UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-8797
811-9049
Name of Fund: Merrill Lynch Global Balanced Fund of Mercury Funds, Inc.
Merrill Lynch Master Global Balanced Portfolio of Mercury Master
Trust
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Terry K. Glenn, President, Merrill Lynch
Global Balanced Fund of Mercury Funds, Inc. and Merrill Lynch Master
Global Balanced Portfolio of Mercury Master Trust, 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: 11/30/04
Date of reporting period: 12/01/03 - 05/31/04
Item 1 - Report to Stockholders
[LOGO] Merrill Lynch Investment Managers www.mlim.ml.com
Merrill Lynch
Global Balanced Fund
Semi-Annual Report
May 31, 2004
[LOGO] Merrill Lynch Investment Managers
Merrill Lynch Global Balanced Fund
Portfolio Information as of May 31, 2004
Percent of
Ten Largest Equity Holdings Net Assets
- --------------------------------------------------------------------------------
Pfizer Inc. ............................................................ 1.7%
Microsoft Corporation .................................................. 1.7
Exxon Mobil Corporation ................................................ 1.5
Fannie Mae ............................................................. 1.3
BP Amoco PLC ........................................................... 1.3
Tyco International Ltd. ................................................ 1.3
Freddie Mac ............................................................ 1.2
Praxair, Inc. .......................................................... 1.1
Intesa BCI SpA ......................................................... 1.1
International Business Machines Corporation ............................ 1.0
- --------------------------------------------------------------------------------
Percent of
Ten Largest Fixed Income Holdings Net Assets
- --------------------------------------------------------------------------------
Netherlands Government Bonds,
3.75% due 7/15/2014 .................................................. 2.4%
Netherlands Government Bonds,
4% due 7/15/2005 ..................................................... 2.4
French OAT, 5.75% due 10/25/2032 ....................................... 1.6
Bundesobligation, 3.25% due 4/17/2009 .................................. 1.4
Republic of Italy, .65% due 3/20/2009 .................................. 1.1
Swedish Government Bonds, 5% due 1/28/2009 ............................. 1.1
Inter-American Development Bank,
1.90% due 7/08/2009 .................................................. 1.0
French Treasury Notes, 3.50% due 1/12/2005 ............................. 1.0
Federal National Mortgage Association,
2.125% due 10/09/2007 ................................................ 0.9
U.S. Treasury Notes, 4.625% due 5/15/2006 .............................. 0.8
- --------------------------------------------------------------------------------
Percent of
Asset Mix Net Assets
- --------------------------------------------------------------------------------
Common Stocks ............................................. 67.7%
Fixed Income Securities ................................... 21.8
Cash & Cash Equivalents ................................... 10.5
- --------------------------------------------------------------------------------
Percent of
Geographic Allocation Net Assets+
- --------------------------------------------------------------------------------
United States ........................................... 38.9%
United Kingdom .......................................... 11.1
Japan ................................................... 9.1
Netherlands ............................................. 7.0
France .................................................. 6.1
Switzerland ............................................. 3.5
Italy ................................................... 3.3
Germany ................................................. 2.8
Sweden .................................................. 2.2
Austria ................................................. 1.2
Spain ................................................... 1.1
Canada .................................................. 1.1
Finland ................................................. 1.1
Ireland ................................................. 1.0
- --------------------------------------------------------------------------------
+ Total may not equal 100%.
Five Largest Industries* Percent of
(Equity Investments) Net Assets
- --------------------------------------------------------------------------------
Commercial Banks ....................................................... 7.9%
Oil & Gas .............................................................. 5.7
Media .................................................................. 5.0
Pharmaceuticals ........................................................ 4.9
Thrifts & Mortgage Finance ............................................. 3.4
- --------------------------------------------------------------------------------
* For Portfolio compliance purposes, "Industries" 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 Portfolio
management. This definition may not apply for purposes of this report,
which may combine such industry sub-classifications for reporting ease.
2 MERRILL LYNCH GLOBAL BALANCED FUND MAY 31, 2004
A Letter From the President
Dear Shareholder
Equity markets posted positive results for the most recent reporting periods.
The U.S. stock market, as measured by the Standard & Poor's 500 Index, had
respective returns of +6.79% and +18.33% for the six-month and 12-month periods
ended May 31, 2004. The Morgan Stanley Capital International (MSCI) Europe,
Australasia, Far East Index, which measures the performance of equity markets in
21 developed nations (excluding the United States and Canada), returned +10.32%
and +32.66% for the six-month and 12-month periods, respectively. Emerging
markets, as represented by the MSCI Emerging Markets Index, returned +5.75% and
+40.10% for the same periods.
The positive market returns have been supported by improving economies in
important areas around the globe. In particular, the U.S. economy has benefited
from fiscal and monetary stimulus in the form of low interest rates and tax
cuts. This has opened the door to consumer spending, capital spending, increases
in exports and long-awaited job growth. Since the United States represents 32%
of global gross domestic product (GDP), the acceleration of its economy has
provided encouragement to other areas of the world.
Elsewhere, China has recorded a remarkable rate of economic expansion. With real
GDP growth of 9.1% in 2003, the country has helped fuel growth in the economies
of its trading partners. Given efforts to preempt inflation, China's growth is
expected to ease somewhat in 2004, but still expand at a rate of 7% - 8%. Japan,
in the meantime, has begun to emerge from 13 years of sluggish growth. In
Europe, the European Union welcomed 10 new member nations in May, and the
enhanced integration may create further economic opportunities.
The events and efforts of the past year leave us with stronger global economies
today. Of course, markets will always fluctuate, and there are many
uncertainties -- including the possibility of geopolitical events -- that can
translate into negative market movements. Keeping this in mind, however, we
encourage you to revisit your portfolio and your asset allocation strategy to
ensure you are well positioned to take advantage of the opportunities that lie
ahead. Importantly, your financial advisor can help you develop a strategy most
suitable for your circumstances through all types of market and economic cycles.
We thank you for trusting Merrill Lynch Investment Managers with your investment
assets, and we look forward to serving you in the months and years ahead.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President and Director/Trustee
MERRILL LYNCH GLOBAL BALANCED FUND MAY 31, 2004 3
[LOGO] Merrill Lynch Investment Managers
A Discussion With Your Fund's Portfolio Manager
Our overweight position in equities contributed to performance during the
period, as company earnings continued to improve and equity markets reaped the
rewards.
How did the Fund perform during the period in light of the existing market
conditions?
For the six-month period ended May 31, 2004, Merrill Lynch Global Balanced
Fund's Class A, Class B, Class C and Class I Shares had total returns of +4.40%,
+4.04%, +3.92% and +4.59%, respectively. (Fund results shown do not reflect
sales charges and would be lower if sales charges were included. Complete
performance information can be found on pages 6 and 7 of this report to
shareholders.)
For the six months ended May 31, 2004, the Morgan Stanley Capital International
(MSCI) World Index returned +7.79% and the Citigroup Currency-Hedged World
Government Bond Index returned +1.29%. The Fund's composite index, which
consists 60% of the MSCI World Index and 40% of the Citigroup Currency-Hedged
World Government Bond Index, had a return of +5.18% for the six months ended May
31, 2004.
The Portfolio's asset allocation added value during the period, as we were
overweight in equities and underweight in bonds. Equities provided higher
returns than bonds as company earnings recovered strongly over the past six
months. In particular, the Portfolio benefited from its futures exposure to
Asian markets in the early part of the period. These markets were boosted by
ongoing signs of economic strength in the region.
Within the equity portion of the Portfolio, performance lagged the benchmark
primarily because of our investment view in what we believed to be an extreme
market environment. Unusually high appetites for risk, together with plentiful
liquidity, engendered speculative investor behavior leading to significant
outperformance of lower-quality stocks. We did not chase this momentum because
our analysis suggested that investors had overpaid for economic leverage/risk,
pushing many equity prices to levels that could not be justified by our
medium-term earnings expectations. In our view, these valuations also could not
compensate investors for the specific risks attached. Some of the most extreme
examples were in the technology sector and in areas of materials and
industrials.
The prospect of rising interest rates, together with awareness that the pace of
economic and earnings growth is likely to slow as we move through this year, has
recently begun to lower investors' risk appetites. While the trend has been
volatile, investors appear to have started to rotate toward higher-quality
companies capable of delivering more sustainable earnings growth, where
valuations are attractive. This has benefited recent performance and we believe
the process has further to run. For that reason, we remain biased toward
higher-quality shares, which we believe offer the best prospects for
appreciation in the coming months.
The fixed income portion of the Portfolio slightly underperformed the Citigroup
index over the six-month period. Within the fixed income portfolio, we
maintained an allocation to bonds with an average duration below that of the
index. With U.S. economic growth expected to remain strong, we maintained a
strategic outlook for rising bond yields. However, weak U.S. employment data
fueled an extended bond rally throughout December and the first quarter of 2004.
Under these conditions, our positioning detracted from relative performance.
Following significantly improved U.S. economic data in April, particularly a
strong employment report, bonds sold off sharply for the remainder of the
period, justifying our short-duration stance and contributing to relative
performance.
Given the lagging performance of the Eurozone economy relative to that of the
United States and the United Kingdom, we expected Eurozone bonds to outperform
on a relative value basis. Therefore, we favored Eurozone bonds over U.S.
Treasury issues and UK gilts for most of the period. On balance, this had a
small positive impact on relative performance. We also felt that the global
economic recovery would keep Japanese bond yields under upward pressure, but any
sell-off would be limited by persistent domestic demand. Ultimately, timely
positions in short-duration securities contributed to relative performance
during the period.
4 MERRILL LYNCH GLOBAL BALANCED FUND MAY 31, 2004
What changes were made to the Portfolio during the period?
We significantly reduced our exposure to equity markets toward a more neutral
position as corporate earnings rose above their mid-cycle levels, equity
valuations became less attractive and global interest rates started to rise.
More recently, we sold our futures exposure to Asia as our global leading
economic indicator decelerated and evidence of a slowdown in China emerged. We
held the proceeds of these sales in cash based on our belief that bond yields
were still below fair value.
Within equities, we made no major changes to our overall strategy. On the
margin, we reduced exposure to mining shares by trimming Rio Tinto PLC and
selling Billiton PLC. Given clear signals from the Chinese government that it
intends to take stronger action to slow its economy, we expect to see commodity
prices weaken from their recent high levels. In Japan, we reduced our
underweight position in the financial sector by initiating positions in two
Japanese regional banks, The Bank of Yokohama, Ltd. and The Hiroshima Bank, Ltd.
We believe they stand to benefit from the recovery in loan demand and possess
more attractive valuations than the large commercial city banks, which remain
overvalued in our view. On a similar theme, we established positions in Japanese
convenience store companies C&S Co., Ltd. and FamilyMart Co., Ltd. Both
companies possess cutting-edge replenishment technologies which, together with a
franchise structure, provides for highly productive stores. The company stocks
had lagged the rally in more cyclical parts of the Japanese retail sector and,
in our view, offer upside potential as consumer spending improves.
Within the fixed income portfolio, we made a strategic move in mid-January out
of U.S. Treasuries and into Eurozone bonds. This reflected our view that
Eurozone economic fundamentals remained relatively supportive of the bond
market. We generally maintained this position for the remainder of the period.
We also held brief underweight positions in Japanese bonds during periods of
rising bond yields. These positions were increased to neutral as yields
retraced.
How would you characterize the Portfolio's position at the close of the period?
We believe that the global economic cycle has moved from a recovery phase to
expansion. In this phase of the cycle, we expect economic and earnings growth to
slow to a more sustainable rate and interest rates to rise. We have positioned
the portfolio accordingly.
Equities remain our preferred asset class, but we expect returns to be driven by
earnings growth rather than rising valuations. As a result, we maintain only
modest overweight positions, focused on higher-quality stocks. Bond yields have
moved closer to fair value but we expect yields to trend higher over coming
months as the Federal Reserve Board starts raising interest rates. Amid these
conditions, we maintain a tactical position in cash, waiting for the most
compelling opportunities to invest.
Richard Turnill
Vice President and Portfolio Manager
June 17, 2004
MERRILL LYNCH GLOBAL BALANCED FUND MAY 31, 2004 5
[LOGO] Merrill Lynch Investment Managers
Performance Data
About Fund Performance
Investors are able to purchase shares of the Fund through multiple pricing
alternatives:
o Class A Shares incur a maximum initial sales charge of 5.25% and an
account maintenance fee of 0.25% (but no distribution fee).
o 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.
o Class C Shares are subject to a distribution fee of 0.75% and an account
maintenance fee of 0.25%. In addition, Class C Shares may be subject to a
1% contingent deferred sales charge if redeemed within one year after
purchase.
o 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.
None of the past results shown should be considered a representation of future
performance. Current performance may be lower or higher than the performance
data quoted. Refer to www.mlim.ml.com to obtain more current performance
information. 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 gain distributions, if any, at net asset value on the
ex-dividend date. Investment return and principal value of shares will fluctuate
so that shares, when redeemed, may be worth more or less than their original
cost. Dividends paid to each class of shares will vary because of the different
levels of account maintenance, distribution and transfer agency fees applicable
to each class, which are deducted from the income available to be paid to
shareholders.
Recent Performance Results
6-Month 12-Month Since Inception
As of May 31, 2004 Total Return Total Return Total Return
========================================================================================================
ML Global Balanced Class A Shares* +4.40% +10.50% - 2.16%
- --------------------------------------------------------------------------------------------------------
ML Global Balanced Class B Shares* +4.04 + 9.73 - 5.85
- --------------------------------------------------------------------------------------------------------
ML Global Balanced Class C Shares* +3.92 + 9.60 - 5.90
- --------------------------------------------------------------------------------------------------------
ML Global Balanced Class I Shares* +4.59 +10.79 - 0.82
- --------------------------------------------------------------------------------------------------------
MSCI World Index** +7.79 +23.60 - 9.33
- --------------------------------------------------------------------------------------------------------
Citigroup Currency-Hedged World Government Bond Index*** +1.29 - 0.99 +29.43
- --------------------------------------------------------------------------------------------------------
Composite Index**** +5.18 +13.25 + 6.15
- --------------------------------------------------------------------------------------------------------
* 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 inception date is 4/30/99.
** This unmanaged market-capitalization weighted Index is comprised of a
representative sampling of stocks of large-, medium- and
small-capitalization companies in 22 countries, including the United
States. Since inception total return is from 4/30/99.
*** This unmanaged market-capitalization weighted Index tracks the performance
of the 18 government bond markets of Australia, Austria, Belgium, Canada,
Denmark, Finland, France, Germany, Ireland, Italy, Japan, the Netherlands,
Portugal, Spain, Sweden, Switzerland, the United Kingdom and the United
States. Since inception total return is from 4/30/99.
**** The Composite Index is comprised of 60% of Morgan Stanley Capital
International World Index and 40% of Citigroup Currency-Hedged World
Government Bond Index. Since inception total return is from 4/30/99.
6 MERRILL LYNCH GLOBAL BALANCED FUND MAY 31, 2004
Performance Data (concluded)
Average Annual Total Return
Return Without Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
One Year Ended 5/31/04 +10.50% +4.70%
- --------------------------------------------------------------------------------
Five Years Ended 5/31/04 + 0.34 -0.74
- --------------------------------------------------------------------------------
Inception (4/30/99)
through 5/31/04 - 0.43 -1.48
- --------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
Return Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
One Year Ended 5/31/04 +9.73% +5.73%
- --------------------------------------------------------------------------------
Five Years Ended 5/31/04 -0.43 -0.81
- --------------------------------------------------------------------------------
Inception (4/30/99)
through 5/31/04 -1.18 -1.36
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 4% and is reduced to 0% after
six years.
** Assuming payment of applicable contingent deferred sales charge.
- --------------------------------------------------------------------------------
Return Return
Without CDSC With CDSC**
================================================================================
Class C Shares*
================================================================================
One Year Ended 5/31/04 +9.60% +8.60%
- --------------------------------------------------------------------------------
Five Years Ended 5/31/04 -0.44 -0.44
- --------------------------------------------------------------------------------
Inception (4/30/99)
through 5/31/04 -1.19 -1.19
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 1% and is reduced to 0% after
one year.
** Assuming payment of applicable contingent deferred sales charge.
- --------------------------------------------------------------------------------
Return Without Return With
Sales Charge Sales Charge**
================================================================================
Class I Shares*
================================================================================
One Year Ended 5/31/04 +10.79% +4.98%
- --------------------------------------------------------------------------------
Five Years Ended 5/31/04 + 0.59 -0.49
- --------------------------------------------------------------------------------
Inception (4/30/99)
through 5/31/04 - 0.16 -1.22
- --------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
MERRILL LYNCH GLOBAL BALANCED FUND MAY 31, 2004 7
[LOGO] Merrill Lynch Investment Managers
Statement of Assets and Liabilities Merrill Lynch Global Balanced Fund
As of May 31, 2004
=======================================================================================================================
Assets
- -----------------------------------------------------------------------------------------------------------------------
Investment in Merrill Lynch Master Global Balanced Portfolio,
at value (identified cost--$108,599,765) ...................... $ 123,150,939
-------------
Total assets ................................................... 123,150,939
-------------
=======================================================================================================================
Liabilities
- -----------------------------------------------------------------------------------------------------------------------
Payables:
Distributor ................................................. $ 89,819
Other affiliates ............................................ 30,302
Administrative fees ......................................... 18,967 139,088
-----------
Accrued expenses ............................................... 20,089
-------------
Total liabilities .............................................. 159,177
-------------
=======================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------
Net assets ..................................................... $ 122,991,762
=============
=======================================================================================================================
Net Assets Consist of
- -----------------------------------------------------------------------------------------------------------------------
Class A Shares of Common Stock, $.0001 par value, 100,000,000
shares authorized ............................................. $ 66
Class B Shares of Common Stock, $.0001 par value, 100,000,000
shares authorized ............................................. 910
Class C Shares of Common Stock, $.0001 par value, 100,000,000
shares authorized ............................................. 364
Class I Shares of Common Stock, $.0001 par value, 100,000,000
shares authorized ............................................. 21
Paid-in capital in excess of par ............................... 165,525,258
Undistributed investment income--net ........................... $ 300,721
Accumulated realized capital losses on investments and foreign
currency transactions allocated from the Portfolio--net ....... (57,386,752)
Unrealized appreciation on investments and foreign currency
transactions allocated from the Portfolio--net ................ 14,551,174
-----------
Total accumulated losses--net .................................. (42,534,857)
-------------
Net Assets ..................................................... $ 122,991,762
=============
=======================================================================================================================
Net Asset Value
- -----------------------------------------------------------------------------------------------------------------------
Class A--Based on net assets of $6,102,746 and 658,738 shares
outstanding ................................................... $ 9.26
=============
Class B--Based on net assets of $82,080,087 and 9,101,081 shares
outstanding ................................................... $ 9.02
=============
Class C--Based on net assets of $32,886,669 and 3,644,444 shares
outstanding ................................................... $ 9.02
=============
Class I--Based on net assets of $1,922,260 and 205,863 shares
outstanding ................................................... $ 9.34
=============
See Notes to Financial Statements.
8 MERRILL LYNCH GLOBAL BALANCED FUND MAY 31, 2004
Statement of Operations Merrill Lynch Global Balanced Fund
For the Six Months Ended May 31, 2004
=======================================================================================================================
Investment Income Allocated from the Portfolio--Net
- -----------------------------------------------------------------------------------------------------------------------
Investment income allocated from the Portfolio:
Dividends (net of $81,653 foreign withholding tax) .......... $ 991,291
Interest (including $31,956 from affiliates) ................ 506,649
Expenses .................................................... (579,059)
-------------
Net investment income allocated from the Portfolio ............. 918,881
-------------
=======================================================================================================================
Expenses
- -----------------------------------------------------------------------------------------------------------------------
Account maintenance and distribution fees--Class B ............. $ 452,785
Account maintenance and distribution fees--Class C ............. 177,137
Administration fees ............................................ 135,151
Transfer agent fees--Class B ................................... 73,267
Registration fees .............................................. 52,167
Printing and shareholder reports ............................... 44,736
Transfer agent fees--Class C ................................... 29,454
Professional fees .............................................. 28,609
Account maintenance fees--Class A .............................. 8,839
Transfer agent fees--Class A ................................... 4,986
Transfer agent fees--Class I ................................... 1,481
Other .......................................................... 14,062
-----------
Total expenses ................................................. 1,022,674
-------------
Investment loss--net ........................................... (103,793)
-------------
=======================================================================================================================
Realized & Unrealized Gain (Loss) on Investments and Foreign Currency Transactions Allocated from the Portfolio--Net
- -----------------------------------------------------------------------------------------------------------------------
Realized gain (loss) allocated from the Portfolio on:
Investments--net ............................................ 6,364,103
Foreign currency transactions--net .......................... (1,353,104) 5,010,999
-----------
Change in unrealized appreciation/depreciation on investments
and foreign currency transactions allocated from the Portfolio--net 974,734
-------------
Total realized and unrealized gain on investments and foreign
currency transactions allocated from the Portfolio--net ....... 5,985,733
-------------
Net Increase in Net Assets Resulting from Operations ........... $ 5,881,940
=============
See Notes to Financial Statements.
MERRILL LYNCH GLOBAL BALANCED FUND MAY 31, 2004 9
[LOGO] Merrill Lynch Investment Managers
Statements of Changes in Net Assets Merrill Lynch Global Balanced Fund
For the Six For the
Months Ended Year Ended
May 31, November 30,
Increase (Decrease) in Net Assets: 2004 2003
=======================================================================================================================
Operations
- -----------------------------------------------------------------------------------------------------------------------
Investment income (loss)--net .................................. $ (103,793) $ 231,281
Realized gain on investments and foreign currency transactions
allocated from the Portfolio--net ............................. 5,010,999 935,119
Change in unrealized appreciation/depreciation on investments
and foreign currency transactions allocated from the
Portfolio--net ................................................ 974,734 12,195,868
----------------------------
Net increase in net assets resulting from operations ........... 5,881,940 13,362,268
----------------------------
=======================================================================================================================
Capital Share Transactions
- -----------------------------------------------------------------------------------------------------------------------
Net decrease in net assets derived from capital share transactions (25,569,995) (45,999,568)
----------------------------
=======================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------
Total decrease in net assets ................................... (19,688,055) (32,637,300)
Beginning of period ............................................ 142,679,817 175,317,117
----------------------------
End of period* ................................................. $122,991,762 $ 142,679,817
============================
* Undistributed investment income--net ........................ $ 300,721 $ 404,514
============================
See Notes to Financial Statements.
10 MERRILL LYNCH GLOBAL BALANCED FUND MAY 31, 2004
Financial Highlights Merrill Lynch Global Balanced Fund
Class A
-------------------------------------------------------------------
The following per share data and ratios have been derived For the Six For the Year Ended
from information provided in the financial statements. Months Ended November 30,++
May 31, ----------------------------------------------------
Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001 2000
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.87 $ 8.05 $ 8.62 $ 9.99 $ 10.78
-------------------------------------------------------------------
Investment income--net*** .......... .02 .07 .02 .14 .13
Realized and unrealized gain (loss)
on investments and foreign currency
transactions allocated from the
Portfolio--net .................... .37 .75 (.59) (1.14) (.73)
-------------------------------------------------------------------
Total from investment operations ... .39 .82 (.57) (1.00) (.60)
-------------------------------------------------------------------
Less dividends from:
Investment income--net .......... -- -- -- (.36) (.12)
In excess of investment
income--net .................... -- -- -- (.01) (.07)
-------------------------------------------------------------------
Total dividends .................... -- -- -- (.37) (.19)
-------------------------------------------------------------------
Net asset value, end of period ..... $ 9.26 $ 8.87 $ 8.05 $ 8.62 $ 9.99
===================================================================
==================================================================================================================================
Total Investment Return**
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share . 4.40%@ 10.19% (6.61%) (10.36%) (5.75%)
===================================================================
==================================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses+ .......................... 1.66%* 1.48% 1.45% 1.30% 1.26%
===================================================================
Investment income--net ............. .54%* .86% 1.05% 1.49% 1.19%
===================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) .................... $ 6,103 $ 8,501 $ 10,514 $ 17,510 $ 28,854
===================================================================
Portfolio turnover of the Merrill
Lynch Master Global Balanced
Portfolio ......................... 70.04% 158.02% 128.22% 116.69% 117.12%
===================================================================
* Annualized.
** Total investment returns exclude the effect of sales charges.
*** Based on average shares outstanding.
+ Includes the Fund's share of the Portfolio's allocated expenses.
++ Effective April 14, 2003, Class D Shares were redesignated Class A Shares.
@ Aggregate total investment return.
See Notes to Financial Statements.
MERRILL LYNCH GLOBAL BALANCED FUND MAY 31, 2004 11
[LOGO] Merrill Lynch Investment Managers
Financial Highlights (continued) Merrill Lynch Global Balanced Fund
Class B
-------------------------------------------------------------------
The following per share data and ratios have been derived For the Six For the Year Ended
from information provided in the financial statements. Months Ended November 30,
May 31, ----------------------------------------------------
Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001 2000
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.67 $ 7.92 $ 8.56 $ 9.91 $ 10.73
-------------------------------------------------------------------
Investment income (loss)--net*** ... (.01) .01 .03 .07 .05
Realized and unrealized gain (loss)
on investments and foreign currency
transactions allocated from the
Portfolio--net .................... .36 .74 (.67) (1.13) (.73)
-------------------------------------------------------------------
Total from investment operations ... .35 .75 (.64) (1.06) (.68)
-------------------------------------------------------------------
Less dividends from:
Investment income--net .......... -- -- -- (.28) (.09)
In excess of investment
income--net .................... -- -- -- (.01) (.05)
-------------------------------------------------------------------
Total dividends .................... -- -- -- (.29) (.14)
-------------------------------------------------------------------
Net asset value, end of period ..... $ 9.02 $ 8.67 $ 7.92 $ 8.56 $ 9.91
===================================================================
==================================================================================================================================
Total Investment Return**
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share . 4.04%@ 9.47% (7.48%) (10.99%) (6.44%)
===================================================================
==================================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses+ .......................... 2.42%* 2.25% 2.22% 2.07% 2.02%
===================================================================
Investment income (loss)--net ...... (.21%)* .08% .29% .72% .43%
===================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) .................... $ 82,080 $ 94,984 $115,151 $171,223 $236,313
===================================================================
Portfolio turnover of the Merrill
Lynch Master Global Balanced
Portfolio ......................... 70.04% 158.02% 128.22% 116.69% 117.12%
===================================================================
* Annualized.
** Total investment returns exclude the effect of sales charges.
*** Based on average shares outstanding.
+ Includes the Fund's share of the Portfolio's allocated expenses.
@ Aggregate total investment return.
See Notes to Financial Statements.
12 MERRILL LYNCH GLOBAL BALANCED FUND MAY 31, 2004
Financial Highlights (continued) Merrill Lynch Global Balanced Fund
Class C
-------------------------------------------------------------------
The following per share data and ratios have been derived For the Six For the Year Ended
from information provided in the financial statements. Months Ended November 30,
May 31, ----------------------------------------------------
Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001 2000
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.68 $ 7.93 $ 8.56 $ 9.90 $ 10.73
-------------------------------------------------------------------
Investment income (loss)--net*** ... (.01) .01 .03 .07 .05
Realized and unrealized gain (loss)
on investments and foreign currency
transactions allocated from the
Portfolio--net .................... .35 .74 (.66) (1.12) (.74)
-------------------------------------------------------------------
Total from investment operations ... .34 .75 (.63) (1.05) (.69)
-------------------------------------------------------------------
Less dividends from:
Investment income--net .......... -- -- -- (.28) (.09)
In excess of investment
income--net .................... -- -- -- (.01) (.05)
-------------------------------------------------------------------
Total dividends .................... -- -- -- (.29) (.14)
-------------------------------------------------------------------
Net asset value, end of period ..... $ 9.02 $ 8.68 $ 7.93 $ 8.56 $ 9.90
===================================================================
==================================================================================================================================
Total Investment Return**
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share . 3.92%@ 9.46% (7.36%) (10.97%) (6.52%)
===================================================================
==================================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses+ .......................... 2.42%* 2.26% 2.22% 2.07% 2.02%
===================================================================
Investment income (loss)--net ...... (.21%)* .08% .28% .72% .43%
===================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) .................... $ 32,887 $ 36,804 $ 46,302 $ 73,805 $116,277
===================================================================
Portfolio turnover of the Merrill
Lynch Master Global Balanced
Portfolio ......................... 70.04% 158.02% 128.22% 116.69% 117.12%
===================================================================
* Annualized.
** Total investment returns exclude the effect of sales charges.
*** Based on average shares outstanding.
+ Includes the Fund's share of the Portfolio's allocated expenses.
@ Aggregate total investment return.
See Notes to Financial Statements.
MERRILL LYNCH GLOBAL BALANCED FUND MAY 31, 2004 13
[LOGO] Merrill Lynch Investment Managers
Financial Highlights (concluded) Merrill Lynch Global Balanced Fund
Class I
-------------------------------------------------------------------
The following per share data and ratios have been derived For the Six For the Year Ended
from information provided in the financial statements. Months Ended November 30,++
May 31, ----------------------------------------------------
Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001 2000
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.93 $ 8.08 $ 8.64 $ 10.01 $ 10.80
-------------------------------------------------------------------
Investment income--net*** .......... .04 .09 .11 .16 .16
Realized and unrealized gain (loss)
on investments and foreign currency
transactions allocated from the
Portfolio--net .................... .37 .76 (.67) (1.12) (.75)
-------------------------------------------------------------------
Total from investment operations ... .41 .85 (.56) (.96) (.59)
-------------------------------------------------------------------
Less dividends from:
Investment income--net .......... -- -- -- (.40) (.12)
In excess of investment
income--net .................... -- -- -- (.01) (.08)
-------------------------------------------------------------------
Total dividends .................... -- -- -- (.41) (.20)
-------------------------------------------------------------------
Net asset value, end of period ..... $ 9.34 $ 8.93 $ 8.08 $ 8.64 $ 10.01
===================================================================
==================================================================================================================================
Total Investment Return**
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share . 4.59%@ 10.52% (6.48%) (10.01%) (5.60%)
===================================================================
==================================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses+ .......................... 1.41%* 1.23% 1.20% 1.05% 1.01%
===================================================================
Investment income--net ............. .79%* 1.10% 1.30% 1.74% 1.44%
===================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) .................... $ 1,922 $ 2,391 $ 3,350 $ 5,549 $ 9,312
===================================================================
Portfolio turnover of the Merrill
Lynch Master Global Balanced
Portfolio ......................... 70.04% 158.02% 128.22% 116.69% 117.12%
===================================================================
* Annualized.
** Total investment returns exclude the effect of sales charges.
*** Based on average shares outstanding.
+ Includes the Fund's share of the Portfolio's allocated expenses.
++ Effective April 14, 2003, Class A Shares were redesignated Class I Shares.
@ Aggregate total investment return.
See Notes to Financial Statements.
14 MERRILL LYNCH GLOBAL BALANCED FUND MAY 31, 2004
Notes to Financial Statements Merrill Lynch Global Balanced Fund
1. Significant Accounting Policies:
Merrill Lynch Global Balanced Fund (the "Fund") is part of Mercury Funds, Inc.
(the "Corporation"). The Fund is registered under the Investment Company Act of
1940, as amended, as a diversified, open-end management investment company. The
Fund seeks to achieve its investment objective by investing all of its assets in
the Merrill Lynch Master Global Balanced Portfolio (the "Portfolio") (formerly
Mercury Master Global Balanced Portfolio) of Mercury Master Trust (the "Trust"),
which has the same investment objective as the Fund. The value of the Fund's
investment in the Portfolio reflects the Fund's proportionate interest in the
net assets of the Portfolio. The performance of the Fund is directly affected by
the performance of the Portfolio. The financial statements of the Portfolio,
including the Schedule of Investments, are included elsewhere in this report and
should be read in conjunction with the Fund's financial statements. The Fund's
financial statements are prepared in conformity with U.S. generally accepted
accounting principles, which may require the use of management accruals and
estimates. Actual results may differ from these 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
percentage of the Portfolio owned by the Fund at May 31, 2004 was 100%. The Fund
offers multiple classes of shares. Class A and Class I 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 -- The Fund records its investment in the Portfolio
at fair value. Valuation of securities held by the Portfolio is discussed in
Note 1a of the Portfolio's Notes to Financial Statements, which are included
elsewhere in this report.
(b) Investment income and expenses -- The Fund records daily its proportionate
share of the Portfolio's income, expenses and realized and unrealized gains and
losses. In addition, the Fund accrues its own expenses.
(c) Income taxes -- It is the Fund's policy to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders. Therefore,
no Federal income tax provision is required. Under the applicable foreign tax
law, withholding taxes may be imposed on interest, dividends and capital gains
at various rates.
(d) Prepaid registration fees -- Prepaid registration fees are charged to
expense as the related shares are issued.
(e) Dividends and distributions -- Dividends and distributions paid by the Fund
are recorded on the ex-dividend dates.
(f) Investment transactions -- Investment transactions in the Portfolio are
accounted for on a trade date basis.
2. Transactions with Affiliates:
The Corporation has entered into an Administration Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), a wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."),
which is the limited partner. The Fund pays a monthly fee at an annual rate of
..20% of the Fund's average daily net assets for the performance of
administrative services (other than investment advice and related portfolio
activities) necessary for the operation of the Fund.
The Corporation has also entered into a Distribution Agreement and Distribution
Plans with FAM Distributors, Inc. ("FAMD" or the "Distributor"), a wholly-owned
subsidiary of Merrill Lynch Group, Inc. Pursuant to the Distribution Plans
adopted by the Corporation in accordance with Rule 12b-1
MERRILL LYNCH GLOBAL BALANCED FUND MAY 31, 2004 15
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements (continued) Merrill Lynch Global Balanced Fund
under the Investment Company Act of 1940, the Fund pays the Distributor ongoing
account maintenance and distribution fees. The fees are accrued daily and paid
monthly at annual rates based upon the average daily net assets of the shares as
follows:
- --------------------------------------------------------------------------------
Account Distribution
Maintenance Fee Fee
- --------------------------------------------------------------------------------
Class A ................................ .25% --
Class B ................................ .25% .75%
Class C ................................ .25% .75%
- --------------------------------------------------------------------------------
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("MLPF&S"), a subsidiary of ML & Co., also provides account
maintenance and distribution services to the Fund. The ongoing account
maintenance fee compensates the Distributor and MLPF&S for providing account
maintenance services to Class A, Class B and Class C shareholders. The ongoing
distribution fee compensates the Distributor and MLPF&S for providing
shareholder and distribution-related services to Class B and Class C
shareholders.
For the six months ended May 31, 2004, FAMD earned underwriting discounts and
MLPF&S earned dealer concessions on sales of the Fund's Class A and Class I
Shares as follows:
- --------------------------------------------------------------------------------
FAMD MLPF&S
- --------------------------------------------------------------------------------
Class A .................................. $ 2 $37
Class I .................................. -- $ 6
- --------------------------------------------------------------------------------
For the six months ended May 31, 2004, MLPF&S received contingent deferred sales
charges of $227,366 and $101 relating to transactions in Class B and Class C
Shares, respectively.
Financial Data Services, Inc. ("FDS"), an indirect, wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
Certain officers and/or directors of the Corporation are officers and/or
directors or trustees of the Trust, FAM, PSI, FAMD, FDS, and/or ML & Co.
3. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions were
$25,569,995 and $45,999,568 for the six months ended May 31, 2004 and for the
year ended November 30, 2003, respectively.
Transactions in capital shares for each class were as follows:
- --------------------------------------------------------------------------------
Class A Shares for the Six Dollar
Months Ended May 31, 2004 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 5,888 $ 54,389
Automatic conversion of shares ......... 4,857 45,746
------------------------------
Total issued ........................... 10,745 100,135
Shares redeemed ........................ (310,116) (2,869,762)
------------------------------
Net decrease ........................... (299,371) $ (2,769,627)
==============================
- --------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended November 30, 2003 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 102,556 $ 838,553
Automatic conversion of shares ......... 1,839 14,807
------------------------------
Total issued ........................... 104,395 853,360
Shares redeemed ........................ (453,144) (3,747,183)
------------------------------
Net decrease ........................... (348,749) $ (2,893,823)
==============================
- --------------------------------------------------------------------------------
Class B Shares for the Six Dollar
Months Ended May 31, 2004 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 29,899 $ 270,620
Shares redeemed ........................ (1,878,807) (17,030,658)
Automatic conversion of shares ......... (4,978) (45,746)
------------------------------
Net decrease ........................... (1,853,886) $(16,805,784)
==============================
- --------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended November 30, 2003 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 176,301 $ 1,417,265
Shares redeemed ........................ (3,753,727) (30,384,796)
Automatic conversion of shares ......... (1,870) (14,807)
------------------------------
Net decrease ........................... (3,579,296) $(28,982,338)
==============================
- --------------------------------------------------------------------------------
Class C Shares for the Six Dollar
Months Ended May 31, 2004 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 29,756 $ 271,072
Shares redeemed ........................ (627,649) (5,690,598)
------------------------------
Net decrease ........................... (597,893) $ (5,419,526)
==============================
16 MERRILL LYNCH GLOBAL BALANCED FUND MAY 31, 2004
Notes to Financial Statements (concluded) Merrill Lynch Global Balanced Fund
- --------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended November 30, 2003 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 72,275 $ 587,508
Shares redeemed ........................ (1,670,439) (13,516,159)
------------------------------
Net decrease ........................... (1,598,164) $(12,928,651)
==============================
- --------------------------------------------------------------------------------
Class I Shares for the Six Dollar
Months Ended May 31, 2004 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 4,466 $ 41,826
Shares redeemed ........................ (66,303) (616,884)
------------------------------
Net decrease ........................... (61,837) $ (575,058)
==============================
- --------------------------------------------------------------------------------
Class I Shares for the Year Dollar
Ended November 30, 2003 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 88,269 $ 722,246
Shares redeemed ........................ (235,292) (1,917,002)
------------------------------
Net decrease ........................... (147,023) $ (1,194,756)
==============================
4. Capital Loss Carryforward:
On November 30, 2003, the Fund had a net capital loss carryforward of
$59,855,568, of which $1,903,631 expires in 2007, $34,109,101 expires in 2009,
$21,947,452 expires in 2010 and $1,895,384 expires in 2011. This amount will be
available to offset like amounts of any future taxable gains.
5. Plan of Reorganization:
On November 11, 2003, the Fund's Board of Directors unanimously approved a plan
of reorganization, subject to certain conditions, whereby (i) the Fund will
acquire substantially all of the assets and assume substantially all of the
liabilities of the Portfolio in exchange for all of the Fund's beneficial
interests in the Portfolio and (ii) Merrill Lynch Global Allocation Fund, Inc.
("Global Allocation") will acquire substantially all of the assets and assume
substantially all of the liabilities of the Fund, in exchange for newly issued
shares of common stock of Global Allocation.
MERRILL LYNCH GLOBAL BALANCED FUND MAY 31, 2004 17
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments Merrill Lynch Master Global Balanced Portfolio
Value Percent of
Europe Industry@ Shares Held Common Stocks (in U.S. dollars) Net Assets
====================================================================================================================================
Finland Machinery 6,560 Kone Corporation 'B' $ 378,107 0.3%
----------------------------------------------------------------------------------------------------------------
Paper & Forest 36,000 Stora Enso Oyj 'R' 467,310 0.4
Products 25,400 UPM-Kymmene Oyj 455,953 0.4
--------------------------
923,263 0.8
----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Finland 1,301,370 1.1
====================================================================================================================================
France Chemicals 3,000 Air Liquide 526,072 0.4
----------------------------------------------------------------------------------------------------------------
Commercial Banks 14,827 BNP Paribas SA 905,300 0.7
----------------------------------------------------------------------------------------------------------------
Diversified 18,300 France Telecom SA 440,013 0.4
Telecommunication Services
----------------------------------------------------------------------------------------------------------------
Insurance 25,200 Axa 516,986 0.4
----------------------------------------------------------------------------------------------------------------
Oil & Gas 4,300 TotalFinaElf SA 807,070 0.7
----------------------------------------------------------------------------------------------------------------
Pharmaceuticals 4,500 Aventis SA 356,912 0.3
8,100 Sanofi-Synthelabo SA 535,120 0.4
--------------------------
892,032 0.7
----------------------------------------------------------------------------------------------------------------
Total Common Stocks in France 4,087,473 3.3
====================================================================================================================================
Germany Commercial Banks 14,600 +Bayerische Hypo- und Vereinsbank AG 246,751 0.2
----------------------------------------------------------------------------------------------------------------
Diversified Financial 5,500 Deutsche Boerse AG 293,168 0.2
Services
----------------------------------------------------------------------------------------------------------------
Electric Utilities 6,100 E.On AG 422,732 0.4
----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Germany 962,651 0.8
====================================================================================================================================
Ireland Commercial Banks 49,500 Allied Irish Banks PLC 710,252 0.6
39,500 Bank of Ireland 476,566 0.4
----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Ireland 1,186,818 1.0
====================================================================================================================================
Italy Commercial Banks 35,700 Banca Intesa SpA 97,653 0.1
363,492 Intesa BCI SpA 1,305,002 1.1
118,600 Unicredito Italiano SpA 554,693 0.4
--------------------------
1,957,348 1.6
----------------------------------------------------------------------------------------------------------------
Oil & Gas 37,200 ENI SpA 758,173 0.6
----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Italy 2,715,521 2.2
====================================================================================================================================
Netherlands Air Freight & Logistics 30,200 TNT Post Group NV 679,306 0.6
----------------------------------------------------------------------------------------------------------------
Commercial Banks 13,814 ABN AMRO BANK 294,364 0.2
----------------------------------------------------------------------------------------------------------------
Diversified Financial 15,100 Euronext NV 431,481 0.3
Services 15,100 ING Groep NV 340,760 0.3
--------------------------
772,241 0.6
----------------------------------------------------------------------------------------------------------------
Oil & Gas 10,100 Royal Dutch Petroleum Company 505,678 0.4
----------------------------------------------------------------------------------------------------------------
Total Common Stocks in the
Netherlands 2,251,589 1.8
====================================================================================================================================
Spain Diversified 41,400 Telefonica SA 600,601 0.5
Telecommunication Services
----------------------------------------------------------------------------------------------------------------
Tobacco 13,900 Altadis, SA 425,368 0.3
----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Spain 1,025,969 0.8
====================================================================================================================================
Sweden Building Products 26,200 Assa Abloy AB 'B' 303,987 0.2
----------------------------------------------------------------------------------------------------------------
Machinery 13,800 SKF AB 'B' 503,484 0.4
----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Sweden 807,471 0.6
================================================================================================================
18 MERRILL LYNCH GLOBAL BALANCED FUND MAY 31, 2004
Schedule of Investments (continued)
Merrill Lynch Master Global Balanced Portfolio
Europe Value Percent of
(concluded) Industry@ Shares Held Common Stocks (in U.S. dollars) Net Assets
====================================================================================================================================
Switzerland Capital Markets 17,900 Credit Suisse Group $ 614,314 0.5%
----------------------------------------------------------------------------------------------------------------
Construction Materials 16,314 Holderbank Finan Glaris Ltd.
(Registered Shares) 849,254 0.7
----------------------------------------------------------------------------------------------------------------
Food Products 3,130 Nestle SA (Registered Shares) 813,441 0.7
----------------------------------------------------------------------------------------------------------------
Insurance 10,900 Swiss Re (Registered Shares) 676,036 0.6
----------------------------------------------------------------------------------------------------------------
Machinery 1,358 Schindler Holding AG 387,567 0.3
----------------------------------------------------------------------------------------------------------------
Pharmaceuticals 20,300 Novartis AG (Registered Shares) 909,487 0.7
----------------------------------------------------------------------------------------------------------------
Total Common Stocks in
Switzerland 4,250,099 3.5
====================================================================================================================================
United Kingdom Beverages 55,200 Diageo PLC 732,734 0.6
----------------------------------------------------------------------------------------------------------------
Commercial Banks 123,000 Barclays PLC 1,072,320 0.9
27,400 Royal Bank of Scotland Group PLC 827,395 0.7
--------------------------
1,899,715 1.6
----------------------------------------------------------------------------------------------------------------
Commercial 61,500 Bunzl PLC 517,555 0.4
Services & Supplies
----------------------------------------------------------------------------------------------------------------
Food & Staples Retailing 100,200 Tesco PLC 457,442 0.4
----------------------------------------------------------------------------------------------------------------
Household Durables 12,600 Barratt Developments PLC 132,371 0.1
15,400 The Berkeley Group PLC 260,328 0.2
--------------------------
392,699 0.3
----------------------------------------------------------------------------------------------------------------
Household Products 19,100 Reckitt Benckiser PLC 517,579 0.4
----------------------------------------------------------------------------------------------------------------
Industrial Conglomerates 56,100 Smiths Group PLC 717,424 0.6
----------------------------------------------------------------------------------------------------------------
Media 36,850 British Sky Broadcasting Group
PLC ("BSkyB") 414,497 0.3
25,024 Johnston Press PLC 250,850 0.2
107,100 Reed Elsevier NV 1,032,866 0.9
--------------------------
1,698,213 1.4
----------------------------------------------------------------------------------------------------------------
Metals & Mining 6,700 Rio Tinto PLC (Registered Shares) 161,413 0.1
----------------------------------------------------------------------------------------------------------------
Multi-Utilities & 105,000 National Grid Group PLC 832,134 0.7
Unregulated Power
----------------------------------------------------------------------------------------------------------------
Oil & Gas 86,300 BG Group PLC 525,313 0.4
180,400 BP Amoco PLC 1,580,179 1.3
--------------------------
2,105,492 1.7
----------------------------------------------------------------------------------------------------------------
Pharmaceuticals 17,300 AstraZeneca Group PLC 805,972 0.7
----------------------------------------------------------------------------------------------------------------
Tobacco 22,900 Imperial Tobacco Group PLC 509,710 0.4
----------------------------------------------------------------------------------------------------------------
Transportation Infrastructure 53,300 BAA PLC 531,612 0.4
----------------------------------------------------------------------------------------------------------------
Wireless 323,700 Vodafone Group PLC 761,148 0.6
Telecommunication Services
----------------------------------------------------------------------------------------------------------------
Total Common Stocks in the
United Kingdom 12,640,842 10.3
================================================================================================================
Total Common Stocks in Europe 31,229,803 25.4
================================================================================================================
North America
====================================================================================================================================
Canada Food & Staples Retailing 28,700 +Shoppers Drug Mart Corporation 675,752 0.6
----------------------------------------------------------------------------------------------------------------
Oil & Gas 10,900 Suncor Energy, Inc. 256,405 0.2
21,100 Talisman Energy Inc. 415,630 0.3
--------------------------
672,035 0.5
----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Canada 1,347,787 1.1
================================================================================================================
MERRILL LYNCH GLOBAL BALANCED FUND MAY 31, 2004 19
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments (continued)
Merrill Lynch Master Global Balanced Portfolio
North
America Value Percent of
(continued) Industry@ Shares Held Common Stocks (in U.S. dollars) Net Assets
====================================================================================================================================
United States Aerospace & Defense 3,400 The Boeing Company $ 155,720 0.1%
11,100 United Technologies Corporation 939,171 0.8
--------------------------
1,094,891 0.9
----------------------------------------------------------------------------------------------------------------
Beverages 5,200 The Coca-Cola Company 267,020 0.2
18,900 PepsiCo, Inc. 1,008,693 0.8
--------------------------
1,275,713 1.0
----------------------------------------------------------------------------------------------------------------
Biotechnology 6,200 +Amgen Inc. 339,140 0.3
----------------------------------------------------------------------------------------------------------------
Capital Markets 8,500 The Bank of New York
Company, Inc. 255,595 0.2
6,100 The Goldman Sachs Group, Inc. 572,851 0.5
14,200 Morgan Stanley 759,842 0.6
--------------------------
1,588,288 1.3
----------------------------------------------------------------------------------------------------------------
Chemicals 37,700 Praxair, Inc. 1,394,523 1.1
----------------------------------------------------------------------------------------------------------------
Commercial Banks 21,700 National City Corporation 770,133 0.6
31,700 U.S. Bancorp 890,770 0.7
19,300 Wachovia Corporation 911,153 0.7
5,400 Wells Fargo & Company 317,520 0.3
--------------------------
2,889,576 2.3
----------------------------------------------------------------------------------------------------------------
Commercial 8,200 +ChoicePoint Inc. 354,650 0.3
Services & Supplies
----------------------------------------------------------------------------------------------------------------
Communications Equipment 13,300 +Cisco Systems, Inc. 294,595 0.2
----------------------------------------------------------------------------------------------------------------
Computers & Peripherals 26,100 +Dell Inc. 918,198 0.7
13,900 International Business Machines
Corporation 1,231,401 1.0
2,700 +Lexmark International Group,
Inc. (Class A) 254,664 0.2
--------------------------
2,404,263 1.9
----------------------------------------------------------------------------------------------------------------
Consumer Finance 33,400 MBNA Corporation 848,360 0.7
----------------------------------------------------------------------------------------------------------------
Diversified Financial 25,500 Citigroup Inc. 1,183,965 0.9
Services 9,800 The Principal Financial Group, Inc. 342,510 0.3
--------------------------
1,526,475 1.2
----------------------------------------------------------------------------------------------------------------
Food & Staples Retailing 7,900 Wal-Mart Stores, Inc. 440,267 0.4
----------------------------------------------------------------------------------------------------------------
Health Care 5,200 Medtronic, Inc. 249,080 0.2
Equipment & Supplies
----------------------------------------------------------------------------------------------------------------
Health Care 13,100 +Medco Health Solutions, Inc. 458,893 0.4
Providers & Services 2,200 +WellPoint Health Networks Inc. 245,388 0.2
--------------------------
704,281 0.6
----------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & 11,200 +Brinker International, Inc. 413,952 0.3
Leisure 22,300 International Game Technology 876,390 0.7
8,803 Outback Steakhouse, Inc. 373,687 0.3
--------------------------
1,664,029 1.3
----------------------------------------------------------------------------------------------------------------
Household Durables 14,200 D.R. Horton, Inc. 410,380 0.3
6,000 Pulte Corporation 316,500 0.3
--------------------------
726,880 0.6
----------------------------------------------------------------------------------------------------------------
Household Products 5,900 The Procter & Gamble Company 636,138 0.5
----------------------------------------------------------------------------------------------------------------
Industrial 12,600 General Electric Company 392,112 0.3
Conglomerates 51,100 Tyco International Ltd. 1,573,369 1.3
--------------------------
1,965,481 1.6
----------------------------------------------------------------------------------------------------------------
Information Technology Services 8,300 First Data Corporation 359,307 0.3
----------------------------------------------------------------------------------------------------------------
Insurance 6,000 Ambac Financial Group, Inc. 414,900 0.3
7,000 American International Group,
Inc. 513,100 0.4
7,000 Assurant, Inc. 175,700 0.2
--------------------------
1,103,700 0.9
20 MERRILL LYNCH GLOBAL BALANCED FUND MAY 31, 2004
Schedule of Investments (continued)
Merrill Lynch Master Global Balanced Portfolio
North America Value Percent of
(concluded) Industry@ Shares Held Common Stocks (in U.S. dollars) Net Assets
====================================================================================================================================
United States Machinery 7,700 ITT Industries, Inc. $ 620,235 0.5%
(concluded) ----------------------------------------------------------------------------------------------------------------
Media 11,200 Clear Channel Communications,
Inc. 444,640 0.4
10,200 Gannett Co., Inc. 895,560 0.7
10,900 The McGraw-Hill Companies, Inc. 849,328 0.7
9,670 Omnicom Group Inc. 772,343 0.6
26,600 +Time Warner Inc. 453,264 0.4
26,100 Viacom, Inc. (Class B) 962,829 0.8
--------------------------
4,377,964 3.6
----------------------------------------------------------------------------------------------------------------
Oil & Gas 5,900 Devon Energy Corporation 350,224 0.3
42,600 Exxon Mobil Corporation 1,842,450 1.5
--------------------------
2,192,674 1.8
----------------------------------------------------------------------------------------------------------------
Personal Products 20,800 The Estee Lauder Companies Inc.
(Class A) 952,432 0.8
----------------------------------------------------------------------------------------------------------------
Pharmaceuticals 14,170 Abbott Laboratories 583,946 0.5
60,100 Pfizer, Inc. 2,123,934 1.7
13,000 Wyeth 468,000 0.4
--------------------------
3,175,880 2.6
----------------------------------------------------------------------------------------------------------------
Semiconductors & 22,800 Intel Corporation 650,940 0.5
Semiconductor Equipment
----------------------------------------------------------------------------------------------------------------
Software 27,150 +Amdocs Limited 670,062 0.5
77,700 Microsoft Corporation 2,047,395 1.7
41,300 +Oracle Corporation 467,516 0.4
--------------------------
3,184,973 2.6
----------------------------------------------------------------------------------------------------------------
Specialty Retail 13,000 Lowe's Companies, Inc. 696,410 0.6
----------------------------------------------------------------------------------------------------------------
Thrifts & Mortgage 16,950 Countrywide Credit Industries,
Finance Inc. 1,093,275 0.9
24,500 Fannie Mae 1,658,650 1.3
24,160 Freddie Mac 1,410,702 1.2
--------------------------
4,162,627 3.4
----------------------------------------------------------------------------------------------------------------
Tobacco 10,200 Altria Group, Inc. 489,294 0.4
----------------------------------------------------------------------------------------------------------------
Trading Companies & 7,000 W. W. Grainger, Inc. 381,150 0.3
Distributors
----------------------------------------------------------------------------------------------------------------
Total Common Stocks in the
United States 42,744,216 34.7
================================================================================================================
Total Common Stocks in North
America 44,092,003 35.8
================================================================================================================
Pacific Basin/Asia
====================================================================================================================================
Japan Automobiles 4,100 Honda Motor Co., Ltd. 176,575 0.2
41,300 Nissan Motor Co., Ltd. 416,643 0.3
23,500 Toyota Motor Corporation 850,486 0.7
--------------------------
1,443,704 1.2
----------------------------------------------------------------------------------------------------------------
Capital Markets 27,000 Daiwa Securities Group Inc. 188,591 0.2
----------------------------------------------------------------------------------------------------------------
Chemicals 6,500 Shin-Etsu Chemical Co., Ltd. 227,596 0.2
----------------------------------------------------------------------------------------------------------------
Commercial Banks 45,000 The Bank of Yokohama, Ltd. 256,503 0.2
38,000 The Hiroshima Bank, Ltd. 169,844 0.1
27 Sumitomo Mitsui Financial
Group, Inc. 193,477 0.2
--------------------------
619,824 0.5
----------------------------------------------------------------------------------------------------------------
Construction & Engineering 39,000 Obayashi Corporation 186,311 0.1
----------------------------------------------------------------------------------------------------------------
Consumer Finance 2,100 Orix Corporation 212,993 0.2
----------------------------------------------------------------------------------------------------------------
Food & Staples Retailing 4,000 C&S Co., Ltd. 91,020 0.1
4,400 FamilyMart Co., Ltd. 128,984 0.1
--------------------------
220,004 0.2
----------------------------------------------------------------------------------------------------------------
MERRILL LYNCH GLOBAL BALANCED FUND MAY 31, 2004 21
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments (continued)
Merrill Lynch Master Global Balanced Portfolio
Pacific Basin/Asia Value Percent of
(concluded) Industry@ Shares Held Common Stocks (in U.S. dollars) Net Assets
====================================================================================================================================
Japan Food Products 15,000 Ajinomoto Co., Inc. $ 172,359 0.1%
(concluded) ----------------------------------------------------------------------------------------------------------------
Gas Utilities 57,000 Tokyo Gas Co. 200,615 0.2
----------------------------------------------------------------------------------------------------------------
Health Care 13,000 Olympus Optical Co., Ltd. 234,065 0.2
Equipment & Supplies
----------------------------------------------------------------------------------------------------------------
Household Durables 1,400 Funai Electric Co., Ltd. 191,649 0.2
11,000 Matsushita Electric Industrial
Company, Ltd. 151,875 0.1
--------------------------
343,524 0.3
----------------------------------------------------------------------------------------------------------------
Household Products 4,600 Uni-Charm Corporation 223,081 0.2
----------------------------------------------------------------------------------------------------------------
Insurance 32 Millea Holdings, Inc. 414,024 0.3
----------------------------------------------------------------------------------------------------------------
Leisure Equipment & Products 6,900 BANDAI Co., Ltd. 171,368 0.1
----------------------------------------------------------------------------------------------------------------
Office Electronics 13,000 Canon, Inc. 641,031 0.5
41,000 Ricoh Co., Ltd. 795,702 0.6
--------------------------
1,436,733 1.1
----------------------------------------------------------------------------------------------------------------
Pharmaceuticals 7,000 Takeda Chemical Industries, Ltd. 290,703 0.2
----------------------------------------------------------------------------------------------------------------
Road & Rail 77 East Japan Railway Company 397,801 0.3
----------------------------------------------------------------------------------------------------------------
Textiles, Apparel & 7,000 Onward Kashiyama Co., Ltd. 112,988 0.1
Luxury Goods
----------------------------------------------------------------------------------------------------------------
Trading Companies & 22,000 Mitsubishi Corporation 217,164 0.2
Distributors 29,000 Mitsui & Co., Ltd. 220,927 0.2
--------------------------
438,091 0.4
----------------------------------------------------------------------------------------------------------------
Wireless 270 NTT DoCoMo, Inc. 508,120 0.4
Telecommunication Services
----------------------------------------------------------------------------------------------------------------
Total Common Stocks in the
Pacific Basin/Asia 8,042,495 6.5
================================================================================================================
Total Investments in Common
Stocks (Cost--$69,973,369) 83,364,301 67.7
================================================================================================================
Face
Europe Amount Fixed Income Securities
====================================================================================================================================
Austria Foreign Government Obligations euro 605,000 Republic of Austria, 4.65%
due 1/15/2018 740,493 0.6
----------------------------------------------------------------------------------------------------------------
Thrifts & Mortgage Finance (Y) 73,000,000 Pfandbriefstelle der
Oesterreichischen
Landes-Hypothekenbanken, 1.60%
due 2/15/2011 683,484 0.6
----------------------------------------------------------------------------------------------------------------
Total Fixed Income Securities
in Austria 1,423,977 1.2
====================================================================================================================================
France Foreign Government Obligations euro 1,438,000 French OAT, 5.75% due 10/25/2032 1,948,904 1.6
950,000 French Treasury Notes, 3.50%
due 1/12/2005 1,169,451 1.0
259,000 Republic of France, 4.75%
due 4/25/2035 302,978 0.2
----------------------------------------------------------------------------------------------------------------
Total Fixed Income Securities
in France 3,421,333 2.8
====================================================================================================================================
Germany Commercial Banks Bayerische Landesbank:
(Y) 42,000,000 1% due 9/20/2010 379,678 0.3
36,000,000 1.40% due 4/22/2013 328,386 0.3
--------------------------
708,064 0.6
----------------------------------------------------------------------------------------------------------------
Foreign Government Obligations euro 1,400,000 Bundesobligation, 3.25%
due 4/17/2009 1,687,818 1.4
----------------------------------------------------------------------------------------------------------------
Total Fixed Income Securities
in Germany 2,395,882 2.0
====================================================================================================================================
Italy Foreign Government Obligations (Y)151,000,000 Republic of Italy, .65%
due 3/20/2009 1,366,613 1.1
----------------------------------------------------------------------------------------------------------------
Total Fixed Income Securities
in Italy 1,366,613 1.1
================================================================================================================
22 MERRILL LYNCH GLOBAL BALANCED FUND MAY 31, 2004
Schedule of Investments (continued)
Merrill Lynch Master Global Balanced Portfolio
Europe Face Value Percent of
(concluded) Industry@ Amount Fixed Income Securities (in U.S. dollars) Net Assets
====================================================================================================================================
Netherlands Foreign Government Obligations Netherlands Government Bonds:
euro 2,330,000 4% due 7/15/2005 $ 2,897,016 2.4%
469,000 3.75% due 7/15/2009 576,399 0.4
2,583,000 3.75% due 7/15/2014 2,993,135 2.4
----------------------------------------------------------------------------------------------------------------
Total Fixed Income Securities
in the Netherlands 6,466,550 5.2
====================================================================================================================================
Spain Foreign Government Obligations 311,000 Spanish Government Bonds, 4.20%
due 7/30/2013 377,268 0.3
----------------------------------------------------------------------------------------------------------------
Total Fixed Income Securities
in Spain 377,268 0.3
====================================================================================================================================
Sweden Foreign Government Obligations Swedish Government Bonds:
SEK 4,350,000 6.50% due 5/05/2008 641,946 0.5
9,580,000 5% due 1/28/2009 1,342,697 1.1
----------------------------------------------------------------------------------------------------------------
Total Fixed Income Securities
in Sweden 1,984,643 1.6
====================================================================================================================================
United Kingdom Beverages US$ 140,000 Diageo Capital PLC, 3.50%
due 11/19/2007 138,592 0.1
----------------------------------------------------------------------------------------------------------------
Commercial Banks euro 130,000 Barclays Bank PLC, 4.50%
due 3/04/2019 (a) 154,692 0.1
----------------------------------------------------------------------------------------------------------------
Foreign Government Obligations United Kingdom Treasury Gilt:
(pound)260,000 7.25% due 12/07/2007 508,874 0.4
85,000 8% due 6/07/2021 207,798 0.2
--------------------------
716,672 0.6
----------------------------------------------------------------------------------------------------------------
Total Fixed Income Securities
in the United Kingdom 1,009,956 0.8
================================================================================================================
Total Fixed Income Securities
in Europe 18,446,222 15.0
North America
====================================================================================================================================
United States Capital Markets euro 130,000 The Goldman Sachs Group, Inc.,
4.75% due 1/28/2014 156,037 0.1
110,000 Lehman Brothers Holdings Inc.,
4.75% due 1/16/2014 131,809 0.1
--------------------------
287,846 0.2
----------------------------------------------------------------------------------------------------------------
Consumer Finance US$ 170,000 Household Finance Corporation,
6.40% due 6/17/2008 183,123 0.2
----------------------------------------------------------------------------------------------------------------
Diversified Financial Services 120,000 American Honda Finance
Corporation, 3.85%
due 11/06/2008 117,486 0.1
----------------------------------------------------------------------------------------------------------------
Insurance 170,000 AIG SunAmerica Global Financing
VII, 5.85% due 8/01/2008 180,744 0.1
----------------------------------------------------------------------------------------------------------------
Thrifts & Mortgage Finance (Y)110,000,000 Federal National Mortgage
Association, 2.125%
due 10/09/2007 1,051,114 0.9
----------------------------------------------------------------------------------------------------------------
U.S. Government Obligations U.S. Treasury Bonds:
US$ 698,000 8% due 11/15/2021 910,672 0.8
156,000 6.25% due 5/15/2030 173,690 0.1
U.S. Treasury Notes:
994,000 4.625% due 5/15/2006 1,033,410 0.8
235,000 3.125% due 4/15/2009 228,198 0.2
465,000 6.50% due 2/15/2010 523,870 0.4
116,000 4.375% due 8/15/2012 115,089 0.1
346,000 4.25% due 11/15/2013 335,377 0.3
--------------------------
3,320,306 2.7
----------------------------------------------------------------------------------------------------------------
Total Fixed Income Securities
in North America 5,140,619 4.2
================================================================================================================
MERRILL LYNCH GLOBAL BALANCED FUND MAY 31, 2004 23
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments (continued)
Merrill Lynch Master Global Balanced Portfolio
Face Value Percent of
Pacific Basin/Asia Industry@ Amount Fixed Income Securities (in U.S. dollars) Net Assets
====================================================================================================================================
Japan Commercial Banks (Y)132,000,000 Inter-American Development Bank,
1.90% due 7/08/2009 $ 1,256,682 1.0%
----------------------------------------------------------------------------------------------------------------
Foreign Government Obligations Development Bank of Japan:
63,000,000 1.40% due 6/20/2012 574,373 0.4
55,000,000 1.70% due 9/20/2022 466,532 0.4
Japan Finance Corporation for
Municipal Enterprises:
63,000,000 1.55% due 2/21/2012 579,771 0.5
43,000,000 1.35% due 11/26/2013 384,336 0.3
--------------------------
2,005,012 1.6
----------------------------------------------------------------------------------------------------------------
Total Fixed Income Securities
in the Pacific Basin/Asia 3,261,694 2.6
================================================================================================================
Total Investments in Fixed
Income Securities
(Cost--$25,934,454) 26,848,535 21.8
Beneficial Interest/
Face Amount Short-Term Securities
====================================================================================================================================
US$ 7,418,793 Merrill Lynch Liquidity Series,
LLC Cash Sweep Series I (b) 7,418,793 6.0
US$ 2,000,000 U.S. Treasury Bills, .925%
due 8/12/2004* 1,996,080 1.6
----------------------------------------------------------------------------------------------------------------
Total Investments in Short-Term
Securities (Cost--$9,414,939) 9,414,873 7.6
====================================================================================================================================
Total Investments (Cost--$105,322,762) 119,627,709 97.1
Other Assets Less Liabilities 3,523,230 2.9
--------------------------
Net Assets $123,150,939 100.0%
==========================
* Certain U.S. Government Obligations are traded on a discount basis; the
interest rate shown reflects the discount rate paid at the time of
purchase by the Portfolio.
+ Non-income producing security.
@ For Portfolio 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 Portfolio
management. This definition may not apply for purposes of this report,
which may combine such industry sub-classifications for reporting ease.
(a) Floating rate note.
(b) Investments in companies considered to be an affiliate of the Portfolio
(such companies are defined as "Affiliated Companies" in Section 2(a)(3)
of the Investment Company Act of 1940) are as follows:
-------------------------------------------------------------------------------------------
Net Interest
Affiliate Activity Income
-------------------------------------------------------------------------------------------
Merrill Lynch Liquidity Series, LLC Cash Sweep Series I $1,424,721 $31,956
-------------------------------------------------------------------------------------------
Financial futures contracts sold as of May 31, 2004 were as follows:
-------------------------------------------------------------------------------------------
Number of Expiration Face Unrealized
Contracts Issue Date Value Depreciation
-------------------------------------------------------------------------------------------
12 S&P 500 Index June 2004 $3,344,250 $(16,650)
-------------------------------------------------------------------------------------------
24 MERRILL LYNCH GLOBAL BALANCED FUND MAY 31, 2004
Schedule of Investments (concluded)
Merrill Lynch Master Global Balanced Portfolio
Forward foreign exchange contracts as of May 31, 2004 were as follows:
-------------------------------------------------------------------------------------------
Foreign Settlement Unrealized
Currency Purchased Date Appreciation (Depreciation)
-------------------------------------------------------------------------------------------
AU$ 840,000 June 2004 $(16,460)
C$ 1,665,000 June 2004 15,048
euro 4,897,000 June 2004 88,008
SEK 8,720,000 June 2004 32,272
(Y) 380,492,000 June 2004 (61,886)
-------------------------------------------------------------------------------------------
Total (US$ Commitment--$12,352,077) $ 56,982
-------------------------------------------------------------------------------------------
Foreign Settlement Unrealized
Currency Sold Date Appreciation (Depreciation)
-------------------------------------------------------------------------------------------
AU$ 840,000 June 2004 $ 37,460
C$ 1,665,000 June 2004 35,990
euro 16,514,193 June 2004 128,434
(pound) 390,000 June 2004 (1,668)
SEK 23,100,000 June 2004 14,906
(Y) 1,233,928,000 June 2004 (84,847)
-------------------------------------------------------------------------------------------
Total (US$ Commitment--$37,087,511) $130,275
-------------------------------------------------------------------------------------------
Total Unrealized Appreciation on Forward Foreign Exchange Contracts--Net $187,257
========
See Notes to Financial Statements.
MERRILL LYNCH GLOBAL BALANCED FUND MAY 31, 2004 25
[LOGO] Merrill Lynch Investment Managers
Statement of Assets and Liabilities
Merrill Lynch Master Global Balanced Portfolio
As of May 31, 2004
=======================================================================================================================
Assets
- -----------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value
(identified cost--$97,903,969) ................................ $ 112,208,916
Investments in affiliated securities, at value
(identified cost--$7,418,793) ................................. 7,418,793
Unrealized appreciation on forward foreign exchange contracts .. 352,118
Cash on deposit for financial futures contracts ................ 192,000
Foreign cash (cost--$920,547) .................................. 923,242
Receivables:
Securities sold ............................................. $ 2,842,054
Dividends ................................................... 583,907
Interest (including $217 from affiliates) ................... 363,782
Forward foreign exchange contracts .......................... 69,259
Variation margin ............................................ 7,200 3,866,202
-----------
Prepaid expenses and other assets .............................. 798
-------------
Total assets ................................................... 124,962,069
-------------
=======================================================================================================================
Liabilities
- -----------------------------------------------------------------------------------------------------------------------
Unrealized depreciation on forward foreign exchange contracts .. 164,861
Payables:
Securities purchased ........................................ 984,814
Withdrawals ................................................. 537,579
Investment adviser .......................................... 56,954
Forward foreign exchange contracts .......................... 15,295
Other affiliates ............................................ 1,177 1,595,819
-----------
Accrued expenses and other liabilities ......................... 50,450
-------------
Total liabilities .............................................. 1,811,130
-------------
=======================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------
Net Assets ..................................................... $ 123,150,939
=============
=======================================================================================================================
Net Assets Consist of
- -----------------------------------------------------------------------------------------------------------------------
Investors' capital ............................................. $ 108,599,765
Unrealized appreciation on investments and foreign currency
transactions--net ............................................. 14,551,174
-------------
Net assets ..................................................... $ 123,150,939
=============
See Notes to Financial Statements.
26 MERRILL LYNCH GLOBAL BALANCED FUND MAY 31, 2004
Statement of Operations Merrill Lynch Master Global Balanced Portfolio
For the Six Months Ended May 31, 2004
=======================================================================================================================
Investment Income
- -----------------------------------------------------------------------------------------------------------------------
Dividends (net of $81,653 foreign withholding tax) ............. $ 991,291
Interest (including $31,956 from affiliates) ................... 506,649
-------------
Total income ................................................... 1,497,940
-------------
=======================================================================================================================
Expenses
- -----------------------------------------------------------------------------------------------------------------------
Investment advisory fees ....................................... $ 405,732
Custodian fees ................................................. 58,911
Accounting services ............................................ 54,675
Professional fees .............................................. 32,105
Printing and shareholder reports ............................... 12,397
Trustees' fees and expenses .................................... 8,879
Pricing fees ................................................... 2,695
Other .......................................................... 3,665
-----------
Total expenses ................................................. 579,059
-------------
Investment income--net ......................................... 918,881
-------------
=======================================================================================================================
Realized & Unrealized Gain (Loss) on Investments & Foreign Currency Transactions--Net
- -----------------------------------------------------------------------------------------------------------------------
Realized gain (loss) from:
Investments--net ............................................ 6,364,103
Foreign currency transactions--net .......................... (1,353,104) 5,010,999
-----------
Change in unrealized appreciation/depreciation on:
Investments--net ............................................ (1,593,413)
Foreign currency transactions--net .......................... 2,568,147 974,734
----------------------------
Total realized and unrealized gain on investments and foreign
currency transactions--net .................................... 5,985,733
-------------
Net Increase in Net Assets Resulting from Operations ........... $ 6,904,614
=============
See Notes to Financial Statements.
MERRILL LYNCH GLOBAL BALANCED FUND MAY 31, 2004 27
[LOGO] Merrill Lynch Investment Managers
Statements of Changes in Net Assets
Merrill Lynch Master Global Balanced Portfolio
For the Six For the
Months Ended Year Ended
May 31, November 30,
Increase (Decrease) in Net Assets: 2004 2003
=======================================================================================================================
Operations
- -----------------------------------------------------------------------------------------------------------------------
Investment income--net ......................................... $ 918,881 $ 2,405,162
Realized gain on investments and foreign currency
transactions--net ............................................ 5,010,999 935,117
Change in unrealized appreciation/depreciation on investments
and foreign currency transactions--net ........................ 974,734 12,195,867
----------------------------
Net increase in net assets resulting from operations ........... 6,904,614 15,536,146
----------------------------
=======================================================================================================================
Capital Transactions
- -----------------------------------------------------------------------------------------------------------------------
Proceeds from contributions .................................... 637,907 3,565,572
Fair value of withdrawals ...................................... (27,205,185) (51,751,450)
----------------------------
Net decrease in net assets derived from net capital transactions (26,567,278) (48,185,878)
----------------------------
=======================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------
Total decrease in net assets ................................... (19,662,664) (32,649,732)
Beginning of period ............................................ 142,813,603 175,463,335
----------------------------
End of period .................................................. $123,150,939 $ 142,813,603
============================
See Notes to Financial Statements
28 MERRILL LYNCH GLOBAL BALANCED FUND MAY 31, 2004
Financial Highlights Merrill Lynch Master Global Balanced Portfolio
For the Six For the Year Ended
Months Ended November 30,
The following ratios have been derived May 31, ----------------------------------------------------------
from information provided in the financial statements. 2004 2003 2002 2001 2000
====================================================================================================================================
Total Investment Return**
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return . 4.87%+ 10.95% (5.91%) -- --
==========================================================================
====================================================================================================================================
Ratios to Average Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses ................ .85%* .80% .78% .70% .70%
==========================================================================
Investment income--net .. 1.36%* 1.54% 1.72% 2.09% 1.75%
==========================================================================
====================================================================================================================================
Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) ......... $123,151 $142,814 $175,463 $268,413 $391,207
==========================================================================
Portfolio turnover ...... 70.04% 158.02% 128.22% 116.69% 117.12%
==========================================================================
* Annualized.
** Total return is required to be disclosed for fiscal years beginning after
December 15, 2000.
+ Aggregate total investment return.
See Notes to Financial Statements.
MERRILL LYNCH GLOBAL BALANCED FUND MAY 31, 2004 29
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements Merrill Lynch Master Global Balanced Portfolio
1. Significant Accounting Policies:
Merrill Lynch Master Global Balanced Portfolio (the "Portfolio") (formerly
Mercury Master Global Balanced Portfolio) is a series of Mercury Master Trust
(the "Trust"). The Trust is registered under the Investment Company Act of 1940,
as amended, and is organized as a Delaware statutory trust. The Declaration of
Trust permits the Trustees to issue nontransferable interests in the Portfolio,
subject to certain limitations. The Portfolio's financial statements are
prepared in conformity with U.S. generally accepted accounting principles, which
may require the use of management accruals and estimates. Actual results may
differ from these 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 following is a summary of significant
accounting policies followed by the Portfolio.
(a) Valuation of investments -- Equity securities that are held by the Portfolio
that are traded on stock exchanges or the Nasdaq National Market are valued at
the last sale price or official close price on the exchange, as of the close of
business on the day the securities are being valued or, lacking any sales, at
the last available bid price for long positions, and at the last available ask
price for short positions. In cases where equity securities are traded on more
than one exchange, the securities are valued on the exchange designated as the
primary market by or under the authority of the Board of Trustees of the Trust.
Long positions traded in the over-the-counter ("OTC") market, Nasdaq Small Cap
or Bulletin Board are valued at the last available bid price or yield equivalent
obtained from one or more dealers or pricing services approved by the Board of
Trustees of the Trust. Short positions traded in the OTC market are valued at
the last available ask price. Portfolio securities that are traded both in the
OTC market and on a stock exchange are valued according to the broadest and most
representative market.
Options written are valued at the last sale price in the case of exchange-traded
options or, in the case of options traded in the OTC market, the last ask price.
Options purchased are valued at their last sale price in the case of
exchange-traded options or, in the case of options traded in the OTC market, the
last bid price. Swap agreements are valued daily based upon quotations from
market makers. Financial futures contracts and options thereon, which are traded
on exchanges, are valued at their last sale price as of the close of such
exchanges. Obligations with remaining maturities of 60 days or less are valued
at amortized cost unless the Investment Adviser believes that this method no
longer produces fair valuations.
Repurchase agreements are valued at cost plus accrued interest. The Trust
employs pricing services to provide certain securities prices for the Portfolio.
Securities and assets for which market quotations are not readily available are
valued at fair value as determined in good faith by or under the direction of
the Board of Trustees of the Trust, including valuations furnished by the
pricing services retained by the Trust, which may use a matrix system for
valuations. The procedures of a pricing service and its valuations are reviewed
by the officers of the Trust under the general supervision of the Trust's Board
of Trustees. Such valuations and procedures will be reviewed periodically by the
Board of Trustees of the Trust.
Generally, trading in foreign securities, as well as U.S. government securities
and money market instruments, is substantially completed each day at various
times prior to the close of business on the New York Stock Exchange ("NYSE").
The values of such securities used in computing the net assets of the Portfolio
are determined as of such times. Foreign currency exchange rates also are
generally determined prior to the close of business on the NYSE. Occasionally,
events affecting the values of such securities and such exchange rates may occur
between the times at which they are determined and the close of business on the
NYSE that may not be reflected in the computation of the Portfolio's net assets.
If events (for example, a company announcement, market volatility or a natural
disaster) occur during such periods that are expected to materially affect the
value of such securities, those securities may be valued at their fair value as
determined in good faith by the Trust's Board of Trustees or by the Investment
Adviser using a pricing service and/or procedures approved by the Trust's Board
of Trustees.
(b) Derivative financial instruments -- The Portfolio may engage in various
portfolio investment strategies both to increase the return of the Portfolio and
to hedge, or protect, its exposure to interest rate movements and movements in
the securities markets. Losses may arise due to changes in the value of the
contract or if the counterparty does not perform under the contract.
o Financial futures contracts -- The Portfolio may purchase or sell
financial futures contracts and options on such futures contracts. Futures
contracts are contracts for delayed delivery of securities of a specific
future date and a specific price or yield. Upon entering into a contract,
the
30 MERRILL LYNCH GLOBAL BALANCED FUND MAY 31, 2004
Notes to Financial Statements (continued)
Merrill Lynch Master Global Balanced Portfolio
Portfolio deposits and maintains as collateral such initial margin as
required by the exchange on which the transaction is effected. Pursuant to
the contract, the Portfolio agrees to receive from or pay to the broker an
amount of cash equal to the daily fluctuation in value of the contract.
Such receipts or payments are known as variation margin and are recorded
by the Portfolio as unrealized gains or losses. When the contract is
closed, the Portfolio records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and
the value at the time it was closed.
o Options -- The Portfolio may purchase and write call and put options. When
the Portfolio writes an option, an amount equal to the premium received by
the Portfolio is reflected as an asset and an equivalent liability. The
amount of the liability is subsequently marked-to-market to reflect the
current market value of the option written. When a security is purchased
or sold through an exercise of an option, the related premium paid (or
received) is added to (or deducted from) the basis of the security
acquired or deducted from (or added to) the proceeds of the security sold.
When an option expires (or the Portfolio enters into a closing
transaction), the Portfolio realizes a gain or loss on the option to the
extent of the premiums received or paid (or a gain or loss to the extent
that the cost of the closing transaction exceeds the premium paid or
received).
Written and purchased options are non-income producing investments.
o Forward foreign exchange contracts -- The Portfolio may 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 Portfolio as an unrealized gain
or loss. When the contract is closed, the Portfolio 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.
o Foreign currency options and futures -- The Portfolio may also purchase or
sell listed or over-the-counter foreign currency options, foreign currency
futures and related options on foreign currency futures as a short or long
hedge against possible variations in foreign exchange rates. Such
transactions may be effected with respect to hedges on non-U.S.
dollar-denominated securities owned by the Portfolio, sold by the
Portfolio but not yet delivered, or committed or anticipated to be
purchased by the Portfolio.
(c) Foreign currency transactions -- Transactions denominated in foreign
currencies are recorded at the exchange rate prevailing when recognized. Assets
and liabilities denominated in foreign currencies are valued at the exchange
rate at the end of the period. Foreign currency transactions are the result of
settling (realized) or valuing (unrealized) assets or liabilities expressed in
foreign currencies into U.S. dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates on investments.
(d) Income taxes -- The Portfolio is considered as a "pass through" entity for
Federal income tax purposes. As such, each investor in the Portfolio is treated
as owner of its proportionate share of the net assets, income, expenses and
realized and unrealized gains and losses of the Portfolio. Therefore, no Federal
income tax provision is required. Under the applicable foreign tax law, a
withholding tax may be imposed on interest, dividends and capital gains at
various rates. It is intended that the Portfolio's assets will be managed so an
investor in the Portfolio can satisfy the requirements of subchapter M of the
Internal Revenue Code.
(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 Portfolio has determined the ex-dividend date.
Interest income is recognized on the accrual basis. The Portfolio amortizes all
premiums and discounts on debt securities.
(f) Securities lending -- The Portfolio 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. The
market value of the loaned securities is determined at the close of business of
the Portfolio and any additional required collateral is delivered to the
Portfolio on the next business day. Where the Portfolio receives securities as
collateral for the loaned securities, it collects a fee from the borrower. The
Portfolio typically receives the income on the loaned securities but does not
receive the income on the collateral. Where the Portfolio receives cash
collateral, it may invest
MERRILL LYNCH GLOBAL BALANCED FUND MAY 31, 2004 31
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements (continued)
Merrill Lynch Master Global Balanced Portfolio
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 Portfolio 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 Portfolio could experience
delays and costs in gaining access to the collateral. The Portfolio 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 with Merrill Lynch
Investment Managers International Limited ("MLIMIL"), an affiliate of Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), an indirect, wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML
& Co."), which is the limited partner.
MLIMIL is responsible for the management of the Portfolio's investments and
provides the necessary personnel, facilities, equipment and certain other
services necessary to the operations of the Portfolio. For such services, the
Portfolio pays a monthly fee at an annual rate of .60% of the average daily
value of the Portfolio's net assets. The Trust has entered into a Sub-Advisory
Agreement with FAM with respect to the Portfolio, pursuant to which FAM provides
investment advisory services with respect to the Portfolio's daily cash assets.
MLIMIL has agreed to pay FAM a fee in an amount to be determined from time to
time by both parties but in no event in excess of the amount that MLIMIL
actually receives for providing services to the Trust pursuant to the Investment
Advisory Agreement.
The Portfolio has received an exemptive order from the Securities and Exchange
Commission permitting it to lend portfolio securities to Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S"), a subsidiary of ML & Co., or its
affiliates. Pursuant to that order, the Portfolio also has retained Merrill
Lynch Investment Managers, LLC ("MLIM, LLC"), an affiliate of MLIMIL, as the
securities lending agent for a fee based on a share of the returns on investment
of cash collateral. MLIM, LLC may, on behalf of the Portfolio, invest cash
collateral received by the Portfolio for such loans, among other things, in a
private investment company managed by MLIM, LLC or in registered money market
funds advised by MLIMIL or its affiliates.
In addition, MLPF&S received $2,132 in commissions on the execution of portfolio
security transactions for the Portfolio for the six months ended May 31, 2004.
For the six months ended May 31, 2004, the Fund reimbursed FAM $1,654 for
certain accounting services.
Certain officers and/or trustees of the Trust are officers and/or directors of
MLIMIL, FAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the six
months ended May 31, 2004 were $88,488,705 and $120,908,648, respectively.
Net realized gains/losses for the six months ended May 31, 2004 and net
unrealized appreciation/depreciation as of May 31, 2004 were as follows:
- --------------------------------------------------------------------------------
Unrealized
Realized Appreciation/
Gains/Losses Depreciation
- --------------------------------------------------------------------------------
Investments:
Long-term ........................... $ 6,782,192 $ 14,305,013
Short-term .......................... (11) (66)
Financial futures contracts ......... (418,078) (16,650)
--------------------------------
Total investments ...................... 6,364,103 14,288,297
--------------------------------
Currency transactions:
Foreign currency transaction ........ 1,030,943 75,620
Forward foreign
exchange contracts .................. (2,384,047) 187,257
--------------------------------
Total currency transactions ............ (1,353,104) 262,877
--------------------------------
Total .................................. $ 5,010,999 $ 14,551,174
================================
32 MERRILL LYNCH GLOBAL BALANCED FUND MAY 31, 2004
Notes to Financial Statements (concluded)
Merrill Lynch Master Global Balanced Portfolio
As of May 31, 2004, net unrealized appreciation for Federal income tax purposes
aggregated $11,462,963, of which $13,807,444 related to appreciated securities
and $2,344,481 related to depreciated securities. At May 31, 2004, the aggregate
cost of investments for Federal income tax purposes was $108,164,746.
4. Commitments:
At May 31, 2004, the Portfolio had entered into foreign exchange contracts, in
addition to the contracts listed in the Schedule of Investments, under which it
had agreed to purchase and sell various foreign currencies with approximate
values of $607,000 and $860,000, respectively.
5. Short-Term Borrowings:
The Portfolio, along with certain other funds managed by MLIMIL and its
affiliates, is a party to a $500,000,000 credit agreement with Bank One, N.A.
and certain other lenders. The Portfolio may borrow under the credit agreement
to fund shareholder redemptions and for other lawful purposes other than for
leverage. The Portfolio may borrow up to the maximum amount allowable under the
Portfolio's current prospectus and statement of additional information, subject
to various other legal, regulatory or contractual limits. The Portfolio pays a
commitment fee of .09% per annum based on the Portfolio's pro rata share of the
unused portion of the 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
28, 2003, the credit agreement was renewed for one year under the same terms.
The Portfolio did not borrow under the credit agreement during the six months
ended May 31, 2004.
6. Plan of Reorganization:
On November 11, 2003, the Trust's Board of Trustees unanimously approved a plan
of reorganization, subject to certain conditions, whereby Merrill Lynch Global
Balanced Fund (the "Fund") will acquire substantially all of the assets and
assume substantially all of the liabilities of the Portfolio in exchange for all
of the Fund's beneficial interests in the Portfolio.
MERRILL LYNCH GLOBAL BALANCED FUND MAY 31, 2004 33
[LOGO] Merrill Lynch Investment Managers
Officers and Directors/Trustees
Terry K. Glenn, President and Director/Trustee
David O. Beim, Director/Trustee
James T. Flynn, Director/Trustee
W. Carl Kester, Director/Trustee
Karen P. Robards, Director/Trustee
Robert C. Doll, Jr., Senior Vice President
Richard R. Turnill, 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
800-637-3863
34 MERRILL LYNCH GLOBAL BALANCED FUND MAY 31, 2004
Electronic Delivery
The Fund offers electronic delivery of communications to its shareholders. In
order to receive this service, you must register your account and provide us
with e-mail information. To sign up for this service, simply access this Web
site http://www.icsdelivery.com/live and follow the instructions. When you visit
this site, you will obtain a personal identification number (PIN). You will need
this PIN should you wish to update your e-mail address, choose to discontinue
this service and/or make any other changes to the service. This service is not
available for certain retirement accounts at this time.
MERRILL LYNCH GLOBAL BALANCED FUND MAY 31, 2004 35
[LOGO] Merrill Lynch Investment Managers 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.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available (1) without
charge, upon request, by calling toll-free 1-800-MER-FUND (1-800-637-3863); (2)
at www.mutualfunds.ml.com; and (3) on the Securities and Exchange Commission's
Web site at http://www.sec.gov.
Merrill Lynch Global Balanced Fund
Of Mercury Funds, Inc.
Box 9011
Princeton, NJ
08543-9011
#MLBAL -- 5/04
Item 2 - Code of Ethics - Not Applicable to this semi-annual report
Item 3 - Audit Committee Financial Expert - Not Applicable to this semi-annual
report
Item 4 - Principal Accountant Fees and Services - Not Applicable to this
semi-annual report
Item 5 - Audit Committee of Listed Registrants - Not Applicable
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable
Item 8 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 9 - Submission of Matters to a Vote of Security Holders - Not Applicable
Item 10 - Controls and Procedures
10(a) - The registrant's certifying officers have reasonably designed such
disclosure controls and procedures to ensure material information
relating to the registrant is made known to us by others particularly
during the period in which this report is being prepared. The
registrant's certifying officers have determined that the registrant's
disclosure controls and procedures are effective based on our evaluation
of these controls and procedures as of a date within 90 days prior to
the filing date of this report.
10(b) - There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR
270.30a-3(d)) that occurred during the last fiscal half-year of the
period covered by this report that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting.
Item 11 - Exhibits attached hereto
11(a)(1) - Code of Ethics - Not Applicable to this semi-annual report
11(a)(2) - Certifications - Attached hereto
11(a)(3) - Not Applicable
11(b) - Certifications - 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.
Merrill Lynch Global Balanced Fund of Mercury Funds, Inc. and Merrill
Lynch Master Global Balanced Portfolio of Mercury Master Trust
By: /s/ Terry K. Glenn
------------------------------
Terry K. Glenn,
President of
Merrill Lynch Global Balanced Fund of Mercury Funds, Inc. and
Merrill Lynch Master Global Balanced Portfolio of Mercury Master
Trust
Date: July 19, 2004
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
Merrill Lynch Global Balanced Fund of Mercury Funds, Inc. and
Merrill Lynch Master Global Balanced Portfolio of Mercury Master
Trust
Date: July 19, 2004
By: /s/ Donald C. Burke
------------------------------
Donald C. Burke,
Chief Financial Officer of
Merrill Lynch Global Balanced Fund of Mercury Funds, Inc. and
Merrill Lynch Master Global Balanced Portfolio of Mercury Master
Trust
Date: July 19, 2004