Exhibit 17(e)
(BULL LOGO)
Merrill Lynch Investment Managers
Annual Report
January 31, 2002
Mercury
U.S. Government
Securities Fund
www.mlim.ml.com
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.
Mercury U.S. Government Securities Fund of
The Asset Program, Inc.
Box 9011
Princeton, NJ 08543-9011
Printed on post-consumer recycled paper
IMPORTANT TAX INFORMATION
(UNAUDITED)
Of the ordinary income distributions paid by Mercury U.S. Government Securities
Fund during the fiscal year ended January 31, 2002, 7.62% is attributable to
income from Federal obligations. In calculating the foregoing percentage,
expenses of the Fund have been allocated on a pro rata basis.
The law varies in each state as to whether and what percentage of dividend
income attributable to Federal obligations is exempt from state income tax. We
recommend that you consult your tax adviser to determine if any portion of the
dividends you received is exempt from state income tax.
Please retain this information for your records.
January 31, 2002, Mercury U.S. Government Securities Fund
DEAR SHAREHOLDER
We are pleased to provide you with this annual report to shareholders. During
the fiscal year ended January 31, 2002, the Federal Reserve Board elected to
ease monetary policy 10 times for a total of 425 basis points (4.25%), in an
effort to stimulate the weak US economy. The US Treasury yield curve steepened
dramatically as short-term Treasury yields fell in tandem with the Federal
Funds rate. At the beginning of the fiscal period, the front part of the curve
was inverted with Federal Funds yielding more than two-year Treasury notes. By
January 31, 2002, the two-year Treasury yield was 140 basis points lower,
which, when combined with the Federal Funds decline, reversed the inversion and
steepened the Federal Funds to the two-year part of the curve. Although the
past fiscal year marked levels of unprecedented volatility, longer-term
interest rates ended the fiscal year marginally changed from where they began.
To illustrate this point, the 10-year Treasury note, a benchmark for
mortgage-backed securities (MBS) ended the year only eight basis points lower
from where it began but had yield swings of over 140 basis points throughout
the period. As mortgage rates reached historical low levels, homeowners reacted
and the Mortgage Banker Refinance Index reached historically high volume.
Fiscal Year in Review
For the 12 months ended January 31, 2002, Mercury U.S. Government Securities
Fund's Class I, Class A, Class B and Class C Shares had total returns of
+6.89%, +6.53%, +6.10% and +6.16%, respectively. (Investment results shown do
not reflect sales charges and would be lower if sales charges were included.
Complete performance information can be found on pages 6 - 9 of this report to
shareholders.) The Fund underperformed relative to its unmanaged benchmark, the
Salomon Brothers Mortgage Index, which had a return of +7.59% for the same
one-year period.
Throughout the fiscal year ended January 31, 2002, we had an ongoing strategy
of being heavily invested in MBS while avoiding those MBS that we believed
would be adversely affected by an increase in prepayments. Typically, early
payments or prepayments of principal on MBS hurt investors of MBS as all
prepayments are made at par. As the market rallied and mortgage rates reached
historical lows during the fiscal year, a large majority of the MBS universe
became refinancable.
We invested in MBS that had discount or par prices whose underlying homeowners
had little or no incentive to refinance. This allowed the Fund to avoid
unwanted principal payments in a falling interest rate environment. Because the
Fund had lower coupon, and therefore longer duration than the MBS universe, the
Fund performed well as interest rates fell, but underperformed as interest
rates rose over the fiscal year.
January 31, 2002, Mercury U.S. Government Securities Fund
While having more duration aided the performance in months when interest rates
fell, it also hurt performance in months when interest rates rose--as was the
case during the last couple of months of 2001. However, our strategy of
investing in lower coupon MBS proved to be correct for the 12-month period. For
example, the 30-year Fannie Mae 6% and 6.5% returned 750 basis points and 793
basis points, respectively, for the fiscal year, comparing favorably to Fannie
Mae 7.5% and 8%, which returned 701 basis points and 697 basis points,
respectively.
Additionally, we limited prepayment risk through our investments in Fannie Mae
multifamily pools. These pools, which have balloon maturities of typically five
years - ten years, have prepayment protection by means of lockouts and yield
maintenance. In addition to prepayment protection, these pools offer attractive
yield spreads and efficiently "roll down" a very steep Treasury yield curve,
which allows for positive price gains. Yield curve placement was an important
contributor to the total rate-of-return for the period as the yield curve
changed shape. We focused on the five-year area of the Treasury curve as this
represented the steepest part of the curve. Additionally, the yield on the
five-year note, a benchmark for these multifamily MBS, fell 40 basis points by
fiscal year end, further contributing to performance.
Although we remained heavily invested in MBS during the period, we also
invested in US Treasury securities to protect the Fund against spread widening.
Early in the period, we added to our long Treasury strip allocation. We used
this position to maintain duration in a falling interest rate environment.
Because Treasury strips trade with deeply discounted prices, we were able to
stay heavily weighted in higher-yielding MBS. We sold this position later in
the period as interest rates started to rise and durations of MBS extended. We
also held a position in the five-year Treasury note, which added incremental
income in the repurchase market. This position was also sold later in the year
in favor of MBS as prepayment risk subsided. Additionally, during the period we
implemented an option strategy in which we sold calls on MBS and purchased
calls on the 10-year Treasury note. This option strategy also allowed the Fund
to stay heavily invested in higher-yielding MBS, thus providing some protection
against spread widening. This strategy benefited from the flight to quality
experienced during the period.
Looking ahead, we are quite positive on the MBS market. Prepayment fears have
diminished, volatility has declined, and the Treasury yield curve remains
steep. These are all positive variables for the MBS market. MBS continue to
offer very attractive yields, excellent quality and superior liquidity.
January 31, 2002, Mercury U.S. Government Securities Fund
In Conclusion
We appreciate your continued support of Mercury U.S. Government Securities
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 Director
(Frank Viola)
Frank Viola
Portfolio Manager
(Teresa L. Giacino)
Teresa L. Giacino
Vice President and Portfolio Manager
March 8, 2002
We are pleased to announce that Frank Viola and Teresa Giacino have been named
Portfolio Managers and are responsible for the day-to-day management of Mercury
U.S. Government Securities Fund. Mr. Viola joined Merrill Lynch Investment
Managers, L.P. (MLIM) in 1997 as Portfolio Manager in the US Fixed-Income
Group. Ms. Giacino joined MLIM in 1985, gaining experience in all phases of
mortgage investment.
The Fund's transfer agency fee schedule has been amended. Under the revised
schedule, the fees payable to Financial Data Services, Inc., the transfer agent
for the Fund, now range from $16 to $23 per shareholder account (depending upon
the level of service required) or 0.10%of account assets for certain accounts
that participate in certain fee-based programs.
January 31, 2002, Mercury U.S. Government Securities 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 (front-end load) of 4% 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 4% 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 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 0.50% and an
account maintenance fee of 0.25%. The shares automatically convert to Class A
Shares after approximately eight years.
CLASS C SHARES are subject to a distribution fee of 0.55% 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 the "Recent Performance Results" and "Average Annual Total
Return" tables assume reinvestment of all dividends and capital gains
distributions at net asset value on the payable 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. The Fund's
Investment Adviser voluntarily waived its management fee and a portion of its
other expenses. Without such waiver, the Fund's performance would have been
lower.
January 31, 2002, Mercury U.S. Government Securities Fund
FUND PERFORMANCE DATA (CONTINUED)
RECENT PERFORMANCE RESULTS*
As of January 31, 2002 6-Month 12-Month Since Inception Standardized
Total Return Total Return Total Return 30-Day Yield
Class I** +3.00% +6.89% +74.51% 4.96%
Class A** +2.87 +6.53 +71.25 4.73
Class B +2.61 +6.10 +64.96 4.43
Class C +2.70 +6.16 +64.49 4.38
*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
payable date. The Fund commenced operations on 2/01/95.
**Prior to April 3, 2000, Class I Shares were designated Class A Shares and
Class A Shares were designated Class D Shares.
January 31, 2002, Mercury U.S. Government Securities Fund
FUND PERFORMANCE DATA (CONTINUED)
TOTAL RETURN BASED ON A $10,000 INVESTMENT
A line graph illustrating the growth of a $10,000 investment in Mercury U.S.
Government Securities Fund++ Class I and Class A Shares* compared to a similar
investment in Salomon Brothers Mortgage Index++++. Values illustrated are as
follows :
Mercury U.S. Government Securities Fund++
Class I Shares*
Date Value
2/01/1995** $ 9,600.00
January 1996 $11,085.00
January 1997 $11,613.00
January 1998 $12,851.00
January 1999 $13,929.00
January 2000 $13,890.00
January 2001 $15,675.00
January 2002 $16,755.00
Mercury U.S. Government Securities Fund++
Class A Shares*
Date Value
2/01/1995** $ 9,600.00
January 1996 $11,053.00
January 1997 $11,549.00
January 1998 $12,748.00
January 1999 $13,783.00
January 2000 $13,696.00
January 2001 $15,433.00
January 2002 $16,441.00
Salomon Brothers Mortgage Index++++
Date Value
2/28/1995** $10,000.00
January 1996 $11,223.00
January 1997 $11,835.00
January 1998 $12,942.00
January 1999 $13,813.00
January 2000 $13,863.00
January 2001 $15,789.00
January 2002 $16,988.00
A line graph illustrating the growth of a $10,000 investment in Mercury U.S.
Government Securities Fund++ Class B and Class C Shares* compared to a similar
investment in Salomon Brothers Mortgage Index++++. Values illustrated are as
follows :
Mercury U.S. Government Securities Fund++
Class B Shares*
Date Value
2/01/1995** $10,000.00
January 1996 $11,453.00
January 1997 $11,900.00
January 1998 $13,061.00
January 1999 $14,038.00
January 2000 $13,879.00
January 2001 $15,547.00
January 2002 $16,495.00
Mercury U.S. Government Securities Fund++
Class C Shares*
Date Value
2/01/1995** $10,000.00
January 1996 $11,436.00
January 1997 $11,874.00
January 1998 $13,036.00
January 1999 $14,005.00
January 2000 $13,840.00
January 2001 $15,497.00
January 2002 $16,452.00
Salomon Brothers Mortgage Index++++
Date Value
2/28/1995** $10,000.00
January 1996 $11,223.00
January 1997 $11,835.00
January 1998 $12,942.00
January 1999 $13,813.00
January 2000 $13,863.00
January 2001 $15,789.00
January 2002 $16,988.00
*Assuming maximum sales charge, transaction costs and other operating expenses,
including advisory fees.
**Commencement of operations.
++Mercury US Government Securities Fund invests in marketable securities issued
or guaranteed by the US Government, by various agencies of the US Government
and by various instrumentalities which have been established or sponsored by
the US Government.
++++This unmanaged Index reflects the performance of a capital market weighting
of the outstanding agency issued mortgage-backed securities. The starting date
for the Index in both graphs is from 2/28/95.
Past performance is not predictive of future results.
January 31, 2002, Mercury U.S. Government Securities Fund
FUND PERFORMANCE DATA (CONCLUDED)
AVERAGE ANNUAL TOTAL RETURN
% Return Without % Return With
Class I Shares*++ Sales Charge Sales Charge
One Year Ended 12/31/01 +7.08% +2.80%
Five Years Ended 12/31/01 +7.55 +6.68
Inception (2/01/95) through 12/31/01 +8.25 +7.61
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
++Prior to April 3, 2000 Class I Shares were designated as Class A Shares.
% Return Without % Return With
Class A Shares*++ Sales Charge Sales Charge
One Year Ended 12/31/01 +6.61% +2.35%
Five Years Ended 12/31/01 +7.24 +6.37
Inception (2/01/95) through 12/31/01 +7.94 +7.30
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
++Prior to April 3, 2000 Class A Shares were designated as Class D Shares.
Class B Shares* % Return Without CDSC % Return With CDSC
One Year Ended 12/31/01 +6.29% +2.29%
Five Years Ended 12/31/01 +6.70 +6.39
Inception (2/01/95) through 12/31/01 +7.38 +7.38
*Maximum contingent deferred sales charge is 4% and is reduced to 0% after six
years.
**Assuming payment of applicable contingent deferred sales charge.
Class C Shares* % Return Without CDSC % Return With CDSC
One Year Ended 12/31/01 +6.35% +5.35%
Five Years Ended 12/31/01 +6.68 +6.68
Inception (2/01/95) through 12/31/01 +7.33 +7.33
*Maximum contingent deferred sales charge is 1% and is reduced to 0% after one
year.
**Assuming payment of applicable contingent deferred sales charge.
January 31, 2002, Mercury U.S. Government Securities Fund
SCHEDULE OF INVESTMENTS
In US Dollars
Face Interest Maturity
Industries Amount Issue Rate Date(s) In US Dollars Value
US Government Agency $ 3,000,000 Fannie Mae (4) 6.00 % 2/01/2009 $ 3,042,430
Mortgage-Backed 2,359,411 Fannie Mae 6.00 5/01/2031 2,324,790
Obligations*--92.0% 1,224,706 Fannie Mae 6.50 2/01/2012 - 1,261,125
2/01/2014
6,508,488 Fannie Mae 6.50 4/01/2031 - 6,555,965
7/01/2031
3,817,435 Fannie Mae-- 5.50 12/01/2011 3,735,121
Multi Family
#0384636++(2)
3,995,623 Fannie Mae-- 5.56 12/01/2011 3,903,848
Multi-Family
#0384518++(5)
3,500,000 Fannie Mae-- 5.60 1/01/2007 3,539,375
Multi-Family
#0384693++(3)
2,343,946 Fannie Mae-- 5.625 11/01/2011 2,302,200
Multi-Family
#0384507++(5)
3,982,072 Fannie Mae-- 5.67 9/01/2006 4,066,691
Multi-Family
#0384046++(3)
2,518,520 Fannie Mae-- 5.69 12/01/2008 2,538,353
Multi-Family
#0460211++(5)
1,927,829 Fannie Mae-- 5.71 1/01/2009 1,946,473
Multi-Family
#0381208++(5)
1,929,655 Fannie Mae-- 6.18 1/01/2006 2,014,927
Multi-Family
#0073313++(5)
4,219,900 Freddie Mac-- 5.50 3/01/2013 - 4,207,361
Gold Program 3/01/2016
1,819,294 Freddie Mac-- 6.00 4/01/2031 - 1,798,201
Gold Program 7/01/2031
5,603,757 Freddie Mac-- 6.50 7/01/2016 - 5,748,669
Gold Program 12/01/2016
1,938,190 Freddie Mac-- 6.50 5/01/2031 1,953,957
Gold Program
512,562 Freddie Mac-- 7.00 11/01/2015 532,293
Gold Program
3,000,000 Freddie Mac-- 7.00 TBA (1) 3,074,040
Gold Program
January 31, 2002, Mercury U.S. Government Securities Fund
SCHEDULE OF INVESTMENTS (CONCLUDED)
Face Interest Maturity In US Dollars
Industries Amount Issue Rate Date(s) Value
US Government Agency $ 946,651 Government National 5.50% 3/15/2029 - $ 906,665
Mortgage-Backed Mortgage Association 4/15/2029
Obligations*--(concluded)
2,955,022 Government National 6.50 8/15/2031 2,984,108
Mortgage Association
5,371,777 Government National 7.00 6/15/2028 - 5,524,144
Mortgage Association 7/15/2031
5,909,472 Government National 7.50 10/15/2025 - 6,179,639
Mortgage Association 9/15/2031
Total US Government Agency Mortgage-Backed Obligations
(Cost--$70,008,050) 70,140,375
US Government 750,000 US Treasury Notes 6.75 5/15/2005 814,687
Obligations--1.1%
Total US Government Obligations
(Cost--$773,847) 814,687
Short-Term
Securities
Repurchase Agreements**-- 7,591,000 Morgan Stanley & Co., Inc., purchased on 7,591,000
9.9% 1/31/2002 to yield 1.90% to 2/01/2002
Total Investments in Short-Term
Securities (Cost--$7,591,000)
7,591,000
Total Investments
(Cost--$78,372,897)--103.0%
78,546,062
Liabilities in Excess of Other Assets--(3.0%) (2,279,964)
----------
Net Assets--100.0% $ 76,266,098
============
*Mortgage-Backed Obligations are subject to principal paydowns as a result of
prepayments or refinancing of the underlying mortgage instruments. As a result,
the average life may be substantially less than the original maturity.
**Repurchase Agreements are fully collateralized by US Government & Agency
Obligations.
++Underlying multi-family loans have prepayment protection by means of lockout
periods and/or yield maintenance premiums.
(1)Represents or includes a "to-be-announced" (TBA) transaction. The Fund has
committed to purchase securities for which all specific information is not
available at this time.
(2)Represents balloon mortgages that amortize on a 20-year schedule and have
10-year original maturities.
(3)Represents balloon mortgages that amortize on a 30-year schedule and have
5-year original maturities.
(4)Represents balloon mortgages that amortize on a 30-year schedule and have
7-year original maturities.
(5)Represents balloon mortgages that amortize on a 30-year schedule
and have 10-year original maturities.
See Notes to Financial Statements.
January 31, 2002, Mercury U.S. Government Securities Fund
STATEMENT OF ASSETS AND LIABILITIES
As of January 31, 2002
Assets:
Investments, at value (identified cost--$78,372,897) $ 78,546,062
Cash 502
Receivables:
Capital shares sold $ 614,932
Interest 363,283 978,215
---------
Prepaid registration fees and other assets 200,627
----------
Total assets 79,725,406
----------
Liabilities:
Payables:
Securities purchased 3,077,195
Capital shares redeemed 142,765
Dividends to shareholders 124,739
Distributor 40,966 3,385,665
----------
Accrued expenses 73,643
----------
Total liabilities 3,459,308
----------
Net Assets:
Net assets $ 76,266,098
============
Net Assets Consist of:
Class I Common Stock, $.10 par value, 6,250,000 shares authorized $ 44,664
Class A Common Stock, $.10 par value, 6,250,000 shares authorized 51,497
Class B Common Stock, $.10 par value, 6,250,000 shares authorized 456,368
Class C Common Stock, $.10 par value, 6,250,000 shares authorized 173,268
Paid-in capital in excess of par 75,380,411
Undistributed investment income--net $ 16,013
Accumulated realized capital losses on investments--net (29,288)
Unrealized appreciation on investments--net 173,165
-------
Total accumulated earnings--net 159,890
-------
Net assets $ 76,266,098
============
Net Asset Value:
Class I--Based on net assets of $4,700,486 and 446,643 shares outstanding $ 10.52
============
Class A--Based on net assets of $5,412,675 and 514,973 shares outstanding $ 10.51
============
Class B--Based on net assets of $47,935,930 and 4,563,681 shares outstanding $ 10.50
============
Class C--Based on net assets of $18,217,007 and 1,732,677 shares outstanding $ 10.51
============
See Notes to Financial Statements.
January 31, 2002, Mercury U.S. Government Securities Fund
STATEMENT OF OPERATIONS
For the Year Ended January 31, 2002
Investment Income:
Interest $ 2,701,614
-----------
Expenses:
Investment advisory fees $ 252,010
Account maintenance and distribution fees--Class B 241,852
Account maintenance and distribution fees--Class C 100,810
Registration fees 74,323
Transfer agent fees--Class B 50,654
Printing and shareholder reports 46,292
Custodian fees 35,351
Accounting services 35,226
Professional fees 24,664
Transfer agent fees--Class C 21,355
Account maintenance fees--Class A 9,323
Transfer agent fees--Class A 5,091
Directors' fees and expenses 3,999
Pricing fees 2,628
Transfer agent fees--Class I 2,461
Other 12,797
------
Total expenses before reimbursement 918,836
Reimbursement of expenses (566,851)
--------
Total expenses after reimbursement 351,985
-------
Investment income--net 2,349,629
Realized & Unrealized Gain on Investments--Net:
Realized gain on investments--net 341,558
Change in unrealized appreciation on investments--net 107,223
-------
Net Increase in Net Assets Resulting from Operations $ 2,798,410
===========
See Notes to Financial Statements.
January 31, 2002, Mercury U.S. Government Securities Fund
STATEMENTS OF CHANGES IN NET ASSETS
For the
Year Ended
January 31,
Increase (Decrease)in Net Assets: 2002 2001
Operations:
Investment income--net $ 2,349,629 $ 971,616
Realized gain on investments--net 341,558 70,127
Change in unrealized appreciation/depreciation on investments--net 107,223 918,947
--------- ---------
Net increase in net assets resulting from operations 2,798,410 1,960,690
--------- ---------
Dividends & Distributions to Shareholders:
Investment income--net:
Class I (97,974) (14,872)
Class A (189,601) (61,747)
Class B (1,485,857) (623,185)
Class C (576,197) (271,812)
Realized gain on investments--net:
Class I (3,641) --
Class A (10,389) --
Class B (72,880) --
Class C (26,546) --
---------- ---------
Net decrease in net assets resulting from dividends and distributions to (2,463,085) (971,616)
shareholders ---------- ---------
Capital Share Transactions:
Net increase in net assets derived from capital share transactions 50,440,146 8,208,063
---------- ---------
Net Assets:
Total increase in net assets 50,775,471 9,197,137
Beginning of year 25,490,627 16,293,490
---------- ----------
End of year* $ 76,266,098 $ 25,490,627
============ ============
*Undistributed investment income--net $ 16,013 --
============ ============
See Notes to Financial Statements.
January 31, 2002, Mercury U.S. Government Securities Fund
FINANCIAL HIGHLIGHTS
The following per share data and ratios have been derived from information
provided in the financial statements.
Class I++++
Increase (Decrease) in For the Year Ended January 31,
Net Asset Value: 2002 2001 2000 1999 1998
Per Share Operating Performance:
Net asset value, beginning of year $ 10.41 $ 9.85 $ 10.52 $ 10.48 $ 10.20
------- ------ ------- ------- -------
Investment income--net .57 .66 .64 .64 .69
Realized and unrealized gain (loss) on
investments--net .13 .56 (.67) .21 .35
------- ------ ------- ------- -------
Total from investment operations .70 1.22 (.03) .85 1.04
------- ------ ------- ------- -------
Less dividends and distributions:
Investment income--net (.57) (.66) (.64) (.64) (.69)
Realized gain on investments--net (.02) -- -- (.17) (.07)
In excess of realized gain on
investments--net -- -- -- --++ --
------- ------ ------- ------- -------
Total dividends and distributions (.59) (.66) (.64) (.81) (.76)
------- ------ ------- ------- -------
Net asset value, end of year $ 10.52 $ 10.41 $ 9.85 $ 10.52 $ 10.48
======= ======= ====== ======= =======
Total Investment Return:*
Based on net asset value per share 6.89% 12.85% (.28%) 8.39% 10.66%
======= ======= ====== ======= =======
Ratios to Average Net Assets:
Expenses, net of reimbursement .00% .00% .00% .00% .00%
======= ======= ====== ======= =======
Expenses 1.10% 1.38% 1.38% 1.73% 2.00%
======= ======= ====== ======= =======
Investment income--net 5.37% 6.49% 6.22% 6.13% 6.80%
======= ======= ====== ======= =======
Supplemental Data:
Net assets, end of year (in thousands) $ 4,700 $ 600 $ 140 $ 1,278 $ 3,233
======= ======= ====== ======= =======
Portfolio turnover 185.42% 84.53% 91.75% 310.91% 361.31%
======= ======= ====== ======= =======
*Total investment returns exclude the effects of sales charges.
++Amount is less than $.01 per share.
++++Prior to April 3, 2000, Class I Shares were designated as Class A Shares.
See Notes to Financial Statements.
January 31, 2002, Mercury U.S. Government Securities Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
The following per share data and ratios have been derived from information
provided in the financial statements.
Class A++++
Increase (Decrease) in For the Year Ended January 31,
Net Asset Value: 2002 2001 2000 1999 1998
Per Share Operating Performance:
Net asset value, beginning of year $ 10.41 $ 9.84 $ 10.52 $ 10.48 $ 10.20
------- ------ ------- ------- -------
Investment income--net .55 .64 .61 .61 .67
Realized and unrealized gain (loss) on
investments--net .12 .57 (.68) .21 .35
------- ------ ------- ------- -------
Total from investment operations .67 1.21 (.07) .82 1.02
------- ------ ------- ------- -------
Less dividends and distributions:
Investment income--net (.55) (.64) (.61) (.61) (.67)
Realized gain on investments--net (.02) -- -- (.17) (.07)
In excess of realized gain on
investments--net -- -- -- --++ --
------- ------ ------- ------- -------
Total dividends and distributions (.57) (.64) (.61) (.78) (.74)
Net asset value, end of year $ 10.51 $ 10.41 $ 9.84 $ 10.52 $ 10.48
======= ======= ====== ======= =======
Total Investment Return:*
Based on net asset value per share 6.53% 12.68% (.63%) 8.12% 10.38%
======= ======= ====== ======= =======
Ratios to Average Net Assets:
Expenses, net of reimbursement .25% .25% .25% .25% .25%
======= ======= ====== ======= =======
Expenses 1.36% 1.63% 1.67% 1.67% 2.25%
======= ======= ====== ======= =======
Investment income--net 5.08% 6.26% 6.02% 5.73% 6.53%
======= ======= ====== ======= =======
Supplemental Data:
Net assets, end of year (in thousands) $ 5,413 $ 1,980 $ 708 $ 1,701 $ 315
======= ======= ====== ======= =======
Portfolio turnover 185.42% 84.53% 91.75% 310.91% 361.31%
======= ======= ====== ======= =======
*Total investment returns exclude the effects of sales charges. ++Amount is
less than $.01 per share. ++++Prior to April 3, 2000, Class A Shares were
designated as Class D Shares.
See Notes to Financial Statements.
January 31, 2002, Mercury U.S. Government Securities Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
The following per share data and ratios have been derived from information
provided in the financial statements.
Class B
Increase (Decrease) in For the Year Ended January 31,
Net Asset Value: 2002 2001 2000 1999 1998
Per Share Operating Performance:
Net asset value, beginning of year $ 10.39 $ 9.83 $ 10.51 $ 10.48 $ 10.20
------- ------ ------- ------- -------
Investment income--net .49 .59 .56 .56 .61
Realized and unrealized gain (loss) on
investments--net .13 .56 (.68) .20 .35
------- ------ ------- ------- -------
Total from investment operations .62 1.15 (.12) .76 .96
------- ------ ------- ------- -------
Less dividends and distributions:
Investment income--net (.49) (.59) (.56) (.56) (.61)
Realized gain on investments--net (.02) -- -- (.17) (.07)
In excess of realized gain on
investments--net -- -- -- --++ --
------- ------ ------- ------- -------
Total dividends and distributions (.51) (.59) (.56) (.73) (.68)
Net asset value, end of year $ 10.50 $ 10.39 $ 9.83 $ 10.51 $ 10.48
======= ======= ====== ======= =======
Total Investment Return:*
Based on net asset value per share 6.10% 12.02% (1.13%) 7.48% 9.76%
======= ======= ====== ======= =======
Ratios to Average Net Assets:
Expenses, net of reimbursement .75% .75% .75% .75% .75%
======= ======= ====== ======= =======
Expenses 1.87% 2.19% 2.22% 2.34% 2.82%
======= ======= ====== ======= =======
Investment income--net 4.61% 5.81% 5.54% 5.26% 5.94%
======= ======= ====== ======= =======
Supplemental Data:
Net assets, end of year (in thousands) $ 47,936 $ 16,121 $ 12,045 $ 14,817 $ 6,627
======= ======= ====== ======= =======
Portfolio turnover 185.42% 84.53% 91.75% 310.91% 361.31%
======= ======= ====== ======= =======
*Total investment returns exclude the effects of sales charges.
++Amount is less than $.01 per share.
See Notes to Financial Statements.
January 31, 2002, Mercury U.S. Government Securities Fund
FINANCIAL HIGHLIGHTS (CONCLUDED)
The following per share data and ratios have been derived from information
provided in the financial statements.
Class C
Increase (Decrease) in For the Year Ended January 31,
Net Asset Value: 2002 2001 2000 1999 1998
Per Share Operating Performance:
Net asset value, beginning of year $ 10.39 $ 9.83 $ 10.51 $ 10.48 $ 10.19
------- ------ ------- ------- -------
Investment income--net
Realized and unrealized gain (loss) on
investments--net .14 .56 (.68) .20 .36
------- ------ ------- ------- -------
Total from investment operations .63 1.14 (.12) .75 .96
------- ------ ------- ------- -------
Less dividends and distributions:
Investment income--net (.49) (.58) (.56) (.55) (.60)
Realized gain on investments--net (.02) -- -- (.17) (.07)
In excess of realized gain on investments--net -- -- -- --++ --
------- ------ ------- ------- -------
Total dividends and distributions (.51) (.58) (.56) (.72) (.67)
------- ------ ------- ------- -------
Net asset value, end of year $ 10.51 $ 10.39 $ 9.83 $ 10.51 $ 10.48
======= ======= ====== ======= =======
Total Investment Return:*
Based on net asset value per share 6.16% 11.97% (1.18%) 7.43% 9.79%
======= ======= ====== ======= =======
Ratios to Average Net Assets:
Expenses, net of reimbursement .80% .80% .80% .80% .80%
======= ======= ====== ======= =======
Expenses 1.94% 2.25% 2.33% 2.47% 2.90%
======= ======= ====== ======= =======
Investment income--net 4.58% 5.75% 5.49% 5.21% 5.88%
======= ======= ====== ======= =======
Supplemental Data:
Net assets, end of year (in thousands) $ 18,217 $ 6,790 $ 3,400 $ 4,679 $ 2,057
======= ======= ====== ======= =======
Portfolio turnover 185.42% 84.53% 91.75% 310.91% 361.31%
======= ======= ====== ======= =======
*Total investment returns exclude the effects of sales charges.
++Amount is less than $.01 per share.
See Notes to Financial Statements.
January 31, 2002, Mercury U.S. Government Securities Fund
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Mercury U.S. Government Securities Fund (the "Fund") is a series of The Asset
Program, Inc. (the "Program") which is registered under the Investment Company
Act of 1940 as a diversified, open-end management investment company. The
Fund's financial statements are prepared in conformity with accounting
principles generally accepted in the United States of America, which may
require the use of management accruals and estimates. The Fund offers four
classes of shares. Class I and Class A Shares are sold with a front-end sales
charge. Class B and Class C Shares may be subject to a contingent deferred
sales charge. All classes of shares have identical voting, dividend,
liquidation and other rights and the same terms and conditions, except that
Class A, Class B and Class C Shares bear certain expenses related to the
account maintenance of such shares, and Class B and Class C Shares also bear
certain expenses related to the distribution of such shares. Each class has
exclusive voting rights with respect to matters relating to its account
maintenance and distribution expenditures (except that Class B shareholders may
vote upon any material changes under the distribution plan for Class A Shares).
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 that are traded in the over-the- counter market are valued at the
last available bid price in the over-the-counter market prior to the time of
valuation. 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 financial 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 Program's Board of
Directors.
January 31, 2002, Mercury U.S. Government Securities Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(b) Repurchase agreements--The Fund may invest in securities pursuant to
repurchase agreements. Under such agreements, the counterparty agrees to
repurchase the security at a mutually agreed upon time and price. The Fund
takes possession of the underlying securities, marks to market such securities
and, if necessary, receives additions to such securities daily to ensure that
the contract is fully collateralized. If the counterparty defaults and the fair
value of the collateral declines, liquidation of the collateral by the Fund may
be delayed or limited.
(c) 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.
* Financial futures contracts--The Fund 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.
Futures contracts are contracts for delayed delivery of securities at a
specific future date and at a specific price or yield. Upon entering into a
contract, the Fund deposits and maintains as collateral such initial margin as
required by the exchange on which the transaction is effected. Pursuant to the
contract, the Fund 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 Fund as
unrealized gains or losses. When the contract is closed, the Fund 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.
* Options--The Fund is authorized to purchase and write call and put options.
When the Fund writes an option, an amount equal to the premium received by the
Fund 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 Fund enters into
a closing transaction), the Fund realizes a gain or loss on the option to the
extent of the premiums received or paid (or gain or loss to the extent the cost
of the closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
January 31, 2002, Mercury U.S. Government Securities Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(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.
(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.
(f) Prepaid registration fees--Prepaid registration fees are charged to expense
as the related shares are issued.
(g) Dividends and distributions--Dividends from net investment income are
declared daily and paid monthly. Distributions of capital gains are recorded on
the ex-dividend dates.
(h) Expenses--Certain expenses have been allocated to the individual Funds in
the Trust on a pro rata basis based upon the respective aggregate net asset
value of each Fund included in the Program.
(i) Dollar rolls--The Fund sells mortgage-backed securities for delivery in the
current month and simultaneously contracts to repurchase substantially similar
(same type, coupon and maturity) securities on a specific future date.
(j) Reclassification--Accounting principles generally accepted in the United
States of America require that certain components of net assets be adjusted to
reflect permanent differences between financial and tax reporting. Accordingly,
the current year's permanent book/tax differences of $16,013 have been
reclassified between accumulated net realized capital losses and undistributed
net investment income. These reclassifications have no effect on net assets or
net asset values per share.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund 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. The Fund has also 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.
FAM is responsible for the management of the Fund 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 based on
the average daily value of the Fund's net assets at the annual rate of .50%.
For the year ended January 31, 2002, FAM earned fees of $252,010, all of which
were waived. FAM also reimbursed the Fund for additional expenses of $314,841.
January 31, 2002, Mercury U.S. Government Securities Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 Fees
Fees
Class A .25% --
Class B .25% .50%
Class C .25% .55%
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 year ended January 31, 2002, FAMD earned underwriting discounts and
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), a subsidiary of
ML & Co., earned dealer concessions on sales of each Fund's Class A Shares as
follows:
FAMD MLPF&S
Class A $3,153 $44,426
For the year ended January 31, 2002, MLPF&S received contingent deferred sales
charges of $58,945 and $11,057 relating to transactions in Class B and Class C
Shares, respectively. Furthermore, MLPF&S received contingent deferred sales
charges of $2 relating to transactions subject to front-end sales charge
waivers in Class A Shares.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of ML & Co.,
is the Program's transfer agent.
During the year ended January 31, 2002, the Fund paid Merrill Lynch Security
Pricing Service, an affiliate of MLPF&S $475 for security price quotations to
compute the net asset value of the Fund.
For the year ended January 31, 2002, the Fund reimbursed FAM $4,793 for certain
accounting services.
Certain officers and/or directors of the Program are officers and/or directors
of FAM, PSI, FDS, FAMD, and/or ML & Co.
January 31, 2002, Mercury U.S. Government Securities Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended January 31, 2002 were $133,649,614 and $85,679,135, respectively.
Net realized gains (losses) for the year ended January 31, 2002 and net
unrealized gains as of January 31, 2002 were as follows:
Realized Unrealized
Gains (Losses) Gains
Long-term investments $ 342,232 $ 173,165
Short-term investments (346) --
Options purchased (25,875) --
Options written 25,547 --
--------- ---------
Total $ 341,558 $ 173,165
========= =========
As of January 31, 2002, net unrealized appreciation for Federal income tax
purposes aggregated $171,847, of which $644,827 related to appreciated
securities and $472,980 related to depreciated securities. The aggregate cost
of investments at January 31, 2002 for Federal income tax purposes was
$78,374,215.
Transactions in call options written for the year ended January 31, 2002 were
as follows:
Nominal Value
Covered by Written
Options Premiums Received
Outstanding call options written,
beginning of year -- --
Options written 3,000,000 $ 25,547
Options expired (3,000,000) (25,547)
---------- -------
Outstanding call options
written, end of year -- --
========== =======
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions was
$50,440,146 and $8,208,063 for the years ended January 31, 2002 and January 31,
2001, respectively.
Transactions in capital shares for each class were as follows:
Class I Shares for the Year Dollar
Ended January 31, 2002 Shares Amount
Shares sold 510,884 $ 5,364,653
Shares issued to shareholders in reinvestment
of dividends and distributions 4,760 49,996
-------- ----------
Total issued 515,644 5,414,649
Shares redeemed (126,662) (1,327,248)
-------- ----------
Net increase 388,982 $ 4,087,401
======== ===========
January 31, 2002, Mercury U.S. Government Securities Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Class I Shares for the Year Dollar
Ended January 31, 2001 Shares Amount
Shares sold 88,352 $ 909,599
Shares issued to shareholders in reinvestment
of dividends and distributions 1,093 11,057
-------- --------
Total issued 89,445 920,656
Shares redeemed (46,041) (472,905)
-------- --------
Net increase 43,404 $ 447,751
======== =========
Class A Shares for the Year Dollar
Ended January 31, 2002 Shares Amount
Shares sold 1,133,431 $ 11,900,884
Automatic conversion of shares 11,502 120,332
Shares issued to shareholders in reinvestment
of dividends and distributions 7,143 74,946
--------- ----------
Total issued 1,152,076 12,096,162
Shares redeemed (827,352) (8,670,869)
--------- ----------
Net increase 324,724 $ 3,425,293
========= ===========
Class A Shares for the Year Dollar
Ended January 31, 2001 Shares Amount
Shares sold 138,809 $ 1,408,867
Automatic conversion of shares 7,401 74,336
Shares issued to shareholders in reinvestment
of dividends and distributions 4,835 49,020
-------- --------
Total issued 151,045 1,532,223
Shares redeemed (32,739) (326,475)
-------- --------
Net increase 118,306 $ 1,205,748
======== ===========
Class B Shares for the Year Ended January 31, Dollar
2002 Shares Amount
Shares sold 3,495,974 $ 36,671,020
Shares issued to shareholders in reinvestment
of dividends and distributions 86,546 908,063
--------- ------------
Total issued 3,582,520 37,579,083
Automatic conversion of shares (11,512) (120,332)
Shares redeemed (558,215) (5,861,499)
--------- ------------
Net increase 3,012,793 $ 31,597,252
========= ============
January 31, 2002, Mercury U.S. Government Securities Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Class B Shares for the Year Dollar
Ended January 31, 2001 Shares Amount
Shares sold 859,651 $ 8,792,262
Shares issued to shareholders in reinvestment
of dividends and distributions 39,787 399,752
------- -----------
Total issued 899,438 9,192,014
Automatic conversion of shares (7,409) (74,336)
Shares redeemed (566,592) (5,644,408)
------- -----------
Net increase 325,437 $ 3,473,270
======= ===========
Class C Shares for the Year Dollar
Ended January 31, 2002 Shares Amount
Shares sold 1,601,383 $ 16,816,966
Shares issued to shareholders in reinvestment
of dividends and distributions 41,043 430,582
--------- ------------
Total issued 1,642,426 17,247,548
Shares redeemed (562,970) (5,917,348)
--------- ------------
Net increase 1,079,456 $ 11,330,200
========= ============
Class C Shares for the Year Dollar
Ended January 31, 2001 Shares Amount
Shares sold 404,886 $ 4,051,784
Shares issued to shareholders in reinvestment
of dividends and distributions 22,184 223,623
------- -----------
Total issued 427,070 4,275,407
Shares redeemed (119,743) (1,194,113)
------- -----------
Net increase 307,327 $ 3,081,294
======= ===========
5. Short-Term Borrowings:
The Fund, along with certain other funds managed by FAM and its affiliates, is
a party to a $1,000,000,000 credit agreement with Bank One, N.A. and certain
other lenders. The Fund may borrow under the credit agreement to fund partner
withdrawals 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. On November 30, 2001, the credit agreement
was renewed for one year under the same terms. The Fund did not borrow under
the credit agreement during the year ended January 31, 2002.
January 31, 2002, Mercury U.S. Government Securities Fund
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
6. Distributions to Shareholders:
The tax character of distributions paid during the fiscal years ended January
31, 2002 and January 31, 2001 was as follows:
1/31/2002 1/31/2001
Distributions paid from:
Ordinary income $ 2,463,085 $ 971,616
----------- ---------
Total taxable distributions $ 2,463,085 $ 971,616
=========== =========
As of January 31, 2002, the components of accumulated earnings on a tax basis
were as follows:
Undistributed ordinary income--net $ 16,013
Undistributed long-term capital gains--net --
---------
Total undistributed earnings--net 16,013
Unrealized gains (losses)--net 143,877*
---------
Total accumulated earnings (losses)--net $ 159,890
=========
*The difference between book-basis and tax-basis net unrealized gains (losses)
is attributable primarily to the tax deferral of losses on wash sales and the
deferral of post-October capital losses for tax purposes.
January 31, 2002, Mercury U.S. Government Securities Fund
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Mercury U.S. Government Securities Fund of
The Asset Program, Inc.
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Mercury U.S. Government Securities Fund as of
January 31, 2002, the related statements of operations for the year then ended
and changes in net assets for each of the years in the two-year period then
ended, and the financial highlights for each of the years presented. These
financial statements and the financial highlights are the responsibility of the
Program's management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements 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 January 31, 2002 by correspondence with the custodian and broker;
where a reply from the broker was not received, we performed other auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Mercury U.S.
Government Securities Fund as of January 31, 2002, the results of its
operations, the changes in its net assets, and the financial highlights for the
respective stated periods in conformity with accounting principles generally
accepted in the United States of America.
Deloitte & Touche LLP
New York, New York
March 14, 2002
January 31, 2002, Mercury U.S. Government Securities Fund
OFFICERS AND DIRECTORS
INTERESTED DIRECTOR
Number of
Portfolios in
Position(s) Fund Complex Other
Held with Length of Time Principal Occupation(s) During Overseen by Directorships
Name, Address & Age Fund Served Past 5 Years Director Held by Director
Terry K. Glenn* President President/ Chairman, Americas Region since 196 None
800 Scudders Mill Road and Director/ 2001, and Executive Vice
Plainsboro, NJ 08536 Director Trustee President since 1983 of Fund
Age: 61 since Asset Management ("FAM") and
1999 Merrill Lynch Investment
Managers, L.P. ("MLIM");
President of Merrill Lynch
Mutual Funds since 1999;
President of FAM Distributors,
Inc. ("FAMD") since 1986 and
Director thereof since 1991;
Executive Vice President and
Director of Princeton Services,
Inc. ("Princeton Services")
since 1993; President of
Princeton Administrators, L.P.
since 1988; Director of
Financial Data Services, Inc.,
since 1985.
*Mr. Glenn is a director, trustee or member of an advisory board of certain
other investment companies for which FAM or MLIM acts as investment adviser.
Mr. Glenn is an "interested person," as described in the Investment Company
Act, of each Fund based on his positions as Chairman (Americas Region) and
Executive Vice President of FAM and MLIM; President of FAMD; Executive Vice
President of Princeton Services; and President of Princeton Administrators,
L.P. The Director's term is unlimited. As Fund President, Mr. Glenn serves at
the pleasure of the Board of Directors.
INDEPENDENT DIRECTORS
Number of
Portfolios in Other
Position(s) Fund Complex Directorships
Held with Length of Time Principal Occupation(s) Overseen by Held by
Name, Address & Age Fund Served During Past 5 Years Director Director
Joe Grills Director 1994 to Member of CIEBA since 1986. 49 Duke Management Company;
P.O. Box 98 present LaSalle Street Fund;
Rapidan, VA 22733 Kimco Realty;
Age: 66 Montpelier Foundation
Robert S. Salomon, Jr. Director 1997 to Principal of STI Management 36 CommonFund; Investment
106 Dolphin Cove Quay present since 1994. Management Workshop
Stamford, CT 06902
Age: 65
Melvin R. Seiden Director 1981 to Retired. 36 Silbanc Properties, Ltd.
780 Third Avenue, present
Suite 2502
New York, NY 10017
Age: 71
Stephen B. Swensrud Director 1983 to present Chairman, Fernwood Advisors 87 International Mobile
88 Broad Street, since 1996. Communication, Inc.
2nd Floor
Boston, MA 02110
Age: 68
*The Director's term is unlimited.
January 31, 2002, Mercury U.S. Government Securities Fund
OFFICERS AND DIRECTORS (CONCLUDED)
FUND OFFICERS
Position(s) Length of Time
Name, Address & Age Held with Fund Served Principal Occupation(s) During Past 5 Years
Donald C. Burke Vice Vice President First Vice President of FAM and MLIM since 1997 and the
P.O. Box 9011 President and since 1993 and Treasurer thereof since 1999; Senior Vice President and
Princeton, NJ 08543-9011 Treasurer Treasurer Treasurer of Princeton Services since 1999; Vice
President since 1999 President of FAMD since 1999; Vice President of FAM and
Age: 41 MLIM from Treasurer 1990 to 1997; Director of Taxation
of MLIM since 1990.
Robert C. Doll, Jr. Senior Vice 2000 to present President of MLIM and FAM; Co-Head (Americas Region)
P.O. Box 9011 President thereof from 2000 to 2001 and Senior Vice President
Princeton, NJ 08543-9011 thereof from 1999 to 2001; Director of Princeton
Age: 47 Services; Chief Investment Officer of Oppenheimer Funds,
Inc. in 1999 and Executive Vice President thereof from
1991 to 1999.
Teresa L. Giacino Vice 2001 to Vice President and the Portfolio Manager of the Fund;
P.O. Box 9011 President and present Vice President of MLIM since 1992.
Princeton, Portfolio
NJ 08543-9011 Manager
Age: 39
Frank Viola Portfolio 2001 to Managing Director of MLIM and has been Portfolio Manager
P.O. Box 9011 Manager present thereof since 1997; Treasurer of Merrill Lynch Bank &
Princeton, NJ 08543-9011 Trust from 1996 to 1997 and Vice President of Merrill
Lynch
Capital Markets from 1993 to 1996.
Allan J. Oster Secretary 1999 to Vice President (Legal Advisory) of MLIM since 2000;
P.O. Box 9011 present Attorney with MLIM since 1999; Associate, Drinker Biddle
Princeton, NJ 08543-9011 & Reath LLP from 1996 to 1999; Senior Counsel, U.S.
Age: 37 Securities and Exchange Commission from 1991 to 1996.
*Officers of the Fund serve at the pleasure of the Board of Directors.
Further information about the Fund's Officers and Directors is available in the
Fund's Statement of Additional Information, which can be obtained without
charge by calling 1-888-763-2260.
Walter Mintz, Director of Mercury U.S. Government Securities Fund, has recently
retired. The Fund's Board of Directors wishes Mr. Mintz well in his retirement.
Custodian
The Bank of New York
100 Church Street
New York, NY 10286
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(888) 763-2260
January 31, 2002, Mercury U.S. Government Securities Fund