ANNUAL REPORT
MAY 31, 2000
Mercury
International [GRAPHIC OMITTED]
Fund
OF MERCURY ASSET
MANAGEMENT FUNDS, INC.
--------------------
M E R C U R Y
ASSET MANAGEMENT
--------------------
<PAGE>
MERCURY MASTER
INTERNATIONAL PORTFOLIO
SECTOR REPRESENTATION
================================================================================
As a Percentage of Net Assets as of May 31, 2000
A pie chart illustrating the following percentages (As a Percentage of Net
Assets as of May 31, 2000):
Materials 5.4%
Consumer Staples 5.4%
Consumer-Discretionary 9.8%
Information Technology 16.2%
Telecommunication Services 13.8%
Utilities 3.8%
Financials 19.2%
Cash Equivalent 3.8%
Industrials 9.0%
Energy 6.2%
Health Care 7.4%
GEOGRAPHIC ASSET MIX
================================================================================
As a Percentage of Net Assets as of May 31, 2000
A pie chart illustrating the following percentages (As a Percentage of Net
Assets as of May 31, 2000):
Japan 20.7%
Australia 2.0%
Latin America 1.2%
North America 0.9%
Europe 66.4%
Middle East 0.6%
Africa 0.3%
Cash Equivalent 3.8%
Pacific Basin/Asia
(Ex Japan & Australia) 4.1%
May 31, 2000 2 Mercury International Fund
<PAGE>
DEAR SHAREHOLDER
Fiscal Year in Review
We are pleased to provide you with this annual report to shareholders. During
the fiscal year ended May 31, 2000, the Fund's Class I, Class A, Class B and
Class C Shares had total returns of +20.99%, +20.77%, +19.68% and +19.68%,
respectively, as compared to the +17.1% total return for the unmanaged Morgan
Stanley Capital International Europe, Asia and Far East Index. (Fund 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 Fund's outperformance was primarily the result of
good stock selection in the information technology, industrial and financial
sectors. Sector allocation, notably our overweighting of the information
technology sector and our underweighting of the financial sector, also benefited
Fund performance. Regional asset allocation, particularly our move early in 2000
to an underweighted position in Japan, also played a part in the Fund's
outperformance. Concerns remain about the ability of the Japanese economy to
achieve a self-sustained recovery. Furthermore, restructuring in the old economy
continues to take place at a slow pace while in the new economy valuations
looked stretched on a relative basis. These assets were reallocated to European
equities where we remain upbeat on the prospects for non-inflationary growth.
Investment Environment
International markets ran up sharply in the final weeks of 1999, suffered a
sharp correction during the first few days of 2000 and recovered to end the
first quarter of 2000 largely unchanged. During the last half of the fiscal
year, investors continued to focus on companies operating in the new economy,
namely the technology, telecommunications and media sectors. As a result, the
global technology sector continued its fourth quarter trend of last year by
significantly outperforming all other major global sectors despite a spirited,
albeit short-lived, rally by old economy stocks toward the end of the fiscal
year.
Rising short-term interest rates in Europe and in the United States was another
key highlight of the period. This led to downward pressure on stock multiples in
both regions. To date, tightening of monetary policy has failed to slow US
economic growth as much as the Federal Reserve Board had hoped. Although
economic indicators highlighted the absence of inflationary pressures, excluding
the impact of the rise of oil prices, Federal Reserve Board Chairman Alan
Greenspan once again drew attention to fundamental economic imbalances in his
testimony to Congress. In particular, Mr. Greenspan expressed concern that
excess demand, underpinned by the stock market's strong gains, is growing in
excess of supply, thereby creating potentially damaging inflationary pressures.
May 31, 2000 3 Mercury International Fund
<PAGE>
The end of the fiscal year witnessed high levels of volatility in international
stock markets. The Microsoft Corporation anti-trust ruling and
higher-than-expected consumer price index numbers in the United States weakened
international stock markets. Although a limited recovery took place in the
second half of May, rotation into defensive sectors left growth stocks
significantly behind. The technology and telecommunications sectors were among
the worst performers. By contrast, the consumer staples and healthcare sectors
finished the period in positive territory.
Portfolio Activity
In the telecommunications sector, we purchased Sonera Oyj, the Finnish
telecommunications operator that provides both fixed line and mobile services.
We expect the company to benefit from the introduction of its "Zed" mobile
Internet portal, which it plans to license to other operators, as well as from
the SmartTrust mobile encryption product developed with VeriSign, Inc.
While the fourth quarter of 1999 was characterized by broad outperformance of
the technology sector, 2000 has seen a further concentration of performance
within the sector, with many well-known technology shares producing indifferent
returns. The Fund benefited from our continued emphasis on high-quality issues
with proven business models, such as top holdings Nokia Oyj and Nippon Telegraph
& Telephone Corporation.
During the last three months of the period, the performance of the financial
sector was broadly in line with the wider market. Five interest rate increases
by the Federal Reserve Board since June 1999 and new economy style investing led
to the sector being particularly out of favor at the start of the year. A
rotation out of technology stocks into financial stocks occurred in March,
underpinned by the prospect of a more benign interest rate environment. In
Japan, strong relative performances from The Nomura Securities Co., Ltd. and The
Nikko Securities Co., Ltd. added to the Fund's performance. We have maintained
overweighted positions in these companies as they continue to restructure and to
benefit from the growth of financial asset transaction activity.
Elsewhere in Japan, we established a position in Sumitomo Corporation, the
trading company. Sumitomo has what we view to be an impressive collection of
broadband media assets, including a 60% stake in Jupiter Telecommunications,
Japan's biggest cable TV operator. We anticipate that the company could
crystallize the value of some of these assets through stock market flotations,
which could lead investors to reappraise the quality of its broadband assets. To
fund the purchase, we sold Bridgestone Corp., the tire manufacturing company.
Although we believe that Bridgestone's management and operational ability could
enable it to continue to win global market share, we do not believe that it is
realistic to expect further robust expansion of the automobile market from
current historically high levels.
May 31, 2000 4 Mercury International Fund
<PAGE>
The healthcare sector saw the merger of Britain's biggest pharmaceutical
companies, Glaxo Wellcome PLC and SmithKline Beecham PLC. The transaction had
been largely discounted by the market in advance, and shares in both firms
initially reacted poorly as investors deemed the move a defensive reaction to
deteriorating conditions in the industry. The sector recovered later in the
period, benefiting from rotation into non-technology growth sectors, and
finished ahead 0.54% in dollar terms. In Japan, we purchased Shionogi
Pharmaceuticals in January. The outlook appears to have markedly improved for
the company as it approaches a period of restructuring and focuses on licensing
out research and development of its drugs for upfront fees. The underinvestment
of international pharmaceutical companies in Japan and the strength of Shionogi
Pharmaceuticals' domestic sales force also make the company, in our view, an
attractive acquisition target. We sold Shionogi Pharmaceuticals during April and
May. We also sold Novartis AG of Switzerland over the period, following doubts
over prospects for the company's agro-chemicals business and drug pipeline.
In Conclusion
We thank you for your investment in Mercury International Fund, and we look
forward to serving your investment needs in the months and years ahead.
Sincerely,
/s/ Jeffrey Peek /s/ Charles Prideaux
Jeffrey Peek Charles Prideaux
President Portfolio Manager
July 10, 2000
May 31, 2000 5 Mercury International Fund
<PAGE>
OFFICERS AND DIRECTORS
Jeffrey M. Peek, Director and President
David O. Beim, Director
James T. Flynn, Director
W. Carl Kester, Director
Karen P. Robards, Director
Terry K. Glenn, Director and
Executive Vice President
Peter John Gibbs, Senior Vice President
Donald C. Burke, Vice President
and Treasurer
Robert E. Putney, III, Secretary
Custodian
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(888) 763-2260
IMPORTANT TAX INFORMATION
================================================================================
The following information summarizes all per share distributions paid by Mercury
International 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 $.187872 $.091290 $.279162 $.020469
--------------------------------------------------------------------------------
Class B 12/08/99 12/16/99 $.111971 $.054409 $.166380 $.020469
--------------------------------------------------------------------------------
Class C 12/08/99 12/16/99 $.112298 $.054567 $.166865 $.020469
--------------------------------------------------------------------------------
Class A 12/08/99 12/16/99 $.168818 $.082031 $.250849 $.020469
--------------------------------------------------------------------------------
* 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
advisor 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 6 Mercury International Fund
<PAGE>
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.
May 31, 2000 7 Mercury International Fund
<PAGE>
FUND PERFORMANCE DATA (CONTINUED)
TOTAL RETURN BASED ON A $10,000 INVESTMENT
================================================================================
A line graph depicting the growth of an investment in the Fund's Class I, Class
A, Class B & Class C Shares compared to growth of an investment in the MSCI
EAFE. Beginning and ending values are:
10/30/98** 5/00
---------- ----
Mercury International Fund+--Class I Shares* $9,475 $11,945
Mercury International Fund+--Class A Shares* $9,475 $11,901
Mercury International Fund+--Class B Shares* $10,000 $11,999
Mercury International Fund+--Class C Shares* $10,000 $12,399
MSCI EAFE Index++ $10,000 $12,809
* 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 International
Portfolio. The Portfolio invests primarily in stocks of companies located
outside of the United States that its management believes are undervalued
or have good prospects for earnings growth.
++ This unmanaged broad-based Index measures the total returns of developed
foreign stock markets in Europe, Asia and the Far East.
Past performance is not predictive of future performance.
May 31, 2000 8 Mercury International Fund
<PAGE>
FUND PERFORMANCE DATA (CONCLUDED)
AVERAGE ANNUAL TOTAL RETURN
================================================================================
% Return % Return
Without Sales With Sales
Class I Shares* Charge Charge**
--------------------------------------------------------------------------------
Year Ended 3/31/00 +28.29% +21.55%
--------------------------------------------------------------------------------
Inception (10/30/98)
through 3/31/00 +24.84 +20.19
--------------------------------------------------------------------------------
* 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 +27.94% +21.22%
--------------------------------------------------------------------------------
Inception (10/30/98)
through 3/31/00 +24.52 +19.88
--------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
% Return % Return
Without With
Class B Shares* CDSC CDSC**
--------------------------------------------------------------------------------
Year Ended 3/31/00 +27.03% +23.03%
--------------------------------------------------------------------------------
Inception (10/30/98)
through 3/31/00 +23.57 +20.98
--------------------------------------------------------------------------------
* 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 +27.03% +26.03%
--------------------------------------------------------------------------------
Inception (10/30/98)
through 3/31/00 +23.57 +22.92
--------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 1% and is reduced to 0% after
1 year.
** Assuming payment of applicable contingent deferred sales charge.
RECENT PERFORMANCE RESULTS*
================================================================================
6 Month 12 Month Since Inception
As of May 31, 2000 Total Return Total Return Total Return
--------------------------------------------------------------------------------
Class I -0.96% +20.99% +26.08%
--------------------------------------------------------------------------------
Class A -1.10 +20.77 +25.60
--------------------------------------------------------------------------------
Class B -1.52 +19.68 +23.99
--------------------------------------------------------------------------------
Class C -1.52 +19.68 +23.99
--------------------------------------------------------------------------------
* Investment results shown do not reflect sales charges; results shown would
be lower if sales charges were 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's inception date is 10/30/98.
May 31, 2000 9 Mercury International Fund
<PAGE>
STATEMENT OF ASSETS
AND LIABILITIES
As of May 31, 2000
--------------------------------------------------------------------------------
MERCURY INTERNATIONAL FUND
================================================================================
<TABLE>
<S> <C>
Assets:
Investment in Mercury Master International Portfolio,
at value (identified cost--$486,314,634) $534,582,389
Prepaid registration fees 45,490
------------
Total assets 534,627,879
------------
---------------------------------------------------------------------------------------
Liabilities:
Payable to distributor 377,001
Payable to administrator 94,275
Accrued expenses 130,869
------------
Total liabilities 602,145
------------
---------------------------------------------------------------------------------------
Net Assets:
Net assets $534,025,734
============
---------------------------------------------------------------------------------------
Net Assets Consist of:
Class I Shares of Common Stock, $.0001 par value, 100,000,000
shares authorized $ 562
Class A Shares of Common Stock, $.0001 par value, 100,000,000
shares authorized 488
Class B Shares of Common Stock, $.0001 par value, 100,000,000
shares authorized 1,836
Class C Shares of Common Stock, $.0001 par value, 100,000,000
shares authorized 1,469
Paid-in capital in excess of par 461,522,449
Undistributed realized capital gains on investments and foreign currency
transactions from the Portfolio--net 24,231,175
Unrealized appreciation on investments and foreign currency transactions
from the Portfolio--net 48,267,755
------------
Net assets $534,025,734
============
---------------------------------------------------------------------------------------
Net Asset Value:
Class I--Based on net assets of $69,324,337 and 5,618,659 shares
outstanding $ 12.34
============
Class A--Based on net assets of $60,099,064 and 4,879,758 shares
outstanding $ 12.32
============
Class B--Based on net assets of $224,759,093 and 18,356,314 shares
outstanding $ 12.24
============
Class C--Based on net assets of $179,843,240 and 14,688,296 shares
outstanding $ 12.24
============
---------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
May 31, 2000 10 Mercury International Fund
<PAGE>
STATEMENT OF OPERATIONS
For the Year Ended May 31, 2000
--------------------------------------------------------------------------------
MERCURY INTERNATIONAL FUND
================================================================================
<TABLE>
<S> <C> <C>
Investment Income:
Investment income allocated from the Portfolio (net of $848,349 foreign
withholding tax) $ 7,237,248
Expenses allocated from the Portfolio (4,027,086)
------------
Net investment income from the Portfolio 3,210,162
------------
------------------------------------------------------------------------------------------------------
Expenses:
Account maintenance and distribution fees--Class B $ 1,978,772
Account maintenance and distribution fees--Class C 1,541,644
Administration fee 1,193,207
Transfer agent fees--Class B 225,463
Account maintenance fees--Class A 179,489
Transfer agent fees--Class C 177,638
Registration fees 111,850
Professional fees 83,168
Transfer agent fees--Class A 67,895
Printing and shareholder reports 65,024
Transfer agent fees--Class I 51,308
Accounting services 1,780
Other 4,538
------------
Total expenses 5,681,776
------------
Investment loss--net (2,471,614)
------------
------------------------------------------------------------------------------------------------------
Realized & Unrealized Gain (Loss) from the
Portfolio--Net:
Realized gain (loss) from the Portfolio on:
Investments--net 32,446,569
Foreign currency transactions--net (347,095) 32,099,474
------------
Change in unrealized appreciation on investments and foreign
currency transactions from the Portfolio--net 42,025,047
------------
Net Increase in Net Assets Resulting from Operations $ 71,652,907
============
------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
May 31, 2000 11 Mercury International Fund
<PAGE>
STATEMENTS OF CHANGES
IN NET ASSETS
MERCURY INTERNATIONAL FUND
================================================================================
<TABLE>
<CAPTION>
For the For the Period
Year Ended Oct. 30, 1998+
Increase (Decrease) in Net Assets: May 31, 2000 to May 31, 1999
---------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Investment income (loss)--net $ (2,471,614) $ 640,423
Realized gain on investments and foreign currency
transactions from the Portfolio--net 32,099,474 1,318,788
Change in unrealized appreciation on investments and foreign
currency transactions from the Portfolio--net 42,025,047 6,242,708
----------------------------
Net increase in net assets resulting from operations 71,652,907 8,201,919
----------------------------
---------------------------------------------------------------------------------------------
Dividends & Distributions to Shareholders:
In excess of investment income--net:
Class I (400,595) --
Class A (431,132) --
Realized gain on investments from the Portfolio--net:
Class I (760,657) --
Class A (1,159,551) --
Class B (2,663,174) --
Class C (2,041,330) --
----------------------------
Net decrease in net assets resulting from dividends
and distributions to shareholders (7,456,439) --
----------------------------
---------------------------------------------------------------------------------------------
Capital Share Transactions:
Net increase in net assets derived from capital
share transactions 125,017,719 336,459,628
----------------------------
---------------------------------------------------------------------------------------------
Net Assets:
Total increase in net assets 189,214,187 344,661,547
Beginning of period 344,811,547 150,000
----------------------------
End of period* $534,025,734 $344,811,547
============================
---------------------------------------------------------------------------------------------
* Undistributed investment income--net $ -- $ 368,841
============================
+ Commencement of operations.
</TABLE>
See Notes to Financial Statements.
May 31, 2000 12 Mercury International Fund
<PAGE>
FINANCIAL HIGHLIGHTS
MERCURY INTERNATIONAL FUND
================================================================================
The following per share data and ratios have been derived from information
provided in the financial statements.
<TABLE>
<CAPTION>
Class I
-----------------------------------
For the For the Period
Year Ended Oct. 30, 1998+
Increase (Decrease) in Net Asset Value: May 31, 2000** to May 31, 1999
--------------------------------------------------------------------------------------------
<S> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 10.42 $ 10.00
-----------------------------------
Investment income--net .04 .06
Realized and unrealized gain on investments
and foreign currency transactions
from the Portfolio--net 2.16 .36
-----------------------------------
Total from investment operations 2.20 .42
-----------------------------------
Less dividends and distributions:
In excess of investment income--net (.10) --
Realized gain on investments from the Portfolio--net (.18) --
-----------------------------------
Total dividends and distributions (.28) --
-----------------------------------
Net asset value, end of period $ 12.34 $ 10.42
===================================
--------------------------------------------------------------------------------------------
Total Investment Return:***
Based on net asset value per share 20.99% 4.20%+++
===================================
--------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses++ 1.24% 1.56%*
===================================
Investment income--net .33% 1.21%*
===================================
--------------------------------------------------------------------------------------------
Supplemental Data:
Net assets, end of period (in thousands) $ 69,325 $ 33,958
===================================
--------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Based on average shares outstanding.
*** Total investment returns exclude the effects of sales charges.
+ Commencement of operations.
++ Includes the Fund's share of the Portfolio's allocated expenses.
+++ Aggregate total investment return.
See Notes to Financial Statements.
May 31, 2000 13 Mercury International Fund
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
MERCURY INTERNATIONAL FUND
================================================================================
The following per share data and ratios have been derived from information
provided in the financial statements.
<TABLE>
<CAPTION>
Class A
-----------------------------------
For the For the Period
Year Ended Oct. 30, 1998+
Increase (Decrease) in Net Asset Value: May 31, 2000** to May 31, 1999
--------------------------------------------------------------------------------------------
<S> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 10.40 $ 10.00
-----------------------------------
Investment income (loss)--net (.01) .05
Realized and unrealized gain on investments
and foreign currency transactions
from the Portfolio--net 2.18 .35
-----------------------------------
Total from investment operations 2.17 .40
-----------------------------------
Less dividends and distributions:
In excess of investment income--net (.07) --
Realized gain on investments from the Portfolio--net (.18) --
-----------------------------------
Total dividends and distributions (.25) --
-----------------------------------
Net asset value, end of period $ 12.32 $ 10.40
===================================
--------------------------------------------------------------------------------------------
Total Investment Return:***
Based on net asset value per share 20.77% 4.00%+++
===================================
--------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses++ 1.49% 1.82%*
===================================
Investment income (loss)--net (.08%) .96%*
===================================
--------------------------------------------------------------------------------------------
Supplemental Data:
Net assets, end of period (in thousands) $ 60,099 $ 59,373
===================================
--------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Based on average shares outstanding.
*** Total investment returns exclude the effects of sales charges.
+ Commencement of operations.
++ Includes the Fund's share of the Portfolio's allocated expenses.
+++ Aggregate total investment return.
See Notes to Financial Statements.
May 31, 2000 14 Mercury International Fund
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
MERCURY INTERNATIONAL FUND
================================================================================
The following per share data and ratios have been derived from information
provided in the financial statements.
<TABLE>
<CAPTION>
Class B
-----------------------------------
For the For the Period
Year Ended Oct. 30, 1998+
Increase (Decrease) in Net Asset Value: May 31, 2000** to May 31, 1999
----------------------------------------------------------------------------------------------
<S> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 10.36 $ 10.00
-----------------------------------
Investment income (loss)--net (.09) .01
Realized and unrealized gain on investments
and foreign currency transactions
from the Portfolio--net 2.14 .35
-----------------------------------
Total from investment operations 2.05 .36
-----------------------------------
Less distributions of realized gains on investments from
the Portfolio--net (.17) --
-----------------------------------
Net asset value, end of period $ 12.24 $ 10.36
===================================
----------------------------------------------------------------------------------------------
Total Investment Return:***
Based on net asset value per share 19.68% 3.60%+++
===================================
----------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses++ 2.26% 2.55%*
===================================
Investment income (loss)--net (.74%) .12%*
===================================
----------------------------------------------------------------------------------------------
Supplemental Data:
Net assets, end of period (in thousands) $ 224,759 $ 142,434
===================================
----------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Based on average shares outstanding.
*** Total investment returns exclude the effects of sales charges.
+ Commencement of operations.
++ Includes the Fund's share of the Portfolio's allocated expenses.
+++ Aggregate total investment return.
See Notes to Financial Statements.
May 31, 2000 15 Mercury International Fund
<PAGE>
FINANCIAL HIGHLIGHTS (CONCLUDED)
MERCURY INTERNATIONAL FUND
================================================================================
The following per share data and ratios have been derived from information
provided in the financial statements.
<TABLE>
<CAPTION>
Class C
-----------------------------------
For the For the Period
Year Ended Oct. 30, 1998+
Increase (Decrease) in Net Asset Value: May 31, 2000** to May 31, 1999
----------------------------------------------------------------------------------------------
<S> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 10.36 $ 10.00
-----------------------------------
Investment income (loss)--net (.09) .01
Realized and unrealized gain on investments
and foreign currency transactions
from the Portfolio--net 2.14 .35
-----------------------------------
Total from investment operations 2.05 .36
-----------------------------------
Less distributions of realized gains on investments from
the Portfolio--net (.17) --
-----------------------------------
Net asset value, end of period $ 12.24 $ 10.36
===================================
----------------------------------------------------------------------------------------------
Total Investment Return:***
Based on net asset value per share 19.68% 3.60%+++
===================================
----------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses++ 2.26% 2.56%*
===================================
Investment income (loss)--net (.73%) .14%*
===================================
----------------------------------------------------------------------------------------------
Supplemental Data:
Net assets, end of period (in thousands) $ 179,843 $ 109,047
===================================
----------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Based on average shares outstanding.
*** Total investment returns exclude the effects of sales charges.
+ Commencement of operations.
++ Includes the Fund's share of the Portfolio's allocated expenses.
+++ Aggregate total investment return.
See Notes to Financial Statements.
May 31, 2000 16 Mercury International Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS
MERCURY INTERNATIONAL FUND
================================================================================
1 Significant Accounting Policies:
Mercury International 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 International 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.
May 31, 2000 17 Mercury International Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
(d) Prepaid registration fees--Prepaid registration fees are charged to
expenses as the related shares are issued.
(e) Dividends and distributions--Dividends and distributions paid by the
Fund are recorded on the ex-dividend dates. Distributions in excess of net
investment income are due primarily to differing tax treatments for
foreign currency transactions.
(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, the current
year's permanent book/tax differences of $2,943,057 have been reclassified
between undistributed net realized capital gains and accumulated net
investment loss and $8,557 has been reclassified between paid-in capital
in excess of par and accumulated net investment loss. These
reclassifications have no effect on net assets 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.
The Corporation has also entered into a Distribution Agreement and
Distribution Plans with Mercury Funds Distributor ("MFD" or the
"Distributor"), a division of Princeton Funds Distributor, Inc. ("PFD"), a
wholly-owned subsidiary of Merrill Lynch Group, Inc. Pursuant to the
Distribution Plans adopted by the Corporation in accordance with Rule
12b-1 under the Investment Company Act of 1940, the Fund pays the
Distributor ongoing account maintenance and distribution fees. The fees
are accrued daily and paid monthly at annual rates based upon the average
daily net assets of the shares as follows:
Account Distribution
Maintenance Fee Fee
==========================================================================
Class A .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.
May 31, 2000 18 Mercury International Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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 $24,669 $403,643
--------------------------------------------------------------------------
For the year ended May 31, 2000, MLPF&S received contingent deferred sales
charges of $670,517 and $90,853 relating to transactions in Class B and
Class C Shares, respectively. Furthermore, MLPF&S received contingent
deferred sales charges of $99,389 and $100,900 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 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 $161,004,926 and $49,131,236, respectively.
4 Capital Share Transactions:
Net increase in net assets derived from capital share transactions was
$125,017,719 and $336,459,628 for the year ended May 31, 2000 and for the
period October 30, 1998 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 5,103,903 $ 62,498,165
Shares issued to shareholders in reinvestment
of dividends and distributions 80,949 1,041,809
---------------------------
Total issued 5,184,852 63,539,974
Shares redeemed (2,825,829) (34,066,110)
---------------------------
Net increase 2,359,023 $ 29,473,864
===========================
--------------------------------------------------------------------------
May 31, 2000 19 Mercury International Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Class I Shares for the Period October 30, 1998+
to May 31, 1999 Shares Dollar Amount
==========================================================================
Shares sold 4,172,807 $ 42,867,726
Shares redeemed (916,921) (9,645,414)
------------------------------
Net increase 3,255,886 $ 33,222,312
==============================
--------------------------------------------------------------------------
+ Prior to October 30, 1998 (commencement of operations), the Fund issued
3,750 shares to Mercury International for $37,500.
Class A Shares for the Year Ended
May 31, 2000 Shares Dollar Amount
==========================================================================
Shares sold 2,694,364 $ 32,922,632
Shares issued to shareholders in reinvestment
of dividends and distributions 113,574 1,460,564
---------------------------
Total issued 2,807,938 34,383,196
Shares redeemed (3,635,921) (46,223,265)
---------------------------
Net decrease (827,983) $(11,840,069)
===========================
--------------------------------------------------------------------------
Class A Shares for the Period October 30, 1998+
to May 31, 1999 Shares Dollar Amount
==========================================================================
Shares sold 6,270,524 $ 63,892,653
Shares redeemed (566,533) (5,972,511)
------------------------------
Net increase 5,703,991 $ 57,920,142
==============================
--------------------------------------------------------------------------
+ Prior to October 30, 1998 (commencement of operations), the Fund issued
3,750 shares to Mercury International for $37,500.
Class B Shares for the Year Ended
May 31, 2000 Shares Dollar Amount
==========================================================================
Shares sold 6,923,085 $ 84,674,031
Shares issued to shareholders in reinvestment
of distributions 178,505 2,290,218
---------------------------
Total issued 7,101,590 86,964,249
Shares redeemed (2,498,997) (30,810,082)
---------------------------
Net increase 4,602,593 $ 56,154,167
===========================
--------------------------------------------------------------------------
Class B Shares for the Period October 30, 1998+
to May 31, 1999 Shares Dollar Amount
==========================================================================
Shares sold 14,517,982 $ 146,815,939
Shares redeemed (768,011) (8,017,841)
--------------------------------
Net increase 13,749,971 $ 138,798,098
================================
--------------------------------------------------------------------------
+ Prior to October 30, 1998 (commencement of operations), the Fund issued
3,750 shares to Mercury International for $37,500.
May 31, 2000 20 Mercury International Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(CONCLUDED)
Class C Shares for the Year Ended
May 31, 2000 Shares Dollar Amount
==========================================================================
Shares sold 6,067,627 $ 74,615,106
Shares issued to shareholders in reinvestment
of distributions 139,667 1,791,930
---------------------------
Total issued 6,207,294 76,407,036
Shares redeemed (2,048,743) (25,177,279)
---------------------------
Net increase 4,158,551 $ 51,229,757
===========================
--------------------------------------------------------------------------
Class C Shares for the Period October 30, 1998+
to May 31, 1999 Shares Dollar Amount
==========================================================================
Shares sold 11,118,122 $ 112,707,710
Shares redeemed (592,127) (6,188,634)
--------------------------------
Net increase 10,525,995 $ 106,519,076
================================
--------------------------------------------------------------------------
+ Prior to October 30, 1998 (commencement of operations), the Fund issued
3,750 shares to Mercury International for $37,500.
May 31, 2000 21 Mercury International Fund
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Mercury International Fund
(One of the Series constituting Mercury Asset Management Funds, Inc.):
We have audited the accompanying statement of assets and liabilities of Mercury
International 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 from October 30, 1998 (commencement of
operations) to May 31, 1999. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our 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 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
International Fund as of May 31, 2000, the results of its operations for the
year then ended and changes in its net assets, and the financial highlights for
the year then ended and for the period from October 30, 1998 (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 14, 2000
May 31, 2000 22 Mercury International Fund
<PAGE>
SCHEDULE OF INVESTMENTS
MERCURY MASTER INTERNATIONAL PORTFOLIO
================================================================================
<TABLE>
<CAPTION>
In US Dollars
-----------------------
Shares Percent of
Industries Held Investments Value Net Assets
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AFRICA
=====================================================================================================
South Africa
IT Consulting 72,300 + Dimension Data Holdings Limited $ 503,453 0.1%
& Services
-----------------------------------------------------------------------------------------------------
Internet Software 26,410 + Ixchange Technology Holdings Limited 51,190 0.0
& Services
-----------------------------------------------------------------------------------------------------
Metals & Mining 22,100 Anglo American Platinum
Corporation Limited 612,391 0.1
-----------------------------------------------------------------------------------------------------
Paper & Forest 40,000 Sappi Limited 298,636 0.1
Products
-----------------------------------------------------------------------------------------------------
Total Investments in Africa
(Cost--$1,690,440) 1,465,670 0.3
-----------------------------------------------------------------------------------------------------
EUROPE
=====================================================================================================
Belgium
Diversified Financials 118,737 Fortis (B) 3,066,750 0.5
-----------------------------------------------------------------------------------------------------
Electric Utilities 10,892 Electrabel SA 2,489,956 0.5
-----------------------------------------------------------------------------------------------------
Total Investments in Belgium 5,556,706 1.0
-----------------------------------------------------------------------------------------------------
Finland
Communications 423,956 Nokia Oyj 21,939,265 4.1
Equipment
-----------------------------------------------------------------------------------------------------
Diversified 49,117 Sonera Oyj 2,473,425 0.5
Telecommunication
Services
-----------------------------------------------------------------------------------------------------
Total Investments in Finland 24,412,690 4.6
-----------------------------------------------------------------------------------------------------
France
Auto Components 41,961 Valeo SA 2,113,064 0.4
-----------------------------------------------------------------------------------------------------
Banks 40,453 Banque Nationale de Paris (BNP) 3,629,684 0.7
-----------------------------------------------------------------------------------------------------
Communications 72,500 Alcatel 3,953,506 0.7
Equipment
-----------------------------------------------------------------------------------------------------
Food & Drug Retailing 54,108 Carrefour SA 3,806,135 0.7
-----------------------------------------------------------------------------------------------------
Hotels, Restaurants 106,813 Accor SA 4,308,049 0.8
& Leisure
-----------------------------------------------------------------------------------------------------
</TABLE>
May 31, 2000 23 Mercury International Fund
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
In US Dollars
------------------------
Shares Percent of
Industries Held Investments Value Net Assets
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EUROPE (continued)
==============================================================================================
France (continued)
IT Consulting 13,350 Cap Gemini SA $ 2,487,301 0.5%
& Services
----------------------------------------------------------------------------------------------
Insurance 56,061 Axa 8,214,573 1.5
5 Axa (Rights) 9 0.0
------------------------
8,214,582 1.5
----------------------------------------------------------------------------------------------
Metals & Mining 75,269 Usinor SA 900,478 0.2
----------------------------------------------------------------------------------------------
Multi-Utilities 81,436 Vivendi 8,685,231 1.6
----------------------------------------------------------------------------------------------
Multiline Retail 14,283 Pinault-Printemps-Redoute SA 3,055,865 0.6
----------------------------------------------------------------------------------------------
Oil & Gas 74,617 Total Fina SA 'B' 11,687,847 2.2
----------------------------------------------------------------------------------------------
Semiconductor 29,448 STMicroelectronics NV 1,745,114 0.3
Equipment & Products
----------------------------------------------------------------------------------------------
Total Investments in France 54,586,856 10.2
----------------------------------------------------------------------------------------------
Germany
Airlines 134,666 Deutsche Lufthansa AG
(Registered Shares) 3,284,587 0.6
----------------------------------------------------------------------------------------------
Automobiles 71,505 DaimlerChrysler AG 3,852,828 0.7
----------------------------------------------------------------------------------------------
Banks 59,717 HypoVereinsbank 3,860,094 0.7
----------------------------------------------------------------------------------------------
Chemicals 96,087 Bayer AG 3,684,743 0.7
----------------------------------------------------------------------------------------------
Diversified 156,744 Deutsche Telekom AG
Telecommunication (Registered Shares) 9,739,414 1.8
Services
----------------------------------------------------------------------------------------------
Electronic Equipment 7,648 + Epcos AG 932,697 0.2
& Instruments
----------------------------------------------------------------------------------------------
Industrial 71,358 Siemens AG 10,508,973 2.0
Conglomerates
----------------------------------------------------------------------------------------------
Insurance 19,905 Allianz AG (Registered Shares) 7,153,210 1.3
----------------------------------------------------------------------------------------------
Internet Software 28,717 + T-Online International AG 1,045,312 0.2
& Services
----------------------------------------------------------------------------------------------
Total Investments in Germany 44,061,858 8.2
----------------------------------------------------------------------------------------------
</TABLE>
May 31, 2000 24 Mercury International Fund
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
In US Dollars
-----------------------
Shares Percent of
Industries Held Investments Value Net Assets
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EUROPE (continued)
===================================================================================================
Greece
Banks 2,010 National Bank of Greece SA $ 94,062 0.0%
---------------------------------------------------------------------------------------------------
Diversified 20,070 Hellenic Telecommunications
Telecommunication Organization SA (OTE) 492,261 0.1
Services
---------------------------------------------------------------------------------------------------
Total Investments in Greece 586,323 0.1
---------------------------------------------------------------------------------------------------
Italy
Banks 1,431,081 Banca Intesa SpA 5,613,991 1.1
18 Banca Intesa SpA (Rights) 0 0.0
-----------------------
5,613,991 1.1
---------------------------------------------------------------------------------------------------
Diversified 557,843 Telecom Italia SpA (Registered Shares) 3,440,335 0.6
Telecommunication
Services
---------------------------------------------------------------------------------------------------
Oil & Gas 562,916 ENI SpA 3,017,439 0.6
---------------------------------------------------------------------------------------------------
Total Investments in Italy 12,071,765 2.3
---------------------------------------------------------------------------------------------------
Netherlands
Beverages 66,425 Heineken NV 3,391,220 0.6
---------------------------------------------------------------------------------------------------
Chemicals 87,666 Akzo Nobel NV 3,326,042 0.6
---------------------------------------------------------------------------------------------------
Diversified 133,195 ING Groep NV 7,919,191 1.5
Financials
---------------------------------------------------------------------------------------------------
Food Products 100,175 Koninklijke Numico NV 4,288,370 0.8
54,211 Unilever NV 'A' 2,737,489 0.5
-----------------------
7,025,859 1.3
---------------------------------------------------------------------------------------------------
Household Durables 57,122 Koninklijke (Royal) Philips
Electronics NV 2,535,381 0.5
---------------------------------------------------------------------------------------------------
Media 58,396 VNU NV 2,962,358 0.6
100,501 Wolters Kluwer NV 'A' 2,442,893 0.5
-----------------------
5,405,251 1.1
---------------------------------------------------------------------------------------------------
Oil & Gas 158,303 Royal Dutch Petroleum Company 9,693,878 1.8
---------------------------------------------------------------------------------------------------
Total Investments in the Netherlands 39,296,822 7.4
---------------------------------------------------------------------------------------------------
Poland
Diversified 31,180 Telekomunikacja Polska SA (GDR)** 213,583 0.0
Telecommunication
Services
---------------------------------------------------------------------------------------------------
Total Investments in Poland 213,583 0.0
---------------------------------------------------------------------------------------------------
</TABLE>
May 31, 2000 25 Mercury International Fund
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
In US Dollars
-----------------------
Shares Percent of
Industries Held Investments Value Net Assets
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EUROPE (continued)
=======================================================================================================
Spain
Banks 473,342 Banco Santander Central Hispano, SA $ 4,613,652 0.9%
-------------------------------------------------------------------------------------------------------
Diversified 349,805 + Telefonica SA 7,137,001 1.3
Telecommunication
Services
-------------------------------------------------------------------------------------------------------
Total Investments in Spain 11,750,653 2.2
-------------------------------------------------------------------------------------------------------
Sweden
Communications 652,256 Telefonaktiebolaget LM Ericsson AB 'B' 13,207,225 2.5
Equipment
-------------------------------------------------------------------------------------------------------
Diversified 233,955 Investor AB 'B' 3,231,709 0.6
Financials
-------------------------------------------------------------------------------------------------------
Electrical Equipment 32,732 ABB Ltd. 3,994,808 0.7
-------------------------------------------------------------------------------------------------------
Insurance 201,032 Skandia Forsakrings AB 5,130,074 1.0
-------------------------------------------------------------------------------------------------------
Total Investments in Sweden 25,563,816 4.8
-------------------------------------------------------------------------------------------------------
Switzerland
Banks 20,754 Credit Suisse Group (Registered Shares) 3,856,938 0.7
-------------------------------------------------------------------------------------------------------
Commercial 9,767 Adecco SA (Registered Shares) 7,675,306 1.4
Services & Supplies
-------------------------------------------------------------------------------------------------------
Food Products 4,510 Nestle SA (Registered Shares) 8,567,670 1.6
-------------------------------------------------------------------------------------------------------
Pharmaceuticals 384 Roche Holding AG (Genuss) 4,032,566 0.8
-------------------------------------------------------------------------------------------------------
Total Investments in Switzerland 24,132,480 4.5
-------------------------------------------------------------------------------------------------------
Turkey
Household 1,245,000 + Vestel Elektronik Sanayi ve Ticaret AS 388,703 0.1
Durables
-------------------------------------------------------------------------------------------------------
Metals & Mining 10,685,000 + Eregli Demir ve Celik Fabrikalari TAS 493,898 0.1
-------------------------------------------------------------------------------------------------------
Total Investments in Turkey 882,601 0.2
-------------------------------------------------------------------------------------------------------
United Kingdom
Aerospace 537,671 British Aerospace PLC 3,371,340 0.6
& Defense
-------------------------------------------------------------------------------------------------------
Banks 226,375 Barclays PLC 5,884,128 1.1
441,419 Lloyds TSB Group PLC 4,776,872 0.9
-----------------------
10,661,000 2.0
-------------------------------------------------------------------------------------------------------
Communications 302,219 Marconi PLC 3,636,400 0.7
Equipment
-------------------------------------------------------------------------------------------------------
</TABLE>
May 31, 2000 26 Mercury International Fund
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
In US Dollars
-----------------------
Shares Percent of
Industries Held Investments Value Net Assets
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EUROPE (concluded)
==========================================================================================================
United Kingdom (concluded)
Diversified 525,464 British Telecommunications PLC $ 7,610,633 1.4%
Telecommunication 244,488 Cable & Wireless PLC 4,074,614 0.8
Services -----------------------
11,685,247 2.2
----------------------------------------------------------------------------------------------------------
Food & Drug 1,663,178 Tesco PLC 5,021,623 0.9
Retailing
----------------------------------------------------------------------------------------------------------
Gas Utilities 688,063 BG Group PLC 4,124,076 0.8
----------------------------------------------------------------------------------------------------------
Hotels, Restaurants 225,875 Granada Group PLC 2,002,059 0.4
& Leisure
----------------------------------------------------------------------------------------------------------
Insurance 252,201 Allied Zurich PLC 2,827,236 0.5
213,019 CGU PLC 3,234,939 0.6
-----------------------
6,062,175 1.1
----------------------------------------------------------------------------------------------------------
Marine 298,172 The Peninsular and Oriental Steam
Navigation Company 3,124,201 0.6
----------------------------------------------------------------------------------------------------------
Media 165,451 Reuters Group PLC 2,463,104 0.5
----------------------------------------------------------------------------------------------------------
Metals & Mining 806,815 Billiton PLC 2,737,498 0.5
220,993 Rio Tinto PLC (Registered Shares) 3,260,241 0.6
-----------------------
5,997,739 1.1
----------------------------------------------------------------------------------------------------------
Oil & Gas 871,306 BP Amoco PLC 7,924,745 1.5
----------------------------------------------------------------------------------------------------------
Pharmaceuticals 218,705 AstraZeneca Group PLC 9,211,996 1.7
372,996 Glaxo Wellcome PLC 10,537,074 2.0
297,972 SmithKline Beecham PLC 3,803,535 0.7
-----------------------
23,552,605 4.4
----------------------------------------------------------------------------------------------------------
Specialty Retail 358,463 Dixons Group PLC 1,695,790 0.3
----------------------------------------------------------------------------------------------------------
Wireless 4,509,954 Vodafone AirTouch PLC 20,560,136 3.8
Telecommunications
Services
----------------------------------------------------------------------------------------------------------
Total Investments in the
United Kingdom 111,882,240 20.9
----------------------------------------------------------------------------------------------------------
Total Investments in Europe
(Cost--$324,331,537) 354,998,393 66.4
----------------------------------------------------------------------------------------------------------
LATIN AMERICA
==========================================================================================================
Argentina
Diversified 4,300 + IMPSAT Fiber Networks Inc. 47,300 0.0
Telecommunication 12,000 Telecom Argentina Stet--France
Services Telecom SA (ADR)* (a) 295,500 0.1
----------------------------------------------------------------------------------------------------------
Total Investments in Argentina 342,800 0.1
----------------------------------------------------------------------------------------------------------
</TABLE>
May 31, 2000 27 Mercury International Fund
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
In US Dollars
----------------------
Shares Percent of
Industries Held Investments Value Net Assets
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LATIN AMERICA (continued)
=======================================================================================================
Brazil
Banks 15,000 Uniao de Bancos Brasileiros SA
(Unibanco) (GDR)** $ 362,812 0.1%
-------------------------------------------------------------------------------------------------------
Beverages 20,800 Companhia Cervejaria Brahma
(Preferred) (ADR)* 301,600 0.0
-------------------------------------------------------------------------------------------------------
Diversified 29,000 Embratel Participacoes SA (ADR)* 607,187 0.1
Telecommunication 8,600 Tele Centro Sul Participacoes SA
Services (ADR)* 516,000 0.1
17,873 Tele Norte Leste Participacoes SA
(ADR)* 350,758 0.0
----------------------
1,473,945 0.2
-------------------------------------------------------------------------------------------------------
Oil & Gas 16,000 Petroleo Brasileiro SA (ADR)* 372,496 0.1
-------------------------------------------------------------------------------------------------------
Wireless 40,000 Tele Centro Oeste Celular Participacoes
Telecommunications SA (ADR)* 407,500 0.1
Services 9,400 Telesp Celular Participacoes SA (ADR)* 356,025 0.1
----------------------
763,525 0.2
-------------------------------------------------------------------------------------------------------
Total Investments in Brazil 3,274,378 0.6
-------------------------------------------------------------------------------------------------------
Chile
Beverages 9,000 Compania Cervecerias Unidas SA (ADR)* 200,250 0.0
-------------------------------------------------------------------------------------------------------
Electric Utilities 5,900 + Enersis SA (ADR)* 126,481 0.0
-------------------------------------------------------------------------------------------------------
Total Investments in Chile 326,731 0.0
-------------------------------------------------------------------------------------------------------
Mexico
Beverages 10,000 Fomento Economico Mexicano,
SA de CV (ADR)* 380,625 0.1
-------------------------------------------------------------------------------------------------------
Diversified 16,400 Telefonos de Mexico SA (ADR)* 798,475 0.1
Telecommunication
Services
-------------------------------------------------------------------------------------------------------
Media 7,000 + Grupo Televisa SA (GDR)** 389,812 0.1
-------------------------------------------------------------------------------------------------------
Multiline Retail 16,500 + Wal-Mart de Mexico, SA de CV (ADR)* 340,151 0.1
-------------------------------------------------------------------------------------------------------
Specialty Retail 27,000 Grupo Elektra, SA (GDR)** 216,000 0.0
-------------------------------------------------------------------------------------------------------
Total Investments in Mexico 2,125,063 0.4
-------------------------------------------------------------------------------------------------------
Peru
Diversified 24,000 Telefonica del Peru SAA (ADR)* 342,000 0.1
Telecommunication
Services
-------------------------------------------------------------------------------------------------------
Total Investments in Peru 342,000 0.1
-------------------------------------------------------------------------------------------------------
Total Investments in Latin America
(Cost--$6,914,736) 6,410,972 1.2
-------------------------------------------------------------------------------------------------------
</TABLE>
May 31, 2000 28 Mercury International Fund
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
In US Dollars
----------------------
Shares Percent of
Industries Held Investments Value Net Assets
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MIDDLE EAST
=====================================================================================================
Israel
Communications 4,000 + Gilat Satellite Networks Ltd. $ 321,000 0.0%
Equipment
-----------------------------------------------------------------------------------------------------
Computers & 15,000 + M-Systems Flash Disk Pioneers Ltd. 896,250 0.2
Peripherals
-----------------------------------------------------------------------------------------------------
Internet Software 1,840 + Check Point Software Technologies Ltd. 345,690 0.1
& Services 18,040 + Commtouch Software Ltd. 340,505 0.1
----------------------
686,195 0.2
-----------------------------------------------------------------------------------------------------
Pharmaceuticals 12,240 Teva Pharmaceutical Industries Ltd.
(ADR)* 657,900 0.1
-----------------------------------------------------------------------------------------------------
Software 20,000 + e-SIM Limited 123,750 0.0
23,500 + Magic Software Enterprises Ltd. 371,594 0.1
----------------------
495,344 0.1
-----------------------------------------------------------------------------------------------------
Total Investments in the Middle East
(Cost--$3,828,003) 3,056,689 0.6
-----------------------------------------------------------------------------------------------------
NORTH AMERICA
=====================================================================================================
Canada
Communications 86,000 Nortel Networks Corporation 4,579,355 0.8
Equipment
-----------------------------------------------------------------------------------------------------
Total Investments in Canada 4,579,355 0.8
-----------------------------------------------------------------------------------------------------
United States
Diversified 16,340 + VocalTec Communications Ltd. 259,398 0.1
Telecommunication
Services
-----------------------------------------------------------------------------------------------------
Internet Software 18,000 + Prodigy Communications Corporation 193,500 0.0
& Services
-----------------------------------------------------------------------------------------------------
Total Investments in the United States 452,898 0.1
-----------------------------------------------------------------------------------------------------
Total Investments in North America
(Cost--$6,669,353) 5,032,253 0.9
-----------------------------------------------------------------------------------------------------
</TABLE>
May 31, 2000 29 Mercury International Fund
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
In US Dollars
----------------------
Shares Percent of
Industries Held Investments Value Net Assets
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PACIFIC BASIN/ASIA
==================================================================================================
Australia
Banks 146,000 Commonwealth Bank of Australia $2,322,292 0.4%
--------------------------------------------------------------------------------------------------
Diversified 242,000 Telstra Corporation Limited 938,815 0.2
Telecommunication
Services
--------------------------------------------------------------------------------------------------
Industrial 65,566 Brambles Industries Limited 1,795,422 0.3
Conglomerates
--------------------------------------------------------------------------------------------------
Media 241,068 The News Corporation Limited 2,724,318 0.5
--------------------------------------------------------------------------------------------------
Metals & Mining 132,000 Broken Hill Proprietary Company
Limited 1,341,200 0.3
123,000 Rio Tinto Limited 1,756,673 0.3
----------------------
3,097,873 0.6
--------------------------------------------------------------------------------------------------
Total Investments in Australia 10,878,720 2.0
--------------------------------------------------------------------------------------------------
China
Wireless 114,000 + China Telecom (Hong Kong) Limited 852,220 0.2
Telecommunications
Services
--------------------------------------------------------------------------------------------------
Total Investments in China 852,220 0.2
--------------------------------------------------------------------------------------------------
Hong Kong
Banks 407,505 HSBC Holdings PLC 4,495,141 0.8
--------------------------------------------------------------------------------------------------
Diversified 165,000 Hutchison Whampoa Limited 1,900,507 0.4
Financials
--------------------------------------------------------------------------------------------------
Gas Utilities 2,603,810 Hong Kong and China Gas Company Ltd. 2,823,690 0.5
--------------------------------------------------------------------------------------------------
Oil & Gas 2,760,000 + PetroChina Company Limited 559,651 0.1
--------------------------------------------------------------------------------------------------
Total Investments in Hong Kong 9,778,989 1.8
--------------------------------------------------------------------------------------------------
Japan
Automobiles 680,000 + Nissan Motor Co., Ltd. 3,568,145 0.7
104,000 Toyota Motor Corporation 4,723,102 0.9
----------------------
8,291,247 1.6
--------------------------------------------------------------------------------------------------
Banks 133,000 The Sanwa Bank, Ltd. 1,109,208 0.2
413,000 The Sumitomo Bank, Ltd. 5,415,890 1.0
235,000 The Tokai Bank Ltd. 1,145,809 0.2
----------------------
7,670,907 1.4
--------------------------------------------------------------------------------------------------
</TABLE>
May 31, 2000 30 Mercury International Fund
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
In US Dollars
----------------------
Shares Percent of
Industries Held Investments Value Net Assets
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PACIFIC BASIN/ASIA (continued)
==============================================================================================================
Japan (continued)
Chemicals 478,000 Asahi Chemical Industry Co., Ltd. $2,974,321 0.6%
332,000 Mitsui Chemicals Inc. 2,346,431 0.4
----------------------
5,320,752 1.0
--------------------------------------------------------------------------------------------------------------
Computers 96,000 Fujitsu Limited 2,719,294 0.5
& Peripherals 20,000 Fujitsu Support and Service Inc. (FSAS) 1,874,158 0.3
----------------------
4,593,452 0.8
--------------------------------------------------------------------------------------------------------------
Diversified 228,000 The Nikko Securities Co., Ltd. 2,113,248 0.4
Financials 206,000 The Nomura Securities Co., Ltd. 4,725,517 0.9
----------------------
6,838,765 1.3
--------------------------------------------------------------------------------------------------------------
Diversified 668 Nippon Telegraph & Telephone
Telecommunication Corporation (NTT) 7,940,933 1.5
Services
--------------------------------------------------------------------------------------------------------------
Electric Utilities 73,000 Tokyo Electric Power 1,823,729 0.3
--------------------------------------------------------------------------------------------------------------
Electrical 173,000 The Furukawa Electric Co., Ltd. 2,474,298 0.5
Equipment
--------------------------------------------------------------------------------------------------------------
Electronic 345,000 Hitachi Ltd. 4,274,251 0.8
Equipment &
Instruments
--------------------------------------------------------------------------------------------------------------
Household 196,000 Matsushita Electric Industrial
Durables Company, Ltd. 4,632,645 0.9
46,000 Sony Corporation 4,165,312 0.8
----------------------
8,797,957 1.7
--------------------------------------------------------------------------------------------------------------
Internet Software 4,100 Softbank Corp. 628,280 0.1
& Services 8,200 Softbank Corp. (New) 1,229,905 0.2
----------------------
1,858,185 0.3
--------------------------------------------------------------------------------------------------------------
Leisure Equipment 13,000 Nintendo Company Ltd. 1,931,739 0.4
& Products
--------------------------------------------------------------------------------------------------------------
Machinery 1,092,000 Sumitomo Heavy Industries, Ltd. 2,829,515 0.5
--------------------------------------------------------------------------------------------------------------
Metals & Mining 480,000 Mitsubishi Materials Corporation 1,595,914 0.3
1,561,000 Nippon Steel Corporation 3,421,370 0.6
----------------------
5,017,284 0.9
--------------------------------------------------------------------------------------------------------------
</TABLE>
May 31, 2000 31 Mercury International Fund
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
In US Dollars
------------------------
Shares Percent of
Industries Held Investments Value Net Assets
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PACIFIC BASIN/ASIA (continued)
==============================================================================================================
Japan (concluded)
Office Electronics 104,000 Canon, Inc. $ 4,790,713 0.9%
--------------------------------------------------------------------------------------------------------------
Pharmaceuticals 162,000 Fujisawa Pharmaceutical Co., Ltd. 5,988,019 1.1
78,000 Takeda Chemical Industries, Ltd. 5,324,356 1.0
------------------------
11,312,375 2.1
--------------------------------------------------------------------------------------------------------------
Real Estate 488,000 Mitsubishi Estate Company, Limited 5,742,243 1.1
--------------------------------------------------------------------------------------------------------------
Road & Rail 513 East Japan Railway Company 2,925,303 0.5
--------------------------------------------------------------------------------------------------------------
Semiconductor 43,000 Murata Manufacturing Co., Ltd. 7,427,908 1.4
Equipment & 10,000 Tokyo Electron Limited 1,365,219 0.3
Products ------------------------
8,793,127 1.7
--------------------------------------------------------------------------------------------------------------
Software 10,000 Square Co., Ltd. 617,599 0.1
--------------------------------------------------------------------------------------------------------------
Textiles & Apparel 30,000 World Co., Ltd. 1,192,477 0.2
--------------------------------------------------------------------------------------------------------------
Trading Companies 309,000 Sumitomo Corporation 2,869,747 0.6
& Distributors
--------------------------------------------------------------------------------------------------------------
Wireless 100 NTT Mobile Communications
Telecommunications Network, Inc. 2,581,844 0.5
Services
--------------------------------------------------------------------------------------------------------------
Total Investments in Japan 110,488,442 20.7
--------------------------------------------------------------------------------------------------------------
Singapore
Airlines 208,000 Singapore Airlines Limited 1,812,139 0.3
--------------------------------------------------------------------------------------------------------------
Industrial 180,000 NatSteel Electronics Ltd. 529,656 0.1
Conglomerates
--------------------------------------------------------------------------------------------------------------
Total Investments in Singapore 2,341,795 0.4
--------------------------------------------------------------------------------------------------------------
South Korea
Banks 48,419 Kookmin Bank (GDR)** (a) 484,190 0.1
--------------------------------------------------------------------------------------------------------------
Diversified 17,600 Korea Telecom Corporation (ADR)* 651,200 0.1
Telecommunication
Services
--------------------------------------------------------------------------------------------------------------
Semiconductor 13,500 Samsung Electronics (GDR)** (a) 2,163,375 0.4
Equipment &
Products
--------------------------------------------------------------------------------------------------------------
Wireless 24,400 SK Telecom Co. Ltd. (ADR)* (a) 977,525 0.2
Telecommunications
Services
--------------------------------------------------------------------------------------------------------------
Total Investments in South Korea 4,276,290 0.8
--------------------------------------------------------------------------------------------------------------
</TABLE>
May 31, 2000 32 Mercury International Fund
<PAGE>
SCHEDULE OF INVESTMENTS (CONCLUDED)
<TABLE>
<CAPTION>
In US Dollars
---------------------------
Shares Percent of
Industries Held Investments Value Net Assets
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PACIFIC BASIN/ASIA (concluded)
==========================================================================================================
Taiwan
Computers & 50,000 Asustek Computer Inc. (GDR)** $ 595,000 0.1%
Peripherals
----------------------------------------------------------------------------------------------------------
Electronic 32,000 + Hon Hai Precision Industry Co., Ltd.
Equipment & (GDR)** 718,400 0.1
Instruments
----------------------------------------------------------------------------------------------------------
Semiconductor 70,000 + Siliconware Precision Industries
Equipment & Company (GDR)** 700,000 0.1
Products 36,211 + Taiwan Semiconductor Manufacturing
Company Ltd. (ADR)* 1,278,708 0.3
---------------------------
1,978,708 0.4
----------------------------------------------------------------------------------------------------------
Textiles & Apparel 25,000 + Far Eastern Textile Ltd. (GDR)** 423,750 0.1
----------------------------------------------------------------------------------------------------------
Total Investments in Taiwan 3,715,858 0.7
----------------------------------------------------------------------------------------------------------
Thailand
Wireless 76,000 + Advanced Info Service Public
Telecommunications Company Limited 'Foreign' 872,338 0.2
Services
----------------------------------------------------------------------------------------------------------
Total Investments in Thailand 872,338 0.2
----------------------------------------------------------------------------------------------------------
Total Investments in the
Pacific Basin/Asia
(Cost--$122,319,576) 143,204,652 26.8
----------------------------------------------------------------------------------------------------------
Total Investments
(Cost--$465,753,645) 514,168,629 96.2
Time Deposit*** 20,701,000 3.9
Liabilities in Excess of Other Assets (287,113) (0.1)
---------------------------
Net Assets $ 534,582,516 100.0%
===========================
----------------------------------------------------------------------------------------------------------
</TABLE>
* American Depositary Receipts (ADR).
** Global Depositary Receipts (GDR).
*** Time deposit bears interest at 6.75% and matures on 6/01/2000.
+ Non-income producing security.
(a) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
See Notes to Financial Statements.
May 31, 2000 33 Mercury International Fund
<PAGE>
STATEMENT OF ASSETS
AND LIABILITIES
As of May 31, 2000
--------------------------------------------------------------------------------
MERCURY MASTER INTERNATIONAL PORTFOLIO
================================================================================
<TABLE>
<S> <C> <C>
Assets:
Investments, at value (identified cost--$465,753,645) $514,168,629
Cash 35
Foreign cash 952,850
Time deposit 20,701,000
Receivables:
Securities sold $ 5,714,170
Dividends 1,818,006
Contributions 991,881
Interest 3,881 8,527,938
---------------------------
Total assets 544,350,452
------------
-----------------------------------------------------------------------------------------
Liabilities:
Payables:
Securities purchased 8,432,311
Withdrawals 910,498
Investment adviser 281,900 9,624,709
------------
Accrued expenses 143,227
------------
Total liabilities 9,767,936
------------
-----------------------------------------------------------------------------------------
Net Assets:
Net assets $534,582,516
============
-----------------------------------------------------------------------------------------
Net Assets Consist of:
Partners' capital $486,314,745
Unrealized appreciation on investments and foreign currency
transactions--net 48,267,771
------------
Net assets $534,582,516
============
-----------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
May 31, 2000 34 Mercury International Fund
<PAGE>
STATEMENT OF OPERATIONS
For the Year Ended May 31, 2000
--------------------------------------------------------------------------------
MERCURY MASTER INTERNATIONAL PORTFOLIO
================================================================================
Investment Income:
Dividends (net of $848,349 foreign withholding tax) $ 6,443,041
Interest and discount earned 794,209
------------
Total income 7,237,250
------------
--------------------------------------------------------------------------------
Expenses:
Investment advisory fees $ 3,574,147
Custodian fees 300,911
Professional fees 68,861
Accounting services 53,882
Trustees' fees and expenses 26,219
Pricing fees 3,066
------------
Total expenses 4,027,086
------------
Investment income--net 3,210,164
------------
--------------------------------------------------------------------------------
Realized & Unrealized Gain (Loss) on Investments
& Foreign Currency Transactions--Net:
Realized gain (loss) from:
Investments--net 32,446,578
Foreign currency transactions--net (347,095) 32,099,483
------------
Change in unrealized appreciation/depreciation on:
Investments--net 42,090,119
Foreign currency transactions--net (65,060) 42,025,059
---------------------------
Net Increase in Net Assets Resulting from Operations $ 77,334,706
============
--------------------------------------------------------------------------------
See Notes to Financial Statements.
May 31, 2000 35 Mercury International Fund
<PAGE>
STATEMENTS OF CHANGES
IN NET ASSETS
MERCURY MASTER INTERNATIONAL PORTFOLIO
================================================================================
<TABLE>
<CAPTION>
For the For the Period
Year Ended October 30, 1998+
Increase in Net Assets: May 31, 2000 to May 31, 1999
------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Investment income--net $ 3,210,164 $ 3,082,401
Realized gain on investments and foreign currency
transactions--net 32,099,483 1,318,788
Change in unrealized appreciation/depreciation on
investments and foreign currency transactions--net 42,025,059 6,242,712
-----------------------------
Net increase in net assets resulting from operations 77,334,706 10,643,901
-----------------------------
------------------------------------------------------------------------------------------------
Net Capital Contributions:
Increase in net assets derived from net capital contributions 111,873,690 334,580,119
-----------------------------
------------------------------------------------------------------------------------------------
Net Assets:
Total increase in net assets 189,208,396 345,224,020
Beginning of period 345,374,120 150,100
-----------------------------
End of period $534,582,516 $345,374,120
=============================
------------------------------------------------------------------------------------------------
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
May 31, 2000 36 Mercury International Fund
<PAGE>
FINANCIAL HIGHLIGHTS
MERCURY MASTER INTERNATIONAL PORTFOLIO
================================================================================
<TABLE>
<CAPTION>
The following ratios have been derived from information For the For the Period
provided in the financial statements. Year Ended October 30, 1998+
May 31, 2000 to May 31, 1999
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Ratios to Average Net Assets:
Expenses .84% .95%*
============================
Investment income--net .67% 1.76%*
============================
-----------------------------------------------------------------------------------------------
Supplemental Data:
Net assets, end of period (in thousands) $ 534,583 $ 345,374
============================
Portfolio turnover 63.03% 24.19%
============================
-----------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
+ Commencement of operations.
See Notes to Financial Statements.
May 31, 2000 37 Mercury International Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS
MERCURY MASTER INTERNATIONAL PORTFOLIO
================================================================================
1 Significant Accounting Policies:
Mercury Master International 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.
o Financial futures contracts--The Portfolio may purchase or sell
financial futures contracts and options on such futures contracts for the
purpose of hedging the market risk on existing securities or the intended
purchase of securities. Upon entering into a contract, the Portfolio
deposits and maintains as collateral such initial margin as required by
the exchange on which the transaction is effected. Pursuant to the
contract, the Portfolio agrees to receive from or pay to the broker an
amount of cash equal to the daily
May 31, 2000 38 Mercury International Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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.
o Options--The Portfolio is authorized to purchase and write call and put
options. When the Portfolio writes an option, an amount equal to the
premium received by the Portfolio is reflected as an asset and an
equivalent liability. The amount of the liability is subsequently marked
to market to reflect the current market value of the option written. When
a security is purchased or sold through an exercise of an option, the
related premium paid (or received) is added to (or deducted from) the
basis of the security acquired or deducted from (or added to) the proceeds
of the security sold. When an option expires (or the Portfolio enters into
a closing transaction), the Portfolio realizes a gain or loss on the
option to the extent of the premiums received or paid (or a gain or loss
to the extent that the cost of the closing transaction exceeds the premium
paid or received).
Written and purchased options are non-income producing investments.
o Forward foreign exchange contracts--The Portfolio is authorized to enter
into forward foreign exchange contracts as a hedge against either specific
transactions or portfolio positions. Such contracts are not entered on the
Portfolio's records. However, the effect on operations is recorded from
the date the Portfolio enters into such contracts.
o Foreign currency options and futures--The Portfolio may also purchase or
sell listed or over-the-counter foreign currency options, foreign currency
futures and related options on foreign currency futures as a short or long
hedge against possible variations in foreign exchange rates. Such
transactions may be effected with respect to hedges on non-US
dollar-denominated securities owned by the Portfolio, sold by the
Portfolio but not yet delivered, or committed or anticipated to be
purchased by the Portfolio.
(c) Foreign currency transactions--Transactions denominated in foreign
currencies are recorded at the exchange rate prevailing when recognized.
Assets and liabilities denominated in foreign currencies are valued at the
exchange rate at the end of the period. Foreign currency transactions are
the result of settling (realized) or valuing (unrealized) assets or
liabilities expressed in foreign currencies into US dollars. Realized and
unrealized gains or losses from investments include the effects of foreign
exchange rates on investments.
(d) Income taxes--The Portfolio is classified as a partnership for Federal
income tax purposes. As a partnership for Federal income tax purposes, the
Portfolio will not incur Federal income tax liability. Items of
partnership income, gain, loss and deduction will pass through to
investors as partners in the Portfolio. Therefore, no Federal income tax
provision is required. Under the applicable foreign tax law, withholding
taxes may be imposed on interest, dividends, and capital gains at various
rates.
May 31, 2000 39 Mercury International Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
(e) Security transactions and investment income--Security transactions are
accounted for on the date the securities are purchased or sold (the trade
dates). Dividend income is recorded on the ex-dividend dates. Dividends
from foreign securities where the ex-dividend date may have passed are
subsequently recorded when the Portfolio has determined the ex-dividend
date. Interest income (including amortization of discount) is recognized
on the accrual basis. Realized gains and losses on security transactions
are determined on the identified cost basis.
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.
In addition, Merrill Lynch, Pierce, Fenner & Smith Incorporated, a
subsidiary of ML & Co., received $29,981 in commissions on the execution
of portfolio security transactions for the Portfolio for the year ended
May 31, 2000.
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 $403,760,009 and $289,080,376,
respectively.
May 31, 2000 40 Mercury International Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(CONCLUDED)
Net realized gains (losses) for the year ended May 31, 2000 and net
unrealized gains (losses) as of May 31, 2000 were as follows:
Realized Unrealized
Gains (Losses) Gains (Losses)
--------------------------------------------------------------------------
Long-term investments $ 32,446,578 $ 48,414,984
Foreign currency transactions (347,095) (147,213)
-----------------------------
Total $ 32,099,483 $ 48,267,771
=============================
--------------------------------------------------------------------------
As of May 31, 2000, net unrealized appreciation for Federal income tax
purposes aggregated $46,246,095, of which $90,527,435 related to
appreciated securities and $44,281,340 related to depreciated securities.
At May 31, 2000, the aggregate cost of investments for Federal income tax
purposes was $467,922,534.
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 $1,121,000 and $89,000, respectively.
May 31, 2000 41 Mercury International Fund
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Investors
Mercury Master International Portfolio
(One of the Series constituting Mercury Asset Management Master Trust):
We have audited the accompanying statement of assets and liabilities of Mercury
Master International 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 from October 30, 1998 (commencement of operations) to May 31,
1999. These financial statements and financial highlights are the responsibility
of the Portfolio's management. Our responsibility is to express an opinion on
these financial statements and financial highlights based on our 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 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. 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
International 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 from October 30, 1998
(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 14, 2000
May 31, 2000 42 Mercury International Fund
<PAGE>
PORTFOLIO INFORMATION (UNAUDITED)
WORLDWIDE INVESTMENTS AS OF MAY 31, 2000
================================================================================
Percent of
Ten Largest Holdings Net Assets
================================================================================
Nokia Oyj 4.1%
--------------------------------------------------------------------------------
Vodafone AirTouch PLC 3.8
--------------------------------------------------------------------------------
Telefonaktiebolaget LM
Ericsson AB 'B' 2.5
--------------------------------------------------------------------------------
Total Fina SA 'B' 2.2
--------------------------------------------------------------------------------
Glaxo Wellcome PLC 2.0
--------------------------------------------------------------------------------
Siemens AG 2.0
--------------------------------------------------------------------------------
Deutsche Telekom AG
(Registered Shares) 1.8
--------------------------------------------------------------------------------
Royal Dutch Petroleum Company 1.8
--------------------------------------------------------------------------------
AstraZeneca Group PLC 1.7
--------------------------------------------------------------------------------
Vivendi 1.6
Percent of
Ten Largest Countries Net Assets
================================================================================
United Kingdom 20.9%
--------------------------------------------------------------------------------
Japan 20.7
--------------------------------------------------------------------------------
France 10.2
--------------------------------------------------------------------------------
Germany 8.2
--------------------------------------------------------------------------------
Netherlands 7.4
--------------------------------------------------------------------------------
Sweden 4.8
--------------------------------------------------------------------------------
Finland 4.6
--------------------------------------------------------------------------------
Switzerland 4.5
--------------------------------------------------------------------------------
Italy 2.3
--------------------------------------------------------------------------------
Spain 2.2
Percent of
Ten Largest Industries Net Assets
================================================================================
Diversified Telecommunication
Services 9.0%
--------------------------------------------------------------------------------
Banks 8.9
--------------------------------------------------------------------------------
Communications Equipment 8.8
--------------------------------------------------------------------------------
Pharmaceuticals 7.4
--------------------------------------------------------------------------------
Oil & Gas 6.3
--------------------------------------------------------------------------------
Wireless Telecommunications
Services 5.1
--------------------------------------------------------------------------------
Insurance 4.9
--------------------------------------------------------------------------------
Diversified Financials 4.3
--------------------------------------------------------------------------------
Metals & Mining 3.0
--------------------------------------------------------------------------------
Food Products 2.9
May 31, 2000 43 Mercury International Fund
<PAGE>
This report is not authorized for use as an offer of sale or a solicitation of
an offer to buy shares of the Fund unless accompanied or preceded by the Fund's
current prospectus. Past performance results shown in this report should not be
considered a representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost. Statements and other information
herein are as dated and are subject to change.
The Fund seeks long-term capital growth through investments primarily in a
diversified portfolio of equity securities of companies located outside the
United States. The Fund will seek to achieve its objective by investing all of
its assets in Mercury Master International 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 International Fund of
Mercury Asset Management Funds, Inc.
Box 9011
Princeton, NJ
08543-9011
[RECYCLE LOGO] Printed on post-consumer recycled paper MERCINTL--5/00
