ANNUAL REPORT
May 31, 2000
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
As a Percentage of Net Assets as of May 31, 2000
A pie chart depicting the following percentages:
Basic Industry 2.3%
Technology 27.6%
Finance 11.9%
Communications 9.2%
Consumer Cyclical 6.4%
Capital Goods 9.3%
Health Care 11.6%
Energy/Natural Resources 9.9%
Consumer Staples 8.6%
Cash & Cash Equivalents 3.2%
INVESTMENTS AS OF MAY 31, 2000
Percent of
Ten Largest Holdings Net Assets
General Electric Company 6.5%
Exxon Mobil Corporation 4.2
Intel Corporation 3.4
American International Group, Inc. 3.2
Citigroup Inc. 3.2
Microsoft Corporation 3.1
PepsiCo, Inc. 3.0
Wal-Mart Stores, Inc. 2.9
Cisco Systems, Inc. 2.8
United Technologies Corporation 2.7
Percent of
Ten Largest Industries Net Assets
Pharmaceuticals 9.2%
Oil & Gas 7.8
Communications Equipment 6.7
Industrial Conglomerates 6.5
Diversified Telecommunication
Services 6.5
Semiconductor Equipment &
Products 6.3
Diversified Financials 5.6
Software 5.4
Multiline Retail 4.4
Computers & Peripherals 4.1
May 31, 2000
Mercury U.S. Large Cap Fund
DEAR SHAREHOLDER
Fiscal Year in Review
We are pleased to provide you with this annual report to
shareholders for Mercury U.S. Large Cap Fund. For the fiscal year
ended May 31, 2000, Mercury U.S. Large Cap Fund's Class I, Class A,
Class B and Class C Shares had total returns of +14.53%, +14.24%,
+13.36% and +13.36%, respectively. This compares with total returns
of +13.96% for the Lipper Large-Cap Funds average and +10.48% for
the unmanaged Standard & Poor's 500 (S&P 500) Index for the same
period. (Investment results shown do not reflect sales charges, and
would be lower if sales charges were included. Complete performance
information can be found on pages 7--9 of this report to
shareholders.) During the fiscal year, the Fund benefited from the
strength of new economy stocks, such as JDS Uniphase Corporation,
EMC Corporation and Sun Microsystems, Inc. However, the Fund's
performance was hurt by the dramatic sell off of Internet-related
companies. While our position in Internet-related companies was low,
the Fund was exposed to the Internet infrastructure universe. Fund
holdings in this area that suffered included VeriSign, Inc. and
Siebel Systems, which we bought and sold during the last half of the
fiscal year.
Investment Environment
The strong growth witnessed in the US equity markets in 1999 slowed
somewhat during the six months ended May 31, 2000. The broader S&P
500 Index closed the six-month period ended May 31, 2000 up 2.9%,
compared to +7.7% for the prior six-month period. The market
continued its bullish run through the end of 1999 and into the first
two months of 2000, but faltered as the first quarter of 2000 drew
to a close.
Market volatility was extreme toward the end of the period, with the
S&P 500 Index falling by 11% in the second week of April 2000 before
rallying to recover much of this loss by the end of the month. The
sharp sell-off in April was precipitated by a correction in the
technology-laden National Association of Securities Dealers
Automated Quotations (NASDAQ) Index, which fell 25% during the same
period. A very similar scenario developed toward the end of May when
the NASDAQ had a sharp correction off its lows, rising a record 19%
in the last week of the month. Despite these intermittent sell-offs,
technology still drove the overall market's performance, with the
NASDAQ returning +38% for the 12 months ended May 31, 2000 against a
broader market performance of +10% for the same period, as measured
by the S&P 500 Index.
A key feature of the period was the inversion of the US Government
yield curve in early February 2000 as the Government announced plans
to buy back long-dated Treasury bonds. This inverted shape was more
typical of a yield curve preceding an economic recession. Despite
the technical reasons for the inversion, the equity market sold off
cyclicals, which have the most to lose from a slowdown in economic
growth. While this plagued the markets in February, the stance on
cyclicals was quickly reversed in March and April when investors
sought to move money out of technology and back into old economy
stocks.
May 31, 2000
Mercury U.S. Large Cap Fund
The Federal Funds rate (the key US short-term interest rate)
increased by 0.25% in November 1999, February 2000 and March 2000,
and by 0.50% in May 2000 to close the period at 6.50%. This higher
interest rate environment concerned investors about the outlook for
growth in interest rate-sensitive sectors of the market and was the
reason why the consumer cyclical and insurance sectors were the
worst performers during the period. On the other hand, higher oil
prices and improving global economic growth helped the energy and
semiconductor sectors post the best performance for the period.
Economic data provided a mixed picture with gross domestic product
(GDP) growth running ahead of estimate, but inflation moving higher
off a low base. Estimated fourth quarter of 1999 GDP growth was
revised upward from 6.9% to 7.4%, while first quarter of 2000 GDP
was 5.4%. In contrast, the headline inflation indicator, the core
consumer price index, is running at about 2.1% on a year-over-year
basis. The one key figure that the Federal Reserve Board remains
very hawkish on, and a figure that caused some concern toward the
end of April 2000, was the employment cost index. This index is one
of the primary inflation indicators, and it came in well above
expectations for the first quarter of 2000. The US dollar has
remained solid against all major currencies thus far in 2000.
Throughout the period, but particularly toward the end of May, both
volatility and daily traded volumes reached record levels, brought
on in large part by poor market breadth. Only a handful of stocks
drove the stock market higher for the first two months of the year
and then the style rotation at the end of the period saw a frenzied
move into old economy stocks, only to be moved back into technology
at the end of May.
May 31, 2000
Mercury U.S. Large Cap Fund
Fourth quarter of 1999 earnings reports from most of the major
companies were generally in line with consensus expectations, with
upside surprise in selected areas of technology. Results for the
first quarter of 2000 followed much the same trend, with a few
exceptions. Some blue chip companies such as The Procter & Gamble
Company had to pre-announce lower numbers, while in the technology
sector strong numbers came from Sun Microsystems, Inc. and Oracle
Corporation. Disappointing reports were released by Microsoft
Corporation, Intel Corporation and Motorola, Inc. Microsoft's
ongoing litigation issues continued to hurt the stock's performance
and cast an overall negative pall on the market. In the retail
sector, Wal-Mart Stores, Inc. stock fell on concerns of slowing
growth from a record 1999. The financial sector painted a similar
picture, with regional banks such as U.S. Bancorp and Bank One
Corporation releasing disappointing fourth quarter results and
brokerage houses and money center banks such as Morgan Stanley Dean
Witter & Co. and Citigroup Inc. reporting record earnings as they
shared in the lucrative business of equity underwriting and advising
on large mergers.
Corporate merger and acquisition activity continued in 2000, with
two of the largest mergers in history. America Online, Inc.
announced its intention to merge with media company, Time Warner
Inc. Healthcare was also a sector under change with the battle
between Pfizer Inc. and American Home Products over Warner-Lambert
Company finally being resolved in Pfizer's favor.
Portfolio Activities
There were two distinct periods of very different investor
psychology during the 12-month period. Our overweighted positions in
telecommunications and technology were solid performers in the
second half of 1999 and into the new millennium, only to suffer
during the NASDAQ correction in March and April. The style shift
toward old economy stocks and out of technology was pronounced
during these months and caused the Fund to underperform, primarily
during April. While we retain a bias toward the quality growth
issues in technology and telecommunications that we had favored
throughout 1999 (such as EMC Corporation, Nortel Networks
Corporation and Texas Instruments Incorporated), we moved the
Portfolio into a slightly more defensive mode during April and May.
We added some old economy stocks (Anheuser-Busch Companies, Inc. and
The Boeing Company) in an effort to provide diversification to the
Portfolio at a time when markets were seeing unprecedented
volatility. This theme to the Portfolio is likely to persist until
we believe that the market has gained a clearer direction and we are
more comfortable with the performance of the US economy under the
current monetary tightening phase.
May 31, 2000
Mercury U.S. Large Cap Fund
Investment Outlook
With increased volatility and short-term interest rates still
rising, we have taken a slightly more cautious view of the US equity
market. However, we continue to witness strong economic growth and
generally low levels of inflation, both of which should provide
support to equity valuations. Therefore, we continue to believe that
there is good value in the US market. Volatility in the market is
still high and appears unlikely to decline in the near term, but the
earnings outlook remains positive and provides fundamental support
for the market.
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
President
Portfolio Manager
Michael Morony
June 30, 2000
May 31, 2000
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 "Average Annual Total Return" tables assume reinvest-
ment 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.
<TABLE>
RECENT PERFORMANCE RESULTS*
<CAPTION>
6 Month 12 Month Since Inception
As of May 31, 2000 Total Return Total Return Total Return
<S> <C> <C> <C>
Class I -0.44% +14.53% +13.50%
Class A -0.62 +14.24 +13.10
Class B -0.88 +13.36 +12.00
Class C -0.88 +13.36 +12.00
*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.
</TABLE>
May 31, 2000
Mercury U.S. Large Cap Fund
FUND PERFORMANCE DATA (CONTINUED)
TOTAL RETURN BASED ON A $10,000 INVESTMENT
A line graph depicting total return based on a $10,000 investment of
Mercury US Large Cap Class I and Class A Shares. Beginning and
ending values are:
1/29/99** 5/00
Mercury US Large Cap
Fund++++--Class I Shares* $ 9,600 $10,754
Mercury US Large Cap
Fund++++--Class A Shares* $ 9,600 $10,716
S&P 500 Index++++ $10,000 $11,291
A line graph depicting total return based on a $10,000 investment of
Mercury US Large Cap Class B and Class C Shares. Beginning and
ending values are:
1/29/99** 5/00
Mercury US Large Cap
Fund++++--Class B Shares* $10,000 $10,800
Mercury US Large Cap
Fund++++--Class C Shares* $10,000 $11,200
S&P 500 Index++++ $10,000 $11,291
*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 U.S. Large
Cap Portfolio of Mercury Asset Management Master Trust. The
Portfolio invests 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.
++++This unmanaged broad-based Index is comprised of 500 common
stocks of the largest companies in the United States.
Past performance is not indicative of future results.
May 31, 1999
Mercury U.S. Large Cap Fund
FUND PERFORMANCE DATA (CONCLUDED)
AVERAGE ANNUAL TOTAL RETURN
% Return % Return
Without Sales With Sales
Class I Shares* Charge Charge**
Year Ended 3/31/00 +19.31% +13.04%
Inception (1/29/99)
through 3/31/00 +20.40 +14.97
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without Sales With Sales
Class A Shares* Charge Charge**
Year Ended 3/31/00 +18.92% +12.68%
Inception (1/29/99)
through 3/31/00 +20.07 +14.65
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without With
Class B Shares* CDSC CDSC**
Year Ended 3/31/00 +17.98% +13.98%
Inception (1/29/99)
through 3/31/00 +19.16 +15.82
*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**
Year Ended 3/31/00 +17.98% +16.98%
Inception (1/29/99)
through 3/31/00 +19.16 +18.33
*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, 2000
Mercury U.S. Large Cap Fund
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of May 31, 2000
MERCURY U.S. LARGE CAP FUND
<S> <C>
Assets:
Investment in Mercury Master U.S. Large Cap Portfolio, at value (identified
cost--$905,134,051) $ 997,813,881
Prepaid registration fees 155,037
-------------
Total assets 997,968,918
-------------
Liabilities:
Payable to distributor 718,404
Payable to administrator 106,269
Accrued expenses 127,059
-------------
Total liabilities 951,732
-------------
Net Assets:
Net assets $ 997,017,186
=============
Net Assets Consist of:
Class I Shares of Common Stock, $.0001 par value, 100,000,000
shares authorized $ 1,124
Class A Shares of Common Stock, $.0001 par value, 100,000,000
shares authorized 906
Class B Shares of Common Stock, $.0001 par value, 100,000,000
shares authorized 4,544
Class C Shares of Common Stock, $.0001 par value, 100,000,000
shares authorized 2,305
Paid-in capital in excess of par 883,068,467
Undistributed realized capital gains on investments from the Portfolio--net 21,260,010
Unrealized appreciation on investments from the Portfolio--net 92,679,830
-------------
Net assets $ 997,017,186
=============
Net Asset Value:
Class I--Based on net assets of $127,630,114 and 11,242,555 shares
outstanding $ 11.35
=============
Class A--Based on net assets of $102,453,636 and 9,056,215 shares
outstanding $ 11.31
=============
Class B--Based on net assets of $508,801,894 and 45,437,677 shares
outstanding $ 11.20
=============
Class C--Based on net assets of $258,131,542 and 23,053,063 shares
outstanding $ 11.20
=============
See Notes to Financial Statements.
</TABLE>
May 31, 2000
Mercury U.S. Large Cap Fund
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Year Ended May 31, 2000
MERCURY U.S. LARGE CAP FUND
<S> <C> <C>
Investment Income:
Investment income allocated from the Portfolio $ 10,733,611
Expenses allocated from the Portfolio (5,426,254)
-------------
Net investment income from the Portfolio 5,307,357
-------------
Expenses:
Account maintenance and distribution fees--Class B $ 5,181,264
Account maintenance and distribution fees--Class C 2,661,701
Administration fee 1,540,585
Transfer agent fees--Class B 510,153
Account maintenance fees--Class A 303,203
Transfer agent fees--Class C 274,115
Transfer agent fees--Class A 99,511
Transfer agent fees--Class I 98,402
Printing and shareholder reports 93,982
Professional fees 63,587
Offering costs 51,749
Registration fees 17,526
Other 1,540
-------------
Total expenses 10,897,318
-------------
Investment loss--net (5,589,961)
-------------
Realized & Unrealized Gain from the Portfolio--Net:
Realized gain from the Portfolio on investments--net 28,108,373
Change in unrealized appreciation/depreciation on investments
from the Portfolio--net 103,699,942
-------------
Net Increase in Net Assets Resulting from Operations $ 126,218,354
=============
See Notes to Financial Statements.
</TABLE>
May 31, 2000
Mercury U.S. Large Cap Fund
<TABLE>
STATEMENTS OF CHANGES
IN NET ASSETS
<CAPTION>
MERCURY U.S. LARGE CAP FUND
For the For the Period
Year Ended January 29, 1999++
May 31, to May 31,
Increase (Decrease) in Net Assets: 2000 1999
<S> <C> <C>
Operations:
Investment loss--net $ (5,589,961) $ (1,733,591)
Realized gain (loss) on investments from the
Portfolio--net 28,108,373 (1,326,283)
Change in unrealized appreciation/depreciation on
investments from the Portfolio--net 103,699,942 (11,020,112)
------------- -------------
Net increase (decrease) in net assets resulting from
operations 126,218,354 (14,079,986)
------------- -------------
Capital Share Transactions:
Net increase (decrease) in net assets derived from capital
share transactions (51,976,375) 936,755,193
------------- -------------
Net Assets:
Total increase in net assets 74,241,979 922,675,207
Beginning of period 922,775,207 100,000
------------- -------------
End of period $ 997,017,186 $ 922,775,207
============= =============
++Commencement of operations.
See Notes to Financial Statements.
</TABLE>
May 31, 2000
Mercury U.S. Large Cap Fund
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
MERCURY U.S. LARGE CAP FUND
The following per share data and ratios have been derived from
information provided in the financial statements.
Class I Class A
For the For the
For the Period For the Period
Year Jan. 29, Year Jan. 29,
Ended 1999++ to Ended 1999++ to
May 31, May 31, May 31, May 31,
Increase (Decrease) in Net Asset Value: 2000++++++ 1999 2000++++++ 1999
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 9.91 $ 10.00 $ 9.90 $ 10.00
-------- -------- -------- --------
Investment income (loss)--net .03 --+++++ --+++++ --+++++
Realized and unrealized gain (loss) on
investments from the Portfolio--net 1.41 (.09) 1.41 (.10)
-------- -------- -------- --------
Total from investment operations 1.44 (.09) 1.41 (.10)
-------- -------- -------- --------
Net asset value, end of period $ 11.35 $ 9.91 $ 11.31 $ 9.90
======== ======== ======== ========
Total Investment Return:**
Based on net asset value per share 14.53% (.90%)+++ 14.24% (1.00%)+++
======== ======== ======== ========
Ratios to Average Net Assets:
Expenses++++ .78% .94%* 1.03% 1.19%*
======== ======== ======== ========
Investment income (loss)--net .27% .28%* .01% (.04%)*
======== ======== ======== ========
Supplemental Data:
Net assets, end of period (in thousands) $127,630 $103,709 $102,454 $121,826
======== ======== ======== ========
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Commencement of operations.
++++Includes the Fund's share of the Portfolio's allocated expenses.
++++++Based on average shares outstanding.
+++Aggregate total investment return.
+++++Amount is less than $.01 per share.
See Notes to Financial Statements.
</TABLE>
May 31, 2000
Mercury U.S. Large Cap Fund
<TABLE>
FINANCIAL HIGHLIGHTS (CONCLUDED)
<CAPTION>
MERCURY U.S. LARGE CAP FUND
The following per share data and ratios have been derived from
information provided in the financial statements.
Class B Class C
For the For the
For the Period For the Period
Year Jan. 29, Year Jan. 29,
Ended 1999++ to Ended 1999++ to
May 31, May 31, May 31, May 31,
Increase (Decrease) in Net Asset Value: 2000++++++ 1999 2000++++++ 1999
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 9.88 $ 10.00 $ 9.88 $ 10.00
-------- -------- -------- --------
Investment loss--net (.08) (.03) (.08) (.02)
Realized and unrealized gain (loss) on
investments from the Portfolio--net 1.40 (.09) 1.40 (.10)
-------- -------- -------- --------
Total from investment operations 1.32 (.12) 1.32 (.12)
-------- -------- -------- --------
Net asset value, end of period $ 11.20 $ 9.88 $ 11.20 $ 9.88
======== ======== ======== ========
Total Investment Return:**
Based on net asset value per share 13.36% (1.20%)+++ 13.36% (1.20%)+++
======== ======== ======== ========
Ratios to Average Net Assets:
Expenses++++ 1.80% 1.96%* 1.80% 1.96%*
======== ======== ======== ========
Investment loss--net (.75%) (.82%)* (.76%) (.82%)*
======== ======== ======== ========
Supplemental Data:
Net assets, end of period (in thousands) $508,802 $460,464 $258,131 $236,776
======== ======== ======== ========
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Commencement of operations.
++++Includes the Fund's share of the Portfolio's allocated expenses.
++++++Based on average shares outstanding.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
May 31, 2000
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 a 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 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. The Fund's
financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America, 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 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 accounting principles generally accepted in the United States
of America.
(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.
(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.
May 31, 2000
Mercury U.S. Large Cap Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(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
$67,881 have been reclassified between paid-in capital in excess of
par and accumulated net investment loss and $5,522,080 has been
reclassified between undistributed net realized capital gains 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 .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 .25% --
Class B .25% .75%
Class C .25% .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 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 year ended May 31, 2000, MFD earned underwriting discounts
and direct commissions 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 $ 120 $ 1,999
Class A $24,886 $324,248
May 31, 2000
Mercury U.S. Large Cap Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For the year ended May 31, 2000, MLPF&S received contingent deferred
sales charges of $2,085,006 and $271,133 relating to transactions in
Class B and Class C Shares, respectively. Furthermore, MLPF&S
received contingent deferred sales charges of $39,674 and $13,801
relating to transactions subject to front-end sales charge waivers
in Class I and Class A Shares, respectively.
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 Asset Management
International Ltd. (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 year ended May 31, 2000 were $35,428,659 and $98,530,491,
respectively.
4 Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share
transactions was $(51,976,375) and $936,755,193 for the year ended
May 31, 2000 and for the period January 29, 1999 to May 31, 1999,
respectively.
Transactions in capital shares for each class were as follows:
Class I Shares for the Year
Ended May 31, 2000 Shares Dollar Amount
Shares sold 3,474,706 $ 39,139,709
Shares redeemed (2,693,838) (30,112,246)
------------ ------------
Net increase 780,868 $ 9,027,463
============ ============
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
============ ============
++Prior to January 29, 1999 (commencement of operations), the Fund
issued 2,500 shares to Mercury International for $25,000.
MAY 31, 2000
MERCURY U.S. LARGE CAP FUND
NOTES TO FINANCIAL STATEMENTS
(CONCLUDED)
Class A Shares for the Year
Ended May 31, 2000 Shares Dollar Amount
Shares sold 1,751,456 $ 19,023,173
Automatic conversion of shares 64 703
------------ ------------
Total issued 1,751,520 19,023,876
Shares redeemed (4,996,304) (55,321,809)
------------ ------------
Net decrease (3,244,784) $(36,297,933)
============ ============
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
============ ============
++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 Year
Ended May 31, 2000 Shares Dollar Amount
Shares sold 5,656,704 $ 62,249,814
Automatic conversion of shares (64) (703)
Shares redeemed (6,829,349) (76,087,707)
------------ ------------
Net decrease (1,172,709) $(13,838,596)
============ ============
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
============ ============
++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 Year
Ended May 31, 2000 Shares Dollar Amount
Shares sold 4,903,043 $ 54,334,744
Shares redeemed (5,817,829) (65,202,053)
------------ ------------
Net decrease (914,786) $(10,867,309)
============ ============
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
============ ============
++Prior to January 29, 1999 (commencement of operations), the Fund
issued 2,500 shares to Mercury International for $25,000.
May 31, 2000
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, 2000, the related
statements of operations for the year then ended and changes in net
assets, and the financial highlights for the year then ended and 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 audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. 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 audits provide 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, 2000, the results of its
operations for the year then ended and the changes in its net
assets, and the financial highlights for the year then ended and for
the period January 29, 1999 (commencement of operations) to May 31,
1999 in accordance with accounting principles generally accepted in
the United States of America.
Deloitte & Touche LLP
Princeton, New Jersey
July 6, 2000
</AUDIT-REPORT>
May 31, 2000
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 Value Net Assets
<S> <C> <S> <C> <C>
Aerospace & 109,500 The Boeing Company $ 4,277,289 0.4%
Defense 447,100 United Technologies Corporation 27,021,606 2.7
------------- ------
31,298,895 3.1
Automobiles 256,800 Ford Motor Company 12,470,850 1.3
Banks 228,500 The Chase Manhattan Corporation 17,066,094 1.7
353,500 FleetBoston Financial Corporation 13,366,719 1.3
------------- ------
30,432,813 3.0
Beverages 95,100 Anheuser-Busch Companies, Inc. 7,370,250 0.7
725,300 PepsiCo, Inc. 29,510,644 3.0
------------- ------
36,880,894 3.7
Biotechnology 150,900 ++Amgen Inc. 9,601,012 1.0
Communi- 87,200 ++Amdocs Limited 5,400,950 0.6
cations 484,700 ++Cisco Systems, Inc. 27,597,606 2.8
Equipment 65,300 ++Efficient Networks, Inc. 3,150,725 0.3
116,400 ++JDS Uniphase Corporation 10,235,925 1.0
366,600 Nortel Networks Corporation 19,910,963 2.0
------------- ------
66,296,169 6.7
Computers & 347,100 ++Dell Computer Corporation 14,968,687 1.5
Peripherals 115,430 ++EMC Corporation 13,425,952 1.3
167,900 ++Sun Microsystems, Inc. 12,865,338 1.3
------------- ------
41,259,977 4.1
Diversified 448,200 American Express Company 24,118,762 2.4
Financials 510,600 Citigroup Inc. 31,752,937 3.2
------------- ------
55,871,699 5.6
Diversified 264,250 AT&T Corp. 9,166,172 0.9
Telecom- 490,700 Bell Atlantic Corporation 25,945,762 2.6
munication 130,200 ++Level 3 Communications, Inc. 9,935,888 1.0
Services 205,700 SBC Communications Inc. 8,986,519 0.9
186,200 Sprint Corp. (FON Group) 11,265,100 1.1
------------- ------
65,299,441 6.5
Energy 196,000 Halliburton Company 9,996,000 1.0
Equipment & 148,000 Schlumberger Limited 10,887,250 1.1
Service ------------- ------
20,883,250 2.1
Food & Drug 153,700 ++Safeway Inc. 7,089,413 0.7
Retailing 764,700 Walgreen Co. 21,698,363 2.2
------------- ------
28,787,776 2.9
</TABLE>
May 31, 2000
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 Value Net Assets
<S> <C> <S> <C> <C>
Health Care 280,400 Medtronic, Inc. $ 14,475,650 1.5%
Equipment &
Supplies
Household 138,800 The Procter & Gamble Company 9,230,200 0.9
Products
IT Consulting 195,800 Electronic Data Systems Corporation 12,592,387 1.3
& Services
Industrial 1,241,100 General Electric Company 65,312,887 6.5
Conglomerates
Insurance 286,675 American International Group, Inc. 32,268,855 3.2
Internet 374,500 ++America Online, Inc. 19,848,500 2.0
Software & 145,000 ++Commerce One, Inc. 5,183,750 0.5
Services 72,400 ++TIBCO Software Inc. 4,022,725 0.4
68,400 ++VeriSign, Inc. 9,255,375 0.9
------------- ------
38,310,350 3.8
Multiline 288,800 ++Kohl's Corporation 14,945,400 1.5
Retail 499,560 Wal-Mart Stores, Inc. 28,787,145 2.9
------------- ------
43,732,545 4.4
Oil & Gas 198,300 Chevron Corporation 18,330,356 1.9
503,035 Exxon Mobil Corporation 41,909,103 4.2
299,600 Texaco Inc. 17,208,275 1.7
------------- ------
77,447,734 7.8
Paper & 289,800 International Paper Company 10,088,662 1.0
Forest 270,500 Weyerhaeuser Company 13,423,563 1.4
Products ------------- ------
23,512,225 2.4
Personal 233,800 The Estee Lauder Companies Inc.
Products (Class A) 10,477,163 1.0
Pharma- 388,000 Bristol-Myers Squibb Company 21,364,250 2.2
ceuticals 245,600 Merck & Co., Inc. 18,327,900 1.8
352,900 Pfizer Inc. 15,726,106 1.6
263,759 Pharmacia Corporation 13,698,983 1.4
182,200 Warner-Lambert Company 22,251,175 2.2
------------- ------
91,368,414 9.2
Semiconductor 76,000 ++Applied Materials, Inc. 6,346,000 0.6
Equipment & 272,300 Intel Corporation 33,952,406 3.4
Products 315,400 Texas Instruments Incorporated 22,787,650 2.3
------------- ------
63,086,056 6.3
</TABLE>
May 31, 2000
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 Value Net Assets
<S> <C> <S> <C> <C>
Software 179,400 ++Citrix Systems, Inc. $ 9,440,925 1.0%
496,500 ++Microsoft Corporation 31,031,250 3.1
180,900 ++Oracle Corporation 12,990,881 1.3
------------- ------
53,463,056 5.4
Specialty 150,850 The Home Depot, Inc. 7,363,366 0.7
Retail
Wireless 123,000 ++Nextel Communications, Inc. (Class A) 11,385,188 1.1
Telecom- 282,700 ++Sprint Corp. (PCS Group) 15,689,850 1.6
munications 27,075,038 2.7
Services
Total Common Stock
(Cost--$876,118,862) 968,798,702 97.1
Total Investments
(Cost--$876,118,862) 968,798,702 97.1
Time Deposit* 37,087,000 3.7
Liabilities in Excess of Other Assets (8,071,707) (0.8)
------------- ------
Net Assets $ 997,813,995 100.0%
============= ======
*Time deposit bears interest at 6.75% and matures on 6/01/2000.
++Non-income producing security.
See Notes to Financial Statements.
</TABLE>
May 31, 2000
Mercury U.S. Large Cap Fund
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of May 31, 2000
MERCURY MASTER U.S. LARGE CAP PORTFOLIO
<S> <C> <C>
Assets:
Investments, at value (identified cost--$876,118,862) $ 968,798,702
Time Deposits 37,087,000
Receivables:
Dividends $ 1,173,362
Contributions 1,015,608
Interest 6,954 2,195,924
------------- --------------
Total assets 1,008,081,626
--------------
Liabilities:
Payables:
Securities purchased 5,976,702
Withdrawals 2,212,525
Custodian bank 1,635,306
Investment adviser 354,404 10,178,937
--------------
Accrued expenses and other liabilities 88,694
--------------
Total liabilities 10,267,631
--------------
Net Assets:
Net assets $ 997,813,995
==============
Net Assets Consist of:
Partners' capital $ 905,134,155
Unrealized appreciation on investments--net 92,679,840
--------------
Net assets $ 997,813,995
==============
See Notes to Financial Statements.
</TABLE>
May 31, 2000
Mercury U.S. Large Cap Fund
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Year Ended May 31, 2000
MERCURY MASTER U.S. LARGE CAP PORTFOLIO
<S> <C> <C>
Investment Income:
Dividends $ 9,585,887
Interest and discount earned 1,147,725
--------------
Total income 10,733,612
==============
Expenses:
Investment advisory fees $ 5,138,456
Custodian fees 86,542
Accounting services 72,988
Professional fees 63,591
Trustees' fees and expenses 26,371
Offering costs 16,132
Pricing fees 1,879
Other 20,295
--------------
Total expenses 5,426,254
--------------
Investment income--net 5,307,358
--------------
Realized & Unrealized Gain on Investments--Net:
Realized gain from investments--net 28,108,376
Change in unrealized appreciation/depreciation on investments--net 103,699,952
--------------
Net Increase in Net Assets Resulting from Operations $ 137,115,686
==============
See Notes to Financial Statements.
</TABLE>
May 31, 2000
Mercury U.S. Large Cap Fund
<TABLE>
STATEMENTS OF CHANGES
IN NET ASSETS
MERCURY MASTER U.S. LARGE CAP PORTFOLIO
<CAPTION>
For the For the Period
Year Ended January 29, 1999++
May 31, to May 31,
Increase (Decrease)in Net Assets: 2000 1999
<S> <C> <C>
Operations:
Investment income--net $ 5,307,358 $ 1,647,889
Realized gain (loss) on investments--net 28,108,376 (1,326,283)
Change in unrealized appreciation/depreciation
on investments--net 103,699,952 (11,020,112)
-------------- --------------
Net increase (decrease) in net assets resulting from
operations 137,115,686 (10,698,506)
-------------- --------------
Net Capital Contributions:
Increase (decrease) in net assets derived from net capital
contributions (63,101,832) 934,398,547
-------------- --------------
Net Assets:
Total increase in net assets 74,013,854 923,700,041
Beginning of period 923,800,141 100,100
-------------- --------------
End of period $ 997,813,995 $ 923,800,141
============== ==============
++Commencement of operations.
See Notes to Financial Statements.
</TABLE>
May 31, 2000
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 For the Period
Year Ended January 29, 1999++
May 31, to May 31,
2000 1999
<S> <C> <C>
Ratios to Average Net Assets:
Expenses .53% .54%*
=========== ===========
Investment income--net .52% .61%*
=========== ===========
Supplemental Data:
Net assets, end of period (in thousands) $ 997,814 $ 923,800
=========== ===========
Portfolio turnover 86.47% 17.13%
=========== ===========
*Annualized.
++Commencement of operations.
See Notes to Financial Statements.
</TABLE>
May 31, 2000
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 accounting principles generally
accepted in the United States of America, 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 increase or decrease the
level of risk to which the Portfolio is exposed more quickly and
efficiently than transactions in other types of instruments. 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, 2000
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 Portfolio's 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.
(f) Custodian bank--The Portfolio recorded an amount payable to the
Custodian Bank resulting from a timing difference of security
transaction settlements.
May 31, 2000
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
Portfolio's investments and provides the necessary personnel,
facilities, equipment and certain other services necessary to the
operations of the Portfolio. For such services, the Portfolio pays a
monthly fee at an annual rate of .50% of the average daily value of
the Portfolio's 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 Funds, Inc., Mercury
International, FAM, PSI, and/or ML & Co.
3 Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended May 31, 2000 were $845,186,867 and $905,408,670,
respectively.
Net realized gains for the year ended May 31, 2000 and net
unrealized gains as of May 31, 2000 were as follows:
Realized Unrealized
Gains Gains
Long-term investments $ 28,108,376 $ 92,679,840
-------------- ------------
Total $ 28,108,376 $ 92,679,840
============== ============
As of May 31, 2000, net unrealized appreciation for Federal income
tax purposes aggregated $89,792,653, of which $167,648,696 related
to appreciated securities and $77,856,043 related to depreciated
securities. At May 31, 2000, the aggregate cost of investments for
Federal income tax purposes was $879,006,049.
May 31, 2000
Mercury U.S. Large Cap Fund
<AUDIT-REPORT>
INDEPENDENT AUDITORS' 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, 2000, the related statements of
operations for the year then ended and changes in net assets and the
financial highlights for the year then ended and 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 audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. 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, 2000 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 audits provide
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, 2000, the
results of its operations for the year then ended and the changes in
its net assets, and the financial highlights for the year then ended
and for the period January 29, 1999 (commencement of operations) to
May 31, 1999 in accordance with accounting principles generally
accepted in the United States of America.
Deloitte & Touche LLP
Princeton, New Jersey
July 6, 2000
</AUDIT-REPORT>
May 31, 2000
Mercury U.S. Large Cap Fund
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
