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 811-08163
Name of Fund: Mercury International Value V.I. Fund
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Terry K. Glenn, President,
Mercury International Value V.I. Fund, 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: 12/31/03
Date of reporting period: 01/01/03 - 06/30/03
Item 1 - Attach shareholder report
(BULL LOGO)
Merrill Lynch Investment Managers
www.mlim.ml.com
Semi-Annual Report
June 30, 2003
Mercury
International
Value V.I.
Fund
Of Mercury Variable Trust
This report is only for distribution to shareholders of Mercury
International Value V.I. Fund. Past performance results shown in
this report should not be considered a representation of future
performance. Investment return and principal value of shares will
fluctuate so that shares, when redeemed, may be worth more or less
than their original cost. Statements and other information herein
are as dated and are subject to change.
A description of the policies and procedures that the Fund uses to
determine how to vote proxies relating to portfolio securities is
available (1) without charge, upon request, by calling toll-free
1-800-MER-FUND (1-800-637-3863); (2) on www.mutualfunds.ml.com; and
(3) on the Securities and Exchange Commission's website at
http://www.sec.gov.
Mercury International Value V.I. Fund of
Mercury Variable Trust
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
PORTFOLIO INFORMATION
WORLDWIDE INVESTMENTS AS OF JUNE 30, 2003
Ten Largest Percent of
Equity Holdings Net Assets
GlaxoSmithKline PLC 3.8%
Barclays PLC 3.4
TotalFinaElf SA 3.4
Shell Transport & Trading Company 3.3
Intesa BCI SpA 2.8
Fortis 2.6
Telecom Italia SpA 2.6
Novartis AG (Registered Shares) 2.6
BNP Paribas SA 2.5
Royal Bank of Scotland Group PLC 2.2
Five Largest Percent of
Industries++ Net Assets
Commercial Banks 15.8%
Oil & Gas 11.5
Diversified Financial Services 11.3
Pharmaceuticals 8.0
Diversified Telecommunication
Services 6.5
++For Fund compliance purposes, "Industries" means any one or more
of the industry sub- classifications used by one or more widely
recognized market indexes or ratings group indexes, and/or as
defined by Fund management. This definition may not apply for
purposes of this report, which may combine such industry sub-
classifications for reporting ease.
OFFICERS AND TRUSTEES
Terry K. Glenn, President and Trustee
James H. Bodurtha, Trustee
Joe Grills, Trustee
Herbert I. London, Trustee
Andre F. Perold, Trustee
Roberta Copper Ramo, Trustee
Robert S. Salomon, Jr., Trustee
Stephen B. Swensrud, Trustee
Robert C. Doll, Jr., Senior Vice President
James Macmillan, Vice President
Donald C. Burke, Vice President and
Treasurer
Stephen M. Benham, Secretary
Custodian
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109-3661
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
888-763-2260
June 30, 2003, Mercury International Value V.I. Fund
DEAR SHAREHOLDER
Investment Review
We are pleased to present you this semi-annual report of Mercury
International Value V.I. Fund. For the six months ended June 30,
2003, the Fund had a total return of +11.14%, outperforming the
unmanaged benchmark Morgan Stanley Capital International Europe,
Australasia, Far East (MSCI EAFE) Index, which had a total return of
+9.47%, and underperforming the unmanaged MSCI EAFE Value Index,
which had a total return of +11.92%. (Complete performance
information can be found on page 5 of this report to shareholders.)
Value stocks continued to generate better returns than their growth
counterparts for the six-month period ended June 30, 2003. The
relative performance of value and growth styles was very volatile,
dominated by the fortunes of the financial sector. Financial stocks
such as banks and insurance companies performed very poorly in the
third quarter of 2002 as investors became concerned that low levels
of equity markets would lead to major financial bankruptcies, or
further forced selling of equities by banks. As no major
bankruptcies occurred after the December 31, 2002 book close,
investors grew more confident in bank balance sheets. Easing of bank
capital adequacy requirements allayed fears of further forced
selling of equities from banks and insurance companies, and provided
a platform for a rebound in markets, in which financial shares
performed very strongly.
The Fund's outperformance of the benchmark was mainly attributable
to stock selection in the banks, insurance and utilities sectors.
The areas that contributed negatively to Fund performance were
media, materials, and software and services. From a country
perspective, the leading markets included New Zealand, Spain and
Sweden, while the Netherlands, Australia and Portugal were among the
weakest markets.
The main transactions that we initiated were all a result of bottom-
up stock picking. Stocks that were sold after they became
unattractively valued were Hong Kong Electric Holdings Limited,
Komatsu Ltd., Assicurazioni Generali and ABN AMRO Holding NV. In
addition, major reductions took place in Royal Bank of Scotland
Group PLC, Yamanouchi Pharmaceutical Co., Ltd. and Telefonica SA.
The proceeds were mainly used to build new positions in Credit
Suisse Group, Asahi Breweries Limited, Showa Shell Sekiyu K.K.,
Santos Limited and TABCORP Holdings Limited. We also increased
existing positions in Telecom Italia SpA, Barclays PLC and Fortis.
Economic Environment
Global economic prospects have improved during recent months. First,
monetary conditions have become more expansionary. The recent fall
in bond yields is a boost to consumers, reflected in another
mortgage refinancing wave in the United States, and to companies
through a reduction in the cost of capital. Second, we have seen a
substantial easing of broader financial conditions, and fears of a
global credit crunch have so far proved unfounded. Third, prospects
for fiscal easing in Europe have improved. Germany will implement
tax cuts of 0.3% of gross domestic product (GDP) next year and a
further 0.8% of GDP in 2005. The end to the Iraq war has brought
additional economic benefits through a lift to the extreme risk
aversion that gripped the global economy earlier this year. This
has been reflected in a modest bounce in consumer and business
confidence surveys since March. The major headwinds that still face
the economy are from the excessive debt levels that were built up in
the "bubble years." This is likely to hold back consumer and
corporate spending for many years as balance sheets are repaired, in
our opinion. However, we are currently seeing the first encouraging
signs that corporate retrenchment is sufficiently advanced to allow
a modest rise in investment spending after two years of declines.
June 30, 2003, Mercury International Value V.I. Fund
The relative outperformance of value compared to growth during the
last three years means that there is presently less of a stark
valuation discrepancy in favor of value stocks. At the moment, the
Fund is still overweight in the more economically sensitive sectors
such as hotels, restaurants and leisure, energy, capital goods and
diversified financials. This is at the expense of food, beverage and
tobacco, insurance and technology hardware and equipment.
While valuations of equity markets in early March were more
appealing than going into any of the previous bear market upturns,
the subsequent rally has taken global aggregates back into expensive
territory. On a price-to-normalized earnings basis, the world
market stands well above its long-run average, with an emphasis
concentrated in the United States. European and Asian equities both
trade at around 17 times normalized earnings, which are expected
to grow modestly in 2004. Global equities continue to look more
attractive relative to government bonds or cash, using metrics such
as implied earnings growth or a comparison of real bond yields
compared to dividend yields (again the United States looks less
attractive than the rest of the world). However, this comparison
says more about the high cost of bonds than any cheapness of
equities. On our models of "fair value" for 10-year bonds, the U.S.
bond market is expensive, although the Eurozone and U.K. markets are
less valued.
While we continue to look for a global earnings recovery, we
question whether the pace of growth will be sufficient to generate
sustained earnings upgrades in many cyclical sectors. The first
quarter earnings season in the United States did indeed produce some
genuine upward surprises, both in terms of the quantity and quality
of earnings. Although concerns over earnings quality have subsided,
there remains uncertainty, such as options expensing and health care
costs, that could have a negative impact at the stock level. While
the depth of Asian domestic economies is increasing, earnings will
continue to depend on the health of the U.S. consumer. European
earnings, which are more geared to global production growth, will be
held back by the appreciation of the euro, and are unlikely to
display rapid growth.
June 30, 2003, Mercury International Value V.I. Fund
In Conclusion
We continue to believe that fundamental factors such as earnings
growth and cash flow generation will be increasingly important to
investors and believe that the Fund is well positioned for progress
in the future. We appreciate your support of Mercury International
Value V.I. Fund, and we look forward to serving your investment
needs in the months and years ahead.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President and Trustee
(James Macmillan)
James Macmillan
Portfolio Manager
July 21, 2003
FUND PERFORMANCE DATA
ABOUT FUND PERFORMANCE
None of the past results shown should be considered a representation
of future performance. 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. Insurance-related fees
and expenses are not reflected in these returns. Investment return
and principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
AVERAGE ANNUAL TOTAL RETURN
% Return
One Year Ended 6/30/03 -7.86%
Five Years Ended 6/30/03 +0.53
Since inception (6/10/98) through 6/30/03 +0.50
RECENT PERFORMANCE RESULTS
6-Month 12-Month Since Inception
As of June 30, 2003 Total Return Total Return Total Return*
Mercury International Value V.I. Fund +11.14% -7.86% + 2.58%
MSCI EAFE Index** + 9.47 -6.46 -18.46
*The Fund commenced operations on 6/10/98.
**Since inception total return is from 6/30/98.
June 30, 2003, Mercury International Value V.I. Fund
SCHEDULE OF INVESTMENTS
In U.S. Dollars
Shares
Industry+++ Common Stocks--95.0% Held Value
Australia--2.9%
Hotels, Restaurants & TABCORP Holdings Limited 492,000 $ 3,553,666
Leisure--1.4%
Oil & Gas--1.5% Santos Limited 945,111 3,739,648
Total Common Stocks in Australia 7,293,314
France--13.3%
Auto Components--1.8% PSA Peugeot Citroen 90,850 4,413,056
Commercial Banks--2.5% BNP Paribas SA 124,393 6,320,964
Commercial Services & Societe BIC SA 67,171 2,614,903
Supplies--1.0%
Hotels, Restaurants & Accor SA 106,163 3,840,235
Leisure--1.5%
Metals & Mining--2.0% Arcelor 190,483 2,218,034
Pechiney SA 'A' 75,261 2,701,675
------------
4,919,709
Multiline Retail--1.1% Pinault-Printemps-Redoute SA 36,575 2,755,258
Oil & Gas--3.4% TotalFinaElf SA 56,810 8,585,286
Total Common Stocks in France 33,449,411
Germany--5.0%
Diversified Financial DePfa Bank PLC 70,736 5,503,309
Services--2.2%
Electric Utilities--1.7% E.On AG 82,826 4,258,218
Machinery--1.1% Linde AG 73,821 2,733,059
Total Common Stocks in Germany 12,494,586
Hong Kong--1.6%
Media--0.6% South China Morning Post
Holdings Ltd. 3,469,000 1,367,911
Real Estate--1.0% Henderson Land Development
Company Limited 905,000 2,599,591
Total Common Stocks in Hong Kong 3,967,502
June 30, 2003, Mercury International Value V.I. Fund
SCHEDULE OF INVESTMENTS (CONTINUED)
In U.S. Dollars
Shares
Industry+++ Common Stocks Held Value
Ireland--1.6%
Commercial Banks--1.6% Allied Irish Banks PLC 55,000 $ 821,702
Allied Irish Banks PLC 221,291 3,359,459
Total Common Stocks in Ireland 4,181,161
Italy--8.2%
Building Products--0.8% Buzzi Unicem SpA 309,688 2,104,619
Commercial Banks--2.8% Intesa BCI SpA 2,190,608 7,005,901
Diversified Telecom Italia SpA 715,199 6,474,296
Telecommunication
Services--2.6%
Oil & Gas--2.0% ENI SpA 332,338 5,026,965
Total Common Stocks in Italy 20,611,781
Japan--18.3%
Auto Components--2.0% Honda Motor Co., Ltd. 136,000 5,153,446
Beverages--1.4% Asahi Breweries Limited 587,000 3,544,243
Chemicals--0.6% Sumitomo Bakelite Company Limited 386,000 1,610,543
Diversified Financial Promise Co., Ltd. 89,000 3,328,003
Services--4.6% Sanyo Shinpan Finance Co., Ltd. 157,700 4,662,378
Takefuji Corporation 66,500 3,450,302
------------
11,440,683
Diversified Nippon Telegraph & Telephone
Telecommunication Corporation (NTT) 925 3,628,357
Services--1.4%
Hotels, Restaurants & Namco Ltd. 277,000 4,420,004
Leisure--1.8%
Household Durables--3.0% Daiwa House Industry Co., Ltd. 572,000 3,934,807
Matsushita Electric Industrial
Company, Ltd. 362,000 3,584,576
------------
7,519,383
Machinery--0.6% Amada Co., Ltd. 494,000 1,588,041
Oil & Gas--1.3% Showa Shell Sekiyu K.K. 457,000 3,280,733
Pharmaceuticals--1.6% Yamanouchi Pharmaceutical Co., Ltd. 152,000 3,962,190
Total Common Stocks in Japan 46,147,623
June 30, 2003, Mercury International Value V.I. Fund
SCHEDULE OF INVESTMENTS (CONTINUED)
In U.S. Dollars
Shares
Industry+++ Common Stocks Held Value
Netherlands--9.1%
Chemicals--1.0% Akzo Nobel NV 93,484 $ 2,477,691
Commercial Services & Vedior NV 'A' 337,887 3,061,418
Supplies--1.2%
Diversified Financial Fortis 383,105 6,599,077
Services--4.5% ING Groep NV 275,660 4,789,463
------------
11,388,540
Household Durables--1.3% Koninklijke (Royal) Philips
Electronics NV 164,140 3,121,396
Media--1.1% Wolters Kluwer NV 'A' 231,788 2,794,823
Total Common Stocks in the Netherlands 22,843,868
Portugal--1.3%
Electric Utilities--1.3% Electricidade de Portugal, SA (EDP) 1,510,228 3,225,741
Total Common Stocks in Portugal 3,225,741
Singapore--1.5%
Electronic Equipment & ++Singapore Post Limited 9,812,000 3,788,847
Instruments--1.5%
Total Common Stocks in Singapore 3,788,847
Spain--1.3%
Diversified ++Telefonica SA 291,952 3,389,508
Telecommunication
Services--1.3%
Total Common Stocks in Spain 3,389,508
Sweden--1.7%
Commercial Banks--1.7% Nordbanken Holding AB 882,429 4,255,087
Total Common Stocks in Sweden 4,255,087
Switzerland--6.7%
Building Products--1.0% Geberit AG (Registered Shares) 8,414 2,590,261
Commercial Banks--1.6% Credit Suisse Group 154,963 4,078,425
Construction Holcim Ltd. (Registered Shares) 99,355 3,671,122
Materials--1.5%
Pharmaceuticals--2.6% Novartis AG (Registered Shares) 162,812 6,442,526
Total Common Stocks in Switzerland 16,782,334
June 30, 2003, Mercury International Value V.I. Fund
SCHEDULE OF INVESTMENTS (CONTINUED)
In U.S. Dollars
Shares
Industry+++ Common Stocks Held Value
United Kingdom--22.5%
Commercial Banks--5.6% Barclays PLC 1,158,127 $ 8,599,868
Royal Bank of Scotland Group PLC 197,736 5,546,995
------------
14,146,863
Commercial Services & Chubb PLC 1,638,757 2,041,665
Supplies--0.8%
Diversified BT Group PLC 918,235 3,087,269
Telecommunication
Services--1.2%
Energy Equipment & British Energy PLC (Deferred Shares) 54,000 1
Service--0.0%
Food & Staples J Sainsbury PLC 827,323 3,467,623
Retailing--1.4%
Food Products--1.5% Unilever PLC 470,337 3,744,808
Industrial Smiths Industries PLC 350,475 4,065,701
Conglomerates--2.1% Tomkins PLC 325,964 1,221,008
------------
5,286,709
Insurance--1.4% AVIVA PLC 511,801 3,553,435
Oil & Gas--3.3% Shell Transport & Trading Company 1,271,376 8,391,838
Pharmaceuticals--3.8% GlaxoSmithKline PLC 471,101 9,507,439
Transportation BAA PLC 439,861 3,560,226
Infrastructure--1.4%
Total Common Stocks in the
United Kingdom 56,787,876
Total Common Stocks
(Cost--$232,402,943) 239,218,639
Preferred Stocks--1.5%
Germany--1.5%
Chemicals--1.5% Henkel KGaA 60,227 3,728,504
Total Preferred Stocks
(Cost--$3,984,139) 3,728,504
June 30, 2003, Mercury International Value V.I. Fund
SCHEDULE OF INVESTMENTS (CONCLUDED)
In U.S. Dollars
Face
Short-Term Investments--13.1% Amount Value
Time Deposits Brown Brothers Harriman &
Company, .61% due 7/01/2003 $ 2,687,471 $ 2,687,471
Shares Held/
Beneficial Interest
Merrill Lynch Liquidity Series,
LLC Money Market Series (a)(b) $18,250,600 18,250,600
Merrill Lynch Premier Institutional
Fund (a)(b) 12,167,068 12,167,068
------------
30,417,668
Total Short-Term Investments
(Cost--$33,105,139) 33,105,139
Total Investments
(Cost--$269,492,221)--109.6% 276,052,282
Liabilities in Excess of
Other Assets--(9.6%) (24,141,061)
------------
Net Assets--100.0% $251,911,221
============
++Non-income producing security.
+++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.
(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:
Interest/
Net Dividend
Affiliate Activity Income
Merrill Lynch Liquidity Series, LLC Money Market Series $16,906,651 $56,849
Merrill Lynch Premier Institutional Fund 10,975,265 $34,511
(b)Security was purchased with the cash proceeds from securities
loans.
See Notes to Financial Statements.
June 30, 2003, Mercury International Value V.I. Fund
STATEMENT OF ASSETS AND
LIABILITIES
As of June 30, 2003
Assets:
Investments, at value (including securities loaned of
$28,742,339) (identified cost--$269,492,221) $ 276,052,282
Cash 1,810
Foreign cash (cost--$5) 5
Receivables:
Capital shares sold $ 4,829,771
Dividends 1,844,788
Securities lending--net 29,953
Interest 45 6,704,557
--------------
Prepaid expenses 4,094
--------------
Total assets 282,762,748
--------------
Liabilities:
Collateral on securities loaned, at value 30,417,668
Payables:
Capital shares redeemed 222,242
Investment adviser 160,074
Other affiliates 2,156 384,472
--------------
Accrued expenses 49,387
--------------
Total liabilities 30,851,527
--------------
Net Assets:
Net assets $ 251,911,221
==============
Net Assets Consist of:
Paid-in capital $ 334,219,360
Undistributed investment income--net $ 4,354,431
Accumulated realized capital losses on investments and
foreign currency transactions--net (93,332,417)
Unrealized appreciation on investments and foreign
currency transactions--net 6,669,847
--------------
Total accumulated losses--net (82,308,139)
--------------
Net assets--Equivalent to $9.18 per share based on
27,427,067 shares outstanding++ $ 251,911,221
==============
++Unlimited shares of no par value authorized.
See Notes to Financial Statements.
June 30, 2003, Mercury International Value V.I Fund
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2003
Investment Income:
Dividends (net of $766,591 foreign withholding tax) $ 5,247,253
Securities lending--net 91,360
Interest 9,695
Other 17,445
--------------
Total income 5,365,753
--------------
Expenses:
Investment advisory fees $ 861,642
Accounting services 50,951
Custodian fees 38,117
Printing and shareholder reports 25,457
Professional fees 24,914
Trustees' fees and expenses 9,683
Transfer agent fees 3,125
Pricing fees 2,729
Other 5,540
--------------
Total expenses 1,022,158
--------------
Investment income--net 4,343,595
--------------
Realized & Unrealized Gain (Loss)on Investments &
Foreign Currency Transactions--Net:
Realized gain (loss) from:
Investments--net (8,539,032)
Foreign currency transactions--net 507,920 (8,031,112)
--------------
Change in unrealized appreciation/depreciation on:
Investments--net 28,583,419
Foreign currency transactions--net (560) 28,582,859
-------------- --------------
Total realized and unrealized gain on investments and
foreign currency transactions--net 20,551,747
--------------
Net Increase in Net Assets Resulting from Operations $ 24,895,342
==============
See Notes to Financial Statements.
June 30, 2003, Mercury International Value V.I. Fund
STATEMENTS OF CHANGES
IN NET ASSETS
For the Six For the
Months Ended Year Ended
June 30, December 31,
Increase (Decrease) in Net Assets: 2003 2002
Operations:
Investment income--net $ 4,343,595 $ 4,415,984
Realized loss on investments and foreign currency
transactions--net (8,031,112) (26,037,861)
Change in unrealized appreciation/depreciation on
investments and foreign currency transactions--net 28,582,859 (14,681,514)
-------------- --------------
Net increase (decrease) in net assets resulting
from operations 24,895,342 (36,303,391)
-------------- --------------
Dividends to Shareholders:
Investment income--net -- (11,858,577)
-------------- --------------
Net decrease in net assets resulting from dividends
to shareholders -- (11,858,577)
-------------- --------------
Capital Share Transactions:
Net decrease in net assets derived from capital
share transactions (12,986,035) (61,154,402)
-------------- --------------
Net Assets:
Total increase (decrease) in net assets 11,909,307 (109,316,370)
Beginning of period 240,001,914 349,318,284
-------------- --------------
End of period* $ 251,911,221 $ 240,001,914
============== ==============
*Undistributed investment income--net $ 4,354,431 $ 10,836
============== ==============
See Notes to Financial Statements.
June 30, 2003, Mercury International Value V.I. Fund
FINANCIAL HIGHLIGHTS
The following per share data and ratios have been derived from
information provided in the financial statements.
For the Six
Months
Ended
Increase (Decrease) in June 30, For the Year Ended December 31,
Net Asset Value: 2003 2002 2001 2000 1999
Per Share Operating Performance:
Net asset value, beginning of
period $ 8.26 $ 9.69 $ 11.68 $ 11.52 $ 9.52
--------- --------- --------- --------- ---------
Investment income--net .15++ .13++ .20++ .22 .15
Realized and unrealized gain (loss)
on investments and foreign
currency transactions--net .77 (1.21) (1.71) .10 1.91
--------- --------- --------- --------- ---------
Total from investment operations .92 (1.08) (1.51) .32 2.06
--------- --------- --------- --------- ---------
Less dividends and distributions:
Investment income--net -- (.35) (.24) (.11) (.06)
Realized gain on
investments--net -- -- (.24) (.05) --
--------- --------- --------- --------- ---------
Total dividends and distributions -- (.35) (.48) (.16) (.06)
--------- --------- --------- --------- ---------
Net asset value, end of period $ 9.18 $ 8.26 $ 9.69 $ 11.68 $ 11.52
========= ========= ========= ========= =========
Total Investment Return:**
Based on net asset value per
share 11.14%+++ (11.54%) (12.90%) 2.85% 21.68%
========= ========= ========= ========= =========
Ratios to Average Net Assets:
Expenses, excluding reorganization
expenses .89%* .91% .99% .93% 1.01%
========= ========= ========= ========= =========
Expenses .89%* .91% 1.01% .93% 1.01%
========= ========= ========= ========= =========
Investment income--net 3.78%* 1.38% 1.83% 2.20% 1.63%
========= ========= ========= ========= =========
Supplemental Data:
Net assets, end of period
(in thousands) $ 251,911 $ 240,002 $ 349,318 $ 356,292 $ 284,834
========= ========= ========= ========= =========
Portfolio turnover 12% 55% 62% 39% 71%
========= ========= ========= ========= =========
*Annualized.
**Total investment returns exclude insurance-related fees and
expenses.
++Based on average shares outstanding.
+++Aggregate total investment return.
See Notes to Financial Statements.
June 30, 2003, Mercury International Value V.I. Fund
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Mercury International Value V.I. Fund (the "Fund") is a fund of
Mercury Variable Trust (the "Trust"). The Trust is registered under
the Investment Company Act of 1940, as amended, as a diversified,
open-end management investment company, which is organized as a
Massachusetts business trust. The Fund's financial statements are
prepared in conformity with accounting principles generally accepted
in the United States of America, which may require the use of
management accruals and estimates. These unaudited financial
statements reflect all adjustments, which are, in the opinion of
management, necessary to a fair statement of the results for the
interim period presented. All such adjustments are of a normal,
recurring nature. Shares of the Fund are not offered to the general
public, but may only be purchased by the separate accounts of
participating insurance companies for the purpose of funding
variable annuity contracts and/or variable life insurance contracts.
The following is a summary of significant accounting policies
followed by the Fund.
(a) Valuation of investments--Portfolio securities that are traded
on stock ex-changes or the Nasdaq National Market are valued at the
last sale price or official closing 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 for long positions and at the last available ask
price for short positions. Securities traded in the over-the-counter
market are valued at the last available bid price prior to the time
of valuation. In cases where securities are traded on more than one
exchange, the securities are valued on the exchange designated by or
under the authority of the Board of Trustees as the primary market.
Portfolio 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, and it is expected that for debt
securities this ordinarily will be the over-the-counter 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). Futures
contracts are valued at the settlement price at the close of the
applicable exchange. Short-term securities are valued at amortized
cost, which approximates market value. 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. Occasionally, events affecting the
values of securities and other assets may occur between the times at
which valuations of such securities are determined (that is, close
of the market on which such securities trade) and the close of
business on the NYSE. If events (for example, company announcement,
natural disasters, market volatility) occur during such periods that
are expected to materially affect the value for such securities,
those securities may be valued at their fair market 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 Board of Trustees of the Trust.
June 30, 2003, Mercury International Value V.I. Fund
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
(b) Derivative financial instruments--The Fund may engage in various
portfolio investment strategies both to increase the return of the
Fund and to hedge, or protect, its exposure to interest rate
movement and movements in the securities markets. Losses may arise
due to changes in the value of the contract or if the counterparty
does not perform under the contract.
* 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.
(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--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,
withholding taxes may be imposed on interest, dividends and capital
gains at various rates.
(e) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Realized gains and losses on security
transactions are determined on the identified cost basis. Dividend
income is recorded on the ex-dividend dates. Dividends from foreign
securities where the ex-dividend date may have passed are
subsequently recorded when the Fund has determined the ex-dividend
date. Interest income is recognized on the accrual basis.
(f) Dividends and distributions--Dividends and distributions paid by
the Fund are recorded on the ex-dividend dates.
(g) Deferred organization expenses--Expenses incurred by the Trust
in connection with the organization, registration and the initial
public offering of shares are being deferred and amortized over the
period of benefit, but not to exceed sixty months from the Fund's
commencement of operations. The proceeds of any redemption of the
initial shares by the original shareholder will be reduced by a pro-
rata portion of any then unamortized organization expenses in the
same proportion as the number of initial shares being redeemed bears
to the number of initial shares outstanding at the time of such
redemption.
June 30, 2003, Mercury International Value V.I. Fund
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
(h) 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 receives 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.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Trust has entered into an Investment Advisory Agreement for the
Fund with Fund Asset Management, L.P., doing business as Mercury
Advisors. The general partner of Mercury Advisors is Princeton
Services, Inc. ("PSI"), an indirect, wholly-owned subsidiary of
Merrill Lynch & Co., Inc. ("ML & Co."), which is the limited
partner.
Mercury Advisors is responsible for the management of the Fund's
investments 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 at an
annual rate of .75% of the average daily value of the Fund's net
assets. Mercury Advisors has contractually agreed to pay all annual
operating expenses in excess of 1.35% as applied to the Fund's daily
net assets through September 30, 2003.
Mercury Advisors has entered into a Sub-Advisory Agreement for the
Fund with Merrill Lynch Asset Management U.K. Ltd., an affiliate of
Mercury Advisors. The sub-advisory arrangement is for investment
research, recommendations and other investment-related services to
be provided to the Fund. There is no increase in the aggregate fees
paid by the Fund for these services.
The Fund 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 Fund also has retained Merrill Lynch Investment Managers, LLC
("MLIM, LLC"), an affiliate of Mercury Advisors, 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 Mercury Advisors or
its affiliates. For the six months ended June 30, 2003, MLIM, LLC
received $42,342 in securities lending agent fees.
June 30, 2003, Mercury International Value V.I. Fund
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Financial Data Services, Inc. ("FDS"), an indirect, wholly-owned
subsidiary of ML & Co., is the Fund's transfer agent.
In addition, MLPF&S received $950 in commissions on the execution of
portfolio security transactions for the Fund for the six months
ended June 30, 2003.
FAM Distributors, Inc. ("FAMD"), an indirect, wholly-owned
subsidiary of Merrill Lynch Group, Inc., is the Fund's distributor.
For the six months ended June 30, 2003, the Fund reimbursed Mercury
Advisors $2,927 for certain accounting services.
Certain officers and/or trustees of the Trust are officers and/or
directors of Mercury Advisors, FAMD, PSI, FDS, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended June 30, 2003 were $28,715,404 and
$61,364,463, respectively.
Net realized gains (losses) for the six months ended June 30, 2003
and net unrealized gains as of June 30, 2003 were as follows:
Realized Unrealized
Gains (Losses) Gains
Long-term investments $ (8,539,032) $ 6,560,061
Foreign currency transactions 507,920 109,786
-------------- --------------
Total $ (8,031,112) $ 6,669,847
============== ==============
As of June 30, 2003, net unrealized appreciation for Federal income
tax purposes aggregated $2,506,892, of which $26,104,217 related to
appreciated securities and $23,597,325 related to depreciated
securities. At June 30, 2003, the aggregate cost of investments for
Federal income tax purposes was $273,545,390.
4. Capital Share Transactions:
Transactions in capital shares were as follows:
For the Six Months
Ended June 30, 2003 Shares Dollar Amount
Shares sold 5,254,286 $ 42,536,548
Shares redeemed (6,874,583) (55,522,583)
-------------- --------------
Net decrease (1,620,297) $ (12,986,035)
============== ==============
June 30, 2003, Mercury International Value V.I. Fund
NOTES TO FINANCIAL STATEMENTS
(CONCLUDED)
For the Year
Ended December 31, 2002 Shares Dollar Amount
Shares sold 18,668,459 $ 172,994,436
Shares issued to shareholders in
reinvestment of dividends 1,268,867 11,858,577
-------------- --------------
Total issued 19,937,326 184,853,013
Shares redeemed (26,933,266) (246,007,415)
-------------- --------------
Net decrease (6,995,940) $ (61,154,402)
============== ==============
5. Short-Term Borrowings:
The Fund, along with certain other funds managed by Mercury Advisors
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 commitment was reduced from $1,000,000,000 to
$500,000,000. The Fund did not borrow under the credit agreement
during the six months ended June 30, 2003.
6. Capital Loss Carryforward:
On December 31, 2002, the Fund had a net capital loss carryforward
of $75,532,445, of which $15,582,411 expires in 2008, $18,093,629
expires in 2009 and $41,856,405 expires in 2010. This amount will be
available to offset like amounts of any future taxable gains.
7. Reorganization Plan:
On July 7, 2003, the Trust's Board of Trustees approved a plan of
reorganization, subject to shareholder approval and certain other
conditions, whereby the Fund will change its name to International
Value V.I. Fund and become a fund of Merrill Lynch Variable Series
Funds, Inc.
June 30, 2003, Mercury International Value V.I. Fund
Item 2 - Did registrant adopt 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, principal
accounting officer or controller, or persons performing similar
functions, regardless of whether these individuals are employed by
the registrant or a third party? If not, why not? Briefly describe
any amendments or waivers that occurred during the period. State
here if code of ethics/amendments/waivers are on website and give
website address-. State here if fund will send code of ethics to
shareholders without charge upon request--N/A (annual requirement
only and not required to be answered until the registrant's fiscal
year-end on or after July 15, 2003)
Item 3 - Did the registrant's board of directors determine that the
registrant either: (i) has at least one audit committee financial
expert serving on its audit committee; or (ii) does not have an
audit committee financial expert serving on its audit committee? If
yes, disclose name of financial expert and whether he/she is
"independent," (fund may, but is not required, to disclose name/
independence of more than one financial expert) If no, explain why
not. -N/A (annual requirement only and not required to be answered
until the registrant's fiscal year-end on or after July 15, 2003)
Item 4 - Disclose annually only (not answered until December 15,
2003)
(a) Audit Fees - Disclose aggregate fees billed for each of the last
two fiscal years for professional services rendered by the principal
accountant for the audit of the registrant's annual financial
statements or services that are normally provided by the accountant
in connection with statutory and regulatory filings or engagements
for those fiscal years. N/A.
(b) Audit-Related Fees - Disclose aggregate fees billed in each of
the last two fiscal years for assurance and related services by the
principal accountant that are reasonably related to the performance
of the audit of the registrant's financial statements and are not
reported under paragraph (a) of this Item. Registrants shall
describe the nature of the services comprising the fees disclosed
under this category. N/A.
(c) Tax Fees - Disclose aggregate fees billed in each of the last
two fiscal years for professional services rendered by the principal
accountant for tax compliance, tax advice, and tax planning.
Registrants shall describe the nature of the services comprising the
fees disclosed under this category. N/A.
(d) All Other Fees - Disclose aggregate fees billed in each of the
last two fiscal years for products and services provided by the
principal accountant, other than the services reported in paragraphs
(a) through (c) of this Item. Registrants shall describe the nature
of the services comprising the fees disclosed under this category.
N/A.
(e)(1) Disclose the audit committee's pre-approval policies and
procedures described in paragraph (c)(7) of Rule 2-01 of Regulation
S-X. N/A.
(e)(2) Disclose the percentage of services described in each of
paragraphs (b) through (d) of this Item that were approved by the
audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of
Regulation S-X. N/A.
(f) If greater than 50%, disclose the percentage of hours expended
on the principal accountant's engagement to audit the registrant's
financial statements for the most recent fiscal year that were
attributed to work performed by persons other than the principal
accountant's full-time, permanent employees. N/A.
(g) Disclose the aggregate non-audit fees billed by the registrant's
accountant for services rendered to the registrant, and rendered to
the registrant's investment adviser (not including any sub-adviser
whose role is primarily portfolio management and is subcontracted
with or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the adviser
that provides ongoing services to the registrant for each of the
last two fiscal years of the registrant. N/A.
(h) Disclose whether the registrant's audit committee has considered
whether the provision of non-audit services that were rendered to
the registrant's investment adviser (not including any subadviser
whose role is primarily portfolio management and is subcontracted
with or overseen by another 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. N/A.
Item 5 - If the registrant is a listed issuer as defined in Rule 10A-
3 under the Exchange Act, state whether or not the registrant has a
separately-designated standing audit committee established in
accordance with Section 3(a)(58)(A) of the Exchange Act. If the
registrant has such a committee, however designated, identify each
committee member. If the entire board of directors is acting as the
registrant's audit committee in Section 3(a)(58)(B) of the Exchange
Act, so state.
If applicable, provide the disclosure required by Rule 10A-3(d)
under the Exchange Act regarding an exemption from the listing
standards for audit committees. N/A
(Listed issuers must be in compliance with the new listing rules by
the earlier of their first annual shareholders meeting after January
2004, or October 31, 2004 (annual requirement))
Item 6 - Reserved
Item 7 - For closed-end funds that contain voting securities in
their portfolio, describe the policies and procedures that it uses
to determine how to vote proxies relating to those portfolio
securities. N/A
Item 8--Reserved
Item 9(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.
Item 9(b)--There were no significant changes in the registrant's
internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Item 10 - Exhibits
10(a) - Attach code of ethics or amendments/waivers, unless code of
ethics or amendments/waivers is on website or offered to
shareholders upon request without charge. N/A.
10(b) - Attach certifications pursuant to Section 302 of the
Sarbanes-Oxley Act. 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.
Mercury International Value V.I. Fund
By: _/s/ Terry K. Glenn_______
Terry K. Glenn,
President of
Mercury International Value V.I. Fund
Date: August 21, 2003
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
Mercury International Value V.I. Fund
Date: August 21, 2003
By: _/s/ Donald C. Burke________
Donald C. Burke,
Chief Financial Officer of
Mercury International Value V.I. Fund
Date: August 21, 2003
Attached hereto as a furnished exhibit are the certifications
pursuant to Section 906 of the Sarbanes-Oxley Act.