ANNUAL REPORT
SEPTEMBER 30, 2000
Mercury
Select
Growth
Fund
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Statements and other information herein are as dated and are subject
to change.
The Fund seeks capital appreciation through investments primarily in
a portfolio of common stocks and other equity securities of very
large cap companies that are traded in US securities' markets that
Fund management believes have strong earnings growth potential. The
Fund will seek to achieve its objective by investing all of its
assets in Mercury Master Select Growth Portfolio of Mercury 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 Select Growth Fund of Mercury Funds, Inc.
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
MERCURY MASTER SELECT GROWTH PORTFOLIO
INVESTMENTS AS OF SEPTEMBER 30, 2000
Ten Largest Percent of
Equity Holdings Net Assets
Cisco Systems, Inc. 9.5%
General Electric Company 8.7
Pfizer Inc. 4.9
EMC Corporation 4.6
Sun Microsystems, Inc. 3.9
America Online, Inc. 3.8
Oracle Corporation 3.7
Corning Incorporated 2.9
Amgen Inc. 2.3
CIENA Corporation 2.0
Percent of
Ten Largest Industries Net Assets
Communications Equipment 22.8%
Pharmaceuticals 9.2
Internet Software & Services 8.9
Industrial Conglomerates 8.7
Computers & Peripherals 8.5
Software 5.3
Biotechnology 5.0
Semiconductor Equipment
& Products 4.4
Computers 4.3
Beverages 2.1
September 30, 2000
Mercury Select Growth Fund
DEAR SHAREHOLDER
We are pleased to provide you with the first annual report for
Mercury Select Growth Fund of Mercury Funds, Inc. The Fund seeks to
provide capital appreciation by investing primarily in a diversified
portfolio of common stocks and other equity securities of very large
cap companies that are traded in the US securities' markets that
Fund management believes have strong earnings growth potential. The
Fund may also purchase securities of mid and large cap US companies.
The Fund will seek to achieve its investment objective by investing
all of its assets in Mercury Master Select Growth Portfolio, which
is the portfolio of Mercury Master Trust that has the same
investment objective as the Fund. From its inception on January 31,
1997 until its reorganization in June 2000, the Fund operated as the
Turner Large Cap Growth Equity Fund, a portfolio of Turner
Investment Partners, Inc. funds, whose investment adviser is
currently the Fund's sub-adviser.
Fiscal Year in Review
During the fiscal year ended September 30, 2000, we were able to
capitalize on a favorable market for growth stocks and, in our
estimation, on good stock selection and adroit trading. As a result,
the Fund's Class I Shares generated a total return of +47.49% for
the 12 months ended September 30, 2000, handily outperforming the
returns of +13.28% and +16.90% for the unmanaged Standard &Poor's
(S&P) 500 Index and the unmanaged benchmark Russell Top 200 Growth
Index, respectively. (Investment results shown do not reflect sales
charges and would be lower if sales charges were included. Complete
performance information can be found on pages 5 and 6 of this report
to shareholders.)
Much of the Fund's outperformance was reaped early in the fiscal
year during the fourth quarter of 1999. During that time, the stock
market rebounded strongly. For instance, after an especially bleak
stretch during a week in early October, when stock prices in
aggregate fell more than 6%, the S&P 500 bounced back dramatically
to finish the quarter with a 14.88% gain. Large cap growth stocks,
as represented by the Russell Top 200 Growth Index, benefited
handsomely from that year-end surge, soaring 22.47% for the fourth
quarter of 1999. During the 12 months ended September 30, 2000, the
Russell Top 200 Growth Index outperformed its value counterpart by
9.62 percentage points.
As for our stock selection, five of Mercury Select Growth Fund's ten
sector investments outperformed their corresponding Russell Top 200
Growth Index sectors. By far, our technology holdings, which
represented the Fund's largest single sector weighting at about 50%,
contributed the most to performance, rising more than 70%. Why were
we so heavily invested in tech stocks? The reason is simple: tech
stocks are becoming a bigger part of the Russell Top 200 Growth
Index. In following our sector-diversified policy, we kept the
sector weightings of the Fund close to that of the Index. Our
holdings in each of the ten market sectors are sector diversified,
meaning that their sector weightings resembled the Index. We believe
that such a strategy makes sense because the performance advantage
in the market can shift swiftly from sector to sector. Since we keep
the sector weightings of our stock funds close to those of the
indexes, when a sector such as technology grows, we follow suit.
Some of our best tech performers were stocks of broadband-related,
software, communications, and Internet-infrastructure stocks. Also
making a notable contribution to the Fund's results were our
producer-durables holdings, especially semiconductor equipment
stocks, which had the highest absolute return at more than +130%.
Detracting from performance was a subpar return in our consumer
discretionary/services holdings. Here we held growth-oriented stocks
with relatively high price/earnings multiples that proved out of
favor as investors showed a preference for the less expensive, lower-
risk stocks that were perceived to be safer. Also, we held a
significant number of retail stocks that investors were wary of,
fearing that a slowing economy would impair the companies' profit
margins.
We believe our active trading strategy helped us achieve higher
returns in a market in which some stocks gained or lost half their
value in a matter of days. Market volatility was unprecedented. For
instance, in the past 12 months, the S&P 500 Index moved up or down
at least 2% on more than 20% of its trading days. In contrast,
before the 1990s, the S&P 500 Index moved that sharply just 3% of
the time. To cope with such volatility, it paid to be able to build
or eliminate a position quickly.
In contrast to its bold returns of the past 12 months, the market
has behaved tentatively lately as the S&P 500 Index meandered in a
circumscribed but volatile range, declining a modest 0.97% in the
third quarter of 2000. Growth stocks have fared far worse, and tech
stocks worse still. Market pundits have attributed the decline to
rich valuations and fears that capital spending on technology will
slow next year.
For our part, we believe the tech sector is poised to once again
lead the market in coming months. In our analysis, many tech stocks'
valuations have become more reasonable and the fears about spending
on technology are largely unwarranted. We believe it is likely that
tech spending will decline little if at all. The Fund remains
heavily invested in tech stocks, therefore we believe we are well
positioned to take advantage of any such rally. We expect no letup
in market volatility during the next 12 months. Moreover, we look
forward to potentially rewarding trading opportunities, resulting
from any volatility and to a continuation of the bull market.
In Conclusion
We thank you for your investment in Mercury Select Growth Fund, and
we look forward to serving your investment needs in the months and
years ahead.
Sincerely,
Jeffrey M. Peek
Director and President
Mercury Funds, Inc.
Robert E. Turner
Portfolio Manager
Turner Investment Partners, Inc.
November 16, 2000
September 30, 2000
Mercury Select 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%, a
distribution fee of 0.10% and an account maintenance fee of 0.25%.
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 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.
++There were no assets in Class B Shares as of the date of this
report.
RECENT PERFORMANCE RESULTS*
6 Month 12 Month Since Inception
As of September 30, 2000 Total Return Total Return Total Return
Class I -8.52% +47.49% +203.67%
Class A -- -- - 1.10
Class C -- -- - 3.80
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included. Total
investment returns are based on changes in net asset values for the
periods shown, and assume reinvestment of all dividends and capital
gains distributions at net asset value on the ex-dividend date. The
Fund's inception date for Class I Shares is 1/31/97; for Class A
Shares, 9/18/00; and for Class C Shares, 9/21/00. On June 19, 2000,
the Fund converted from a stand-alone investment company to a
"feeder" fund that seeks to achieve its investment objective by
investing all of its assets in the Portfolio, a mutual fund that has
the same investment objective as the Fund. All investments are made
at the Portfolio level. This structure is sometimes called a
"master/feeder" structure.
September 30, 2000
Mercury Select Growth Fund
FUND PERFORMANCE DATA (CONCLUDED)
TOTAL RETURN BASED ON A $10,000 INVESTMENT
Class I Shares
A line graph depicting growth of an investment in the Mercury Select
Growth Fund's Class I* Shares compared to growth of the S&P 500
Index and the Russell Top 200 Growth Index++++++. Beginning and
ending values are:
1/31/97** 9/00
Mercury Select Growth Fund++--
Class I Shares* $9,000 $28,775
S&P 500 Index++++ $9,000 $22,357
Russell Top 200 Growth Index++++++ $9,000 $19,264
*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 Select Growth
Portfolio of Mercury Master Trust. The Portfolio invests primarily
in a diversified portfolio of common stocks and other equity
securities of very large cap companies that are traded in the United
States that Fund management believes have earnings growth potential.
++++This unmanaged broad-based Index is comprised of 500 common
stocks of the largest companies in the United States.
++++++This unmanaged Index measures the performance of those Russell
Top 200 companies with higher price-to-book ratios and higher
forecasted growth values.
Past performance is not indicative of future results.
AVERAGE ANNUAL TOTAL RETURN++
% Return % Return
Without Sales With Sales
Class I Shares* Charge Charge**
One Year
Ended 9/30/00 +47.49% +39.75%
Inception (1/31/97)
through 9/30/00 +35.42% +33.45%
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without With
Class C Shares* CDSC CDSC**
Inception (9/21/00)
through 9/30/00 -3.80% -4.76%
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without Sales With Sales
Class A Shares* Charge Charge**
Inception (9/18/00)
through 9/30/00 -1.10% -6.29%
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
++Class A and Class C Shares are aggregate total returns.
September 30, 2000
Mercury Select Growth Fund
<TABLE>
STATEMENT OF ASSETS
AND LIABILITIES
<CAPTION>
As of September 30, 2000++
MERCURY SELECT GROWTH FUND
<S> <C>
Assets:
Investment in Mercury Master Select Growth Portfolio, at value
(identified cost--$37,664,094) $ 41,477,589
Prepaid registration fees and other assets 121,487
--------------
Total assets 41,599,076
--------------
Liabilities:
Payable to administrator 20,042
Accrued expenses and other liabilities 23,567
--------------
Total liabilities 43,609
--------------
Net Assets:
Net assets $ 41,555,467
==============
Net Assets Consist of:++++
Class I Shares of Common Stock, $.0001 par value, 400,000,000
shares authorized $ 159
Class A Shares of Common Stock, $.0001 par value, 400,000,000
shares authorized 0
Class C Shares of Common Stock, $.0001 par value, 400,000,000
shares authorized 0
Paid-in capital in excess of par 33,549,397
Undistributed realized capital gains on investments from the Portfolio--net 4,192,416
Unrealized appreciation on investments from the Portfolio--net 3,813,495
--------------
Net assets $ 41,555,467
==============
Net Asset Value:
Class I--Based on net assets of $41,526,341 and 1,585,158 shares
outstanding $ 26.20
==============
Class A--Based on net assets of $9,882 and 999 shares
outstanding $ 9.89
==============
Class C--Based on net assets of $19,244 and 2,000 shares
outstanding $ 9.62
==============
++On June 19, 2000, the Fund converted from a stand-alone investment
company to a "feeder" fund that seeks to achieve its investment
objective by investing all of its assets in the Portfolio, a mutual
fund that has the same investment objective as the Fund. All
investments are made at the Portfolio level. This structure is
sometimes called a "master/feeder" structure.
++++The Fund is also authorized to issue 400,000,000 Class B Shares.
See Notes to Financial Statements.
</TABLE>
September 30, 2000
Mercury Select Growth Fund
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Year Ended September 30, 2000++
MERCURY SELECT GROWTH FUND
<S> <C> <C>
Investment Income:
Dividends (net of $536 foreign withholding tax) $ 58,274
Interest and discount earned 28,370
Investment income allocated from the Portfolio 43,221
Expenses allocated from the Portfolio (84,864)
--------------
Total income and net investment income from the Portfolio 45,001
--------------
Expenses:
Investment advisory fees $ 170,043
Registration fees 191,597
Administration fees 76,184
Reorganization expenses 40,201
Transfer agent fees 2,813
Accounting services 636
Other 105
--------------
Total expenses before reimbursement 481,579
Reimbursement of expenses (185,708)
--------------
Total expenses after reimbursement 295,871
--------------
Investment loss--net (250,870)
--------------
Realized & Unrealized Gain (Loss) from
Investments and the Portfolio--Net:
Realized gain (loss) from:
Investments--net 5,520,331
The Portfolio--net (785,004) 4,735,327
--------------
Change in unrealized appreciation/depreciation from:
Investments--net (489,542)
The Portfolio--net 3,813,495 3,323,953
-------------- --------------
Net Increase in Net Assets Resulting from Operations $ 7,808,410
==============
++On June 19, 2000, the Fund converted from a stand-alone investment
company to a "feeder" fund that seeks to achieve its investment
objective by investing all of its assets in the Portfolio, a mutual
fund that has the same investment objective as the Fund. All
investments are made at the Portfolio level. This structure is
sometimes called a "master/feeder" structure.
See Notes to Financial Statements.
</TABLE>
September 30, 2000
Mercury Select Growth Fund
<TABLE>
STATEMENTS OF CHANGES
IN NET ASSETS
<CAPTION>
MERCURY SELECT GROWTH FUND
For the Year Ended September 30,
Increase (Decrease) in Net Assets: 2000++ 1999 (in thousands)
<S> <C> <C>
Operations:
Investment loss--net $ (250,870) $ (36)
Realized gain from investments and the Portfolio--net 4,735,327 1,821
Change in unrealized appreciation/depreciation on
investments and from the Portfolio--net 3,323,953 307
-------------- --------------
Net increase in net assets resulting from operations 7,808,410 2,092
-------------- --------------
Distributions to Shareholders:
Realized gain on investments--net:
Class I (1,950,583) --
-------------- --------------
Net decrease in net assets resulting from distributions
to shareholders (1,950,583) --
-------------- --------------
Capital Share Transactions:
Net increase in net assets derived from capital
share transactions 27,238,528 2,039
-------------- --------------
Net Assets:
Total increase in net assets 33,096,355 4,131
Beginning of year 8,459,112 4,328
-------------- --------------
End of year $ 41,555,467 $ 8,459
============== ==============
++On June 19, 2000, the Fund converted from a stand-alone investment
company to a "feeder" fund that seeks to achieve its investment
objective by investing all of its assets in the Portfolio, a mutual
fund that has the same investment objective as the Fund. All
investments will be made at the Portfolio level. This structure is
sometimes called a "master/feeder" structure.
See Notes to Financial Statements.
</TABLE>
September 30, 2000
Mercury Select Growth Fund
FINANCIAL HIGHLIGHTS
<TABLE>
MERCURY SELECT GROWTH FUND
The following per share data and ratios have been derived from
information provided in the financial statements.
<CAPTION>
Class I
For the
Period
Jan. 31,
For the Year Ended 1997++ to
Sept. 30, Sept. 30,
Increase (Decrease) in Net Asset Value: 2000+++++ 1999 1998 1997
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 18.90 $ 13.22 $ 12.28 $ 10.00
-------- -------- -------- --------
Investment income (loss)--net (.16) (.08) (.01) .01
Realized and unrealized gain on investments
and from the Portfolio--net 8.94 5.76 1.98 2.27
-------- -------- -------- --------
Total from investment operations 8.78 5.68 1.97 2.28
-------- -------- -------- --------
Less dividends and distributions:
Investment income--net -- -- (.01) --
Realized gain on investments--net (1.48) -- (1.02) --
-------- -------- -------- --------
Total dividends and distributions (1.48) -- (1.03) --
-------- -------- -------- --------
Net asset value, end of period $ 26.20 $ 18.90 $ 13.22 $ 12.28
======== ======== ========= ========
Total Investment Return:**
Based on net asset value per share 47.49% 42.97% 17.26% 22.80%+++
======== ======== ========= ========
Ratios to Average Net Assets:
Expenses, net of reimbursement++++ .84% 1.00% 1.00% 1.00%*
======== ======== ========= ========
Expenses++++ 1.37% 2.41% 7.70% 26.45%*
======== ======== ========= ========
Investment income (loss)--net (.71%) (.47%) (.10%) .20%*
======== ======== ========= ========
Supplemental Data:
Net assets, end of period (in thousands) $ 41,526 $ 8,459 $ 4,328 $ 701
======== ======== ========= ========
Portfolio turnover -- 370.71% 234.93% 346.47%
======== ======== ========= ========
*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.
+++++On June 19, 2000, the Fund converted from a stand-alone
investment company to a "feeder" fund that seeks to achieve its
investment objective by investing all of its assets in the
Portfolio, a mutual fund that has the same investment objective as
the Fund. All investments are made at the Portfolio level. This
structure is sometimes called a "master/feeder" structure.
See Notes to Financial Statements.
</TABLE>
September 30, 2000
Mercury Select Growth Fund
<TABLE>
FINANCIAL HIGHLIGHTS (CONCLUDED)
<CAPTION>
MERCURY SELECT GROWTH FUND
The following per share data and ratios have been derived from
information provided in the financial statements.
For the For the
Period Period
Sept. 18, Sept. 21,
2000++ to 2000++ to
Sept. 30, Sept. 30,
2000 2000
Increase (Decrease) in Net Asset Value: Class A Class C
<S> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 10.00 $ 10.00
-------- --------
Investment loss--net --++++ --++++
Realized and unrealized loss from the Portfolio--net (.11) (.38)
-------- --------
Total from investment operations (.11) (.38)
-------- --------
Net asset value, end of period $ 9.89 $ 9.62
-------- --------
Total Investment Return:**
Based on net asset value per share (1.10%)+++ (3.80%)+++
-------- --------
Ratios to Average Net Assets:
Expenses, net of reimbursement++++++ 1.10%* 1.67%*
======== ========
Expenses++++++ 2.47%* 2.88%*
======== ========
Investment loss--net (1.13%)* (1.42%)*
======== ========
Supplemental Data:
Net assets, end of period (in thousands) $ 10 $ 19
======== ========
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Commencement of operations.
++++Amount is less than $.01 per share.
++++++Includes the Fund's share of the Portfolio's allocated
expenses.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
September 30, 2000
Mercury Select Growth Fund
NOTES TO FINANCIAL STATEMENTS
MERCURY SELECT GROWTH FUND
1 Significant Accounting Policies:
Mercury Select Growth Fund (the "Fund") (formerly Turner Large Cap
Growth Equity Fund) is a series of Mercury Funds, Inc. (the
"Corporation") and is registered under the Investment Company Act of
1940 as a diversified, open-end investment company. On June 19,
2000, the Fund converted from a stand-alone investment company to a
"feeder" fund that seeks to achieve its investment objective by
investing all of its assets in the Mercury Master Select Growth
Portfolio (the "Portfolio"), a mutual fund that has the same
investment objective as the Fund. All investments will be made at
the Portfolio level. This structure is sometimes called a
"master/feeder" structure. 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 conformity 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 and security transactions--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 conformity with accounting principles generally
accepted in the United States of America. When the Fund was a stand-
alone investment company, dividend income was recorded on the ex-
dividend dates. Interest income (including amortization of discount)
was recognized on the accrual basis. Realized gains and losses on
security transactions were determined on the identified cost basis.
(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 in interest, dividends and capital
gains at various rates.
September 30, 2000
Mercury Select Growth Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(d) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
(e) Dividends and distributions--Dividends and distributions paid by
the Fund are recorded on the ex-dividend dates.
(f) Investment transactions--Investment transactions are accounted
for on a trade date basis.
(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
$245,418 have been reclassified between undistributed net realized
capital gains and accumulated net investment loss and $43,109 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 Administrative Services
Agreement with Fund Asset Management, L.P. ("FAM"). The general
partner of FAM is Princeton Services, Inc. ("PSI"), a wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner. The Fund pays a monthly fee at an annual rate of
.25% of the Fund's average daily net assets for the performance of
administrative services (other than investment advice and related
portfolio activities) necessary for the operation of the Fund. For
the period June 19, 2000 to September 30, 2000, FAM had earned fees
of $48,482, all of which was waived. In addition, FAM also
reimbursed the Fund $137,226 in additional expenses.
The Fund has also entered into a Distribution Agreement and
Distribution Plans with FAM Distributors, Inc. ("FAMD" or the
"Distributor"), a wholly-owned subsidiary of Merrill Lynch Group,
Inc. Pursuant to the Distribution Plans adopted by the Fund 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
of the Fund as follows:
Account
Maintenance Fee Distribution Fee
Class A .25% .10%
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., also provides account maintenance and distribution services to
the Fund. The ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account maintenance services to
Class A, Class B and Class C shareholders. The ongoing distribution
fee compensates the Distributor and MLPF&S for providing shareholder
and distribution-related services to Class B and Class C
shareholders.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
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 Fund are officers and/or
directors of FAM, PSI, FAMD, FDS, and/or ML & Co.
3 Investments:
Increases and decreases in the Fund's investment in the Portfolio
for the period June 19, 2000 to September 30, 2000 were $46,260,889
and $7,770,148, respectively.
4 Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share
transactions were $27,238,528 and $2,039 (in thousands) for the
years ended September 30, 2000 and September 30, 1999, respectively.
Transactions in capital shares for each class were as follows:
Class I Shares for the Year
Ended September 30, 2000 Shares Dollar Amount
Shares sold 2,486,938 $ 62,930,069
Shares issued to shareholders in
reinvestment of distributions 83,029 1,923,778
------------ ------------
Total issued 2,569,967 64,853,847
Shares redeemed (1,432,424) (37,645,314)
------------ ------------
Net increase 1,137,543 $ 27,208,533
============ ============
Class I Shares for the Year Shares Dollar Amount
Ended September 30, 1999 (in thousands) (in thousands)
Shares sold 255 $ 4,366
Shares redeemed (134) (2,327)
------------ ------------
Net increase 121 $ 2,039
------------ ------------
Class A Shares for the Period
September 18, 2000++ to
September 30, 2000 Shares Dollar Amount
Shares sold 999 $ 9,995
------------ ------------
Net increase 999 $ 9,995
------------ ------------
++Commencement of operations.
Class C Shares for the Period
September 21, 2000++ to
September 30, 2000 Shares Dollar Amount
Shares sold 2,000 $ 20,000
------------ ------------
Net increase 2,000 $ 20,000
------------ ------------
++Commencement of operations.
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Mercury Select Growth Fund
(One of the Series constituting Mercury Funds, Inc.):
We have audited the accompanying statement of assets and liabilities
of Mercury Select Growth Fund (the "Fund") as of September 30, 2000,
the related statements of operations and changes in net assets, and
the financial highlights for the year then ended. These financial
statements and the 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
audit. The statement of changes in net assets for the year ended
September 30, 1999, and the financial highlights in the two-year
period then ended and for the period January 31, 1997 (commencement
of operations) to September 30, 1997 were audited by other auditors
whose report, dated November 8, 1999, expressed an unqualified
opinion on those financial statements and financial highlights.
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 from 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 Select Growth Fund as of September 30, 2000, the results of
its operations, the changes in its net assets, and the financial
highlights for the year then ended in conformity with accounting
principles generally accepted in the United States of America.
Deloitte & Touche LLP
Princeton, New Jersey
November 21, 2000
</AUDIT-REPORT>
September 30, 2000
Mercury Select Growth Fund
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
MERCURY MASTER SELECT GROWTH PORTFOLIO
In US Dollars
Shares Percent of
Industries Held Common Stocks Value Net Assets
<S> <C> <S> <C> <C>
Aerospace & 7,170 United Technologies Corporation $ 496,523 1.2%
Defense
Beverages 9,760 Anheuser-Busch Companies, Inc. 412,970 1.0
9,680 PepsiCo, Inc. 445,280 1.1
----------- ------
858,250 2.1
Biotechnology 13,920 ++Amgen Inc. 970,050 2.3
3,430 ++Genentech, Inc. 636,908 1.5
6,200 ++MedImmune, Inc. 478,950 1.2
----------- ------
2,085,908 5.0
Communications 6,850 ++CIENA Corporation 840,837 2.0
Equipment 70,928 ++Cisco Systems, Inc. 3,918,772 9.5
4,110 Corning Incorporated 1,220,670 2.9
2,620 ++Corvis Corporation 160,966 0.4
8,410 ++JDS Uniphase Corporation 795,796 1.9
3,750 ++Juniper Networks, Inc. 821,250 2.0
12,180 Nortel Networks Corporation 725,471 1.8
1,320 ++SDL Inc. 408,870 1.0
5,090 ++Sycamore Networks, Inc. 548,448 1.3
----------- ------
9,441,080 22.8
Computer 6,470 ++BEA Systems, Inc. 503,851 1.2
Software
Computers 2,660 ++Brocade Communications Systems, Inc. 628,092 1.5
3,170 ++Network Appliance, Inc. 403,779 1.0
7,010 ++Palm, Inc. 371,092 0.9
2,350 ++Redback Networks Inc. 387,016 0.9
----------- ------
1,789,979 4.3
Computers & 19,290 ++EMC Corporation 1,912,121 4.6
Peripherals 13,630 ++Sun Microsystems, Inc. 1,603,229 3.9
----------- ------
3,515,350 8.5
Electrical & 5,420 ++The AES Corporation 371,270 0.9
Electronics
Electronics 5,570 ++Xilinx, Inc. 477,976 1.2
Electronics 5,070 ++Flextronics International Ltd. 416,057 1.0
Components
</TABLE>
September 30, 2000
Mercury Select Growth Fund
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
MERCURY MASTER SELECT GROWTH PORTFOLIO
In US Dollars
Shares Percent of
Industries Held Common Stocks Value Net Assets
<S> <C> <S> <C> <C>
Energy 4,685 ++VERITAS Software Corporation $ 667,027 1.6%
Equipment &
Service
Fiber Optics 10,580 ++TyCom, Ltd. 406,007 1.0
Hospital 8,210 Abbott Laboratories 390,488 0.9
Supplies
Industrial 62,340 General Electric Company 3,596,239 8.7
Conglomerates
Insurance 4,560 American International Group, Inc. 436,335 1.0
Internet 28,870 ++America Online, Inc. 1,551,762 3.8
Software & 3,790 ++Ariba, Inc. 542,917 1.3
Services 5,410 ++Commerce One, Inc. 424,685 1.0
3,390 ++i2 Technologies, Inc. 633,930 1.5
2,680 ++VeriSign, Inc. 542,868 1.3
----------- ------
3,696,162 8.9
Media 10,670 Time Warner Inc. 834,928 2.0
Miscellaneous 7,800 ++Celestica Inc. 540,150 1.3
Materials &
Commodities
Multi-Utilities 6,050 Enron Corp. 530,131 1.3
Pharma- 14,140 American Home Products Corporation 799,794 1.9
ceuticals 3,380 ++Millennium Pharmaceuticals, Inc. 493,480 1.2
45,127 Pfizer Inc. 2,027,895 4.9
8,510 Pharmacia Corporation 512,196 1.2
----------- ------
3,833,365 9.2
Semiconductor 3,060 ++Applied Micro Circuits Corporation 633,420 1.5
Equipment & 2,570 ++Broadcom Corporation (Class A) 626,437 1.5
Products 2,640 ++PMC-Sierra, Inc. 568,260 1.4
----------- ------
1,828,117 4.4
Software 19,420 ++Oracle Corporation 1,529,325 3.7
5,840 ++Siebel Systems, Inc. 649,700 1.6
2,179,025 5.3
Software-- 2,640 ++Check Point Software Technologies Ltd. 415,800 1.0
Computer
</TABLE>
September 30, 2000
Mercury Select Growth Fund
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
MERCURY MASTER SELECT GROWTH PORTFOLIO
In US Dollars
Shares Percent of
Industries Held Common Stocks Value Net Assets
<S> <C> <S> <C> <C>
Telecom- 20,640 Nokia Oyj 'A' (ADR)(a) $ 821,730 2.0%
munications
& Equipment
Total Common Stocks
(Cost--$36,318,254) 40,131,748 96.8
Face
Amount Short-Term Securities
Commer- $1,078,000 General Motors Acceptance Corp.,
cial Paper* 6.75% due 10/02/2000 1,077,596 2.6
Total Short-Term Securities
(Cost--$1,077,596) 1,077,596 2.6
Total Investments
(Cost--$37,395,850) 41,209,344 99.4
Other Assets Less Liabilities 268,342 0.6
----------- ------
Net Assets $41,477,686 100.0%
=========== ======
*Commercial paper is traded on a discount basis; the interest rate
shown reflects the discount rate paid at the time of purchase by the
Portfolio.
++Non-income producing security.
(a)American Depositary Receipts (ADR).
See Notes to Financial Statements.
</TABLE>
September 30, 2000
Mercury Select Growth Fund
<TABLE>
STATEMENT OF ASSETS
AND LIABILITIES
<CAPTION>
As of September 30, 2000
MERCURY MASTER SELECT GROWTH PORTFOLIO
<S> <C> <C>
Assets:
Investments, at value (identified cost--$37,395,850) $ 41,209,344
Cash 20,791
Receivables:
Securities sold $ 2,191,539
Contributions 347,280
Dividends 10,106 2,548,925
--------------
Prepaid expenses 9,972
--------------
Total assets 43,789,032
--------------
Liabilities:
Payables:
Securities purchased 2,224,306
Withdrawals 28,876
Investment adviser 16,239 2,269,421
--------------
Accrued expenses and other liabilities 41,925
--------------
Total liabilities 2,311,346
--------------
Net Assets:
Net assets $ 41,477,686
==============
Net Assets Consist of:
Partners' capital $ 37,664,192
Unrealized appreciation on investments--net 3,813,494
--------------
Net assets $ 41,477,686
==============
See Notes to Financial Statements.
</TABLE>
September 30, 2000
Mercury Select Growth Fund
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Period June 19, 2000++ to September 30, 2000
MERCURY MASTER SELECT GROWTH PORTFOLIO
<S> <C> <C>
Investment Income:
Dividends (net of $27 foreign withholding tax) $ 33,927
Interest and discount earned 9,294
--------------
Total income 43,221
==============
Expenses:
Investment advisory fees $ 62,212
Trustees' fees and expenses 7,461
Accounting services 7,448
Offering costs 4,027
Custodian fees 3,575
Other 141
--------------
Total expenses 84,864
--------------
Investment loss--net (41,643)
--------------
Realized & Unrealized Gain (Loss) on Investments--Net:
Realized loss from investments--net (785,006)
Unrealized appreciation on investments--net 3,813,494
--------------
Net Increase in Net Assets Resulting from Operations $ 2,986,845
==============
++Commencement of operations.
See Notes to Financial Statements.
</TABLE>
September 30, 2000
Mercury Select Growth Fund
<TABLE>
STATEMENT OF CHANGES
IN NET ASSETS
<CAPTION>
MERCURY MASTER SELECT GROWTH PORTFOLIO
For the Period
June 19, 2000++
Increase (Decrease) in Net Assets: to Sept. 30, 2000
<S> <C>
Operations:
Investment loss--net $ (41,643)
Realized loss on investments--net (785,006)
Unrealized appreciation on investments--net 3,813,494
--------------
Net increase in net assets resulting from operations 2,986,845
--------------
Net Capital Contributions:
Increase in net assets derived from net capital contributions 38,490,741
--------------
Net Assets:
Total increase in net assets 41,477,586
Beginning of period 100
--------------
End of period $ 41,477,686
==============
++Commencement of operations.
See Notes to Financial Statements.
</TABLE>
September 30, 2000
Mercury Select Growth Fund
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
MERCURY MASTER SELECT GROWTH PORTFOLIO
The following ratios have been derived from information provided in the
financial statements.
For the Period
June 19, 2000++
to Sept. 30, 2000
Ratios to Average Net Assets:
<S> <C>
Expenses .68%*
--------------
Investment loss--net (.33%)*
--------------
Supplemental Data:
Net assets, end of period (in thousands) $ 41,478
==============
Portfolio turnover 131.19%
==============
*Annualized.
++Commencement of operations.
See Notes to Financial Statements.
</TABLE>
September 30, 2000
Mercury Select Growth Fund
NOTES TO FINANCIAL STATEMENTS
MERCURY MASTER SELECT GROWTH PORTFOLIO
1 Significant Accounting Policies:
Mercury Master Select Growth Portfolio (the "Portfolio") is part of
Mercury 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
conformity 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 on the exchange
on which such securities are traded, as of the close of business on
the day the securities are being valued or, lacking any sales, at
the last available bid price. Securities that are traded in the over-
the-counter market are valued at the last available bid price prior
to the time of valuation. In cases where securities are traded on
more than one exchange, the securities are valued on the exchange
designated by or under the authority of the Board of Trustees as the
primary market. Securities that are traded both in the over-the-
counter market and on a stock exchange are valued according to the
broadest and most representative market. 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.
September 30, 2000
Mercury Select 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.
* 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.
* 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.
SEPTEMBER 30, 2000
MERCURY SELECT 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 Advisors ("Mercury"), 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 is responsible for the management of the Portfolio's
investments and provides the necessary personnel, facilities,
equipment and certain other services necessary to the operations of
the Portfolio. For such services, the Portfolio pays a monthly fee
at an annual rate of .50% of the average daily value of the
Portfolio's net assets.
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, FAM, PSI, and/or ML & Co.
The Fund was known as Turner Large Cap Growth Equity Fund until June
16, 2000. Turner Investment Partners, Inc. was the investment
adviser on the Fund and is now acting as the sub-adviser.
3 Investments:
Purchases and sales of investments, excluding short-term securities,
for the period June 19, 2000 to September 30, 2000 were $56,666,295
and $60,396,003, respectively.
Net realized losses for the period June 19, 2000 to September 30,
2000 and net unrealized gains as of September 30, 2000 were as
follows:
Realized Unrealized
Losses Gains
Long-term investments $ (785,006) $3,813,494
---------- ----------
Total investments $ (785,006) $3,813,494
========== ==========
As of September 30, 2000, net unrealized appreciation for Federal
income tax purposes aggregated $2,101,360, of which $3,871,688
related to appreciated securities and $1,770,328 related to
depreciated securities. At September 30, 2000, the aggregate cost of
investments for Federal income tax purposes was $39,107,984.
SEPTEMBER 30, 2000
MERCURY SELECT GROWTH FUND
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Investors,
Mercury Master Select Growth Portfolio
(One of the Series constituting Mercury Master Trust):
We have audited the accompanying statement of assets and liabilities
of Mercury Master Select Growth Portfolio, including the schedule of
investments, as of September 30, 2000, the related statements of
operations and changes in net assets, and the financial highlights
for the period June 19, 2000 (commencement of operations) to
September 30, 2000. These financial statements and the 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 from 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 September 30, 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 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 Select Growth Portfolio as of September 30, 2000, the
results of its operations, the changes in its net assets, and the
financial highlights for the period June 19, 2000 (commencement of
operations) to September 30, 2000 in conformity with accounting
principles generally accepted in the United States of America.
Deloitte & Touche LLP
Princeton, New Jersey
November 21, 2000
</AUDIT-REPORT>
September 30, 2000
Mercury Select Growth Fund
OFFICERS AND DIRECTORS
Jeffrey M. Peek, Director and President
Terry K. Glenn, Director and
Executive Vice President
David O. Beim, Director
James T. Flynn, Director
W. Carl Kester, Director
Karen P. Robards, Director
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
(UNAUDITED)
Of the ordinary income distribution paid by Mercury Select Growth
Fund to shareholders of record on December 15, 1999, 2.18% qualifies
for the dividends received deduction for corporations. Additionally,
the Fund paid a long-term capital gains distribution of $.11 per
share to shareholders of record on December 15, 1999. This entire
distribution is subject to the maximum 20% tax rate.
Please retain this information for your records.
September 30, 2000
Mercury Select Growth Fund
