ANNUAL REPORT
MAY 31, 2000
Mercury
U.S. Small Cap
Growth
Fund
OF MERCURY ASSET
MANAGEMENT FUNDS, INC.
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Statements and other information herein are as dated and are subject
to change.
The Fund seeks long-term capital growth. The Fund invests primarily
in a diversified portfolio of equity securities of small cap
companies located in the United States that Fund management believes
have above-average prospects for earnings growth. The Fund may also
invest in securities that Fund management believes are undervalued.
In addition, the Fund may invest up to 10% of its assets in stocks
of companies located in Canada. The Fund will seek to achieve its
objective by investing all of its assets in Mercury Master U.S.
Small Cap Growth Portfolio of Mercury Asset Management Master Trust,
which has the same investment objective as the Fund. The Fund's
investment experience will correspond to the investment experience
of the Portfolio.
Mercury U.S. Small Cap Growth Fund of
Mercury Asset Management Funds, Inc.
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
MERCURY MASTER U.S. SMALL CAP
GROWTH PORTFOLIO
SECTOR REPRESENTATION
As a Percentage of Net Assets as of May 31, 2000
A pie chart depicting the following percentages:
Consumer Staples 1.1%
Autos--Transportation 1.0%
Technology 39.7%
Healthcare 13.3%
Cash Equivalents 4.1%
Financials 6.4%
Consumer Discretionary 9.6%
Utilities 5.8%
Producer Durables 7.5%
Materials & Processing 2.5%
Energy 9.0%
INVESTMENTS AS OF MAY 31, 2000
Percent of
Ten Largest Holdings Net Assets
Macrovision Corporation 2.6%
Littelfuse Inc. 2.5
Powerwave Technologies, Inc. 2.3
Devon Energy Corporation 2.2
Globix Corporation 2.1
Stone Energy Corporation 2.0
Virata Corporation 1.9
Aspect Development, Inc. 1.9
Louis Dreyfus Natural Gas Corp. 1.8
MMC Networks, Inc. 1.7
Percent of
Ten Largest Industries Net Assets
Software Systems 13.9%
Communications Technology 9.3
Electronics--Semiconductors--
Components 8.3
Services--Commercial 6.7
Medical & Dental
Instruments & Supplies 5.3
Biotechnology Research
and Production 4.3
Computer Services 4.2
Crude Producers 4.0
Telecommunications 3.8
Telecommunication Equipment 3.5
May 31, 2000
Mercury U.S. Small Cap Growth Fund
DEAR SHAREHOLDER
Fiscal Year in Review
We are pleased to provide you with this first annual report to
shareholders. For the period since inception (October 29, 1999)
through May 31, 2000, the Fund's Class I, Class A, Class B and Class
C Shares had total returns of +31.40%, +31.20%, +30.60% and +30.60%,
respectively. This is compared to a 16.6% rise for the unmanaged
Russell 2000 Growth Index, an 11.8% increase for the unmanaged
Russell 2000 Index, and a 5.0% rise for the unmanaged Standard &
Poor's 500 (S&P 500) Index for the same period. The Lipper Small Cap
Growth Fund average rose 26.0% for the period. (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 6-8 of this report to shareholders.) The Fund outperformed
largely as a result of successful stock selection and to a lesser
extent because of sector selection. The Fund benefited from both
small stocks and growth stocks that were in favor for more than half
the period.
Stock selection was driven by a combination of successful technology
and healthcare holdings as well as several successful portfolio
themes. Contributors to outperformance during the period included
EMCORE Corporation (communication semiconductor equipment provider),
Powerwave Technologies, Inc. (wireless infrastructure component
manufacturer), Aspect Development, Inc. (supply chain and
procurement software developer) and Macrovision Corporation (digital
rights management software provider) in the technology sector.
Cephalon, Inc. (emerging pharmaceutical provider targeting
neurological disorders) and Geron Corporation (early stage biotech
company targeting stem cell and cellular aging), both of which are
in the healthcare sector, also contributed to the Fund's
outperformance. In addition, six holdings announced that they had
agreed to be acquired during the period, a testament to the
consolidation trends within the smaller company segment.
Portfolio investments that contributed to performance during the
period included our holdings in wireless infrastructure,
communication semiconductor and energy. In terms of sector
selection, the Fund benefited from a significant overweighted
position in the energy sector and from an underweighted position in
the consumer discretionary sector.
May 31, 2000
Mercury U.S. Small Cap Growth Fund
Investment Environment
During the seven months since the Fund's inception, US equity
markets rose slightly, disguising a volatile period within the small
cap growth and technology sectors. A period of steady share price
appreciation for small cap growth stocks was followed by a
correction in the share prices of this segment in the latter half of
the period. For example, the Russell 2000 Growth Index rose 53.3%
from November 30, 1999 to March 10, 2000, followed by a decline of
31.2% from its peak on March 10. Drivers of the correction included
the rapid rise in valuations in certain segments of the market (the
technology, healthcare and telecommunication sectors) combined with
continued Federal Reserve Board efforts to slow economic growth,
resulting in the sixth consecutive interest rate increase in May
since the summer of 1999. Gross domestic product growth of 5.4% (the
third consecutive quarter of growth greater than 5%) in the first
quarter of 2000 coupled with Microsoft Corporation's anti-trust case
contributed to investor anxiety.
As a result, there have been several shifts in investment sentiment.
Investor preference changed from "new economy" companies back to
"old economy" companies, from small cap back to large cap and from
growth back to value. By May 31, 2000, excessive valuations had been
largely wrung out or at least reduced to levels that could somehow
be justified using traditional valuation measures.
Despite the higher volatility during the six-month period ended May
31, 2000, smaller companies as measured by the Russell 2000 Index
(+5.5%) and the Russell 2000 Growth Index (+5.4%) outperformed the
broader market, as measured by the S&P 500 Index (+2.9%). By
comparison, the Fund significantly outperformed its benchmarks and
the broader market. For the six months ended May 31, 2000, the
Fund's Class I, Class A, Class B and Class C Shares had total
returns of +18.17%, +17.99%, +17.55% and +17.55%, respectively. The
Lipper Small Cap Growth Fund average rose +11.58% for the same
period.
Investment Outlook
Long-term investors in the small cap growth segment of the US equity
market have come to expect above-average volatility, along with the
prospects for above-average returns. This period was no exception,
and in fact in some ways magnified this point. While it is difficult
to predict the market's exact movements, unprecedented innovations
within the technology, telecommunications and healthcare industries
offer a very strong case for investors with longer-term investment
horizons investing in the small cap segment. In addition, we
continue to believe that we are in the early stages of a multi-year
small cap outperformance cycle.
May 31, 2000
Mercury U.S. Small Cap Growth Fund
In Conclusion
We thank you for your continued investment in Mercury U.S. Small Cap
Growth Fund, and we look forward to serving your investment needs in
the months and years ahead.
Sincerely,
(Jeffrey Peek)
Jeffrey Peek
President
(James A. Skinner, III)
James A. Skinner, III
Portfolio Manager
July 3, 2000
May 31, 2000
Mercury U.S. Small Cap Growth Fund
FUND PERFORMANCE DATA
ABOUT FUND PERFORMANCE
The Fund offers four classes of shares, each with its own sales
charge and expense structure, allowing you to invest in the way that
best suits your needs.
CLASS I SHARES incur a maximum initial sales charge of 5.25% and
bear no ongoing distribution and account maintenance fees. Class I
shares are available only to eligible investors.
CLASS A SHARES incur a maximum initial sales charge of 5.25% and an
account maintenance fee of 0.25% (but no distribution fee).
CLASS B SHARES are subject to a maximum contingent deferred sales
charge of 4% if redeemed during the first two years, decreasing to
3% for each of the next two years and decreasing 1% each year
thereafter to 0% after the sixth year. In addition, Class B shares
are subject to a distribution fee of 0.75% and an account
maintenance fee of 0.25%. These shares automatically convert to
Class A shares after approximately 8 years.
CLASS C SHARES are subject to a distribution fee of 0.75% and an
account maintenance fee of 0.25%. In addition, Class C shares may be
subject to a 1% contingent deferred sales charge if redeemed within
one year after purchase.
None of the past results shown should be considered a representation
of future performance. Figures shown in the "Recent Performance
Results" and "Aggregate Total Return" tables assume reinvestment of
all dividends and capital gains distributions at net asset value on
the ex-dividend date. Investment return and principal value of
shares will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost. Dividends paid to each class
of shares will vary because of the different levels of account
maintenance, distribution and transfer agency fees applicable to
each class, which are deducted from the income available to be paid
to shareholders.
AGGREGATE ANNUAL TOTAL RETURN
% Return % Return
Without Sales With Sales
Class I Shares* Charge Charge**
Inception (10/29/99)
through 3/31/00 +68.90% +60.03%
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without Sales With Sales
Class A Shares* Charge Charge**
Inception (10/29/99)
through 3/31/00 +68.70% +59.84%
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without With
Class B Shares* CDSC CDSC**
Inception (10/29/99)
through 3/31/00 +68.20% +64.20%
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 6 years.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without With
Class C Shares* CDSC CDSC**
Inception (10/29/99)
through 3/31/00 +68.20% +67.20%
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
May 31, 2000
Mercury U.S. Small Cap Growth Fund
FUND PERFORMANCE DATA (CONTINUED)
TOTAL RETURN BASED ON A $10,000 INVESTMENT
A line graph depicting the growth of the Mercury U.S. Small Cap
Growth Fund's Class I and Class A Shares compared to the Russell 2000
Index and the Russell 2000 Growth Index++++++. Beginning and ending
values are:
10/29/99** 5/00
Mercury US Small Cap
Growth Fund++--Class I Shares* $ 9,600 $12,450
Mercury US Small Cap
Growth Fund++--Class A Shares* $10,000 $12,431
Russell 2000 Index++++ $10,000 $11,150
Russell 2000 Growth Index++++++ $10,000 $11,660
A line graph depicting the growth of the Mercury U.S. Small Cap
Growth Fund's Class B and Class C Shares to the Russell 2000 Index
and the Russell 2000 Growth Index++++++. Beginning and ending values
are:
10/29/99** 5/00
Mercury US Small Cap
Growth Fund++--Class B Shares* $10,000 $12,660
Mercury US Small Cap
Growth Fund++--Class C Shares* $10,000 $12,960
Russell 2000 Index++++ $10,000 $11,660
Russell 2000 Growth Index++++++ $10,000 $11,180
*Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
**Commencement of operations.
++The Fund invests all of its assets in Mercury Master U.S. Small
Cap Growth Portfolio of Mercury Asset Management Master Trust. The
Portfolio invests primarily in a diversified portfolio of small cap
companies located in the United States that fund management believes
have above-average prospects for growth.
++++This unmanaged Index is comprised of approximately 2,000 smaller-
capitalization common stocks from various industrial sectors.
++++++This unmanaged Index measures the performance of those Russell
2000 companies with higher price-to-book ratios and higher
forecasted growth values.
Past performance is not indicative of future results.
May 31, 2000
Mercury U.S. Small Cap Growth Fund
FUND PERFORMANCE DATA (CONCLUDED)
RECENT PERFORMANCE RESULTS*
6 Month Since Inception
As of May 31, 2000 Total Return Total Return
Class I +18.17% +31.40%
Class A +17.99 +31.20
Class B +17.55 +30.60
Class C +17.55 +30.60
*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 commenced operations on 10/29/99.
May 31, 2000
Mercury U.S. Small Cap Growth Fund
<TABLE>
STATEMENT OF ASSETS AND
LIABILITIES
<CAPTION>
As of May 31, 2000
Mercury U.S. Small Cap Growth Fund
<S> <C>
Assets:
Investment in Mercury Master U.S. Small Cap Growth Portfolio, at value
(identified cost--$255,586,181) $255,451,175
Prepaid registration fees 146,052
------------
Total assets 255,597,227
------------
Liabilities:
Payable to distributor 191,659
Payable to administrator 36,852
Accrued expenses and other liabilities 177,543
------------
Total liabilities 406,054
------------
Net Assets:
Net assets $255,191,173
============
Net Assets Consist of:
Class I Shares of Common Stock, $.0001 par value, 100,000,000
shares authorized $ 209
Class A Shares of Common Stock, $.0001 par value, 100,000,000
shares authorized 217
Class B Shares of Common Stock, $.0001 par value, 100,000,000
shares authorized 985
Class C Shares of Common Stock, $.0001 par value, 100,000,000
shares authorized 542
Paid-in capital in excess of par 230,707,749
Undistributed realized capital gains on investments from the Portfolio--net 24,616,477
Unrealized depreciation on investments from the Portfolio--net (135,006)
------------
Net assets $255,191,173
============
Net Asset Value:
Class I--Based on net assets of $27,417,116 and 2,086,987 shares
outstanding $ 13.14
============
Class A--Based on net assets of $28,396,234 and 2,165,091 shares
outstanding $ 13.12
============
Class B--Based on net assets of $128,607,272 and 9,850,145 shares
outstanding $ 13.06
============
Class C--Based on net assets of $70,770,551 and 5,420,540 shares
outstanding $ 13.06
============
See Notes to Financial Statements.
</TABLE>
May 31, 2000
Mercury U.S. Small Cap Growth Fund
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Period October 29, 1999++ to May 31, 2000
MERCURY U.S. SMALL CAP GROWTH FUND
<S> <C> <C>
Investment Income:
Investment income allocated from the Portfolio $ 878,681
Expenses allocated from the Portfolio (1,115,213)
------------
Net investment loss from the Portfolio (236,532)
============
Expenses:
Account maintenance and distribution fees--Class B $ 722,002
Account maintenance and distribution fees--Class C 368,035
Administration fee 281,584
Registration fees 116,951
Transfer agent fees--Class B 77,102
Offering costs 66,698
Account maintenance fees--Class A 45,340
Transfer agent fees--Class C 40,728
Transfer agent fees--Class A 16,946
Printing and shareholder reports 15,377
Professional fees 14,029
Transfer agent fees--Class I 12,480
Accounting services 1,484
Other 1,393
------------
Total expenses 1,780,149
------------
Investment loss--net (2,016,681)
------------
Realized & Unrealized Gain (Loss) from the Portfolio--Net:
Realized gain on investments from the Portfolio--net 26,543,423
Unrealized depreciation on investments from the Portfolio--net (135,006)
------------
Net Increase in Net Assets Resulting from Operations $ 24,391,736
============
++Commencement of operations.
See Notes to Financial Statements.
</TABLE>
May 31, 2000
Mercury U.S. Small Cap Growth Fund
<TABLE>
STATEMENT OF CHANGES
IN NET ASSETS
<CAPTION>
For the Period October 29, 1999++ to May 31, 2000
MERCURY U.S. SMALL CAP GROWTH FUND
<S> <C>
Increase (Decrease) in Net Assets:
Operations:
Investment loss--net $ (2,016,681)
Realized gain on investments from the Portfolio--net 26,543,423
Unrealized depreciation on investments from the Portfolio--net (135,006)
------------
Net increase in net assets resulting from operations 24,391,736
------------
Capital Share Transactions:
Net increase in net assets derived from capital share transactions 230,699,437
------------
Net Assets:
Total increase in net assets 255,091,173
Beginning of period 100,000
------------
End of period $255,191,173
============
++Commencement of operations.
See Notes to Financial Statements.
May 31, 2000
Mercury U.S. Small Cap Growth Fund
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
MERCURY U.S. SMALL CAP GROWTH FUND
The following per share data and ratios have been derived from
information provided in the financial statements.
For the Period October 29, 1999++
to May 31, 2000
Increase (Decrease) in Net Asset Value: Class I Class A Class B Class C
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 10.00 $ 10.00 $ 10.00 $ 10.00
-------- -------- -------- --------
Investment loss--net (.04) (.07) (.12) (.11)
Realized and unrealized gain on
investments from the Portfolio--net 3.18 3.19 3.18 3.17
-------- -------- -------- --------
Total from investment operations 3.14 3.12 3.06 3.06
-------- -------- -------- --------
Net asset value, end of period $ 13.14 $ 13.12 $ 13.06 $ 13.06
======== ======== ======== ========
Total Investment Return:**
Based on net asset value per share 31.40%+++ 31.20%+++ 30.60%+++ 30.60%+++
======== ======== ======== ========
Ratios to Average Net Assets:
Expenses++++ 1.23%* 1.49%* 2.25%* 2.25%*
======== ======== ======== ========
Investment loss--net (.63%)* (.83%)* (1.62%)* (1.64%)*
======== ======== ======== ========
Supplemental Data:
Net assets, end of period (in thousands) $ 27,417 $ 28,396 $128,607 $ 70,771
======== ======== ======== ========
*Annualized.
**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.
</TABLE>
May 31, 2000
Mercury U.S. Small Cap Growth Fund
NOTES TO FINANCIAL STATEMENTS
Mercury U.S. Small Cap Growth Fund
1 Significant Accounting Policies:
Mercury U.S. Small Cap Growth Fund (the "Fund") is a part of Mercury
Asset Management Funds, Inc. (the "Corporation"). The Fund is
registered under the Investment Company Act of 1940 as a
diversified, open-end management investment company. The Fund'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
seeks to achieve its investment objective by investing all of its
assets in the Mercury Master U.S. Small Cap Growth Portfolio (the
"Portfolio") of Mercury Asset Management Master Trust (the "Trust"),
which has the same investment objective as the Fund. The value of
the Fund's investment in the Portfolio reflects the Fund's
proportionate interest in the net assets of the Portfolio. The
performance of the Fund is directly affected by the performance of
the Portfolio. The financial statements of the Portfolio, including
the Schedule of Investments, are included elsewhere in this report
and should be read in conjunction with the Fund's financial
statements. Prior to commencement of operations on October 29, 1999,
the Fund had no operations other than those relating to
organizational matters and the issuance of 10,000 capital shares of
the Fund on October 18, 1999 to Fund Asset Management, L.P. ("FAM")
for $100,000. The Fund offers four classes of shares. Class I and
Class A Shares are sold with a front-end sales charge. Class B and
Class C Shares may be subject to a contingent deferred sales charge.
All classes of shares have identical voting, dividend, liquidation
and other rights and the same terms and conditions, except that
Class A, Class B and Class C Shares bear certain expenses related to
the account maintenance of such shares, and Class B and Class C
Shares also bear certain expenses related to the distribution of
such shares. Each class has exclusive voting rights with respect to
matters relating to its account maintenance and distribution
expenditures (except that Class B Shares have certain voting rights
with respect to Class A distribution expenditures). The following is
a summary of significant accounting policies followed by the Fund.
(a) Valuation of investments--Valuation of securities is discussed
in Note 1a of the Portfolio's Notes to Financial Statements, which
is included elsewhere in this report.
(b) Income--The Fund's net investment income consists of the Fund's
pro rata share of the net investment income of the Portfolio, less
all actual and accrued expenses of the Fund determined in accordance
with accounting principles generally accepted in the United States
of America.
(c) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to shareholders. Therefore, no Federal income tax
provision is required. Under the applicable foreign tax law,
withholding taxes may be imposed on interest, dividends and capital
gains at various rates.
(d) Prepaid registration fees--Prepaid registration fees are charged
to expenses as the related shares are issued.
May 31, 2000
Mercury U.S. Small Cap Growth Fund
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
(e) Dividends and distributions--Dividends and distributions paid by
the Fund are recorded on the ex-dividend dates.
(f) Investment transactions--Investment transactions are accounted
for on a trade date basis.
(g) Reclassification--Generally accepted accounting principles
require that certain components of net assets be adjusted to reflect
permanent differences between financial and tax reporting.
Accordingly, the current year's permanent book/tax differences of
$1,926,946 have been reclassified between undistributed net realized
capital gains and accumulated net investment loss and $89,735 has
been reclassified between paid-in capital in excess of par and
accumulated net investment loss. These reclassifications have no
effect on net assets or net asset values per share.
2 Transactions with Affiliates:
The Corporation has entered into an Administration Agreement with
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 .20% 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. The ongoing distribution fee compensates the
Distributor, MLPF&S and selected dealers for providing shareholder
and distribution-related services to Class B and Class C
shareholders.
May 31, 2000
Mercury U.S. Small Cap Growth Fund
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
For the period October 29, 1999 to May 31, 2000, MFD earned
underwriting discounts and direct commissions and MLPF&S earned
dealer concessions on sales of the Fund's Class I and Class A Shares
as follows:
MFD MLPF&S
Class I $ 207 $ 2,832
Class A $20,832 $1,169,329
For the period October 29, 1999 to May 31, 2000, MLPF&S received
contingent deferred sales charges of $172,086 and $28,716 relating
to transactions in Class B and Class C Shares, respectively.
Furthermore, MLPF&S received contingent deferred sales charges of
$1,043 relating to transactions subject to front-end sales charge
waivers in Class A.
Financial Data Services, Inc. ("FDS"), an indirect wholly-owned
subsidiary of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Corporation are officers
and/or directors or trustees of the Trust, Mercury International,
FAM, PSI, PFD, FDS, and/or ML & Co.
3 Investments:
Increases and decreases in the Fund's investment in the Portfolio
for the period October 29, 1999 to May 31, 2000, were $232,484,712
and $3,205,423, respectively.
4 Capital Share Transactions:
Net increase in net assets derived from capital share transactions
was $230,699,437 for the period October 29, 1999 to May 31, 2000.
Transactions in capital shares for each class were as follows:
Class I Shares for the Period October 29, 1999++
to May 31, 2000 Shares Dollar Amount
Shares sold 2,461,245 $32,784,460
Shares redeemed (376,758) (6,018,012)
----------- -----------
Net increase 2,084,487 $26,766,448
=========== ===========
++Prior to October 29, 1999 (commencement of operations), the Fund
issued 2,500 shares to FAM for $25,000.
May 31, 2000
Mercury U.S. Small Cap Growth Fund
NOTES TO FINANCIAL STATEMENTS
(CONCLUDED)
Class A Shares for the Period October 29, 1999++
to May 31, 2000 Shares Dollar Amount
Shares sold 2,710,717 $30,487,987
Shares redeemed (548,126) (8,112,344)
----------- -----------
Net increase 2,162,591 $22,375,643
=========== ===========
++Prior to October 29, 1999 (commencement of operations), the Fund
issued 2,500 shares to FAM for $25,000.
Class B Shares for the Period October 29, 1999++
to May 31, 2000 Shares Dollar Amount
Shares sold 10,727,310 $127,257,600
Shares redeemed (879,665) (13,136,170)
----------- ------------
Net increase 9,847,645 $114,121,430
=========== ============
++Prior to October 29, 1999 (commencement of operations), the Fund
issued 2,500 shares to FAM for $25,000.
Class C Shares for the Period October 29, 1999++
to May 31, 2000 Shares Dollar Amount
Shares sold 5,849,249 $73,641,277
Shares redeemed (431,209) (6,205,361)
----------- -----------
Net increase 5,418,040 $67,435,916
=========== ===========
++Prior to October 29, 1999 (commencement of operations), the Fund
issued 2,500 shares to FAM for $25,000.
May 31, 2000
Mercury U.S. Small Cap Growth Fund
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
MERCURY U.S. SMALL CAP GROWTH FUND
The Board of Directors and Shareholders, Mercury
U.S. Small Cap Growth Fund (One of the Series
constituting Mercury Asset Management Funds, Inc.):
We have audited the accompanying statement of assets and liabilities
of Mercury U.S. Small Cap Growth Fund as of May 31, 2000, the
related statements of operations and changes in net assets, and the
financial highlights for the period October 29, 1999 (commencement
of operations) to May 31, 2000. These financial statements and
financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our
audit.
We conducted our audit in accordance with auditing standards
generally accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
Mercury U.S. Small Cap Growth Fund as of May 31, 2000, the results
of its operations, the changes in its net assets, and the financial
highlights for the period October 29, 1999 (commencement of
operations) to May 31, 2000 in accordance with accounting principles
generally accepted in the United States of America.
Deloitte & Touche LLP
Princeton, New Jersey
July 13, 2000
</AUDIT-REPORT>
May 31, 2000
Mercury U.S. Small Cap Growth Fund
<TABLE>
SCHEDULE OF INVESTMENTS
MERCURY MASTER U.S. SMALL CAP GROWTH PORTFOLIO
<CAPTION>
In US Dollars
Shares Percent of
Industries Held Common Stocks Value Net Assets
<S> <C> <S> <C> <C>
Advertising 34,700 ++Lamar Advertising Company $ 1,392,337 0.5%
Agencies
Air Transportation 78,400 ++Midwest Express Holdings 1,631,700 0.6
Banks 122,936 ++Imperial Bancorp 2,182,114 0.9
1,000 Investors Financial Services 80,766 0.0
163,800 The South Financial Group, Inc. 2,067,975 0.8
------------ ------
4,330,855 1.7
Biotechnology 31,300 ++Aclara Biosciences Inc. 825,538 0.3
Research & 65,700 ++Biosite Diagnostics Incorporated 1,478,250 0.6
Production 54,700 ++Cephalon, Inc. 2,830,725 1.1
111,700 ++Geron Corporation 2,017,581 0.8
15,000 ++Human Genome Sciences, Inc. 1,316,250 0.5
43,700 ++Invitrogen Corporation 1,742,537 0.7
33,000 ++Transkaryotic Therapies, Inc. 825,000 0.3
------------ ------
11,035,881 4.3
Commercial 92,500 ++QRS Corporation 2,543,750 1.0
Information
Systems
Communications 163,400 ++Active Voice Corporation 1,102,950 0.4
Technology 36,300 ++Aspect Communications Corporation 1,456,537 0.6
231,600 ++Globix Corporation 5,239,950 2.1
22,100 ++Harmonic Inc. 987,594 0.4
134,000 ++MMC Networks, Inc. 4,371,750 1.7
132,400 ++Tekelec 4,369,200 1.7
67,025 ++USinternetworking, Inc. 1,202,261 0.5
120,200 ++Virata Corporation 4,958,250 1.9
------------ ------
23,688,492 9.3
Computer Services 68,000 ++Commtouch Software Ltd. 1,287,750 0.5
38,400 ++GoAmerica, Inc. 240,000 0.1
28,200 ++Intertrust Technologies Corporation 500,550 0.2
94,700 ++Macrovision Corporation 6,664,512 2.6
15,800 ++VeriSign, Inc. 2,137,938 0.8
------------ ------
10,830,750 4.2
Copper 53,900 ++Mueller Industries, Inc. 1,583,313 0.6
Crude Producers 96,200 Devon Energy Corporation 5,753,961 2.2
142,800 ++Louis Dreyfus Natural Gas Corp. 4,587,450 1.8
------------ ------
10,341,411 4.0
</TABLE>
May 31, 2000
Mercury U.S. Small Cap Growth Fund
<TABLE>
SCHEDULE OF INVESTMENTS (CONTINUED)
<CAPTION>
In US Dollars
Shares Percent of
Industries Held Common Stocks Value Net Assets
<S> <C> <S> <C> <C>
Drug--Grocery 77,800 ++Whole Foods Market, Inc. $ 2,703,550 1.1%
Store Chain
Drug-- 167,300 ++Anesta Corp. 2,478,131 1.0
Pharmaceuticals 85,500 ++SangStat Medical Corporation 2,276,438 0.9
------------ ------
4,754,569 1.9
Education 146,700 ++Education Management Corporation 2,436,595 1.0
Services
Electrical & 160,600 ++Littelfuse Inc. 6,444,075 2.5
Electronics
Electronics 31,000 ++Anaren Microwave, Inc. 3,146,500 1.2
32,200 Methode Electronics 1,155,175 0.5
------------ ------
4,301,675 1.7
Electronics-- 7,800 ++Affymetrix, Inc. 926,250 0.4
Medical Systems
Electronics-- 23,500 CTS Corporation 1,296,906 0.5
Semi- 80,100 ++Elantec Semiconductor, Inc. 3,043,800 1.2
conductors-- 30,200 ++hi/fn, inc. 873,912 0.3
Components 27,100 ++Micrel, Inc. 1,727,625 0.7
26,500 ++Plexus Corporation 2,212,750 0.9
110,500 ++Powerwave Technologies, Inc. 5,987,719 2.3
106,500 ++QuickLogic Corporation 2,722,406 1.1
67,600 ++Stanford Microdevices, Inc. 1,259,050 0.5
21,800 ++TriQuint Semiconductor, Inc. 2,057,375 0.8
------------ ------
21,181,543 8.3
Financial Data 65,700 ++The BISYS Group, Inc. 4,319,775 1.7
Processing
Services
Health Care 143,200 Hooper Holmes, Inc. 1,467,800 0.6
Management
Services
Identification 17,500 C&D Technologies, Inc. 1,268,750 0.5
Control & Filter
Devices
Machinery-- 55,600 ++EMCORE Corporation 3,600,100 1.4
Industrial Specialty
Machinery-- 368,300 ++Newpark Resources, Inc. 3,084,513 1.2
Oil Well 225,900 ++Superior Energy Services, Inc. 2,287,238 0.9
Equipment & 5,371,751 2.1
Services
</TABLE>
May 31, 2000
Mercury U.S. Small Cap Growth Fund
<TABLE>
SCHEDULE OF INVESTMENTS (CONTINUED)
<CAPTION>
In US Dollars
Shares Percent of
Industries Held Common Stocks Value Net Assets
<S> <C> <S> <C> <C>
Medical & Dental 29,700 ++ArthroCare Corporation $ 2,531,925 1.0%
Instruments & 83,105 ++Cytyc Corporation 4,170,832 1.6
Supplies 192,100 ++Henry Schein, Inc. 3,385,763 1.3
29,900 ++Novoste Corporation 1,130,594 0.5
72,500 ++ResMed Inc. 1,740,000 0.7
24,500 ++Sequenom Inc. 502,250 0.2
------------ ------
13,461,364 5.3
Medical Services 128,300 ++CryoLife, Inc. 2,205,156 0.9
Metals & Minerals 82,300 ++Stillwater Mining Company 2,309,544 0.9
Oil--Crude 43,600 ++Newfield Exploration Company 1,825,750 0.7
Producers 84,100 ++Stone Energy Corporation 5,177,406 2.0
------------ ------
7,003,156 2.7
Paper 73,200 Caraustar Industries, Inc. 1,212,375 0.5
Power Transmission 70,100 Regal-Beloit Corporation 1,174,175 0.5
Equipment
Production-- 65,900 ++ATMI, Inc. 2,528,913 1.0
Technology 68,100 ++Photronics, Inc. 1,634,400 0.6
Equipment ------------ ------
4,163,313 1.6
Retail 38,100 ++Land's End, Inc. 1,171,575 0.5
Savings & Loans 86,900 ++Golden State Bancorp Inc. 1,526,181 0.6
Security Brokerage 41,400 ++Investment Technology Group, Inc. 1,397,250 0.5
& Services 147,500 Jeffreries Group, Inc. 2,977,656 1.2
209,600 ++Wit Capital Group, Inc. 1,624,400 0.6
------------ ------
5,999,306 2.3
Services-- 81,800 ABM Industries, Inc. 1,896,738 0.8
Commercial 75,800 ++Administaff, Inc. 3,936,863 1.5
236,700 ++Armor Holdings, Inc. 2,588,906 1.0
74,200 ++ChoicePoint Inc. 3,000,462 1.2
84,000 ++Getty Images, Inc. 2,766,750 1.1
61,500 ++Korn/Ferry International 1,329,937 0.5
73,500 ++MAXIMUS, Inc. 1,525,125 0.6
------------ ------
17,044,781 6.7
</TABLE>
May 31, 2000
Mercury U.S. Small Cap Growth Fund
<TABLE>
SCHEDULE OF INVESTMENTS (CONTINUED)
<CAPTION>
In US Dollars
Shares Percent of
Industries Held Common Stocks Value Net Assets
<S> <C> <S> <C> <C>
Software Systems 28,600 ++Agile Software Corporation $ 1,197,625 0.5%
81,600 ++Aspect Development, Inc. 4,773,600 1.9
59,600 ++Aware, Inc. 2,637,300 1.0
41,300 ++BackWeb Technologies Ltd. 629,825 0.2
22,600 ++Check Point Software Technologies Ltd. 4,245,975 1.7
28,400 ++Digimarc Corporation 749,050 0.3
23,700 ++HNC Software Inc. 971,700 0.4
38,200 ++MDSI Mobile Data Solutions Inc. 768,775 0.3
26,200 ++Macromedia, Inc. 2,099,275 0.8
83,200 ++Mercator Software, Inc. 2,475,200 1.0
70,158 ++NetIQ Corporation 2,376,591 0.9
35,500 ++Numerical Technologies, Inc. 1,471,031 0.6
4,800 ++Open Market, Inc. 51,000 0.0
52,200 ++Peregrine Systems, Inc. 1,083,150 0.4
25,000 ++Preview Systems, Inc. 265,625 0.1
53,400 ++SeaChange International, Inc. 1,368,375 0.5
13,900 ++SmartServ Online, Inc. 637,663 0.3
247,100 ++Smith-Gardner & Associates, Inc. 1,498,044 0.6
34,400 ++TIBCO Software Inc. 1,913,500 0.7
43,700 ++Ulticom, Inc. 1,125,275 0.4
52,100 ++Verity, Inc. 1,758,375 0.7
58,500 ++WebTrends Corporation 1,499,063 0.6
------------ ------
35,596,017 13.9
Steel 227,700 ++Weirton Steel Corporation 1,038,881 0.4
Telecommuni- 63,300 ++ANTEC Corporation 3,180,825 1.2
cation 55,100 ++American Tower Corporation (Class A) 2,045,587 0.8
Equipment 101,900 ++SBA Communications Corporation 3,795,775 1.5
------------ ------
9,022,187 3.5
Telecommuni- 70,450 ++CoreComm Limited 1,386,984 0.5
cations 109,700 ++ITC/\DeltaCom, Inc. 1,995,169 0.8
110,000 ++Insight Communications Company, Inc. 1,560,625 0.6
93,300 ++Microcell Telecommunications Inc. 3,452,100 1.4
42,300 ++WinStar Communications, Inc. 1,200,263 0.5
------------ ------
9,595,141 3.8
</TABLE>
May 31, 2000
Mercury U.S. Small Cap Growth Fund
<TABLE>
SCHEDULE OF INVESTMENTS (CONCLUDED)
<CAPTION>
In US Dollars
Shares Percent of
Industries Held Common Stocks Value Net Assets
<S> <C> <S> <C> <C>
Truckers 35,400 USFreightways Corporation $ 971,288 0.4%
Utilities-- 21,300 ++Advanced Radio Telecom Corp. 218,325 0.1
Telecommuni- 260,500 ++Motient Corporation 2,360,781 0.9
cations 116,200 ++Price Communications Corporation 2,650,813 1.0
------------ ------
5,229,919 2.0
Total Common Stocks
(Cost--$245,014,274) 244,879,281 95.9
Total Investments
(Cost--$245,014,274) 244,879,281 95.9
Time Deposit* 9,144,000 3.6
Other Assets Less Liabilities 1,428,025 0.5
------------ ------
Net Assets $255,451,306 100.0%
============ ======
*Time deposit bears interest at 6.75% and matures on 6/01/2000.
++Non-income producing security.
See Notes to Financial Statements.
</TABLE>
May 31, 2000
Mercury U.S. Small Cap Growth Fund
<TABLE>
STATEMENT OF ASSETS AND
LIABILITIES
<CAPTION>
As of May 31, 2000
MERCURY MASTER U.S. SMALL CAP GROWTH PORTFOLIO
<S> <C> <C>
Assets:
Investments, at value (identified cost--$245,014,274) $244,879,281
Cash 631,838
Time deposit 9,144,000
Receivables:
Securities sold $ 3,268,546
Contributions 729,732
Dividends 7,375
Interest 1,715 4,007,368
------------
Prepaid expenses 14,464
------------
Total assets 258,676,951
------------
Liabilities:
Payables:
Securities purchased 2,704,654
Withdrawals 330,742
Investment adviser 129,057 3,164,453
------------
Accrued expenses and other liabilities 61,192
------------
Total liabilities 3,225,645
------------
Net Assets:
Net assets $255,451,306
============
Net Assets Consist of:
Partners' capital $255,586,299
Unrealized depreciation on investments (134,993)
------------
Net assets $255,451,306
============
See Notes to Financial Statements.
</TABLE>
May 31, 2000
Mercury U.S. Small Cap Growth Fund
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Period October 29, 1999++ to May 31, 2000
<S> <C> <C>
MERCURY MASTER U.S. SMALL CAP GROWTH PORTFOLIO
Investment Income:
Interest and discount earned $ 756,679
Dividends 122,002
-------------
Total income 878,681
-------------
Expenses:
Investment advisory fees $ 986,257
Custodian fees 61,282
Trustees' fees and expenses 22,500
Offering costs 20,250
Professional fees 14,787
Accounting services 5,459
Pricing fees 161
Other 4,517
-------------
Total expenses 1,115,213
-------------
Investment loss--net (236,532)
-------------
Realized & Unrealized Gain (Loss) on Investments--Net:
Realized gain from investments--net 26,543,442
Unrealized depreciation on investments--net (134,993)
-------------
Net Increase in Net Assets Resulting from Operations $ 26,171,917
=============
++Commencement of operations.
See Notes to Financial Statements.
</TABLE>
May 31, 2000
Mercury U.S. Small Cap Growth Fund
<TABLE>
STATEMENT OF CHANGES
IN NET ASSETS
<CAPTION>
For the Period October 29, 1999++ to May 31, 2000
MERCURY MASTER U.S. SMALL CAP GROWTH PORTFOLIO
<S> <C>
Increase (Decrease)in Net Assets:
Operations:
Investment loss--net $ (236,532)
Realized gain on investments--net 26,543,442
Unrealized depreciation on investments--net (134,993)
-------------
Net increase in net assets resulting from operations 26,171,917
-------------
Net Capital Contributions:
Increase in net assets derived from net capital contributions 229,179,289
-------------
Net Assets:
Total increase in net assets 255,351,206
Beginning of period 100,100
-------------
End of period $ 255,451,306
=============
++Commencement of operations.
See Notes to Financial Statements.
</TABLE>
May 31, 2000
Mercury U.S. Small Cap Growth Fund
<TABLE>
FINANCIAL HIGHLIGHTS
MERCURY MASTER U.S. SMALL CAP GROWTH PORTFOLIO
<CAPTION>
The following ratios have been derived from information provided in
the financial statements.
For the Period
October 29, 1999++
to May 31, 2000
<S> <C>
Ratios to Average Net Assets:
Expenses .79%*
============
Investment loss--net (.17%)*
============
Supplemental Data:
Net assets, end of period (in thousands) $ 255,451
============
Portfolio turnover 76.81%
============
*Annualized.
++Commencement of operations.
See Notes to Financial Statements.
</TABLE>
May 31, 2000
Mercury U.S. Small Cap Growth Fund
NOTES TO FINANCIAL STATEMENTS
MERCURY MASTER U.S. SMALL CAP GROWTH PORTFOLIO
1 Significant Accounting Policies:
Mercury Master U.S Small Cap Growth 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 in the over-the-counter market prior to the time of valuation.
Securities traded both in the over-the-counter market and on a stock
exchange are valued according to the broadest and most
representative market. Short positions in securities traded in the
over-the-counter market are valued at the last available ask price
prior to the time of valuation. Options written or purchased are
valued at the last sale price in the case of exchange-traded
options. In the case of options traded in the over-the-counter
market, valuation is the last asked price (options written) or the
last bid price (options purchased). Short-term securities are valued
at amortized cost, which approximates market value. Other
investments, including futures contracts and related options, are
stated at market value. Securities and assets for which market
quotations are not readily available are valued at fair market
value, as determined in good faith by or under the direction of the
Trust's Board of Trustees.
(b) Derivative financial instruments--The Portfolio may engage in
various portfolio investment strategies to increase or decrease the
level of risk to which the Portfolio is exposed more quickly and
efficiently than transactions in other types of instruments. Losses
may arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
* Financial futures contracts--The Portfolio may purchase or sell
financial futures contracts and options on such futures contracts
for the purpose of hedging the market risk on existing securities or
the intended purchase of securities. Upon entering into a contract,
the Portfolio deposits and maintains as collateral such initial
margin as required by the exchange on which the transaction is
effected. Pursuant to the contract, the Portfolio agrees to receive
from or pay to the broker an amount of cash equal to the daily
fluctuation in value of the contract. Such receipts or payments are
known as variation margin and are recorded by the Portfolio as
unrealized gains or losses. When the contract is closed, the
Portfolio records a realized gain or loss equal to the difference
between the value of the contract at the time it was opened and the
value at the time it was closed.
May 31, 2000
Mercury U.S. Small Cap Growth Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
* Options--The Portfolio is authorized to purchase and write call
and put options. When the Portfolio writes an option, an amount
equal to the premium received by the Portfolio is reflected as an
asset and an equivalent liability. The amount of the liability is
subsequently marked to market to reflect the current market value of
the option written. When a security is purchased or sold through an
exercise of an option, the related premium paid (or received) is
added to (or deducted from) the basis of the security acquired or
deducted from (or added to) the proceeds of the security sold. When
an option expires (or the Portfolio enters into a closing
transaction), the Portfolio realizes a gain or loss on the option to
the extent of the premiums received or paid (or a gain or loss to
the extent that the cost of the closing transaction exceeds the
premium paid or received).
Written and purchased options are non-income producing investments.
*Forward foreign exchange contracts--The Portfolio is authorized to
enter into forward foreign exchange contracts as a hedge against
either specific transactions or portfolio positions. Such contracts
are not entered on the Portfolio's records. However, the effect on
operations is recorded from the date the Portfolio enters into such
contracts.
(c) Foreign currency transactions--Transactions denominated in
foreign currencies are recorded at the exchange rate prevailing when
recognized. Assets and liabilities denominated in foreign currencies
are valued at the exchange rate at the end of the period. Foreign
currency transactions are the result of settling (realized) or
valuing (unrealized) assets or liabilities expressed in foreign
currencies into US dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates on
investments.
(d) Income taxes--The Portfolio is classified as a partnership for
Federal income tax purposes. As a partnership for Federal income tax
purposes, the Portfolio will not incur Federal income tax liability.
Items of partnership income, gain, loss and deduction will pass
through to investors as partners in the Portfolio. Therefore, no
Federal income tax provision is required. Under the applicable
foreign tax law, withholding taxes may be imposed on interest,
dividends, and capital gains at various rates.
(e) Security transactions and investment income--Security
transactions are accounted for on the date the securities are
purchased or sold (the trade dates). Dividend income is recorded on
the ex-dividend dates. Dividends from foreign securities where the
ex-dividend date may have passed are subsequently recorded when the
Portfolio has determined the ex-dividend date. Interest income
(including amortization of discount) is recognized on the accrual
basis. Realized gains and losses on security transactions are
determined on the identified cost basis.
May 31, 2000
Mercury U.S. Small Cap Growth Fund
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
2 Investment Advisory Agreement and Transactions with Affiliates:
The Trust has entered into an Investment Advisory Agreement with
Mercury Asset Management US ("Mercury US"), a division 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., Incorporated ("ML & Co."), which is the limited
partner.
Mercury US 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 .70% of the average daily value of the
Portfolio's net assets. Mercury US has entered into a Sub-Advisory
Agreement with Mercury Asset Management International Ltd. ("Mercury
International") with respect to the Portfolio, pursuant to which
Mercury USmay provide investment advisory services with respect to
the Portfolio's assets. Mercury US has agreed to pay Mercury
International 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
US actually receives for providing services to the Trust pursuant to
the Investment Advisory Agreement.
Accounting services are provided to the Portfolio by FAM at cost.
Certain officers and/or trustees of the Trust are officers and/or
directors of Mercury Asset Management Funds, Inc., Mercury
International, FAM, PSI, and/or ML & Co.
3 Investments:
Purchases and sales of investments, excluding short-term securities,
for the period October 29, 1999 to May 31, 2000 were $377,237,731
and $158,996,857, respectively.
Net realized gains (losses) for the period October 29, 1999 to May
31, 2000 and net unrealized losses as of May 31, 2000 were as
follows:
Realized Unrealized
Gains (Losses) Losses
Investments:
Long-term investments $ 26,773,399 $ (134,993)
Financial futures contracts (229,957) --
-------------- ------------
Total investments $ 26,543,442 $ (134,993)
============== ============
As of May 31, 2000, net unrealized depreciation for Federal income
tax purposes aggregated $2,010,172, of which $47,970,310 related to
appreciated securities and $49,980,482 related to depreciated
securities. At May 31, 2000, the aggregate cost of investments for
Federal income tax purposes was $246,889,453.
MAY 31, 2000
MERCURY U.S. SMALL CAP GROWTH FUND
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
MERCURY MASTER U.S. SMALL CAP GROWTH PORTFOLIO
The Board of Trustees and Investors, Mercury
Master U.S. Small Cap Growth Portfolio (One of the Series
constituting Mercury Asset Management Master Trust):
We have audited the accompanying statement of assets and liabilities
of Mercury Master U.S. Small Cap Growth Portfolio, including the
schedule of investments, as of May 31, 2000, the related statements
of operations and changes in net assets, and the financial
highlights for the period October 29, 1999 (commencement of
operations) to May 31, 2000. These financial statements and
financial highlights are the responsibility of the Portfolio's
management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit.
We conducted our audit in accordance with auditing standards
generally accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned at May 31, 2000 by correspondence
with the custodian and brokers; where replies were not received from
brokers, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides
a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
Mercury Master U.S. Small Cap Growth Portfolio as of May 31, 2000,
the results of its operations, the changes in its net assets, and
the financial highlights for the period October 29, 1999
(commencement of operations) to May 31, 2000 in accordance with
accounting principles generally accepted in the United States of
America.
Deloitte & Touche LLP
Princeton, New Jersey
July 13, 2000
</AUDIT-REPORT>
May 31, 1999
Mercury U.S. Small Cap Growth Fund
OFFICERS AND DIRECTORS
Jeffrey M. Peek, Director and President
David O. Beim, Director
James T. Flynn, Director
W. Carl Kester, Director
Karen P. Robards, Director
Terry K. Glenn, Director and
Executive Vice President
Peter John Gibbs, Senior Vice President
Donald C. Burke, Vice President and Treasurer
Robert E. Putney, III, Secretary
Custodian
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(888) 763-2260
