UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-9375
811-9633
Name of Fund: Merrill Lynch Global Financial Services Fund, Inc.
Global Financial Services Master Trust
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Terry K. Glenn, President, Merrill Lynch
Global Financial Services Fund, Inc. and Global Financial Services Master
Trust, 800 Scudders Mill Road, Plainsboro, NJ, 08536. Mailing address:
P.O. Box 9011, Princeton NJ, 08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 09/30/04
Date of reporting period: 10/01/03 - 09/30/04
Item 1 - Report to Stockholders
[LOGO] Merrill Lynch Investment Managers www.mlim.ml.com
Merrill Lynch
Global Financial
Services Fund, Inc.
Annual Report
September 30, 2004
[LOGO] Merrill Lynch Investment Managers
Merrill Lynch Global Financial Services Fund, Inc.
Worldwide Investments as of September 30, 2004 (unaudited)
Percent of
Ten Largest Equity Holdings Net Assets
- --------------------------------------------------------------------------------
Freddie Mac ....................................................... 8.0%
American Home Mortgage
Investment Corp. ............................................... 6.7
Friedman, Billings, Ramsey
Group, Inc. (Class A) .......................................... 5.3
Marschollek, Lautenschlaeger
und Partner AG ................................................. 4.7
RenaissanceRe Holdings Ltd. ....................................... 4.5
PXRE Group Limited ................................................ 4.2
Hana Bank ......................................................... 4.1
Daegu Bank ........................................................ 3.8
ACE Limited ....................................................... 3.3
Pusan Bank ........................................................ 3.2
- --------------------------------------------------------------------------------
Industries Represented Percent of
in the Portfolio* Net Assets
- --------------------------------------------------------------------------------
Commercial Banks .................................................. 28.2%
Insurance ......................................................... 24.8
Real Estate ....................................................... 13.4
Thrifts & Mortgage Finance ........................................ 12.4
Capital Markets ................................................... 11.4
Consumer Finance .................................................. 8.2
Diversified Financial Services .................................... 1.3
- --------------------------------------------------------------------------------
* 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.
These industry classifications are unaudited.
Geographic Allocation Percent of
by Country Total Investments
- --------------------------------------------------------------------------------
United States .................................................... 36.9%
South Korea ...................................................... 17.0
Bermuda .......................................................... 10.9
United Kingdom ................................................... 7.8
Germany .......................................................... 7.8
Japan ............................................................ 4.9
Turkey ........................................................... 3.2
Indonesia ........................................................ 2.9
India ............................................................ 2.5
Netherlands ...................................................... 1.2
Russia ........................................................... 1.1
Denmark .......................................................... 1.1
Ireland .......................................................... 0.6
Belgium .......................................................... 0.5
Hong Kong ........................................................ 0.4
France ........................................................... 0.3
Spain ............................................................ 0.3
China ............................................................ 0.2
Hungary .......................................................... 0.2
Switzerland ...................................................... 0.1
Australia ........................................................ 0.1
- --------------------------------------------------------------------------------
Electronic Delivery
The Fund offers electronic delivery of communications to its shareholders. In
order to receive this service, you must register your account and provide us
with e-mail information. To sign up for this service, simply access this Web
site http://www.icsdelivery.com/live and follow the instructions. When you visit
this site, you will obtain a personal identification number (PIN). You will need
this PIN should you wish to update your e-mail address, choose to discontinue
this service and/or make any other changes to the service. This service is not
available for certain retirement accounts at this time.
2 MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. SEPTEMBER 30, 2004
A Letter From the President
Dear Shareholder
For the 12 months ended September 30, 2004, the U.S. stock market, as measured
by the Standard & Poor's 500 (S&P 500) Index, returned +13.87%. The Morgan
Stanley Capital International (MSCI) World Index, which measures the performance
of equity markets in 23 developed nations around the world, returned +17.10% for
the same 12-month period. Returns over the past six months were not as
favorable, with the S&P 500 Index returning -.18% and the MSCI World Index
returning -.14% as of September 30, 2004.
The relative weakness over the past six months may be attributed to investor
concern over global interest rates, which have entered a tightening cycle in
certain areas; oil and commodity prices, with oil reaching $50 per barrel
levels; and geopolitical stress, including continued tensions in Iraq and the
ever-present threat of terrorism.
For the most part, however, equity markets have been supported by improving
economies in important areas around the globe. In the United States, the Federal
Reserve Board (the Fed) recently increased the target interest rate from 1% to
1.75% in three separate moves. This represents a shift from a long-run
accommodative monetary stance, and an indication from the Fed that the U.S.
economy is strengthening.
China has recorded a remarkable rate of economic expansion, which has helped
fuel growth in the economies of its trading partners. Given efforts to preempt
inflation, China's growth is expected to ease somewhat, but still expand at a
rate of approximately 7% in 2004 (compared to 9.8% in 2003). Japan, in the
meantime, could register growth of 4% this year after 13 years of sluggish
economic activity. Other Asian economies, such as that of South Korea, Malaysia,
Singapore, Taiwan and Thailand, appear primed for growth in the area of 5% - 6%.
While economic expansion has not been as swift in Europe, the European Union
welcomed 10 new member nations in May, and the enhanced integration could
provide long-term economic benefits.
As always, our investment professionals are closely monitoring the markets, the
economy and the overall environment in an effort to make well-informed decisions
for the portfolios they manage. For the individual investor, the key during
uncertain times is to remain focused on the big picture. Investment success
comes not from reacting to short-term volatility, but from maintaining a
long-term perspective and adhering to the disciplines of asset allocation,
diversification and rebalancing. We encourage you to work with your financial
advisor to ensure these time-tested techniques are incorporated into your
investment plan. 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. SEPTEMBER 30, 2004 3
[LOGO] Merrill Lynch Investment Managers
A Discussion With Your Fund's Portfolio Manager
Merrill Lynch Global Financial Services Fund, Inc. had good performance
for the year ended September 30, 2004, both in absolute return and relative to
the MSCI World Financials Index.
How did the Fund perform during the fiscal year in light of the existing market
conditions?
For the 12-month period ended September 30, 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 +24.75%, +23.89%, +23.83%, +25.09% and +24.51%, 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
- - 9 of this report to shareholders.) The Fund outperformed its benchmarks, the
Morgan Stanley Capital International (MSCI) World Index and the MSCI World
Financials Index, which posted respective returns of +17.10% and +19.13% for the
same period.
The Fund's fiscal year performance may be divided into roughly four periods of
three months each. Specifically, the Fund's return was close to the benchmark in
late 2003, exceeded it by about 6% in the first quarter of 2004, gave back about
half of that in the second quarter of 2004, and then regained most of it in the
third quarter of 2004.
These gyrations in returns often could be attributed to the same stocks. They
reflected a broader market pattern of alternation between optimism about the
expansion of the U.S. and Asian economies, and concerns about rising short-term
interest rates, the conflict in Iraq and a feared slowdown in China following
rapid growth. This uncertainty in the markets created difficult choices. A good
example is the Fund's large holdings in South Korean stocks, which appreciated
in the first quarter of 2004 and declined in the second quarter of 2004. The
choice was between selling the stocks to collect short-term gains, despite the
continued low absolute and relative valuations of the stocks, versus continuing
to hold them and buying more if they declined. Consistent with our investment
strategy, the second alternative was selected, and we retained the stocks. Even
if it might have been better to realize gains in the first quarter of 2004,
there is no way to consistently anticipate short-term changes in market mood.
The largest contributors to performance were mortgage-related stocks, such as
American Home Mortgage Investment Corp., Countrywide Financial Corporation, and
Freddie Mac. As is often the case, investors were too focused on the short-term
effect of a likely slowdown in mortgage origination and refinancing, without
considering the low valuations of the stocks and the continued high
profitability of the companies. This short-term market perspective, in our view,
is repeating now with property and casualty insurance companies and provides a
good investment opportunity.
A second group that helped, also in specialty finance companies, consisted of
credit card companies such as Capital One Financial Corporation in the United
States and Credit Saison Co., Ltd. in Japan, and of asset managers such as
Affiliated Managers Group, Inc.
The third group that contributed to good performance consisted of banks in
emerging markets, especially Hana and Daegu banks in South Korea, and Akbank
T.A.S. in Turkey, all of whose size in the Fund was increased when their prices
declined in the second quarter of 2004. These companies have surprisingly low
valuations despite their high returns on capital and good prospective growth.
This may be the result of many investors being concerned about past
macroeconomic problems and the perceived risk of emerging markets having less
reliable accounting or less trustworthy management. This judgment may have
limited application now, considering that many countries have addressed
successfully the problems collectively called the Asian crisis of 1997 and 1998,
and that emerging markets compare reasonably well to developed markets, which
have had their share of accounting and management scandals of late. The
resulting discrepancies between perceived value and share price in emerging
markets are typical of the stocks that the Fund seeks for investment.
On the negative side, insurance stocks were the biggest detractors from relative
performance. We did not own enough life insurance stocks, which did well, and
owned property and casualty stocks, which did poorly. The poor performance of
property and casualty stocks is the result of investor concern about prices of
insurance premiums having reached a peak, especially in property, and being
frittered away by competition from companies created with new financing. This
issue, in our view, does not adequately account for the strong competitive
position of Bermuda companies owned in the Portfolio, the low stock valuations,
and the possibility that high prices and profits may persist for longer than
expected (as with mortgage companies before).
4 MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. SEPTEMBER 30, 2004
What changes were made to the Portfolio during the year?
There were sizable changes to the Portfolio during the year. Many stocks with
large positions ranging from 3% to 5% of net assets at September 30, 2004, were
not even in the Portfolio a year earlier. These included the German insurance
distributor Marschollek, Lautenschlaeger und Partner AG, the Bermuda property
reinsurer PXRE Group Limited, and several banks and other financial institutions
in South Korea, such as the Hana, Daegu and Pusan banks, and Oriental Fire &
Marine Insurance Co., Ltd. There were many more such holdings initiated in
Turkey, Indonesia, South Korea, Russia and India. The motivation for such
increases was the high profits and low valuations still to be found in emerging
markets.
The purchases of new holdings were financed by selling U.S. and European stocks
that had performed well. Foremost among them were Citigroup Inc., Fortis and the
mortgage insurers MGIC Investment Corporation, The PMI Group, Inc. and Radian,
which, however, were sold too early. Other decreases included Fannie Mae and
European stocks, such as Allied Irish Banks PLC and Danske Bank, and consisted
of trimming the positions in some insurers, such as ACE Limited, RenaissanceRe
Holdings Ltd. and Hannover Re. Many of the sales were not easy to decide, as the
stocks sold continued to be attractive, but were made in light of the increased
attractiveness of emerging market stocks in the second quarter of 2004.
How would you characterize the Portfolio's position at the close of the period?
The Portfolio continues to have a concentrated focus on specialty finance
companies, which include credit card and mortgage companies; emerging markets,
especially South Korea but also Indonesia, India, Turkey, Russia and Hungary;
and property and casualty companies, especially in Bermuda.
Specialty finance companies, with the largest holdings being Freddie Mac,
American Home Mortgage, Northern Rock and Capital One, are attractive because
their specialization and scale give them an edge over more diversified
competitors. The valuation of some of these companies, such as Freddie Mac,
remains quite low because of perceived but, in our view, unsubstantiated
problems.
Select emerging market companies offer a combination of high growth and high
return on capital, all at prices well below those to be found in developed
markets. The Fund, therefore, has many investments in these companies, instead
of, for example, retail banks in the United States, which are attractive
investments in absolute terms but less so in relative terms. Property and
casualty companies have a similar combination of high profitability, good growth
and low valuation, and, accordingly, are a large and growing part of the
portfolio.
Finally, interest rates are never a consideration in investing in the Fund and
probably never will be. It is worth discussing interest rates, even though they
may be irrelevant to the Fund, because it is a commonly accepted belief that it
makes sense to buy financials if interest rates are declining and sell them if
they are rising. It must be noted that this common belief makes two implicit
assumptions that are not borne out by facts. First, it is assumed that the
direction of future interest rates is a matter of common knowledge and
agreement, on which reasonable people do not differ. Second, it is assumed that
the negative correlation between interest rates and share prices of financial
stocks has held with some regularity in the past.
There are three reasons why we do not consider interest rates. First, the impact
of rising interest rates on the profits of financial companies varies
significantly from quite positive to quite negative and is difficult to predict,
especially since many companies adjust their business tactics to offset the
impact of their interest rate expectations. In other words, the raw impact of
interest rates is almost never observed. Second, we do not know how to
consistently predict the direction of interest rates in a way that differs from
the assumptions already reflected in the price of fixed income securities.
Third, we do not know what competing equity investors are assuming about future
interest rates and are reflecting accordingly in the prices of financial stocks.
Therefore, even if somehow we were able to correctly predict the direction of
interest rates and their business impact, we still would not know if the
reaction of stocks would be good or bad when our predictions are realized,
because we cannot be sure what other investors are thinking.
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
October 19, 2004
MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. SEPTEMBER 30, 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 (front-end load) of
5.25% and an account maintenance fee of 0.25% per year (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% per year and an account
maintenance fee of 0.25% per year. 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% per year and an
account maintenance fee of 0.25% per year. 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% per year and an account maintenance fee of 0.25% per year. 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 performance data current to the
most recent month-end. Performance results do not reflect the deduction of taxes
that a shareholder would pay on fund distributions or the redemption of fund
shares. The Fund is subject to a 2% redemption fee for sales or exchanges of
shares within 30 days of purchase. Performance data does not reflect this
potential fee. 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 September 30, 2004 Total Return Total Return Total Return
===========================================================================================================
ML Global Financial Services Fund, Inc. Class A Shares* -2.43% +24.75% +72.63%
- -----------------------------------------------------------------------------------------------------------
ML Global Financial Services Fund, Inc. Class B Shares* -2.74 +23.89 +66.37
- -----------------------------------------------------------------------------------------------------------
ML Global Financial Services Fund, Inc. Class C Shares* -2.74 +23.83 +66.28
- -----------------------------------------------------------------------------------------------------------
ML Global Financial Services Fund, Inc. Class I Shares* -2.28 +25.09 +74.74
- -----------------------------------------------------------------------------------------------------------
ML Global Financial Services Fund, Inc. Class R Shares* -2.52 +24.51 +54.66
- -----------------------------------------------------------------------------------------------------------
MSCI World Index** -0.14 +17.10 -16.38/+32.76
- -----------------------------------------------------------------------------------------------------------
MSCI World Financial Index*** -1.25 +19.13 +10.81/+38.88
- -----------------------------------------------------------------------------------------------------------
* 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. SEPTEMBER 30, 2004
Performance Data (continued)
Total Return Based on a $10,000 Investment
A line graph depicting the growth of an investment in the Fund's Class A Shares
& Class B Shares compared to growth of an investment in the MSCI World Index and
the MSCI World Financial Index. Values are from November 26, 1999 to September
2004:
11/26/99** 9/00 9/01 9/02 9/03 9/04
ML Global Financial Services
Fund, Inc.+--Class A Shares* $ 9,475 $11,616 $10,511 $9,444 $13,112 $16,357
ML Global Financial Services
Fund, Inc.+--Class B Shares* $10,000 $12,180 $10,936 $9,752 $13,429 $16,437
MSCI World Index++ $10,000 $ 9,806 $ 7,046 $5,695 $ 7,141 $ 8,362
MSCI World Financial Index+++ $10,000 $10,742 $ 8,695 $7,157 $ 9,302 $11,081
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
** Commencement of operations.
+ ML Global Financial Services Fund, Inc. invests primarily in a portfolio
of common stocks of financial services companies that Fund management
believes have the potential to increase in value.
++ This unmanaged market capitalization-weighted Index is comprised of a
representative sampling of large-, medium- and small-capitalization
companies in 23 countries, including the United States.
+++ 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. The starting date for the
Index in the Class A and Class B Shares' graph is 11/30/99.
Past performance is not indicative of future results.
Average Annual Total Return
Return Without Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
One Year Ended 9/30/04 +24.75% +18.20%
- --------------------------------------------------------------------------------
Inception (11/26/99)
through 9/30/04 +11.92 +10.69
- --------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
Return Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
One Year Ended 9/30/04 +23.89% +19.89%
- --------------------------------------------------------------------------------
Inception (11/26/99)
through 9/30/04 +11.08 +10.80
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 4% and is reduced to 0% after
six years.
** Assuming payment of applicable contingent deferred sales charge.
MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. SEPTEMBER 30, 2004 7
[LOGO] Merrill Lynch Investment Managers
Performance Data (continued)
Total Return Based on a $10,000 Investment
A line graph depicting the growth of an investment in the Fund's Class C Shares
& Class I Shares compared to growth of an investment in the MSCI World Index and
the MSCI World Financial Index. Values are from November 26, 1999 to September
2004:
11/26/99** 9/00 9/01 9/02 9/03 9/04
ML Global Financial Services
Fund, Inc.+--Class C Shares* $10,000 $12,180 $10,936 $9,751 $13,428 $16,628
ML Global Financial Services
Fund, Inc.+--Class I Shares* $ 9,475 $11,645 $10,555 $9,515 $13,236 $16,556
MSCI World Index++ $10,000 $ 9,806 $ 7,046 $5,695 $ 7,141 $ 8,362
MSCI World Financial Index+++ $10,000 $10,742 $ 8,695 $7,157 $ 9,302 $11,081
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
** Commencement of operations.
+ ML Global Financial Services Fund, Inc. invests primarily in a portfolio
of common stocks of financial services companies that Fund management
believes have the potential to increase in value.
++ This unmanaged market capitalization-weighted Index is comprised of a
representative sampling of large-, medium- and small-capitalization
companies in 23 countries, including the United States.
+++ 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. The starting date for the
Index in the Class C and Class I Shares' graph is 11/30/99.
Past performance is not indicative of future results.
Average Annual Total Return
Return Return
Without CDSC With CDSC**
================================================================================
Class C Shares*
================================================================================
One Year Ended 9/30/04 +23.83% +22.83%
- --------------------------------------------------------------------------------
Inception (11/26/99)
through 9/30/04 +11.06 +11.06
- --------------------------------------------------------------------------------
* 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 9/30/04 +25.09% +18.52%
- --------------------------------------------------------------------------------
Inception (11/26/99)
through 9/30/04 +12.20 +10.96
- --------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
8 MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. SEPTEMBER 30, 2004
Performance Data (concluded)
Total Return Based on a $10,000 Investment
A line graph depicting the growth of an investment in the Fund's Class R Shares
compared to growth of an investment in the MSCI World Index and the MSCI World
Financial Index. Values are from January 3, 2003 to September 2004:
1/03/03** 9/03 9/04
ML Global Financial Services
Fund, Inc.+--Class R Shares* $10,000 $12,421 $15,466
MSCI World Index++ $10,000 $11,338 $13,276
MSCI World Financial Index+++ $10,000 $11,658 $13,888
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
** Commencement of operations.
+ ML Global Financial Services Fund, Inc. invests primarily in a portfolio
of common stocks of financial services companies that Fund management
believes have the potential to increase in value.
++ This unmanaged market capitalization-weighted Index is comprised of a
representative sampling of large-, medium- and small-capitalization
companies in 23 countries, including the United States.
+++ 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.
Past performance is not indicative of future results.
Average Annual Total Return
Class R Shares Return
================================================================================
One Year Ended 9/30/04 +24.51%
- --------------------------------------------------------------------------------
Inception (1/03/03)
through 9/30/04 +28.48
- --------------------------------------------------------------------------------
MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. SEPTEMBER 30, 2004 9
[LOGO] Merrill Lynch Investment Managers
Disclosure of Expenses
Shareholders of this Fund may incur the following charges: (a) expenses related
to transactions, including sales charges, redemption fees and exchange fees; and
(b) operating expenses, including advisory fees, distribution fees including
12(b)-1 fees, and other Fund expenses. The following example (which is based on
a hypothetical investment of $1,000 invested on April 1, 2004 and held through
September 30, 2004) is intended to assist shareholders both in calculating
expenses based on an investment in the Fund and in comparing these expenses with
similar costs of investing in other mutual funds.
The first table below provides information about actual account values and
actual expenses. In order to estimate the expenses a shareholder paid during the
period covered by this report, shareholders can divide their account value by
$1,000 and then multiply the result by the number in the first line under the
heading entitled "Expenses Paid During the Period."
The second table below provides information about hypothetical account values
and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses. In order to assist
shareholders in comparing the ongoing expenses of investing in this Fund and
other funds, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in other funds' shareholder reports.
The expenses shown in the table are intended to highlight shareholders ongoing
costs only and do not reflect any transactional expenses, such as sales charges,
redemption fees, or exchange fees. Therefore, the second table is useful in
comparing ongoing expenses only, and will not help shareholders determine the
relative total expenses of owning different funds. If these transactional
expenses were included, shareholder expenses would have been higher.
Expenses Paid
Beginning Ending During the Period*
Account Value Account Value April 1, 2004 to
April 1, 2004 September 30, 2004 September 30, 2004
===============================================================================================================
Actual
===============================================================================================================
Class A $1,000 $ 975.70 $ 9.34
- ---------------------------------------------------------------------------------------------------------------
Class B $1,000 $ 972.60 $13.12
- ---------------------------------------------------------------------------------------------------------------
Class C $1,000 $ 972.60 $13.12
- ---------------------------------------------------------------------------------------------------------------
Class I $1,000 $ 977.20 $ 8.11
- ---------------------------------------------------------------------------------------------------------------
Class R $1,000 $ 974.80 $10.57
===============================================================================================================
Hypothetical (5% annual return before expenses)**
===============================================================================================================
Class A $1,000 $1,015.55 $ 9.52
- ---------------------------------------------------------------------------------------------------------------
Class B $1,000 $1,011.70 $13.38
- ---------------------------------------------------------------------------------------------------------------
Class C $1,000 $1,011.70 $13.38
- ---------------------------------------------------------------------------------------------------------------
Class I $1,000 $1,016.80 $ 8.27
- ---------------------------------------------------------------------------------------------------------------
Class R $1,000 $1,014.30 $10.78
- ---------------------------------------------------------------------------------------------------------------
* For each class of the Fund, expenses are equal to the annualized expense
ratio for the class (1.89% for Class A, 2.66% for Class B, 2.66% for Class
C, 1.64% for Class I and 2.14% for Class R), multiplied by the average
account value over the period, multiplied by 183/366 (to reflect the
one-half year period shown). Because the Fund is a feeder fund, the
expense table example reflects the expenses of both the feeder fund and
the master fund in which it invests.
** Hypothetical 5% annual return before expenses is calculated by pro-rating
the number of days in the most recent fiscal half year divided by 366.
10 MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. SEPTEMBER 30, 2004
Statement of Assets and Liabilities
Merrill Lynch Global Financial Services Fund, Inc.
As of September 30, 2004
===========================================================================================================================
Assets
- ---------------------------------------------------------------------------------------------------------------------------
Investment in Global Financial Services Portfolio, at value
(identified cost--$57,789,330) ................................... $ 70,761,755
Prepaid expenses .................................................. 39,790
------------
Total assets ...................................................... 70,801,545
------------
===========================================================================================================================
Liabilities
- ---------------------------------------------------------------------------------------------------------------------------
Payables:
Distributor .................................................... $ 43,698
Other affiliates ............................................... 17,550
Administrative fees ............................................ 4,071 65,319
------------
Accrued expenses .................................................. 15,776
------------
Total liabilities ................................................. 81,095
------------
===========================================================================================================================
Net Assets
- ---------------------------------------------------------------------------------------------------------------------------
Net assets ........................................................ $ 70,720,450
============
===========================================================================================================================
Net Assets Consist of
- ---------------------------------------------------------------------------------------------------------------------------
Class A Shares of Common Stock, $.10 par value, 100,000,000 shares
authorized ....................................................... $ 61,744
Class B Shares of Common Stock, $.10 par value, 100,000,000 shares
authorized ....................................................... 243,443
Class C Shares of Common Stock, $.10 par value, 100,000,000 shares
authorized ....................................................... 120,972
Class I Shares of Common Stock, $.10 par value, 100,000,000 shares
authorized ....................................................... 78,136
Class R Shares of Common Stock, $.10 par value, 100,000,000 shares
authorized ....................................................... 3,991
Paid-in capital in excess of par .................................. 49,031,283
Undistributed investment income--net .............................. $ 422,377
Undistributed realized capital gains allocated from the
Portfolio--net ................................................... 7,786,079
Unrealized appreciation allocated from the Portfolio--net ......... 12,972,425
------------
Total accumulated earnings--net ................................... 21,180,881
------------
Net Assets ........................................................ $ 70,720,450
============
===========================================================================================================================
Net Asset Value
- ---------------------------------------------------------------------------------------------------------------------------
Class A--Based on net assets of $8,683,861 and 617,437 shares
outstanding ...................................................... $ 14.06
============
Class B--Based on net assets of $33,732,988 and 2,434,427 shares
outstanding ...................................................... $ 13.86
============
Class C--Based on net assets of $16,714,411 and 1,209,724 shares
outstanding ...................................................... $ 13.82
============
Class I--Based on net assets of $11,034,049 and 781,360 shares
outstanding ...................................................... $ 14.12
============
Class R--Based on net assets of $555,141 and 39,909 shares
outstanding ...................................................... $ 13.91
============
See Notes to Financial Statements.
MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. SEPTEMBER 30, 2004 11
[LOGO] Merrill Lynch Investment Managers
Statement of Operations
Merrill Lynch Global Financial Services Fund, Inc.
For the Year Ended September 30, 2004
===========================================================================================================================
Investment Income Allocated from the Portfolio--Net
- ---------------------------------------------------------------------------------------------------------------------------
Investment income allocated from the Portfolio:
Dividends (net of $188,039 foreign withholding tax) ............ $ 2,242,335
Securities lending--net ........................................ 3,973
Interest from affiliates ....................................... 3,609
Expenses ....................................................... (582,531)
------------
Net investment income allocated from the Portfolio ................ 1,667,386
------------
===========================================================================================================================
Expenses
- ---------------------------------------------------------------------------------------------------------------------------
Account maintenance and distribution fees--Class B ................ $ 377,405
Administration fees ............................................... 260,791
Account maintenance and distribution fees--Class C ................ 160,941
Registration fees ................................................. 64,343
Transfer agent fees--Class B ...................................... 63,397
Printing and shareholder reports .................................. 52,010
Professional fees ................................................. 35,285
Transfer agent fees--Class C ...................................... 28,684
Account maintenance fees--Class A ................................. 21,525
Transfer agent fees--Class I ...................................... 17,489
Transfer agent fees--Class A ...................................... 12,787
Account maintenance and distribution fees--Class R ................ 1,156
Transfer agent fees--Class R ...................................... 376
Other ............................................................. 39,406
------------
Total expenses .................................................... 1,135,595
------------
Investment income--net ............................................ 531,791
------------
===========================================================================================================================
Realized & Unrealized Gain (Loss) Allocated from the Portfolio--Net
- ---------------------------------------------------------------------------------------------------------------------------
Realized gain (loss) allocated from the Portfolio on:
Investments--net ............................................... 11,723,078
Foreign currency transactions--net ............................. (120,491) 11,602,587
------------
Change in unrealized appreciation allocated from the Portfolio--net 3,972,700
------------
Total realized and unrealized gain allocated from the Portfolio--net 15,575,287
------------
Net Increase in Net Assets Resulting from Operations .............. $ 16,107,078
============
See Notes to Financial Statements.
12 MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. SEPTEMBER 30, 2004
Statements of Changes in Net Assets
Merrill Lynch Global Financial Services Fund, Inc.
For the Year Ended
September 30,
-----------------------------
Increase (Decrease) in Net Assets: 2004 2003
===========================================================================================================================
Operations
- ---------------------------------------------------------------------------------------------------------------------------
Investment income--net ............................................ $ 531,791 $ 3,057
Realized gain allocated from the Portfolio--net ................... 11,602,587 5,327,405
Change in unrealized appreciation allocated from the Portfolio--net 3,972,700 14,600,965
-----------------------------
Net increase in net assets resulting from operations .............. 16,107,078 19,931,427
-----------------------------
===========================================================================================================================
Distributions to Shareholders
- ---------------------------------------------------------------------------------------------------------------------------
Realized gain allocated from the Portfolio--net:
Class A ........................................................ (961,927) (178,451)
Class B ........................................................ (4,081,132) (1,105,313)
Class C ........................................................ (1,616,424) (313,427)
Class I ........................................................ (1,398,493) (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 (7,458,905) (8,229,878)
-----------------------------
===========================================================================================================================
Redemption Fees
- ---------------------------------------------------------------------------------------------------------------------------
Redemption fees ................................................... 23 --
-----------------------------
===========================================================================================================================
Net Assets
- ---------------------------------------------------------------------------------------------------------------------------
Total increase in net assets ...................................... 582,063 9,835,431
Beginning of year ................................................. 70,138,387 60,302,956
-----------------------------
End of year* ...................................................... $ 70,720,450 $ 70,138,387
=============================
* Undistributed (accumulated) investment income (loss)--net .... $ 422,377 $ (927)
=============================
See Notes to Financial Statements.
MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. SEPTEMBER 30, 2004 13
[LOGO] Merrill Lynch Investment Managers
Financial Highlights Merrill Lynch Global Financial Services Fund, Inc.
Class A
----------------------------------------------------------------------
The following per share data and ratios have been derived For the Year Ended For the Period
from information provided in the financial statements. September 30, November 26,
------------------------------------------------- 1999+ to 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 ............. .17@@ .06@@ .02@@ .05@@ .02
Realized and unrealized gain (loss)
allocated from the Portfolio--net . 2.76 3.53 (1.07) (1.20) 2.24
----------------------------------------------------------------------
Total from investment operations ... 2.93 3.59 (1.05) (1.15) 2.26
----------------------------------------------------------------------
Less distributions from realized
gain allocated from the
Portfolio--net .................... (1.58) (.31) (.39) (.24) --
----------------------------------------------------------------------
Net asset value, end of period ..... $ 14.06 $ 12.71 $ 9.43 $ 10.87 $ 12.26
======================================================================
====================================================================================================================================
Total Investment Return**
- ------------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share . 24.75% 38.83% (10.15%) (9.51%) 22.66%@
======================================================================
====================================================================================================================================
Ratios to Average Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses++ ......................... 1.78% 1.86% 1.76% 1.50% 1.88%*
======================================================================
Investment income--net ............. 1.21% .59% .17% .46% .22%*
======================================================================
====================================================================================================================================
Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) .................... $ 8,684 $ 7,800 $ 5,520 $ 8,032 $11,241
======================================================================
Portfolio turnover of Global
Financial Services Portfolio ...... 115.38% 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.
14 MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. SEPTEMBER 30, 2004
Financial Highlights (continued)
Merrill Lynch Global Financial Services Fund, Inc.
Class B
----------------------------------------------------------------------
The following per share data and ratios have been derived For the Year Ended For the Period
from information provided in the financial statements. September 30, November 26,
------------------------------------------------- 1999+ to 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 ...... .06@@ (.03)@@ (.07)@@ (.03)@@ (.04)
Realized and unrealized gain (loss)
allocated from the Portfolio--net . 2.74 3.49 (1.06) (1.20) 2.22
----------------------------------------------------------------------
Total from investment operations ... 2.80 3.46 (1.13) (1.23) 2.18
----------------------------------------------------------------------
Less distributions from realized
gain allocated from the
Portfolio--net .................... (1.45) (.31) (.29) (.17) --
----------------------------------------------------------------------
Net asset value, end of period ..... $ 13.86 $ 12.51 $ 9.36 $ 10.78 $ 12.18
======================================================================
====================================================================================================================================
Total Investment Return**
- ------------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share . 23.89% 37.71% (10.83%) (10.21%) 21.80%@
======================================================================
====================================================================================================================================
Ratios to Average Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses++ ......................... 2.55% 2.64% 2.53% 2.28% 2.63%*
======================================================================
Investment income (loss)--net ...... .46% (.24%) (.60%) (.30%) (.56%)*
======================================================================
====================================================================================================================================
Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) .................... $33,733 $37,202 $36,476 $59,928 $63,083
======================================================================
Portfolio turnover of Global
Financial Services Portfolio ...... 115.38% 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. SEPTEMBER 30, 2004 15
[LOGO] Merrill Lynch Investment Managers
Financial Highlights (continued)
Merrill Lynch Global Financial Services Fund, Inc.
Class C
----------------------------------------------------------------------
The following per share data and ratios have been derived For the Year Ended For the Period
from information provided in the financial statements. September 30, November 26,
------------------------------------------------- 1999+ to 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 ...... .07@@ (.02)@@ (.07)@@ (.04)@@ (.04)
Realized and unrealized gain (loss)
allocated from the Portfolio--net . 2.72 3.48 (1.06) (1.19) 2.22
----------------------------------------------------------------------
Total from investment operations ... 2.79 3.46 (1.13) (1.23) 2.18
----------------------------------------------------------------------
Less distributions from realized
gain allocated from the
Portfolio--net .................... (1.48) (.31) (.29) (.17) --
----------------------------------------------------------------------
Net asset value, end of period ..... $ 13.82 $ 12.51 $ 9.36 $ 10.78 $ 12.18
======================================================================
====================================================================================================================================
Total Investment Return**
- ------------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share . 23.83% 37.71% (10.84%) (10.21%) 21.80%@
======================================================================
====================================================================================================================================
Ratios to Average Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses++ ......................... 2.56% 2.64% 2.55% 2.29% 2.63%*
======================================================================
Investment income (loss)--net ...... .48% (.22%) (.61%) (.31%) (.57%)*
======================================================================
====================================================================================================================================
Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) .................... $16,714 $13,762 $ 9,666 $14,805 $14,788
======================================================================
Portfolio turnover of Global
Financial Services Portfolio ...... 115.38% 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.
16 MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. SEPTEMBER 30, 2004
Financial Highlights (continued)
Merrill Lynch Global Financial Services Fund, Inc.
Class I
----------------------------------------------------------------------
The following per share data and ratios have been derived For the Year Ended For the Period
from information provided in the financial statements. September 30, November 26,
------------------------------------------------- 1999+ to 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 ............. .20@@ .09@@ .05@@ .08@@ .03
Realized and unrealized gain (loss)
allocated from the Portfolio--net . 2.78 3.53 (1.07) (1.21) 2.26
----------------------------------------------------------------------
Total from investment operations ... 2.98 3.62 (1.02) (1.13) 2.29
----------------------------------------------------------------------
Less distributions from realized
gain allocated from the
Portfolio--net .................... (1.62) (.31) (.42) (.27) --
----------------------------------------------------------------------
Net asset value, end of period ..... $ 14.12 $ 12.76 $ 9.45 $ 10.89 $ 12.29
======================================================================
====================================================================================================================================
Total Investment Return**
- ------------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share . 25.09% 39.10% (9.85%) (9.36%) 22.90%@
======================================================================
====================================================================================================================================
Ratios to Average Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses++ ......................... 1.53% 1.60% 1.51% 1.27% 1.62%*
======================================================================
Investment income--net ............. 1.46% .81% .43% .71% .44%*
======================================================================
====================================================================================================================================
Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) .................... $11,034 $11,325 $ 8,641 $12,741 $ 8,371
======================================================================
Portfolio turnover of Global
Financial Services Portfolio ...... 115.38% 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. SEPTEMBER 30, 2004 17
[LOGO] Merrill Lynch Investment Managers
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 Year Jan. 3,
from information provided in the financial statements. Ended 2003+ to
Sept. 30, 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@ ............................................... .14 .04
Realized and unrealized gain allocated from the Portfolio--net ........ 2.74 2.42
------------------------
Total from investment operations ...................................... 2.88 2.46
------------------------
Less distributions from realized gain allocated from the Portfolio--net (1.59) --
------------------------
Net asset value, end of period ........................................ $ 13.91 $ 12.62
========================
===========================================================================================================================
Total Investment Return**
- ---------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share .................................... 24.51% 24.21%++
========================
===========================================================================================================================
Ratios to Average Net Assets
- ---------------------------------------------------------------------------------------------------------------------------
Expenses*** ........................................................... 2.11% 2.17%*
========================
Investment income--net ................................................ .99% .45%*
========================
===========================================================================================================================
Supplemental Data
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) .............................. $ 555 $ 49
========================
Portfolio turnover of Global Financial Services Portfolio ............. 115.38% 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.
18 MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. SEPTEMBER 30, 2004
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 U.S. generally accepted accounting
principles, which may require the use of management accruals and estimates.
Actual results may differ from these estimates. The percentage of the Portfolio
owned by the Fund at September 30, 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.
(g) Reclassifications -- U.S. generally accepted accounting principles require
that certain components of net assets be adjusted to reflect permanent
differences between financial and tax reporting. Accordingly, during the current
year, $120,491 has been reclassified between undistributed net investment income
and accumulated realized capital gains and $12,004 has been reclassified between
paid-in capital in excess of par and undistributed net investment income as a
result of permanent differences attributable to foreign currency transaction
gains/losses and nondeductible expenses. These reclassifications have no effect
on net assets or net asset values per share.
2. Transactions with Affiliates:
The Fund has entered into an Administrative Services Agreement with 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.
MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. SEPTEMBER 30, 2004 19
[LOGO] Merrill Lynch Investment Managers
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 year ended September 30, 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 ................................ $950 $15,751
Class I ................................ $ 20 $ 284
- --------------------------------------------------------------------------------
For the year ended September 30, 2004, MLPF&S received contingent deferred sales
charges of $41,443 and $1,639 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
$7,458,905 and $8,229,878 for the years ended September 30, 2004 and September
30, 2003, respectively.
Transactions in capital shares for each class were as follows:
- -------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended September 30, 2004 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 169,917 $ 2,380,633
Shares issued to shareholders in
reinvestment of distributions ......... 70,612 875,587
Automatic conversion of shares ........... 57,760 793,529
-----------------------------
Total issued ............................. 298,289 4,049,749
Shares redeemed .......................... (294,621) (4,106,372)
-----------------------------
Net increase/decrease .................... 3,668 $ (56,623)
=============================
- -------------------------------------------------------------------------------
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
=============================
- -------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended September 30, 2004 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 179,988 $ 2,446,506
Shares issued to shareholders in
reinvestment of distributions ......... 264,693 3,253,082
-----------------------------
Total issued ............................. 444,681 5,699,588
Automatic conversion of shares ........... (58,493) (793,529)
Shares redeemed .......................... (925,089) (12,560,184)
-----------------------------
Net decrease ............................. (538,901) $ (7,654,125)
=============================
- -------------------------------------------------------------------------------
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)
=============================
20 MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. SEPTEMBER 30, 2004
Notes to Financial Statements (concluded)
Merrill Lynch Global Financial Services Fund, Inc.
- -------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended September 30, 2004 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 237,793 $ 3,267,034
Shares issued to shareholders in
reinvestment of distributions ......... 117,887 1,445,300
-----------------------------
Total issued ............................. 355,680 4,712,334
Shares redeemed .......................... (246,220) (3,334,545)
-----------------------------
Net increase ............................. 109,460 $ 1,377,789
=============================
- -------------------------------------------------------------------------------
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 Year Dollar
Ended September 30, 2004 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 235,571 $ 3,258,165
Shares issued to shareholders in
reinvestment of distributions ......... 104,603 1,300,211
-----------------------------
Total issued ............................. 340,174 4,558,376
Shares redeemed .......................... (446,456) (6,182,958)
-----------------------------
Net decrease ............................. (106,282) $ (1,624,582)
=============================
- -------------------------------------------------------------------------------
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
=============================
- -------------------------------------------------------------------------------
Class R Shares for the Year Dollar
Ended September 30, 2004 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 38,284 $ 531,927
Shares issued to shareholders in
reinvestment of distributions ......... 664 8,157
-----------------------------
Total issued ............................. 38,948 540,084
Shares redeemed .......................... (2,946) (41,448)
-----------------------------
Net increase ............................. 36,002 $ 498,636
=============================
- -------------------------------------------------------------------------------
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.
The Fund charges a 2% redemption fee on the proceeds (calculated at market
value) of a redemption (either by sale or exchange) of Fund shares made within
30 days of purchase. The redemption fee is paid to the Fund and is intended to
offset the trading costs, market impact and other costs associated with
short-term trading into and out of the Fund. For the year ended September 30,
2004, the Fund charged a redemption fee of $23.
4. Distributions to Shareholders:
The tax character of distributions paid during the fiscal years ended September
30, 2004 and September 30, 2003 was as follows:
- -------------------------------------------------------------------------------
9/30/2004 9/30/2003
- -------------------------------------------------------------------------------
Distributions paid from:
Ordinary income ....................... $ 6,081,326 $ 1,698
Net long-term capital gains ........... 1,984,807 1,864,420
-------------------------------
Total taxable distributions .............. $ 8,066,133 $ 1,866,118
===============================
As of September 30, 2004, the components of accumulated earnings on a tax basis
were as follows:
- -------------------------------------------------------------------------------
Undistributed ordinary income--net ........................ $ 5,154,477
Undistributed long-term capital gains--net ................ 4,086,285
-----------
Total undistributed earnings--net ......................... 9,240,762
Capital loss carryforward ................................. --
Unrealized gains--net ..................................... 11,940,119*
-----------
Total accumulated earnings--net ........................... $21,180,881
===========
* The difference between book-basis and tax-basis net unrealized gains is
attributable primarily to the tax deferral of losses on wash sales.
MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. SEPTEMBER 30, 2004 21
[LOGO] Merrill Lynch Investment Managers
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of
Merrill Lynch Global Financial Services Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of Merrill
Lynch Global Financial Services Fund, Inc. (the "Fund") as of September 30,
2004, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the respective periods then
ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Merrill Lynch Global Financial Services Fund, Inc. as of September 30, 2004, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended, and its financial highlights
for each of the respective periods then ended, in conformity with U.S. generally
accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
November 12, 2004
22 MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. SEPTEMBER 30, 2004
Schedule of Investments Global Financial Services Portfolio
Value
Europe Industry* Shares Held Common Stocks (in U.S. dollars)
====================================================================================================================================
Belgium--0.5% Commercial Banks--0.1% 1,700 KBC Bancassurance Holding $ 110,637
--------------------------------------------------------------------------------------------------------------
Diversified Financial Services--0.4% 10,700 Fortis 254,625
--------------------------------------------------------------------------------------------------------------
Total Common Stocks in Belgium 365,262
====================================================================================================================================
Denmark--1.1% Commercial Banks--1.1% 29,700 Danske Bank 780,718
--------------------------------------------------------------------------------------------------------------
Total Common Stocks in Denmark 780,718
====================================================================================================================================
France--0.4% Insurance--0.4% 700 CNP Assurances 45,470
129,500 +Scor 199,440
-----------
244,910
--------------------------------------------------------------------------------------------------------------
Total Common Stocks in France 244,910
====================================================================================================================================
Germany--7.7% Capital Markets--4.7% 207,600 Marschollek, Lautenschlaeger und
Partner AG 3,336,439
--------------------------------------------------------------------------------------------------------------
Insurance--3.0% 65,800 Hannover Rueckversicherungs AG 2,132,986
--------------------------------------------------------------------------------------------------------------
Total Common Stocks in Germany 5,469,425
====================================================================================================================================
Hungary--0.2% Commercial Banks--0.2% 5,000 OTP Bank Rt. 111,874
--------------------------------------------------------------------------------------------------------------
Total Common Stocks in Hungary 111,874
====================================================================================================================================
Ireland--0.6% Commercial Banks--0.6% 26,800 Allied Irish Banks PLC 448,963
--------------------------------------------------------------------------------------------------------------
Total Common Stocks in Ireland 448,963
====================================================================================================================================
Netherlands--1.2% Commercial Banks--0.5% 17,100 ABN AMRO Holding NV 388,447
--------------------------------------------------------------------------------------------------------------
Diversified Financial Services--0.7% 18,400 ING Groep NV 464,369
--------------------------------------------------------------------------------------------------------------
Total Common Stocks in the Netherlands 852,816
====================================================================================================================================
Russia--1.1% Commercial Banks--1.1% 1,940 Sberbank RF 802,190
--------------------------------------------------------------------------------------------------------------
Total Common Stocks in Russia 802,190
====================================================================================================================================
Spain--0.3% Commercial Banks--0.3% 4,100 Banco Popular Espanol SA 227,825
--------------------------------------------------------------------------------------------------------------
Insurance--0.0% 1,500 Corporacion Mapfre SA 17,605
--------------------------------------------------------------------------------------------------------------
Total Common Stocks in Spain 245,430
====================================================================================================================================
Switzerland--0.1% Insurance--0.1% 1,700 Swiss Re (Registered Shares) 97,818
--------------------------------------------------------------------------------------------------------------
Total Common Stocks in Switzerland 97,818
====================================================================================================================================
Turkey--3.1% Commercial Banks--3.1% 491,589,800 Akbank T.A.S. 2,220,399
--------------------------------------------------------------------------------------------------------------
Total Common Stocks in Turkey 2,220,399
====================================================================================================================================
United Kingdom--7.8% Capital Markets--0.2% 9,200 Close Brothers Group PLC 115,286
--------------------------------------------------------------------------------------------------------------
Commercial Banks--2.0% 5,000 Anglo Irish Bank Corporation PLC 92,405
700 Barclays PLC 6,713
162,700 Lloyds TSB Group PLC 1,270,394
27,400 London Scottish Bank PLC 64,704
-----------
1,434,216
--------------------------------------------------------------------------------------------------------------
Consumer Finance--2.3% 39,500 Cattles PLC 236,053
107,000 Kensington Group PLC 781,264
59,500 Provident Financial PLC 606,710
-----------
1,624,027
--------------------------------------------------------------------------------------------------------------
Insurance--1.0% 380,756 Legal & General Group PLC 683,829
--------------------------------------------------------------------------------------------------------------
Thrifts & Mortgage Finance--2.3% 126,000 Northern Rock PLC 1,618,822
--------------------------------------------------------------------------------------------------------------
Total Common Stock in the United Kingdom 5,476,180
==============================================================================================================
Total Common Stocks in Europe--24.1% 17,115,985
==============================================================================================================
MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. SEPTEMBER 30, 2004 23
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments (continued) Global Financial Services Portfolio
Value
North America Industry* Shares Held Common Stocks (in U.S. dollars)
====================================================================================================================================
Bermuda--10.8% Insurance--10.6% 59,100 ACE Limited $ 2,367,546
12,800 Everest Re Group, Ltd. 951,424
700 Montpelier Re Holdings Ltd. 25,676
700 PartnerRe Ltd. 38,283
61,800 RenaissanceRe Holdings Ltd. 3,187,644
12,800 XL Capital Ltd. (Class A) 947,072
-----------
7,517,645
--------------------------------------------------------------------------------------------------------------
Real Estate--0.2% 669,300 Hopson Development Holdings Limited 152,776
--------------------------------------------------------------------------------------------------------------
Total Common Stocks in Bermuda 7,670,421
====================================================================================================================================
United States--36.8% Capital Markets--6.1% 33,200 +Affiliated Managers Group, Inc. 1,777,528
10,300 The Bear Stearns Companies Inc. 990,551
10,100 Federated Investors, Inc. (Class B) 287,244
3,900 The Goldman Sachs Group, Inc. 363,636
10,900 Lehman Brothers Holdings, Inc. 868,948
-----------
4,287,907
--------------------------------------------------------------------------------------------------------------
Commercial Banks--0.2% 500 Banknorth Group, Inc. 17,500
1,700 City National Corporation 110,415
300 U.S. Bancorp 8,670
-----------
136,585
--------------------------------------------------------------------------------------------------------------
Consumer Finance--3.0% 24,500 Capital One Financial Corporation 1,810,550
12,200 MBNA Corporation 307,440
-----------
2,117,990
--------------------------------------------------------------------------------------------------------------
Diversified Financial Services--0.2% 3,600 Citigroup Inc. 158,832
--------------------------------------------------------------------------------------------------------------
Insurance--4.5% 500 Arthur J. Gallagher & Co. 16,565
200 Brown & Brown 9,140
1,700 Hilb, Rogal and Hamilton Company 61,574
700 Lincoln National Corporation 32,900
127,900 PXRE Group Limited 2,994,139
200 The Progressive Corporation 16,950
1,000 Protective Life Corporation 39,310
-----------
3,170,578
--------------------------------------------------------------------------------------------------------------
Real Estate--12.7% 2,600 AMB Property Corporation 96,252
170,200 American Home Mortgage Investment Corp. 4,757,090
1,200 Equity Office Properties Trust 32,700
195,300 Friedman, Billings, Ramsey Group, Inc.
(Class A) 3,730,230
13,200 General Growth Properties, Inc. 409,200
-----------
9,025,472
--------------------------------------------------------------------------------------------------------------
Thrifts & Mortgage Finance--10.1% 28,998 Countrywide Financial Corporation 1,142,231
87,300 Freddie Mac 5,695,452
1,500 MGIC Investment Corporation 99,825
4,500 The PMI Group, Inc. 182,610
-----------
7,120,118
--------------------------------------------------------------------------------------------------------------
Total Common Stock in the United States 26,017,482
==============================================================================================================
Total Common Stocks in North
America--47.6% 33,687,903
==============================================================================================================
====================================================================================================================================
Pacific Basin/Asia
====================================================================================================================================
Australia--0.1% Commercial Banks--0.1% 2,800 National Australia Bank Limited 54,720
--------------------------------------------------------------------------------------------------------------
Total Common Stocks in Australia 54,720
====================================================================================================================================
China--0.2% Real Estate--0.2% 473,100 Beijing Capital Land Limited 'H' 120,125
--------------------------------------------------------------------------------------------------------------
Total Common Stocks in China 120,125
==============================================================================================================
24 MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. SEPTEMBER 30, 2004
Schedule of Investments (concluded) Global Financial Services Portfolio
Pacific Basin/Asia Value
(concluded) Industry* Shares Held Common Stocks (in U.S. dollars)
====================================================================================================================================
Hong Kong--0.4% Commercial Banks--0.1% 3,400 Hang Seng Bank Limited $ 45,345
--------------------------------------------------------------------------------------------------------------
Insurance--0.1% 89,000 China Insurance International Holdings
Company Limited 45,938
--------------------------------------------------------------------------------------------------------------
Real Estate--0.2% 1,270,000 China Resources Beijing Land Limited 195,433
--------------------------------------------------------------------------------------------------------------
Total Common Stocks in Hong Kong 286,716
====================================================================================================================================
India--2.5% Commercial Banks--2.5% 19,500 HDFC Bank Ltd. 170,773
257,500 ICICI Bank Limited 1,601,258
-----------
1,772,031
--------------------------------------------------------------------------------------------------------------
Total Common Stocks in India 1,772,031
====================================================================================================================================
Indonesia--2.9% Commercial Banks--2.9% 9,413,100 PT Bank Central Asia Tbk 2,055,262
--------------------------------------------------------------------------------------------------------------
Total Common Stocks in Indonesia 2,055,262
====================================================================================================================================
Japan--4.9% Capital Markets--0.4% 23,500 The Nomura Securities Co., Ltd. 301,706
--------------------------------------------------------------------------------------------------------------
Commercial Banks--1.3% 165,000 The Bank of Yokohama, Ltd. 886,268
--------------------------------------------------------------------------------------------------------------
Consumer Finance--2.9% 8,900 Aeon Credit Service Co, Ltd. 507,118
4,900 Aiful Corporation 480,597
35,100 Credit Saison Co., Ltd. 1,079,608
-----------
2,067,323
--------------------------------------------------------------------------------------------------------------
Insurance--0.3% 16 Millea Holdings, Inc. 206,143
--------------------------------------------------------------------------------------------------------------
Total Common Stocks in Japan 3,461,440
====================================================================================================================================
South Korea--17.0% Commercial Banks--12.0% 468,400 Daegu Bank 2,668,436
122,000 Hana Bank 2,902,996
69,100 Industrial Bank of Korea (IBK) 424,261
8,300 +Kookmin Bank 262,731
369,400 Pusan Bank 2,229,553
-----------
8,487,977
--------------------------------------------------------------------------------------------------------------
Insurance--5.0% 386,350 Korean Reinsurance Company 1,325,300
163,940 Oriental Fire & Marine Insurance
Co., Ltd. 2,206,748
-----------
3,532,048
--------------------------------------------------------------------------------------------------------------
Total Common Stocks in South Korea 12,020,025
==============================================================================================================
Total Common Stocks in the Pacific
Basin/Asia--28.0% 19,770,319
====================================================================================================================================
Total Investments (Cost--$57,617,593**)--99.7% 70,574,207
Other Assets Less Liabilities--0.3% 187,548
-----------
Net Assets--100.0% $70,761,755
===========
+ Non-income producing security.
* For Portfolio compliance purposes, "Industry" means any one or more of the
industry sub-classifications used by one or more widely recognized market
indexes or ratings group indexes, and/or as defined by Portfolio
management. This definition may not apply for purposes of this report,
which may combine such industry sub-classifications for reporting ease.
These industry classifications are unaudited.
** The cost and unrealized appreciation/depreciation of investments as of
September 30, 2004 as computed for federal income tax purposes were as
follows:
-------------------------------------------------------------------------
Aggregate cost ............................................ $58,649,898
===========
Gross unrealized appreciation ............................. $12,739,642
Gross unrealized depreciation ............................. (815,333)
-----------
Net unrealized appreciation ............................... $11,924,309
===========
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) were as follows:
--------------------------------------------------------------------------
Interest/
Net Dividend
Affiliate Activity Income
--------------------------------------------------------------------------
Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I $ (143,787) $3,609
Merrill Lynch Liquidity Series, LLC
Money Market Series $(2,928,835) $2,950
Merrill Lynch Premier Institutional Fund (1,577,065) $1,023
--------------------------------------------------------------------------
See Notes to Financial Statements.
MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. SEPTEMBER 30, 2004 25
[LOGO] Merrill Lynch Investment Managers
Statement of Assets and Liabilities Global Financial Services Portfolio
As of September 30, 2004
====================================================================================================================
Assets
- --------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value
(identified cost--$57,617,593) ............................ $ 70,574,207
Receivables:
Securities sold ......................................... $ 378,843
Dividends ............................................... 270,073
Contributions ........................................... 11,287
Interest from affiliates ................................ 1,014 661,217
------------
Prepaid expenses ........................................... 3,290
------------
Total assets ............................................... 71,238,714
------------
====================================================================================================================
Liabilities
- --------------------------------------------------------------------------------------------------------------------
Payables:
Securities purchased .................................... 173,514
Withdrawals ............................................. 170,368
Custodian bank .......................................... 82,951
Investment adviser ...................................... 4,655
Other affiliates ........................................ 367 431,855
------------
Accrued expenses ........................................... 45,104
------------
Total liabilities .......................................... 476,959
------------
====================================================================================================================
Net Assets
- --------------------------------------------------------------------------------------------------------------------
Net assets ................................................. $ 70,761,755
============
====================================================================================================================
Net Assets Consist of
- --------------------------------------------------------------------------------------------------------------------
Investor's capital ......................................... $ 57,789,330
Unrealized appreciation--net ............................... 12,972,425
------------
Net Assets ................................................. $ 70,761,755
============
See Notes to Financial Statements.
26 MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. SEPTEMBER 30, 2004
Statement of Operations Global Financial Services Portfolio
For the Year Ended September 30, 2004
====================================================================================================================
Investment Income
- --------------------------------------------------------------------------------------------------------------------
Dividends (net of $188,039 foreign withholding tax) ........ $ 2,242,335
Securities lending--net .................................... 3,973
Interest from affiliates ................................... 3,609
------------
Total income ............................................... 2,249,917
------------
====================================================================================================================
Expenses
- --------------------------------------------------------------------------------------------------------------------
Investment advisory fees ................................... $ 298,315
Custodian fees ............................................. 99,202
Accounting services ........................................ 83,926
Trustees' fees and expenses ................................ 45,608
Professional fees .......................................... 37,739
Pricing fees ............................................... 6,641
Other ...................................................... 11,100
------------
Total expenses ............................................. 582,531
------------
Investment income--net ..................................... 1,667,386
------------
====================================================================================================================
Realized & Unrealized Gain (Loss)--Net
- --------------------------------------------------------------------------------------------------------------------
Realized gain (loss) on:
Investments--net ........................................ 11,723,078
Foreign currency transactions--net ...................... (120,491) 11,602,587
------------
Change in unrealized appreciation on:
Investments--net .......................................... 3,984,083
Foreign currency transactions--net ........................ (11,383) 3,972,700
-----------------------------
Total realized and unrealized gain--net .................... 15,575,287
------------
Net Increase in Net Assets Resulting from Operations ....... $ 17,242,673
============
See Notes to Financial Statements.
MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. SEPTEMBER 30, 2004 27
[LOGO] Merrill Lynch Investment Managers
Statements of Changes in Net Assets Global Financial Services Portfolio
For the Year Ended
September 30,
-----------------------------
Increase (Decrease) in Net Assets: 2004 2003
====================================================================================================================
Operations
- --------------------------------------------------------------------------------------------------------------------
Investment income--net ..................................... $ 1,667,386 $ 1,035,953
Realized gain--net ......................................... 11,602,587 5,327,405
Change in unrealized appreciation--net ..................... 3,972,700 14,600,965
-----------------------------
Net increase in net assets resulting from operations ....... 17,242,673 20,964,323
-----------------------------
====================================================================================================================
Capital Transactions
- --------------------------------------------------------------------------------------------------------------------
Proceeds from contributions ................................ 18,766,602 14,232,591
Fair value of withdrawals .................................. (35,419,030) (25,367,419)
-----------------------------
Net decrease in net assets derived from capital transactions (16,652,428) (11,134,828)
-----------------------------
====================================================================================================================
Net Assets
- --------------------------------------------------------------------------------------------------------------------
Total increase in net assets ............................... 590,245 9,829,495
Beginning of year .......................................... 70,171,510 60,342,015
-----------------------------
End of year ................................................ $ 70,761,755 $ 70,171,510
=============================
See Notes to Financial Statements.
28 MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. SEPTEMBER 30, 2004
Financial Highlights Global Financial Services Portfolio
For the Year Ended For the Period
September 30, Nov. 26, 1999+
The following ratios have been derived from ------------------------------------------------ to Sept. 30,
information provided in the financial statements. 2004 2003 2002 2001 2000
====================================================================================================================================
Total Investment Return**
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return ................ 25.86% 40.92% (8.61%) -- --
=================================================================
====================================================================================================================================
Ratios to Average Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses ............................... .78% .76% .67% .63% .71%*
=================================================================
Investment income--net ................. 2.23% 1.64% 1.26% 1.34% 1.36%*
=================================================================
====================================================================================================================================
Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $70,762 $70,172 $60,342 $95,504 $97,490
=================================================================
Portfolio turnover ..................... 115.38% 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. SEPTEMBER 30, 2004 29
[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 U.S. generally
accepted accounting principles, which may require the use of management accruals
and estimates. Actual results may differ from these estimates. 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.
30 MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. SEPTEMBER 30, 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. Futures
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 a partnership 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.
MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. SEPTEMBER 30, 2004 31
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements (continued) Global Financial Services Portfolio
(f) Securities lending -- The Portfolio may lend securities to financial
institutions that provide cash or securities issued or guaranteed by the U.S.
government as collateral, which will be maintained at all times in an amount
equal to at least 100% of the current market value of the loaned securities. The
market value of the loaned securities is determined at the close of business of
the Portfolio and any additional required collateral is delivered to the
Portfolio on the next business day. Where the Portfolio receives securities as
collateral for the loaned securities, it collects a fee from the borrower. The
Portfolio typically receives the income on the loaned securities but does not
receive the income on the collateral. Where the Portfolio receives cash
collateral, it may invest 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.
(g) Custodian bank -- The Fund recorded an amount payable to the custodian bank
reflecting an overnight overdraft, which resulted from management estimates of
available cash.
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 year ended September 30, 2004,
MLIM, LLC received $1,720 in securities lending agent fees.
In addition, MLPF&S received $46,527 in commissions on the execution of
portfolio security transactions for the Portfolio for the year ended September
30, 2004.
For the year ended September 30, 2004, the Portfolio reimbursed FAM $1,528 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
year ended September 30, 2004 were $85,150,483 and $100,111,777, respectively.
32 MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. SEPTEMBER 30, 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 year ended
September 30, 2004.
5. Commitments:
At September 30, 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 $2,000 and $164,000, respectively.
MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. SEPTEMBER 30, 2004 33
[LOGO] Merrill Lynch Investment Managers
Report of Independent Registered Public Accounting Firm
To the Investor and Board of Trustees of Global
Financial Services Master Trust:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Global Financial Services Portfolio of Global
Financial Services Master Trust (the "Trust") as of September 30, 2004, and the
related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the respective periods then ended. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of September 30, 2004, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Global
Financial Services Portfolio of Global Financial Services Master Trust as of
September 30, 2004, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended,
and its financial highlights for each of the respective periods then ended, in
conformity with U.S. generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
November 12, 2004
34 MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. SEPTEMBER 30, 2004
Officers and Directors/Trustees (unaudited)
Number of
Portfolios in Other Public
Fund Complex Directorships
Position(s) Length of Overseen by Held by
Held with Time Director/ Director/
Name Address & Age Fund/Trust Served Principal Occupation(s) During Past 5 Years Trustee Trustee
====================================================================================================================================
Interested Director/Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
Terry K. P.O. Box 9011 President 1999 to President of the Merrill Lynch Investment Managers, 124 Funds None
Glenn* Princeton, NJ and present L.P. ("MLIM")/Fund Asset Management, L.P. 157 Portfolios
08543-9011 Director/ ("FAM")-advised funds since 1999; Chairman
Age: 64 Trustee (Americas Region) of MLIM from 2000 to 2002;
Executive Vice President of MLIM and FAM (which
terms as used herein include their corporate
predecessors) from 1983 to 2002; President of
FAM Distributors, Inc. ("FAMD") from 1986 to
2002 and Director thereof from 1991 to 2002;
Executive Vice President and Director of Princeton
Services, Inc. ("Princeton Services") from 1993 to
2002; President of Princeton Administrators,
L.P. from 1989 to 2002; Director of Financial Data
Services, Inc. since 1985.
------------------------------------------------------------------------------------------------------------------------
* Mr. Glenn is a director, trustee or member of an advisory board of certain other investment companies for which MLIM
or FAM acts as investment adviser. Mr. Glenn is an "interested person" as described in the Investment Company Act, of
the Fund based on his present and former positions with MLIM, FAM, FAMD, Princeton Services and Princeton
Administrators, L.P. The Director's/Trustee's term is unlimited. Directors/Trustees serve until their resignation,
removal or death, or until December 31 of the year in which they turn 72. As Fund President, Mr. Glenn serves at the
pleasure of the Board of Directors/Trustees.
====================================================================================================================================
Independent Directors/Trustees*
- ------------------------------------------------------------------------------------------------------------------------------------
Ronald W. P.O. Box 9095 Director/ 1999 to Professor Emeritus of Finance, School of Business, 48 Funds None
Forbes Princeton, NJ Trustee present State University of New York at Albany since 2000 48 Portfolios
08543-9095 and Professor thereof from 1989 to 2000;
Age: 64 International Consultant, Urban Institute,
Washington, D.C. from 1995 to 1999.
- ------------------------------------------------------------------------------------------------------------------------------------
Cynthia A. P.O. Box 9095 Director/ 1999 to Professor, Harvard Business School since 1989; 48 Funds Newell Rub-
Montgomery Princeton, NJ Trustee present Associate Professor, J.L. Kellogg Graduate School 48 Portfolios bermaid, Inc.
08543-9095 of Management, Northwestern University from
Age: 52 1985 to 1989; Associate Professor, Graduate School
of Business Administration, University of Michigan
from 1979 to 1985.
- ------------------------------------------------------------------------------------------------------------------------------------
Jean Margo P.O. Box 9095 Director/ 2004 to Self-employed consultant since 2001; Counsel of 48 Funds None
Reid Princeton, NJ Trustee present Alliance Capital Management (investment adviser) 48 Portfolios
08543-9095 in 2000; General Counsel, Director and Secretary of
Age: 59 Sanford C. Bernstein & Co., Inc. (investment adviser/
broker-dealer) from 1997 to 2000; Secretary, Sanford
C. Bernstein Fund, Inc. from 1994 to 2000; Director and
Secretary of SCB, Inc. since 1998; Director and Secretary
of SCB Partners, Inc. since 2000; Director of Covenant
House from 2001 to 2004.
- ------------------------------------------------------------------------------------------------------------------------------------
Kevin A. P.O. Box 9095 Director/ 1999 to Founder and currently Director Emeritus of 48 Funds None
Ryan Princeton, NJ Trustee present Boston University Center for the Advancement of 48 Portfolios
08543-9095 Ethics and Character and Director thereof from
Age: 72 1989 to 1999; Professor from 1982 to 1999 and
currently Professor Emeritus of Education of Boston
University; formerly taught on the faculties of The
University of Chicago, Stanford University and
Ohio State University.
MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. SEPTEMBER 30, 2004 35
[LOGO] Merrill Lynch Investment Managers
Officers and Directors/Trustees (unaudited) (continued)
Number of
Portfolios in Other Public
Fund Complex Directorships
Position(s) Length of Overseen by Held by
Held with Time Director/ Director/
Name Address & Age Fund/Trust Served Principal Occupation(s) During Past 5 Years Trustee Trustee
====================================================================================================================================
Independent Directors/Trustees* (concluded)
- ------------------------------------------------------------------------------------------------------------------------------------
Roscoe S. P.O. Box 9095 Director/ 2000 to President, Middle East Institute from 1995 to 2001; 48 Funds None
Suddarth Princeton, NJ Trustee present Foreign Service Officer, United States Foreign 48 Portfolios
08543-9095 Service from 1961 to 1995; Career Minister from
Age: 69 1989 to 1995; Deputy Inspector General, U.S.
Department of State from 1991 to 1994; U.S.
Ambassador to The Hashemite Kingdom of
Jordan from 1987 to 1990.
- ------------------------------------------------------------------------------------------------------------------------------------
Richard R. P.O. Box 9095 Director/ 1999 to Professor of Finance since 1984, Dean from 1984 48 Funds Bowne &
West Princeton, NJ Trustee present to 1993 and currently Dean Emeritus of New York 48 Portfolios Co., Inc.;
08543-9095 University Leonard N. Stern School of Business Vornado
Age: 66 Administration, New York University from 1994 Realty Trust;
to present; Professor of Finance thereof from 1982 Vornado
to 1994. Operating
Company;
Alexander's,
Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Edward D. P.O. Box 9095 Director/ 2000 to Self-employed financial consultant since 1994; 48 Funds None
Zinbarg Princeton, NJ Trustee present Executive Vice President of The Prudential Insurance 48 Portfolios
08543-9095 Company of America from 1988 to 1994; former
Age: 69 Director of Prudential Reinsurance Company and
former Trustee of the Prudential Foundation.
------------------------------------------------------------------------------------------------------------------------
* The Director's/Trustee's term is unlimited. Directors/Trustees serve until their resignation, removal or death, or
until December 31 of the year in which they turn 72.
36 MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. SEPTEMBER 30, 2004
Officers and Directors/Trustees (unaudited) (concluded)
Position(s) Length of
Held with Time
Name Address & Age Fund/Trust Served Principal Occupation(s) During Past 5 Years
====================================================================================================================================
Fund/Trust Officers*
- ------------------------------------------------------------------------------------------------------------------------------------
Donald C. P.O. Box 9011 Vice 1999 to First Vice President of MLIM and FAM since 1997 and Treasurer thereof since 1999;
Burke Princeton, NJ President present Senior Vice President and Treasurer of Princeton Services since 1999 and Director
08543-9011 and since 2004; Vice President of FAMD since 1999; Director of MLIM Taxation since
Age: 44 Treasurer 1990.
- ------------------------------------------------------------------------------------------------------------------------------------
Robert C. P.O. Box 9011 Senior Vice 1999 to President of MLIM and member of the Executive Management Committee of ML & Co.,
Doll, Jr. Princeton, NJ President present Inc. since 2001; Global Chief Investment Officer and Senior Portfolio Manager of
08543-9011 MLIM since 1999; Chief Investment Officer of Equities at Oppenheimer Funds, Inc.
Age: 50 from 1990 to 1999 and Chief Investment Officer thereof from 1998 to 1999; Executive
Vice President of Oppenheimer Funds, Inc. from 1991 to 1999.
- ------------------------------------------------------------------------------------------------------------------------------------
Walid P.O. Box 9011 Vice 2002 to Managing Director of MLIM since 2000; Director (Equities) of MLIM from 1998 to
Kassem Princeton, NJ President present 2000.
08543-9011
Age: 55
- ------------------------------------------------------------------------------------------------------------------------------------
Jeffrey P.O. Box 9011 Chief 2004 to Chief Compliance Officer of the MLIM/FAM-advised funds and First Vice President and
Hiller Princeton, NJ Compliance present Chief Compliance Officer of MLIM since 2004; Global Director of Compliance at
08543-9011 Officer Morgan Stanley Investment Management from 2002 to 2004; Managing Director and
Age: 53 Global Director of Compliance at Citigroup Asset Management from 2000 to 2002;
Chief Compliance Officer at Soros Fund Management in 2000; Chief Compliance Officer
at Prudential Financial from 1995 to 2000.
- ------------------------------------------------------------------------------------------------------------------------------------
Alice A. P.O. Box 9011 Secretary 2004 to Director (Legal Advisory) of MLIM since 2002; Vice President of MLIM from 1999 to
Pellegrino Princeton, NJ present 2002; Attorney associated with MLIM since 1997.
08543-9011
Age: 44
------------------------------------------------------------------------------------------------------------------------
* Officers of the Fund/Trust serve at the pleasure of the Board of Directors/Trustees.
- ------------------------------------------------------------------------------------------------------------------------------------
Further information about the Fund's Officers and Directors/Trustees is available in the Fund's Statement of Additional
Information, which can be obtained without charge by calling 1-800-MER-FUND.
- ------------------------------------------------------------------------------------------------------------------------------------
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
MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. SEPTEMBER 30, 2004 37
[LOGO] Merrill Lynch Investment Managers
Important Tax Information (unaudited)
The following information is provided with respect to the ordinary income
distribution paid by Merrill Lynch Global Financial Services Fund, Inc. to
shareholders of record on December 16, 2003:
- --------------------------------------------------------------------------------
Qualified Dividend Income for Individuals ....................... 25.47%
Dividends Qualifying for the Dividends Received
Deduction for Corporations .................................... 13.57%
- --------------------------------------------------------------------------------
Additionally, the Fund distributed long-term capital gains of $.369375 per share
to shareholders of record on December 16, 2003.
Please retain this information for your records.
38 MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. SEPTEMBER 30, 2004
Availability of Quarterly Schedule of Investments
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The Fund's Forms N-Q are available on the SEC's Web site at
http://www.sec.gov. The Fund's Forms N-Q may also be reviewed and copied at the
SEC's Public Reference Room in Washington, DC. Information on the operation of
the Public Reference Room may be obtained by calling 1-800-SEC-0330.
MERRILL LYNCH GLOBAL FINANCIAL SERVICES FUND, INC. SEPTEMBER 30, 2004 39
[LOGO] Merrill Lynch Investment Managers www.mlim.ml.com
This report is not authorized for use as an offer of sale or a solicitation of
an offer to buy shares of the Fund unless accompanied or preceded by the Fund's
current prospectus. Past performance results shown in this report should not be
considered a representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost. Statements and other information
herein are as dated and are subject to change.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available (1) without
charge, upon request, by calling toll-free 1-800-MER-FUND (1-800-637-3863); (2)
at www.mutualfunds.ml.com; and (3) on the Securities and Exchange Commission's
Web site at http://www.sec.gov. Information about how the Fund voted proxies
relating to securities held in the Fund's portfolio during the most recent
12-month period ended June 30 is available (1) at www.mutualfunds.ml.com and (2)
on the Securities and Exchange Commission's Web site at http://www.sec.gov.
Merrill Lynch Global Financial Services Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
#MLGFSF -- 9/04
Item 2 - Code of Ethics - The registrant has adopted a code of ethics, as of the
end of the period covered by this report, that applies to the
registrant's principal executive officer, principal financial officer
and principal accounting officer, or persons performing similar
functions. A copy of the code of ethics is available without charge
upon request by calling toll-free 1-800-MER-FUND (1-800-637-3863).
Item 3 - Audit Committee Financial Expert - The registrant's board of directors
has determined that (i) the registrant has the following audit
committee financial experts serving on its audit committee and (ii)
each audit committee financial expert is independent: (1) Ronald W.
Forbes, (2) Richard R. West, and (3) Edward D. Zinbarg.
Item 4 - Principal Accountant Fees and Services
Merrill Lynch Global Financial Services Fund, Inc.
(a) Audit Fees - Fiscal Year Ending September 30, 2004 - $6,200
Fiscal Year Ending September 30, 2003 - $6,000
Global Financial Services Master Trust
(a) Audit Fees - Fiscal Year Ending September 30, 2004 - $26,000
Fiscal Year Ending September 30, 2003 - $26,200
Merrill Lynch Global Financial Services Fund, Inc.
(b) Audit-Related Fees - Fiscal Year Ending September 30, 2004 - $0
Fiscal Year Ending September 30, 2003 - $0
Global Financial Services Master Trust
(b) Audit-Related Fees - Fiscal Year Ending September 30, 2004 - $0
Fiscal Year Ending September 30, 2003 - $0
Merrill Lynch Global Financial Services Fund, Inc.
(c) Tax Fees - Fiscal Year Ending September 30, 2004 - $5,800
Fiscal Year Ending September 30, 2003 - $5,400
The nature of the services include tax compliance, tax advice and tax
planning.
Global Financial Services Master Trust
(c) Tax Fees - Fiscal Year Ending September 30, 2004 - $N/A
Fiscal Year Ending September 30, 2003 - $5,000
The nature of the services include tax compliance, tax advice and tax
planning.
Merrill Lynch Global Financial Services Fund, Inc.
(d) All Other Fees - Fiscal Year Ending September 30, 2004 - $0
Fiscal Year Ending September 30, 2003 - $0
Global Financial Services Master Trust
(d) All Other Fees - Fiscal Year Ending September 30, 2004 - $0
Fiscal Year Ending September 30, 2003 - $0
(e)(1) The registrant's audit committee (the "Committee") has adopted
policies and procedures with regard to the pre-approval of services.
Audit, audit-related and tax compliance services provided to the
registrant on an annual basis require specific pre-approval by the
Committee. The Committee also must approve other non-audit services
provided to the registrant and those non-audit services provided to the
registrant's affiliated service providers that relate directly to the
operations and the financial reporting of the registrant. Certain of
these non-audit services that the Committee believes are a) consistent
with the SEC's auditor independence rules and b) routine and recurring
services that will not impair the independence of the independent
accountants may be approved by the Committee without consideration on a
specific case-by-case basis ("general pre-approval"). However, such
services will only be deemed pre-approved provided that any individual
project does not exceed $5,000 attributable to the registrant or
$50,000 for all of the registrants the Committee oversees. Any proposed
services exceeding the pre-approved cost levels will require specific
pre-approval by the Committee, as will any other services not subject
to general pre-approval (e.g., unanticipated but permissible services).
The Committee is informed of each service approved subject to general
pre-approval at the next regularly scheduled in-person board meeting.
(e)(2) 0%
(f) Not Applicable
(g) Fiscal Year Ending September 30, 2004 - $14,091,966
Fiscal Year Ending September 30, 2003 - $18,527,998
(h) The registrant's audit committee has considered and determined that
the provision of non-audit services that were rendered to the
registrant's investment adviser and any entity controlling, controlled
by, or under common control with the investment adviser that provides
ongoing services to the registrant that were not pre-approved pursuant
to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible
with maintaining the principal accountant's independence.
Regulation S-X Rule 2-01(c)(7)(ii) - $945,000, 0%
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 second 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 - See Item 2
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 Global Financial Services
Master Trust
By: /s/ Terry K. Glenn
----------------------------
Terry K. Glenn,
President of
Merrill Lynch Global Financial Services Fund, Inc.
and Global Financial Services Master Trust
Date: November 19, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Terry K. Glenn
----------------------------
Terry K. Glenn,
President of
Merrill Lynch Global Financial Services Fund, Inc.
and Global Financial Services Master Trust
Date: November 19, 2004
By: /s/ Donald C. Burke
----------------------------
Donald C. Burke,
Chief Financial Officer of
Merrill Lynch Global Financial Services Fund, Inc.
and Global Financial Services Master Trust
Date: November 19, 2004