-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Lj0GtMlUYi9hWLtBFrFJNXdy3joNw1hWmYBTsQMulBcL+fwqwlSDxUt78L+me4Sr NtZSeOsBrUbwjp+yUs3mFA== 0000900092-03-000039.txt : 20030312 0000900092-03-000039.hdr.sgml : 20030312 20030312144800 ACCESSION NUMBER: 0000900092-03-000039 CONFORMED SUBMISSION TYPE: N-CSR/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030312 EFFECTIVENESS DATE: 20030312 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MERCURY VARIABLE TRUST CENTRAL INDEX KEY: 0001036593 IRS NUMBER: 953492642 STATE OF INCORPORATION: MA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: N-CSR/A SEC ACT: 1940 Act SEC FILE NUMBER: 811-08163 FILM NUMBER: 03600756 BUSINESS ADDRESS: STREET 1: 800 SCUDDERS MILL RD CITY: PLAINSBORO STATE: NJ ZIP: 08536 BUSINESS PHONE: 6092820785 MAIL ADDRESS: STREET 1: 800 SCUDDERS MILL RD CITY: PLAINSBORO STATE: NJ ZIP: 08536 FORMER COMPANY: FORMER CONFORMED NAME: HOTCHKIS & WILEY VARIABLE TRUST DATE OF NAME CHANGE: 19970326 FORMER COMPANY: FORMER CONFORMED NAME: MERCURY HW VARIABLE TRUST DATE OF NAME CHANGE: 20001006 N-CSR/A 1 ml6976.txt MERCURY INTERNATIONAL VALUE V.I. FUND 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 Mercury International Value V.I. 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: 12/31/02 Date of reporting period: 01/01/02 - 12/31/02 Item 1 - Is shareholder report attached? - Y (BULL LOGO) Merrill Lynch Investment Managers www.mlim.ml.com Annual Report December 31, 2002 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. The Fund invests significantly in foreign stocks. Investment in foreign securities involves special risks including fluctuating foreign exchange rates, foreign government regulations, differing degrees of liquidity, and the possibility of substantial volatility due to adverse political, economic and other developments. Mercury International Value V.I. Fund of Mercury Variable Trust Box 9011 Princeton, NJ 08543-9011 Printed on post-consumer recycled paper PORTFOLIO INFORMATION (UNAUDITED) WORLDWIDE INVESTMENTS AS OF DECEMBER 31, 2002 Ten Largest Percent of Equity Holdings Net Assets GlaxoSmithKline PLC 4.3% Shell Transport & Trading Company 3.9 Royal Bank of Scotland Group PLC 3.3 TotalFinaElf SA 3.2 Unilever PLC 2.8 Yamanouchi Pharmaceutical Co., Ltd. 2.7 Novartis AG (Registered Shares) 2.6 ENI SpA 2.5 Barclays PLC 2.5 Namco Ltd. 2.3 Five Largest Percent of Industries* Net Assets Pharmaceuticals 9.6% Regional Banks 8.9 Oil & Gas 7.7 Banks 6.0 Electric--Utilities 5.0 *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. December 31, 2002, Mercury International Value V.I. Fund DEAR SHAREHOLDER Fiscal Year in Review We are pleased to present to you this annual report of Mercury International Value V.I. Fund. For the 12 months ended December 31, 2002, the Fund had a total return of -11.54%, outperforming the unmanaged benchmark Morgan Stanley Capital International Europe, Australasia, Far East Index, which had a total return of -15.94%. (Complete performance information can be found on page 6 of this report to shareholders.) During the 12 months ended December 31, 2002, value stocks and growth stocks generated similar returns. However, there was a big change in the trend in the third quarter of 2002 as economic data in Europe deteriorated and the U.S. dollar started to weaken against most currencies. Consequently, the more economically sensitive stocks, which were mainly value stocks, started to underperform. During the fiscal year, the worst-performing markets were Germany and Sweden with the financial and capital good stocks causing most of the damage, while the best performance came from Australia via the strong resources stocks and New Zealand, thanks to the telecommunication sector. On a sector level, the best performers were food, beverage and tobacco (defensive), automobiles (low interest rates) and energy (high oil price). The worst-performing areas were insurance (market sensitive), technology hardware and media (poor earnings visibility). The Fund benefited from being underweight in the United Kingdom but was negatively impacted by its underweight in Australia. Strong stock selection was featured in Ireland, Sweden and Switzerland, but was poor in Spain and Japan. The Fund's best contributions on a sector level during 2002 were from telecommunication services, banks, capital goods and pharmaceuticals, while the worst contributions came from commercial services, real estate and materials, mainly because of weak stock selection. The positioning of the Fund remains toward the economically sensitive sectors by being overweight compared to the broad benchmark in diversified financials, capital goods, commercial services and consumer durables at the expense of food, beverage and tobacco, technology and banks. Although in the short term these sectors might come under pressure because of deterioration in earnings visibility, we believe that much of this has been discounted in the share price and makes these investments attractive on a longer-term view. We anticipate that fundamental factors such as earnings and cash flow will be increasingly important to investors and believe that the Fund is well positioned for progress in the future. Economic Environment The U.S. economy has experienced an erratic recovery with alternate quarters of strong and weak economic growth. In aggregate, real gross domestic product (GDP) growth rose in excess of 3% during 2002, a reasonable outcome against a background of aggressive corporate deleveraging but not sufficient to significantly raise low- capacity utilization rates and profit margins. December 31, 2002, Mercury International Value V.I. Fund Economic indicators showed some loss of economic momentum entering the fourth quarter. The Institute for Supply Management index fell, consumer confidence softened and car sales declined from their record levels at the end of the summer. We view this as a continuation of the bumpy growth path seen over the last year. Most economic indicators are consistent with low but positive economic growth. Moreover, the balance of economic data has improved in recent weeks, suggesting that the economy may be pulling out of its soft patch; consumer confidence has risen and money growth has accelerated. The Eurozone economy has grown less than 1% in real terms during 2002, despite the tailwind of rising global trade. Progress in core Europe has been particularly disappointing, with Germany, France and Italy collectively failing to register any meaningful growth in 2002. This poor display reflects a combination of structural headwinds, especially high labor costs, and unsupportive fiscal and monetary policies. The significant rise in the value of the euro during the fiscal year is starting to dampen the only dynamic sector in Europe--exports. Business surveys across Europe have deteriorated during the last few months, with the key German Information und Forscheng survey dropping for five consecutive months, taking it back into recessionary territory. The United Kingdom was unique among the Group of Seven economies in avoiding a recession in 2001 and has continued to grow close to trend in 2002. It has now been more than ten years since the United Kingdom posted a single quarter of negative growth. U.K. GDP growth has recently been underpinned by a robust consumer. Retail sales volumes are up 6% compared to year- ago levels. The export-led Japanese economic recovery is starting to lose momentum. GDP rose by 1.5% in real terms during the period, a reasonably strong recovery by Japan's experience over the last decade. The recovery has been driven largely by exports on the back of improving global demand. Exports to Asia have risen more than 30% in the last year, and the near-term outlook for demand from Asia remains firm. However, some leading economic indicators have deteriorated, suggesting that Japan is in the process of peaking. For example, money supply growth has slowed and the inventory/ production ratio has risen. Asian production surged in 2002 reflecting the high gearing of the region into the global trade cycle and a rebound in domestic demand from depressed post-crisis levels. However, we are now seeing signs of growth losing momentum, coinciding with the deterioration in global leading economic indicators. Moreover, there are rising concerns that the South Korean consumption boom has been fueled by an unhealthy buildup of credit card debt, much of which is currently going bad. The outlook for the Australian economy remains well supported by rising commodity prices, while Hong Kong and Singapore remain mired in domestic deflation. Economic growth remains below average but without double-dip declines. We anticipate modest global growth rates in 2003, particularly in nominal terms. Massive fiscal and monetary stimulus allied to a significant expansion in government deficits should keep the global growth engine moving slowly forward. We do not anticipate many stimuli from capital expenditure--the global output gap allied to slow ongoing balance sheet repair rules this out. December 31, 2002, Mercury International Value V.I. Fund More importantly, 2003 could be the year when the consumer disappoints. Savings rates remain low and it seems unrealistic to expect that housing inflation will underpin a wealth effect boost to the same degree as in 2002. We are not suggesting that housing prices will fall, rather that price rises of four-to-eight times basic inflation must moderate over time. Housing has been a great source of wealth creation in the long term and will remain so; it seems natural that a pause in the rate of appreciation is at hand. Any slowing in price appreciation and transaction volume could have a significant multiplier impact on the housing market in 2003. Subdued economic growth and inflation risk suggest that monetary authorities will remain in an accommodative mode on price and quantity in 2003. The United Kingdom may be the exception as core inflation in a full employment economy suffers the upward pressure of public sector pay claims, fiscal expansion and an overheating housing market. Indeed, this has the capability of providing one of 2003's more unpleasant surprises. Elsewhere, authorities will probably remain more relaxed on inflation risk. In a paradoxical way this is hardly good news for the equity markets, where apart from the United Kingdom, some rise in short-term interest rates would represent encouraging signs of reviving growth. We believe government bonds will struggle to make positive returns, given the low level of nominal yields and limited chances of deflation. The rally in the markets that occurred during the fourth quarter has removed some of the severe undervaluation that was apparent at the end of the third quarter. The rally was led by a renewed confidence in an early economic rebound in the U.S. economy in response to the dramatic monetary easing by the Federal Reserve Board. From a valuation standpoint, European markets presently trade at 16 times 2003 earnings, which are expected to be slightly up compared to 2002. Asian markets are valued at around 22 times 2003 earnings, which are forecast to be flat to down in 2003. The outlook is for a continued positive trend in the international markets for 2003, although we need to see a positive development in global GDP and earnings and a resolution to the Middle East conflict. We still believe there are opportunities to select attractive investments in a climate that is overshadowed with uncertainties regarding economic recovery, a weak U.S. dollar and poor earnings visibility. In Conclusion 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 February 11, 2003 December 31, 2002, Mercury International Value V.I. Fund 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. TOTAL RETURN BASED ON A $10,000 INVESTMENT A line graph illustrating the growth of a $10,000 investment in Mercury International Value V.I. Fund*++ compared to a similar investment in Morgan Stanley Capital International EAFE Index++++. Values illustrated are as follows: Mercury International Value V.I. Fund*++ Date Value 6/10/1998 $10,000.00 December 1998 $ 9,561.00 December 1999 $11,632.00 December 2000 $11,967.00 December 2001 $10,423.00 December 2002 $ 9,095.00 Morgan Stanley Capital International EAFE Index++++ Date Value 6/30/1998 $10,000.00 December 1998 $10,351.00 December 1999 $13,142.00 December 2000 $11,280.00 December 2001 $ 8,861.00 December 2002 $ 7,449.00 *Assuming transaction costs and other operating expenses, including advisory fees. Does not include insurance-related fees and expenses. **Commencement of operations. ++Mercury International Value V.I. Fund seeks current income and long-term growth of income, accompanied by growth of capital through investments in international stocks. ++++The Morgan Stanley Capital International EAFE Index is an arithmetical average weighted by market value of the performance of over 1,000 non-U.S. companies representing 20 stock markets in Europe, Australasia and the Far East. The starting date for the Index in the graph is from 6/30/98. AVERAGE ANNUAL TOTAL RETURN % Return One Year Ended 12/31/02 -11.54% Since inception (6/10/98) through 12/31/02 - 1.74 RECENT PERFORMANCE RESULTS
6-Month 12-Month Since Inception As of December 31, 2002 Total Return Total Return Total Return* Mercury International Value V.I. Fund -17.09% -11.54% - 7.70% MSCI EAFE Index** -14.55 -15.94 -25.51 *The Fund commenced operations on 6/10/98. **Since inception total return is from 6/30/98.
December 31, 2002 Mercury International Value V.I. Fund SCHEDULE OF INVESTMENTS
In U.S. Dollars Shares Industry* Investments Held Value COMMONSTOCKS--104.8% Australia--1.3% Oil & Gas--1.3% Santos Limited 899,411 $ 3,048,879 Total Common Stocks in Australia 3,048,879 France--14.1% Auto Services--2.0% PSA Peugeot Citroen 118,818 4,845,361 Consumer/Office Societe BIC SA 87,666 3,022,092 Products--1.3% Electrical Equipment--0.4% ++Alstom 195,782 975,905 Hotels, Restaurants & Accor SA 91,888 2,782,891 Leisure--1.1% Metals & Mining--2.6% ++Arcelor 272,318 3,349,230 Pechiney SA 'A' 81,544 2,861,537 ----------- 6,210,767 Multi-Line Retail--1.2% Pinault-Printemps-Redoute SA 39,628 2,915,152 Oil--International--3.2% TotalFinaElf SA 53,007 7,570,637 Regional Banks--2.3% BNP Paribas SA 134,778 5,491,961 Total Common Stocks in France 33,814,766 Germany--4.3% Electric--Utilities--1.5% E.On AG 89,740 3,616,249 Financial Services--1.7% DePfa Bank PLC 76,641 4,021,353 Machinery--1.1% Linde AG 71,083 2,610,808 Total Common Stocks in Germany 10,248,410 Hong Kong--4.5% Electric--Utilities--2.1% Hongkong Electric Holdings Limited 1,305,280 4,946,018 Media--0.6% South China Morning Post Holdings Ltd. 3,469,000 1,445,713 Real Estate--1.8% Henderson Land Development Company Limited 1,454,000 4,372,217 Total Common Stocks in Hong Kong 10,763,948 Ireland--1.7% Regional Banks--1.7% Allied Irish Banks PLC 299,356 4,052,592 Total Common Stocks in Ireland 4,052,592 Italy--8.6% Banks--2.0% Intesa BCI SpA 2,315,596 4,884,273 Building Products--0.9% Buzzi Unicem SpA 309,688 2,203,409
December 31, 2002 Mercury International Value V.I. Fund SCHEDULE OF INVESTMENTS
In U.S. Dollars Shares Industry* Investments Held Value COMMONSTOCKS (continued) Italy (concluded) Insurance--1.7% Assicurazioni Generali 195,836 $ 4,028,002 Oil & Gas--2.5% ENI SpA 380,968 6,056,785 Telecommunications--1.5% Telecom Italia SpA 478,245 3,628,522 Total Common Stocks in Italy 20,800,991 Japan--20.8% Auto Services--2.1% Honda Motor Co., Ltd. 137,000 5,068,088 Chemicals--0.6% Sumitomo Bakelite Company Limited 325,000 1,341,957 Diversified Financials--1.2% Sanyo Shinpan Finance Co., Ltd. 157,700 2,850,480 Diversified Nippon Telegraph & Telephone Telecommunication Corporation (NTT) 1,002 3,639,184 Services--1.5% Electronic Equipment & Hitachi Ltd. 846,000 3,243,701 Instruments--1.4% Finance--1.7% Takefuji Corporation 72,000 4,156,063 Hotels, Restaurants & Namco Ltd. 330,000 5,528,272 Leisure--2.3% Household Durables--2.9% Daiwa House Industry Co., Ltd. 433,000 2,437,381 Matsushita Electric Industrial Company, Ltd. 457,000 4,505,688 ----------- 6,943,069 Machinery--1.7% Amada Co., Ltd. 289,000 789,045 Komatsu Ltd. 990,000 3,228,533 ----------- 4,017,578 Pharmaceuticals--2.7% Yamanouchi Pharmaceutical Co., Ltd. 227,000 6,580,265 Small Loans & Promise Co., Ltd. 96,500 3,439,749 Finance--1.4% Wireless KDDI Corporation 963 3,124,252 Telecommunication Services--1.3% Total Common Stocks in Japan 49,932,658 Netherlands--10.6% Chemicals/ Akzo Nobel NV 101,288 3,213,196 Pharmaceuticals--1.4% Commercial Services & Vedior NV 'A' 366,095 2,089,940 Supplies--0.9%
December 31, 2002 Mercury International Value V.I. Fund SCHEDULE OF INVESTMENTS
In U.S. Dollars Shares Industry* Investments Held Value COMMONSTOCKS (continued) Netherlands (concluded) Diversified Fortis 284,028 $ 4,965,663 Financials--3.6% ING Groep NV 217,855 3,689,879 ----------- 8,655,542 Electronics--1.3% Koninklijke (Royal) Philips Electronics NV 177,843 3,116,695 Media--1.8% Wolters Kluwer NV 'A' 251,138 4,374,834 Regional Banks--1.6% ABN AMRO Holding NV 239,797 3,920,598 Total Common Stocks in the Netherlands 25,370,805 New Zealand--0.8% Diversified Telecom Corporation of Telecommunication New Zealand Limited 773,000 1,831,734 Services--0.8% Total Common Stocks in New Zealand 1,831,734 Portugal--1.4% Electric--Utilities--1.4% Electricidade de Portugal, SA (EDP) 1,997,369 3,333,492 Total Common Stocks in Portugal 3,333,492 Spain--2.0% Telecommunications--2.0% ++Telefonica SA 536,555 4,802,909 Total Common Stocks in Spain 4,802,909 Sweden--1.5% Banks--1.5% Nordbanken Holding AB 834,594 3,678,102 Total Common Stocks in Sweden 3,678,102 Switzerland--5.8% Building Products--1.8% Geberit AG (Registered Shares) 14,760 4,248,557 Construction Holcim Ltd. 'B' 18,641 3,383,880 Materials--1.4% Pharmaceuticals--2.6% Novartis AG (Registered Shares) 172,124 6,280,217 Total Common Stocks in Switzerland 13,912,654 United Kingdom--27.4% Airports--1.9% BAA PLC 567,360 4,603,500 Banks--2.5% Barclays PLC 966,810 5,992,400 Diversified Smiths Industries PLC 379,733 4,251,815 Companies--2.9% Tomkins PLC 904,755 2,767,474 ----------- 7,019,289
December 31, 2002 Mercury International Value V.I. Fund SCHEDULE OF INVESTMENTS
In U.S. Dollars Shares Industry* Investments Held Value COMMONSTOCKS (concluded) United Kingdom (concluded) Diversified BT Group PLC 994,892 $ 3,123,269 Telecommunication Services--1.3% Energy--0.0% ++British Energy PLC (Deferred Shares) 54,000 1 Food & Drug J Sainsbury PLC 981,362 4,403,956 Retailing--1.8% Foods--2.8% Unilever PLC 717,988 6,831,303 Insurance-- AVIVA PLC 554,527 3,954,807 Multiline--1.7% Oil & Gas--3.9% Shell Transport & Trading Company 1,422,037 9,363,390 Pharmaceuticals--4.3% GlaxoSmithKline PLC 539,346 10,350,054 Regional Banks--3.3% Royal Bank of Scotland Group PLC 326,916 7,831,375 Security Services--1.0% Chubb PLC 1,668,644 2,357,272 Total Common Stocks in the United Kingdom 65,830,616 Total Common Stocks (Cost--$273,235,987) 251,422,556 Preferred Stocks--1.7% Germany--1.7% Chemicals--1.7% Henkel KGaA 65,255 4,129,259 Total Preferred Stocks (Cost--$4,339,186) 4,129,259 Total Investments (Cost--$277,575,173)--106.5% 255,551,815 Time Deposit**--0.1% 184,568 Liabilities in Excess of Other Assets--(6.6%) (15,734,469) ------------ Net Assets--100.0% $240,001,914 ============ *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. These industry classifications are unaudited. **Time deposit bears interest at .74% and matures on 1/02/2003. ++Non-income producing security. See Notes to Financial Statements.
December 31, 2002 Mercury International Value V.I. Fund STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 2002 Assets: Investments, at value (including securities loaned of $2,422,644) (identified cost--$277,575,173) $255,551,815 Investments held as collateral for loaned securities, at value 2,535,752 Cash 1,280 Time deposit 184,568 Receivables: Dividends $ 943,336 Securities sold 315,002 Capital shares sold 45,850 1,304,188 ------------- Prepaid expenses 4,102 ------------- Total assets 259,581,705 ------------- Liabilities: Collateral on securities loaned, at value 2,535,752 Payables: Capital shares redeemed 16,660,429 Investment adviser 168,011 Securities purchased 119,378 16,947,818 ------------- Accrued expenses and other liabilities 96,221 ------------- Total liabilities 19,579,791 ------------- Net Assets: Net assets $ 240,001,914 ============= Net Assets Consist of: Paid-in capital $ 347,205,395 Undistributed investment income--net $ 10,836 Accumulated realized capital losses on investments and foreign currency transactions--net (85,301,305) Unrealized depreciation on investments and foreign currency transactions--net (21,913,012) ------------- Total accumulated losses--net (107,203,481) ------------- Net assets--Equivalent to $8.26 per share based on 29,047,364 shares outstanding++ $ 240,001,914 ============= ++Unlimited shares of no par value authorized. See Notes to Financial Statements.
December 31, 2002 Mercury International Value V.I Fund STATEMENT OF OPERATIONS
For the Year Ended December 31, 2002 Investment Income: Dividends (net of $902,414 foreign withholding tax) $ 7,064,673 Securities lending--net 72,118 Interest 55,397 Other 119,581 ------------- Total 7,311,769 ------------- Expenses: Investment advisory fees $ 2,398,273 Custodian fees 155,241 Accounting services 127,050 Trustees' fees and expenses 51,971 Printing and shareholder reports 50,662 Transfer agent fees 44,904 Professional fees 29,722 Pricing fees 6,619 Other 31,343 ------------- Total 2,895,785 ------------- Investment income--net 4,415,984 ------------- Realized & Unrealized Gain (Loss)on Investments & Foreign Currency Transactions--Net: Realized loss from: Investments--net (26,024,389) Foreign currency transactions--net (13,472) (26,037,861) ------------- Change in unrealized appreciation/depreciation on: Investments--net (14,789,439) Foreign currency transactions--net 107,925 (14,681,514) ------------- ------------- Total realized and unrealized loss on investments and foreign currency transactions--net (40,719,375) ------------- Net Decrease in Net Assets Resulting from Operations $(36,303,391) ============= See Notes to Financial Statements.
December 31, 2002 Mercury International Value V.I. Fund STATEMENTS OF CHANGES IN NET ASSETS
For the Year Ended December 31, Increase (Decrease)in Net Assets: 2002 2001 Operations: Investment income--net $ 4,415,984 $ 7,440,188 Realized loss on investments and foreign currency transactions--net (26,037,861) (39,789,351) Change in unrealized appreciation/depreciation on investments and foreign currency transactions--net (14,681,514) (22,588,455) ------------- ------------- Net decrease in net assets resulting from operations (36,303,391) (54,937,618) ------------- ------------- Dividends & Distributions to Shareholders: Investment income--net (11,858,577) (9,492,333) Realized gain on investments--net -- (9,684,296) ------------- ------------- Net decrease in net assets resulting from dividends and distributions to shareholders (11,858,577) (19,176,629) ------------- ------------- Capital Share Transactions: Net increase (decrease) in net assets derived from capital share transactions (61,154,402) 67,140,815 ------------- ------------- Net Assets: Total decrease in net assets (109,316,370) (6,973,432) Beginning of year 349,318,284 356,291,716 ------------- ------------- End of year* $ 240,001,914 $ 349,318,284 ============= ============= *Undistributed investment income--net $ 10,836 $ 7,387,233 ============= ============= See Notes to Financial Statements.
December 31, 2002 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 Period June 10, 1998++ Increase (Decrease) in For the Year Ended December 31, to Dec. 31, Net Asset Value: 2002 2001 2000 1999 1998 Per Share Operating Performance: Net asset value, beginning of period $ 9.69 $ 11.68 $ 11.52 $ 9.52 $ 10.00 --------- --------- --------- --------- --------- Investment income--net .13++++ .20++++ .22 .15 .04 Realized and unrealized gain (loss) on investments and foreign currency transactions--net (1.21) (1.71) .10 1.91 (.48) --------- --------- --------- --------- --------- Total from investment operations (1.08) (1.51) .32 2.06 (.44) --------- --------- --------- --------- --------- Less dividends and distributions: Investment income--net (.35) (.24) (.11) (.06) (.04) Realized gain on investments--net -- (.24) (.05) -- -- --------- --------- --------- --------- --------- Total dividends and distributions (.35) (.48) (.16) (.06) (.04) --------- --------- --------- --------- --------- Net asset value, end of period $ 8.26 $ 9.69 $ 11.68 $ 11.52 $ 9.52 ========= ========= ========= ========= ========= Total Investment Return:** Based on net asset value per share (11.54%) (12.90%) 2.85% 21.68% (4.38%)+++ ========= ========= ========= ========= ========= Ratios to Average Net Assets: Expenses, excluding reorganization expenses .91% .99% .93% 1.01% 1.05%* ========= ========= ========= ========= ========= Expenses .91% 1.01% .93% 1.01% 1.05%* ========= ========= ========= ========= ========= Investment income--net 1.38% 1.83% 2.20% 1.63% 1.09%* ========= ========= ========= ========= ========= Supplemental Data: Net assets, end of period (in thousands) $240,002 $349,318 $356,292 $284,834 $289,135 ========= ========= ========= ========= ========= Portfolio turnover 55% 62% 39% 71% 24% ========= ========= ========= ========= ========= *Annualized. **Total investment returns exclude insurance-related fees and expenses. ++Commencement of operations. ++++Based on average shares outstanding. +++Aggregate total investment return. See Notes to Financial Statements.
December 31, 2002 Mercury International Value V.I. Fund NOTES TO FINANCIAL STATEMENTS 1. Significant Accounting Policies: Mercury International Value V.I. Fund (the "Fund") (formerly Mercury HW International Value VIP Portfolio) is a fund of Mercury Variable Trust (the "Trust") (formerly Mercury HW Variable Trust). The Trust is registered under the Investment Company Act of 1940 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. 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 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 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. 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. Short-term securities are valued at amortized cost, which approximates market value. Other investments are stated at market value. Securities and assets for which market value quotations are not available are valued at their fair value as determined in good faith by or under the direction of the Trust's Board of Trustees. (b) 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. * 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. December 31, 2002 Mercury International Value V.I. Fund NOTES TO FINANCIAL STATEMENTS (CONTINUED) (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. (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. 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. December 31, 2002 Mercury International Value V.I. Fund NOTES TO FINANCIAL STATEMENTS (CONTINUED) (i) 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 difference of $67,956 has been reclassified between accumulated net realized capital losses and undistributed net investment income and $1,760 has been reclassified between undistributed net investment income and paid-in capital in excess of par. These reclassifications have no effect on net assets or net asset value per share. 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 April 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. As of December 31, 2002, the Fund lent securities with a value of $573,235 to MLPF&S or its affiliates. Pursuant to that order, the Fund also has retained Merrill Lynch Investment Advisors, LLC ("MLIA"), 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. MLIA 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 MLIA or in registered money market funds advised by Mercury Advisors or its affiliates. As of December 31, 2002, cash collateral of $1,343,949 was invested in the Money Market Series of the Merrill Lynch Liquidity Series, LLC and $1,191,803 was invested in the Merrill Lynch Premier Institutional Fund. For the year ended December 31, 2002, MLIA received $31,145 in securities lending agent fees. December 31, 2002 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 $16,472 in commissions on the execution of portfolio security transactions for the Fund for the year ended December 31, 2002. FAM Distributors, Inc. ("FAMD"), an indirect, wholly-owned subsidiary of Merrill Lynch Group, Inc., is the Fund's distributor. For the year ended December 31, 2002, the Fund reimbursed Mercury Advisors $9,459 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 year ended December 31, 2002 were $171,465,338 and $207,067,926, respectively. Net realized losses for the year ended December 31, 2002 and net unrealized gains (losses) as of December 31, 2002 were as follows: Realized Unrealized Losses Gains (Losses) Long-term investments $(26,024,389) $(22,023,358) Foreign currency transactions (13,472) 110,346 ------------- ------------- Total $(26,037,861) $(21,913,012) ============= ============= As of December 31, 2002, net unrealized depreciation for Federal income tax purposes aggregated $26,076,527, of which $15,930,432 related to appreciated securities and $42,006,959 related to depreciated securities. At December 31, 2002, the aggregate cost of investments for Federal income tax purposes was $281,628,342. 4. Capital Share Transactions: Transactions in capital shares for each class were as follows: 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) ============= ============= December 31, 2002 Mercury International Value V.I. Fund NOTES TO FINANCIAL STATEMENTS (CONTINUED) For the Year Ended December 31, 2001 Shares Dollar Amount Shares sold 74,748,271 $ 800,106,928 Shares issued resulting from reorganization 10,211,084 115,814,267 Shares issued to shareholders in reinvestment of dividends and distributions 2,012,238 19,176,629 ------------- ------------- Total issued 86,971,593 935,097,824 Shares redeemed (81,431,267) (867,957,009) ------------- ------------- Net increase 5,540,326 $ 67,140,815 ============= ============= 5. Short-Term Borrowings: The Trust, 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 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 December 31, 2002. 6. Commitments: On December 31, 2002, the Fund had entered into foreign exchange contracts under which it had agreed to purchase and sell foreign currency with approximate values of $12,000 and $208,000, respectively. 7. Distributions to Shareholders: The tax character of distributions paid during the fiscal years ended December 31, 2002 and December 31, 2001 was as follows: 12/31/2002 12/31/2001 Distributions paid from: Ordinary income $ 11,858,577 $ 19,176,629 ------------ ------------- Total taxable distributions $ 11,858,577 $ 19,176,629 ============ ============= December 31, 2002 Mercury International Value V.I. Fund NOTES TO FINANCIAL STATEMENTS (CONCLUDED) As of December 31, 2002, the components of accumulated losses on a tax basis were as follows: Undistributed ordinary income--net $ 234,746 Undistributed long-term capital gains--net -- ------------- Total undistributed earnings--net 234,746 Capital loss carryforward (75,532,445)* Unrealized losses--net (31,905,782)** -------------- Total accumulated losses--net $(107,203,481) ============== *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. **The difference between book-basis and tax-basis net unrealized losses is attributable primarily to the tax deferral of losses on wash sales, the tax deferral of losses on straddles, the realization for tax purposes of unrealized gains (losses) on certain foreign currency contracts, the realization for tax purposes of unrealized gains on investments in passive foreign investment companies, the deferral of post-October capital losses for tax purposes and other book/tax temporary differences. December 31, 2002 Mercury International Value V.I. Fund REPORT OF INDEPENDENT AUDITORS To the Board of Trustees of Mercury Variable Trust and Shareholders of Mercury International Value V.I. Fund: We have audited the accompanying statement of assets and liabilities of Mercury International Value V.I. Fund (formerly Mercury HW International Value VIP Portfolio, one of the portfolios comprising Mercury Variable Trust) (the "Fund") including the schedule of investments, as of December 31, 2002, and the related statement of operations for the year then ended and the statement of changes in net assets and financial highlights for each of the two years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights for each of the two years in the period ended December 31, 2000 and for the period from June 10, 1998 (commencement of operations) to December 31, 1998, were audited by other auditors, whose report dated February 13, 2001, expressed an unqualified opinion on those financial highlights. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2002, by correspondence with the custodian and others. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights audited by us, referred to above present fairly, in all material respects, the financial position of Mercury International Value V.I. Fund at December 31, 2002, the results of its operations for the year then ended and the changes in its net assets and the financial highlights for each of the two years in the period then ended, in conformity with accounting principles generally accepted in the United States. (Ernst & Young LLP) MetroPark, New Jersey February 4, 2003 December 31, 2002 Mercury International Value V.I. Fund OFFICERS AND TRUSTEES
INTERESTED TRUSTEE Number of Portfolios in Other Position(s) Length Fund Complex Directorships Name, Address Held of Time Overseen by Held by & Age with Fund Served Principal Occupation(s) During Past 5 Years Trustee Trustee Terry K. Glenn* President 1999 to Chairman, Americas Region since 2001 and Executive 117 Funds None P.O. Box 9011 and present Vice President since 1983 of Fund Asset Management 162 Portfolios Princeton, NJ Trustee and L.P. ("FAM") and Merrill Lynch Investment Managers, 08543-9011 1998 to L.P. ("MLIM"); President of Merrill Lynch Mutual Funds Age: 62 present since 1999; President of FAM Distributors, Inc. ("FAMD") since 1986 and Director thereof since 1991; 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; President of FAMD; Executive Vice President of Princeton Services; and President of Princeton Administrators, L.P. The Trustee's term is unlimited. Trustees serve until their resignation, removal or death, or until December 31 of the year in which they turn 72. As Fund President, Mr. Glenn serves at the pleasure of the Board of Trustees.
INDEPENDENT TRUSTEES
Number of Portfolios in Other Position(s) Length Fund Complex Directorships Name, Address Held of Time Overseen by Held by & Age with Fund Served* Principal Occupation(s) During Past 5 Years Trustee Trustee James H. Trustee 2002 to Director and Executive Vice President, The China 42 Funds None Bodurtha present Business Group, Inc. since 1996; Chairman, Berkshire 61 Portfolios P.O. Box 9095 Holding Corporation since 1980. Princeton, NJ 08543-9095 Age: 58 Joe Grills Trustee 1998 to Member of the Committee of Investment of Employee Benefit 42 Funds Kimco P.O. Box 9095 present Assets of the Association of Financial Professionals 61 Portfolios Realty Princeton, NJ ("CIEBA") since 1986; Member of CIEBA's Executive Corporation 08543-9095 Committee since 1988; Member of the Investment Advisory Age: 67 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 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 2000; 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.
OFFICERS AND TRUSTEES (CONTINUED) INDEPENDENT TRUSTEES (CONCLUDED)
Number of Portfolios in Other Position(s) Length Fund Complex Directorships Name, Address Held of Time Overseen by Held by & Age with Fund Served* Principal Occupation(s) During Past 5 Years Trustee Trustee Herbert I. Trustee 2002 to John M. Olin Professor of Humanities, New York 42 Funds None London present University since 1993 and Professor thereof since 1980; 61 Portfolios P.O. Box 9095 President of Hudson Institute since 1997 and Trustee Princeton, NJ thereof since 1980. 08543-9095 Age: 63 Andre F. Trustee 2002 to George Gund Professor of Finance and Banking, Harvard 42 Funds None Perold present Business School since 2000 and a member of the faculty 61 Portfolios P.O. Box 9095 since 1979; Director of Stockback.com since 2002. Princeton, NJ 08543-9095 Age: 50 Roberta Cooper Trustee 2002 to Shareholder, Modrall, Sperling, Roehl, Harris & Sisk, P.A. 42 Funds Cooper's, Ramo present since 1993. 61 Portfolios Inc.; P.O. Box 9095 ECMC, Inc. Princeton, NJ 08543-9095 Age: 60 Robert S. Trustee 2002 to Principal of STI Management since its founding in 1994; 42 Funds None Salomon, Jr. present Trustee of Commonfund from 1980 to 2002; Trustee and 61 Portfolios P.O. Box 9095 Chairman of the Investment Management Workshop Princeton, NJ from 1978 to 2000; Director of Rye Country Day School 08543-9095 since 2001. Age: 66 Melvin R. Trustee 2002 to Director, Silbanc Properties, Ltd. (real estate, investment 42 Funds None Seiden present and consulting) since 1987. 61 Portfolios P.O. Box 9095 Princeton, NJ 08543-9095 Age: 72 Stephen B. Trustee 2002 to Chairman, Fernwood Advisors (investment advisor) 42 Funds International Swensrud present since 1996; Principal of Fernwood Associates (financial 61 Portfolios Mobile P.O. Box 9095 consultant) since 1975; Chairman of RPP Corporation Communi- Princeton, NJ since 1978; Director, International Mobile Communi- cations, 08543-9095 cations, Inc. since 1998. Inc. Age: 69 *The Trustee's term is unlimited. Trustees serve until their resignation, removal or death, or until December 31 of the year which they turn 72.
December 31, 2002 Mercury International Value V.I. Fund OFFICERS AND TRUSTEES (CONCLUDED) FUND OFFICERS
Position(s) Length Name, Address Held of Time & Age with Fund Served* Principal Occupation(s) During Past 5 Years Donald C. Burke Vice 1998 to First Vice President of FAM and MLIM since 1997 and Treasurer thereof since P.O. Box 9011 President present 1999; Senior Vice President and Treasurer of Princeton Services since 1999; Princeton, NJ and and Vice President of FAMD since 1999; Director of MLIM Taxation since 1990. 08543-9011 Treasurer 1999 to Age: 42 present Robert C. Senior Vice 2000 to President and Global Chief Investment Officer of MLIM and member of the Executive Doll, Jr. President present Management Committee of ML & Co., Inc. since 2001; Chief Investment Officer, P.O. Box 9011 Senior Vice President and Co-Head of MLIM Americas from 1999 to 2001; Chief Princeton, NJ Investment Officer of Oppenheimer Funds, Inc. from 1987 to 1999 and Executive 08543-9011 Vice President from 1991 to 1999. Age: 49 James Macmillan Vice 2001 to Managing Director of MLIM, U.K. since 2000; Portfolio Manager of MLIM, U.K. P.O. Box 9011 President present since 1993. Princeton, NJ 08543-9011 Age: 37 Stephen M. Secretary 2002 to Vice President (Legal Advisory) of MLIM since 2000; Associate with Kirkpatrick & Benham present Lockhart LLP from 1997 to 2000. P.O. Box 9011 Princeton, NJ 08543-9011 Age: 43 *Officers of the Fund serve at the pleasure of the Board of Trustees.
Further information about the Fund's Trustees is available in the Fund's Statement of Additional Information, which can be obtained without charge by calling 1-888-763-2260. 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 Effective January 1, 2003, Melvin R. Seiden, Trustee of Mercury International Value V.I. Fund, retired. The Fund's Board of Trustees wishes Mr. Seiden well in his retirement. December 31, 2002 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 (not answered until July 15, 2003 and only annually for funds) 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 (not answered until July 15, 2003 and only annually for funds) 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. Items 5-6 - 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) - Disclose the conclusions of the registrant's principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, about the effectiveness of the registrant's disclosure controls and procedures (as defined in Rule 30a-2(c) under the Act (17 CFR 270.30a-2(c))) based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph. N/A. 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 (4 in total pursuant to Sections 302 and 906 for CEO/CFO). 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: February 24, 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: February 24, 2003 By: _/s/ Donald C. Burke________ Donald C. Burke Chief Financial Officer of Mercury International Value V.I. Fund Date: February 24, 2003 EX-99.CERT 3 ex99cert.txt EX-99 CERT EX-99. CERT CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Donald C. Burke, Chief Financial Officer of Mercury International Value V.I. Fund, certify that: 1. I have reviewed this report on Form N-CSR of Mercury International Value V.I. Fund; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; and 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report. Date: February 24, 2003 /s/ Donald C. Burke_____ Donald C. Burke, Chief Financial Officer of Mercury International Value V.I. Fund Exhibit 99.1 Certification Pursuant to Section 906 of the Sarbanes Oxley Act I, Donald C. Burke, Chief Financial Officer of Mercury International Value V.I. Fund (the "Fund"), certify that: 1. The N-CSR of the Fund (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Fund. Dated: February 24, 2003 _/s/ Donald C. Burke____ Donald C. Burke, Chief Financial Officer of Mercury International Value V.I. Fund EX-99. CERT CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Terry K. Glenn, President of Mercury International Value V.I. Fund, certify that: 1. I have reviewed this report on Form N-CSR of Mercury International Value V.I. Fund; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; and Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report. Date: February 24, 2003 /s/ Terry K. Glenn___ Terry K. Glenn, President of Mercury International Value V.I. Fund Exhibit 99.1 Certification Pursuant to Section 906 of the Sarbanes Oxley Act I, Terry K. Glenn, President of Mercury International Value V.I. Fund (the "Fund"), certify that: 1. The N-CSR of the Fund (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Fund. Dated: February 24, 2003 _/s/ Terry K. Glenn_____ Terry K. Glenn, President of Mercury International Value V.I. Fund -----END PRIVACY-ENHANCED MESSAGE-----