EX-17.(D) 11 e15840ex17d.txt ANNUAL REPORT (BULL LOGO) Merrill Lynch Investment Managers www.mlim.ml.com Annual Report January 31, 2003 Mercury Growth Opportunity Fund This report is not authorized for use as an offer of sale or a solicitation of an offer to buy shares of the Fund unless accompanied or preceded by the Fund's current prospectus. Past performance results shown in this report should not be considered a representation of future performance. Investment return and principal value of shares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Statements and other information herein are as dated and are subject to change. Mercury Growth Opportunity Fund, A Series of The Asset Program, Inc. Box 9011 Princeton, NJ 08543-9011 Printed on post-consumer recycled paper PORTFOLIO INFORMATION (UNAUDITED) GEOGRAPHIC ALLOCATION As a Percentage of Net Assets as of January 31, 2003++ Percent of Countries Net Assets United States 90.7% Netherlands 2.1 Switzerland 1.1 Canada 0.7 ++Total may not equal 100%. AS OF JANUARY 31, 2003 Ten Largest Equity Percent of Holdings Net Assets Microsoft Corporation 6.4% Wal-Mart Stores, Inc. 5.3 The Proctor & Gamble Company 3.8 International Business Machines Corporation 3.6 The Coca-Cola Company 3.3 Amgen Inc. 3.1 Verizon Communications 2.9 Intel Corporation 2.9 State Street Corporation 2.7 HCA Inc. 2.7 Percent of Five Largest Industries* Net Assets Media 8.0% Software 7.7 Beverages 7.3 Health Care Equipment & Supplies 7.1 Diversified Financials 6.3 *For Fund compliance purposes, "Industry" means any one or more of the industry sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by Fund management. This definition may not apply for purposes of this report, which may combine such industry sub- classifications for reporting ease. January 31, 2003, Mercury Growth Opportunity Fund DEAR SHAREHOLDER Fiscal Year in Review We are pleased to provide you with this annual report to shareholders. For the fiscal year ended January 31, 2003, Mercury Growth Opportunity Fund's Class I, Class A, Class B and Class C Shares had total returns of -30.09%, -30.27%, -30.87% and -30.89%, respectively. The total return for the Lipper Large Cap Growth Funds Average was -28.46%, while the total return for the unmanaged Standard & Poor's 500 Index was -23.02% for the same period. (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 stocks of large-capitalization growth companies experienced among the worst absolute and relative investment returns during the fiscal year ended January 31, 2003. Investment returns were more negative during the second-half of the fiscal year as the Bush administration began its global campaign to gather public and political support for disarming the political regime in Iraq. Historically, global equity markets, including the U.S. market, have not produced the best investment returns during a period when war was being contemplated publicly or underway in a major geographical area. The fiscal year ended January 31, 2003 is the third consecutive year of negative investment returns on most U.S. equities and for most global equity markets, which is a relatively unique historical experience in the post-World War II period. We have continued to focus our investments on the largest and highest- quality companies with prospects, in our opinion, for an above- average long-run rate of growth in earnings and above-average returns on equity. The gradual recovery of U.S. business profitability from the economic recession of 2001 has resulted in a fairly narrow group of companies where business profitability has improved with any degree of quarterly consistency. Negative surprises have been more the "order of the environment." The greatest negative influences on the Fund's investment performance during the fiscal year ended January 31, 2003 were the stock price declines of selected holdings in the hospital management and information technology industries. Individual stock investments on a comparative basis that hurt the Fund most were our investment holdings in AOL Time Warner Inc. and Tenet Healthcare Corporation. Positive comparative influences on the Fund's investment returns were from selected stock holdings in the specialty retailing, restaurant, media, food and financial services industries. Equity investments in the following companies had a positive effect on the comparative investment performance over the fiscal year: Bed, Bath & Beyond Inc., Lowe's Companies, Inc., Wal-Mart Stores, Inc., Yum! Brands, Inc. and Brinker International, Inc. in the retailing and restaurant industries and Marsh & McLennan Companies, Inc., Wells Fargo Company, MBNA Corporation, Fannie Mae and American Express Co. in the financial services industry. In the health care sector, investments in Amgen Inc., HCA Inc. and Health Management Associates, Inc. were positive relative contributors to investment results. In the consumer staples industry, stock holdings in Procter & Gamble Co., Unilever NV and Colgate-Palmolive Company were comparatively positive contributors to results. In the industrial sector, the most positive comparative investment performance was from the meaningful investment position in 3M Co. We have avoided investment in the equities of General Electric Co. and Tyco International, which had contributed positively to our investment results earlier in the fiscal year ended January 31, 2003. January 31, 2003, Mercury Growth Opportunity Fund During the months of October and November 2002 and January 2003, there were broad-based and meaningful stock price increases for companies in the information technology and ethical drug industries. We have an underweighted investment position in the information technology sector where we are focused on the largest companies, which we believe will survive and possibly prosper in what may be a very long-term recovery of industry profitability. The statements by the senior managements of IBM Corp., Microsoft Corp., Intel Corp. and Cisco Systems Inc. were not positive when reporting their most recent quarterly business results and business outlooks. The Fund has investments in all of these companies because we believe they will prosper in the long run. However, the foreseeable near-term outlook is rather unexciting from a growth perspective. In the ethical drug industry, we have no investment exposure to any of the large pharmaceutical companies. We believe that the optimism on the part of some investors for the incremental revenue growth from a Federal pharmaceutical benefit program is too ambitious. We also believe that the downward pressure on pricing of ethical drugs will continue by the major state Medicare reimbursement organizations, which are currently attempting to form a non-profit pharmacy benefit management organization. Although stocks of major pharmaceutical companies appear to have an attractive valuation, we are skeptical about the outlook for future growth of revenues and profits. Market Outlook U.S. monetary policy is geared to promote a relatively high rate of real economic activity led by growth in real consumer spending with the lowest Federal Reserve Board interest rates in more than 40 years and many consumer finance operations offering zero interest rate loans for even multi-year periods of time. The decline in U.S. consumer finance rates for motor vehicles and home ownership appear to have had, and may continue to have, a very positive effect on real demand for these goods. During the fiscal year ended January 31, 2003, U.S. real wage growth rates slowed, which is a normal phenomenon in the first few years of an economic recovery following a recession such as the one we experienced in the first three calendar quarters of 2001. The household sector may have raised a record amount of absolute liquidity in the fiscal quarter ended January 31, 2003. The lackluster general merchandise retail sales in the latest holiday season may reflect concerns about the likelihood of a military confrontation with Iraq. There was a major uptrend in U.S. equity markets in January 1991 at the end of the Gulf War and a recovery in U.S. real economic growth rates in the second-half of 1991. We can only wait and see what happens this time around. The Bush administration is proposing a pull forward of the tax rate decreases legislated in 2001 that should take effect in 2004 and 2006. The Bush administration also proposes making these decreases permanent. Federal spending on defense systems, equipment and personnel is leading a double-digit rate of growth in nominal government spending. In our opinion, all of these actions are a positive for increased overall real economic growth in upcoming quarterly periods. It is likely that these potential increases in spending may improve corporate profitability, overall business profits and stock market values. January 31, 2003, Mercury Growth Opportunity Fund In Conclusion We thank you for your investment in Mercury Growth Opportunity Fund during what has been a most difficult period of time for achieving investment results for large-capitalization growth companies. We will continue to seek what we believe are the best investment opportunities given the very challenging equity investment conditions. Sincerely, (Terry K. Glenn) Terry K. Glenn President and Director (Lawrence R. Fuller) Lawrence R. Fuller Senior Vice President and Portfolio Manager March 5, 2003 January 31, 2003, Mercury Growth Opportunity Fund FUND PERFORMANCE DATA ABOUT FUND PERFORMANCE The Fund offers four classes of shares, each with its own sales charge and expense structure, allowing you to invest in the way that best suits your needs. CLASS I SHARES incur a maximum initial sales charge (front-end load) of 5.25% and bear no ongoing distribution and account maintenance fees. Class I Shares are available only to eligible investors. CLASS A SHARES incur a maximum initial sales charge of 5.25% and an account maintenance fee of 0.25% (but no distribution fee). CLASS B SHARES are subject to a maximum contingent deferred sales charge of 4% if redeemed during the first two years, decreasing to 3% for each of the next two years and decreasing 1% each year thereafter to 0% after the sixth year. In addition, Class B Shares are subject to a distribution fee of 0.75% and an account maintenance fee of 0.25%. These shares automatically convert to Class A Shares after approximately eight years. CLASS C SHARES are subject to a distribution fee of 0.75% and an account maintenance fee of 0.25%. In addition, Class C Shares may be subject to a 1% contingent deferred sales charge if redeemed within one year after purchase. None of the past results shown should be considered a representation of future performance. Performance results do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Figures shown in each of the following tables assume reinvestment of all dividends and capital gains distributions at net asset value on the ex- dividend date. Investment return and principal value of shares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Dividends paid to each class of shares will vary because of the different levels of account maintenance, distribution and transfer agency fees applicable to each class, which are deducted from the income available to be paid to shareholders. January 31, 2003, Mercury Growth Opportunity Fund FUND PERFORMANCE DATA (CONTINUED) RECENT PERFORMANCE RESULTS 6-Month 12-Month Since Inception As of January 31, 2003 Total Return Total Return Total Return Class I*++ -9.12% -30.09% +33.80% Class A*++ -9.27 -30.27 +31.64 Class B* -9.66 -30.87 +24.11 Class C* -9.69 -30.89 +23.78 Standard & Poor's 500 Index** -5.26 -23.02 +48.59 *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 the Fund's net asset values for the periods shown, and assume reinvestment of all dividends and capital gains at net asset value on the ex-dividend date. The Fund commenced operations on 2/02/96. **This unmanaged broad-based Index is comprised of large- capitalization U.S. stocks. Since inception total return is from 2/29/96. ++Prior to April 3, 2000, Class I Shares were designated Class A Shares and Class A Shares were designated Class D Shares. January 31, 2003, Mercury Growth Opportunity Fund FUND PERFORMANCE DATA (CONTINUED) TOTAL RETURN BASED ON A $10,000 INVESTMENT A line graph illustrating the growth of a $10,000 investment in Mercury Growth Opportunity Fund++ Class I and Class A Shares* compared to a similar investment in Standard & Poor's 500 Index++++. Values illustrated are as follows: Mercury Growth Opportunity Fund++ Class I Shares* Date Value 02/02/1996** $ 9,475.00 January 1997 $11,171.00 January 1998 $13,798.00 January 1999 $19,596.00 January 2000 $24,517.00 January 2001 $22,465.00 January 2002 $18,136.00 January 2003 $12,679.00 Mercury Growth Opportunity Fund++ Class A Shares* Date Value 02/02/1996** $ 9,475.00 January 1997 $11,162.00 January 1998 $13,763.00 January 1999 $19,487.00 January 2000 $24,320.00 January 2001 $22,236.00 January 2002 $17,889.00 January 2003 $12,474.00 Standard & Poor's 500 Index++++ Date Value 02/29/1996** $10,000.00 January 1997 $12,518.00 January 1998 $15,887.00 January 1999 $21,049.00 January 2000 $23,227.00 January 2001 $23,018.00 January 2002 $19,297.00 January 2003 $14,854.00 A line graph illustrating the growth of a $10,000 investment in Mercury Growth Opportunity Fund++ Class B and Class C Shares* compared to a similar investment in Standard & Poor's 500 Index++++. Values illustrated are as follows: Mercury Growth Opportunity Fund++ Class B Shares* Date Value 02/02/1996** $10,000.00 January 1997 $11,680.00 January 1998 $14,268.00 January 1999 $20,034.00 January 2000 $24,794.00 January 2001 $22,486.00 January 2002 $17,853.00 January 2003 $12,342.00 Mercury Growth Opportunity Fund++ Class C Shares* Date Value 02/02/1996** $10,000.00 January 1997 $11,670.00 January 1998 $14,257.00 January 1999 $20,015.00 January 2000 $24,755.00 January 2001 $22,443.00 January 2002 $17,910.00 January 2003 $12,378.00 Standard & Poor's 500 Index++++ Date Value 02/29/1996** $10,000.00 January 1997 $12,518.00 January 1998 $15,887.00 January 1999 $21,049.00 January 2000 $23,227.00 January 2001 $23,018.00 January 2002 $19,297.00 January 2003 $14,854.00 *Assuming maximum sales charge, transaction costs and other operating expenses, including advisory fees. **Commencement of operations. ++Mercury Growth Opportunity Fund invests in a portfolio of equity securities, placing particular emphasis on large-capitalization companies that are anticipated to exhibit above-average growth rates in earnings. ++++This unmanaged broad-based Index is comprised of common stocks. The starting date for the Index in each graph is from 2/29/96. Past performance is not predictive of future performance. January 31, 2003, Mercury Growth Opportunity Fund FUND PERFORMANCE DATA (CONCLUDED) AVERAGE ANNUAL TOTAL RETURN % Return % Return Without Sales With Sales Class I Shares*++ Charge Charge** One Year Ended 1/31/03 -30.09% -33.76% Five Years Ended 1/31/03 - 1.68 - 2.74 Inception (2/02/96) through 1/31/03 + 4.25 + 3.45 *Maximum sales charge is 5.25%. **Assuming maximum sales charge. ++Prior to April 3, 2000, Class I Shares were designated as Class A Shares. % Return % Return Without Sales With Sales Class A Shares*++ Charge Charge** One Year Ended 1/31/03 -30.27% -33.93% Five Years Ended 1/31/03 - 1.95 - 3.00 Inception (2/02/96) through 1/31/03 + 4.01 + 3.21 *Maximum sales charge is 5.25%. **Assuming maximum sales charge. ++Prior to April 3, 2000, Class A Shares were designated as Class D Shares. % Return % Return Without With Class B Shares* CDSC CDSC** One Year Ended 1/31/03 -30.87% -33.63% Five Years Ended 1/31/03 - 2.75 - 3.06 Inception (2/02/96) through 1/31/03 + 3.13 + 3.13 *Maximum contingent deferred sales charge is 4% and is reduced to 0% after six years. **Assuming payment of applicable contingent deferred sales charge. % Return % Return Without With Class C Shares* CDSC CDSC** One Year Ended 1/31/03 -30.89% -31.58% Five Years Ended 1/31/03 - 2.79 - 2.79 Inception (2/02/96) through 1/31/03 + 3.10 + 3.10 *Maximum contingent deferred sales charge is 1% and is reduced to 0% after one year. **Assuming payment of applicable contingent deferred sales charge. January 31, 2003, Mercury Growth Opportunity Fund SCHEDULE OF INVESTMENTS
In U.S. Dollars Shares Percent of Industry* Held Common Stocks Value Net Assets Aerospace & 21,300 General Dynamics Corporation $ 1,408,782 1.4% Defense Air Freight & 35,900 United Parcel Service, Inc. (Class B) 2,165,847 2.2 Logistics Banks 50,200 Northern Trust Corporation 1,714,832 1.7 Beverages 52,400 Anheuser-Busch Companies, Inc. 2,487,428 2.5 81,800 The Coca-Cola Company 3,309,628 3.3 66,900 Coca-Cola Enterprises Inc. 1,473,807 1.5 ------------ ------ 7,270,863 7.3 Biotechnology 61,700 ++Amgen Inc. 3,141,764 3.1 Chemicals 25,400 Ecolab Inc. 1,252,220 1.2 Commercial 5,800 ++Apollo Group, Inc. (Class A) 257,578 0.2 Services & 52,400 First Data Corporation 1,802,560 1.8 Supplies 23,000 H&R Block, Inc. 871,470 0.9 ------------ ------ 2,931,608 2.9 Communications 179,700 ++Cisco Systems, Inc. 2,400,792 2.4 Equipment Computers & 45,900 International Business Machines Peripherals Corporation 3,590,757 3.6 Diversified 28,400 American Express Company 1,009,052 1.0 Financials 20,100 Fannie Mae 1,300,470 1.3 69,300 State Street Corporation 2,743,587 2.7 46,700 T. Rowe Price Group Inc. 1,248,291 1.3 ------------ ------ 6,301,400 6.3 Diversified 75,700 Verizon Communications 2,897,795 2.9 Telecommunication Services Food & Drug 54,700 SYSCO Corporation 1,606,539 1.6 Retailing Food Products 20,700 Archer-Daniels-Midland Company 249,435 0.2 36,300 Unilever NV (NY Registered Shares) 2,058,573 2.1 ------------ ------ 2,308,008 2.3 Health Care 28,700 ++Alcon, Inc. 1,102,080 1.1 Equipment & 57,200 ++Boston Scientific Corporation 2,313,740 2.3 Supplies 22,600 Medtronic, Inc. 1,015,192 1.0
January 31, 2003, Mercury Growth Opportunity Fund SCHEDULE OF INVESTMENTS (CONTINUED)
In U.S. Dollars Shares Percent of Industry* Held Common Stocks Value Net Assets Health Care 19,000 Stryker Corporation $ 1,144,560 1.1% Equipment & 5,300 ++Varian Medical Systems, Inc. 276,978 0.3 Supplies 31,300 ++Zimmer Holdings, Inc. 1,283,300 1.3 (concluded) ------------ ------ 7,135,850 7.1 Health Care 62,300 HCA Inc. 2,662,702 2.7 Providers & 65,100 Health Management Associates, Inc. Services (Class A) 1,205,652 1.2 53,300 ++Tenet Healthcare Corporation 958,867 0.9 ------------ ------ 4,827,221 4.8 Hotels, 19,900 ++Brinker International, Inc. 592,025 0.6 Restaurants & 72,100 ++YUM! Brands, Inc. 1,671,278 1.7 Leisure ------------ ------ 2,263,303 2.3 Household 29,000 The Clorox Company 1,108,380 1.1 Products 22,800 Colgate-Palmolive Company 1,160,748 1.2 44,800 The Procter & Gamble Company 3,833,536 3.8 ------------ ------ 6,102,664 6.1 Industrial 19,500 3M Co. 2,428,725 2.4 Conglomerates Insurance 16,800 American International Group, Inc. 909,216 0.9 37,400 Everest Re Group, Ltd. 1,887,578 1.9 29,800 Marsh & McLennan Companies, Inc. 1,270,374 1.3 ------------ ------ 4,067,168 4.1 Media 177,100 ++AOL Time Warner Inc. 2,064,986 2.1 59,200 ++Clear Channel Communications, Inc. 2,372,736 2.4 40,800 ++Fox Entertainment Group, Inc. (Class A) 1,127,304 1.1 76,500 ++Rogers Communications, Inc. 'B' 736,730 0.7 44,572 ++Viacom, Inc. (Class B) 1,718,251 1.7 ------------ ------
8,020,007 8.0 Multiline Retail 16,200 ++Kohl's Corporation 848,394 0.8 110,200 Wal-Mart Stores, Inc. 5,267,560 5.3 ------------ ------ 6,115,954 6.1 Semiconductor 183,700 Intel Corporation 2,889,601 2.9 Equipment & Products Software 24,900 ++Electronic Arts Inc. 1,289,073 1.3 134,700 Microsoft Corporation 6,391,515 6.4 ------------ ------ 7,680,588 7.7
January 31, 2003, Mercury Growth Opportunity Fund SCHEDULE OF INVESTMENTS (CONCLUDED)
In U.S. Dollars Shares Percent of Industry* Held Common Stocks Value Net Assets Specialty Retail 1,000 ++AutoZone, Inc. $ 65,710 0.1% 37,100 ++Bed Bath & Beyond Inc. 1,243,592 1.2 52,900 Lowe's Companies, Inc. 1,808,122 1.8 61,500 The TJX Companies, Inc. 1,129,140 1.1 ------------ ------ 4,246,564 4.2 Total Common Stocks (Cost--$114,277,287) 94,768,852 94.6 Short-Term Securities Common $1,588,974 Merrill Lynch Premier Institutional Stock Fund (a) (b) 1,588,974 1.6 Partnership Interest Partnership 5,956,984 Merrill Lynch Liquidity Series, LLC Interest Cash Sweep Series I (a) 5,956,984 6.0 1,942,078 Merrill Lynch Liquidity Series, LLC Money Market Series (a) (b) 1,942,078 1.9 ------------ ------ 7,899,062 7.9 Total Short-Term Investments (Cost--$9,488,036) 9,488,036 9.5 Total Investments (Cost--$123,765,323) 104,256,888 104.1 Liabilities in Excess of Other Assets (4,149,500) (4.1) ------------ ------ Net Assets $100,107,388 100.0% ============ ====== *For Fund compliance purposes, "Industry" means any one of the industry sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by Fund management. This definition may not apply for purposes of this report, which may combine such industry sub-classifications for reporting ease. These industry classifications are unaudited. ++Non-income producing security. (a)Investments in companies considered to be an affiliate of the Fund (such companies are defined as "Affiliated Companies" in Section 2 (a)(3) of the Investment Company Act of 1940) are as follows: Dividend/ Net Interest Affiliate Activity Income Merrill Lynch Liquidity Series, LLC Cash Sweep Series I $5,956,984 $11,592 Merrill Lynch Liquidity Series, LLC Money Market Series $1,942,078 931 Merrill Lynch Premier Institutional Fund 1,588,974 2,033 Merrill Lynch Institutional Fund -- 96 (b)Security was purchased with the cash proceeds from securities loans. See Notes to Financial Statements.
January 31, 2003, Mercury Growth Opportunity Fund STATEMENT OF ASSETS AND LIABILITIES
As of January 31, 2003 Assets: Investments, at value (including securities loaned of $3,477,149) (identified cost--$123,765,323) $ 104,256,888 Receivables: Securities sold $ 889,993 Dividends 83,289 Capital shares sold 82,744 Interest 6,604 Loaned securities income 72 1,062,702 -------------
Prepaid registration fees and other assets 5,359 ------------- Total assets 105,324,949 ------------- Liabilities: Collateral on securities loaned, at value 3,531,052 Payables: Securities purchased 1,028,291 Capital shares redeemed 379,278 Distributor 78,415 Investment adviser 65,465 1,551,449 ------------- Accrued expenses and other liabilities 135,060 ------------- Total liabilities 5,217,561 ------------- Net Assets: Net assets $ 100,107,388 ============= Net Assets Consist of: Class I Shares of capital stock, $.10 par value, 6,250,000 shares authorized $ 22,430 Class A Shares of capital stock, $.10 par value, 6,250,000 shares authorized 145,083 Class B Shares of capital stock, $.10 par value, 15,000,000 shares authorized 556,257 Class C Shares of capital stock, $.10 par value, 15,000,000 shares authorized 364,282 Paid-in capital in excess of par 173,370,855 Accumulated realized capital losses on investments and foreign currency transactions--net $(54,843,084) Unrealized depreciation on investments--net (19,508,435) ------------- Total accumulated losses--net (74,351,519) ------------- Net assets $ 100,107,388 ============= Net Asset Value: Class I--Based on net assets of $2,145,827 and 224,303 shares outstanding $ 9.57 ============= Class A--Based on net assets of $13,770,435 and 1,450,827 shares outstanding $ 9.49 ============= Class B--Based on net assets of $50,933,300 and 5,562,573 shares outstanding $ 9.16 ============= Class C--Based on net assets of $33,257,826 and 3,642,825 shares outstanding $ 9.13 ============= See Notes to Financial Statements.
January 31, 2003, Mercury Growth Opportunity Fund STATEMENT OF OPERATIONS
For the Year Ended January 31, 2003 Investment Income: Dividends (net of $11,136 foreign withholding tax) $ 879,370 Interest 84,471 Securities lending--net 3,060 ------------- Total income 966,901 ------------- Expenses: Investment advisory fees $ 810,748 Account maintenance and distribution fees--Class B 662,705 Transfer agent fees--Class B 466,385 Account maintenance and distribution fees--Class C 428,919 Transfer agent fees--Class C 314,217 Printing and shareholder reports 114,581 Transfer agent fees--Class A 81,866 Accounting services 71,734 Registration fees 58,589 Professional fees 57,664 Custodian fees 33,476 Account maintenance fees--Class A 33,138 Transfer agent fees--Class I 14,103 Directors' fees and expenses 8,863 Pricing fees 2,912 Other 18,050 ------------- Total expenses 3,177,950 ------------- Investment loss--net (2,211,049) ------------- Realized & Unrealized Gain (Loss) on Investments & Foreign Currency Transactions--Net: Realized gain (loss) on: Investments--net (22,368,198) Foreign currency transactions--net 3,806 (22,364,392) ------------- Change in unrealized appreciation/depreciation on: Investments--net (22,045,704) Foreign currency transactions--net 6,048 (22,039,656) ------------- ------------- Total realized and unrealized loss on investments and foreign currency transactions--net (44,404,048) ------------- Net Decrease in Net Assets Resulting from Operations $(46,615,097) ============= See Notes to Financial Statements.
January 31, 2003, Mercury Growth Opportunity Fund STATEMENTS OF CHANGES IN NET ASSETS
For the Year Ended January 31, Increase (Decrease)in Net Assets: 2003 2002 Operations: Investment loss--net $ (2,211,049) $ (2,201,545) Realized losson investments and foreign currency transactions--net (22,364,392) (31,985,922) Change in unrealized appreciation/depreciation on investments and foreign currency transactions--net (22,039,656) (5,230,376) ------------- ------------- Net decrease in net assets resulting from operations (46,615,097) (39,417,843) ------------- ------------- Distributions to Shareholders: Realized gain on investments--net: Class I -- (86,449) Class A -- (294,044) Class B -- (2,792,980) Class C -- (1,796,089) ------------- ------------- Net decrease in net assets resulting from distributions to shareholders -- (4,969,562) ------------- ------------- Capital Share Transactions: Net increase (decrease) in net assets derived from capital share transactions (7,785,645) 7,173,844 ------------- ------------- Net Assets: Total decrease in net assets (54,400,742) (37,213,561) Beginning of year 154,508,130 191,721,691 ------------- ------------- End of year* $ 100,107,388 $ 154,508,130 ============= ============= *Accumulated investment loss--net $ (2,211,316) $ (267) ============= ============= See Notes to Financial Statements.
January 31, 2003, Mercury Growth Opportunity Fund FINANCIAL HIGHLIGHTS
The following per share data and ratios have been derived from information provided in the financial statements. Class I+++ Increase (Decrease) in For the Year Ended January 31, Net Asset Value: 2003 2002 2001 2000 1999 Per Share Operating Performance: Net asset value, beginning of year $ 13.69 $ 17.49 $ 22.01 $ 18.53 $ 13.42 -------- -------- -------- -------- -------- Investment loss--net++ (.09) (.05) (.05) (.01) (.06) Realized and unrealized gain (loss) on investmentsand foreign currency transactions--net (4.03) (3.32) (1.64) 4.58 5.63 -------- -------- -------- -------- -------- Total from investment operations (4.12) (3.37) (1.69) 4.57 5.57 -------- -------- -------- -------- -------- Less distributions from realized gain on investments--net -- (.43) (2.83) (1.09) (.46) -------- -------- -------- -------- -------- Net asset value, end of year $ 9.57 $ 13.69 $ 17.49 $ 22.01 $ 18.53 ======== ======== ======== ======== ======== Total Investment Return:* Based on net asset value per share (30.09%) (19.27%) (8.37%) 25.11% 42.02% ======== ======== ======== ======== ======== Ratios to Average Net Assets: Expenses 1.56% 1.30% 1.31% 1.36% 1.56% ======== ======== ======== ======== ======== Investment loss--net (.77%) (.33%) (.25%) (.07%) (.39%) ======== ======== ======== ======== ======== Supplemental Data: Net assets, end of year (in thousands) $ 2,146 $ 2,550 $ 2,142 $ 939 $ 582 ======== ======== ======== ======== ======== Portfolio turnover 89.63% 131.76% 100.88% 81.27% 40.59% ======== ======== ======== ======== ======== *Total investment returns exclude the effects of sales charges. ++Based on average shares outstanding. +++Prior to April 3, 2000, Class I Shares were designated as Class A Shares. See Notes to Financial Statements.
January 31, 2003, Mercury Growth Opportunity Fund FINANCIAL HIGHLIGHTS (CONTINUED)
The following per share data and ratios have been derived from information provided in the financial statements. Class A+++ Increase (Decrease) in For the Year Ended January 31, Net Asset Value: 2003 2002 2001 2000 1999 Per Share Operating Performance: Net asset value, beginning of year $ 13.61 $ 17.45 $ 21.93 $ 18.51 $ 13.42 -------- -------- -------- -------- -------- Investment loss--net++ (.11) (.08) (.12) (.07) (.10) Realized and unrealized gain (loss) on investmentsand foreign currency transactions--net (4.01) (3.33) (1.61) 4.58 5.62 -------- -------- -------- -------- -------- Total from investment operations (4.12) (3.41) (1.73) 4.51 5.52 -------- -------- -------- -------- -------- Less distributions from realized gain on investments--net -- (.43) (2.75) (1.09) (.43) -------- -------- -------- -------- -------- Net asset value, end of year $ 9.49 $ 13.61 $ 17.45 $ 21.93 $ 18.51 ======== ======== ======== ======== ======== Total Investment Return:* Based on net asset value per share (30.27%) (19.55%) (8.57%) 24.80% 41.59% ======== ======== ======== ======== ======== Ratios to Average Net Assets: Expenses 1.82% 1.56% 1.55% 1.62% 1.80% ======== ======== ======== ======== ======== Investment loss--net (1.03%) (.58%) (.55%) (.34%) (.64%) ======== ======== ======== ======== ======== Supplemental Data: Net assets, end of year (in thousands) $ 13,770 $ 11,847 $ 10,515 $ 7,659 $ 3,700 ======== ======== ======== ======== ======== Portfolio turnover 89.63% 131.76% 100.88% 81.27% 40.59% ======== ======== ======== ======== ======== *Total investment returns exclude the effects of sales charges. ++Based on average shares outstanding. +++Prior to April 3, 2000, Class A Shares were designated as Class D Shares. See Notes to Financial Statements.
January 31, 2003, Mercury Growth Opportunity Fund FINANCIAL HIGHLIGHTS (CONTINUED)
The following per share data and ratios have been derived from information provided in the financial statements. Class B Increase (Decrease) in For the Year Ended January 31, Net Asset Value: 2003 2002 2001 2000 1999 Per Share Operating Performance: Net asset value, beginning of year $ 13.25 $ 17.13 $ 21.44 $ 18.26 $ 13.27 -------- -------- -------- -------- -------- Investment loss--net++ (.21) (.20) (.30) (.22) (.23) Realized and unrealized gain (loss) on investmentsand foreign currency transactions--net (3.88) (3.25) (1.56) 4.48 5.54 -------- -------- -------- -------- -------- Total from investment operations (4.09) (3.45) (1.86) 4.26 5.31 -------- -------- -------- -------- -------- Less distributions from realized gain on investments--net -- (.43) (2.45) (1.08) (.32) -------- -------- -------- -------- -------- Net asset value, end of year $ 9.16 $ 13.25 $ 17.13 $ 21.44 $ 18.26 ======== ======== ======== ======== ======== Total Investment Return:* Based on net asset value per share (30.87%) (20.16%) (9.31%) 23.76% 40.41% ======== ======== ======== ======== ======== Ratios to Average Net Assets: Expenses 2.65% 2.39% 2.36% 2.45% 2.66% ======== ======== ======== ======== ======== Investment loss--net (1.87%) (1.42%) (1.38%) (1.16%) (1.50%) ======== ======== ======== ======== ======== Supplemental Data: Net assets, end of year (in thousands) $ 50,933 $ 85,072 $109,589 $115,216 $ 69,601 ======== ======== ======== ======== ======== Portfolio turnover 89.63% 131.76% 100.88% 81.27% 40.59% ======== ======== ======== ======== ======== *Total investment returns exclude the effects of sales charges. ++Based on average shares outstanding. See Notes to Financial Statements.
January 31, 2003, Mercury Growth Opportunity Fund FINANCIAL HIGHLIGHTS (CONCLUDED)
The following per share data and ratios have been derived from information provided in the financial statements. Class C Increase (Decrease) in For the Year Ended January 31, Net Asset Value: 2003 2002 2001 2000 1999 Per Share Operating Performance: Net asset value, beginning of year $ 13.21 $ 17.09 $ 21.40 $ 18.24 $ 13.26 -------- -------- -------- -------- -------- Investment loss--net++ (.21) (.20) (.30) (.23) (.24) Realized and unrealized gain (loss) on investmentsand foreign currency transactions--net (3.87) (3.25) (1.56) 4.47 5.55 -------- -------- -------- -------- -------- Total from investment operations (4.08) (3.45) (1.86) 4.24 5.31 -------- -------- -------- -------- -------- Less distributions from realized gain on investments--net -- (.43) (2.45) (1.08) (.33) -------- -------- -------- -------- -------- Net asset value, end of year $ 9.13 $ 13.21 $ 17.09 $ 21.40 $ 18.24 ======== ======== ======== ======== ======== Total Investment Return:* Based on net asset value per share (30.89%) (20.20%) (9.34%) 23.68% 40.39% ======== ======== ======== ======== ======== Ratios to Average Net Assets: Expenses 2.68% 2.42% 2.38% 2.48% 2.71% ======== ======== ======== ======== ======== Investment loss--net (1.90%) (1.44%) (1.41%) (1.20%) (1.55%) ======== ======== ======== ======== ======== Supplemental Data: Net assets, end of year (in thousands) $ 33,258 $ 55,039 $ 69,476 $ 72,650 $ 40,710 ======== ======== ======== ======== ======== Portfolio turnover 89.63% 131.76% 100.88% 81.27% 40.59% ======== ======== ======== ======== ======== *Total investment returns exclude the effects of sales charges. ++Based on average shares outstanding. See Notes to Financial Statements.
January 31, 2003, Mercury Growth Opportunity Fund NOTES TO FINANCIAL STATEMENTS 1. Significant Accounting Policies: Mercury Growth Opportunity Fund (the "Fund") is part of The Asset Program, Inc. (the "Program") which is registered under the Investment Company Act of 1940 as a non-diversified, open-end management investment company. The Fund's financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, which may require the use of management accruals and estimates. The Fund offers four classes of shares. Class I and Class A Shares are sold with a front-end sales charge. Class B and Class C Shares may be subject to a contingent deferred sales charge. All classes of shares have identical voting, dividend, liquidation and other rights and the same terms and conditions, except that Class A, Class B and Class C Shares bear certain expenses related to the account maintenance of such shares, and Class B and Class C Shares also bear certain expenses related to the distribution of such shares. Each class has exclusive voting rights with respect to matters relating to its account maintenance and distribution expenditures (except that Class B shareholders may vote upon any material changes under the distribution plan for Class A Shares). Income, expenses (other than expenses attributable to a specific class) and realized and unrealized gains and losses on investments and foreign currency transactions are allocated daily to each class based on its relative net assets. The following is a summary of significant accounting policies followed by the Fund. (a) Valuation of investments--Portfolio securities that are traded on stock exchanges are valued at the last sale price on the exchange on which such securities are traded, as of the close of business on the day the securities are being valued or, lacking any sales, at the last available bid price. Securities that are traded in the over- the-counter market are valued at the last available bid price in the over-the-counter market prior to the time of valuation. In cases where securities are traded on more than one exchange, the securities are valued on the exchange designated by or under the authority of the Program's Board of Directors as the primary market. Securities that are traded both in the over-the-counter market and on a stock exchange are valued according to the broadest and most representative market. Options written or purchased are valued at the last sale price in the case of exchange-traded options. In the case of options traded in the over-the-counter market, valuation is the last asked price (options written) or the last bid price (options purchased). Short-term securities are valued at amortized cost, which approximates market value. Other investments, including financial futures contracts and related options, are stated at market value. Securities and assets for which market quotations are not readily available are valued at fair market value as determined in good faith by or under the direction of the Program's Board of Directors. January 31, 2003, Mercury Growth Opportunity Fund NOTES TO FINANCIAL STATEMENTS (CONTINUED) (b) Repurchase agreements--The Fund may invest in securities pursuant to repurchase agreements. Under such agreements, the counterparty agrees to repurchase the security at a mutually agreed upon time and price. The Fund takes possession of the underlying securities, marks to market such securities and, if necessary, receives additions to such securities daily to ensure that the contract is fully collateralized. If the counterparty defaults and the fair value of the collateral declines, liquidation of the collateral by the Fund may be delayed or limited. (c) Derivative financial instruments--The Fund may engage in various portfolio investment strategies to increase or decrease the level of risk to which the Fund is exposed more quickly and efficiently than transactions in other types of instruments. Losses may arise due to changes in the value of the contract or if the counterparty does not perform under the contract. * Financial futures contracts--The Fund may purchase or sell financial futures contracts and options on such futures contracts for the purpose of hedging the market risk on existing securities or the intended purchase of securities. Futures contracts are contracts for delayed delivery of securities at a specific future date and at a specific price or yield. Upon entering into a contract, the Fund deposits and maintains as collateral such initial margin as required by the exchange on which the transaction is effected. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as variation margin and are recorded by the Fund as unrealized gains or losses. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. * Options--The Fund is authorized to purchase and write call and put options. When the Fund writes an option, an amount equal to the premium received by the Fund is reflected as an asset and an equivalent liability. The amount of the liability is subsequently marked to market to reflect the current market value of the option written. When a security is purchased or sold through an exercise of an option, the related premium paid (or received) is added to (or deducted from) the basis of the security acquired or deducted from (or added to) the proceeds of the security sold. When an option expires (or the Fund enters into a closing transaction), the Fund realizes a gain or loss on the option to the extent of the premiums received or paid (or gain or loss to the extent the cost of the closing transaction exceeds the premium paid or received). Written and purchased options are non-income producing investments. January 31, 2003, Mercury Growth Opportunity Fund NOTES TO FINANCIAL STATEMENTS (CONTINUED) * Forward foreign exchange contracts--The Fund is authorized to enter into forward foreign exchange contracts as a hedge against either specific transactions or portfolio positions. The contract is marked to market daily and the change in market value is recorded by the Fund as an unrealized gain or loss. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value at the time it was opened and the value at the time it was closed. * Foreign currency options and futures--The Fund 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 Fund, sold by the Fund but not yet delivered, or committed or anticipated to be purchased by the Fund. (d) 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. (e) Income taxes--It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no Federal income tax provision is required. Under the applicable foreign tax law, a withholding tax may be imposed on interest, dividends and capital gains at various rates. (f) Security transactions and investment income--Security transactions are recorded on the dates the transactions are entered into (the trade dates). Realized gains and losses on security transactions are determined on the identified cost basis. Dividend income is recorded on the ex-dividend dates. Dividends from foreign securities where the ex-dividend date may have passed are subsequently recorded when the Fund has determined the ex-dividend date. Interest income is recognized on the accrual basis. (g) Prepaid registration fees--Prepaid registration fees are charged to expense as the related shares are issued. (h) Dividends and distributions--Dividends and distributions paid by the Fund are recorded on the ex-dividend dates. January 31, 2003, Mercury Growth Opportunity Fund NOTES TO FINANCIAL STATEMENTS (CONTINUED) (i) Expenses--Certain expenses have been allocated to the individual Funds in the Program on a pro rata basis based upon the respective aggregate net asset value of each Fund included in the Program. (j) Securities lending--The Fund may lend securities to financial institutions that provide cash or securities issued or guaranteed by the U.S. government as collateral, which will be maintained at all times in an amount equal to at least 100% of the current market value of the loaned securities. The market value of the loaned securities is determined at the close of business of the Fund and any additional required collateral is delivered to the Fund on the next business day. Where the Fund receives securities as collateral for the loaned securities, it collects a fee from the borrower. The Fund typically receives the income on the loaned securities but does not receive the income on the collateral. Where the Fund receives cash collateral, it may invest such collateral and retain the amount earned on such investment, net of any amount rebated to the borrower. Loans of securities are terminable at any time and the borrower, after notice, is required to return borrowed securities within five business days. The Fund may pay reasonable finder's, lending agent, administrative and custodial fees in connection with its loans. In the event that the borrower defaults on its obligation to return borrowed securities because of insolvency or for any other reason, the Fund could experience delays and costs in gaining access to the collateral. The Fund also could suffer a loss where the value of the collateral falls below the market value of the borrowed securities, in the event of borrower default or in the event of losses on investments made with cash collateral. (k) Reclassification--Accounting principles generally accepted in the United States of America require that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. Accordingly, the current year's permanent book/tax differences of $2,207,510 have been reclassified between paid-in capital in excess of par and accumulated net investment loss and $3,806 has been reclassified between accumulated net realized capital losses and accumulated net investment loss. These reclassifications have no effect on net assets or net asset values per share. 2. Investment Advisory Agreement and Transactions with Affiliates: The Fund has entered into an Investment Advisory Agreement with Fund Asset Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc. ("PSI"), an indirect, wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the limited partner. The Fund has also entered into a Distribution Agreement and Distribution Plans with FAM Distributors, Inc. ("FAMD" or the "Distributor"), which is a wholly-owned subsidiary of Merrill Lynch Group, Inc. January 31, 2003, Mercury Growth Opportunity Fund NOTES TO FINANCIAL STATEMENTS (CONTINUED) FAM is responsible for the management of the Fund's portfolios and provides the necessary personnel, facilities, equipment and certain other services necessary to the operations of the Fund. For such services, the Fund pays a monthly fee of .65%, on an annual basis, of the average daily value of the Fund's 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. 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 Maintenance Distribution Fees Fees Class A .25% -- Class B .25% .75% Class C .25% .75% Pursuant to a sub-agreement with the Distributor, selected dealers also provide account maintenance and distribution services to the Program. The ongoing account maintenance fee compensates the Distributor and selected dealers for providing account maintenance services to Class A, Class B and Class C shareholders. The ongoing distribution fee compensates the Distributor and selected dealers for providing shareholder and distribution-related services to Class B and Class C shareholders. For the year ended January 31, 2003, FAMD earned underwriting discounts and Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), a subsidiary of ML & Co., earned dealer concessions on sales of the Fund's Class I and Class A Shares as follows: FAMD MLPF&S Class I $ 2 $ 54 Class A $336 $5,710 For the year ended January 31, 2003, MLPF&S, received contingent deferred sales charges of $157,317 and $10,709 relating to transactions in Class B and Class C Shares, respectively. January 31, 2003, Mercury Growth Opportunity Fund NOTES TO FINANCIAL STATEMENTS (CONTINUED) The Fund has received an exemptive order from the Securities and Exchange Commission permitting it to lend portfolio securities to MLPF&S or its affiliates. Pursuant to that order, the Fund also has retained Merrill Lynch Investment 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 Fund, invest cash collateral received by the Fund 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 January 31, 2003, MLIM, LLC received $1,189 in securities lending agent fees. In addition, MLPF&S received $43,137 in commissions on the execution of portfolio security transactions for the Fund for the year ended January 31, 2003. Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of ML & Co., is the Fund's transfer agent. For the year ended January 31, 2003, the Fund reimbursed FAM $4,704 for certain accounting services. Certain officers and/or directors of the Program are officers and/or directors of FAM, PSI, MLAM U.K., FDS, FAMD, and/or ML & Co. 3. Investments: Purchases and sales of investments, excluding short-term securities, for the year ended January 31, 2003 were $107,582,547 and $107,340,266, respectively. Net realized gains (losses) for the year ended January 31, 2003 and net unrealized losses as of January 31, 2003 were as follows: Realized Unrealized Gains (Losses) Losses Long-term investments $ (22,368,225) $ (19,508,435) Short-term investments 27 -- Foreign currency transactions 3,806 -- -------------- -------------- Total $ (22,364,392) $ (19,508,435) ============== ============== As of January 31, 2003, net unrealized depreciation for Federal income tax purposes aggregated $20,094,383, of which $1,154,893 related to appreciated securities and $21,249,276 related to depreciated securities. At January 31, 2003, the aggregated cost of investments for Federal income tax purposes was $124,351,271. January 31, 2003, Mercury Growth Opportunity Fund NOTES TO FINANCIAL STATEMENTS (CONTINUED) 4. Capital Share Transactions: Net increase (decrease) in net assets derived from capital share transactions was $(7,785,645) and $7,173,844 for the years ended January 31, 2003 and January 31, 2002, respectively. Class I Shares for the Year Dollar Ended January 31, 2003 Shares Amount Shares sold 106,248 $ 1,208,046 Shares redeemed (68,304) (784,527) ------------- -------------- Net increase 37,944 $ 423,519 ============= ============== Class I Shares for the Year Dollar Ended January 31, 2002 Shares Amount Shares sold 148,898 $ 2,234,430 Shares issued to shareholders in reinvestment of distributions 5,478 75,594 ------------- -------------- Total issued 154,376 2,310,024 Shares redeemed (90,470) (1,226,180) ------------- -------------- Net increase 63,906 $ 1,083,844 ============= ============== Class A Shares for the Year Dollar Ended January 31, 2003 Shares Amount Shares sold 1,485,692 $ 16,258,841 Automatic conversion of shares 49,360 591,112 ------------- -------------- Total issued 1,535,052 16,849,953 Shares redeemed (954,462) (10,168,923) ------------- -------------- Net increase 580,590 $ 6,681,030 ============= ============== Class A Shares for the Year Dollar Ended January 31, 2002 Shares Amount Shares sold 467,088 $ 6,456,686 Automatic conversion of shares 72,311 1,047,042 Shares issued to shareholders in reinvestment of distributions 19,965 274,318 ------------- -------------- Total issued 559,364 7,778,046 Shares redeemed (291,792) (3,896,764) ------------- -------------- Net increase 267,572 $ 3,881,282 ============= ============== Class B Shares for the Year Dollar Ended January 31, 2003 Shares Amount Shares sold 470,713 $ 5,262,975 Automatic conversion of shares (50,892) (591,112) Shares redeemed (1,280,011) (13,902,091) ------------- -------------- Net decrease (860,190) $ (9,230,228) ============= ============== January 31, 2003, Mercury Growth Opportunity Fund NOTES TO FINANCIAL STATEMENTS (CONTINUED) Class B Shares for the Year Dollar Ended January 31, 2002 Shares Amount Shares sold 942,500 $ 13,538,977 Shares issued to shareholders in reinvestment of distributions 181,446 2,436,815 ------------- -------------- Total issued 1,123,946 15,975,792 Automatic conversion of shares (73,984) (1,047,042) Shares redeemed (1,024,981) (14,330,019) ------------- -------------- Net increase 24,981 $ 598,731 ============= ============== Class C Shares for the Year Dollar Ended January 31, 2003 Shares Amount Shares sold 454,865 $ 5,090,933 Shares redeemed (978,343) (10,750,899) ------------- -------------- Net decrease (523,478) $ (5,659,966) ============= ============== Class C Shares for the Year Dollar Ended January 31, 2002 Shares Amount Shares sold 717,032 $ 10,252,221 Shares issued to shareholders in reinvestment of distributions 114,189 1,530,134 ------------- -------------- Total issued 831,221 11,782,355 Shares redeemed (730,200) (10,172,368) ------------- -------------- Net increase 101,021 $ 1,609,987 ============= ============== 5. Short-Term Borrowings: The Fund, 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 Fund may borrow under the credit agreement to fund shareholder redemptions and for other lawful purposes other than for leverage. The Fund may borrow up to the maximum amount allowable under the Fund's current prospectus and statement of additional information, subject to various other legal, regulatory or contractual limits. The Fund pays a commitment fee of .09% per annum based on the Fund's pro rata share of the unused portion of the credit agreement. Amounts borrowed under the credit agreement bear interest at a rate equal to, at each fund's election, the Federal Funds rate plus .50% or a base rate as determined by Bank One, N.A. On November 29, 2002, the credit agreement was renewed for one year under the same terms, except that the total commitment was reduced from $1,000,000,000 to $500,000,000. The Fund did not borrow under the credit agreement during the year ended January 31, 2003. January 31, 2003, Mercury Growth Opportunity Fund NOTES TO FINANCIAL STATEMENTS (CONCLUDED) 6. Capital Loss Carryforward: The tax character of distributions paid during the fiscal years ended January 31, 2003 and January 31, 2002 was as follows: 1/31/2003 1/31/2002 Distributions paid from: Net long-term capital gains $ -- $ 4,969,562 ------------- -------------- Total taxable distributions $ -- $ 4,969,562 ============= ============== As of January 31, 2003, the components of accumulated losses on a tax basis were as follows: Undistributed ordinary income--net $ -- Undistributed long-term capital gains--net -- -------------- Total undistributed earnings--net -- Capital loss carryforward (52,615,781)* Unrealized losses--net (21,735,738)** -------------- Total accumulated losses--net $ (74,351,519) ============== *On January 31, 2003, the Fund had a net capital loss carryforward of $52,615,781, of which $28,654,300 expires in 2009 and $23,961,481 expires in 2010. This amount will be available to offset like amounts of any future taxable gains. **The difference between book-basis and tax-basis net unrealized losses is attributable primarily to the tax deferral of losses on wash sales and the deferral of post-October capital losses for tax purposes. January 31, 2003, Mercury Growth Opportunity Fund INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders, Mercury Growth Opportunity Fund of The Asset Program, Inc. We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Mercury Growth Opportunity Fund as of January 31, 2003, the related statements of operations for the year then ended and changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years presented. These financial statements and the financial highlights are the responsibility of the Program's management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned at January 31, 2003 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, such financial statements and financial highlights present fairly, in all material respects, the financial position of Mercury Growth Opportunity Fund as of January 31, 2003, the results of its operations, the changes in its net assets, and the financial highlights for the respective stated periods in conformity with accounting principles generally accepted in the United States of America. Deloitte & Touche LLP Princeton, New Jersey March 12, 2003 January 31, 2003, Mercury Growth Opportunity Fund OFFICERS AND DIRECTORS
INTERESTED DIRECTOR Number of Portfolios in Other Position(s) Length Fund Complex Directorships Held of Time Overseen by Held by Name, Address & Age with Fund Served Principal Occupation(s) During Past 5 Years Director Director Terry K. Glenn* President 1999 to Chairman, Americas Region since 2001 and 117 Funds None P.O. Box 9011 and present Executive Vice President since 1983 of 162 Portfolios Princeton, Director and Fund Asset Management ("FAM") and NJ 08543-9011 1996 to Merrill Lynch Investment Managers, L.P. Age: 62 present ("MLIM"); President of Merrill Lynch Mutual Funds since 1999; Executive Vice President and Director of Princeton Services, Inc. ("Princeton Services") since 1993; President of Princeton Administrators, L.P. since 1988; Director of Financial Data Services, Inc. since 1985. *Mr. Glenn is a director, trustee or member of an advisory board of certain other investment companies for which FAM or MLIM acts as investment adviser. Mr. Glenn is an "interested person," as described in the Investment Company Act, of the Fund based on his positions as Chairman (Americas Region) and Executive Vice President of FAM and MLIM; Executive Vice President of Princeton Services; and President of Princeton Administrators, L.P. The Director's term is unlimited. Directors 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. INDEPENDENT DIRECTORS Number of Portfolios in Other Position(s) Length Fund Complex Directorships Held of Time Overseen by Held by Name, Address & Age with Fund Served* Principal Occupation(s) During Past 5 Years Director Director James H. Bodurtha Director 2002 to Director and Executive Vice President of 42 Funds None P.O. Box 9095 present The China Business Group, Inc. since 1995; 61 Portfolios Princeton, Chairman, Berkshire Holding Corporation NJ 08543-9095 since 1982. Age: 58 Joe Grills Director 1994 to Member of the Committee of Investment 42 Funds Kimco Realty P.O. Box 9095 present of Employee Benefit Assets of the 61 Portfolios Corporation Princeton, Association of Financial Professionals NJ 08543-9095 ("CIEBA") since 1986; Member of CIEBA's Age: 67 Executive Committee since 1988; Member of the Investment Advisory Committees of the State of New York Common Retirement Fund since 1989; Member of the Investment Advisory Committee of the Howard Hughes Medical Institute from 1997 to to 2000; Director, Duke Management Company since 1992 and Vice Chairman thereof since 1998; Director LaSalle Street Fund from 1995 to 2001; Member of the Investment Advisory Committee of the Virginia Retirement System since 1998; Director, Montpelier Foundation since 1998 and Vice Chairman thereof since 2000; Director, Kimco Realty since 1997; Member of the Investment Committee of the Woodberry Forest School since 2000; Member of the Investment Committee of the National Trust for Historic Preservation since 2000.
January 31, 2003, Mercury Growth Opportunity Fund OFFICERS AND DIRECTORS (CONTINUED)
INDEPENDENT DIRECTORS (concluded) Number of Portfolios in Other Position(s) Length Fund Complex Directorships Held of Time Overseen by Held by Name, Address & Age with Fund Served* Principal Occupation(s) During Past 5 Years Director Director Herbert I. London Director 2002 to John M. Olin Professor of Humanities, 42 Funds None P.O. Box 9095 present New York University since 1993 and 61 Portfolios Princeton, Professor thereof since 1980; President NJ 08543-9095 of Hudson Institute since 1997 and Age: 63 Trustee thereof since 1980. Andre F. Perold Director 2002 to George Gund Professor of Finance and 42 Funds None P.O. Box 9095 present Banking, Harvard Business School since 61 Portfolios Princeton, 2000 and a member of the faculty since NJ 08543-9095 1979; Director of Stockback.com since Age: 50 2002; Director of Quantec Limited from 1991 to 1999; Director of Bulldogresearch.com from 2000 to 2001; Director of Sanlam Investment Management from 1999 to 2001; Director of Genbel Securities since 1999; Director of Gensec Bank since 1999; Director of Sanlam Limited and Sanlam Life since 2001. Roberta Cooper Ramo Director 2002 to Shareholder, Modrall, Sperling, Roehl, 42 Funds Cooper's, Inc.; P.O. Box 9095 present Harris & Sisk, P.A. since 1993; Director, 61 Portfolios ECMC Group Princeton, Cooper's Inc. since 1999 and Chairman NJ 08543-9095 thereof since 2000; Director, ECMC Group
Age: 60 since 2001. Robert S. Salomon, Jr. Director 1996 to Principal of STI Management since 1994; 42 Funds None P.O. Box 9095 present Trustee of Commonfund from 1980 to 2001; 61 Portfolios Princeton, Director of Rye Country Day School NJ 08543-9095 since 2001. Age: 66 Stephen B. Swensrud Director 1994 to Chairman, Fernwood Advisors (investment 42 Funds International P.O. Box 9095 present adviser) since 1996; Principal of Fernwood 61 Portfolios Mobile Princeton, Associates (financial consultant) since Communications, NJ 08543-9095 1975; Chairman of RPP Corporation since Inc. Age: 69 1978; Director, International Mobile Communications since 1998. *The Director's term is unlimited. Directors serve until their resignation, removal or death, or until December 31 of the year in which they turn 72.
January 31, 2003, Mercury Growth Opportunity Fund OFFICERS AND DIRECTORS (CONCLUDED)
FUND OFFICERS Position(s) Length Held of Time Name, Address & Age with Fund Served* Principal Occupation(s) During Past 5 Years Donald C. Burke Vice 1994 to First Vice President of FAM and MLIM since 1997 and Treasurer thereof P.O. Box 9011 President present since 1999; Senior Vice President and Treasurer of Princeton Services Princeton, and and since 1999; Vice President of FAMD since 1999; Director of MLIM Taxation NJ 08543-9011 Treasurer 1999 to since 1990. Age: 42 present Robert C. Doll, Jr. Senior Vice 1999 to President and Global Chief Investment Officer of MLIM and member of the P.O. Box 9011 President present Executive Management Committee of ML & Co., Inc. since 2001; Chief Princeton, Investment Officer, Senior Vice President and Co-Head of MLIM Americas NJ 08543-9011 from 1999 to 2001; Chief Investment Officer of Oppenheimer Funds, Inc. Age: 48 from 1987 to 1999 and Executive Vice President from 1991 to 1999. Lawrence R. Fuller Senior Vice 1998 to Managing Director (Equities) of MLIM since 2000; First Vice President of P.O. Box 9011 President present MLIM from 1997 to 2000. Princeton, NJ 08543-9011 Age: 61 Susan B. Baker Secretary 2002 to Director (Legal Advisory) of MLIM since 1999 and Vice President from 1993 P.O. Box 9011 present to 1999; Attorney associated with MLIM since 1987. Princeton, NJ 08543-9011 Age: 45 *Officers of the Fund serve at the pleasure of the Board of Directors.
Further information about the Fund's Officers and Directors is available in the Fund's Statement of Additional Information, which can be obtained without charge by calling 1-888-763-2260. Custodian The Bank of New York 100 Church Street New York, NY 10286 Transfer Agent Financial Data Services, Inc. 4800 Deer Lake Drive East Jacksonville, FL 32246-6484 888-763-2260 Melvin R. Seiden, Director of Mercury Growth Opportunity Fund, has recently retired. The Fund's Board of Directors wishes Mr. Seiden well in his retirement. January 31, 2003, Mercury Growth Opportunity Fund