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 811-9375
811-9633
Name of Fund: Merrill Lynch Global Financial Services Fund, Inc.
Merrill Lynch Global Financial Services 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 Financial Services Fund, Inc. and Merrill Lynch Global Financial
Services 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: 09/30/04
Date of reporting period: 10/01/03 - 03/31/04
Item 1 - Report to Stockholders
[LOGO] Merrill Lynch Investment Managers www.mlim.ml.com
Merrill Lynch
Global Financial
Services Fund, Inc.
Semi-Annual Report
March 31, 2004
[LOGO] Merrill Lynch Investment Managers
Merrill Lynch Global Financial Services Fund, Inc.
Worldwide Investments as of March 31, 2004
Percent of
Ten Largest Equity Holdings Net Assets
- --------------------------------------------------------------------------------
American Home Mortgage
Investment Corp. .................................................. 5.0%
RenaissanceRe Holdings Ltd. ......................................... 4.7
ACE Limited ......................................................... 3.8
Freddie Mac ......................................................... 3.8
Daegu Bank .......................................................... 3.5
Capital One
Financial Corporation ............................................. 3.5
Credit Saison Co., Ltd. ............................................. 3.3
Hannover
Rueckversicherungs AG ............................................. 3.3
Friedman, Billings, Ramsey
Group, Inc. (Class A) ............................................. 3.2
PXRE Group Limited .................................................. 3.2
- --------------------------------------------------------------------------------
Industries Represented Percent of
in the Portfolio* Net Assets
- --------------------------------------------------------------------------------
Commercial Banks ............................................ 29.7%
Insurance ................................................... 25.8
Thrifts & Mortgage Finance .................................. 11.1
Consumer Finance ............................................ 10.6
Real Estate ................................................. 9.4
Capital Markets ............................................. 7.5
Diversified Financial Services .............................. 6.1
- --------------------------------------------------------------------------------
* For Fund 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.
Percent of
Geographic Allocation Net Assets*
- --------------------------------------------------------------------------------
United States ........................................... 34.0%
Bermuda ................................................. 15.7
South Korea ............................................. 15.0
Japan ................................................... 7.5
United Kingdom .......................................... 5.8
Germany ................................................. 3.3
Indonesia ............................................... 3.2
Russia .................................................. 2.6
Belgium ................................................. 2.5
Ireland ................................................. 2.4
Netherlands ............................................. 2.3
Denmark ................................................. 1.9
Turkey .................................................. 1.5
Hong Kong ............................................... 0.9
Spain ................................................... 0.7
China ................................................... 0.5
Switzerland ............................................. 0.3
France .................................................. 0.1
- --------------------------------------------------------------------------------
* Total may not equal 100%.
2 MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. MARCH 31, 2004
A Letter From the President
Dear Shareholder
Equity markets generally produced positive results for the most recent six-month
and 12-month reporting periods. The U.S. stock market, as measured by the
Standard & Poor's 500 Index, returned +14.08% and +35.12% for the six-month and
12-month periods ended March 31, 2004, respectively. The MSCI World Index, which
measures the performance of 23 developed nations around the world, returned
+17.26% and +43.87%, respectively, 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 provided significant investment
opportunities and has helped fuel growth in the economies of its trading
partners. Japan, in the meantime, finally appears to be emerging from a long
period of deflation. In Europe, slower growth last year is likely to prompt the
central bank to take steps aimed at stimulating economic activity in 2004. The
European Union also is preparing to welcome ten 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. With all of this in mind, 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. Your financial advisor can help
you develop a strategy designed to perform 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 FINANCIAL SERVICES FUND, INC. MARCH 31, 2004 3
[LOGO] Merrill Lynch Investment Managers
A Discussion With Your Fund's Portfolio Manager
The Fund provided excellent returns for the six-month period,
outperforming both the MSCI World Index and the MSCI World Financial Index.
How did the Fund perform during the period in light of the existing market
conditions?
For the six-month period ended March 31, 2004, Merrill Lynch Global Financial
Services Fund, Inc.'s Class A, Class B, Class C, Class I and Class R Shares had
total returns of +27.86%, +27.38%, +27.33%, +28.01% and +27.73%, 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.) The Fund outperformed its unmanaged
benchmarks, the Morgan Stanley Capital International (MSCI) World Index and the
MSCI World Financial Index, which posted respective returns of +17.26% and
+20.63% for the same period.
Practically all of the Fund's outperformance occurred during the first three
months of 2004, and nearly 90% of it (about 6.2%) was the result of security
selection, with the remainder attributable to sector allocation. This is in line
with the orientation of the Fund; that is, to seek performance through
individual security selection and fundamental research rather than through
market timing of weights in various financial industries.
Markets performed well during the six-month period, as exemplified in the high
returns provided by the MSCI World Index and the MSCI World Financial Index.
These returns likely were the result of a generally positive outlook for
economies in the United States, Japan and Western Europe, along with a continued
rapid growth in Asian economies other than Japan, especially China that
stimulates many other economies through its imports.
Financial companies tend to do well during good economic times, as an expanding
economy stimulates growth in loans, insurance and advisory services, while also
resulting in less defaults on loans. The companies in the Portfolio benefited
from these general trends, especially commercial banks and consumer lenders.
The best-performing sector in the Portfolio was commercial banks, which added
about 2.62% to relative returns, despite an average weight of 24% versus 44% for
the benchmark. This means that the banks that were chosen for the Portfolio
performed quite well. The best performers were in South Korea (Daegu Bank, Pusan
Bank, Hana Bank and Kookmin Bank), Russia (Sberbank RF) and Japan (The Bank of
Yokohama Ltd.). Investments in commercial banks were focused on Asia and Europe,
as U.S. commercial banks appeared expensive to us by comparison. The lack of
investment in large banks, such as HSBC, Wells Fargo and Company and US Bancorp,
was beneficial during the period.
The next best-performing sector was consumer finance, which added about 1.45% in
relative returns, mostly as the result of three stocks, Credit Saison Co., Ltd.
in Japan, Capital One Financial Corporation in the United States and Kensington
Group PLC in the United Kingdom. The focus on specialized lenders, especially in
credit cards and mortgages, has been an ongoing theme in the Portfolio. We
believe that the specialization and scale confer benefits in marketing, funding
and collections, resulting in sustainable high growth and profits.
The third best-performing sector was real estate, which added about 1.28% in
relative performance. The primary contributors were American Home Mortgage
Investment Corp., a mortgage banker, and Friedman, Billings, Ramsey Group, Inc.,
an investment bank. These two companies have a real estate investment trust
structure and an important non-real estate business.
What changes were made to the Portfolio during the period?
The Portfolio underwent major changes during the period, with a large increase
in non-Japan Asian stocks, especially South Korea (15.0% at the end of the
quarter) and Indonesia (3.2%), with the Portfolio being overweight 16.8% in Asia
as a result. The Portfolio also invested in other emerging markets, such as
Russia and Turkey. The increase in Asian and other emerging market holdings were
financed with the proceeds of trimming positions that had performed well,
especially banks in Europe and insurance in the United States and Bermuda.
The Portfolio continues to have above-benchmark concentrations in property and
casualty insurance, consumer finance and mortgage-related stocks. These
concentrations have been in place for close to two years, and reflect the mix of
good business conditions, high profits and low valuation that
4 MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. MARCH 31, 2004
are to be found in these sectors. Commercial banks in the United States are
currently starting to look more attractive, and they might be considered at some
point. For now, alternative investments in South Korea, the United Kingdom,
Benelux (the economic alliance between Belgium, the Netherlands and Luxembourg),
Indonesia, Russia and Turkey look more attractive from both a growth and
valuation perspective. We may expect turnover if relative valuations change in
the future.
How would you characterize market conditions at the close of the period?
Recently, there have been increased discussions about inflation. A common view
is that inflation, which has been on the decline for the last two decades in the
United States and other developed economies, is reappearing. A related view is
that this will lead to increased interest rates, which will mean that financial
stocks may have lesser returns than the broader market. We think there is a
certain amount of confusion related to these issues, and it is useful to clarify
why financial stocks remain a good prospective investment.
First, it is true that low overnight interest rates (controlled by the central
banks) may lead to excessive lending and investment, which in turn puts upward
pressure on wages, thereby leading to inflation. Low overnight interest rates,
however, have been around for many years and have not led to inflation so far.
We expect that the impact could be less than expected due to increase in
productivity.
Second, it is important to note that a rise in overnight rates by a central
bank, which many think might happen in the United States, is an early preventive
measure. To the extent that it occurs and works properly, a rise in overnight
lending rates by the Federal Reserve Board in fact may dampen the effect on
long-term interest rates to the extent it moderates economic growth.
Third, there is scarce evidence to support the popular belief that somewhat
higher interest rates (short term or long term) are bad for financial companies
and financial stocks. Many financial companies pass higher interest rates to
their customers in the form of variable rate loans, and some companies, such as
property and casualty insurance or mortgage insurance companies, actually may
profit from higher interest rates. Deposit collectors also may be slow in
passing higher interest rates to their customers, reaping the benefit of higher
interest margins in the meanwhile. This is not to say that high long-term
interest rates are desirable, but some increase from the current low levels is
not a cause for alarm.
How was the Portfolio positioned at the close of the period?
The Portfolio continues to be invested in companies that generate high profits,
that have good growth prospects and that are valued at a discount to other
financials. This combination, in our view, is the best formula for favorable
long-term performance, in both absolute and relative terms.
We thank you for your continued support of Merrill Lynch Global Financial
Services Fund, Inc., and we look forward to reviewing our outlook and strategy
with you again in our next report to shareholders.
Walid Kassem
Vice President and Portfolio Manager
April 16, 2004
MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. MARCH 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% declining to 0% after six years. All Class B Shares purchased prior
to June 1, 2001 will maintain the four-year schedule. 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. (There is no initial sales charge
for automatic share conversions.)
o Class C Shares are subject to a distribution fee of 0.75% and an account
maintenance fee of 0.25%. In addition, Class C Shares are subject to a 1%
contingent deferred sales charge if redeemed within one year of purchase.
o Class I Shares incur a maximum initial sales charge (front-end load) of
5.25% and bear no ongoing distribution or account maintenance fees. Class
I Shares are available only to eligible investors.
o Class R Shares do not incur a maximum sales charge (front-end load) or
deferred sales charge. These shares are subject to a distribution fee of
0.25% and an account maintenance fee of 0.25%. Class R Shares are
available only to certain retirement plans.
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 March 31, 2004 Total Return Total Return Total Return
================================================================================================================
ML Global Financial Services Fund, Inc. Class A Shares* +27.86% +82.18% +76.93%
- ----------------------------------------------------------------------------------------------------------------
ML Global Financial Services Fund, Inc. Class B Shares* +27.38 +80.87 +71.06
- ----------------------------------------------------------------------------------------------------------------
ML Global Financial Services Fund, Inc. Class C Shares* +27.33 +80.80 +70.98
- ----------------------------------------------------------------------------------------------------------------
ML Global Financial Services Fund, Inc. Class I Shares* +28.01 +82.71 +78.82
- ----------------------------------------------------------------------------------------------------------------
ML Global Financial Services Fund, Inc. Class R Shares* +27.73 82.14 +58.66
- ----------------------------------------------------------------------------------------------------------------
MSCI World Index** +17.26 +43.87 -16.27/+32.94
- ----------------------------------------------------------------------------------------------------------------
MSCI World Financial Index*** +20.63 +56.39 +12.21/+40.64
- ----------------------------------------------------------------------------------------------------------------
* Investment results shown do not reflect sales charges; results shown would
be lower if a sales charge was included. Total investment returns are
based on changes in net asset values for the periods shown, and assume
reinvestment of all dividends and capital gains distributions at net asset
value on the ex-dividend date. The Fund's inception dates are from
11/26/99 for Class A, Class B, Class C and Class I Shares and from 1/03/03
for Class R Shares.
** This unmanaged market capitalization-weighted Index is comprised of a
representative sampling of large-, medium- and small-capitalization
companies in 23 countries, including the United States. Since inception
total returns are from 11/26/99 and 1/03/03.
*** This Index is comprised of the constituents of the MSCI World Index that
are classified into the financial sector. This sector contains companies
involved in activities such as banking, mortgage finance, consumer
finance, specialized finance, investment banking and brokerage, asset
management and custody, corporate lending, insurance, financial
investment, and real estate including REITS. Since inception total returns
are from 11/30/99 and 1/03/03.
6 MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. MARCH 31, 2004
Performance Data (concluded)
Average Annual Total Return
Return Without Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
One Year Ended 3/31/04 +82.18% +72.62%
- --------------------------------------------------------------------------------
Inception (11/26/99)
through 3/31/04 +14.03 +12.63
- --------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
Return Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
One Year Ended 3/31/04 +80.87% +76.87%
- --------------------------------------------------------------------------------
Inception (11/26/99)
through 3/31/04 +13.15 +12.84
- --------------------------------------------------------------------------------
* 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 3/31/04 +80.80% +79.80%
- --------------------------------------------------------------------------------
Inception (11/26/99)
through 3/31/04 +13.14 +13.14
- --------------------------------------------------------------------------------
* 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 3/31/04 +82.71% +73.12%
- --------------------------------------------------------------------------------
Inception (11/26/99)
through 3/31/04 +14.31 +12.90
- --------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
- --------------------------------------------------------------------------------
Return Without
Sales Charge
================================================================================
Class R Shares
================================================================================
One Year Ended 3/31/04 +82.14%
- --------------------------------------------------------------------------------
Inception (1/03/03)
through 3/31/04 +45.17
- --------------------------------------------------------------------------------
MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. MARCH 31, 2004 7
[LOGO] Merrill Lynch Investment Managers
Statement of Assets and Liabilities
Merrill Lynch Global Financial Services Fund, Inc.
As of March 31, 2004
=======================================================================================================================
Assets
- -----------------------------------------------------------------------------------------------------------------------
Investment in Global Financial Services Portfolio, at
value (identified cost--$59,357,984) ........................ $ 79,269,014
Prepaid expenses .............................................. 44,744
------------
Total assets .................................................. 79,313,758
------------
=======================================================================================================================
Liabilities
- -----------------------------------------------------------------------------------------------------------------------
Payables:
Distributor ................................................ $ 55,419
Other affiliates ........................................... 19,840
Administrative fees ........................................ 3,745 79,004
------------
Accrued expenses and other liabilities ........................ 17,512
------------
Total liabilities ............................................. 96,516
------------
=======================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------
Net assets .................................................... $ 79,217,242
============
=======================================================================================================================
Net Assets Consist of
- -----------------------------------------------------------------------------------------------------------------------
Class A Shares of Common Stock, $.10 par value,
100,000,000 shares authorized ............................... $ 59,323
Class B Shares of Common Stock, $.10 par value,
100,000,000 shares authorized ............................... 288,461
Class C Shares of Common Stock, $.10 par value,
100,000,000 shares authorized ............................... 122,331
Class I Shares of Common Stock, $.10 par value,
100,000,000 shares authorized ............................... 83,519
Class R Shares of Common Stock, $.10 par value,
100,000,000 shares authorized ............................... 882
Paid-in capital in excess of par .............................. 55,177,104
Undistributed investment income--net .......................... $ 323,455
Undistributed realized capital gains on investments
and foreign currency transactions from the
Portfolio--net .............................................. 3,251,137
Unrealized appreciation on investments and foreign
currency transactions from the Portfolio--net ............... 19,911,030
------------
Total accumulated earnings--net ............................... 23,485,622
------------
Net Assets .................................................... $ 79,217,242
============
=======================================================================================================================
Net Asset Value
- -----------------------------------------------------------------------------------------------------------------------
Class A--Based on net assets of $8,546,133 and
593,231 shares outstanding .................................. $ 14.41
============
Class B--Based on net assets of $41,099,617 and
2,884,613 shares outstanding ................................ $ 14.25
============
Class C--Based on net assets of $17,380,137 and
1,223,309 shares outstanding ................................ $ 14.21
============
Class I--Based on net assets of $12,065,516 and
835,189 shares outstanding .................................. $ 14.45
============
Class R--Based on net assets of $125,839 and
8,820 shares outstanding .................................... $ 14.27
============
See Notes to Financial Statements.
8 MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. MARCH 31, 2004
Statement of Operations Merrill Lynch Global Financial Services Fund, Inc.
For the Six Months Ended March 31, 2004
=======================================================================================================================
Investment Income Allocated from the Portfolio--Net
- -----------------------------------------------------------------------------------------------------------------------
Investment income allocated from the Portfolio:
Dividends (net of $98,113 foreign withholding tax) ......... $ 1,175,236
Interest from affiliates ................................... 1,480
Securities lending--net .................................... 2,832
Expenses ................................................... (276,894)
------------
Net investment income allocated from the Portfolio ............ 902,654
------------
=======================================================================================================================
Expenses
- -----------------------------------------------------------------------------------------------------------------------
Account maintenance and distribution fees--Class B ............ $ 200,870
Administration fees ........................................... 135,682
Account maintenance and distribution fees--Class C ............ 79,249
Transfer agent fees--Class B .................................. 32,569
Printing and shareholder reports .............................. 31,689
Registration fees ............................................. 30,403
Professional fees ............................................. 20,105
Transfer agent fees--Class C .................................. 13,600
Account maintenance fees--Class A ............................. 11,049
Transfer agent fees--Class I .................................. 8,905
Transfer agent fees--Class A .................................. 6,255
Account maintenance and distribution fees--Class R ............ 203
Transfer agent fees--Class R .................................. 58
Other ......................................................... 7,635
------------
Total expenses ................................................ 578,272
------------
Investment income--net ........................................ 324,382
------------
=======================================================================================================================
Realized & Unrealized Gain (Loss) Allocated from the Portfolio--Net
- -----------------------------------------------------------------------------------------------------------------------
Realized gain (loss) allocated from the Portfolio on:
Investments--net ........................................... 7,257,768
Foreign currency transactions--net ......................... (69,632) 7,188,136
------------
Change in unrealized appreciation on investments and foreign
currency transactions allocated from the Portfolio--net ..... 10,911,305
------------
Total realized and unrealized gain on investments and foreign
currency transactions allocated from the Portfolio--net ..... 18,099,441
------------
Net Increase in Net Assets Resulting from Operations .......... $ 18,423,823
============
See Notes to Financial Statements.
MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. MARCH 31, 2004 9
[LOGO] Merrill Lynch Investment Managers
Statements of Changes in Net Assets
Merrill Lynch Global Financial Services Fund, Inc.
For the Six For the
Months Ended Year Ended
March 31, September 30,
Increase (Decrease) in Net Assets: 2004 2003
=======================================================================================================================
Operations
- -----------------------------------------------------------------------------------------------------------------------
Investment income--net ........................................ $ 324,382 $ 3,057
Realized gain on investments and foreign currency transactions
allocated from the Portfolio--net ........................... 7,188,136 5,327,405
Change in unrealized appreciation/depreciation on investments
and foreign currency transactions allocated from the
Portfolio--net .............................................. 10,911,305 14,600,965
-----------------------------
Net increase in net assets resulting from operations .......... 18,423,823 19,931,427
-----------------------------
=======================================================================================================================
Distributions to Shareholders
- -----------------------------------------------------------------------------------------------------------------------
Realized gain on investments allocated from the Portfolio--net:
Class A .................................................... (961,927) (178,451)
Class B .................................................... (4,081,133) (1,105,313)
Class C .................................................... (1,616,424) (313,427)
Class I .................................................... (1,398,492) (268,927)
Class R .................................................... (8,157) --
-----------------------------
Net decrease in net assets resulting from distributions to
shareholders ................................................ (8,066,133) (1,866,118)
-----------------------------
=======================================================================================================================
Capital Share Transactions
- -----------------------------------------------------------------------------------------------------------------------
Net decrease in net assets derived from capital share
transactions ................................................ (1,278,835) (8,229,878)
-----------------------------
=======================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------
Total increase in net assets .................................. 9,078,855 9,835,431
Beginning of period ........................................... 70,138,387 60,302,956
-----------------------------
End of period* ................................................ $ 79,217,242 $ 70,138,387
=============================
* Undistributed (accumulated) investment income (loss)--net $ 323,455 $ (927)
=============================
See Notes to Financial Statements.
10 MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. MARCH 31, 2004
Financial Highlights Merrill Lynch Global Financial Services Fund, Inc.
Class A@@@
-------------------------------------------------------------------
For the
Period
The following per share data and ratios have been derived For the Six For the Year Ended Nov. 26,
from information provided in the financial statements. Months Ended September 30, 1999+ to
March 31, -------------------------------------- Sept. 30,
Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001 2000
===================================================================================================================================
Per Share Operating Performance
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ... $ 12.71 $ 9.43 $ 10.87 $ 12.26 $ 10.00
-----------------------------------------------------------------
Investment income--net ................. .09@@ .06@@ .02@@ .05@@ .02
Realized and unrealized gain (loss) on
investments and foreign currency
transactions allocated from the
Portfolio--net ....................... 3.19 3.53 (1.07) (1.20) 2.24
-----------------------------------------------------------------
Total from investment operations ....... 3.28 3.59 (1.05) (1.15) 2.26
-----------------------------------------------------------------
Less distributions from realized gain
on investments--net .................. (1.48) (.31) (.39) (.24) --
-----------------------------------------------------------------
Net asset value, end of period ......... $ 14.41 $ 12.71 $ 9.43 $ 10.87 $ 12.26
=================================================================
===================================================================================================================================
Total Investment Return**
- -----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ..... 27.86%@ 38.83% (10.15%) (9.51%) 22.66%@
=================================================================
===================================================================================================================================
Ratios to Average Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses++ ............................. 1.69%* 1.86% 1.76% 1.50% 1.88%*
=================================================================
Investment income--net ................. 1.31%* .59% .17% .46% .22%*
=================================================================
===================================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 8,546 $ 7,800 $ 5,520 $ 8,032 $11,241
=================================================================
Portfolio turnover of Global Financial
Services Portfolio ................... 68.70% 205.93% 144.60% 111.71% 68.73%
=================================================================
* Annualized.
** Total investment returns exclude the effects of sales charges.
+ Commencement of operations.
++ Includes the Fund's share of the Portfolio's allocated expenses.
@ Aggregate total investment return.
@@ Based on average shares outstanding.
@@@ Effective April 14, 2003, Class D Shares were redesignated Class A Shares.
See Notes to Financial Statements.
MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. MARCH 31, 2004 11
[LOGO] Merrill Lynch Investment Managers
Financial Highlights (continued)
Merrill Lynch Global Financial Services Fund, Inc.
Class B
-------------------------------------------------------------------
For the
Period
The following per share data and ratios have been derived For the Six For the Year Ended Nov. 26,
from information provided in the financial statements. Months Ended September 30, 1999+ to
March 31, -------------------------------------- Sept. 30,
Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001 2000
===================================================================================================================================
Per Share Operating Performance
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ... $ 12.51 $ 9.36 $ 10.78 $ 12.18 $ 10.00
-----------------------------------------------------------------
Investment income (loss)--net .......... .04@@ (.03)@@ (.07)@@ (.03)@@ (.04)
Realized and unrealized gain (loss) on
investments and foreign currency
transactions allocated from the
Portfolio--net ....................... 3.15 3.49 (1.06) (1.20) 2.22
-----------------------------------------------------------------
Total from investment operations ....... 3.19 3.46 (1.13) (1.23) 2.18
-----------------------------------------------------------------
Less distributions from realized gain
on investments--net .................. (1.45) (.31) (.29) (.17) --
-----------------------------------------------------------------
Net asset value, end of period ......... $ 14.25 $ 12.51 $ 9.36 $ 10.78 $ 12.18
=================================================================
===================================================================================================================================
Total Investment Return**
- -----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ..... 27.38%@ 37.71% (10.83%) (10.21%) 21.80%@
=================================================================
===================================================================================================================================
Ratios to Average Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses++ ............................. 2.45%* 2.64% 2.53% 2.28% 2.63%*
=================================================================
Investment income (loss)--net .......... .58%* (.24%) (.60%) (.30%) (.56%)*
=================================================================
===================================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $41,100 $37,202 $36,476 $59,928 $63,083
=================================================================
Portfolio turnover of Global Financial
Services Portfolio ................... 68.70% 205.93% 144.60% 111.71% 68.73%
=================================================================
* Annualized.
** Total investment returns exclude the effects of sales charges.
+ Commencement of operations.
++ Includes the Fund's share of the Portfolio's allocated expenses.
@ Aggregate total investment return.
@@ Based on average shares outstanding.
See Notes to Financial Statements.
12 MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. MARCH 31, 2004
Financial Highlights (continued)
Merrill Lynch Global Financial Services Fund, Inc.
Class C
-------------------------------------------------------------------
For the
Period
The following per share data and ratios have been derived For the Six For the Year Ended Nov. 26,
from information provided in the financial statements. Months Ended September 30, 1999+ to
March 31, -------------------------------------- Sept. 30,
Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001 2000
===================================================================================================================================
Per Share Operating Performance
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ... $ 12.51 $ 9.36 $ 10.78 $ 12.18 $ 10.00
-----------------------------------------------------------------
Investment income (loss)--net .......... .04@@ (.02)@@ (.07)@@ (.04)@@ (.04)
Realized and unrealized gain (loss) on
investments and foreign currency
transactions allocated from the
Portfolio--net ....................... 3.14 3.48 (1.06) (1.19) 2.22
-----------------------------------------------------------------
Total from investment operations ....... 3.18 3.46 (1.13) (1.23) 2.18
-----------------------------------------------------------------
Less distributions from realized gain
on investments--net .................. (1.48) (.31) (.29) (.17) --
-----------------------------------------------------------------
Net asset value, end of period ......... $ 14.21 $ 12.51 $ 9.36 $ 10.78 $ 12.18
=================================================================
===================================================================================================================================
Total Investment Return**
- -----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ..... 27.33%@ 37.71% (10.84%) (10.21%) 21.80%@
=================================================================
===================================================================================================================================
Ratios to Average Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses++ ............................. 2.45%* 2.64% 2.55% 2.29% 2.63%*
=================================================================
Investment income (loss)--net .......... .63%* (.22%) (.61%) (.31%) (.57%)*
=================================================================
===================================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $17,380 $13,762 $ 9,666 $14,805 $14,788
=================================================================
Portfolio turnover of Global Financial
Services Portfolio ................... 68.70% 205.93% 144.60% 111.71% 68.73%
=================================================================
* Annualized.
** Total investment returns exclude the effects of sales charges.
+ Commencement of operations.
++ Includes the Fund's share of the Portfolio's allocated expenses.
@ Aggregate total investment return.
@@ Based on average shares outstanding.
See Notes to Financial Statements.
MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. MARCH 31, 2004 13
[LOGO] Merrill Lynch Investment Managers
Financial Highlights (continued)
Merrill Lynch Global Financial Services Fund, Inc.
Class I@@@
-------------------------------------------------------------------
For the
Period
The following per share data and ratios have been derived For the Six For the Year Ended Nov. 26,
from information provided in the financial statements. Months Ended September 30, 1999+ to
March 31, -------------------------------------- Sept. 30,
Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001 2000
===================================================================================================================================
Per Share Operating Performance
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ... $ 12.76 $ 9.45 $ 10.89 $ 12.29 $ 10.00
-----------------------------------------------------------------
Investment income--net ................. .11@@ .09@@ .05@@ .08@@ .03
Realized and unrealized gain (loss) on
investments and foreign currency
transactions allocated from the
Portfolio--net ....................... 3.20 3.53 (1.07) (1.21) 2.26
-----------------------------------------------------------------
Total from investment operations ....... 3.31 3.62 (1.02) (1.13) 2.29
-----------------------------------------------------------------
Less distributions from realized gain
on investments--net .................. (1.62) (.31) (.42) (.27) --
-----------------------------------------------------------------
Net asset value, end of period ......... $ 14.45 $ 12.76 $ 9.45 $ 10.89 $ 12.29
=================================================================
===================================================================================================================================
Total Investment Return**
- -----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ..... 28.01%@ 39.10% (9.85%) (9.36%) 22.90%@
=================================================================
===================================================================================================================================
Ratios to Average Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses++ ............................. 1.44%* 1.60% 1.51% 1.27% 1.62%*
=================================================================
Investment income--net ................. 1.56%* .81% .43% .71% .44%*
=================================================================
===================================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $12,066 $11,325 $ 8,641 $12,741 $ 8,371
=================================================================
Portfolio turnover of Global Financial
Services Portfolio ................... 68.70% 205.93% 144.60% 111.71% 68.73%
=================================================================
* Annualized.
** Total investment returns exclude the effects of sales charges.
+ Commencement of operations.
++ Includes the Fund's share of the Portfolio's allocated expenses.
@ Aggregate total investment return.
@@ Based on average shares outstanding.
@@@ Effective April 14, 2003, Class A Shares were redesignated Class I Shares.
See Notes to Financial Statements.
14 MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. MARCH 31, 2004
Financial Highlights (concluded)
Merrill Lynch Global Financial Services Fund, Inc.
Class R
---------------------------
For the
For the Period
The following per share data and ratios have been derived Six Months Jan. 3,
from information provided in the financial statements. Ended 2003+ to
March 31, Sept. 30,
Increase (Decrease) in Net Asset Value: 2004 2003
========================================================================================================================
Per Share Operating Performance
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ........................... $ 12.62 $ 10.16
---------------------------
Investment income--net@@ ....................................... .10 .04
Realized and unrealized gain on investments and foreign currency
transactions allocated from the Portfolio--net ............... 3.14 2.42
---------------------------
Total from investment operations ............................... 3.24 2.46
---------------------------
Less distributions from realized gain on investments--net ...... (1.59) --
---------------------------
Net asset value, end of period ................................. $ 14.27 $ 12.62
===========================
========================================================================================================================
Total Investment Return**
- ------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ............................. 27.73%@ 24.21%@
===========================
========================================================================================================================
Ratios to Average Net Assets
- ------------------------------------------------------------------------------------------------------------------------
Expenses*** .................................................... 1.94%* 2.17%*
===========================
Investment income--net ......................................... 1.06%* .45%*
===========================
========================================================================================================================
Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) ....................... $ 126 $ 49
===========================
Portfolio turnover of Global Financial Services Portfolio ...... 68.70% 205.93%
===========================
* Annualized.
** Total investment returns exclude the effects of sales charges.
*** Includes the Fund's share of the Portfolio's allocated expenses.
+ Commencement of operations.
@ Aggregate total investment return.
@@ Based on average shares outstanding.
See Notes to Financial Statements.
MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. MARCH 31, 2004 15
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements
Merrill Lynch Global Financial Services Fund, Inc.
1. Significant Accounting Policies:
Merrill Lynch Global Financial Services Fund, Inc. (the "Fund") is registered
under the Investment Company Act of 1940, as amended, as a diversified mutual
fund. The Fund seeks to achieve its investment objective by investing all of its
assets in the Global Financial Services Portfolio (the "Portfolio"), which is
the portfolio of Global Financial Services Master Trust that has the same
investment objective as the Fund. The value of the Fund's investment in the
Portfolio reflects the Fund's proportionate interest in the net assets of the
Portfolio. The performance of the Fund is directly affected by the performance
of the Portfolio. The financial statements of the Portfolio, including the
Schedule of Investments, are included elsewhere in this report and should be
read in conjunction with the Fund's financial statements. The Fund's financial
statements are prepared in conformity with accounting principles generally
accepted in the United States of America, which may require the use of
management accruals and estimates. 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 March 31, 2004, was 100%. The Fund offers multiple classes of shares.
Shares of Class A and Class I are sold with a front-end sales charge. Shares of
Class B and Class C may be subject to a contingent deferred sales charge. Class
R Shares are sold only to certain retirement plans. All classes of shares have
identical voting, dividend, liquidation and other rights and the same terms and
conditions, except that Class A, Class B, Class C and Class R Shares bear
certain expenses related to the account maintenance of such shares, and Class B,
Class C and Class R 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.
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, a withholding tax may be imposed on interest, dividends and capital gains
at various rates.
(d) Prepaid registration fees -- Prepaid registration fees are charged to
expense as the related shares are issued.
(e) Dividends and distributions -- Dividends and distributions paid by the Fund
are recorded on the ex-dividend dates.
(f) Investment transactions -- Investment transactions in the Portfolio are
accounted for on a trade date basis.
2. Transactions with Affiliates:
The Fund has entered into an Administrative Services Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), a wholly-owned subsidiary of Merrill Lynch & Co., Inc. (ML & Co.),
which is the limited partner. The Fund pays a monthly fee at an annual rate of
..35% of the Fund's average daily net assets for the performance of
administrative services (other than investment advice and related portfolio
activities) necessary for the operation of the Fund.
16 MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. MARCH 31, 2004
Notes to Financial Statements (continued)
Merrill Lynch Global Financial Services Fund, Inc.
The Fund has entered into a Distribution Agreement and Distribution Plans with
FAM Distributors, Inc. ("FAMD" or the "Distributor"), which is a wholly-owned
subsidiary of Merrill Lynch Group, Inc. Pursuant to the Distribution Plans
adopted by the Fund in accordance with Rule 12b-1 under the Investment Company
Act of 1940, the Fund pays the Distributor ongoing account maintenance and
distribution fees. The fees are accrued daily and paid monthly at annual rates
based upon the average daily net assets of the shares as follows:
- --------------------------------------------------------------------------------
Account Distribution
Maintenance Fee Fee
- --------------------------------------------------------------------------------
Class A ................................ .25% --
Class B ................................ .25% .75%
Class C ................................ .25% .75%
Class R ................................ .25% .25%
- --------------------------------------------------------------------------------
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("MLPF&S"), a subsidiary of ML & Co., also provides account
maintenance and distribution services to the Fund. The ongoing account
maintenance fee compensates the Distributor and MLPF&S for providing account
maintenance services to Class A, Class B, Class C and Class R shareholders. The
ongoing distribution fee compensates the Distributor and MLPF&S for providing
shareholder and distribution-related services to Class B, Class C and Class R
shareholders.
For the six months ended March 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 .............................. $ 494 $7,827
Class I .............................. $ 10 $ 145
- --------------------------------------------------------------------------------
For the six months ended March 31, 2004, MLPF&S received contingent deferred
sales charges of $27,322 and $380 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 Fund are officers and/or directors of
FAM, PSI, FAMD, FDS, and/or ML & Co.
3. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions was
$1,278,835 and $8,229,878 for the six months ended March 31, 2004 and for the
year ended September 30, 2003, respectively.
Transactions in capital shares for each class were as follows:
- -------------------------------------------------------------------------------
Class A Shares for the Six Months Dollar
Ended March 31, 2004 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 103,934 $ 1,473,355
Shares issued to shareholders in
reinvestment of distributions .......... 70,612 875,587
Automatic conversion of shares ........... 35,101 484,875
------------------------------
Total issued ............................. 209,647 2,833,817
Shares redeemed .......................... (230,185) (3,237,567)
------------------------------
Net decrease ............................. (20,538) $ (403,750)
==============================
- -------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended September 30, 2003+ Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 198,556 $ 2,159,121
Shares issued to shareholders in
reinvestment of distributions .......... 15,790 161,529
Automatic conversion of shares ........... 63,933 669,444
------------------------------
Total issued ............................. 278,279 2,990,094
Shares redeemed .......................... (249,724) (2,789,847)
------------------------------
Net increase ............................. 28,555 $ 200,247
==============================
+ Effective April 14, 2003, Class D Shares were redesignated Class A Shares.
- -------------------------------------------------------------------------------
Class B Shares for the Six Months Dollar
Ended March 31, 2004 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 122,807 $ 1,673,610
Shares issued to shareholders in
reinvestment of distributions .......... 264,693 3,253,082
------------------------------
Total issued ............................. 387,500 4,926,692
Automatic conversion of shares ........... (35,554) (484,875)
Shares redeemed .......................... (440,661) (6,016,779)
------------------------------
Net decrease ............................. (88,715) $ (1,574,962)
==============================
- -------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended September 30, 2003 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 218,612 $ 2,440,960
Shares issued to shareholders in
reinvestment of distributions .......... 89,036 901,936
------------------------------
Total issued ............................. 307,648 3,342,896
Automatic conversion of shares ........... (64,641) (669,444)
Shares redeemed .......................... (1,166,371) (12,378,889)
------------------------------
Net decrease ............................. (923,364) $ (9,705,437)
==============================
MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. MARCH 31, 2004 17
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements (concluded)
Merrill Lynch Global Financial Services Fund, Inc.
- -------------------------------------------------------------------------------
Class C Shares for the Six Months Dollar
Ended March 31, 2004 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 132,787 $ 1,836,904
Shares issued to shareholders in
reinvestment of distributions .......... 117,888 1,445,300
------------------------------
Total issued ............................. 250,675 3,282,204
Shares redeemed .......................... (127,630) (1,749,806)
------------------------------
Net increase ............................. 123,045 $ 1,532,398
==============================
- -------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended September 30, 2003 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 367,836 $ 4,301,337
Shares issued to shareholders in
reinvestment of distributions .......... 27,775 281,360
------------------------------
Total issued ............................. 395,611 4,582,697
Shares redeemed .......................... (328,135) (3,379,942)
------------------------------
Net increase ............................. 67,476 $ 1,202,755
==============================
- -------------------------------------------------------------------------------
Class I Shares for the Six Months Dollar
Ended March 31, 2004+ Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 153,376 $ 2,127,782
Shares issued to shareholders in
reinvestment of distributions .......... 104,603 1,300,211
------------------------------
Total issued ............................. 257,979 3,427,993
Shares redeemed .......................... (310,432) (4,328,634)
------------------------------
Net decrease ............................. (52,453) $ (900,641)
==============================
- -------------------------------------------------------------------------------
Class I Shares for the Year Dollar
Ended September 30, 2003+ Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 465,829 $ 5,282,213
Shares issued to shareholders in
reinvestment of distributions .......... 24,511 251,244
------------------------------
Total issued ............................. 490,340 5,533,457
Shares redeemed .......................... (517,504) (5,508,467)
------------------------------
Net increase (decrease) .................. (27,164) $ 24,990
==============================
+ Effective April 14, 2003, Class A Shares were redesignated Class I Shares.
- -------------------------------------------------------------------------------
Class R Shares for the Six Months Dollar
Ended March 31, 2004 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 4,655 $ 65,302
Shares issued to shareholders in
reinvestment of distributions .......... 664 8,157
------------------------------
Total issued ............................. 5,319 73,459
Shares redeemed .......................... (406) (5,339)
------------------------------
Net increase ............................. 4,913 $ 68,120
==============================
- -------------------------------------------------------------------------------
Class R Shares for the Period
January 3, 2003+ to Dollar
September 30, 2003 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 4,018 $ 48,960
Shares redeemed .......................... (111) (1,393)
------------------------------
Net increase ............................. 3,907 $ 47,567
==============================
+ Commencement of operations.
18 MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. MARCH 31, 2004
Schedule of Investments Global Financial Services Portfolio
Value Percent of
Europe Industry* Shares Held Common Stocks (in U.S. dollars) Net Assets
====================================================================================================================================
Belgium Commercial Banks 3,000 KBC Bancassurance Holding $ 175,487 0.2%
--------------------------------------------------------------------------------------------------------------------
Diversified Financial Services 85,300 Fortis 1,813,475 2.3
--------------------------------------------------------------------------------------------------------------------
Total Common Stocks in Belgium 1,988,962 2.5
====================================================================================================================================
Denmark Commercial Banks 65,400 Danske Bank 1,478,942 1.9
--------------------------------------------------------------------------------------------------------------------
Total Common Stocks in Denmark 1,478,942 1.9
====================================================================================================================================
France Insurance 1,000 CNP Assurances 57,758 0.1
18,500 + Scor 32,511 0.0
--------------------------------------------------------------------------------------------------------------------
Total Common Stocks in France 90,269 0.1
====================================================================================================================================
Germany Insurance 77,600 Hannover Rueckversicherungs AG 2,595,771 3.3
--------------------------------------------------------------------------------------------------------------------
Total Common Stocks in Germany 2,595,771 3.3
====================================================================================================================================
Ireland Commercial Banks 125,600 Allied Irish Banks PLC 1,872,424 2.4
--------------------------------------------------------------------------------------------------------------------
Total Common Stocks in Ireland 1,872,424 2.4
====================================================================================================================================
Netherlands Commercial Banks 28,500 ABN AMRO Holding NV 635,679 0.8
--------------------------------------------------------------------------------------------------------------------
Diversified Financial Services 56,000 ING Groep NV 1,230,473 1.5
--------------------------------------------------------------------------------------------------------------------
Total Common Stocks in the Netherlands 1,866,152 2.3
====================================================================================================================================
Russia Commercial Banks 4,740 Sberbank RF 2,085,600 2.6
--------------------------------------------------------------------------------------------------------------------
Total Common Stocks in Russia 2,085,600 2.6
====================================================================================================================================
Spain Commercial Banks 9,300 Banco Popular Espanol SA 544,238 0.7
--------------------------------------------------------------------------------------------------------------------
Insurance 2,600 Corporacion Mapfre SA 31,249 0.0
--------------------------------------------------------------------------------------------------------------------
Total Common Stocks in Spain 575,487 0.7
====================================================================================================================================
Switzerland Insurance 3,000 Swiss Re (Registered Shares) 206,733 0.3
100 Zurich Financial Services AG 15,768 0.0
--------------------------------------------------------------------------------------------------------------------
Total Common Stocks in Switzerland 222,501 0.3
====================================================================================================================================
Turkey Commercial Banks 216,662,800 Akbank T.A.S. 1,154,216 1.5
--------------------------------------------------------------------------------------------------------------------
Total Common Stocks in Turkey 1,154,216 1.5
====================================================================================================================================
United Kingdom Capital Markets 10,700 Close Brothers Group PLC 157,320 0.2
--------------------------------------------------------------------------------------------------------------------
Commercial Banks 8,300 Anglo Irish Bank Corporation PLC 130,762 0.2
13,600 Barclays PLC 119,787 0.1
230,300 Lloyds TSB Group PLC 1,750,167 2.2
-------------------------
2,000,716 2.5
--------------------------------------------------------------------------------------------------------------------
Consumer Finance 68,400 Kensington Group PLC 591,461 0.7
57,500 Provident Financial PLC 772,494 1.0
-------------------------
1,363,955 1.7
--------------------------------------------------------------------------------------------------------------------
Insurance 121,656 Legal & General Group PLC 211,847 0.3
--------------------------------------------------------------------------------------------------------------------
Thrifts & Mortgage Finance 63,400 Northern Rock PLC 904,776 1.1
--------------------------------------------------------------------------------------------------------------------
Total Common Stocks in the United Kingdom 4,638,614 5.8
====================================================================================================================
Total Common Stocks in Europe 18,568,938 23.4
====================================================================================================================
North America
====================================================================================================================================
Bermuda Insurance 71,100 ACE Limited 3,033,126 3.8
13,500 Everest Re Group, Ltd. 1,153,440 1.4
12,200 Montpelier Re Holdings Ltd. 454,328 0.6
91,400 PXRE Group Limited 2,553,716 3.2
1,000 PartnerRe Ltd. 56,450 0.1
72,000 RenaissanceRe Holdings Ltd. 3,744,000 4.7
19,500 XL Capital Ltd. (Class A) 1,482,780 1.9
--------------------------------------------------------------------------------------------------------------------
Total Common Stocks in Bermuda 12,477,840 15.7
MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. MARCH 31, 2004 19
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments (continued) Global Financial Services Portfolio
North America Value Percent of
(concluded) Industry* Shares Held Common Stocks (in U.S. dollars) Net Assets
====================================================================================================================================
United States Capital Markets 45,600 + Affiliated Managers Group, Inc. $ 2,488,848 3.1%
10,800 The Bear Stearns Companies Inc. 946,944 1.2
34,300 Federated Investors, Inc. (Class B) 1,078,049 1.4
11,700 Lehman Brothers Holdings, Inc. 969,579 1.2
-------------------------
5,483,420 6.9
--------------------------------------------------------------------------------------------------------------------
Commercial Banks 4,600 Banknorth Group, Inc. 156,584 0.2
1,300 City National Corporation 77,870 0.1
8,300 SouthTrust Corporation 275,228 0.4
-------------------------
509,682 0.7
--------------------------------------------------------------------------------------------------------------------
Consumer Finance 36,400 Capital One Financial Corporation 2,745,652 3.5
25,900 MBNA Corporation 715,617 0.9
-------------------------
3,461,269 4.4
--------------------------------------------------------------------------------------------------------------------
Diversified Financial Services 35,600 Citigroup Inc. 1,840,520 2.3
--------------------------------------------------------------------------------------------------------------------
Insurance 2,500 + Allmerica Financial Corporation 86,375 0.1
500 Arthur J. Gallagher & Co. 16,285 0.0
4,100 Brown & Brown 158,916 0.3
5,800 Hilb, Rogal and Hamilton Company 220,980 0.3
1,300 Jefferson--Pilot Corporation 71,513 0.1
4,200 Lincoln National Corporation 198,744 0.2
1,300 Torchmark Corporation 69,927 0.1
6,150 + Triad Guaranty Inc. 324,413 0.4
-------------------------
1,147,153 1.5
--------------------------------------------------------------------------------------------------------------------
Real Estate 200 AMB Property Corporation 7,434 0.0
136,600 American Home Mortgage Investment Corp. 3,934,080 5.0
95,600 Friedman, Billings, Ramsey Group, Inc.
(Class A) 2,580,244 3.2
-------------------------
6,521,758 8.2
--------------------------------------------------------------------------------------------------------------------
Thrifts & Mortgage Finance 13,066 Countrywide Credit Industries, Inc. 1,253,029 1.6
31,000 Fannie Mae 2,304,850 2.9
51,300 Freddie Mac 3,029,778 3.8
2,100 MGIC Investment Corporation 134,883 0.2
32,900 The PMI Group, Inc. 1,229,144 1.5
-------------------------
7,951,684 10.0
--------------------------------------------------------------------------------------------------------------------
Total Common Stocks in the United States 26,915,486 34.0
====================================================================================================================
Total Common Stocks in North America 39,393,326 49.7
====================================================================================================================
Pacific Basin/Asia
====================================================================================================================================
China Real Estate 1,125,900 Beijing Capital Land Limited 'H' 386,567 0.5
--------------------------------------------------------------------------------------------------------------------
Total Common Stocks in China 386,567 0.5
====================================================================================================================================
Hong Kong Commercial Banks 5,200 Hang Seng Bank Limited 66,409 0.1
--------------------------------------------------------------------------------------------------------------------
Insurance 121,400 China Insurance International Holdings
Company Limited 64,275 0.1
--------------------------------------------------------------------------------------------------------------------
Real Estate 2,698,000 China Resources Beijing Land Limited 419,014 0.5
669,300 Hopson Development Holdings Limited 180,402 0.2
-------------------------
599,416 0.7
--------------------------------------------------------------------------------------------------------------------
Total Common Stocks in Hong Kong 730,100 0.9
====================================================================================================================================
Indonesia Commercial Banks 5,977,400 PT Bank Central Asia Tbk 2,547,733 3.2
--------------------------------------------------------------------------------------------------------------------
Total Common Stocks in Indonesia 2,547,733 3.2
====================================================================================================================================
20 MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. MARCH 31, 2004
Schedule of Investments (concluded) Global Financial Services Portfolio
Basin/Asia Value Percent of
(concluded) Industry* Shares Held Common Stocks (in U.S. dollars) Net Assets
====================================================================================================================================
Japan Capital Markets 15,400 The Nomura Securities Co., Ltd. $ 280,511 0.4%
--------------------------------------------------------------------------------------------------------------------
Commercial Banks 314,000 The Bank of Yokohama, Ltd. 1,847,148 2.3
--------------------------------------------------------------------------------------------------------------------
Consumer Finance 7,500 Aeon Credit Service Co, Ltd. 468,592 0.6
4,500 Aiful Corporation 461,527 0.6
87,000 Credit Saison Co., Ltd. 2,617,485 3.3
-------------------------
3,547,604 4.5
--------------------------------------------------------------------------------------------------------------------
Insurance 16 Millea Holdings, Inc. 249,147 0.3
--------------------------------------------------------------------------------------------------------------------
Total Common Stocks in Japan 5,924,410 7.5
====================================================================================================================================
South Korea Commercial Banks 470,600 Daegu Bank 2,811,819 3.5
88,400 Hana Bank 1,831,305 2.3
35,200 + Kookmin Bank 1,427,712 1.8
396,700 Pusan Bank 2,539,821 3.2
-------------------------
8,610,657 10.8
--------------------------------------------------------------------------------------------------------------------
Insurance 42,745 Korean Reinsurance Company 1,696,452 2.2
106,600 Oriental Fire & Marine Insurance Co., Ltd. 1,608,601 2.0
-------------------------
3,305,053 4.2
--------------------------------------------------------------------------------------------------------------------
Total Common Stocks in South Korea 11,915,710 15.0
====================================================================================================================
Total Common Stocks in the Pacific
Basin/Asia 21,504,520 27.1
====================================================================================================================
Total Common Stocks (Cost--$59,593,527) 79,466,784 100.2
====================================================================================================================================
Europe Rights (c)
====================================================================================================================================
Spain Insurance 2,600 Corporacion Mapfre SA 1,022 0.0
--------------------------------------------------------------------------------------------------------------------
Total Rights in Europe 1,022 0.0
====================================================================================================================================
Beneficial Interest/
Shares Held Short-Term Securities
====================================================================================================================================
$ 361,959 Merrill Lynch Liquidity Series, LLC Cash
Sweep Series I (a) 361,959 0.5
$1,858,762 Merrill Lynch Liquidity Series, LLC Money
Market Series (a)(b) 1,858,762 2.3
619,588 Merrill Lynch Premier Institutional Fund
(a)(b) 619,588 0.8
--------------------------------------------------------------------------------------------------------------------
Total Short-Term Securities
(Cost--$2,840,309) 2,840,309 3.6
====================================================================================================================================
Total Investments (Cost--$62,433,836) 82,308,115 103.8
Liabilities in Excess of Other Assets (3,039,101) (3.8)
------------------------
Net Assets $79,269,014 100.0%
========================
* 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.
+ Non-income producing security.
(a) 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:
--------------------------------------------------------------------------
Interest/
Net Dividend
Affiliate Activity Income
--------------------------------------------------------------------------
Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I $ 218,172 $ 1,480
Merrill Lynch Liquidity Series, LLC
Money Market Series $(1,000,073) $ 2,097
Merrill Lynch Premier Institutional Fund (957,477) $ 735
--------------------------------------------------------------------------
(b) Security was purchased with the cash proceeds from securities loans.
(c) The rights may be exercised until April 8, 2004.
See Notes to Financial Statements.
MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. MARCH 31, 2004 21
[LOGO] Merrill Lynch Investment Managers
Statement of Assets and Liabilities Global Financial Services Portfolio
As of March 31, 2004
=====================================================================================================================
Assets
- ---------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value
(including securities loaned of $2,363,862)
(identified cost--$59,593,527) ............................ $ 79,467,806
Investments in affiliated securities, at value
(identified cost--$2,840,309) ............................. 2,840,309
Cash ........................................................ 278,049
Receivables:
Dividends ................................................ $ 751,633
Securities sold .......................................... 381,918
Contributions ............................................ 219,955
Securities lending--net .................................. 742
Interest ................................................. 656 1,354,904
------------
Prepaid expenses and other assets ........................... 6,963
------------
Total assets ................................................ 83,948,031
------------
=====================================================================================================================
Liabilities
- ---------------------------------------------------------------------------------------------------------------------
Collateral on securities loaned, at value ................... 2,478,350
Payables:
Securities purchased ..................................... 2,038,710
Withdrawals .............................................. 157,229
Investment adviser ....................................... 4,283
Other affiliates ......................................... 396 2,200,618
------------
Accrued expenses and other liabilities ...................... 49
------------
Total liabilities ........................................... 4,679,017
------------
=====================================================================================================================
Net Assets
- ---------------------------------------------------------------------------------------------------------------------
Net assets .................................................. $ 79,269,014
============
=====================================================================================================================
Net Assets Consist of
- ---------------------------------------------------------------------------------------------------------------------
Investors' capital .......................................... $ 59,357,984
Unrealized appreciation on investments and foreign
currency transactions--net ................................ 19,911,030
------------
Net Assets .................................................. $ 79,269,014
============
See Notes to Financial Statements.
22 MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. MARCH 31, 2004
Statement of Operations Global Financial Services Portfolio
For the Six Months Ended March 31, 2004
=====================================================================================================================
Investment Income
- ---------------------------------------------------------------------------------------------------------------------
Dividends (net of $98,113 foreign withholding tax) .......... $ 1,175,236
Interest from affiliates .................................... 1,480
Securities lending--net ..................................... 2,832
------------
Total income ................................................ 1,179,548
------------
=====================================================================================================================
Expenses
- ---------------------------------------------------------------------------------------------------------------------
Investment advisory fees .................................... $ 155,285
Custodian fees .............................................. 38,101
Accounting services ......................................... 37,718
Trustees' fees and expenses ................................. 20,283
Professional fees ........................................... 17,207
Pricing fees ................................................ 2,599
Other ....................................................... 5,701
------------
Total expenses .............................................. 276,894
------------
Investment income--net ...................................... 902,654
------------
=====================================================================================================================
Realized & Unrealized Gain (Loss) on Investments & Foreign Currency Transactions--Net
- ---------------------------------------------------------------------------------------------------------------------
Realized gain (loss) on:
Investments--net ......................................... 7,257,768
Foreign currency transactions--net ....................... (69,632) 7,188,136
------------
Change in unrealized appreciation on:
Investments--net ......................................... 10,901,747
Foreign currency transactions--net ....................... 9,558 10,911,305
-----------------------------
Total realized and unrealized gain on investments and foreign
currency transactions--net ................................ 18,099,441
------------
Net Increase in Net Assets Resulting from Operations ........ $ 19,002,095
============
See Notes to Financial Statements.
MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. MARCH 31, 2004 23
[LOGO] Merrill Lynch Investment Managers
Statements of Changes in Net Assets Global Financial Services Portfolio
For the Six For the
Months Ended Year Ended
March 31, September 30,
Increase (Decrease) in Net Assets: 2004 2003
=====================================================================================================================
Operations
- ---------------------------------------------------------------------------------------------------------------------
Investment income--net ...................................... $ 902,654 $ 1,035,953
Realized gain on investments and foreign currency
transactions--net ......................................... 7,188,136 5,327,405
Change in unrealized appreciation/depreciation on investments
and foreign currency transactions--net .................... 10,911,305 14,600,965
-----------------------------
Net increase in net assets resulting from operations ........ 19,002,095 20,964,323
-----------------------------
=====================================================================================================================
Capital Transactions
- ---------------------------------------------------------------------------------------------------------------------
Proceeds from contributions ................................. 7,176,953 14,232,591
Fair value of withdrawals ................................... (17,081,544) (25,367,419)
-----------------------------
Net decrease in net assets derived from capital transactions (9,904,591) (11,134,828)
-----------------------------
=====================================================================================================================
Net Assets
- ---------------------------------------------------------------------------------------------------------------------
Total increase in net assets ................................ 9,097,504 9,829,495
Beginning of period ......................................... 70,171,510 60,342,015
-----------------------------
End of period ............................................... $ 79,269,014 $ 70,171,510
=============================
See Notes to Financial Statements.
24 MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. MARCH 31, 2004
Financial Highlights Global Financial Services Portfolio
For the Six For the Year Ended For the Period
Months Ended September 30, Nov. 26, 1999+
The following ratios have been derived from March 31, ----------------------------------- to Sept. 30,
information provided in the financial statements. 2004 2003 2002 2001 2000
====================================================================================================================================
Total Investment Return**
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return ................ 28.05% 40.92% (8.61%) -- --
==================================================================
====================================================================================================================================
Ratios to Average Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses ............................... .71%* .76% .67% .63% .71%*
==================================================================
Investment income--net ................. 2.32%* 1.64% 1.26% 1.34% 1.36%*
==================================================================
====================================================================================================================================
Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $79,269 $70,172 $60,342 $95,504 $97,490
==================================================================
Portfolio turnover ..................... 68.70% 205.93% 144.60% 111.71% 68.73%
==================================================================
* Annualized.
** Total investment return is required to be disclosed for fiscal years
beginning after December 15, 2000.
+ Commencement of operations.
See Notes to Financial Statements.
MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. MARCH 31, 2004 25
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements Global Financial Services Portfolio
1. Significant Accounting Policies:
Global Financial Services Portfolio (the "Portfolio") is part of Global
Financial Services Master Trust (the "Trust"). The Trust is registered under the
Investment Company Act of 1940, as amended, and is organized as a Delaware
statutory trust. The Declaration of Trust permits the Trustees to issue
nontransferable interests in the Trust, subject to certain limitations. The
Portfolio's financial statements are prepared in conformity with accounting
principles generally accepted in the United States of America, which may require
the use of management accruals and estimates. 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 Portfolio
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 Portfolio, which may use a matrix system for
valuations. The procedures of a pricing service and its valuations are reviewed
by the officers of the Portfolio 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 market. Losses may arise due to changes in the value of the
contract or if the counterparty does not perform under the contract.
26 MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. MARCH 31, 2004
Notes to Financial Statements (continued) Global Financial Services Portfolio
o Financial futures contracts -- The Portfolio may purchase or sell
financial futures contracts and options on such futures contracts. Future
Contracts are contracts for delayed delivery of securities at specific
future date and at a specific price or yield. Upon entering into a
contract, the Portfolio deposits and maintains as collateral such initial
margin as required by the exchange on which the transaction is effected.
Pursuant to the contract, the Portfolio agrees to receive from or pay to
the broker an amount of cash equal to the daily fluctuation in value of
the contract. Such receipts or payments are known as variation margin and
are recorded by the Portfolio as unrealized gains or losses. When the
contract is closed, the Portfolio records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened
and the value at the time it was closed.
o Options -- The Portfolio 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
accounted for on the date the securities are purchased or sold (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.
(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
MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. MARCH 31, 2004 27
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements (continued) Global Financial Services Portfolio
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 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 Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), an indirect, wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML
& Co."), which is the limited partner.
FAM is responsible for the management of the Portfolio's investments and
provides the necessary personnel, facilities, equipment and certain other
services necessary to the operations of the Trust. For such services, the
Portfolio pays a monthly fee at an annual rate of .40% of the average daily
value of the Trusts' net assets. FAM has entered into a Sub-Advisory Agreement
with Merrill Lynch Asset Management U.K. Limited ("MLAM U.K."), an affiliate of
FAM, pursuant to which MLAM U.K. provides investment advisory services to FAM
with respect to the Fund. There is no increase in the aggregate fees paid by the
Fund for these services.
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 FAM, 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 FAM or its affiliates. For the six months ended March 31, 2004,
MLIM, LLC received $1,199 in securities lending agent fees.
In addition, MLPF&S received $36,317 in commissions on the execution of
portfolio security transactions for the Portfolio for the six months ended March
31, 2004.
For the six months ended March 31, 2004, the Portfolio reimbursed FAM $689 for
certain accounting services.
Certain officers and/or trustees of the Trust are officers and/or directors of
FAM, PSI, MLAM U.K. and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the six
months ended March 31, 2004 were $52,705,008 and $61,225,129, respectively.
Net realized gains (losses) for the six months ended March 31, 2004 and net
unrealized gains as of March 31, 2004 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Gains
- --------------------------------------------------------------------------------
Long-term investments ................... $ 7,257,768 $19,874,279
Foreign currency transactions ........... (69,632) 36,751
-------------------------------
Total ................................... $ 7,188,136 $19,911,030
===============================
As of March 31, 2004, net unrealized appreciation for Federal income tax
purposes aggregated $18,073,158, of which $18,316,076 related to appreciated
securities and $242,918 related to depreciated securities. At March 31, 2004,
the aggregate cost of investments for Federal income tax purposes was
$64,234,957.
28 MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. MARCH 31, 2004
Notes to Financial Statements (concluded) Global Financial Services Portfolio
4. Short-Term Borrowings:
The Portfolio, along with certain other funds managed by FAM 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 March 31, 2004.
5. Commitments:
At March 31, 2004, the Portfolio had entered into foreign exchange contracts
under which it had agreed to purchase and sell various foreign currencies with
approximate values of $779,000 and $39,000, respectively.
MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. MARCH 31, 2004 29
[LOGO] Merrill Lynch Investment Managers
Officers and Directors/Trustees
Terry K. Glenn, President and Director/Trustee
Ronald W. Forbes, Director/Trustee
Cynthia A. Montgomery, Director/Trustee
Kevin A. Ryan, Director/Trustee
Roscoe S. Suddarth, Director/Trustee
Richard R. West, Director/Trustee
Edward D. Zinbarg, Director/Trustee
Robert C. Doll, Jr., Senior Vice President
Walid Kassem, 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
- --------------------------------------------------------------------------------
Charles C. Reilly, Director/Trustee of Merrill Lynch Global Financial Services
Fund, Inc., has recently retired. The Fund's Board of Directors/Trustees wishes
Mr. Reilly well in his retirement.
- --------------------------------------------------------------------------------
30 MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. MARCH 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 website
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 FINANCIAL SERVICES FUND, INC. MARCH 31, 2004 31
[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)
on www.mutualfunds.ml.com; and (3) on the Securities and Exchange Commission's
website at http://www.sec.gov.
Merrill Lynch Global Financial Services Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
#MLGFSF -- 3/04
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 Financial Services Fund, Inc. and Merrill Lynch
Global Financial Services Trust
By: /s/ Terry K. Glenn
------------------------
Terry K. Glenn,
President of
Merrill Lynch Global Financial Services Fund, Inc. and Merrill Lynch
Global Financial Services Trust
Date: May 21, 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 Financial Services Fund, Inc. and Merrill Lynch
Global Financial Services Trust
Date: May 21, 2004
By: /s/ Donald C. Burke
------------------------
Donald C. Burke,
Chief Financial Officer of
Merrill Lynch Global Financial Services Fund, Inc. and Merrill Lynch
Global Financial Services Trust
Date: May 21, 2004