UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT
COMPANIES
Investment Company Act file number 811-4182
Mercury International Value Fund, Inc.
Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Terry K. Glenn, President,
Mercury International Value Fund, Inc., 800 Scudders Mill Road,
Plainsboro, NJ, 08536. Mailing address: P.O. Box 9011, Princeton,
NJ, 08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 06/30/03
Date of reporting period: 07/01/02 - 12/31/02
Item 1 - Is shareholder report attached? - Y
Item 2 - Did registrant adopt a code of ethics, as of the end of the
period covered by this report, that applies to the registrant's
principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar
functions, regardless of whether these individuals are employed by
the registrant or a third party? If not, why not? Briefly describe
any amendments or waivers that occurred during the period. State
here if code of ethics/amendments/waivers are on website and give
website address-. State here if fund will send code of ethics to
shareholders without charge upon request--N/A (not answered until
July 15, 2003 and only annually for funds)
Item 3 - Did the registrant's board of directors determine that the
registrant either: (i) has at least one audit committee financial
expert serving on its audit committee; or (ii) does not have an
audit committee financial expert serving on its audit committee? If
yes, disclose name of financial expert and whether he/she is
"independent," (fund may, but is not required, to disclose
name/independence of more than one financial expert) If no, explain
why not. -N/A (not answered until July 15, 2003 and only annually
for funds)
Item 4 - Disclose annually only (not answered until December 15,
2003)
(a) Audit Fees - Disclose aggregate fees billed for each of the last
two fiscal years for professional services rendered by the principal
accountant for the audit of the registrant's annual financial
statements or services that are normally provided by the accountant
in connection with statutory and regulatory filings or engagements
for those fiscal years. N/A.
(b) Audit-Related Fees - Disclose aggregate fees billed in each of
the last two fiscal years for assurance and related services by the
principal accountant that are reasonably related to the performance
of the audit of the registrant's financial statements and are not
reported under paragraph (a) of this Item. Registrants shall
describe the nature of the services comprising the fees disclosed
under this category. N/A.
(c) Tax Fees - Disclose aggregate fees billed in each of the last
two fiscal years for professional services rendered by the principal
accountant for tax compliance, tax advice, and tax planning.
Registrants shall describe the nature of the services comprising the
fees disclosed under this category. N/A.
(d) All Other Fees - Disclose aggregate fees billed in each of the
last two fiscal years for products and services provided by the
principal accountant, other than the services reported in paragraphs
(a) through (c) of this Item. Registrants shall describe the nature
of the services comprising the fees disclosed under this category.
N/A.
(e)(1) Disclose the audit committee's pre-approval policies and
procedures described in paragraph (c)(7) of Rule 2-01 of Regulation
S-X. N/A.
(e)(2) Disclose the percentage of services described in each of
paragraphs (b) through (d) of this Item that were approved by the
audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of
Regulation S-X. N/A.
(f) If greater than 50%, disclose the percentage of hours expended
on the principal accountant's engagement to audit the registrant's
financial statements for the most recent fiscal year that were
attributed to work performed by persons other than the principal
accountant's full-time, permanent employees. N/A.
(g) Disclose the aggregate non-audit fees billed by the registrant's
accountant for services rendered to the registrant, and rendered to
the registrant's investment adviser (not including any sub-adviser
whose role is primarily portfolio management and is subcontracted
with or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the adviser
that provides ongoing services to the registrant for each of the
last two fiscal years of the registrant. N/A.
(h) Disclose whether the registrant's audit committee has considered
whether the provision of non-audit services that were rendered to
the registrant's investment adviser (not including any subadviser
whose role is primarily portfolio management and is subcontracted
with or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the registrant
that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X is compatible with maintaining the principal
accountant's independence. N/A.
Items 5-6 - Reserved
Item 7 - For closed-end funds that contain voting securities in
their portfolio, describe the policies and procedures that it uses
to determine how to vote proxies relating to those portfolio
securities. N/A.
Item 8--Reserved
Item 9(a) - Disclose the conclusions of the registrant's principal
executive officer or officers and principal financial officer or
officers, or persons performing similar functions, about the
effectiveness of the registrant's disclosure controls and procedures
(as defined in Rule 30a-2(c) under the Act (17 CFR 270.30a-2(c)))
based on their evaluation of these controls and procedures as of a
date within 90 days of the filing date of the report that includes
the disclosure required by this paragraph. N/A.
Item 9(b)--There were no significant changes in the registrant's
internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Item 10 - Exhibits
10(a) - Attach code of ethics or amendments/waivers, unless code of
ethics or amendments/waivers is on website or offered to
shareholders upon request without charge. N/A.
10(b) - Attach certifications (4 in total pursuant to Sections 302
and 906 for CEO/CFO). Attached hereto.
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Mercury International Value Fund
By: _/s/ Terry K. Glenn_______
Terry K. Glenn,
President of
Mercury International Value Fund
Date: February 24, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By: _/s/ Terry K. Glenn________
Terry K. Glenn,
President of
Mercury International Value Fund
Date: February 24, 2003
By: /s/ Donald C. Burke_______
Donald C. Burke
Chief Financial Officer of
Mercury International Value Fund
Date: February 24, 2003
<ITEM 1>
(BULL LOGO)
Merrill Lynch Investment Managers
www.mlim.ml.com
Semi-Annual Report
December 31, 2002
Mercury
International
Value Fund
of Mercury Funds II
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.
Investment in foreign securities involves special risks including
fluctuating foreign exchange rates, foreign government regulations,
differing degrees of liquidity and the possibility of substantial
volatility due to adverse political, economic or other developments.
Mercury International Value Fund
of Mercury Funds II
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
PORTFOLIO INFORMATION
WORLDWIDE INVESTMENTS AS OF DECEMBER 31, 2002
Ten Largest Percent of
Equity Holdings Net Assets
GlaxoSmithKline PLC 4.0%
Shell Transport & Trading Company 3.6
Royal Bank of Scotland Group PLC 3.1
TotalFinaElf SA 3.1
Unilever PLC 2.7
Yamanouchi Pharmaceutical
Co., Ltd. 2.6
Novartis AG (Registered Shares) 2.4
Barclays PLC 2.3
Namco Ltd. 2.3
ENI SpA 2.1
Five Largest Percent of
Industries* Net Assets
Regional Banks 13.4%
Pharmaceuticals 9.0
Oil & Gas 7.2
Electric--Utilities 4.4
Foods 4.2
*For Fund compliance purposes, "Industry" means any one or more of
the industry sub-classifications used by one or more widely
recognized market indexes or ratings group indexes and/or as defined
by Fund management. This definition may not apply for purposes of
this report, which may combine such industry sub-classifications for
reporting ease.
December 31, 2002, Mercury International Value Fund
DEAR SHAREHOLDER
We are pleased to present to you this semi-annual report of
Mercury International Value Fund. For the six months ended December
31, 2002, the Fund's Class I, Class A, Class B and Class C Shares
had total returns of -19.38%, -19.41%, -19.79% and -19.76%,
respectively, compared to the unmanaged benchmark Morgan Stanley
Capital International Europe, Australasia, Far East Index, which had
a total return of -14.55%. (Fund results do not reflect sales
charges and would be lower if sales charges were included. Complete
performance information can be found on pages 6 - 8 of this report
to shareholders.)
Investment Review
During the six months ended December 31, 2002, value stocks and
growth stocks generated similar returns. However, there was a big
change in the trend in the third quarter of 2002 as economic data in
Europe deteriorated and the U.S. dollar started to weaken against
most currencies. Consequently, the more economically sensitive
stocks, which were mainly value stocks, started to underperform.
During the period, the worst-performing markets were Germany,
Netherlands and Australia with the financial and capital good stocks
causing most of the damage, while the best performance and only
country to show a positive return came from New Zealand, thanks to
the telecommunication sector. On a sector level, the best performers
were telecommunication services, health care equipment and
household and personal products. The worst-performing areas were
insurance (market sensitive), commercial services and capital goods
(poor earnings visibility).
The Fund suffered from being underweight in the United Kingdom but
was positively impacted by its underweight in Germany. Strong stock
selection was featured by our investments in Ireland, Spain, Germany
and Australia, but was poor in Singapore, France and the United
Kingdom. The Fund's best contributions during the six-month period
were from energy, pharmaceuticals and retailing, while its worst
contributions came from commercial services, materials and
technology hardware, mainly because of weak stock selection.
The positioning of the Fund remains toward the economically
sensitive sectors by being overweight compared to the broad
benchmark in diversified financials, capital goods, commercial
services and consumer durables at the expense of food, beverage and
tobacco, technology and banks. Although in the short term these
sectors might come under pressure because of deterioration in
earnings visibility, we believe, however, that much of this has been
discounted in the share price and makes these investments attractive
on a longer-term view. We anticipate that fundamental factors such
as earnings and cash flow will be increasingly important to
investors and believe that the Fund is well positioned for progress
in the future.
Economic Environment
The U.S. economy has experienced an erratic recovery with alternate
quarters of strong and weak economic growth. In aggregate, real
gross domestic product (GDP) growth rose in excess of 3% during
2002, a reasonable outcome against a background of aggressive
corporate deleveraging but not sufficient to significantly raise
low-capacity utilization rates and profit margins.
December 31, 2002, Mercury International Value Fund
Economic indicators showed some loss of economic momentum entering
the fourth quarter. The Institute for Supply Management index fell,
consumer confidence softened and car sales declined from their
record levels at the end of the summer. We view this as a
continuation of the bumpy growth path seen over the last year. Most
economic indicators are consistent with low but positive economic
growth. Moreover, the balance of economic data has improved in
recent weeks, suggesting that the economy may be pulling out of its
soft patch; consumer confidence has risen and money growth has
accelerated.
The Eurozone economy has grown less than 1% in real terms during
2002, despite the tailwind of rising global trade. Progress in core
Europe has been particularly disappointing, with Germany, France and
Italy collectively failing to register any meaningful growth in
2002. This poor display reflects a combination of structural
headwinds, especially high labor costs, and unsupportive fiscal and
monetary policies. The significant rise in the value of the euro
during the year is starting to dampen the only dynamic sector in
Europe--exports. Business surveys across Europe have deteriorated
during the last few months, with the key German Information und
Forscheng survey dropping for five consecutive months, taking it
back into recession territory. The United Kingdom was unique among
the Group of Seven economies in avoiding a recession in 2001 and has
continued to grow close to trend in 2002. It has now been more than
ten years since the United Kingdom posted a single quarter of
negative growth. U.K. GDP growth has recently been underpinned by a
robust consumer. Retail sales volumes are up 6% compared to year-ago
levels.
The export-led Japanese economic recovery is starting to lose
momentum. GDP rose by 1.5% in real terms during 2002, a reasonably
strong recovery by Japan's experience over the last decade. The
recovery has been driven largely by exports on the back of improving
global demand. Exports to Asia have risen more than 30% during the
year, and the near-term outlook for demand from Asia remains firm.
However, some leading economic indicators have deteriorated,
suggesting that Japan is in the process of peaking. For example,
money supply growth has slowed and the inventory/production ratio
has risen. Asian production surged in 2002 reflecting the high
gearing of the region into the global trade cycle and a rebound in
domestic demand from depressed post-crisis levels. However, we are
now seeing signs of growth losing momentum, coinciding with the
deterioration in global leading economic indicators. Moreover,
there are rising concerns that the South Korean consumption boom has
been fueled by an unhealthy buildup of credit card debt, much of
which is currently going bad. The outlook for the Australian economy
remains well supported by rising commodity prices, while Hong Kong
and Singapore remain mired in domestic deflation.
Economic growth remains below average but without double-dip
declines. We anticipate modest global growth rates in 2003,
particularly in nominal terms. Massive fiscal and monetary stimulus
allied to a significant expansion in government deficits should keep
the global growth engine moving slowly forward. We do not anticipate
many stimuli from capital expenditure--the global output gap allied
to slow ongoing balance sheet repair rules this out.
December 31, 2002, Mercury International Value Fund
More importantly, 2003 could be the year when the consumer
disappoints. Savings rates remain low and it seems unrealistic to
expect that housing inflation will underpin a wealth effect boost to
the same degree as in 2002. We are not suggesting that housing
prices will fall, rather that price rises of four to eight times
basic inflation must moderate over time. Housing has been a great
source of wealth creation in the long term and will remain so; it
seems natural that a pause in the rate of appreciation is at hand.
Any slowing in price appreciation and transaction volume could have
a significant multiplier impact on the housing market in 2003.
Subdued economic growth and inflation risk suggest that monetary
authorities will remain in an accommodative mode on price and
quantity in 2003. The United Kingdom may be the exception as core
inflation in a full employment economy suffers the upward pressure
of public sector pay claims, fiscal expansion and an overheating
housing market. Indeed this has the capability of providing one of
2003's more unpleasant surprises. Elsewhere, authorities will
probably remain more relaxed on inflation risk. In a paradoxical way
this is hardly good news for the equity markets where apart from the
United Kingdom some rise in short-term interest rates would
represent encouraging signs of reviving growth. We believe
government bonds will struggle to make positive returns, given the
low level of nominal yields and limited chances of deflation.
The rally in the markets that occurred during the fourth quarter has
removed some of the severe undervaluation that was apparent at the
end of the third quarter. The rally was led by a renewed confidence
in an early economic rebound in the U.S. economy in response to the
dramatic monetary easing by the Federal Reserve Board. From a
valuation standpoint, European markets presently trade at 16 times
2003 earnings, which are expected to be slightly up compared to
2002. Asian markets are valued at around 22 times 2003 earnings,
which are forecast to be flat to down in 2003. The outlook is for a
continued positive trend in the international markets for 2003,
although we need to see a positive development in global GDP and
earnings and a resolution to the Middle East conflict. We still
believe there are opportunities to select attractive investments in
a climate that is overshadowed with uncertainties regarding economic
recovery, a weak U.S. dollar and poor earnings visibility.
In Conclusion
We appreciate your support of Mercury International Value Fund, and
we look forward to serving your investment needs in the months and
years ahead.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President and Trustee
(James Macmillan)
James Macmillan
Vice President and
Portfolio Manager
February 4, 2003
December 31, 2002, Mercury International Value Fund
FUND PERFORMANCE DATA
ABOUT FUND PERFORMANCE
The Fund offers four classes of shares, each with its own sales
charge and expense structure, allowing you to invest in the way that
best suits your needs.
CLASS I SHARES incur a maximum initial sales charge of 5.25% and
bear no ongoing distribution and account maintenance fees. Class I
Shares are available only to eligible investors.
CLASS A SHARES incur a maximum initial sales charge of 5.25% and an
account maintenance fee of 0.25% (but no distribution fee).
CLASS B SHARES are subject to a maximum contingent deferred sales
charge of 4% if redeemed during the first two years, decreasing to
3% for each of the next two years and decreasing 1% each year
thereafter to 0% after the sixth year. In addition, Class B Shares
are subject to a distribution fee of 0.75% and an account
maintenance fee of 0.25%. These Shares automatically convert to
Class A Shares after approximately eight 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. Performance results do not reflect the
deduction of taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares. Figures shown
in each of the following 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 the
classes, which are deducted from the income available to be paid to
shareholders. The Fund's investment adviser voluntarily paid annual
operating expenses in excess of 1.0% of average Class I net assets
until 3/1/99, when it removed/discontinued capping expenses. Without
such expense cap, the Fund's Class I performance would have been
lower.
December 31, 2002, Mercury International Value Fund
FUND PERFORMANCE DATA (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
% Return % Return
Without Sales With Sales
Class I Shares* Charge Charge**
One Year Ended 12/31/02 -14.58% -19.06%
Five Years Ended 12/31/02 - 0.01 - 1.09
Ten Years Ended 12/31/02 + 7.75 + 7.17
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without Sales With Sales
Class A Shares* Charge Charge**
One Year Ended 12/31/02 -14.72% -19.20%
Inception (6/02/99) through 12/31/02 - 4.11 - 5.54
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without Sales With Sales
Class B Shares* Charge Charge**
One Year Ended 12/31/02 -15.38% -18.77%
Inception (10/06/00) through 12/31/02 -11.06 -12.06
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 6 years.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without Sales With Sales
Class C Shares* Charge Charge**
One Year Ended 12/31/02 -15.67% -16.51%
Inception (10/06/00) through 12/31/02 -11.09 -11.09
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
December 31, 2002, Mercury International Value Fund
FUND PERFORMANCE DATA (CONCLUDED)
RECENT PERFORMANCE RESULTS
6-Month 12-Month Ten-Year/Since Inception
As of December 31, 2002 Total Return Total Return Total Return
Class I Shares* -19.38% -14.58% +111.01%
Class A Shares* -19.41 -14.72 - 13.95
Class B Shares* -19.79 -15.38 - 23.05
Class C Shares* -19.76 -15.67 - 23.11
MSCI EAFE Index** -14.55 -15.94 +48.08/-30.78/-34.18
*Investment results shown do not reflect sales charges. Results
shown would be lower if sales charges were included. Total
investment returns are based on changes in the Fund's net asset
values for the periods shown, and assume reinvestment of all
dividends and capital gains at net asset value on the ex-dividend
date. The Fund's ten-year/since inception periods are ten years for
Class I Shares, from 6/02/99 for Class A Shares, and from 10/06/00
for Class B and Class C Shares.
**This unmanaged Index measures the total returns of developed
foreign stock markets in Europe, Australasia and the Far East (in
U.S.dollars). Ten-year/since inception total returns appear above as
for ten years; from 6/30/99 for Class A Shares; and from 10/31/00
for Class B and Class C Shares, respectively.
December 31, 2002, Mercury International Value Fund
SCHEDULE OF INVESTMENTS
MERCURY INTERNATIONAL VALUE FUND
In U.S. Dollars
Shares
Industry* Investments Held Value
COMMON STOCKS--95.3%
Australia--1.5%
Oil & Gas--1.5% Santos Limited 2,051,915 $ 6,955,709
Total Common Stocks in Australia 6,955,709
France--12.7%
Automobiles--1.8% PSA Peugeot Citroen 209,694 8,551,255
Consumer--Office Societe BIC SA 136,228 4,696,159
Products--1.0%
Electrical ++Alstom 362,580 1,807,334
Equipment--0.4%
Hotels, Restaurants & Accor SA 152,671 4,623,747
Leisure--1.0%
Metals & Mining--2.4% ++Arcelor 476,409 5,859,339
Pechiney SA 'A' 159,269 5,589,058
-------------
11,448,397
Oil--International--3.1% TotalFinaElf SA 103,278 14,750,509
Regional Banks--2.0% BNP Paribas SA 236,892 9,652,923
Retailing--1.0% Pinault-Printemps-Redoute SA 68,072 5,007,576
Total Common Stocks in France 60,537,900
Germany--4.1%
Electric--Utilities--1.5% E.On AG 177,063 7,135,101
Financial Services--1.6% DePfa Bank PLC 150,007 7,870,867
Machinery--1.0% Linde AG 126,994 4,664,363
Total Common Stocks in Germany 19,670,331
December 31, 2002, Mercury International Value Fund
SCHEDULE OF INVESTMENTS (CONTINUED)
In U.S. Dollars
Shares
Industry* Investments Held Value
COMMON STOCKS (continued)
Hong Kong--3.9%
Electric--Utilities--1.9% Hongkong Electric Holdings Limited 2,340,371 $ 8,868,225
Publishing--0.4% South China Morning Post Holdings Ltd. 4,566,000 1,902,890
Real Estate--1.6% Henderson Land Development Company Limited 2,650,879 7,971,265
Total Common Stocks in Hong Kong 18,742,380
Ireland--1.4%
Regional Banks--1.4% Allied Irish Banks PLC 506,876 6,840,436
Total Common Stocks in Ireland 6,840,436
Italy--7.6%
Building Products--0.9% Buzzi Unicem SpA 573,317 4,079,111
Insurance--1.5% Assicurazioni Generali 339,004 6,972,716
Oil & Gas--2.1% ENI SpA 643,238 10,226,461
Regional Banks--1.7% Intesa BCI SpA 3,920,821 8,270,164
Telecommunications--1.4% Telecom Italia SpA 913,529 6,931,093
Total Common Stocks in Italy 36,479,545
Japan--19.5%
Automobiles--1.9% Honda Motor Co., Ltd. 251,000 9,285,329
Chemicals/ Sumitomo Bakelite Company Limited 717,000 2,960,563
Pharmaceuticals--0.6%
Diversified Nippon Telegraph & Telephone
Telecommunication Corporation (NTT) 1,869 6,788,059
Services--1.4%
Electronic Equipment & Hitachi Ltd. 1,792,000 6,870,818
Instruments--1.5%
December 31, 2002, Mercury International Value Fund
SCHEDULE OF INVESTMENTS (CONTINUED)
In U.S. Dollars
Shares
Industry* Investments Held Value
COMMON STOCKS (continued)
Japan (concluded)
Household Durables-- Daiwa House Industry Co., Ltd. 831,000 $ 4,677,745
2.8% Matsushita Electric Industrial
Company, Ltd. 852,000 8,400,101
-------------
13,077,846
Leisure/Toys--2.3% Namco Ltd. 644,600 10,798,557
Machinery--1.4% Amada Co., Ltd. 634,000 1,730,985
Komatsu Ltd. 1,558,000 5,080,863
-------------
6,811,848
Pharmaceuticals--2.6% Yamanouchi Pharmaceutical Co., Ltd. 427,000 12,377,855
Small Loans & Finance-- Promise Co., Ltd. 174,700 6,227,193
3.8% Sanyo Shinpan Finance Co., Ltd. 261,000 4,717,662
Takefuji Corporation 127,000 7,330,833
-------------
18,275,688
Wireless KDDI Corporation 1,796 5,826,746
Telecommunication
Services--1.2%
Total Common Stocks in Japan 93,073,309
Netherlands--9.6%
Chemicals/ Akzo Nobel NV 185,085 5,871,518
Pharmaceuticals--1.2%
Commercial Services & Vedior NV 'A' 712,016 4,064,711
Supplies--0.9%
Diversified Financials--1.9% Fortis 526,474 9,204,347
Electronics--1.2% Koninklijke (Royal) Philips Electronics NV 314,217 5,506,647
Insurance-- ING Groep NV 372,362 6,306,813
Multi-Line--1.3%
Media--1.6% Wolters Kluwer NV 'A' 436,824 7,609,492
Regional Banks--1.5% ABN AMRO Holding NV 438,785 7,173,983
Total Common Stocks in the Netherlands 45,737,511
December 31, 2002, Mercury International Value Fund
SCHEDULE OF INVESTMENTS (CONTINUED)
In U.S. Dollars
Shares
Industry* Investments Held Value
COMMON STOCKS (continued)
New Zealand--0.7%
Telecommunications-- Telecom Corporation of New
0.7% Zealand Limited 1,347,707 $ 3,193,584
Total Common Stocks in New Zealand 3,193,584
Portugal--1.0%
Electric--Utilities--1.0% Electricidade de Portugal, SA (EDP) 2,945,007 4,913,880
Total Common Stocks in Portugal 4,913,880
Spain--1.4%
Telecommunications--1.4% ++Telefonica SA 766,860 6,864,457
Total Common Stocks in Spain 6,864,457
Sweden--1.4%
Regional Banks--1.4% Nordbanken Holding AB 1,547,003 6,817,729
Total Common Stocks in Sweden 6,817,729
Switzerland--5.4%
Building Materials--3.0% Geberit AG (Registered Shares) 26,037 7,494,558
Holcim Ltd. 'B' 36,775 6,675,725
-------------
14,170,283
Pharmaceuticals--2.4% Novartis AG (Registered Shares) 319,049 11,641,008
Total Common Stocks in Switzerland 25,811,291
December 31, 2002, Mercury International Value Fund
SCHEDULE OF INVESTMENTS (CONTINUED)
In U.S. Dollars
Shares
Industry* Investments Held Value
COMMON STOCKS (concluded)
United Kingdom--25.1%
Airports--1.8% BAA PLC 1,062,544 $ 8,621,372
Diversified Companies-- Smiths Industries PLC 633,145 7,089,232
2.5% Tomkins PLC 1,531,952 4,685,950
-------------
11,775,182
Diversified BT Group PLC 1,794,088 5,632,189
Telecommunication
Services--1.2%
Foods--4.2% J Sainsbury PLC 1,646,717 7,389,801
Unilever PLC 1,330,862 12,662,498
-------------
20,052,299
Insurance-- AVIVA PLC 938,938 6,696,373
Multi-Line--1.4%
Oil & Gas--3.6% Shell Transport & Trading Company 2,635,887 17,355,974
Pharmaceuticals--4.0% GlaxoSmithKline PLC 999,732 19,184,865
Regional Banks--5.4% Barclays PLC 1,792,079 11,107,512
Royal Bank of Scotland Group PLC 620,562 14,865,756
-------------
25,973,268
Security Services--1.0% Chubb PLC 3,238,974 4,575,657
Total Common Stocks in the United Kingdom 119,867,179
Total Common Stocks (Cost--$484,339,282) 455,505,241
December 31, 2002, Mercury International Value Fund
SCHEDULE OF INVESTMENTS (CONCLUDED)
In U.S. Dollars
Shares
Industry* Investments Held Value
PREFERRED STOCKS--1.7%
Germany--1.7%
Chemicals/ Henkel KGaA (Preferred) 125,766 $ 7,958,324
Pharmaceuticals--1.7%
Total Preferred Stocks (Cost--$8,352,241) 7,958,324
Total Investments (Cost--$492,691,523)--97.0% 463,463,565
Time Deposits**--0.9% 4,046,574
Other Assets Less Liabilities--2.1% 10,046,519
-------------
Net Assets--100.0% $ 477,556,658
=============
++Non-income producing security.
*For Fund compliance purposes, "Industry" means any one or more of
the industry sub-classifications used by one or more widely
recognized market indexes or ratings group indexes, and/or as
defined by Fund management. This definition may not apply for
purposes of this report, which may combine such industry sub-
classifications for reporting ease.
**Time deposit bears interest at 0.74% and matures on 1/02/2003.
See Notes to Financial Statements.
December 31, 2002, Mercury International Value Fund
STATEMENT OF ASSETS AND
LIABILITIES
As of December 31, 2002
Assets:
Investments, at value (including securities loaned of--
$7,736,246)(identified cost--$492,691,523) $ 463,463,565
Investments held as collateral for loaned securities, at value 8,093,822
Time deposits 4,046,574
Cash 6,524
Receivables:
Securities sold $ 17,576,588
Dividends 2,931,784
Capital shares sold 1,308,697
Loaned securities income 9,626 21,826,695
--------------
Prepaid registration fees and other assets 280,936
--------------
Total assets 497,718,116
--------------
Liabilities:
Collateral on securities loaned, at value 8,093,822
Payables:
Capital shares redeemed 11,225,367
Investment adviser 329,413
Distributor 9,954 11,564,734
--------------
Accrued expenses 502,902
--------------
Total liabilities 20,161,458
--------------
Net Assets:
Net assets $ 477,556,658
==============
Net Assets Consist of:
Paid-in capital $ 587,931,562
Accumulated investment loss--net $ (594,845)
Accumulated realized capital losses on investments and
foreign currency transactions--net (80,910,333)
Unrealized depreciation on investments and foreign currency
transactions--net (28,869,726)
--------------
Total accumulated losses--net (110,374,904)
--------------
Net assets $ 477,556,658
==============
Net Asset Value:
Class I--Based on net assets of $448,639,142 and
27,047,431 shares outstanding++ $ 16.59
==============
Class A--Based on net assets of $24,647,591 and
1,487,919 shares outstanding++ $ 16.57
==============
Class B--Based on net assets of $2,082,050 and
126,214 shares outstanding++ $ 16.50
==============
Class C--Based on net assets of $2,187,875 and
133,700 shares outstanding++ $ 16.36
==============
++Unlimited shares of no par value authorized.
See Notes to Financial Statements.
December 31, 2002, Mercury International Value Fund
STATEMENT OF OPERATIONS
For the Six Months Ended December 31, 2002
Investment Income:
Dividends (net of $468,385 foreign withholding tax) $ 3,826,122
Interest 80,925
Securities lending--net 56,337
--------------
Total income 3,963,384
--------------
Expenses:
Investment advisory fees $ 2,078,009
Transfer agent fees--Class I 444,492
Custodian fees 172,114
Accounting services 104,395
Printing and shareholder reports 31,146
Account maintenance fees--Class A 30,407
Registration fees 30,083
Trustees' fees and expenses 27,919
Transfer agent fees--Class A 23,172
Account maintenance and distribution fees--Class C 10,282
Account maintenance and distribution fees--Class B 9,375
Pricing fees 4,541
Transfer agent fees--Class C 1,834
Transfer agent fees--Class B 1,628
Other 6,023
--------------
Total expenses 2,975,420
--------------
Investment income--net 987,964
--------------
Realized & Unrealized Gain (Loss) on
Investments & Foreign Currency
Transactions--Net:
Realized loss from:
Investments--net (70,494,234)
Foreign currency transactions--net (91,120) (70,585,354)
--------------
Change in unrealized appreciation/depreciation on:
Investments--net (40,436,375)
Foreign currency transactions--net 78,836 (40,357,539)
-------------- --------------
Total realized and unrealized loss from investments
and foreign currency transactions--net (110,942,893)
--------------
Net Decrease in Net Assets Resulting from Operations $(109,954,929)
==============
See Notes to Financial Statements.
December 31, 2002, Mercury International Value Fund
STATEMENTS OF CHANGES
IN NET ASSETS
For the Six For the
Months Ended Year Ended
December 31, June 30,
Increase (Decrease)in Net Assets: 2002 2002
Operations:
Investment income--net $ 987,964 $ 9,794,395
Realized gain (loss)on investments and foreign currency
transactions--net (70,585,354) 12,395,756
Change in unrealized appreciation/depreciation
on investments and foreign currency transactions--net (40,357,539) (51,150,396)
-------------- --------------
Net decrease in net assets resulting from
operations (109,954,929) (28,960,245)
-------------- --------------
Dividends & Distributions to Shareholders:
Investment income--net:
Class I (1,343,641) (21,781,579)
Class A -- (556,121)
Class B -- (54,478)
Class C -- (43,476)
Realized gain on investments--net:
Class I -- (33,183,961)
Class A -- (924,869)
Class B -- (86,370)
Class C -- (68,118)
-------------- --------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (1,343,641) (56,698,972)
-------------- --------------
Capital Share Transactions:
Decrease in net assets derived from net capital share
transactions (52,551,801) (351,814,962)
-------------- --------------
Net Assets:
Total decreasein net assets (163,850,371) (437,474,179)
Beginning of period 641,407,029 1,078,881,208
-------------- --------------
End of period* $ 477,556,658 $ 641,407,029
============== ==============
*Accumulated investment loss--net $ (594,845) $ (239,168)
============== ==============
See Notes to Financial Statements.
December 31, 2002, Mercury International Value Fund
FINANCIAL HIGHLIGHTS
The following per share data and ratios have been derived from
information provided in the financial statements.
Class I++
For the Six
Months
Ended
Increase (Decrease) in Dec. 31, For the Year Ended June 30,
Net Asset Value: 2002 2002 2001 2000 1999
Per Share Operating Performance:
Net asset value, beginning of
period $ 20.63 $ 22.97 $ 27.33 $ 25.73 $ 25.33
---------- ---------- ---------- ---------- ----------
Investment income--net .03++++ .29++++ .48 .43 .59
Realized and unrealized gain (loss)
on investmentsand foreign
currency transactions--net (4.02) (.70) (2.53) 3.43 .40
---------- ---------- ---------- ---------- ----------
Total from investment operations (3.99) (.41) (2.05) 3.86 .99
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.05) (.76) (.50) (.76) (.25)
Realized gain on
investments--net -- (1.17) (1.81) (1.50) (.34)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (.05) (1.93) (2.31) (2.26) (.59)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 16.59 $ 20.63 $ 22.97 $ 27.33 $ 25.73
========== ========== ========== ========== ==========
Total Investment Return:**
Based on net asset value per
share (19.38%)+++ (1.14%) (7.79%) 15.60% 4.22%
========== ========== ========== ========== ==========
Ratios to Average Net Assets:
Expenses 1.05%* 1.14% 1.06% 1.06% .95%
========== ========== ========== ========== ==========
Investment income--net .39%* 1.42% 1.78% 1.62% 1.98%
========== ========== ========== ========== ==========
Supplemental Data:
Net assets, end of period
(in thousands) $ 448,639 $ 617,289 $1,024,993 $1,393,910 $1,378,900
========== ========== ========== ========== ==========
Portfolio turnover 52% 45% 26% 50% 41%
========== ========== ========== ========== ==========
*Annualized.
**Total investment returns exclude the effects of sales charges. The
Fund's investment adviser paid annual operating expenses in excess
of 1.0% of the Fund's Class I net assets until 3/01/1999, when it
removed/discontinued the expense cap. Without such expense cap, the
Fund's performance would have been lower.
++Prior to October 6, 2000, Class I Shares were designated as
Investor Class Shares.
++++Based on average shares outstanding.
+++Aggregate total investment return.
See Notes to Financial Statements.
December 31, 2002, Mercury International Value Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
The following per share data and ratios have been derived from
information provided in the financial statements.
Class A***
For the
Period
Months For the June 2,
Ended Year Ended 1999++
Dec. 31, June 30, to June 30,
Increase (Decrease) in Net Asset Value: 2002 2002 2001 2000 1999
Per Share Operating Performance:
Net asset value, beginning of
period $ 20.55 $ 22.89 $ 27.27 $ 25.72 $ 25.20
---------- ---------- ---------- ---------- ----------
Investment income (loss)--net --+++++++++ .23+++++ .31 .39 .05
Realized and unrealized gain (loss)
on investments and foreign
currency transactions--net (3.98) (.70) (2.41) 3.41 .47
---------- ---------- ---------- ---------- ----------
Total from investment operations (3.98) (.47) (2.10) 3.80 .52
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net -- (.70) (.47) (.74) --
Realized gain on
investments--net -- (1.17) (1.81) (1.51) --
---------- ---------- ---------- ---------- ----------
Total dividends and distributions -- (1.87) (2.28) (2.25) --
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 16.57 $ 20.55 $ 22.89 $ 27.27 $ 25.72
========== ========== ========== ========== ==========
Total Investment Return:**
Based on net asset value per
share (19.41%)+++ (1.42%) (8.00%) 15.36% 2.06%+++
========== ========== ========== ========== ==========
Ratios to Average Net Assets:
Expenses 1.34%* 1.38% 1.31% 1.31% 1.30%*
========== ========== ========== ========== ==========
Investment income (loss)--net (.12%)* 1.19% 2.05% 1.37% 2.77%*
========== ========== ========== ========== ==========
Supplemental Data:
Net assets, end of period
(in thousands) $ 24,648 $ 19,769 $ 52,110 $ 4,920 $ 1,150
========== ========== ========== ========== ==========
Portfolio turnover 52% 45% 26% 50% 41%
========== ========== ========== ========== ==========
*Annualized.
**Total investment returns exclude the effects of sales charges.
***Prior to October 6, 2000, Class A Shares were designated as
Distributor Class Shares.
++Commencement of operations.
++++Amount is less than $.01 per share.
+++Aggregate total investment return.
+++++Based on average shares outstanding.
See Notes to Financial Statements.
December 31, 2002, Mercury International Value Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
The following per share data and ratios have been derived from
information provided in the financial statements.
Class B
For the Six For the For the Period
Months Ended Year Ended Oct. 6, 2000++
Dec. 31, June 30, to June 30,
Increase (Decrease) in Net Asset Value: 2002 2002 2001
Per Share Operating Performance:
Net asset value, beginning of period $ 20.57 $ 23.09 $ 25.65
---------- ---------- ----------
Investment income (loss)--net (.06)++++ .10++++ .39
Realized and unrealized loss on investments
and foreign currency transactions--net (4.01) (.71) (.82)
---------- ---------- ----------
Total from investment operations (4.07) (.61) (.43)
---------- ---------- ----------
Less dividends and distributions:
Investment income--net -- (.74) (.32)
Realized gain on investments--net -- (1.17) (1.81)
---------- ---------- ----------
Total dividends and distributions -- (1.91) (2.13)
---------- ---------- ----------
Net asset value, end of period $ 16.50 $ 20.57 $ 23.09
========== ========== ==========
Total Investment Return:**
Based on net asset value per share (19.79%)+++ (2.10%) (2.01%)+++
========== ========== ==========
Ratios to Average Net Assets:
Expenses 2.06%* 2.12% 2.18%*
========== ========== ==========
Investment income (loss)--net (.63%)* .48% 1.49%*
========== ========== ==========
Supplemental Data:
Net assets, end of period (in thousands) $ 2,082 $ 2,064 $ 1,016
========== ========== ==========
Portfolio turnover 52% 45% 26%
========== ========== ==========
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Commencement of operations.
++++Based on average shares outstanding.
+++Aggregate total investment return.
See Notes to Financial Statements.
December 31, 2002, Mercury International Value Fund
FINANCIAL HIGHLIGHTS (CONCLUDED)
The following per share data and ratios have been derived from
information provided in the financial statements.
Class C
For the Six For the For the Period
Months Ended Year Ended Oct. 6, 2000++
Dec. 31, June 30, to June 30,
Increase (Decrease) in Net Asset Value: 2002 2002 2001
Per Share Operating Performance:
Net asset value, beginning of period $ 20.39 $ 22.91 $ 25.65
---------- ---------- ----------
Investment income (loss)--net (.12)++++ .09++++ .60
Realized and unrealized loss on investments
and foreign currency transactions--net (3.91) (.70) (1.05)
---------- ---------- ----------
Total from investment operations (4.03) (.61) (.45)
---------- ---------- ----------
Less dividends and distributions:
Investment income--net -- (.74) (.48)
Realized gain on investments--net -- (1.17) (1.81)
---------- ---------- ----------
Total dividends and distributions -- (1.91) (2.29)
---------- ---------- ----------
Net asset value, end of period $ 16.36 $ 20.39 $ 22.91
========== ========== ==========
Total Investment Return:**
Based on net asset value per share (19.76%)+++ (2.10%) (2.11%)+++
========== ========== ==========
Ratios to Average Net Assets:
Expenses 2.07%* 2.06% 1.70%*
========== ========== ==========
Investment income (loss)--net (.64%)* .47% 1.76%*
========== ========== ==========
Supplemental Data:
Net assets, end of period (in thousands) $ 2,188 $ 2,285 $ 762
========== ========== ==========
Portfolio turnover 52% 45% 26%
========== ========== ==========
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Commencement of operations.
++++Based on average shares outstanding.
+++Aggregate total investment return.
See Notes to Financial Statements.
December 31, 2002, Mercury International Value Fund
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Mercury International Value Fund (the "Fund"), is a fund of Mercury
Funds II (the "Trust"). The Trust is registered under the Investment
Company Act of 1940 as a diversified, open-end management investment
company, which is organized as a Massachusetts business trust. 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. These unaudited financial statements reflect all
adjustments, which are, in the opinion of management, necessary to a
fair statement of the results for the interim period presented. All
such adjustments are of a normal, recurring nature. 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). Income, expenses (other than expenses
attributable to a specific class) and realized and unrealized gains
and losses on investments and foreign currency transactions are
allocated daily to each class based on its relative net assets. The
following is a summary of significant accounting policies followed
by the Fund.
(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 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. Short-term securities are
valued at amortized cost, which approximates market value. Other
investments are stated at market value. Securities and assets for
which market value quotations are not available are valued at their
fair value as determined in good faith by or under the direction of
the Trust's Board of Trustees.
December 31, 2002, Mercury International Value Fund
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
(b) Derivative financial instruments--The Fund may engage in various
portfolio investment strategies to increase or decrease the level of
risk to which the Fund 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.
* Forward foreign exchange contracts--The Fund is authorized to
enter into forward foreign exchange contracts as a hedge against
either specific transactions or portfolio positions. The contract is
marked-to-market daily and the change in market value is recorded by
the Fund as an unrealized gain or loss. When the contract is closed,
the Fund records a realized gain or loss equal to the difference
between the value at the time it was opened and the value at the
time it was closed.
(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 U.S. dollars. Realized and unrealized gains or
losses from investments include the effects of foreign exchange
rates on investments.
(d) 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 its shareholders. Therefore, no Federal income tax
provision is required. Under the applicable foreign tax law,
withholding taxes may be imposed on interest, dividends and capital
gains at various rates.
(e) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Realized gains and losses on security
transactions are determined on the identified cost basis. 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 Fund has determined the ex-dividend
date. Interest income is recognized on the accrual basis.
December 31, 2002, Mercury International Value Fund
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
(f) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
(g) Dividends and distributions--Dividends and distributions paid by
the Fund are recorded on the ex-dividend dates.
(h) Expenses--Common expenses incurred by the Trust are allocated
among the funds based upon: (i) relative net assets; (ii) as
incurred on a specific identification basis; or (iii) evenly among
the funds, depending on the nature of the expenditure.
(i) Securities lending--The Fund may lend securities to financial
institutions that provide cash or securities issued or guaranteed by
the U.S. government as collateral, which will be maintained at all
times in an amount equal to at least 100% of the current market
value of the loaned securities. Where the Fund receives securities
as collateral for the loaned securities, it collects a fee from the
borrower. The Fund typically receives the income on the loaned
securities but does not receive the income on the collateral. Where
the Fund receives cash collateral, it may invest such collateral and
retain the amount earned on such investment, net of any amount
rebated to the borrower. Loans of securities are terminable at any
time and the borrower, after notice, is required to return borrowed
securities within five business days. The Fund may pay reasonable
finder's, lending agent, administrative and custodial fees in
connection with its loans. In the event that the borrower defaults
on its obligation to return borrowed securities because of
insolvency or for any other reason, the Fund could experience delays
and costs in gaining access to the collateral. The Fund also could
suffer a loss where the value of the collateral falls below the
market value of the borrowed securities, in the event of borrower
default or in the event of losses on investments made with cash
collateral.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Trust has entered into an Investment Advisory Agreement for the
Fund with Fund Asset Management L.P., doing business as Mercury
Advisors. The general partner of Mercury Advisors is Princeton
Services, Inc. ("PSI"), an indirect, wholly-owned subsidiary of
Merrill Lynch & Co., Inc. ("ML & Co."), which is the limited
partner. Mercury Advisors is responsible for the management of the
Fund's investments and provides the necessary personnel, facilities,
equipment and certain other services necessary to the operations of
the Fund. For such services, the Fund pays a monthly fee at an
annual rate of .75% of the average daily value of the Fund's net
assets.
December 31, 2002, Mercury International Value Fund
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Mercury Advisors has entered into a Sub-Advisory Agreement for the
Fund with Merrill Lynch Asset Management U.K., Ltd., an affiliate of
Mercury Advisors. The sub-advisory arrangement is for investment
research, recommendations, and other investment-related services to
be provided to the Fund. There is no increase in aggregate fees paid
by the Fund for these services.
The Trust on behalf of the Fund has also entered into a Distribution
Agreement and Distribution Plans with FAM Distributors, Inc. ("FAMD"
or the "Distributor"), an indirect, 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 the annual rates based upon the average daily net
assets of the shares as follows:
Account Distribution
Maintenance Fee Fee
Class A .25% --
Class B .25% .75%
Class C .25% .75%
Pursuant to a sub-agreement with the Distributor, selected dealers
also provide account maintenance and distribution services to the
Fund. The ongoing account maintenance fee compensates the
Distributor and selected dealers for providing account maintenance
services to Class A, Class B and Class C shareholders. The ongoing
distribution fee compensates the Distributor and selected dealers
for providing shareholder and distribution-related services to Class
B and Class C shareholders.
For the six months ended December 31, 2002, FAMD earned underwriting
discounts and direct commissions and Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("MLPF&S"), a subsidiary of ML & Co., earned
dealer concessions on sales of the Fund's Class I and Class A Shares
as follows:
FAMD MLPF&S
Class I $ 891 $ 4,880
Class A $6,958 $31,455
December 31, 2002, Mercury International Value Fund
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
For the six months ended December 31, 2002, MLPF&S received
contingent deferred sales charges of $7,182 and $1,917 relating to
transactions in Class B and Class C shares, respectively.
In addition, MLPF&S received $5,168 in commissions on the execution
of portfolio security transactions for the Fund for the six months
ended December 31, 2002.
Financial Data Services, Inc. ("FDS"), an indirect, wholly-owned
subsidiary of ML & Co., is the Fund's transfer agent.
The Fund has received an exemptive order from the Securities and
Exchange Commission permitting it to lend portfolio securities to
MLPF&S or its affiliates. Pursuant to that order, the Fund also has
retained Merrill Lynch Investment Advisors, LLC ("MLIA"), an
affiliate of FAM, as the securities lending agent for a fee based on
a share of the returns on investment of cash collateral. MLIA may,
on behalf of the Fund, invest cash collateral received by the Fund
for such loans, among other things, in a private investment company
managed by MLIA or in registered money market funds advised by FAM
or its affiliates. As of December 31, 2002, cash collateral of
$4,289,726 was invested in the Money Market Series of the Merrill
Lynch Liquidity Series, LLC and $3,804,096 was invested in the
Merrill Lynch Premier Institutional Fund. For the six months ended
December 31, 2002, MLIA received $21,411 in securities lending agent
fees.
Certain officers and/or trustees of the Trust are officers and/or
directors of Mercury Advisors, PSI, FAMD, FDS, and/or ML & Co.
Certain authorized agents of the Fund charge a fee for accounting
and shareholder services that they provide to the Fund on behalf of
certain shareholders; the portion of this fee paid by the Fund is
included within Transfer agent fees in the Statement of Operations.
For the six months ended December 31, 2002, the Fund reimbursed
Mercury Advisors $5,864 for certain accounting services.
December 31, 2002, Mercury International Value Fund
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended December 31, 2002 were $277,411,940 and
$323,041,093, respectively.
Net realized losses for the six months ended December 31, 2002 and
net unrealized gains (losses) as of December 31, 2002 were as
follows:
Realized Unrealized
Losses Gains (Losses)
Long-term investments $(70,494,234) $(29,227,958)
Foreign currency transactions (91,120) 358,232
------------- -------------
Total $(70,585,354) $(28,869,726)
============= =============
As of December 31, 2002, net unrealized depreciation for Federal
income tax purposes aggregated $34,264,146, of which $33,426,573
related to appreciated securities and $67,690,719 related to
depreciated securities. At December 31, 2002, the aggregate cost of
investments for Federal income tax purposes was $497,727,711.
4. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions
was $52,551,801 and $351,814,962 for the six months ended December
31, 2002 and for the year ended June 30, 2002, respectively.
Transactions in capital shares for each class were as follows:
Class I Shares for the Six Months
Ended December 31, 2002 Shares Dollar Amount
Shares sold 51,721,597 $ 867,572,130
Shares issued to shareholders
in reinvestment of dividends 72,331 1,308,467
-------------- --------------
Total issued 51,793,928 868,880,597
Shares redeemed (54,673,933) (925,620,406)
-------------- --------------
Net decrease (2,880,005) $ (56,739,809)
============== ==============
Class I Shares for the Year
Ended June 30, 2002 Shares Dollar Amount
Shares sold 32,384,713 $ 658,610,281
Shares issued to shareholders
in reinvestment of dividends
and distributions 2,801,852 53,683,496
-------------- --------------
Total issued 35,186,565 712,293,777
Shares redeemed (49,881,367) (1,035,526,645)
-------------- --------------
Net decrease (14,694,802) $(323,232,868)
============== ==============
December 31, 2002, Mercury International Value Fund
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Class A Shares for the Six Months
Ended December 31, 2002 Shares Dollar Amount
Shares sold 22,161,357 $ 372,404,642
Shares redeemed (21,635,248) (368,808,447)
-------------- --------------
Net increase 526,109 $ 3,596,195
============== ==============
Class A Shares for the Year
Ended June 30, 2002 Shares Dollar Amount
Shares sold 12,261,739 $ 251,671,628
Shares issued to shareholders
in reinvestment of dividends
and distributions 76,320 1,460,003
-------------- --------------
Total issued 12,338,059 253,131,631
Shares redeemed (13,652,931) (284,487,401)
-------------- --------------
Net decrease (1,314,872) $ (31,355,770)
============== ==============
Class B Shares for the Six Months
Ended December 31, 2002 Shares Dollar Amount
Shares sold 47,219 $ 788,615
Shares redeemed (21,351) (350,368)
-------------- --------------
Net increase 25,868 $ 438,247
============== ==============
Class B Shares for the Year
Ended June 30, 2002 Shares Dollar Amount
Shares sold 71,026 $ 1,470,908
Shares issued to shareholders
in reinvestment of dividends
and distributions 6,514 125,151
-------------- --------------
Total issued 77,540 1,596,059
Shares redeemed (21,178) (420,375)
-------------- --------------
Net increase 56,362 $ 1,175,684
============== ==============
Class C Shares for the Six Months
Ended December 31, 2002 Shares Dollar Amount
Shares sold 622,254 $ 10,949,551
Shares redeemed (600,616) (10,795,985)
-------------- --------------
Net increase 21,638 $ 153,566
============== ==============
December 31, 2002, Mercury International Value Fund
NOTES TO FINANCIAL STATEMENTS
(CONCLUDED)
Class C Shares for the Year
Ended June 30, 2002 Shares Dollar Amount
Shares sold 231,981 $ 4,681,307
Shares issued to shareholders
in reinvestment of dividends
and distributions 5,135 98,078
-------------- --------------
Total issued 237,116 4,779,385
Shares redeemed (158,336) (3,181,393)
-------------- --------------
Net increase 78,780 $ 1,597,992
============== ==============
5. Short-Term Borrowings:
The Trust, along with certain other funds managed by Mercury
Advisors and its affiliates, is a party to a credit agreement with
Bank One, N.A. and certain other lenders. Effective November 29,
2002, in conjunction with the renewal for one year at the same
terms, the total commitment was reduced from $1,000,000,000 to
$500,000,000. The Fund may borrow under the credit agreement to fund
shareholder redemptions and for other lawful purposes other than for
leverage. The Fund may borrow up to the maximum amount allowable
under the Fund's current prospectus and statement of additional
information, subject to various other legal, regulatory or
contractual limits. The Fund pays a commitment fee of .09% per annum
based on the Fund's pro rata share of the unused portion of the
credit agreement. Amounts borrowed under the credit agreement 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 One, N.A.
The Fund did not borrow under the credit agreement during the six
months ended December 31, 2002.
6. Commitments:
At December 31, 2002, the Fund had entered into foreign exchange
contracts, under which it had agreed to sell various foreign
currencies with an approximate value of $17,625,000.
December 31, 2002Mercury International Value Fund
OFFICERS AND TRUSTEES
Terry K. Glenn, President and Trustee
James H. Bodurtha, Trustee
Joe Grills, Trustee
Herbert I. London, Trustee
Andre F. Perold, Trustee
Roberta Cooper Ramo, Trustee
Robert S. Salomon, Jr., Trustee
Melvin R. Seiden, Trustee
Stephen B. Swensrud, Trustee
James Macmillan, Vice President and Portfolio Manager
Donald C. Burke, Vice President and Treasurer
Phillip S. Gillespie, Secretary
Custodian
Brown Brothers Harriman &Co.
40 Water Street
Boston, MA 02109-3661
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
888-763-2260
Effective January 1, 2003, Melvin R. Seiden, Trustee of Mercury
International Value Fund, retired. The Fund's Board of Trustees
wishes Mr. Seiden well in his retirement.
December 31, 2002, Mercury International Value Fund
</ITEM1>