.2%
- --------------------------------------------------------------------------------
Novartis AG (Registered Shares) 2.6
- --------------------------------------------------------------------------------
Bayer AG 2.1
- --------------------------------------------------------------------------------
Vivendi 2.1
- --------------------------------------------------------------------------------
Siemens AG 2.1
- --------------------------------------------------------------------------------
Glaxo Wellcome PLC 2.1
- --------------------------------------------------------------------------------
Mannesmann AG 1.9
- --------------------------------------------------------------------------------
Pinault-Printemps-Redoute SA 1.9
- --------------------------------------------------------------------------------
Shell Transport & Trading Company 1.8
- --------------------------------------------------------------------------------
Accor SA 1.8
- --------------------------------------------------------------------------------
Percent of
Ten Largest Industries Net Assets
- --------------------------------------------------------------------------------
Banking 14.5%
- --------------------------------------------------------------------------------
Telecommunications 10.4
- --------------------------------------------------------------------------------
Merchandising 8.9
- --------------------------------------------------------------------------------
Health & Personal Care 8.5
- --------------------------------------------------------------------------------
Business/Public Services 8.1
- --------------------------------------------------------------------------------
Energy Sources 7.3
- --------------------------------------------------------------------------------
Insurance 6.9
- --------------------------------------------------------------------------------
Electrical & Electronics 6.1
- --------------------------------------------------------------------------------
Broadcasting & Publishing 5.1
- --------------------------------------------------------------------------------
Food & Household Products 4.4
- --------------------------------------------------------------------------------
GEOGRAPHIC ALLOCATION
================================================================================
As a Percentage of Net Assets as of May 31, 1999
A pie chart illustrating the following percentages (As a Percentage of Net
Assets as of May 31, 1999)
Austria 2.1%
Belgium 4.5%
Finland 1.6%
France 16.6%
Germany 14.4%
Italy 5.4%
Netherlands 6.3%
Spain 4.2%
Sweden 4.2%
Switzerland 9.7%
United Kingdom 27.7%
Cash Equivalent 1.5%
Other 1.8%*
* Includes Greece, Ireland and Luxembourg.
May 31, 1999 32 Mercury Pan-European Growth Fund
<PAGE>
PORTFOLIO INFORMATION (UNAUDITED)
(CONCLUDED)
PORTFOLIO CHANGES FOR THE QUARTER ENDED MAY 31, 1999
================================================================================
Additions
-------------------------------------------------------------------------------
Aerospatiale Matra
-------------------------------------------------------------------------------
BAA PLC
-------------------------------------------------------------------------------
Cap Gemini SA
-------------------------------------------------------------------------------
Carlton Communications PLC
-------------------------------------------------------------------------------
*Compagnie Financiere de Paribas (CFP)
-------------------------------------------------------------------------------
*Heineken NV
-------------------------------------------------------------------------------
Independent Newspapers PLC
-------------------------------------------------------------------------------
*Ispat International NV
-------------------------------------------------------------------------------
Nordbanken Holding AB
-------------------------------------------------------------------------------
Orange PLC
-------------------------------------------------------------------------------
Seat Pagine Gialle SpA
-------------------------------------------------------------------------------
Sidel SA
-------------------------------------------------------------------------------
Tecnost SpA
-------------------------------------------------------------------------------
Usinor SA
-------------------------------------------------------------------------------
Deletions
-------------------------------------------------------------------------------
British American Tobacco PLC
-------------------------------------------------------------------------------
Commerzbank AG
-------------------------------------------------------------------------------
*Compagnie Financiere de Paribas (CFP)
-------------------------------------------------------------------------------
EMI Group PLC
-------------------------------------------------------------------------------
ENI SpA
-------------------------------------------------------------------------------
*Heineken NV
-------------------------------------------------------------------------------
*Ispat International NV
-------------------------------------------------------------------------------
Lindt & Sprungli AG 'R'
-------------------------------------------------------------------------------
Pearson PLC
-------------------------------------------------------------------------------
Pharmacia & Upjohn, Inc. (Depositary Shares)
-------------------------------------------------------------------------------
*Added and deleted in the same quarter.
May 31, 1999 33 Mercury Pan-European Growth Fund
<PAGE>
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
May 31, 1999 34 Mercury Pan-European Growth Fund
<PAGE>
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 a
diversified portfolio of equity securities of companies located in Europe. The
Fund will seek to achieve its objective by investing all of its assets in
Mercury Master Pan-European Growth 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 Pan-European Growth Fund of
Mercury Asset Management Funds, Inc.
Box 9011
Princeton, NJ
08543-9011
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