ANNUAL REPORT
MAY 31, 1999
Mercury
U.S. Large Cap
Fund
OF MERCURY ASSET
MANAGEMENT FUNDS, INC.
MERCURY ASSET MANAGEMENT LOGO
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 large
cap companies located in the United States that Fund management
believes are undervalued or have good prospects for earnings growth.
The Fund will seek to achieve its objective by investing all of its
assets in Mercury Master U.S. Large Cap 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 U.S. Large Cap Fund of
Mercury Asset Management Funds, Inc.
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
MERCURY MASTER U.S. LARGE CAP
PORTFOLIO
SECTOR REPRESENTATION
A pie chart illustrating the following percentages
(As a Percentage of Net Assets as of May 31, 1999)
Basic Industry 0.9%
Technology 19.9%
Finance 15.5%
Communications 14.1%
Consumer Cyclical 12.6%
Capital Goods 10.0%
Health Care 9.8%
Energy/Natural Resources 7.5%
Consumer Staples 6.8%
Cash & Cash Equivalents 2.9%
INVESTMENTS AS OF May 31, 1999
Percent of
Ten Largest Holdings Net Assets
Microsoft Corporation 5.0%
General Electric Company 4.3
Mobil Corporation 3.3
Sprint Corp. (FON Group) 3.2
Wal-Mart Stores, Inc. 3.1
United Technologies Corporation 2.9
Exxon Corporation 2.8
American International Group, Inc. 2.7
MCI WorldCom Inc. 2.6
American Express Company 2.4
Percent of
Ten Largest Industries Net Assets
Computer & Office Equipment 15.2%
Telephones 14.1
Retailing 9.4
Pharmaceuticals 8.1
International Oil 6.1
Electrical Equipment 6.1
Finance Companies 5.5
Regional Banks 5.3
Electronics 4.6
Insurance 3.7
May 31, 1999 2 Mercury U.S. Large Cap Fund
DEAR SHAREHOLDER
We are pleased to provide you with this first annual report to
shareholders for Mercury U.S. Large Cap Fund. The Fund's main goal
is long-term capital growth. The Fund will seek to achieve its
objective by investing all of its assets in Mercury Master U.S.
Large Cap Portfolio of Mercury Asset Management Master Trust, which
has the same investment objective as the Fund. The Fund's investment
experience will correspond directly to the investment experience of
the Portfolio. In this and future reports to shareholders, we will
provide information on the Fund's performance, discuss our
investment strategies, and highlight some of the Portfolio's
holdings. Complete performance information can be found on pages 6
and 7 of this report to shareholders.
Fiscal Year in Review
Since inception (January 29, 1999) through May 31, 1999, Mercury
U.S. Large Cap Fund's Class I, Class A, Class B and Class C Shares
had total returns of -0.90%, -1.00%, -1.20% and -1.20%,
respectively. This compares with total returns of +1.19% for the
Lipper Growth Funds average and +2.20% for the unmanaged Standard &
Poor's 500 (S&P 500) Index for the same period. While the Fund
outperformed both the Lipper average and the S&P 500 by March 31,
1999, its performance suffered in April when investor focus shifted
from growth to value, from high-quality issues to lower-quality
issues, and from large cap issues to mid and small cap issues.
During the period under review, the Portfolio benefited from its
strong weighting in communications stocks with Sprint Corp. and
Global Crossing Ltd. performing particularly well. America Online,
Inc. (AOL) was also a strong contributor to performance over the
period as a whole, despite being very weak during April and May
1999. On the negative side, the Portfolio was hurt by overweightings
in pharmaceuticals, technology and food and drug retailers.
Investment Environment
After an energetic first quarter and further strength in April, the
US stock market wavered in May at the first sign of a build-up of
inflationary pressures. The Federal Reserve Board, which has viewed
inflationary pressures as benign, indicated that it was adopting a
bias toward tightening interest rates, the first time it has done so
in nearly a year. Concerns over higher inflation arose when the
April consumer price index (CPI) rose 0.7%, the biggest gain in
nearly nine years. Driven by a surge in energy prices, the CPI
increase was well above the consensus estimate of 0.4% and the
previous month's figure of 0.2%. Consequently, bond yields rose
toward 6% during May, having been as low as 5.09% at the beginning
of the year. It was not surprising that higher valuation stocks were
the hardest hit by the rise in bond yields.
May 31, 1999 3 Mercury U.S. Large Cap Fund
During the first quarter of 1999, gross domestic product growth rose
at a 4.5% annual rate on the strength of consumer spending as
confidence surged for the seventh straight month in May. For the
year, growth rates have been revised up, with the consensus
currently in the range of 3%--4%. Unemployment remained low at 4.3%
in April, compared to 4.2% in March. Wage pressures were dormant and
home sales fell 3.3% as mortgage rates began to move up.
Meanwhile, the strong surge in investment growth is also raising
capacity and competition. As a result, profit margins have come
under pressure, but increased efficiency in US companies should help
their position against foreign competition.
Portfolio Activities
Since the Portfolio's inception, we have held an overweight position
in the technology and communications sectors. These two sectors were
the key drivers of the Fund's performance for most of the first
quarter of 1999. In the last two months however, sector rotation out
of growth stocks into value stocks and more significantly, fears
over an interest rate hike have hampered the performance of software
and Internet stocks, dragging down the gains in key Portfolio
holdings such as AOL. Consequently, we reduced our holdings in EMC
Corporation and AOL. Our largest holding remains in Microsoft
Corporation.
During the period, our overweight positions in communications
continued to grow as we added Bell Atlantic Corporation, Global
Crossing Ltd. and SBC Communications Inc. While the Portfolio's
communications sector overall matched the market's performance over
the May quarter, our holdings in Sprint Corp. (PCS Group) and MCI
WorldCom Inc. boosted the Fund's performance. Sprint PCS rose 41.7%
since the Portfolio's inception, while Global Crossing increased
79.4%.
At the end of May, our weightings in basic industrials stood at 0.9%
of net assets, although this was well below the S&P 500 weighting of
2.6%. The Portfolio was also overweight in healthcare capital goods
at 10.1% relative to the S&P 500 weighting of 9.1%. We reduced our
consumer staples position to 6.7% by May 31, 1999, compared to 9.2%
after selling down our positions in The Procter & Gamble Company and
Sara Lee Corporation. We also trimmed our weightings in healthcare
and pharmaceuticals to 9.8% at May month-end from a high of 14.7%
held in February. However, we increased our positions in Case
Corporation and United Technologies Corporation.
Investment Outlook
Looking forward, we expect merger and acquisition activity to remain
robust, especially in the telecommunications area where the fight
for the Internet business will be a driving force. We believe that
expansion of price/earnings multiples, which has driven the strong
performance of many growth stocks, is unlikely to return in an
uncertain interest rate environment. Therefore, in this environment
we favor shares of companies that are continuing to grow earnings
and are selling at lower valuations.
Current data point toward continuing growth in the US economy
throughout 1999. An economic slowdown as a result of a decline in
consumer spending is unlikely to occur before the end of the year.
However, inflation watchers will keep a keen eye on any sign of
May 31, 1999 4 Mercury U.S. Large Cap Fund
further acceleration as a precursor to the Federal Reserve Board's
stance on interest rates. With unemployment figures still low and
wage inflation subdued, we remain optimistic for the prospects for
the US stock market during the rest of the year.
In Conclusion
We thank you for your investment in Mercury U.S. Large Cap Fund, and
we look forward to serving your investment needs in the months and
years ahead.
Sincerely,
(Jeffrey Peek) (Michael Morony)
Jeffrey Peek Michael Morony
President Portfolio Manager
July 14, 1999
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 5 Mercury U.S. Large Cap Fund
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.
RECENT PERFORMANCE RESULTS*
3 Month Since Inception
Total Return Total Return
Class I +1.75% -0.90%
Class A +1.64 -1.00
Class B +1.44 -1.20
Class C +1.44 -1.20
[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 1/29/99.
May 31, 1999 6 Mercury U.S. Large Cap Fund
FUND PERFORMANCE DATA (CONCLUDED)
AGGREGATE TOTAL RETURN
% Return % Return
Without Sales With Sales
Class I Shares* Charge Charge**
Inception (1/29/99)
through 3/31/99 +4.10% -1.37%
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without Sales With Sales
Class A Shares* Charge Charge**
Inception (1/29/99)
through 3/31/99 +4.10% -1.37%
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without With
Class B Shares* CDSC CDSC**
Inception (1/29/99)
through 3/31/99 +4.00% 0.00%
[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 With
Class C Shares* CDSC CDSC**
Inception (1/29/99)
through 3/31/99 +4.00% +3.00%
[FN]
*Maximum contingent deferred sales charge
is 1% and is reduced to 0% after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
May 31, 1999 7 Mercury U.S. Large Cap Fund
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of May 31, 1999
MERCURY U.S. LARGE CAP FUND
<S> <C>
Assets:
Investment in Mercury Master U.S. Large Cap Portfolio, at value (identified
cost--$934,820,153) (Note 1a) $923,800,042
Prepaid registration fees and other assets (Note 1d) 228,428
------------
Total assets 924,028,470
------------
Liabilities:
Payable to distributor (Note 2) 569,092
Payable to administrator (Note 2) 107,166
Accrued expenses and other liabilities 577,005
------------
Total liabilities 1,253,263
------------
Net Assets:
Net assets $922,775,207
============
Net Assets Consist of:
Class I Shares of Common Stock, $.0001 par value, 100,000,000
shares authorized $ 1,046
Class A Shares of Common Stock, $.0001 par value, 100,000,000
shares authorized 1,230
Class B Shares of Common Stock, $.0001 par value, 300,000,000
shares authorized 4,661
Class C Shares of Common Stock, $.0001 par value, 100,000,000
shares authorized 2,397
Paid-in capital in excess of par 935,112,268
Accumulated realized capital losses on investments from the Portfolio--net (1,326,283)
Unrealized depreciation on investments from the Portfolio--net (11,020,112)
------------
Net assets $922,775,207
============
Net Asset Value:
Class I--Based on net assets of $103,709,275 and 10,461,687 shares
outstanding $ 9.91
============
Class A--Based on net assets of $121,825,880 and 12,300,999 shares
outstanding $ 9.90
============
Class B--Based on net assets of $460,464,062 and 46,610,386 shares
outstanding $ 9.88
============
Class C--Based on net assets of $236,775,990 and 23,967,849 shares
outstanding $ 9.88
============
See Notes to Financial Statements.
</TABLE>
May 31, 1999 8 Mercury U.S. Large Cap Fund
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Period January 29, 1999++ to May 31, 1999
MERCURY U.S. LARGE CAP FUND
<S> <C> <C>
Investment Income (Notes 1b & 1c):
Investment income allocated from the Portfolio $ 3,085,290
Expenses allocated from the Portfolio (1,437,401)
------------
Net investment income from the Portfolio 1,647,889
============
Expenses:
Account maintenance and distribution fees--Class B
(Note 2) $ 1,430,771
Account maintenance and distribution fees--Class C
(Note 2) 722,529
Registration fees (Note 1d) 430,256
Administration fee (Note 2) 402,644
Transfer agent fees--Class B (Note 2) 126,667
Account maintenance fees--Class A (Note 2) 93,324
Transfer agent fees--Class C (Note 2) 56,363
Transfer agent fees--Class A (Note 2) 53,513
Offering costs 44,712
Transfer agent fees--Class I (Note 2) 12,212
Accounting services (Note 2) 5,944
Printing and shareholder reports 2,500
Other 45
------------
Total expenses 3,381,480
------------
Investment loss--net (1,733,591)
------------
Realized & Unrealized Loss from the Portfolio--Net:
Realized loss from the Portfolio on investments--net (1,326,283)
Unrealized depreciation on investments from the Portfolio--net (11,020,112)
------------
Net realized and unrealized loss on investments from the Portfolio (12,346,395)
------------
Net Decrease in Net Assets Resulting from Operations $(14,079,986)
------------
<FN>
++Commencement of operations.
See Notes to Financial Statements.
</TABLE>
May 31, 1999 9 Mercury U.S. Large Cap Fund
<TABLE>
STATEMENT OF CHANGES
IN NET ASSETS
<CAPTION>
For the Period January 29, 1999++ to May 31, 1999
MERCURY U.S. LARGE CAP FUND
Increase (Decrease) in Net Assets:
<S> <C>
Operations:
Investment loss--net $ (1,733,591)
Realized loss on investments from the Portfolio--net (1,326,283)
Unrealized depreciation on investments from the Portfolio--net (11,020,112)
------------
Net decrease in net assets resulting from operations (14,079,986)
------------
Capital Share Transactions (Note 4):
Net increase in net assets derived from capital share transactions 936,755,193
------------
Net Assets:
Total increase in net assets 922,675,207
Beginning of period 100,000
------------
End of period $922,775,207
============
<FN>
++Commencement of operations.
See Notes to Financial Statements.
</TABLE>
May 31, 1999 10 Mercury U.S. Large Cap Fund
<TABLE>
FINANCIAL HIGHLIGHTS
MERCURY U.S. LARGE CAP FUND
<CAPTION>
The following per share data and ratios have been derived from
information provided in the financial statements.
For the Period January 29, 1999++ 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 (loss)--net --+++++ --+++++ (.03) (.02)
Realized and unrealized loss on
investments from the Portfolio--net (.09) (.10) (.09) (.10)
-----------------------------------------------------
Total from investment operations (.09) (.10) (.12) (.12)
-----------------------------------------------------
Net asset value, end of period $ 9.91 $ 9.90 $ 9.88 $ 9.88
=====================================================
Total Investment Return:**
Based on net asset value per share (.90%)+++ (1.00%)+++ (1.20%)+++ (1.20%)+++
=====================================================
Ratios to Average Net Assets:
Expenses++++ .94%* 1.19%* 1.96%* 1.96%*
=====================================================
Investment income (loss)--net .28%* (.04%)* (.82%)* (.82%)*
=====================================================
Supplemental Data:
Net assets, end of period (in thousands) $103,709 $121,826 $460,464 $236,776
=====================================================
<FN>
*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.
+++++Amount is less than $.01 per share.
See Notes to Financial Statements.
</TABLE>
May 31, 1999 11 Mercury U.S. Large Cap Fund
NOTES TO FINANCIAL STATEMENTS
MERCURY U.S. LARGE CAP FUND
1 Significant Accounting Policies:
Mercury U.S. Large Cap 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's financial statements are
prepared in accordance with generally accepted accounting principles
which may require the use of management accruals and estimates. The
Fund seeks to achieve its investment objective by investing all of
its assets in the Mercury Master U.S. Large Cap 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 January 29, 1999,
the Fund had no operations other than those relating to
organizational matters and the issuance of 10,000 capital shares of
the Fund on December 1, 1998 to Mercury Asset Management
International Ltd. ("Mercury International") for $100,000. 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 distribution 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
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 12 Mercury U.S. Large Cap Fund
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
(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
$1,733,591 have been reclassified between paid-in capital in excess
of par and accumulated net investment loss. 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 0.15% 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
Maintenance Fee Distribution Fee
Class A 0.25% --
Class B 0.25% 0.75%
Class C 0.25% 0.75%
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 on-going 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.
May 31, 1999 13 Mercury U.S. Large Cap Fund
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
For the period January 29, 1999 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 $178,858 $3,840,061
Class A $ 42,571 $4,475,293
For the period January 29, 1999 to May 31, 1999, MLPF&S received
contingent deferred sales charges of $197,323 and $52,074 relating
to transactions in Class B and Class C Shares, respectively.
Furthermore, MLPF&S received contingent deferred sales charges of
$12,440 relating to transactions subject to front-end sales charge
waivers in Class A.
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 January 29, 1999 to May 31, 1999 were $936,860,192
and $2,361,645, respectively.
4 Capital Share Transactions:
Net increase in net assets derived from capital share transactions
was $936,755,193 for the period January 29, 1999 to May 31, 1999.
Transactions in capital shares for each class were as follows:
Class I Shares for the Period January 29, 1999++
to May 31, 1999 Shares Dollar Amount
Shares sold 11,040,475 $112,204,404
Shares redeemed (581,288) (5,951,042)
----------- ------------
Net increase 10,459,187 $106,253,362
=========== ============
[FN]
++Prior to January 29, 1999 (commencement of operations), the Fund
issued 2,500 shares to Mercury International for $25,000.
May 31, 1999 14 Mercury U.S. Large Cap Fund
NOTES TO FINANCIAL STATEMENTS
(CONCLUDED)
Class A Shares for the Period January 29, 1999++
to May 31, 1999 Shares Dollar Amount
Shares sold 13,021,908 $130,676,870
Shares redeemed (723,409) (7,288,570)
----------- ------------
Net increase 12,298,499 $123,388,300
=========== ============
[FN]
++Prior to January 29, 1999 (commencement of operations), the Fund
issued 2,500 shares to Mercury International for $25,000.
Class B Shares for the Period January 29, 1999++
to May 31, 1999 Shares Dollar Amount
Shares sold 48,075,512 $481,578,245
Shares redeemed (1,467,626) (14,818,009)
----------- ------------
Net increase 46,607,886 $466,760,236
=========== ============
[FN]
++Prior to January 29, 1999 (commencement of operations), the Fund
issued 2,500 shares to Mercury International for $25,000.
Class C Shares for the Period January 29, 1999++
to May 31, 1999 Shares Dollar Amount
Shares sold 24,968,499 $250,490,253
Shares redeemed (1,003,150) (10,136,958)
----------- ------------
Net increase 23,965,349 $240,353,295
=========== ============
[FN]
++Prior to January 29, 1999 (commencement of operations), the Fund
issued 2,500 shares to Mercury International for $25,000.
May 31, 1999 15 Mercury U.S. Large Cap Fund
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
MERCURY U.S. LARGE CAP FUND
The Board of Directors and Shareholders,
Mercury U.S. Large Cap Fund (One of the Series constituting
Mercury Asset Management Funds, Inc.):
We have audited the accompanying statement of assets and liabilities
of Mercury U.S. Large Cap Fund as of May 31, 1999, the related
statements of operations and changes in net assets, and the
financial highlights for the period January 29, 1999 (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 the 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 the 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 U.S. Large Cap Fund as of May 31, 1999, the results of its
operations, the changes in its net assets, and the financial
highlights for the period January 29, 1999 (commencement of
operations) to May 31, 1999 in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
July 19, 1999
</AUDIT-REPORT>
May 31, 1999 16 Mercury U.S. Large Cap Fund
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
MERCURY MASTER U.S. LARGE CAP PORTFOLIO
In US Dollars
Shares Value Percent of
Industries Held Common Stocks Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Aerospace 423,500 United Technologies
Corporation $ 27,559,246 $ 26,283,469 2.9%
Autos & 189,900 Ford Motor Company 12,190,942 10,836,169 1.2
Auto Related
Beverages 357,800 PepsiCo, Inc. 13,958,954 12,813,712 1.4
Computer & 150,650 ++America Online, Inc. 13,606,609 17,983,844 1.9
Office 159,800 ++BMC Software, Inc. 7,526,703 7,890,125 0.9
Equipment 174,000 ++Cisco Systems, Inc. 19,474,914 18,955,125 2.0
474,800 ++Dell Computer Corporation 21,921,562 16,321,250 1.8
212,165 ++EMC Corporation 22,584,019 21,136,938 2.3
572,600 ++Microsoft Corporation 48,483,333 46,201,662 5.0
82,900 ++Yahoo! Inc. 15,614,559 12,258,837 1.3
------------ ------------ ------
149,211,699 140,747,781 15.2
Domestic 200,500 Texaco Inc. 11,917,129 13,132,750 1.4
Oil
Electrical 389,600 General Electric Company 40,562,791 39,617,450 4.3
Equipment 189,800 Tyco International Ltd. 15,114,958 16,583,775 1.8
------------ ------------ ------
55,677,749 56,201,225 6.1
Electronics 142,600 Intel Corporation 9,483,442 7,744,963 0.8
246,500 ++Tellabs, Inc. 11,529,497 14,420,250 1.6
188,300 Texas Instruments
Incorporated 18,617,458 20,595,312 2.2
------------ ------------ ------
39,630,397 42,760,525 4.6
Finance 183,400 American Express Company 19,894,780 22,225,788 2.4
Companies 92,300 ++The Goldman Sachs
Group, Inc. 5,321,406 6,270,631 0.7
125,000 Providian Financial
Corporation 12,715,991 11,992,187 1.3
319,400 U.S. Bancorp 10,821,708 10,380,500 1.1
------------ ------------ ------
48,753,885 50,869,106 5.5
Food 253,600 ++The Kroger Co. 16,228,473 14,851,450 1.6
200,000 ++Safeway Inc. 11,050,865 9,300,000 1.0
------------ ------------ ------
27,279,338 24,151,450 2.6
Forest 228,100 Fort James Corporation 9,048,757 8,354,163 0.9
Products
</TABLE>
May 31, 1999 17 Mercury U.S. Large Cap Fund
<TABLE>
SCHEDULE OF INVESTMENTS (CONTINUED)
<CAPTION>
MERCURY MASTER U.S. LARGE CAP PORTFOLIO
In US Dollars
Shares Value Percent of
Industries Held Common Stocks Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Household 517,900 The Dial Corporation $ 16,281,950 $ 16,184,375 1.8%
Products 93,900 The Procter & Gamble
Company 8,450,948 8,767,912 0.9
------------ ------------ ------
24,732,898 24,952,287 2.7
Insurance 262,000 The Allstate Corporation 9,949,384 9,546,625 1.0
216,900 American International
Group, Inc. 22,849,574 24,794,381 2.7
------------ ------------ ------
32,798,958 34,341,006 3.7
International 326,200 Exxon Corporation 23,565,501 26,055,225 2.8
Oil 300,700 Mobil Corporation 28,334,432 30,445,875 3.3
------------ ------------ ------
51,899,933 56,501,100 6.1
Machinery 225,000 Case Corporation 8,188,230 10,575,000 1.1
Media 475,100 ++Infinity Broadcasting Corp.
(Class A) 13,103,653 12,144,744 1.3
219,300 The Walt Disney Company 7,349,895 6,387,113 0.7
------------ ------------ ------
20,453,548 18,531,857 2.0
Medical 203,600 Cardinal Health, Inc. 14,628,866 12,292,350 1.4
Services 198,300 IMS Health Incorporated 7,311,908 4,883,138 0.5
------------ ------------ ------
21,940,774 17,175,488 1.9
Pharma- 315,500 Bristol-Myers Squibb
ceuticals Company 20,363,974 21,651,187 2.4
245,500 Merck & Co., Inc. 18,236,810 16,571,250 1.8
181,900 Pfizer Inc. 23,844,113 19,463,300 2.1
207,400 Schering-Plough Corporation 11,117,499 9,345,962 1.0
122,100 Warner-Lambert Company 8,919,645 7,570,200 0.8
------------ ------------ ------
82,482,041 74,601,899 8.1
Regional 113,700 Bank of America
Banks Corporation 7,499,151 7,354,969 0.8
162,100 Bank One Corporation 10,069,135 9,168,781 1.0
353,200 Fleet Financial Group, Inc. 15,238,959 14,525,350 1.6
508,400 Mellon Bank Corporation 17,271,220 18,143,525 1.9
------------ ------------ ------
50,078,465 49,192,625 5.3
</TABLE>
May 31, 1999 18 Mercury U.S. Large Cap Fund
<TABLE>
SCHEDULE OF INVESTMENTS (CONCLUDED)
<CAPTION>
MERCURY MASTER U.S. LARGE CAP PORTFOLIO
In US Dollars
Shares Value Percent of
Industries Held Common Stocks Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Retailing 256,600 CVS Corporation $ 13,801,146 $ 11,803,600 1.3%
240,900 The Home Depot, Inc. 14,422,316 13,701,188 1.5
168,400 ++Kohl's Corporation 11,257,205 11,482,775 1.2
315,700 ++Staples, Inc. 8,885,110 9,056,644 1.0
674,260 Wal-Mart Stores, Inc. 28,864,335 28,740,333 3.1
498,900 Walgreen Co. 15,204,368 11,599,425 1.3
------------ ------------ ------
92,434,480 86,383,965 9.4
Savings & 220,000 Washington Mutual, Inc. 9,145,934 8,401,250 0.9
Loan
Telephones 334,250 AT&T Corp. 20,452,098 18,550,875 2.0
187,700 ++Airtouch Communications,
Inc. 17,569,287 18,863,850 2.0
217,700 Bell Atlantic Corporation 12,720,717 11,919,075 1.3
226,700 ++Global Crossing Ltd. 6,349,901 10,768,250 1.2
278,400 ++MCI WorldCom Inc. 22,732,002 24,029,400 2.6
146,000 SBC Communications Inc. 7,781,869 7,464,250 0.8
258,600 Sprint Corp. (FON Group) 22,801,294 29,157,150 3.2
214,500 ++Sprint Corp. (PCS Group) 8,441,764 9,652,500 1.0
------------ ------------ ------
118,848,932 130,405,350 14.1
Total Investments $908,232,289 897,212,177 97.1
============
Time Deposit* 24,981,000 2.7
Other Assets Less Liabilities 1,606,964 0.2
------------ ------
Net Assets $923,800,141 100.0%
============ ======
<FN>
*Time deposit bears interest at 4.75% and matures on 6/01/1999.
++Non-income producing security.
See Notes to Financial Statements.
</TABLE>
May 31, 1999 19 Mercury U.S. Large Cap Fund
<TABLE>
STATEMENT OF ASSETS AND
LIABILITIES
<CAPTION>
As of May 31, 1999
MERCURY MASTER U.S. LARGE CAP PORTFOLIO
<S> <C> <C>
Assets:
Investments, at value (identified cost--$908,232,289) (Note 1a) $897,212,177
Cash 989
Time Deposits 24,981,000
Receivables:
Contributions $2,300,647
Dividends 707,876
Interest 3,296 3,011,819
-----------
Prepaid expenses and other assets 16,285
------------
Total assets 925,222,270
------------
Liabilities:
Payables:
Withdrawals 984,853
Investment adviser (Note 2) 357,476 1,342,329
------------
Accrued expenses and other liabilities 79,800
------------
Total liabilities 1,422,129
------------
Net Assets:
Net assets $923,800,141
============
Net Assets Consist of:
Partners' capital $934,820,253
Unrealized depreciation on investments--net (11,020,112)
------------
Net assets $923,800,141
============
See Notes to Financial Statements.
</TABLE>
May 31, 1999 20 Mercury U.S. Large Cap Fund
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Period January 29, 1999++ to May 31, 1999
MERCURY MASTER U.S. LARGE CAP PORTFOLIO
<S> <C>
Investment Income (Notes 1d & 1e):
Dividends $ 2,164,010
Interest and discount earned 921,280
------------
Total income 3,085,290
============
Expenses:
Investment advisory fees (Note 2) $ 1,343,092
Custodian fees 39,152
Accounting services (Note 2) 30,840
Trustees' fees and expenses 11,265
Professional fees 8,000
Offering costs 3,452
Pricing fees 1,600
------------
Total expenses 1,437,401
------------
Investment income--net 1,647,889
------------
Realized & Unrealized Loss on Investments--Net
(Notes 1b, 1c, 1e & 3):
Realized loss from investments--net (1,326,283)
Unrealized depreciation on investments--net (11,020,112)
------------
Net realized and unrealized loss on investments (12,346,395)
------------
Net Decrease in Net Assets Resulting from Operations $(10,698,506)
============
<FN>
++Commencement of operations.
See Notes to Financial Statements.
</TABLE>
May 31, 1999 21 Mercury U.S. Large Cap Fund
<TABLE>
STATEMENT OF CHANGES
IN NET ASSETS
<CAPTION>
For the Period January 29, 1999++ to May 31, 1999
MERCURY MASTER U.S. LARGE CAP PORTFOLIO
Increase (Decrease)in Net Assets:
<S> <C>
Operations:
Investment income--net $ 1,647,889
Realized loss on investments--net (1,326,283)
Unrealized depreciation on investments--net (11,020,112)
------------
Net decrease in net assets resulting from operations (10,698,506)
------------
Net Capital Contributions:
Increase in net assets derived from net capital contributions 934,398,547
============
Net Assets:
Total increase in net assets 923,700,041
Beginning of period 100,100
------------
End of period $923,800,141
============
<FN>
++Commencement of operations.
See Notes to Financial Statements.
</TABLE>
May 31, 1999 22 Mercury U.S. Large Cap Fund
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
MERCURY MASTER U.S. LARGE CAP PORTFOLIO
The following ratios have been derived from information provided in
the financial statements.
For the Period
January 29, 1999++
to May 31, 1999
<S> <C>
Ratios to Average Net Assets:
Expenses .54%*
============
Investment income--net .61%*
============
Supplemental Data:
Net assets, end of period (in thousands) $ 923,800
============
Portfolio turnover 17.13%
============
<FN>
*Annualized.
++Commencement of operations.
See Notes to Financial Statements.
</TABLE>
May 31, 1999 23 Mercury U.S. Large Cap Fund
NOTES TO FINANCIAL STATEMENTS
MERCURY MASTER U.S. LARGE CAP PORTFOLIO
1 Significant Accounting Policies:
Mercury Master U.S. Large Cap 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.
* 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 24 Mercury U.S. Large Cap Fund
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
* 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.
* 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.
(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.
(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.
May 31, 1999 25 Mercury U.S. Large Cap Fund
NOTES TO FINANCIAL STATEMENTS
(CONCLUDED)
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 0.50% 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.
Certain officers and/or trustees of the Trust are officers and/or
directors of Mercury Asset Management, Inc., Mercury International,
FAM, PSI, and/or ML & Co.
3 Investments:
Purchases and sales of investments, excluding short-term securities,
for the period January 29, 1999 to May 31, 1999 were $1,043,104,616
and $131,794,119, respectively.
Net realized gains (losses) for the period January 29, 1999 to May
31, 1999 and net unrealized losses as of May 31, 1999 were as
follows:
Realized Unrealized
Gains (Losses) Losses
Long-term investments $ (3,078,208) $(11,020,112)
Financial futures contracts 1,751,925 --
-------------- ------------
Total $ (1,326,283) $(11,020,112)
============== ============
As of May 31, 1999, net unrealized depreciation for Federal income
tax purposes aggregated $11,634,836, of which $41,957,168 related to
appreciated securities and $53,592,004 related to depreciated
securities. At May 31, 1999, the aggregate cost of investments for
Federal income tax purposes was $908,847,013.
4 Capital Loss Carryforward:
At May 31, 1999, the Portfolio had a net capital loss carryforward
of approximately $712,000, all of which expires in 2007. This amount
will be available to offset like amounts of any future taxable
gains.
May 31, 1999 26 Mercury U.S. Large Cap Fund
<AUDIT-REPORT>
MERCURY MASTER U.S. LARGE CAP PORTFOLIO
The Board of Trustees and Shareholders,
Mercury Master U.S. Large Cap Portfolio (One of the Series constituting
Mercury Asset Management Master Trust):
We have audited the accompanying statement of assets and liabilities
of Mercury Master U.S. Large Cap 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 January 29, 1999 (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 the 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. 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 U.S. Large Cap Portfolio as of May 31, 1999, the
results of its operations, the changes in its net assets, and the
financial highlights for the period January 29, 1999 (commencement
of operations) to May 31, 1999 in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
July 19, 1999
</AUDIT-REPORT>
May 31, 1999 27 Mercury U.S. Large Cap Fund
