QUARTERLY REPORT
AUGUST 31, 1999
FUND LOGO
Mercury
U.S. Large Cap
Fund
OF MERCURY ASSET
MANAGEMENT FUNDS, INC.
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 August 31, 1999)
Basic Industry 1.4%
Technology 23.7%
Finance 13.6%
Communications 10.7%
Consumer Cyclical 11.6%
Capital Goods 11.9%
Health Care 9.0%
Energy/Natural Resources 7.6%
Consumer Staples 8.3%
Cash & Cash Equivalents 2.2%
INVESTMENTS AS OF AUGUST 31, 1999
Percent of
Ten Largest Holdings Net Assets
Microsoft Corporation 5.5%
General Electric Company 4.6
Mobil Corporation 3.4
Texas Instruments Incorporated 3.0
United Technologies Corporation 2.9
Wal-Mart Stores, Inc. 2.8
Exxon Corporation 2.8
Cisco Systems, Inc. 2.8
American Express Company 2.6
American International Group, Inc. 2.6
Percent of
Ten Largest Industries Net Assets
Computer & Office Equipment 14.9%
Telephones 10.7
Electronics 8.8
Retailing 8.6
Electrical Equipment 7.8
Pharmaceuticals 7.6
International Oil 6.2
Finance Companies 4.6
Regional Banks 4.4
Insurance 3.5
August 31, 1999
Mercury U.S. Large Cap Fund
DEAR SHAREHOLDER
During the three months ended August 31, 1999, the Fund outperformed
the unmanaged Standard & Poor's 500 (S&P 500) Index. The Fund's
Class I, Class A, Class B and Class C Shares had total returns of
+3.03%, +2.93%, +2.73% and +2.73%, respectively, compared to the S&P
500 Index's total return of +1.75% for the quarter ended August 31,
1999. (Fund results do not reflect sales charges and would be lower
if sales charges were included. Complete performance information can
be found on pages 6 and 7 of this report to shareholders.)
The performance of the Fund was driven positively by strength in our
technology holdings, a sector in which we were well represented.
Texas Instruments Incorporated, a portfolio holding, outperformed
the S&P 500 Index by more than 40%. However, performance was held
back by our position in the communications sector, which was
overweight with long distance companies, although this drag was
mitigated by our strong exposure to wireless companies. For example,
Sprint Corp. (PCS Group), one of the portfolio's wireless
telecommunications stocks, also outperformed the S&P 500 Index by
more than 40%.
Investment Environment
The major factor dominating the market over the August quarter was
the interest rate environment. Investors were nervous that the
continued strength in the economy would prompt the Federal Reserve
Board into a round of tightening of the Federal Funds rate. At the
end June, there was relief when the Federal Reserve Board only
raised the Federal Funds rate by a quarter of a point (0.25%) to 5%,
as well as made remarks suggesting there did not appear to be the
need for too much more tightening ahead. However, investors again
refocused on continued signs of strength in the economy, and the
Federal Reserve Board raised short-term interest rates another
quarter point on August 24, 1999 to 5.25%, as equities continued to
weaken.
During the three months ended August 31, 1999, another important
event was the weakness of the US dollar. Over the quarter, the US
dollar fell relative to the Japanese yen from YEN 122 to below YEN
110. We also saw the US dollar weaken from near parity with the euro
to finish the period at E1.0566. This weakness has kept strong
upward pressure on bond yields. On the positive side, the weakness
in the currency will help those companies with strong overseas
earnings.
Market Review
The US equity market, as measured by the S&P 500 Index, rose 1.75%
for the three months ended August 31, 1999. June was a strong month
with the S&P 500 Index rising over 5.5%, but July and August saw the
market come down.
The major factors affecting the market were interest rate worries
and the reacceleration in corporate earnings growth. The market rose
very strongly at the end of June when it appeared that a quarter
point rise in the Federal Funds rate might be sufficient, but
sentiment deteriorated in July and August as a result of continued
strong economic data, a fall in the US dollar and widening credit
spreads.
August 31, 1999
Mercury U.S. Large Cap Fund
Within the market, the clear sector leader during the August quarter
was technology, and within technology, semiconductors and
semiconductor equipment stocks were particularly strong. The sector
benefited from some strong second quarter earnings reports and signs
of an upturn in the semiconductor cycle. The weakest area of
technology continued to be in the Internet companies, with America
Online, Inc. underperforming the market by nearly 25%. Also during
the August quarter, communications stocks weakened over concerns
about falling long distance telephone prices, and financial stocks
fell because of interest rate fears and widening credit spreads.
Portfolio Activity
During the three months ended August 31, 1999, we reduced our
overweight position in telecommunications through the partial sales
of our holdings in MCI WorldCom Inc. and AT&T Corp. on concerns
about long distance rates. We also sold AirTouch Communications,
Inc. (now Vodafone AirTouch PLC, a UK company) but kept our wireless
telecommunications exposure strong through the purchase of Nextel
Communications, Inc. and Sprint Corp. (PCS Group).
In technology, we further reduced our Internet exposure through a
partial sale of America Online, Inc., but bought shares of Sun
Microsystems, Inc. and JDS Uniphase Corporation, and added to our
holdings in Cisco Systems, Inc. and Intel Corporation. At August 31,
1999, technology represented our largest sector weight in the
Portfolio. Other purchasing activity included additions to our
holding in Merck & Co., Inc., as well as establishing positions in
Honeywell Inc. and Weyerhaeuser Company.
Investment Outlook
We believe that the Federal Reserve Board may tighten interest rates
again this year. Even in the face of benign inflationary data, we
anticipate the move may merely reverse the easing undertaken during
last year's financial crisis. There is also the likelihood though
that the next tightening may be the last for some time, and that
equity and bond markets may react positively once this becomes
clear.
The corporate earnings environment continues to improve. We saw
another set of strong earnings reports in the second quarter and
expect earnings for the third quarter to continue this trend. We are
also seeing analysts raising earnings expectations for the market
for this year and next, which should act to support equity prices.
As we approach the final quarter of the year, we will continue to
monitor extremely carefully any possible effects that Year 2000
(Y2K) may be having on our investments. In particular, we will be
watching our technology investments for possible signs of orders
slowing as customers shut down ahead of the new millennium. We will
also be keeping a watchful eye on our bank holdings, as we believe
this sector may prove vulnerable through increased loan losses
associated with Y2K or third-party risk.
August 31, 1999
Mercury U.S. Large Cap Fund
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)
Jeffrey Peek
President
(Michael Morony)
Michael Morony
Portfolio Manager
September 29, 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
August 31, 1999
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
As of August 31, 1999 Total Return Total Return
Class I +3.03% +2.10%
Class A +2.93 +1.90
Class B +2.73 +1.50
Class C +2.73 +1.50
[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.
August 31, 1999
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 6/30/99 +6.30% +0.72%
[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 6/30/99 +6.20% +0.62%
[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 6/30/99 +5.90% +1.90%
[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 6/30/99 +5.90% +4.90%
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
August 31, 1999
Mercury U.S. Large Cap Fund
<TABLE>
SCHEDULE OF INVESTMENTS
MERCURY MASTER U.S. LARGE CAP PORTFOLIO
<CAPTION>
In US Dollars
Shares Percent of
Industries Held Common Stocks Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
Aerospace 419,100 United Technologies Corporation $ 27,291,707 $ 27,712,988 2.9%
Autos & 166,200 Ford Motor Company 10,664,091 8,663,175 0.9
Auto Related
Beverages 427,600 PepsiCo, Inc. 16,567,091 14,591,850 1.6
Computer & 97,450 America Online, Inc. 8,966,111 8,898,403 0.9
Office 129,800 BMC Software, Inc. 6,104,094 6,976,750 0.8
Equipment 388,400 Cisco Systems, Inc. 21,949,560 26,314,100 2.8
9,900 Concord EFS, Inc. 319,275 366,919 0.0
469,800 Dell Computer Corporation 21,683,119 22,932,112 2.4
241,430 EMC Corporation 12,675,841 14,485,800 1.5
77,800 International Business
Machines Corporation 9,144,970 9,690,962 1.0
566,700 Microsoft Corporation 47,971,904 52,419,750 5.5
--------------------------------------
128,814,874 142,084,796 14.9
Cosmetics & 199,800 The Estee Lauder
Toiletries Companies Inc. (Class A) 9,738,646 9,178,312 0.9
138,600 The Gillette Company 6,108,199 6,462,225 0.7
--------------------------------------
15,846,845 15,640,537 1.6
Domestic Oil 213,600 Texaco Inc. 12,747,466 13,563,600 1.4
Electrical 391,100 General Electric Company 40,714,252 43,925,419 4.6
Equipment 98,400 Honeywell Inc. 11,362,141 11,168,400 1.2
189,800 Tyco International Ltd. 15,114,958 19,229,113 2.0
--------------------------------------
67,191,351 74,322,932 7.8
Electronics 245,200 Intel Corporation 17,367,431 20,152,375 2.1
130,000 JDS Uniphase Corporation 10,117,436 13,788,125 1.4
98,900 Sun Microsystems, Inc. 6,941,960 7,856,369 0.8
234,400 Tellabs, Inc. 11,012,858 13,946,800 1.5
344,000 Texas Instruments Incorporated 17,023,170 28,229,500 3.0
--------------------------------------
62,462,855 83,973,169 8.8
Finance 181,500 American Express Company 19,699,717 24,956,250 2.6
Companies 125,000 Providian Financial
Corporation 12,715,991 9,703,125 1.0
300,400 U.S. Bancorp 10,183,707 9,274,850 1.0
--------------------------------------
42,599,415 43,934,225 4.6
</TABLE>
August 31, 1999
Mercury U.S. Large Cap Fund
<TABLE>
SCHEDULE OF INVESTMENTS (CONTINUED)
<CAPTION>
In US Dollars
Shares Percent of
Industries Held Common Stocks Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
Food 502,000 The Kroger Co. $ 16,057,963 $ 11,608,750 1.2%
197,900 Safeway Inc. 10,931,499 9,214,719 1.0
--------------------------------------
26,989,462 20,823,469 2.2
Forest 225,700 Fort James Corporation 8,953,797 7,278,825 0.7
Products 113,800 Weyerhaeuser Company 7,715,261 6,401,250 0.7
--------------------------------------
16,669,058 13,680,075 1.4
Household 523,100 The Dial Corporation 16,703,353 14,516,025 1.5
Products 144,900 The Procter & Gamble
Company 13,300,507 14,381,325 1.5
--------------------------------------
30,003,860 28,897,350 3.0
Insurance 262,000 The Allstate Corporation 9,949,384 8,596,875 0.9
268,375 American International
Group, Inc. 22,624,380 24,875,008 2.6
--------------------------------------
32,573,764 33,471,883 3.5
International 340,400 Exxon Corporation 24,710,877 26,849,050 2.8
Oil 312,700 Mobil Corporation 29,565,170 32,012,663 3.4
--------------------------------------
54,276,047 58,861,713 6.2
Machinery 222,700 Case Corporation 8,104,734 10,995,812 1.2
Media 475,100 Infinity Broadcasting Corp. (Class A) 13,103,653 12,857,394 1.4
215,300 The Walt Disney Company 7,215,146 5,974,575 0.6
--------------------------------------
20,318,799 18,831,969 2.0
Medical 203,600 Cardinal Health, Inc. 14,628,866 12,979,500 1.4
Services
Pharma- 276,200 Bristol-Myers Squibb Company 17,841,157 19,437,575 2.1
ceuticals 316,600 Merck & Co., Inc. 22,854,470 21,271,562 2.2
332,200 Pfizer Inc. 14,480,950 12,540,550 1.3
188,500 Schering-Plough Corporation 10,093,739 9,908,031 1.1
134,300 Warner-Lambert Company 9,749,939 8,897,375 0.9
--------------------------------------
75,020,255 72,055,093 7.6
Regional 104,700 Bank of America Corporation 6,908,322 6,334,350 0.6
Banks 162,100 Bank One Corporation 10,069,135 6,504,262 0.7
313,200 Fleet Financial Group, Inc. 13,485,791 12,469,275 1.3
506,400 Mellon Bank Corporation 17,204,197 16,901,100 1.8
--------------------------------------
47,667,445 42,208,987 4.4
</TABLE>
August 31, 1999
Mercury U.S. Large Cap Fund
<TABLE>
SCHEDULE OF INVESTMENTS (CONCLUDED)
<CAPTION>
In US Dollars
Shares Percent of
Industries Held Common Stocks Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
Retailing 253,900 CVS Corporation $ 13,654,677 $ 10,584,456 1.1%
238,400 The Home Depot, Inc. 14,273,848 14,572,200 1.5
166,700 Kohl's Corporation 11,143,027 11,877,375 1.3
315,700 Staples, Inc. 8,885,110 6,846,744 0.7
606,060 Wal-Mart Stores, Inc. 25,957,048 26,856,034 2.8
493,700 Walgreen Co. 15,042,797 11,447,669 1.2
--------------------------------------
88,956,507 82,184,478 8.6
Savings & 321,300 Washington Mutual, Inc. 12,662,847 10,201,275 1.1
Loan
Telephones 247,550 AT&T Corp. 15,059,398 11,139,750 1.2
233,700 Bell Atlantic Corporation 13,676,178 14,314,125 1.5
237,704 Global Crossing Ltd. 7,386,468 6,150,591 0.6
228,300 MCI WorldCom Inc. 18,709,729 17,279,456 1.8
247,400 Nextel Communications, Inc.
(Class A) 11,871,266 14,287,350 1.5
152,500 SBC Communications Inc. 8,136,478 7,320,000 0.8
316,900 Sprint Corp. (FON Group) 14,358,238 14,062,438 1.5
290,400 Sprint Corp. (PCS Group) 12,799,639 17,351,400 1.8
--------------------------------------
101,997,394 101,905,110 10.7
Total Investments $914,054,733 931,583,986 97.8
============
Time Deposit* 20,765,000 2.2
Other Assets Less Liabilities 139,595 0.0
-----------------------
Net Assets $952,488,581 100.0%
=======================
<FN>
*Time deposit bears interest at 5.593% and matures on 9/01/1999.
</TABLE>
August 31, 1999
Mercury U.S. Large Cap Fund
MERCURY MASTER U.S. LARGE CAP
PORTFOLIO
PORTFOLIO CHANGES FOR THE QUARTER
ENDED AUGUST 31, 1999
Additions
Concord EFS, Inc.
The Estee Lauder Companies Inc. (Class A)
The Gillette Company
Honeywell Inc.
International Business Machines Corporation
JDS Uniphase Corporation
Nextel Communications, Inc. (Class A)
Sun Microsystems, Inc.
Weyerhaeuser Company
Deletions
AirTouch Communications, Inc.
The Goldman Sachs Group, Inc.
IMS Health Incorporated
Yahoo! Inc.
August 31, 1999
Mercury U.S. Large Cap Fund
