MERRILL LYNCH
GLOBAL FINANCIAL
SERVICES FUND, INC.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Annual Report
September 30, 2000
<PAGE>
Merrill Lynch Global Financial Services Fund, Inc., September 30, 2000
DEAR SHAREHOLDER
Fiscal Year in Review
The period since the Fund's inception (November 26, 1999) through September 30,
2000 proved to be a favorable one for Merrill Lynch Global Financial Services
Fund, Inc. as stocks in this sector rallied strongly after a lackluster first
couple months of the year. The Fund's Class A, Class B, Class C and Class D
Shares had total returns of +22.90%, +21.80%, +21.80% and +22.60%, respectively.
(Results shown do not reflect sales charges and would be lower if sales charges
were included. Complete performance information can be found on pages 4-6 of
this report to shareholders.) This compares favorably to the +20.63% total
return of the unmanaged Standard & Poor's (S&P) Financials Index and the Lipper
Analytical Services Inc.'s peer group of financial services funds, which had an
average total return of +16.55% for the period from November 30, 1999 to
September 30, 2000.
Since the Fund was launched during the fiscal year, all stock holdings are new.
However, a significant switch in weighting was effected over the last few
months. Regional bank shares such as BankOne Corporation, Fifth Third and Bank
of America Corporation were reduced or eliminated and the assets invested in
insurance stocks such as John Hancock Financial Services, Inc., MBIA, Inc. and
The Chubb Corporation. To a lesser extent, capital markets-oriented holdings
such as The Goldman Sachs Group, Inc., J.P. Morgan & Co., Incorporated and
Knight/Trimark Group, Inc. were also reduced or eliminated, and the assets were
invested in savings and loan stocks, such as Sovereign Bancorp, Inc., Dime
Bancorp, Inc. and Golden West Financial Corporation.
While financial stocks have enjoyed a strong run recently, the outlook remains
bright for this sector. Expectations for the companies are relatively low and
easy to achieve. A continued slowing in the US economy and coupled with our
projection of stable earnings growth from financials in general, and insurance
and thrifts in particular, should lead to continued positive performance for the
Fund.
Portfolio Strategy
Relative performance during the six months ended September 30, 2000 was a bit
weaker. The Fund's Class A, Class B, Class C and Class D Shares had total
returns of +19.90%, +19.18%, +19.18% and +19.73%, respectively. The Fund
underperformed the +20.33% total return of the S&P Financials Index but
outperformed the +19.01% total return of the Lipper Analytical Services Inc.'s
peer group of financial services funds.
The rally in financial stocks during the last six months was very much a
recovery for the sector, which declined by 14% in the first two months of the
year, and 8% in the second half of 1999. This reversal in price performance was
driven by a few different factors. One factor was that the outlook on interest
rates improved. Many investors came to believe that the Federal Reserve Board
has ended its increases in the Federal Funds rate for this cycle. Three anchors
are expected to slow the US economy: a stronger US dollar, soaring energy prices
and interest rates significantly higher than the previous year. Financial stocks
have tended to outperform in periods when the Federal Reserve Board finishes
raising interest rates.
Another factor is that the large amount of cash being pulled out of old economy
sectors and invested into technology-oriented stocks finally ended. After
peaking at 5,048 in early March, the NASDAQ collapsed by more than 30%. Many new
economy stocks fell even more. Investors came to have new respect for companies,
such as those in the financial sector, that had profits, price/earning ratios of
only two digits and positive cash flow. A small portion of the liquidity that
had left financial stocks during the last two years returned, resulting in
rising share prices.
A final factor motivating the reversal in price performance was that property
and casualty (P&C) insurance pricing began to show real signs of improvement.
After a decade of weak pricing in this large segment of the insurance industry,
prices for P&C policies finally stabilized and have begun to rise. This trend
became significantly more visible in the last several months, and has led to
soaring share prices for companies in this area of the financial services
sector.
In Conclusion
We appreciate your investment in Merrill Lynch Global Financial Services Fund,
Inc., and we look forward to assisting you with your financial needs in the
months and years ahead.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President and Director
/s/ James Ellman
James Ellman
Senior Vice President and
Portfolio Manager
November 6, 2000
PROXY RESULTS
During the six-month period ended September 30, 2000, Merrill Lynch Global
Financial Services Fund, Inc.'s shareholders voted on the following proposals.
The proposals were approved at a shareholders' meeting on July 25, 2000. The
description of each proposal and number of shares voted are as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Shares Voted
For
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. To elect the Fund's Board of Directors: Terry K. Glenn 6,282,918
Ronald W. Forbes 6,276,437
Cynthia A. Montgomery 6,282,918
Charles C. Reilly 6,277,437
Kevin A. Ryan 6,282,918
Roscoe S. Suddarth 6,282,918
Richard R. West 6,282,918
Arthur Zeikel 6,282,918
Edward D. Zinbarg 6,282,918
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Shares Voted Shares Voted Shares Voted
For Against Abstain
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2. To ratify the selection of Deloitte & Touche LLP as the Fund's
independent auditors for the current fiscal year. 6,474,891 45,561 174,017
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
2 & 3
<PAGE>
Merrill Lynch Global Financial Services Fund, Inc., September 30, 2000
PERFORMANCE DATA
About Fund
Performance
Investors are able to purchase shares of the Fund through the Merrill
Lynch Select Pricing(SM) System, which offers four pricing alternatives:
o Class A Shares incur a maximum initial sales charge (front-end load) of
5.25% and bear no ongoing distribution or account maintenance fees. Class
A Shares are available only to eligible investors.
o Class B Shares are subject to a maximum contingent deferred sales charge
of 4% if redeemed during the first year, decreasing 1% each year
thereafter to 0% after the fourth 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 D Shares after
approximately 8 years. (There is no initial sales charge for automatic
share conversions.)
o 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 are subject to a 1%
contingent deferred sales charge if redeemed within one year of purchase.
o Class D Shares incur a maximum initial sales charge of 5.25% and an
account maintenance fee of 0.25% (but no distribution fee).
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.
Recent
Performance
Results*
<TABLE>
<CAPTION>
6 Month Since Inception
As of September 30, 2000 Total Return Total Return
=============================================================================================
<S> <C> <C>
ML Global Financial Services Fund, Inc. Class A Shares +19.90% +22.90%
---------------------------------------------------------------------------------------------
ML Global Financial Services Fund, Inc. Class B Shares +19.18 +21.80
---------------------------------------------------------------------------------------------
ML Global Financial Services Fund, Inc. Class C Shares +19.18 +21.80
---------------------------------------------------------------------------------------------
ML Global Financial Services Fund, Inc. Class D Shares +19.73 +22.60
=============================================================================================
</TABLE>
* 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 commenced operations on 11/26/99.
Total Return
Based on a
$10,000 Investment
Class A & Class B Shares
A line graph depicting the growth of an investment in the Fund's Class A Shares
& Class B Shares compared to growth of an investment in the Standard & Poor's
500 Index. Beginning and ending values are:
11/26/99** 9/00
ML Global Financial Services
Trust+--Class A Shares* $9,475 $11,645
ML Global Financial Services
Trust+--Class B Shares* $10,000 $11,780
Standard & Poor's Financials Index++ $10,000 $12,063
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
** Commencement of operations.
+ ML Global Financial Services Fund, Inc. invests primarily in a portfolio
of common stocks of financial services companies that Fund management
believes have the potential to increase in value.
++ This unmanaged Index is a capitalization-weighted index of all stocks
designed to measure the performance of the Standard & Poor's 500 Index.
The index was developed with a base level of 10 for the 1970 base period.
Past performance is not predictive of future performance.
Aggregate
Total Return
For Class A &
Class B Shares
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
Inception (11/26/99)
through 9/30/00 +22.90% +16.45%
--------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
Inception (11/26/99)
through 9/30/00 +21.80% +17.80%
--------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 4% and is reduced to 0% after
4 years.
** Assuming payment of applicable contingent deferred sales charge.
4 & 5
<PAGE>
Merrill Lynch Global Financial Services Fund, Inc., September 30, 2000
PERFORMANCE DATA (concluded)
Total Return
Based on a
$10,000 Investment
Class C & Class D Shares
A line graph depicting the growth of an investment in the Fund's Class C Shares
and Class D Shares compared to growth of an investment in the Standard & Poor's
500 Index and High Yield Index. Beginning and ending values are:
11/26/99** 9/00
ML Global Financial Services
Trust +--Class C Shares* $10,000 $12,080
ML Global Financial Services
Trust +--Class D Shares* $9,475 $11,616
Standard & Poor's Financials Index++ $10,000 $12,063
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
** Commencement of operations.
+ ML Global Financial Services Fund, Inc. invests primarily in a portfolio
of common stocks of financial services companies that Fund management
believes have the potential to increase in value.
++ This unmanaged Index is a capitalization-weighted index of all stocks
designed to measure the performance of the Standard & Poor's 500 Index.
The index was developed with a base level of 10 for the 1970 base period.
Past performance is not predictive of future performance.
Aggregate
Total Return
For Class C &
Class D Shares
% Return % Return
Without CDSC With CDSC**
================================================================================
Class C Shares*
================================================================================
Inception (11/26/99)
through 9/30/00 +21.80% +20.80%
--------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 1% and is reduced to 0% after
1 year.
** Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class D Shares*
================================================================================
Inception (11/26/99)
through 9/30/00 +22.60% +16.16%
--------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
STATEMENT OF ASSETS AND LIABILITIES
MERRILL LYNCH
GLOBAL FINANCIAL
SERVICES FUND, INC.
<TABLE>
<CAPTION>
As of September 30, 2000
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets: Investment in Global Financial Services Portfolio, at value (identified cost--$82,015,770). $ 97,489,796
Prepaid expenses........................................................................... 125,118
------------
Total assets............................................................................... 97,614,914
------------
-----------------------------------------------------------------------------------------------------------------------------------
Liabilities: Payables:
Distributor............................................................................. $ 60,268
Administrative fees..................................................................... 24,624 84,892
---------
Accrued expenses........................................................................... 47,287
------------
Total liabilities.......................................................................... 132,179
------------
-----------------------------------------------------------------------------------------------------------------------------------
Net Assets: Net assets ................................................................................ $ 97,482,735
============
-----------------------------------------------------------------------------------------------------------------------------------
Net Assets Class A Shares of Common Stock, $.10 par value, 100,000,000 shares authorized.............. $ 68,138
Consist of: Class B Shares of Common Stock, $.10 par value, 100,000,000 shares authorized.............. 517,805
Class C Shares of Common Stock, $.10 par value, 100,000,000 shares authorized.............. 121,389
Class D Shares of Common Stock, $.10 par value, 100,000,000 shares authorized.............. 91,667
Paid-in capital in excess of par........................................................... 80,382,561
Undistributed realized capital gains on investments and foreign currency
transactions from the Portfolio--net....................................................... 827,149
Unrealized appreciation on investments and foreign currency transactions
from the Portfolio--net.................................................................... 15,474,026
------------
Net assets................................................................................. $ 97,482,735
============
-----------------------------------------------------------------------------------------------------------------------------------
Net Asset Class A--Based on net assets of $8,371,409 and 681,380 shares outstanding.................. $ 12.29
Value: ============
Class B--Based on net assets of $63,083,028 and 5,178,045 shares outstanding............... $ 12.18
============
Class C--Based on net assets of $14,787,460 and 1,213,887 shares outstanding............... $ 12.18
============
Class D--Based on net assets of $11,240,838 and 916,674 shares outstanding................. $ 12.26
============
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
6 & 7
<PAGE>
Merrill Lynch Global Financial Services Fund, Inc., September 30, 2000
STATEMENT OF OPERATIONS
MERRILL LYNCH
GLOBAL FINANCIAL
SERVICES FUND, INC.
<TABLE>
<CAPTION>
For the Period November 26, 1999+ to September 30, 2000
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Investment income allocated from the Portfolio (net of $36,988 foreign withholding tax).... $ 1,187,562
Income: Expenses allocated from the Portfolio...................................................... (410,015)
------------
Net investment income from the Portfolio................................................... 777,547
------------
-----------------------------------------------------------------------------------------------------------------------------------
Expenses: Account maintenance and distribution fees--Class B......................................... $ 367,192
Administration fees........................................................................ 200,096
Registration fees.......................................................................... 141,957
Offering costs............................................................................. 94,956
Account maintenance and distribution fees--Class C......................................... 84,516
Transfer agent fees--Class B............................................................... 34,535
Professional fees.......................................................................... 20,023
Account maintenance fees--Class D.......................................................... 18,739
Printing and shareholder reports........................................................... 14,053
Transfer agent fees--Class C............................................................... 8,540
Transfer agent fees--Class D............................................................... 5,862
Transfer agent fees--Class A............................................................... 3,477
Accounting services........................................................................ 1,333
Other ..................................................................................... 121
---------
Total expenses............................................................................. 995,400
------------
Investment loss--net....................................................................... (217,853)
------------
-----------------------------------------------------------------------------------------------------------------------------------
Realized & Realized gain from the Portfolio:
Unrealized Investments--net........................................................................ 923,102
Gain Foreign currency transactions--net...................................................... 260 923,362
From the ---------
Portfolio--Net: Unrealized appreciation on investments and foreign currency transactions
from the Portfolio--net.................................................................... 15,474,026
------------
Net Increase in Net Assets Resulting from Operations....................................... $ 16,179,535
============
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
STATEMENT OF CHANGES IN NET ASSETS
MERRILL LYNCH
GLOBAL FINANCIAL
SERVICES FUND, INC.
<TABLE>
<CAPTION>
For the Period
Nov. 26, 1999+ to
Increase (Decrease) in Net Assets: Sept. 30, 2000
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations: Investment loss--net............................................................................... $ (217,853)
Realized gain on investments and foreign currency transactions from the Portfolio--net............. 923,362
Unrealized appreciation on investments and foreign currency transactions from the Portfolio--net... 15,474,026
------------
Net increase in net assets resulting from operations............................................... 16,179,535
------------
-----------------------------------------------------------------------------------------------------------------------------------
Capital Share Net increase in net assets derived from capital share transactions................................. 81,203,200
Transactions: ------------
-----------------------------------------------------------------------------------------------------------------------------------
Net Assets: Total increase in net assets....................................................................... 97,382,735
Beginning of period................................................................................ 100,000
------------
End of period...................................................................................... $ 97,482,735
============
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
MERRILL LYNCH
GLOBAL FINANCIAL
SERVICES FUND, INC.
<TABLE>
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements.
For the Period Nov. 26, 1999+ to Sept. 30, 2000
-------------------------------------------------------
Increase (Decrease) in Net Asset Value: Class A Class B Class C Class D
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ............. $ 10.00 $ 10.00 $ 10.00 $ 10.00
Operating ---------- ---------- ---------- ----------
Performance: Investment income (loss)--net .................... .03 (.04) (.04) .02
Realized and unrealized gain on investments and
foreign currency transactions from the
Portfolio--net ................................... 2.26 2.22 2.22 2.24
---------- ---------- ---------- ----------
Total from investment operations ................. 2.29 2.18 2.18 2.26
---------- ---------- ---------- ----------
Net asset value, end of period ................... $ 12.29 $ 12.18 $ 12.18 $ 12.26
========== ========== ========== ==========
--------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ............... 22.90%+++ 21.80%+++ 21.80%+++ 22.66%+++
Return:** ========== ========== ========== ==========
--------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses++ ....................................... 1.62%* 2.63%* 2.63%* 1.88%*
Net Assets: ========== ========== ========== ==========
Investment income (loss)--net .................... .44%* (.56%)* (.57%)* .22%*
========== ========== ========== ==========
--------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of period (in thousands) ......... $ 8,371 $ 63,083 $ 14,788 $ 11,241
Data: ========== ========== ========== ==========
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* 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.
8 & 9
<PAGE>
Merrill Lynch Global Financial Services Fund, Inc., September 30, 2000
NOTES TO FINANCIAL STATEMENTS
MERRILL LYNCH
GLOBAL FINANCIAL
SERVICES FUND, INC.
1. Significant Accounting Policies:
Merrill Lynch Global Financial Services Fund, Inc. (the "Fund") is registered
under the Investment Company Act of 1940 as a diversified mutual fund. The Fund
seeks to achieve its investment objective by investing all of its assets in the
Global Financial Services Portfolio (the "Portfolio"), which is the portfolio of
Global Financial Services Master Trust that has the same investment objective as
the Fund. The value of the Fund's investment in the Portfolio reflects the
Fund's proportionate interest in the net assets of the Portfolio. The
performance of the Fund is directly affected by the performance of the
Portfolio. The financial statements of the Portfolio, including the Schedule of
Investments, are included elsewhere in this report and should be read in
conjunction with the Fund's financial statements. The Fund's financial
statements are prepared in conformity with accounting principles generally
accepted in the United States of America, which may require the use of
management accruals and estimates. Prior to commencement of operations on
November 26, 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
June 1, 1999 to Fund Asset Management, L.P. ("FAM") for $100,000. The Fund
offers four classes of shares under the Merrill Lynch Select Pricing(SM) System.
Shares of Class A and Class D are sold with a front-end sales charge. Shares of
Class B and Class C 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 B, Class C and Class D
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.
The following is a summary of significant accounting policies followed by the
Fund.
(a) Valuation of investments--Valuation of securities is discussed in Note 1a of
the Portfolio's Notes to Financial Statements, which are included elsewhere in
this report.
(b) Income--The Fund's net investment income consists of the Fund's pro rata
share of the net investment income of the Portfolio, less all actual and accrued
expenses of the Fund determined in conformity 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, a withholding tax may be imposed on interest, dividends and capital gains
at various rates.
(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, current year's permanent
book/tax differences of $96,213 have been reclassified between undistributed net
realized capital gains and undistributed net investment income and $121,640 has
been reclassified between paid-in capital in excess of par and undistributed net
investment income. These reclassifications have no effect on net assets or net
asset values per share.
2. Transactions with Affiliates:
The Fund has entered into an Administrative Services 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 .35% 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 Fund has entered into a Distribution Agreement and Distribution Plans with
FAM Distributors, Inc. ("FAMD" or the "Distributor"), which is 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 as follows:
--------------------------------------------------------------------------------
Account Distribution
Maintenance Fee Fee
--------------------------------------------------------------------------------
Class B .................................. .25% .75%
Class C .................................. .25% .75%
Class D .................................. .25% --
--------------------------------------------------------------------------------
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 B, Class C and Class D 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.
For the period November 26, 1999 to September 30, 2000, FAMD earned underwriting
discounts and MLPF&S earned dealer concessions on sales of the Fund's Class A
and Class D Shares as follows:
--------------------------------------------------------------------------------
FAMD MLPF&S
--------------------------------------------------------------------------------
Class A .............................. -- $ 2
Class D .............................. $5,401 $361,570
--------------------------------------------------------------------------------
For the period November 26, 1999 to September 30, 2000, MLPF&S received
contingent deferred sales charges of $113,364 and $8,194 relating to
transactions in Class B and Class C Shares, respectively.
Financial Data Services, Inc. ("FDS"), an indirect wholly-owned subsidiary of ML
& Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the 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
November 26, 1999 to September 30, 2000 were $85,781,394 and $5,466,534,
respectively.
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions was
$81,203,200 for the period November 26, 1999 to September 30, 2000.
Transactions in capital shares for each class were as follows:
--------------------------------------------------------------------------------
Class A Shares for the Period Dollar
Nov. 26, 1999+ to Sept. 30, 2000 Shares Amount
--------------------------------------------------------------------------------
Shares sold ........................ 991,995 $ 10,089,758
Shares redeemed .................... (313,115) (2,949,876)
-------- ------------
Net increase ....................... 678,880 $ 7,139,882
-------- ============
--------------------------------------------------------------------------------
+ Prior to November 26, 1999 (commencement of operations), the Fund issued
2,500 shares to FAM for $25,000.
--------------------------------------------------------------------------------
Class B Shares for the Period Dollar
Nov. 26, 1999+ to Sept. 30, 2000 Shares Amount
--------------------------------------------------------------------------------
Shares sold .............................. 5,794,899 $ 58,747,806
Automatic conversion of shares ........... (14,060) (149,207)
Shares redeemed .......................... (605,294) (6,096,424)
--------- ------------
Net increase ............................. 5,175,545 $ 52,502,175
========= ============
--------------------------------------------------------------------------------
+ Prior to November 26, 1999 (commencement of operations), the Fund issued
2,500 shares to FAM for $25,000.
10 & 11
<PAGE>
Merrill Lynch Global Financial Services Fund, Inc., September 30, 2000
NOTES TO FINANCIAL STATEMENTS (concluded)
MERRILL LYNCH
GLOBAL FINANCIAL
SERVICES FUND, INC.
--------------------------------------------------------------------------------
Class C Shares for the Period Dollar
Nov. 26, 1999+ to Sept. 30, 2000 Shares Amount
--------------------------------------------------------------------------------
Shares sold ........................ 1,355,710 $ 13,736,000
Shares redeemed .................... (144,323) (1,403,532)
--------- ------------
Net increase ....................... 1,211,387 $ 12,332,468
========= ============
--------------------------------------------------------------------------------
+ Prior to November 26, 1999 (commencement of operations), the Fund issued
2,500 shares to FAM for $25,000.
--------------------------------------------------------------------------------
Class D Shares for the Period Dollar
Nov. 26, 1999+ to Sept. 30, 2000 Shares Amount
--------------------------------------------------------------------------------
Shares sold .............................. 1,197,388 $ 12,058,182
Automatic conversion of shares ........... 13,999 149,207
--------- ------------
Total issued ............................. 1,211,387 12,207,389
Shares redeemed .......................... (297,213) (2,978,714)
--------- ------------
Net increase ............................. 914,174 $ 9,228,675
========= ============
--------------------------------------------------------------------------------
+ Prior to November 26, 1999 (commencement of operations), the Fund issued
2,500 shares to FAM for $25,000.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Merrill Lynch Global Financial Services Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of Merrill
Lynch Global Financial Services Fund, Inc. of Global Financial Services Master
Trust (the "Fund") as of September 30, 2000, the related statements of
operations and changes in net assets, and the financial highlights for the
period from November 26, 1999 (commencement of operations) to September 30,
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 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 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 Merrill Lynch Global
Financial Services Fund, Inc. of Global Financial Services Master Trust as of
September 30, 2000, the results of its operations, the changes in its net
assets, and the financial highlights for the period from November 26, 1999
(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 8, 2000
SCHEDULE OF INVESTMENTS (in US dollars)
Global Financial Services Portfolio
<TABLE>
<CAPTION>
Shares Percent of
AFRICA Industries Held Investments Value Net Assets
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
South Africa Banking 95,700 Standard Bank Investment Corporation Limited $ 367,771 0.4%
-----------------------------------------------------------------------------------------------------------------
Total Investments in Africa (Cost--$371,918) 367,771 0.4
-----------------------------------------------------------------------------------------------------------------------------------
LATIN AMERICA
-----------------------------------------------------------------------------------------------------------------------------------
Brazil Banking 57,500,000 Banco Bradesco SA 336,585 0.4
57,500,000 Bradespar SA 35,840 0.0
-----------------------------------------------------------------------------------------------------------------
Total Investments in Latin America (Cost--$375,906) 372,425 0.4
-----------------------------------------------------------------------------------------------------------------------------------
MIDDLE EAST
-----------------------------------------------------------------------------------------------------------------------------------
Israel Banking 110,000 Bank Hapoalim 337,326 0.4
137,000 Bank Leumi Le-Israel 307,773 0.3
-----------------------------------------------------------------------------------------------------------------
Total Investments in the Middle East (Cost--$549,807) 645,099 0.7
-----------------------------------------------------------------------------------------------------------------------------------
NORTH AMERICA
-----------------------------------------------------------------------------------------------------------------------------------
Bermuda Insurance 17,700 Ace Limited 694,725 0.7
-----------------------------------------------------------------------------------------------------------------
Total Investments in Bermuda 694,725 0.7
-----------------------------------------------------------------------------------------------------------------------------------
Canada Banking 17,200 Bank of Nova Scotia 500,133 0.5
13,700 Canadian Imperial Bank of Commerce 450,718 0.5
14,400 Royal Bank of Canada 427,808 0.4
16,800 The Toronto-Dominion Bank 493,527 0.5
-----------------------------------------------------------------------------------------------------------------
Total Investments in Canada 1,872,186 1.9
-----------------------------------------------------------------------------------------------------------------------------------
United States Banking 18,900 Bank of America Corporation 989,887 1.0
20,800 The Bank of New York Company, Inc. 1,166,100 1.2
22,400 Bank One Corporation 865,200 0.9
24,100 Capital One Financial Corporation 1,688,506 1.7
146,700 First Security Corporation 2,393,044 2.4
36,600 FleetBoston Financial Corporation 1,427,400 1.5
20,400 Investors Financial Services 1,286,475 1.3
14,700 J.P. Morgan & Co., Incorporated 2,401,613 2.5
8,300 Mellon Financial Corporation 384,913 0.4
5,000 Northern Trust Corporation 444,375 0.4
5,500 PNC Bank Corp. 357,500 0.4
35,400 +Silicon Valley Bancshares 2,062,050 2.1
7,200 State Street Corporation 936,000 1.0
5,900 SunTrust Banks, Inc. 293,894 0.3
34,200 Washington Mutual, Inc. 1,361,588 1.4
----------- -----
18,058,545 18.5
-----------------------------------------------------------------------------------------------------------------
</TABLE>
12 & 13
<PAGE>
Merrill Lynch Global Financial Services Fund, Inc., September 30, 2000
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
Global Financial Services Portfolio (continued)
<TABLE>
<CAPTION>
NORTH AMERICA Shares Percent of
(concluded) Industries Held Investments Value Net Assets
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
United States Computer Services 3,100 +CheckFree Corp. $ 129,812 0.1%
(concluded) -----------------------------------------------------------------------------------------------------------------
Data Processing 9,200 +Fiserv, Inc. 550,850 0.5
16,600 +Netzee, Inc. 59,138 0.1
----------- -----
609,988 0.6
-----------------------------------------------------------------------------------------------------------------
Electrical Equipment 19,700 General Electric Company 1,136,444 1.2
-----------------------------------------------------------------------------------------------------------------
Financial Services 102,500 Advanta Corp. 1,153,125 1.2
33,100 American Express Company 2,010,825 2.1
69,700 Associates First Capital Corporation (Class A) 2,648,600 2.7
19,132 The Charles Schwab Corporation 679,186 0.7
62,166 Citigroup Inc. 3,360,849 3.5
22,800 +CompuCredit Corporation 1,276,800 1.3
10,300 Dain Rauscher Corporation 957,900 1.0
24,000 Dime Bancorp, Inc. 517,500 0.5
27,400 Federal Home Loan Mortgage Association 1,481,312 1.5
23,400 Federal National Mortgage Association 1,673,100 1.7
24,500 Firstar Corporation 548,187 0.6
27,800 Golden West Financial Corporation 1,490,775 1.5
19,000 The Hartford Financial Services Group, Inc. 1,385,813 1.4
20,900 Household International, Inc. 1,183,463 1.2
4,600 Lehman Brothers Holdings, Inc. 679,650 0.7
29,200 MBNA Corporation 1,124,200 1.2
27,300 +MetLife, Inc. 714,919 0.7
44,600 Metris Companies Inc. 1,761,700 1.8
9,000 Morgan Stanley Dean Witter & Co. 822,938 0.8
11,000 PaineWebber Group Inc. 749,375 0.8
18,400 Stilwell Financial, Inc. 800,400 0.8
30,000 Tucker Anthony Sutro Corporation 761,250 0.8
----------- -----
27,781,867 28.5
-----------------------------------------------------------------------------------------------------------------
Insurance 21,900 AFLAC Incorporated 1,402,969 1.4
36,200 AXA Financial, Inc. 1,843,937 1.9
14,800 Allmerica Financial Corporation 946,275 1.0
9,300 Ambac Financial Group, Inc. 681,225 0.7
12,000 American General Corporation 936,000 1.0
40,150 American International Group, Inc. 3,841,853 3.9
29,500 Aon Corporation 1,157,875 1.2
17,300 CIGNA Corporation 1,806,120 1.9
5,500 The Chubb Corporation 435,187 0.4
34,200 +John Hancock Financial Services, Inc. 919,125 0.9
8,000 Lincoln National Corporation 385,000 0.4
11,700 MBIA, Inc. 832,163 0.9
17,000 Marsh & McLennan Companies, Inc. 2,256,750 2.3
20,900 Providian Financial Corporation 2,654,300 2.7
13,700 UnitedHealth Group Incorporated 1,352,875 1.4
----------- -----
21,451,654 22.0
-----------------------------------------------------------------------------------------------------------------
Investment Management 17,500 Alliance Capital Management Holding L.P. 877,187 0.9
-----------------------------------------------------------------------------------------------------------------
Savings & Loan Associations 13,800 Bank United Corp. (Class A) 699,487 0.7
18,600 GreenPoint Financial Corp. 551,025 0.6
93,300 Sovereign Bancorp, Inc. 863,025 0.9
----------- -----
2,113,537 2.2
-----------------------------------------------------------------------------------------------------------------
Total Investments in the United States 72,159,034 74.0
-----------------------------------------------------------------------------------------------------------------------------------
Total Investments in North America (Cost--$59,664,736) 74,725,945 76.6
-----------------------------------------------------------------------------------------------------------------------------------
PACIFIC
BASIN/ASIA
-----------------------------------------------------------------------------------------------------------------------------------
Hong Kong Banking 50,700 HSBC Holdings PLC 712,033 0.7
-----------------------------------------------------------------------------------------------------------------
Total Investments in Hong Kong 712,033 0.7
-----------------------------------------------------------------------------------------------------------------------------------
Japan Banking 37,000 The Bank of Tokyo-Mitsubishi, Ltd. 437,248 0.4
176,000 The Daiwa Bank, Ltd. 400,666 0.4
57 Mizuho Holdings, Inc. 469,461 0.5
51,000 The Sanwa Bank, Ltd. 454,026 0.5
36,000 The Sumitomo Bank, Ltd. 456,413 0.5
86,000 The Tokai Bank Ltd. 436,924 0.4
-----------------------------------------------------------------------------------------------------------------
Total Investments in Japan 2,654,738 2.7
-----------------------------------------------------------------------------------------------------------------------------------
Total Investments in the Pacific Basin/Asia
(Cost--$3,529,162) 3,366,771 3.4
-----------------------------------------------------------------------------------------------------------------------------------
WESTERN EUROPE
-----------------------------------------------------------------------------------------------------------------------------------
Denmark Banking 5,800 +Den Danske Bank Group 736,817 0.7
-----------------------------------------------------------------------------------------------------------------
Total Investments in Denmark 736,817 0.7
-----------------------------------------------------------------------------------------------------------------------------------
France Banking 8,900 Banque Nationale de Paris (BNP) 784,640 0.8
13,200 Societe Generale `A' 737,964 0.8
----------- -----
1,522,604 1.6
-----------------------------------------------------------------------------------------------------------------
Insurance 5,600 Axa 731,416 0.7
-----------------------------------------------------------------------------------------------------------------
Total Investments in France 2,254,020 2.3
-----------------------------------------------------------------------------------------------------------------------------------
Ireland Banking & Financial 70,400 Allied Irish Banks PLC 767,902 0.8
210,600 Anglo Irish Bank Corporation PLC 473,286 0.5
96,738 Bank of Ireland 772,614 0.8
-----------------------------------------------------------------------------------------------------------------
Total Investments in Ireland 2,013,802 2.1
-----------------------------------------------------------------------------------------------------------------------------------
Italy Banking & Financial 340,900 Banca Nazionale del Lavoro (Ordinary) 1,149,225 1.2
-----------------------------------------------------------------------------------------------------------------
Total Investments in Italy 1,149,225 1.2
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
14 & 15
<PAGE>
Merrill Lynch Global Financial Services Fund, Inc., September 30, 2000
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
Global Financial Services Portfolio (concluded)
<TABLE>
<CAPTION>
WESTERN EUROPE Shares Percent of
(concluded) Industries Held Investments Value Net Assets
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------------------------------
Netherlands Banking 24,000 ABN AMRO Holding NV $ 559,152 0.6%
-----------------------------------------------------------------------------------------------------------------
Insurance 16,400 ING Groep NV 1,092,422 1.1
-----------------------------------------------------------------------------------------------------------------
Total Investments in the Netherlands 1,651,574 1.7
-----------------------------------------------------------------------------------------------------------------------------------
Norway Financial Services 84,000 DNB Holding ASA 365,483 0.4
28,900 Sparebanken NOR (Capital Certificates) 701,935 0.7
-----------------------------------------------------------------------------------------------------------------
Total Investments in Norway 1,067,418 1.1
-----------------------------------------------------------------------------------------------------------------------------------
Spain Banking & Financial 78,300 Banco Santander Central Hispano, SA 859,601 0.9
-----------------------------------------------------------------------------------------------------------------
Total Investments in Spain 859,601 0.9
-----------------------------------------------------------------------------------------------------------------------------------
Sweden Banking 42,900 ForeningsSparbanken AB 610,121 0.6
-----------------------------------------------------------------------------------------------------------------
Total Investments in Sweden 610,121 0.6
-----------------------------------------------------------------------------------------------------------------------------------
United Kingdom Banking 21,400 Barclays PLC 592,299 0.6
41,200 Lloyds TSB Group PLC 384,369 0.4
----------- -----
976,668 1.0
-----------------------------------------------------------------------------------------------------------------
Investment Management 39,000 Amvescap PLC 844,164 0.9
-----------------------------------------------------------------------------------------------------------------
Total Investments in the United Kingdom 1,820,832 1.9
-----------------------------------------------------------------------------------------------------------------------------------
Total Investments in Western Europe (Cost--$11,672,449) 12,163,410 12.5
-----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Face
Amount Short-Term Securities
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial Paper* $2,016,000 General Motors Acceptance Corp., 6.75% due 10/02/2000 2,015,244 2.1
-----------------------------------------------------------------------------------------------------------------
US Government Agency 4,384,000 Freddie Mac Participation Certificates,
Obligations* 6.41% due 10/10/2000 4,376,194 4.5
-----------------------------------------------------------------------------------------------------------------
Total Investments in Short-Term Securities
(Cost--$6,391,438) 6,391,438 6.6
-----------------------------------------------------------------------------------------------------------------------------------
Total Investments (Cost--$82,555,416) 98,032,859 100.6
Liabilities in Excess of Other Assets (542,939) (0.6)
----------- -----
Net Assets $97,489,920 100.0%
=========== =====
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commercial Paper and certain US Government Agency Obligations are traded
on a discount basis; the interest rates shown reflect the discount rates
paid at the time of purchase by the Portfolio.
+ Non-income producing security. See Notes to Financial Statements.
STATEMENT OF ASSETS AND LIABILITIES
GLOBAL
FINANCIAL SERVICES
PORTFOLIO
<TABLE>
<CAPTION>
As of September 30, 2000
<S> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------------------------------
Assets: Investments, at value (identified cost--$82,555,416)............................ $ 98,032,859
Cash............................................................................ 949
Foreign cash.................................................................... 88,050
Receivables:
Contributions................................................................. $ 376,795
Dividends..................................................................... 127,624 504,419
-----------
Prepaid expenses and other assets............................................... 31,931
------------
Total assets.................................................................... 98,658,208
------------
-----------------------------------------------------------------------------------------------------------------------------------
Liabilities: Payables:
Securities purchased.......................................................... 961,274
Withdrawals................................................................... 96,004
Investment adviser............................................................ 28,133 1,085,411
-----------
Accrued expenses................................................................ 82,877
------------
Total liabilities............................................................... 1,168,288
------------
-----------------------------------------------------------------------------------------------------------------------------------
Net Assets: Net assets...................................................................... $ 97,489,920
============
-----------------------------------------------------------------------------------------------------------------------------------
Net Assets Partners' capital............................................................... $ 82,015,872
Consist of: Unrealized appreciation on investments and foreign currency transactions--net... 15,474,048
------------
Net assets...................................................................... $ 97,489,920
============
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
16 & 17
<PAGE>
Merrill Lynch Global Financial Services Fund, Inc., September 30, 2000
STATEMENT OF OPERATIONS
GLOBAL
FINANCIAL SERVICES
PORTFOLIO
<TABLE>
<CAPTION>
For the Period November 26, 1999+ to September 30, 2000
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Dividends (net of $36,988 foreign withholding tax).............................. $ 968,502
Income: Interest and discount earned.................................................... 219,062
------------
Total income.................................................................... 1,187,564
------------
-----------------------------------------------------------------------------------------------------------------------------------
Expenses: Investment advisory fees........................................................ $ 228,757
Accounting services............................................................. 71,154
Custodian fees.................................................................. 28,811
Trustees' fees and expenses..................................................... 27,778
Offering costs.................................................................. 26,684
Professional fees............................................................... 19,966
Pricing fees.................................................................... 712
Other .......................................................................... 6,153
-----------
Total expenses.................................................................. 410,015
------------
Investment income--net.......................................................... 777,549
------------
-----------------------------------------------------------------------------------------------------------------------------------
Realized & Realized gain from:
Unrealized Gain Investments--net............................................................. 923,103
(Loss) Foreign currency transactions--net........................................... 260 923,363
On Investments & -----------
Foreign Currency Unrealized appreciation/depreciation on:
Transactions--Net: Investments--net............................................................. 15,477,443
Foreign currency transactions--net........................................... (3,395) 15,474,048
----------- ------------
Net Increase in Net Assets Resulting from Operations............................ $ 17,174,960
============
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
STATEMENT OF CHANGES IN NET ASSETS
GLOBAL
FINANCIAL SERVICES
PORTFOLIO
<TABLE>
<CAPTION>
For the Period
Nov. 26, 1999+ to
Increase (Decrease) in Net Assets: Sept. 30, 2000
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations: Investment income--net.......................................................... $ 777,549
Realized gain on investments and foreign currency transactions--net............. 923,363
Unrealized appreciation on investments and foreign currency transactions--net... 15,474,048
------------
Net increase in net assets resulting from operations............................ 17,174,960
------------
-----------------------------------------------------------------------------------------------------------------------------------
Net Capital Increase in net assets derived from net capital contributions................... 80,214,860
Contributions: ------------
-----------------------------------------------------------------------------------------------------------------------------------
Net Assets: Total increase in net assets.................................................... 97,389,820
Beginning of period............................................................. 100,100
------------
End of period................................................................... $ 97,489,920
============
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
GLOBAL
FINANCIAL SERVICES
PORTFOLIO
<TABLE>
<CAPTION>
For the Period
The following ratios have been derived from Nov. 26, 1999+ to
information provided in the financial statements. Sept. 30, 2000
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Ratios to Average Expenses.............................................................. .71%*
Net Assets: ============
Investment income--net................................................ 1.36%*
============
-----------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of period (in thousands).............................. $ 97,490
Data: ============
Portfolio turnover.................................................... 68.73%
============
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
+ Commencement of operations.
See Notes to Financial Statements.
18 & 19
<PAGE>
Merrill Lynch Global Financial Services Fund, Inc., September 30, 2000
NOTES TO FINANCIAL STATEMENTS
GLOBAL
FINANCIAL SERVICES
PORTFOLIO
1. Significant Accounting Policies:
Global Financial Services Portfolio (the "Portfolio") is part of Global
Financial Services 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 Directors 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 techniques to increase or decrease the level of risk to
which the Portfolio is exposed more quickly and efficiently than transactions in
other types of investments. Losses may arise due to changes in the value of the
contract or if the counterparty does not perform under the contract.
o Financial futures contracts--The Portfolio may purchase or sell financial
futures contracts and options on such futures contracts for the purpose of
hedging the market risk on existing securities or the intended purchase of
securities. Upon entering into a contract, the Portfolio deposits and maintains
as collateral such initial margin as required by the exchange on which the
transaction is effected. Pursuant to the contract, the Portfolio agrees to
receive from or pay to the broker an amount of cash equal to the daily
fluctuation in value of the contract. Such receipts or payments are known as
variation margin and are recorded by the Portfolio as unrealized gains or
losses. When the contract is closed, the Portfolio records a realized gain or
loss equal to the difference between the value of the contract at the time it
was opened and the value at the time it was closed.
o Options--The Portfolio is authorized to purchase and write call and put
options. When the Portfolio writes an option, an amount equal to the premium
received by the Portfolio is reflected as an asset and an equivalent liability.
The amount of the liability is subsequently marked to market to reflect the
current market value of the option written. When a security is purchased or sold
through an exercise of an option, the related premium paid (or received) is
added to (or deducted from) the basis of the security acquired or deducted from
(or added to) the proceeds of the security sold. When an option expires (or the
Portfolio enters into a closing transaction), the Portfolio realizes a gain or
loss on the option to the extent of the premiums received or paid (or a gain or
loss to the extent that the cost of the closing transaction exceeds the premium
paid or received).
Written and purchased options are non-income producing investments.
o Forward foreign exchange contracts--The Portfolio is authorized to enter into
forward foreign exchange contracts as a hedge against either specific
transactions or portfolio positions. Such contracts are not entered on the
Portfolios' records. However, the effect on operations is recorded from the date
the Portfolio enters into such contracts.
o Foreign currency options and futures--The Portfolio may also purchase or sell
listed or over-the-counter foreign currency options, foreign currency futures
and related options on foreign currency futures as a short or long hedge against
possible variations in foreign exchange rates. Such transactions may be effected
with respect to hedges on non-US dollar-denominated securities owned by the
Portfolio, sold by the Portfolio but not yet delivered, or committed or
anticipated to be purchased by the Portfolio.
(c) Foreign currency transactions--Transactions denominated in foreign
currencies are recorded at the exchange rate prevailing when recognized. Assets
and liabilities denominated in foreign currencies are valued at the exchange
rate at the end of the period. Foreign currency transactions are the result of
settling (realized) or valuing (unrealized) assets or liabilities expressed in
foreign currencies into US dollars. Realized and unrealized gains or losses from
investments include the effects of foreign exchange rates on investments.
(d) Income taxes--The Portfolio is classified as a partnership for Federal
income tax purposes. As a partnership for Federal income tax purposes, the
Portfolio will not incur Federal income tax liability. Items of partnership
income, gain, loss and deduction will pass through to investors as partners in
the Portfolio. Therefore, no Federal income tax provision is required. Under the
applicable foreign tax law, a withholding tax 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.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Trust has entered into an Investment Advisory Agreement with 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.
FAM 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 Trust. For such services, the
Portfolio pays a monthly fee at an annual rate of .40% of the average daily
value of the Trusts' net assets.
In addition, MLPF&S received $23,908 in commissions on the execution of
portfolio security transactions for the Fund for the period November 26, 1999 to
September 30, 2000.
Accounting services are provided to the Trust by FAM at cost.
Certain officers and/or trustees of the Trust are officers and/or directors of
FAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
period November 26, 1999 to September 30, 2000 were $118,115,081 and
$42,872,713, respectively.
Net realized gains (losses) for the period November 26, 1999 to September 30,
2000 and net unrealized gains (losses) as of September 30, 2000 were as follows:
--------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Gains (Losses)
--------------------------------------------------------------------------------
Long-term investments ..................... $ 923,230 $ 15,477,443
Short-term investments .................... (127) --
Foreign currency transactions ............. 260 (3,395)
--------- ------------
Total ..................................... $ 923,363 $ 15,474,048
========= ============
--------------------------------------------------------------------------------
As of September 30, 2000, net unrealized appreciation for Federal income tax
purposes aggregated $15,432,101, of which $17,488,648 related to appreciated
securities and
20 & 21
<PAGE>
Merrill Lynch Global Financial Services Fund, Inc., September 30, 2000
NOTES TO FINANCIAL STATEMENTS (concluded)
GLOBAL
FINANCIAL SERVICES
PORTFOLIO
$2,056,547 related to depreciated securities. At September 30, 2000, the
aggregate cost of investments for Federal income tax purposes was $82,600,758.
4. Short-Term Borrowings:
On December 3, 1999, the Portfolio, along with certain other funds managed by
FAM and its affiliates, entered into a $1,000,000,000 credit agreement with Bank
of America, N.A. and certain other lenders. The Portfolio may borrow under the
credit agreement to fund withdrawals and for other lawful purposes other than
for leverage. The Portfolio may borrow up to the maximum amount allowable under
the Portfolio's current prospectus and statement of additional information,
subject to various other legal, regulatory or contractual limits. The Portfolio
pays a commitment fee of .09% per annum based on the Portfolio's pro rata share
of the unused portion of the facility. Amounts borrowed under the facility bear
interest at a rate equal to, at each fund's election, the Federal Funds rate
plus .50% or a base rate as determined by Bank of America, N.A. The Portfolio
did not borrow under the facility during the period November 26, 1999 to
September 30, 2000.
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Investors, Global Financial Services Portfolio of
Global Financial Services Master Trust:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Global Financial Services Portfolio of Global
Financial Services Master Trust (the "Portfolio") as of September 30, 2000, the
related statements of operations and changes in net assets, and the financial
highlights for the period November 26, 1999 (commencement of operations) to
September 30, 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. 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 Global Financial
Services Portfolio of Global Financial Services Trust as of September 30, 2000,
the results of its operations, the changes in its net assets, and the financial
highlights for the period November 26, 1999 (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 8, 2000
PORTFOLIO INFORMATION (unaudited)
Worldwide
Investments as of
September 30, 2000
Percent of
Ten Largest Holdings Net Assets
American International Group, Inc......................... 3.9%
Citigroup Inc............................................. 3.5
Providian Financial Corporation........................... 2.7
Associates First Capital Corporation (Class A)............ 2.7
J.P. Morgan & Co., Incorporated........................... 2.5
First Security Corporation................................ 2.4
Marsh & McLennan Companies, Inc........................... 2.3
Silicon Valley Bancshares................................. 2.1
American Express Company.................................. 2.1
AXA Financial, Inc........................................ 1.9
Percent of
Industries Represented in the Portfolio Net Assets
Banking................................................... 29.8%
Financial Services........................................ 29.6
Insurance................................................. 24.5
Banking & Financial....................................... 4.2
Savings & Loan Associations............................... 2.2
Investment Management..................................... 1.8
Electrical Equipment...................................... 1.2
Data Processing........................................... 0.6
Computer Services......................................... 0.1
Percent of
Breakdown of Investments by Country Net Assets*
United States............................................. 74.0%
Japan..................................................... 2.7
France.................................................... 2.3
Ireland................................................... 2.1
Canada.................................................... 1.9
United Kingdom............................................ 1.9
Netherlands............................................... 1.7
Italy..................................................... 1.2
Norway.................................................... 1.1
Spain..................................................... 0.9
Denmark................................................... 0.7
Hong Kong................................................. 0.7
Bermuda................................................... 0.7
Israel.................................................... 0.7
Sweden.................................................... 0.6
Brazil.................................................... 0.4
South Africa.............................................. 0.4
* Total may not equal 100%.
22 & 23
<PAGE>
MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC.
Officers and
Directors
Terry K. Glenn, President and Director
Ronald W. Forbes, Director
Cynthia A. Montgomery, Director
Charles C. Reilly, Director
Kevin A. Ryan, Director
Roscoe S. Suddarth, Director
Richard R. West, Director
Arthur Zeikel, Director
Edward D. Zinbarg, Director
Robert C. Doll, Jr., Senior Vice President
James Ellman, Senior Vice President and
Portfolio Manager
Donald C. Burke, Vice President and Treasurer
Ira P. Shapiro, Secretary
Custodian
Browns Brothers Harriman & Co.
40 Water Street
Boston, MA 02109
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
<PAGE>
This report is not authorized for use as an offer of sale or a solicitation of
an offer to buy shares of the Fund unless accompanied or preceded by the Fund's
current prospectus. Past performance results shown in this report should not be
considered a representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost. Statements and other information
herein are as dated and are subject to change.
Merrill Lynch
Global Financial Services Fund, Inc.
Box 9011
Princeton, NJ
08543-9011 MLGFSF--9/00
[RECYCLE LOGO] Printed on post-consumer recycled paper
