ANNUAL REPORT
MAY 31, 2000
Mercury
Gold and
Mining
Fund
OF MERCURY ASSET
MANAGEMENT FUNDS, INC.
MERCURY MASTER GOLD AND MINING
PORTFOLIO
BREAKDOWN OF STOCKS BY SECTOR
As a Percentage of Net Assets as of May 31, 2000
A pie chart illustrating the folowing percentages:
Base Metals 0.6%
Cash 1.5%
Gold 85.3%
Platinum 10.6%
Silver 2.0%
GEOGRAPHIC ASSET MIX
As a Percentage of Net Assets as of May 31, 2000
FT Gold Mercury Gold and
Mines Index++ Mining Portfolio
Australasia 8.6% 12.0%
North America 62.1 47.1
Latin America 3.8 7.7
South Africa 24.8 26.3
Africa 0.7 5.4
Cash -- 1.5
Total 100.0% 100.0%
++An unmanaged geographically diversified Index of leading gold
mining companies.
May 31, 2000 2 Mercury Gold and Mining Fund
DEAR SHAREHOLDER
Fiscal Year in Review
We are pleased to provide you with this annual report to
shareholders for Mercury Gold and Mining Fund. For the fiscal year
ended May 31, 2000, Mercury Gold and Mining Fund's Class I, Class A,
Class B and Class C Shares had total returns of -4.85%, -4.98%,
-5.78% and -5.71%, respectively. The Fund's unmanaged benchmark, the
Financial Times (FT) Gold Mines Index, had a return of -3.84% over
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.) The main reason for the underperformance of the Fund
relative to the benchmark FT Gold Mines Index was the Fund's
overweighting of South African and Australian gold shares. A major
factor contributing to this underperformance was the marked weakness
of the South African rand and Australian dollar relative to the US
dollar.
Investment Review
Last year we said that the 20-year low in the gold price that had
just been reached represented an attractive opportunity to invest in
gold assets. Although the price of gold fell further shortly after
the launch of the Fund, this low price proved temporary. By October
1999, the market had staged its most dramatic upward move in 18
years, briefly reaching US$338/ounce. Although the price has
subsequently slipped back to below US$300/ounce, it looks
increasingly certain that the 20-year low of US$252/ounce (reached
on August 25, 1999) marked a major turning point and that we are now
in the early stages of a gold bull market.
Unfortunately, the shares of gold mining companies are not yet
reflecting the better gold price prospects that we foresee. This
explains why Fund performance was essentially flat on a total return
basis, despite the slightly higher gold price over the year. As we
stated in our shareholder report dated May 31, 1999, the main reason
to own gold shares was because they tend to go up by several times
the underlying move in the gold price. Underlining this
relationship, the dramatic move in gold between September 26, 1999
and October 5, 1999 was accompanied by a rise of 42% in the FT Gold
Mines Index. Such performance is a reminder of the attraction of
owning gold shares in a rising gold price environment.
While we are pleased that we correctly predicted a turnaround in the
gold price, we have nevertheless been over-optimistic in terms of
our gold price expectations. After the watershed Washington
Agreement announcement last year (the implications of which we
discussed in depth in our shareholder report dated November 30,
1999), we expected that the gold price would move to a new higher
range above US$300/ounce. We still believe that the fundamentals of
the gold market support such a higher price level, although some of
our assumptions have inevitably been challenged by gold's inability
May 31, 2000 3 Mercury Gold and Mining Fund
to remain above US$300/ounce. The main risk to our positive gold
price outlook would be the possibility of significant gold sales by
central banks outside the Washington Agreement, which we do not
expect. Gold demand remains robust and was at record levels in 1999
and so far this year. The risk in the gold market is therefore on
the supply side, not the demand side.
An important trend in the last year has been an increasing focus on
the gold derivatives market, particularly after the Ashanti fiasco.
The gold derivatives market exploded in size during the 1990's,
driven by the growth in hedging activity by mining companies and
speculator activity, facilitated by the increased willingness of
central banks to lend gold. There is a growing consensus amongst
mining companies and investors that the growth in the gold
derivatives market has been a growing negative factor on the gold
price. We were therefore greatly encouraged when a number of leading
companies, led by Placer Dome Inc., made announcements that they
intended to curb hedging activity in the future. Such reduced
hedging activity will lead to less physical gold reaching the
market. If mining companies continue to reduce hedging or even buy-
back hedge positions (which has not yet happened in any significant
way), the associated reduction in supply of gold must have a
tightening effect on the market, all other things being equal.
Another important theme has been the realization by gold mining
companies that industry consolidation is required. The main driving
force behind this is that market capitalizations of gold companies
have fallen so far relative to companies in other sectors that they
have dropped off the investment radar of most institutional
investors. By way of example, Barrick Gold Corporation, currently
the world's largest gold company by value, has a market
capitalization of only US$7 billion compared with US$67 billion for
Yahoo Inc. Persistently low gold prices in recent years have also
led to a dearth of new projects and a lack of profitable growth
opportunities. Consolidation could be good for investors as we
expect that it will lead to more assets being controlled by the most
able management. This is likely to result in improved investment
returns over time. It is conceivable, barring a dramatically higher
gold price, that there will only be a handful of large gold
companies in a few years time. By getting them back on the
investment radar screen, these mega-gold companies by value should
deserve a better rating. In addition, such concentration of
production should allow the gold industry to have more pricing power
in future.
Heralding this brave new world of mega-producers, Franco-Nevada
Mining Corporation Ltd. has just announced that it has agreed to
merge with South African producer Gold Fields Limited. If the merger
is approved by shareholders, the new company will be capable of
producing 4.4 million ounces, and will have reserves of 75 million
ounces and a balance sheet with net cash of US$700 million. It will
also have a more respectable market capitalization of US$4 billion.
Gold Fields will become the Portfolio's largest holding as a result
of the transaction. We can expect that the Fund will become even
more concentrated in the year ahead as other transactions are
announced.
May 31, 2000 4 Mercury Gold and Mining Fund
We expect that the Australian gold companies look like particularly
attractive take-over targets at present. The lack of interest in
gold shares from Australian institutions has led to the Australian
gold index reaching an all-time low in recent weeks. This is despite
the quite respectable Australian dollar gold price resulting from
the weakness of the currency against the US dollar. Lihir Gold
Limited is the most undervalued share in our view but Newcrest
Mining, Delta Gold NL and Normandy Mining Limited are likely to be
on overseas companies' shopping lists. We have been adding to our
holdings in Australia, particularly in Lihir.
The acquisition of South African assets by Franco-Nevada Mining (via
the proposed merger with Gold Fields Ltd.) is also encouraging for
the Fund since it highlights the relative value on offer in that
country relative to North America. We have overweighted South
African gold shares since launching the Fund, largely on value
grounds, and we expect this stance to prove rewarding looking ahead.
There is a growing consensus in the industry that more needs to be
done by companies to market their product. Marketing efforts are
likely to accelerate in the coming year, possibly at the expense of
gold exploration budgets. This should be a good thing since
exploration is essentially a value destroying exercise at the
current gold price on an aggregate basis for the industry. Further
consolidation will provide increased financial strength and a
greater ability to focus resources on marketing efforts.
Our positive view on the prospects for platinum group metals prices
and the platinum shares was vindicated with both palladium and
platinum reaching multi-year highs early this year. The 10%--15%
weighting that we have been running in platinum shares has been a
major positive factor for the Fund. We continue to like the
prospects for platinum shares. Current share prices suggest lower
platinum group metals prices in the future, which we do not expect.
If it was not for the fact that gold shares seem to be offering such
attractive risk/reward potential given our modestly optimistic
outlook for the gold price, we would undoubtedly have a more
substantial part of the Portfolio allocated to platinum shares.
We have been wrong so far on our forecast that base metal prices
would enjoy further strength in 2000. Despite falling inventories on
the London Metal Exchange, which is indicative of tightening
markets, and generally healthy global economic growth, metal prices
fell sharply in the first few months of the year. The fall in prices
has been attributed to long liquidation of metals by funds including
such high profile investors as Soros and Robertson, prompted in part
by losses in the recent stock market shake-out and in part by the
view that industrial production growth may have peaked for the
cycle. Our view is that current metal prices and mining shares are
already discounting a hard landing in the US economy and unless
there is a significant slowing soon, metal prices and mining shares
will enjoy a strong end to the year.
May 31, 2000 5 Mercury Gold and Mining Fund
The prospects for precious and base metals alike will be strongly
influenced by the US dollar. Any significant weakening, which has
been flagged as a real possibility given the United States' record
and possibly unsustainable trade deficit, would probably provide a
large boost to US dollar denominated metal prices. The general
increase in inflationary pressures, in part a result of higher
energy prices, may also be seen as a positive for metal prices.
Higher electricity prices in parts of the United States have already
led to the announcement of significant aluminium production
closures, which if sustained must feed through to higher aluminium
prices in time. Phelps Dodge has also just announced that higher
fuel costs have contributed to the closure of some of its copper
production facilities, suggesting that higher energy prices will
also put upward pressure on the copper price.
Finally, as the world's metal consumers have moved more and more to
just-in-time inventory management systems, the level of metal stocks
in the supply chain has been drastically reduced. There is arguably
more scope for a supply side shock to metal prices than ever before.
Despite increasing political instability in important resource
producing countries like Indonesia, the risk of supply disruptions
is not being priced in to commodities.
In Conclusion
We thank you for your investment in Mercury Gold and Mining Fund,
and we look forward to serving your investment needs in the months
and years ahead.
Sincerely,
(Jeffrey Peek)
Jeffrey Peek
President
(Trevor Steel)
Trevor Steel
Portfolio Manager
July 13, 2000
May 31, 2000 6 Mercury Gold and Mining 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
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. The Fund's Investment Adviser voluntarily waived a
portion of its management fee. Without such waiver, the Fund's
performance would have been lower.
RECENT PERFORMANCE RESULTS*
6 Month 12 Month Since Inception
As of May 31, 2000 Total Return Total Return Total Return
Class I -17.94% -4.85% -3.99%
Class A -17.99 -4.98 -4.22
Class B -18.36 -5.78 -5.21
Class C -18.30 -5.71 -5.14
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included. Total
investment returns are based on changes in the Fund's net asset
values for the periods shown, and assume reinvestment of all
dividends and capital gains at net asset value on the ex-dividend
date. The Fund commenced operations on 2/26/99.
May 31, 2000 7 Mercury Gold and Mining 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 Gold and Mining Fund Class I & Class A Shares. Beginning and
ending values are:
2/26/99** 5/00
Mercury Gold & Mining Fund++--
Class I Shares* $ 9,475 $ 9,097
Mercury Gold & Mining Fund++--
Class A Shares* $ 9,475 $ 9,075
FTSE Gold Mines Index++++ $10,000 $ 9,189
A line graph depicting total return based on a $10,000 investment of
Mercury Gold and Mining Fund Class B & Class C Shares. Beginning and
ending values are:
2/26/99** 5/00
Mercury Gold & Mining Fund++--
Class B Shares* $10,000 $ 9,126
Mercury Gold & Mining Fund++--
Class C Shares* $10,000 $ 9,486
FTSE Gold Mines Index++++ $10,000 $ 9,189
*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 Gold and
Mining Portfolio of Mercury Asset Management Master Trust. The
Portfolio invests primarily in stocks of gold and mining companies,
and to a lesser extent of companies engaged in other mining
activities located throughout the world.
++++This unmanaged Index reflects the performance of the worldwide
market in the shares of companies whose principal activity is the
mining of gold.
Past performance is not indicative of future results.
May 31, 2000 8 Mercury Gold and Mining 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 +5.43% -0.11%
Inception (2/26/99)
through 3/31/00 +4.48% -0.56%
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without With
Class B Shares* CDSC CDSC**
Year Ended 3/31/00 +4.44% +0.53%
Inception (2/26/99)
through 3/31/00 +3.50% -0.06%
*Maximum contingent deferred sales charge
is 4% and is reduced to 0% after 6 years.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without Sales With Sales
Class A Shares* Charge Charge**
Year Ended 3/31/00 +5.29% -0.24%
Inception (2/26/99)
through 3/31/00 +4.26% -0.77%
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without With
Class C Shares* CDSC CDSC**
Year Ended 3/31/00 +4.41% +3.44%
Inception (2/26/99)
through 3/31/00 +3.47% +2.58%
*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 9 Mercury Gold and Mining Fund
<TABLE>
STATEMENT OF ASSETS AND
LIABILITIES
<CAPTION>
As of May 31, 2000
MERCURY GOLD AND MINING FUND
<S> <C> <C>
Assets:
Investment in Mercury Master Gold and Mining Portfolio, at
value (identified cost--$11,659,501) $ 10,197,744
Prepaid registration fees and other assets 72,536
------------
Total assets 10,270,280
------------
Liabilities:
Payable to distributor $ 7,724
Payable to administrator 1,889 9,613
------------
Accrued expenses 13,556
------------
Total liabilities 23,169
------------
Net Assets:
Net assets $ 10,247,111
============
Net Assets Consist of:
Class I Shares of Common Stock, $.0001 par value,
100,000,000 shares authorized $ 13
Class A Shares of Common Stock, $.0001 par value,
100,000,000 shares authorized 10
Class B Shares of Common Stock, $.0001 par value,
100,000,000 shares authorized 40
Class C Shares of Common Stock, $.0001 par value,
100,000,000 shares authorized 52
Paid-in capital in excess of par 11,364,006
Undistributed realized capital gains on investments and
foreign currency transactions from the Portfolio--net 344,747
Unrealized depreciation on investments and foreign
currency transactions from the Portfolio--net (1,461,757)
------------
Net assets $ 10,247,111
============
Net Asset Value:
Class I--Based on net assets of $1,169,127 and 130,444
shares outstanding $ 8.96
============
Class A--Based on net assets of $888,782 and 99,241
shares outstanding $ 8.96
============
Class B--Based on net assets of $3,544,290 and 397,271
shares outstanding $ 8.92
============
Class C--Based on net assets of $4,644,912 and 520,988
shares outstanding $ 8.92
============
See Notes to Financial Statements.
</TABLE>
May 31, 2000 10 Mercury Gold and Mining Fund
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Year Ended May 31, 2000
MERCURY GOLD AND MINING FUND
<S> <C> <C>
Investment Income:
Investment income allocated from the Portfolio (net of $6,406
foreign withholding tax) $ 506,402
Expenses allocated from the Portfolio (140,117)
------------
Net investment income from the Portfolio 366,285
------------
Expenses:
Registration fees $ 111,279
Offering costs 82,613
Printing and shareholder reports 64,191
Account maintenance and distribution fees--Class C 51,648
Account maintenance and distribution fees--Class B 46,688
Professional fees 43,508
Administration fee 39,449
Transfer agent fees--Class C 5,716
Transfer agent fees--Class B 5,029
Account maintenance fees--Class A 3,735
Transfer agent fees--Class I 3,401
Accounting services 2,400
Transfer agent fees--Class A 1,240
Other 512
------------
Total expenses before reimbursement 461,409
Reimbursement of expenses (53,634)
------------
Total expenses 407,775
------------
Investment loss--net (41,490)
------------
Realized & Unrealized Gain (Loss) from the
Portfolio--Net:
Realized gain (loss) from the Portfolio on:
Investments--net 881,460
Foreign currency transactions--net (28,834) 852,626
------------
Change in unrealized depreciation on investments and
foreign currency transactions from the Portfolio--net (829,547)
------------
Net Decrease in Net Assets Resulting from Operations $ (18,411)
============
See Notes to Financial Statements.
</TABLE>
May 31, 2000 11 Mercury Gold and Mining Fund
STATEMENTS OF CHANGES
IN NET ASSETS
<TABLE>
MERCURY GOLD AND MINING FUND
<CAPTION>
For the For the Period
Year Ended February 26, 1999++
May 31, to May 31,
Increase (Decrease) in Net Assets: 2000 1999
<S> <C> <C>
Operations:
Investment loss--net $ (41,490) $ (17,785)
Realized gain on investments and foreign currency
transactions from the Portfolio--net 852,626 570,962
Change in unrealized appreciation/depreciation on
investments and foreign currency transactions
from the Portfolio--net (829,547) (632,210)
-----------------------------
Net decrease in net assets resulting from operations (18,411) (79,033)
-----------------------------
Dividends & Distributions to Shareholders:
In excess of investment income--net:
Class I (64,923) --
Class A (12,319) --
Class B (10,259) --
Class C (15,343) --
Realized gain on investments from the Portfolio--net:
Class I (352,982) --
Class A (86,364) --
Class B (279,027) --
Class C (314,743) --
-----------------------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (1,135,960) --
-----------------------------
Capital Share Transactions:
Net increase (decrease) in net assets derived from capital
share transactions (4,665,418) 16,045,933
-----------------------------
Net Assets:
Total increase (decrease) in net assets (5,819,789) 15,966,900
Beginning of period 16,066,900 100,000
-----------------------------
End of period* $ 10,247,111 $ 16,066,900
=============================
*Undistributed investment income--net $ -- $ 18,652
=============================
++Commencement of operations.
See Notes to Financial Statements.
</TABLE>
May 31, 2000 12 Mercury Gold and Mining Fund
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
MERCURY GOLD AND MINING 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 Feb. 26, Year Feb. 26,
Ended 1999++ Ended 1999++
May 31, to May 31, May 31, to 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 $ 10.09 $ 10.00 $ 10.08 $ 10.00
-----------------------------------------------------
Investment income (loss)--net (.02) --+++++ .05 --+++++
Realized and unrealized gain (loss) on
investments and foreign currency
transactions from the Portfolio--net (.35) .09 (.44) .08
-----------------------------------------------------
Total from investment operations (.37) .09 (.39) .08
-----------------------------------------------------
Less dividends and distributions:
In excess of investment income--net (.12) -- (.09) --
Realized gain on investments from the
Portfolio--net (.64) -- (.64) --
-----------------------------------------------------
Total dividends and distributions (.76) -- (.73) --
-----------------------------------------------------
Net asset value, end of period $ 8.96 $ 10.09 $ 8.96 $ 10.08
=====================================================
Total Investment Return:**
Based on net asset value per share (4.85%) .90%+++ (4.98%) .80%+++
=====================================================
Ratios to Average Net Assets:
Expenses, net of reimbursement++++ 2.65% 3.32%* 3.04% 3.62%*
=====================================================
Expenses++++ 4.03% 3.66%* 4.51% 3.95%*
=====================================================
Investment income--net (.20%) .08%* .47% (.06%)*
=====================================================
Supplemental Data:
Net assets, end of period (in thousands) $ 1,169 $ 5,263 $ 889 $ 1,676
=====================================================
*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 13 Mercury Gold and Mining Fund
<TABLE>
FINANCIAL HIGHLIGHTS (CONCLUDED)
<CAPTION>
MERCURY GOLD AND MINING 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 Feb. 26, Year Feb. 26,
Ended 1999++ Ended 1999++
May 31, to May 31, May 31, to 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 $ 10.06 $ 10.00 $ 10.06 $ 10.00
-----------------------------------------------------
Investment loss--net (.05) (.02) (.04) (.02)
Realized and unrealized gain (loss) on
investments and foreign currency transactions
from the Portfolio--net (.43) .08 (.43) .08
-----------------------------------------------------
Total from investment operations (.48) .06 (.47) .06
-----------------------------------------------------
Less dividends and distributions:
In excess of investment income--net (.02) -- (.03) --
Realized gain on investments from the
Portfolio--net (.64) -- (.64) --
-----------------------------------------------------
Total dividends and distributions (.66) -- (.67) --
-----------------------------------------------------
Net asset value, end of period $ 8.92 $ 10.06 $ 8.92 $ 10.06
=====================================================
Total Investment Return:**
Based on net asset value per share (5.78%) .60%+++ (5.71%) .60%+++
=====================================================
Ratios to Average Net Assets:
Expenses, net of reimbursement++++ 3.85% 4.33%* 3.88% 4.31%*
=====================================================
Expenses++++ 5.34% 4.67%* 5.40% 4.65%*
=====================================================
Investment loss--net (.44%) (.87%)* (.37%) (.90%)*
=====================================================
Supplemental Data:
Net assets, end of period (in thousands) $ 3,544 $ 4,643 $ 4,645 $ 4,485
=====================================================
*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 14 Mercury Gold and Mining Fund
NOTES TO FINANCIAL STATEMENTS
Mercury Gold and Mining Fund
1 Significant Accounting Policies:
Mercury Gold and Mining Fund (the "Fund") is part of Mercury Asset
Management Funds, Inc. (the "Corporation"). The Fund is registered
under the Investment Company Act of 1940 as a diversified, open-end
management investment company. The Fund seeks to achieve its
investment objective by investing all of its assets in the Mercury
Master Gold and Mining 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.
May 31, 2000 15 Mercury Gold and Mining Fund
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
(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. Distributions in
excess of net investment income are due primarily to differing tax
treatments for post-October losses.
(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
$34,620 have been reclassified between undistributed net realized
capital gains and accumulated net investment loss and $91,062 has
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 .25% of
the Fund's average daily net assets for the performance of
administrative services (other than investment advice and related
portfolio activities) necessary for the operation of the Fund. For
the year ended May 31, 2000, FAM earned fees of $39,449, all of
which was voluntarily waived. FAM also reimbursed the Fund for
additional expenses of $14,185.
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
May 31, 2000 16 Mercury Gold and Mining Fund
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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 A Shares as follows:
MFD MLPF&S
Class A $2,369 $35,311
For the year ended May 31, 2000, MLPF&S received contingent deferred
sales charges of $68,312 and $9,536 relating to transactions in
Class B and Class C 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 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 $4,613,714 and $10,811,199,
respectively.
4 Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share
transactions was $(4,665,418) and $16,045,933 for the year ended May
31, 2000 and for the period February 26, 1999 to May 31, 1999,
respectively.
May 31, 2000 17 Mercury Gold and Mining Fund
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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 181,828 $ 1,926,570
Shares issued to shareholders in
reinvestment of dividends and
distributions 3,767 40,008
------------------------------
Total issued 185,595 1,966,578
Shares redeemed (576,822) (5,914,476)
------------------------------
Net decrease (391,227) $ (3,947,898)
==============================
Class I Shares for the Period
February 26, 1999++ to May 31, 1999 Shares Dollar Amount
Shares sold 608,076 $ 6,180,596
Shares redeemed (88,905) (966,174)
------------------------------
Net increase 519,171 $ 5,214,422
==============================
++Prior to February 26, 1999 (commencement of operations), the Fund
issued 2,500 shares to Mercury International for $25,000.
Class A Shares for the Year
Ended May 31, 2000 Shares Dollar Amount
Shares sold 89,465 $ 961,494
Shares issued to shareholders in
reinvestment of dividends and distributions 7,337 77,914
------------------------------
Total issued 96,802 1,039,408
Shares redeemed (163,812) (1,801,356)
------------------------------
Net decrease (67,010) $ (761,948)
==============================
Class A Shares for the Period
February 26, 1999++ to May 31, 1999 Shares Dollar Amount
Shares sold 180,792 $ 1,829,006
Shares redeemed (17,041) (186,405)
------------------------------
Net increase 163,751 $ 1,642,601
==============================
++Prior to February 26, 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 157,114 $ 1,845,558
Shares issued to shareholders in
reinvestment of dividends and
distributions 22,812 242,260
------------------------------
Total issued 179,926 2,087,818
Shares redeemed (244,062) (2,865,749)
------------------------------
Net decrease (64,136) $ (777,931)
==============================
May 31, 2000 18 Mercury Gold and Mining Fund
NOTES TO FINANCIAL STATEMENTS
(CONCLUDED)
Class B Shares for the Period
February 26, 1999++ to May 31, 1999 Shares Dollar Amount
Shares sold 485,372 $ 4,924,796
Shares redeemed (26,465) (270,294)
------------------------------
Net increase 458,907 $ 4,654,502
==============================
++Prior to February 26, 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 244,954 $ 2,682,357
Shares issued to shareholders in
reinvestment of dividends and
distributions 23,383 248,097
------------------------------
Total issued 268,337 2,930,454
Shares redeemed (193,132) (2,108,095)
------------------------------
Net increase 75,205 $ 822,359
==============================
Class C Shares for the Period
February 26, 1999++ to May 31, 1999 Shares Dollar Amount
Shares sold 488,313 $ 5,028,088
Shares redeemed (45,030) (493,680)
------------------------------
Net increase 443,283 $ 4,534,408
==============================
++Prior to February 26, 1999 (commencement of operations), the Fund
issued 2,500 shares to Mercury International for $25,000.
May 31, 2000 19 Mercury Gold and Mining Fund
INDEPENDENT AUDITOR'S REPORT
Mercury Gold and Mining FUND
The Board of Directors and Shareholders,
Mercury Gold and Mining Fund (One of the Series constituting
Mercury Asset Management Funds, Inc.):
We have audited the accompanying statement of assets and liabilities
of Mercury Gold and Mining 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 February 26, 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 Gold and Mining 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 February 26, 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 17, 2000
May 31, 2000 20 Mercury Gold and Mining Fund
SCHEDULE OF INVESTMENTS
<TABLE>
Mercury Master Gold and Mining Portfolio
<CAPTION>
In US Dollars
Shares Percent of
Industry Held Investments Value Net Assets
<S> <C> <S> <C> <C>
Africa
Mali
Gold Mines 157,000 ++Randgold Resources Limited (GDR)** $ 549,500 5.4%
Total Investments in Mali 549,500 5.4
South Africa
Gold Mines 7,000 AngloGold Limited 279,397 2.7
7,000 AngloGold Limited 265,568 2.6
377,200 ++Avgold Limited 165,177 1.6
8,522 ++Durban Roodepoort Deep Limited 8,442 0.1
167,000 Gold Fields Limited 604,221 6.0
108,000 Harmony Gold Mining Company Limited 527,207 5.2
187,800 Western Areas Limited 399,058 3.9
----------------------------
2,249,070 22.1
Metals/ 12,000 Impala Platinum Holdings Limited 401,436 3.9
Non-Ferrous 14,400 ++Kroondal Platinum Mines Limited 27,808 0.3
----------------------------
429,244 4.2
Total Investments in South Africa 2,678,314 26.3
Total Investments in Africa
(Cost--$3,523,763) 3,227,814 31.7
Latin America
Mexico
Gold Mines 96,400 Industrias Penoles SA 212,927 2.1
Total Investments in Mexico 212,927 2.1
Peru
Gold Mines 38,000 Compania de Minas Buenaventura SA (ADR)* 572,375 5.6
Total Investments in Peru 572,375 5.6
Total Investments in Latin America
(Cost--$802,397) 785,302 7.7
</TABLE>
May 31, 2000 21 Mercury Gold and Mining Fund
SCHEDULE OF INVESTMENTS (CONTINUED)
<TABLE>
Mercury Master Gold and Mining Portfolio
<CAPTION>
In US Dollars
Shares Percent of
Industry Held Investments Value Net Assets
<S> <C> <S> <C> <C>
NORTH AMERICA
Canada
Gold Mines 45,000 Agnico-Eagle Mines Limited $ 237,364 2.3%
100,000 Eldorado 44,068 0.4
68,000 ++Goldcorp Inc. 'A' 444,949 4.4
221,100 ++IAMGOLD, International African
Mining Gold Corporation 400,067 3.9
248,000 ++Kinross Gold Corporation 240,101 2.3
60,000 ++Meridian Gold Inc. 336,516 3.3
60,000 Placer Dome Inc. 495,000 4.9
115,700 ++Rio Narcea Gold Mines Ltd. 89,612 0.9
----------------------------
2,287,677 22.4
Metals/ 39,500 Franco-Nevada Mining Corporation Ltd. 478,684 4.7
Non-Ferrous
Miscellaneous 74,300 ++Asia Pacific Resources Ltd. 63,004 0.6
Materials &
Commodities
Total Investments in Canada 2,829,365 27.7
United States
Gold Mines 120,000 ++Battle Mountain Gold Company 232,500 2.3
90,000 Homestake Mining Company 607,500 6.0
26,000 Newmont Mining Corporation 599,625 5.9
63,000 ++Royal Gold, Inc. 161,438 1.6
----------------------------
1,601,063 15.8
Miscellaneous 13,250 ++Stillwater Mining Company 371,828 3.6
Materials &
Commodities
Total Investments in the United States 1,972,891 19.4
Total Investments in North America
(Cost--$5,512,148) 4,802,256 47.1
</TABLE>
May 31, 2000 22 Mercury Gold and Mining Fund
SCHEDULE OF INVESTMENTS (CONCLUDED)
<TABLE>
Mercury Master Gold and Mining Portfolio
<CAPTION>
In US Dollars
Shares Percent of
Industry Held Investments Value Net Assets
<S> <C> <S> <C> <C>
PACIFIC BASIN/ASIA
Australia
Gold Mines 207,200 Delta Gold NL $ 169,037 1.6%
286,410 Goldsfields Limited 174,835 1.7
39,000 Sons of Gwalia Limited 107,910 1.1
----------------------------
451,782 4.4
Metals/ 140,000 ++Aquarius Platinum Limited 267,565 2.6
Non-Ferrous
Total Investments in Australia 719,347 7.0
Papua New Guinea
Gold Mines 1,558,000 ++Lihir Gold Limited 506,638 5.0
Total Investments in Papua New Guinea 506,638 5.0
Total Investments in the Pacific Basin/Asia
(Cost--$1,663,687) 1,225,985 12.0
Face
Amount Short-Term Securities
Commer- US$186,000 General Motors Acceptance Corp.,
cial 6.81% due 6/01/2000 186,000 1.8
Paper***
Total Investments in Short-Term Securities
(Cost--$186,000) 186,000 1.8
Total Investments (Cost--$11,687,995) 10,227,357 100.3
Liabilities in Excess of Other Assets (29,514) (0.3)
----------------------------
Net Assets $ 10,197,843 100.0%
============================
*American Depositary Receipts (ADR).
**Global Depositary Receipts (GDR).
***Commercial Paper is traded on a discount basis; the interest rate
shown reflects the discount rate paid at the time of purchase by the
Portfolio.
++Non-income producing security.
See Notes to Financial Statements.
</TABLE>
May 31, 2000 23 Mercury Gold and Mining Fund
<TABLE>
STATEMENT OF ASSETS AND
LIABILITIES
<CAPTION>
As of May 31, 2000
MERCURY MASTER GOLD AND MINING PORTFOLIO
<S> <C> <C>
Assets:
Investments, at value (identified cost--$11,687,995) $ 10,227,357
Receivables:
Securities sold $ 76,536
Investment adviser 62,580
Contributions 48,803 187,919
-----------------------------
Total assets 10,415,276
------------
Liabilities:
Payables:
Securities purchased 66,675
Custodian bank 54,403
Withdrawals 12,159 133,237
------------
Accrued expenses 84,196
------------
Total liabilities 217,433
------------
Net Assets:
Net assets $ 10,197,843
============
Net Assets Consist of:
Partners' capital $ 11,659,614
Unrealized depreciation on investments and foreign currency
transactions--net (1,461,771)
------------
Net assets $ 10,197,843
============
See Notes to Financial Statements.
</TABLE>
May 31, 2000 24 Mercury Gold and Mining Fund
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Year Ended May 31, 2000
MERCURY MASTER GOLD AND MINING PORTFOLIO
<S> <C> <C>
Investment Income:
Dividends (net of $6,406 foreign withholding tax) $ 489,233
Interest and discount earned 17,173
------------
Total income 506,406
------------
Expenses:
Investment advisory fees $ 118,524
Accounting services 71,037
Professional fees 63,041
Custodian fees 31,060
Trustees' fees and expenses 26,271
Offering costs 8,449
Pricing fees 657
Other 802
------------
Total expenses before reimbursement 319,841
Reimbursement of expenses (179,724)
------------
Total expenses 140,117
------------
Investment income--net 366,289
------------
Realized & Unrealized Gain (Loss) on Investments &
Foreign Currency Transactions--Net:
Realized gain (loss) from:
Investments--net 881,466
Foreign currency transactions--net (28,835) 852,631
------------
Change in unrealized appreciation/depreciation on:
Investments--net (827,908)
Foreign currency transactions--net (1,650) (829,558)
------------ ------------
Net Increase in Net Assets Resulting from Operations $ 389,362
============
See Notes to Financial Statements.
</TABLE>
May 31, 2000 25 Mercury Gold and Mining Fund
<TABLE>
STATEMENTS OF CHANGES
IN NET ASSETS
<CAPTION>
MERCURY MASTER GOLD AND MINING PORTFOLIO
For the For the Period
Year Ended February 26, 1999++
May 31, to May 31,
Increase (Decrease)in Net Assets: 2000 1999
<S> <C> <C>
Operations:
Investment income--net $ 366,289 $ 67,322
Realized gain on investments and foreign currency
transactions--net 852,631 570,965
Change in unrealized appreciation/depreciation
on investments and foreign currency transactions--net (829,558) (632,213)
------------------------------
Net increase in net assets resulting from operations 389,362 6,074
------------------------------
Net Capital Contributions:
Increase (decrease) in net assets derived from net capital
contributions (6,197,486) 15,899,793
------------------------------
Net Assets:
Total increase (decrease) in net assets (5,808,124) 15,905,867
Beginning of period 16,005,967 100,100
------------------------------
End of period $ 10,197,843 $ 16,005,967
==============================
++Commencement of operations.
See Notes to Financial Statements.
</TABLE>
May 31, 2000 26 Mercury Gold and Mining Fund
FINANCIAL HIGHLIGHTS
<TABLE>
MERCURY MASTER GOLD AND MINING PORTFOLIO
<CAPTION>
The following ratios have been derived from information provided in the
financial statements.
For the For the Period
Year Ended February 26, 1999++
May 31, to May 31,
2000 1999
Ratios to Average Net Assets:
<S> <C> <C>
Expenses, net of reimbursement .88% 1.70%*
=====================================
Expenses 2.02% 2.00%*
=====================================
Investment income--net 2.31% 1.76%*
=====================================
Supplemental Data:
Net assets, end of period (in thousands) $ 10,198 $ 16,006
=====================================
Portfolio turnover 94.84% 32.95%
=====================================
*Annualized.
++Commencement of operations.
See Notes to Financial Statements.
</TABLE>
May 31, 2000 27 Mercury Gold and Mining Fund
NOTES TO FINANCIAL STATEMENTS
MERCURY MASTER GOLD AND MINING PORTFOLIO
1 Significant Accounting Policies:
Mercury Master Gold and Mining 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 28 Mercury Gold and Mining 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.
* Foreign currency options and futures--The Portfolio may also
purchase or sell listed or over-the-counter foreign currency
options, foreign currency futures and related options on foreign
currency futures as a short or long hedge against possible
variations in foreign exchange rates. Such transactions may be
effected with respect to hedges on non-US dollar-denominated
securities owned by the Portfolio, sold by the Portfolio but not yet
delivered, or committed or anticipated to be purchased by the
Portfolio.
(c) Foreign currency transactions--Transactions denominated in
foreign currencies are recorded at the exchange rate prevailing when
recognized. Assets and liabilities denominated in foreign currencies
are valued at the exchange rate at the end of the period. Foreign
currency transactions are the result of settling (realized) or
valuing (unrealized) assets or liabilities expressed in foreign
currencies into US dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates on
investments.
(d) Income taxes--The Portfolio is classified as a partnership for
Federal income tax purposes. As a partnership for Federal income tax
purposes, the Portfolio will not incur Federal income tax liability.
Items of partnership income, gain, loss and deduction will pass
through to investors as partners in the Portfolio. Therefore, no
Federal income tax provision is required. Under the applicable
foreign tax law, withholding taxes may be imposed on interest,
dividends, and capital gains at various rates.
May 31, 2000 29 Mercury Gold and Mining Fund
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
(e) Security transactions and investment income--Security
transactions are accounted for on the date the securities are
purchased or sold (the trade dates). Dividend income is recorded on
the ex-dividend dates. Dividends from foreign securities where the
ex-dividend date may have passed are subsequently recorded when the
Portfolio has determined the ex-dividend date. Interest income
(including amortization of discount) is recognized on the accrual
basis. Realized gains and losses on security transactions are
determined on the identified cost basis.
(f) Custodian bank--The Portfolio recorded an amount payable to the
custodian bank reflecting an overnight overdraft resulting from a
failed trade that settled the next day.
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 .75% 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. For the year ended
May 31, 2000, Mercury International earned fees of $118,524, all of
which was voluntarily waived. Mercury International also reimbursed
the Fund for additional expenses of $61,200.
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.
May 31, 2000 30 Mercury Gold and Mining Fund
NOTES TO FINANCIAL STATEMENTS
(CONCLUDED)
3 Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended May 31, 2000 were $14,370,346 and $19,235,271,
respectively.
Net realized gains (losses) for the year ended May 31, 2000 and net
unrealized losses as of May 31, 2000 were as follows:
Realized Unrealized
Gains (Losses) Losses
Long-term investments $ 881,466 $(1,460,638)
Foreign currency transactions (28,835) (1,133)
----------------------------
Total $ 852,631 $(1,461,771)
============================
As of May 31, 2000, net unrealized depreciation for Federal income
tax purposes aggregated $1,658,098, of which $562,666 related to
appreciated securities and $2,220,764 related to depreciated
securities. At May 31, 2000, the aggregate cost of investments for
Federal income tax purposes was $11,885,455.
4 Commitments:
At May 31, 2000, the Portfolio had entered into foreign exchange
contracts under which it had agreed to purchase and sell various
foreign currencies with approximate values of $3,100 and $1,700,
respectively.
May 31, 2000 31 Mercury Gold and Mining Fund
INDEPENDENT AUDITORS' REPORT
MERCURY MASTER GOLD AND MINING PORTFOLIO
The Board of Trustees and Shareholders,
Mercury Master Gold and Mining Portfolio (One of the Series
constituting Mercury Asset Management Master Trust):
We have audited the accompanying statement of assets and liabilities
of Mercury Master Gold and Mining 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
February 26, 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 Gold and Mining 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 February 26, 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 17, 2000
May 31, 2000 32 Mercury Gold and Mining Fund
PORTFOLIO INFORMATION
WORLDWIDE INVESTMENTS AS OF May 31, 2000 (unaudited)
Percent of
Ten Largest Holdings Net Assets
Homestake Mining Company 6.0%
Gold Fields Limited 6.0
Newmont Mining Corporation 5.9
Compania de Minas
Buenaventura SA (ADR) 5.6
Randgold Resources
Limited (GDR) 5.4
AngloGold Limited* 5.3
Harmony Gold Mining Company
Limited 5.2
Lihir Gold Limited 5.0
Placer Dome Inc. 4.9
Franco-Nevada Mining
Corporation Ltd. 4.7
*Includes combined holdings.
May 31, 2000 33 Mercury Gold and Mining Fund
IMPORTANT TAX INFORMATION
(UNAUDITED)
The following information summarizes all per share distributions
paid by Mercury Gold and Mining Fund during the year ended May 31,
2000.
Domestic Foreign Total Taxes
Record Payable Non-Qualifying Source Ordinary Paid or
Date Date Income Income Income Withheld*
Class I 12/08/99 12/16/99 $.634018 $.125325 $.759343 $.004070
Class A 12/08/99 12/16/99 $.611903 $.120954 $.732857 $.004070
Class B 12/08/99 12/16/99 $.555210 $.109747 $.664957 $.004070
Class C 12/08/99 12/16/99 $.561626 $.111016 $.672642 $.004070
*The foreign taxes paid or withheld represent taxes incurred by the
Fund on dividends and/or interest received by the Fund from foreign
sources. Foreign taxes paid or withheld should be included as
foreign source taxable income with an offsetting deduction from
gross income or as a credit for taxes paid to foreign governments.
You should consult your tax adviser regarding the appropriate
treatment of foreign taxes paid.
Additionally, the Fund paid no long-term capital gains distributions
during the year ended May 31, 2000.
Please retain this information for your records.
May 31, 2000 34 Mercury Gold and Mining 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
May 31, 2000 35 Mercury Gold and Mining Fund
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Statements and other information herein are as dated and are subject
to change.
The Fund seeks long-term capital growth through investments
primarily in stocks of gold mining companies, and to a lesser extent
of companies engaged in other mining activities located throughout
the world. The Fund will seek to achieve its objective by investing
all of its assets in Mercury Master Gold and Mining Portfolio of
Mercury Asset Management Master Trust, which has the same investment
objective as the Fund. The Fund's investment experience will
correspond to the investment experience of the Portfolio. Prices of
gold mining shares are volatile. An investment in this Fund should
be considered for diversification reasons and not as a complete
investment plan.
Mercury Gold and Mining Fund of
Mercury Asset Management Funds, Inc.
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
