<PAGE>
HARTFORD LEADERS
HARTFORD LIFE INSURANCE COMPANY
HARTFORD LIFE & ANNUITY INSURANCE COMPANY
[HARTFORD LOGO]
SEMI-ANNUAL REPORT
JUNE 30, 2000
<PAGE>
Table of Contents
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Hartford HLS Mutual Funds Financial Statements
for:
Hartford Money Market HLS Fund, Inc............. MF-1
Merrill Lynch Mutual Fund Financial Statements
for:
Merrill Lynch Mercury V.I. U.S. Large Cap
Fund........................................... M-1
Merrill Lynch Variable Series Funds, Inc. --
Global Growth Focus Fund.......................
Prudential Mutual Fund Financial Statements for:
Prudential Jennison Portfolio................... A
</TABLE>
Contract owners should refer to the prospectus provided to them at the time of
purchase of their contract for a description of investment alternatives
available in the Separate Accounts. This prospectus, along with the financial
information contained in this report, provides them with complete and up-to-date
financial information regarding the Separate Account.
This report is prepared for the general information of contract owners and is
not an offer of contracts. It should not be used in connection with any offer,
except in conjunction with the appropriate prospectus which contains all
pertinent information including the applicable sales, administrative and other
charges.
<PAGE>
HARTFORD MONEY MARKET HLS FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------------------- --------------
<C> <S> <C>
COMMERCIAL PAPER -- 71.0%
$ 20,000,000 Abbey National North America PLC
6.58% due 09/12/00................. $ 19,740,457
11,000,000 American Honda Finance Corp.
6.19% due 07/12/00................. 10,982,978
12,110,000 American Honda Finance Corp.
6.19% due 07/24/00................. 12,066,273
10,000,000 ANZ (Delaware), Inc.
6.02% due 08/25/00................. 9,911,372
15,000,000 Associated Corp.
6.56% due 07/11/00................. 14,978,133
-20,000,000 AT&T Corp.
6.78% due 06/14/01................. 20,000,000
10,000,000 Bradford & Bingley Building Society
6.15% due 07/21/00................. 9,969,250
20,000,000 Bradford & Bingley Building Society
6.56% due 07/10/00................. 19,974,489
20,000,000 CAFCO
6.55% due 08/07/00................. 19,872,639
20,000,000 CAFCO
6.62% due 08/01/00................. 19,893,344
20,000,000 CIESCO L.P.
6.14% due 07/18/00................. 19,948,833
10,000,000 CIESCO L.P.
6.55% due 08/02/00................. 9,945,417
10,000,000 CIESCO L.P.
6.59% due 08/02/00................. 9,945,083
10,000,000 Coca-Cola Co. (The)
6.10% due 07/03/00................. 10,000,000
20,000,000 Coca-Cola Co. (The)
6.52% due 08/14/00................. 19,847,867
35,000,000 Countrywide Home Loan
7.13% due 07/05/00................. 34,986,136
30,000,000 DaimlerChrysler North America Holding
Corp.
6.15% due 07/25/00................. 29,887,250
15,000,000 du Pont (E.I.) de Nemours & Co.
6.09% due 07/07/00................. 14,989,850
17,800,000 Emerson Electric Co.
6.46% due 07/06/00................. 17,790,418
20,000,000 Ford Motor Credit Co.
6.59% due 08/03/00................. 19,886,506
20,000,000 General Electric Capital Corp.
5.98% due 07/10/00................. 19,976,744
10,000,000 General Electric Capital Corp.
6.00% due 08/21/00................. 9,918,333
10,000,000 General Electric Capital Corp.
6.59% due 09/18/00................. 9,859,047
10,000,000 General Motors Acceptance Corp.
6.00% due 08/14/00................. 9,930,000
35,000,000 Gillette Co. (The)
6.90% due 07/05/00................. 34,986,583
10,000,000 Goldman Sachs Group, Inc. (The)
6.03% due 08/14/00................. 9,929,650
10,000,000 Goldman Sachs Group, Inc. (The)
6.63% due 10/24/00................. 9,791,892
10,000,000 Market Street Funding Corp.
6.60% due 07/24/00................. 9,961,500
20,000,000 Market Street Funding Corp.
6.63% due 09/11/00................. 19,742,167
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------------------- --------------
<C> <S> <C>
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------------------- --------------
<C> <S> <C>
$ 20,000,000 Merita Bank North America, Inc.
6.14% due 12/04/00................. $ 19,474,689
10,000,000 Merrill Lynch & Co., Inc.
6.03% due 08/21/00................. 9,917,925
10,000,000 Merrill Lynch & Co., Inc.
6.14% due 07/17/00................. 9,976,122
10,000,000 Merrill Lynch & Co., Inc.
6.54% due 08/07/00................. 9,936,417
10,000,000 Morgan (J.P.) & Co.
6.12% due 11/15/00................. 9,770,500
20,000,000 Morgan Stanley Dean Witter & Co.
6.00% due 07/05/00................. 19,993,333
20,000,000 Morgan Stanley Dean Witter & Co.
6.55% due 09/18/00................. 19,719,806
20,000,000 Motorola, Inc.
6.57% due 07/26/00................. 19,916,050
15,000,000 Motorola, Inc.
6.60% due 09/27/00................. 14,763,500
20,000,000 National Rural Utilities Cooperative
Finance Corp.
6.14% due 11/06/00................. 19,570,200
20,000,000 Nationwide Building Society
6.59% due 10/18/00................. 19,608,261
10,000,000 Old Line Funding Corp.
6.56% due 07/20/00................. 9,969,022
18,435,000 Pfizer, Inc.
6.58% due 08/07/00................. 18,317,067
10,000,000 Salomon Smith Barney Holdings, Inc.
6.60% due 09/18/00................. 9,858,833
10,000,000 Salomon Smith Barney Holdings, Inc.
6.61% due 09/18/00................. 9,858,619
20,000,000 Sara Lee Corp.
6.49% due 07/06/00................. 19,989,183
10,000,000 SwedBank
5.97% due 07/10/00................. 9,988,392
10,000,000 SwedBank
6.19% due 11/28/00................. 9,745,522
10,000,000 SwedBank
6.19% due 12/05/00................. 9,733,486
30,000,000 Toronto-Dominion Holdings
6.24% due 10/23/00................. 29,417,600
20,000,000 Triple A One Funding Corp.
6.60% due 07/24/00................. 19,923,000
10,000,000 Wood Street Funding Corp.
6.55% due 07/14/00................. 9,979,986
--------------
Total commercial paper............... $ 808,139,724
==============
CORPORATE NOTES -- 15.9%
10,000,000 Citigroup, Inc.
5.625% due 02/15/01................ $ 9,934,274
10,000,000 First Union National Bank
6.80% due 02/22/01................. 10,000,000
20,000,000 Fleet Financial Group, Inc.
6.707% due 03/13/01................ 19,989,949
10,000,000 Fleet National Bank
6.91% due 03/27/01................. 10,008,797
20,000,000 General Mills, Inc.
6.161% due 07/17/00................ 19,999,254
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
_____________________________________ MF-1 _____________________________________
<PAGE>
HARTFORD MONEY MARKET HLS FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS -- (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------------------- --------------
<C> <S> <C>
</TABLE>
CORPORATE NOTES -- (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------------------- --------------
<C> <S> <C>
$ 10,000,000 General Mills, Inc.
6.68% due 02/09/01................. $ 9,997,283
-18,000,000 Goldman Sachs Group, Inc. (The)
6.713% due 01/16/01................ 18,038,751
20,000,000 Key Bank N.A.
6.76% due 05/25/01................. 19,993,562
13,000,000 Nationsbank Corp.
5.75% due 03/15/01................. 12,911,082
30,000,000 Toyota Motor Credit Corp.
6.181% due 01/09/01................ 29,989,225
20,000,000 Wachovia Bank
6.82% due 09/14/00................. 19,999,225
--------------
Total corporate notes................ $ 180,861,402
==============
REPURCHASE AGREEMENT -- 14.9%
169,259,000 Interest in $320,669,000 joint
repurchase agreement dated 06/30/00
with State Street Bank, 6.436% due
07/03/00; maturity amount
$169,349,783 (Collateralized by
$151,504,351 U.S. Treasury Bonds
8.125% due 05/15/21, $171,295,551
U.S. Treasury Inflation-Indexed
Securities 3.625% due 05/15/02).... $ 169,259,000
--------------
Total repurchase agreement........... $ 169,259,000
==============
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
<CAPTION>
DIVERSIFICATION OF NET ASSETS:
<S> <C> <C>
Total commercial paper
(cost $808,139,724)...................... 71.0% $ 808,139,724
Total corporate notes
(cost $108,861,402)...................... 15.9 180,861,402
Total repurchase agreement
(cost $169,259,000)...................... 14.9 169,259,000
----- --------------
Total investment in securities
(total cost $1,158,260,126).............. 101.8 1,158,260,126
Cash, receivables and other assets........ 0.9 10,107,975
Payable for fund shares redeemed.......... (2.2) (24,245,388)
Dividends payable......................... (0.5) (5,932,814)
Other liabilities......................... (0.0) (289,974)
----- --------------
Net assets................................ 100.0% $1,137,899,925
===== ==============
</TABLE>
<TABLE>
<S> <C>
SUMMARY OF SHAREHOLDERS' EQUITY:
Capital stock, par value $0.10 per share;
3,000,000,000 shares authorized; 1,137,899,924
shares outstanding............................... $ 113,789,993
Capital surplus................................... 1,024,109,932
--------------
Net assets........................................ $1,137,899,925
==============
Class IA
Shares of benefical interest outstanding, $0.10
par value 2,475,000,000 shares authorized (Net
assets $1,122,864,964)........................... 1,122,864,964
==============
</TABLE>
<TABLE>
<S> <C>
Net asset value........................................... $1.00
=====
</TABLE>
<TABLE>
<S> <C>
Class IB
Shares of benefical interest outstanding, $0.10 par
value 525,000,000 shares authorized (Net assets
$15,034,961)...................................... 15,034,961
=============
</TABLE>
<TABLE>
<S> <C>
Net asset value........................................... $1.00
=====
</TABLE>
<TABLE>
<C> <S>
- Securities exempt from registration under Rule 144A of the
Securities Act of 1933. These securities may be resold in
transactions exempt from registration, normally to qualified
institutional buyers. At June 30, 2000, the market value of
these securities amounted to $38,038,751 or 3.3% of net
assets.
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
_____________________________________ MF-2 _____________________________________
<PAGE>
HARTFORD MONEY MARKET HLS FUND, INC.
--------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
FOR THE PERIOD ENDED JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
HARTFORD
MONEY MARKET
HLS FUND, INC.
--------------
<S> <C>
INVESTMENT INCOME:
Interest.................................................. 35,250,992
-----------
Total investment income, net............................ 35,250,992
-----------
EXPENSES:
Investment advisory fees.................................. 1,430,921
Administrative services fees.............................. 1,144,737
Accounting services....................................... 85,855
Custodian fees gross...................................... 4,285
Custodian fees expense offset............................. (908)
Board of Directors fees................................... 4,214
Distribution fees -- Class IB............................. 11,839
Other expenses............................................ 35,621
-----------
Total expenses, (before waivers)........................ 2,716,564
Distribution fees -- Class IB waived...................... (3,315)
-----------
Total expenses, net..................................... 2,713,249
-----------
Net investment income....................................... 32,537,743
-----------
NET REALIZED (LOSS) ON INVESTMENTS:
Net realized (loss) on securities transactions.............. (35,716)
-----------
Net realized (loss) on investments.......................... (35,716)
-----------
Net increase in net assets resulting from operations........ $32,502,027
===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
_____________________________________ MF-3 _____________________________________
<PAGE>
HARTFORD MONEY MARKET HLS FUND, INC.
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
HARTFORD MONEY MARKET HLS FUND, INC.
-------------------------------------
JUNE 30, DECEMBER 31,
2000 1999
--------------- ---------------
<S> <C> <C>
OPERATIONS:
Net investment income..................................... $ 32,537,743 $ 51,797,629
Net realized (loss) gain on investments................... (35,716) 22,249
-------------- --------------
Net increase in net assets resulting from operations...... 32,502,027 51,819,878
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class IA................................................ (32,239,227) (51,531,940)
Class IB................................................ (262,798) (265,689)
From realized gain on investments
Class IA................................................ -- (22,169)
Class IB................................................ -- (80)
-------------- --------------
Total distributions..................................... (32,502,025) (51,819,878)
-------------- --------------
CAPITAL SHARE TRANSACTIONS:
Class IA................................................ (134,570,848) 384,949,803
Class IB................................................ 6,231,037 6,624,881
-------------- --------------
Net (decrease) increase from capital share
transactions....................................... (128,339,811) 391,574,684
-------------- --------------
Net (decrease) increase in net assets............... (128,339,809) 391,574,684
NET ASSETS:
Beginning of period....................................... 1,266,239,734 874,665,050
-------------- --------------
End of period............................................. $1,137,899,925 $1,266,239,734
============== ==============
Accumulated undistributed net investment income........... $ -- $ --
============== ==============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
_____________________________________ MF-4 _____________________________________
<PAGE>
HARTFORD MONEY MARKET HLS FUND, INC.
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
1. ORGANIZATION:
Hartford Money Market HLS Fund, Inc. is organized under the laws of the
State of Maryland and is registered with the Securities and Exchange
Commission (SEC) under the Investment Company Act of 1940, as amended, as
diversified open-end management investment company. The Hartford Money
Market HLS Fund, Inc., (The Fund) is a component of The Hartford HLS Mutual
Funds (The Mutual Funds).
The Fund serves as the underlying investment vehicle for certain variable
annuity and variable life insurance separate accounts and group pension
contracts of Hartford Life Insurance Company and Hartford Life and Annuity
Insurance Company (collectively, The Hartford Life Insurance Companies). The
Hartford Life Insurance Companies are affiliates of the Fund. The Fund's
investment objective is to seek a high level of current income consistent
with liquidity and preservation of capital through investment in
money-market securities.
The Fund is divided into Class IA and IB shares. Each class is offered at
net asset value without a sales charge and is subject to the same expenses
except that the Class IB shares are subject to distribution fees charged
pursuant to a Rule 12-b1 plan. Distribution and Service Plans have been
adopted in accordance with rule 12b-1 of the Investment Company Act of 1940,
as amended.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies of the Fund,
which is in accordance with generally accepted accounting principles in the
investment company industry:
a) SECURITY TRANSACTIONS--Security transactions are recorded on the trade
date (the day the order to buy or sell is executed).
b) SECURITY VALUATION--Short-term securities held in the Fund, are valued at
amortized cost or original cost plus accrued interest receivable, both of
which approximate market value.
c) REPURCHASE AGREEMENTS--A repurchase agreement is an agreement by which the
seller of a security agrees to repurchase the security sold at a mutually
agreed upon time and price. At the time The Fund enters into a repurchase
agreement, the value of the underlying collateral security(ies), including
accrued interest, will be equal to or exceed the value of the repurchase
agreement and, in the case of repurchase agreements exceeding one day, the
value of the underlying security(ies), including accrued interest, is
required during the term of the agreement to be equal to or exceed the
value of the repurchase agreement. Securities which serve to collateralize
the repurchase agreement are held by the Fund's custodian in book entry or
physical form in the custodial account of the Fund. Repurchase agreements
are valued at cost plus accrued interest receivable. All repurchase
agreements are handled through the Fund's custodian, State Street Bank.
d) JOINT TRADING ACCOUNT--Pursuant to an exemptive order issued by the SEC,
the Fund may transfer uninvested cash balances into a joint trading
account managed by The Hartford Investment Management Company (HIMCO).
These balances may be invested in one or more repurchase agreements and/or
short-term money market instruments.
e) FEDERAL INCOME TAXES--For federal income tax purposes, the Fund intends to
continue to qualify as a regulated investment company under Subchapter M
of the Internal Revenue Code by distributing substantially all of its
taxable net investment income and net realized capital gains to its
shareholders or otherwise complying with the requirements of regulated
investment companies. Accordingly, no provision for federal income taxes
has been made in the accompanying financial statements.
f) FUND SHARE VALUATION AND DISTRIBUTIONS TO SHAREHOLDERS--Orders for the
Fund's shares are executed in accordance with the investment instructions
of the contract holders. Interest income and expenses are accrued on a
daily basis. The net asset value of the Fund's shares is determined as of
the close of each business day of the New York Stock Exchange (the
Exchange). Orders for the purchase of a Fund's shares received prior to
the close of the Exchange on any day on which the Fund is open for
business are priced at the per-share net asset value determined as of the
close of the Exchange. Orders received after the close of the Exchange, or
on a day on which the Exchange and/or the Fund is not open for business,
are priced at the next determined per-share net asset value. The Fund
seeks to maintain a stable net asset value per share of $1.00 by declaring
a daily dividend from net investment income, including net short-term
capital gains and losses and by valuing its investments using the
amortized cost method. Dividends are distributed monthly.
_____________________________________ MF-5 _____________________________________
<PAGE>
HARTFORD MONEY MARKET HLS FUND, INC.
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 2000
g) USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the financial statements and the reported
amounts of income and expenses during the period. Operating results in the
future could vary from the amounts derived from management's estimates.
h) RESTRICTED SECURITIES--The Fund may invest up to 10% in illiquid
securities. "Illiquid Securities" are those that may not be sold or
disposed of in the ordinary course of business, at approximately the price
used to determine the Fund's net asset value per share. The Fund may also
purchase certain restricted securities, commonly known as Rule 144A
securities, that can be resold to institutions and which may be determined
to be liquid pursuant to policies and guidelines established by the Funds'
Board of Directors. As of June 30, 2000 The Fund did not hold any
restricted securities (excluding 144A issues).
3. EXPENSES:
a) INVESTMENT MANAGEMENT AND ADVISORY AGREEMENTS--HL Investment Advisors, LLC
(HL Advisors) an indirect wholly-owned subsidiary of The Hartford
Financial Services Group, Inc. (The Hartford), serves as investment
manager to the Fund pursuant to Investment Management Agreements approved
by the Fund's Board of Directors and shareholders. The rate of
compensation paid to HL Advisers for services rendered was 0.25% per annum
based on the average daily net assets of The Fund.
Pursuant to investment services agreements between HL Advisors and HIMCO,
HIMCO provides the day-to-day investment management services to the Fund.
HIMCO is a wholly-owned subsidiary of The Hartford. HIMCO determines the
purchase and sale of portfolio securities and places such orders for
execution in the name of the Fund. In conjunction with their investment
activity, HIMCO regularly furnishes reports to the Fund's Board of
Directors concerning economic forecasts, investment strategy, portfolio
activity and performance of the Fund.
b) ADMINISTRATIVE SERVICES AGREEMENT--Under the Administrative Services
Agreement between Hartford Life Insurance Company (HL) and the Fund, HL
provides administrative services to the Fund and receives monthly
compensation at the annual rate of 0.20% of the Fund's average daily net
assets. The Fund assumes and pays certain other expenses (including, but
not limited to, accounting, custody, state taxes and directors' fees).
Directors' fees represent remuneration paid or accrued to directors not
affiliated with HL or any other related company.
c) OPERATING EXPENSES--Allocable expenses of The Mutual Funds are charged to
the Fund based on the ratio of the net assets of The Fund to the combined
net assets of The Mutual Funds. Non-allocable expenses are charged to the
fund based on specific identification.
d) EXPENSE OFFSET--The Fund has entered into certain expense offset
arrangements with the Custodian Bank. The amount of the Fund's expense
reductions is shown on the accompanying Statement of Operations as
Custodian fees expense offset.
e) DISTRIBUTION PLAN FOR CLASS IB SHARES--The Fund has adopted a Distribution
Plan pursuant to Rule 12b-1 under the 1940 Act for the Class IB shares.
Pursuant to the Distribution Plan, the Fund compensates the Distributor
from assets attributable to the Class IB shares for services rendered and
expenses borne in connection with activities primarily intended to result
in the sale of the Class IB shares.
Although the Distribution Plan provides that the Fund may pay annually up
to 0.25% of the average daily net assets of the Fund attributable to its
Class IB shares for activities primarily intended to result in the sale of
Class IB shares, the Distributor has voluntarily agreed to waive 0.07% of
the fee. This waiver may be withdrawn at any time after notice to
shareholders. Under the terms of the Distribution Plan and the principal
underwriting agreement, the Fund is authorized to make payments monthly to
the Distributor which may be used to pay or reimburse entities providing
distribution and shareholder servicing with respect to the Class IB shares
for such entities' fees or expenses incurred or paid in that regard.
4. AFFILIATE HOLDINGS:
As of June 30, 2000 HL group pension contracts held direct interest of
14,263,447 which represents 1.25% of total shares in The Fund.
_____________________________________ MF-6 _____________________________________
<PAGE>
5. CAPITAL SHARE TRANSACTIONS:
The following information is as of June 30, 2000:
<TABLE>
<CAPTION>
<S> <C> <C>
HARTFORD MONEY MARKET HLS
FUND, INC.
-------------------------------
SHARES AMOUNT
-------------- ---------------
CLASS IA
Shares sold............................. 4,054,050,337 $ 4,054,050,337
Shares issued on reinvestment of
distributions.......................... 32,239,220 32,239,220
Shares redeemed......................... (4,220,860,405) (4,220,860,405)
-------------- ---------------
Net Decrease............................ (134,570,848) $ (134,570,848)
============== ===============
CLASS IB
Shares sold............................. 18,564,291 $ 18,564,291
Shares issued on reinvestment of
distributions.......................... 262,798 262,798
Shares redeemed......................... (12,596,052) (12,596,052)
-------------- ---------------
Net Increase............................ 6,231,037 $ 6,231,037
============== ===============
</TABLE>
The following information is for the year ended December 31, 1999:
<TABLE>
<CAPTION>
<S> <C> <C>
HARTFORD MONEY MARKET HLS
FUND, INC.
-------------------------------
SHARES AMOUNT
-------------- ---------------
CLASS IA
Shares sold............................. 3,906,482,986 $ 3,906,482,986
Shares issued on reinvestment of
distributions.......................... 51,555,581 51,555,581
Shares redeemed......................... (3,573,088,764) (3,573,088,764)
-------------- ---------------
Net Increase............................ 384,949,803 $ 384,949,803
============== ===============
CLASS IB
Shares sold............................. 13,572,465 $ 13,572,465
Shares issued on reinvestment of
distributions.......................... 265,771 265,771
Shares redeemed......................... (7,213,355) (7,213,355)
-------------- ---------------
Net Increase............................ 6,624,881 $ 6,624,881
============== ===============
</TABLE>
_____________________________________ MF-7 _____________________________________
<PAGE>
HARTFORD MONEY MARKET HLS FUND, INC.
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-- SELECTED PER-SHARE DATA(3) --
-----------------------------------------------------------
NET REALIZED
AND
NET ASSET UNREALIZED DIVIDENDS
VALUE AT NET GAIN TOTAL FROM FROM NET
BEGINNING INVESTMENT (LOSS) ON INVESTMENT INVESTMENT
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME
--------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
HARTFORD MONEY MARKET HLS
FUND, INC.
For the Six Months
Ended June 30, 2000
(Unaudited)
Class IA............... $1.000 $0.034 $-- $ 0.034 $(0.034)
Class IB............... 1.000 0.033 -- 0.033 (0.033)
For the Year Ended
December 31, 1999
Class IA............... 1.000 0.070 -- 0.070 (0.070)
Class IB............... 1.000 0.068 -- 0.068 (0.068)
For the Year Ended
December 31, 1998
Class IA............... 1.000 0.051 -- 0.051 (0.051)
From inception
April 1, 1998, through
December 31, 1998
Class IB............... 1.000 0.037 -- 0.037 (0.037)
For the Year Ended
December 31
1997................... 1.000 0.049 -- 0.049 (0.049)
1996................... 1.000 0.050 -- 0.050 (0.050)
1995................... 1.000 0.056 -- 0.056 (0.056)
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) Information presented relates to a share of capital stock outstanding for
the indicated period.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
_____________________________________ MF-8 _____________________________________
<PAGE>
<TABLE>
<CAPTION>
-- SELECTED PER-SHARE DATA -- -- RATIOS AND SUPPLEMENTAL DATA --
-------------------------------------- --------------------------------------------------
RATIO OF RATIO OF RATIO OF
EXPENSES EXPENSES NET
NET ASSET NET ASSETS TO AVERAGE TO AVERAGE INVESTMENT
VALUE AT AT END OF NET ASSETS NET ASSETS INCOME
TOTAL END TOTAL PERIOD AFTER BEFORE TO AVERAGE
DISTRIBUTIONS OF PERIOD RETURN (IN THOUSANDS) WAIVERS WAIVERS NET ASSETS
------------- --------- ------------ -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HARTFORD MONEY MARKET HLS
FUND, INC.
For the Six Months
Ended June 30, 2000
(Unaudited)
Class IA............... $(0.034) $1.000 2.86% $ 1,122,865 0.48%(1) 0.48%(1) 5.72%(1)
Class IB............... (0.033) 1.000 2.76 15,035 0.66(1) 1.36(1) 5.54(1)
For the Year Ended
December 31, 1999
Class IA............... (0.070) 1.000 4.89 1,257,436 0.47 0.47 4.81
Class IB............... (0.068) 1.000 4.71 8,804 0.65 0.72 4.63
For the Year Ended
December 31, 1998
Class IA............... (0.051) 1.000 5.25(2) 872,486 0.45 -- 5.12
From inception
April 1, 1998, through
December 31, 1998
Class IB............... (0.037) 1.000 3.76(2) 2,179 0.64(1) -- 4.81(1)
For the Year Ended
December 31
1997................... (0.049) 1.000 5.31 612,480 0.44 -- 5.21
1996................... (0.050) 1.000 5.18 542,586 0.44 -- 5.04
1995................... (0.056) 1.000 5.74 339,709 0.45 -- 5.57
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) Information presented relates to a share of capital stock outstanding for
the indicated period.
_____________________________________ MF-9 _____________________________________
<PAGE>
----------------------------------------------
MERCURY V.I. U.S. LARGE CAP FUND OF
MERCURY ASSET MANAGEMENT V.I. FUNDS, INC.
SEMI-ANNUAL REPORT
JUNE 30, 2000
<PAGE>
-------------------------------------------------------------------------------
MERCURY V.I. U.S. LARGE CAP FUND
SEMI-ANNUAL REPORT
JUNE 30, 2000
-------------------------------------------------------------------------------
DEAR SHAREHOLDER:
We are pleased to provide you with this semi-annual report for the Mercury V.I.
US Large Cap Fund. The Fund's main goal is long-term capital growth through
investments primarily in a diversified portfolio of equity securities of large
cap companies located in the United States, which are undervalued or have good
prospects for earnings growth. In this report, we provide information on the
Fund's performance, discuss our investment strategies and highlight some of the
Fund's holdings.
INVESTMENT ENVIRONMENT
The strong growth in the US equity markets witnessed in 1999 slowed in the six
months ended June 30, 2000, with the broader unmanaged Standard & Poor's 500
(S&P 500) Index ending down 1.0% for the six-month period, compared to 7.0% for
the previous six months. The market continued its bullish run through the end
of 1999 and into the first two months of 2000, but faltered as the first
quarter of 2000 drew to a close. This happened because of the prospect of
further interest rate increases, spurred on by Federal Reserve Board Chairman
Alan Greenspan's comments on economic overheating and further monetary
tightening in the face of continued robust gross domestic product performance.
As a result, high-growth stocks, and the implicitly high valuations that
accompanied them, came under close scrutiny. Stocks with short trading
histories and prospects of profitability were severely pressured, owing to
harsher-than-anticipated valuation compression. Consequently, there was a
severe and rapid move from "new economy" stocks into old economy names, which
caught Wall Street by surprise. The highly rated business-to-business companies
such as TIBCO Software Inc. and Commerce One, Inc. exhibited particular
weakness and even the larger sector stalwarts such as Cisco Systems, Inc. and
EMC Corporation were also subjected to investor apathy.
The Procter & Gamble Company was also negatively affected by the increasing
evidence of a harsh commercial environment, issuing its second profits warning
of the year. Dial Corporation, another consumer staple company, also suffered
slowing sales growth. We believe this is symptomatic of the general malaise in
the broader retail market. Moreover, Microsoft Corporation suffered a poor
quarter of performance, caught in the throes of its ongoing battle with the US
Department of Justice over alleged anti-competitive practices.
The onset of the earnings season during the period highlighted value as the
corporate bottom line resurfaced for scrutiny. The season started with
disappointing results from technology heavyweights such as Motorola Inc., which
failed to impress global analysts in relation to its Scandinavian peers Nokia
Oyj and Telefonaktiebolaget LM Ericsson. However, Oracle Corporation and Sun
Microsystems, Inc. both beat consensus earnings estimates by comfortable margins
of $0.3 in each case. What these results show is that large-capitalization
technology companies have possessed a substantial ability to deliver on growth
promises while adding real value and real profit.
PORTFOLIO ACTIVITIES
During the six months ended June 30, 2000, the Fund's Class A Shares had a
total return of -3.91%, underperforming the S&P 500 Index by -0.42%. Since
the Fund commenced operations on April 30, 1999, we have seen a steady inflow
of cash, and the Fund had net assets of more than $44.7 million at June 30,
2000, with the Fund fully invested with common stocks comprising 97.1% of the
Fund's net assets.
There were two distinct periods of very different market psychology during the
six months ended June 30, 2000. The Fund's overweighted position in
telecommunications and technology, which began as solid performers in the new
millennium, suffered during the NASDAQ correction in March and April. The style
shift toward old economy stocks and out of technology was pronounced during
these months and caused the Fund to underperform, primarily during April and
May. Although we retain a bias toward the quality growth companies in
technology and telecommunications that we had favored throughout 1999 (such as
EMC Corporation, Nortel Networks Corporation and Texas Instruments
Incorporated), we moved the portfolio into a slightly more defensive mode
during April and May. In
ML-1
<PAGE>
-------------------------------------------------------------------------------
MERCURY V.I. U.S. LARGE CAP FUND
Semi-Annual Report
June 30, 2000 (Concluded)
-------------------------------------------------------------------------------
addition, we added some old economy stocks (Anheuser-Busch Companies, Inc.,
Schlumberger Limited, Halliburton Company and Boeing Company) to provide
diversification to the portfolio at a time when markets are experiencing
unprecedented volatility. This portfolio theme is likely to persist until we
believe that the market gains a clearer direction and we are more comfortable
with the performance of the US economy under the current phase of monetary
policy tightening.
IN CONCLUSION
We thank you for your investment in Mercury V.I. U.S. Large Cap Fund, and we
look forward to serving your investment needs in the months and years ahead.
Sincerely,
/s/ Jeffrey Peek
---------------------------
Jeffrey Peek
President
/s/ Michael Morony
---------------------------
Michael Morony
Portfolio Manager
August 8, 2000
ML-2
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
MERCURY INTERNATIONAL V.I. U.S. LARGE CAP FUND
Performance Information as of June 30, 2000
-------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
-------------------------------------------------------------------------------
CLASS A SHARES % RETURN
-------------------------------------------------------------------------------
<S> <C>
Year Ended 6/30/00 +10.37%
-------------------------------------------------------------------------------
Inception (4/30/99) TO 6/30/00 +13.74%
-------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
RECENT PERFORMANCE RESULTS*
-------------------------------------------------------------------------------
6 MONTH 12 MONTH SINCE INCEPTION
AS OF JUNE 30, 2000 TOTAL RETURN TOTAL RETURN TOTAL RETURN
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A Shares -3.91% +10.37% +16.22%
-------------------------------------------------------------------------------
</TABLE>
* Total investment returns are based on changes in net asset values for the
periods shown, and assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date. Insurance-related
fees and expenses are not reflected in these returns. The Fund commenced
operations on April 30, 1999.
Past results shown should not be considered a representation of future
performance.
ML-3
<PAGE>
-------------------------------------------------------------------------------
MERCURY V.I. U.S. LARGE CAP FUND
Schedule of Investments as of June 30, 2000
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES PERCENT OF
INDUSTRY HELD COMMON STOCKS VALUE NET ASSETS
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AEROSPACE & DEFENSE 10,530 The Boeing Company $ 440,286 1.0%
19,080 United Technologies Corporation 1,123,335 2.5
----------- ------
1,563,621 3.5
------------------------------------------------------------------------------------------------------------------
AUTOMOBILES 10,680 Ford Motor Company 459,240 1.0
1,342 +Visteon Corporation 16,272 0.0
----------- ------
475,512 1.0
------------------------------------------------------------------------------------------------------------------
BANKS 14,650 The Chase Manhattan Corporation 674,816 1.5
14,700 FleetBoston Financial Corporation 499,800 1.1
----------- ------
1,174,616 2.6
------------------------------------------------------------------------------------------------------------------
BEVERAGES 5,940 Anheuser-Busch Companies, Inc. 443,644 1.0
3,570 The Coca-Cola Company 205,052 0.5
30,640 PepsiCo, Inc. 1,361,565 3.0
----------- ------
2,010,261 4.5
------------------------------------------------------------------------------------------------------------------
BIOTECHNOLOGY 6,460 +Amgen Inc. 453,815 1.0
------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS 23,660 +Cisco Systems, Inc. 1,503,889 3.4
EQUIPMENT 2,810 +Efficient Networks, Inc. 206,711 0.5
5,000 +JDS Uniphase Corporation 599,063 1.3
15,630 Nortel Networks Corporation 1,066,747 2.4
3,330 +VeriSign, Inc. 587,121 1.3
----------- ------
3,963,531 8.9
------------------------------------------------------------------------------------------------------------------
COMPUTERS & 14,800 +Dell Computer Corporation 729,825 1.6
PERIPHERALS 9,900 +EMC Corporation 761,681 1.7
7,190 +Sun Microsystems, Inc. 653,841 1.5
----------- ------
2,145,347 4.8
------------------------------------------------------------------------------------------------------------------
DIVERSIFIED 14,010 American Express Company 730,271 1.6
FINANCIALS 20,400 Citigroup Inc. 1,229,100 2.7
----------- ------
1,959,371 4.3
------------------------------------------------------------------------------------------------------------------
DIVERSIFIED 11,250 AT&T Corp. 355,781 0.8
TELECOMMUNICATION 3,900 +Amdocs Limited 299,325 0.7
SERVICES 20,950 Bell Atlantic Corporation 1,064,522 2.4
5,520 +Level 3 Communications, Inc. 485,415 1.1
8,810 SBC Communications Inc. 381,032 0.9
7,920 Sprint Corp. (FON Group) 403,920 0.9
----------- ------
2,989,995 6.8
------------------------------------------------------------------------------------------------------------------
ENERGY EQUIPMENT & 10,700 Halliburton Company 504,906 1.1
SERVICE 6,360 Schlumberger Limited 474,615 1.1
----------- ------
979,521 2.2
------------------------------------------------------------------------------------------------------------------
FOOD & DRUG 6,620 +Safeway Inc. 298,727 0.7
RETAILING 32,720 Walgreen Co. 1,053,175 2.4
----------- ------
1,351,902 3.1
------------------------------------------------------------------------------------------------------------------
HEALTH CARE 15,110 Medtronic, Inc. 752,667 1.7
EQUIPMENT & SUPPLIES
------------------------------------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS 5,840 The Procter & Gamble Company 334,340 0.7
------------------------------------------------------------------------------------------------------------------
IT CONSULTING & 6,300 Electronic Data Systems Corporation 259,875 0.6
SERVICES
------------------------------------------------------------------------------------------------------------------
INDUSTRIAL 53,000 General Electric Company 2,809,000 6.3
CONGLOMERATES
------------------------------------------------------------------------------------------------------------------
INSURANCE 12,300 American International Group, Inc. 1,445,250 3.2
------------------------------------------------------------------------------------------------------------------
INTERNET SOFTWARE & 16,050 +America Online, Inc. 846,638 1.9
SERVICES 6,150 +Commerce One, Inc. 280,209 0.6
3,100 +TIBCO Software Inc. 332,475 0.7
----------- ------
1,459,322 3.2
------------------------------------------------------------------------------------------------------------------
</TABLE>
ML-4
<PAGE>
------------------------------------------------------------------------------
MERCURY V.I. U.S. LARGE CAP FUND
Schedule of Investments as of June 30, 2000 (Concluded)
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES PERCENT OF
INDUSTRY HELD COMMON STOCKS VALUE NET ASSETS
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MULTILINE RETAIL 12,300 +Kohl's Corporation $ 684,187 1.5%
20,850 Wal-Mart Stores, Inc. 1,201,481 2.7
----------- -----
1,885,668 4.2
------------------------------------------------------------------------------------------------------------
OIL & GAS 8,230 Chevron Corporation 698,007 1.6
21,456 Exxon Mobil Corporation 1,684,296 3.8
12,510 Texaco Inc. 666,158 1.5
----------- -----
3,048,461 6.9
------------------------------------------------------------------------------------------------------------
PAPER & FOREST 12,300 International Paper Company 366,694 0.8
PRODUCTS 11,470 Weyerhaeuser Company 493,210 1.1
----------- -----
859,904 1.9
------------------------------------------------------------------------------------------------------------
PERSONAL PRODUCTS 8,960 The Estee Lauder Companies Inc. (Class A) 442,960 1.0
------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS 16,620 Bristol-Myers Squibb Company 968,115 2.2
10,530 Merck & Co., Inc. 806,861 1.8
36,418 Pfizer Inc. 1,748,040 3.9
10,965 Pharmacia Corporation 566,753 1.3
----------- -----
4,089,769 9.2
------------------------------------------------------------------------------------------------------------
SEMICONDUCTOR 3,230 +Applied Materials, Inc. 292,719 0.7
EQUIPMENT & PRODUCTS 11,620 Intel Corporation 1,552,723 3.5
13,440 Texas Instruments Incorporated 923,160 2.1
----------- -----
2,768,602 6.3
------------------------------------------------------------------------------------------------------------
SOFTWARE 7,510 +Citrix Systems, Inc. 142,221 0.3
21,260 +Microsoft Corporation 1,699,471 3.8
7,710 +Oracle Corporation 647,640 1.4
----------- -----
2,489,332 5.5
------------------------------------------------------------------------------------------------------------
SPECIALTY RETAIL 6,435 The Home Depot, Inc. 321,348 0.7
------------------------------------------------------------------------------------------------------------
WIRELESS 10,530 +Nextel Communications, Inc. (Class A) 644,304 1.4
TELECOMMUNICATION 12,090 +Sprint Corp. (PCS Group) 719,355 1.6
SERVICES ----------- -----
1,363,659 3.0
------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (COST--$41,584,875) 43,397,649 97.1
------------------------------------------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT SHORT-TERM SECURITIES
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMERCIAL PAPER* $1,070,000 General Motors Acceptance Corp.,
7.13% due 7/03/2000 1,069,576 2.4
------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM SECURITIES (COST--$1,069,576) 1,069,576 2.4
------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (COST--$42,654,451) ........ 44,467,225 99.5
TIME DEPOSITS** .............................. 2,000,000 4.5
LIABILITIES IN EXCESS OF OTHER ASSETS ........ (1,762,777) (4.0)
----------- -----
NET ASSETS ................................... $44,704,448 100.0%
=========== =====
------------------------------------------------------------------------------------------------------------
</TABLE>
+ Non-income producing security.
* Commercial Paper is traded on a discount basis; the interest rate shown
reflects the discount rate paid at the time of purchase by the Fund.
** Time deposits bear interest at 6.937% and mature on July 3, 2000.
See Notes to Financial Statements.
ML-5
<PAGE>
------------------------------------------------------------------------------
MERCURY V.I. U.S. LARGE CAP FUND
Statement of Assets and Liabilities as of June 30, 2000
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Investments, at value (identified cost -- $42,654,451). . . . . . . . . $44,467,225
Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000
Receivables:
Capital shares sold . . . . . . . . . . . . . . . . . . . . . $ 96,507
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . 13,350
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 385 110,242
----------
Prepaid expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63,587
-----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . 46,641,054
-----------
LIABILITIES:
Payables:
Securities purchased . . . . . . . . . . . . . . . . . . . . . 1,830,769
Investment adviser . . . . . . . . . . . . . . . . . . . . . . 18,446
Capital shares redeemed . . . . . . . . . . . . . . . . . . . 127 1,849,342
----------
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . 87,264
-----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . 1,936,606
-----------
NET ASSETS:
Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $44,704,448
===========
NET ASSETS CONSIST OF:
Class A Shares of Common Stock, $.0001 par value, 200,000,000 shares
authorized+ . . . . . . . . . . . . . . . . . . . . . . . . . $ 387
Paid-in capital in excess of par . . . . . . . . . . . . . . . . . . . . 42,721,319
Accumulated investment loss on investments -- net . . . . . . . . . . . (13,723)
Undistributed realized capital gain on investments -- net . . . . . . . 183,691
Unrealized appreciation on investments -- net . . . . . . . . . . . . . 1,812,774
-----------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $44,704,448
===========
NET ASSET VALUE:
Class A -- Based on net assets of $44,704,448 and 3,866,591 shares
outstanding . . . . . . . . . . . . . . . . . . . . . . . . . $ 11.56
===========
</TABLE>
+ The Fund is also authorized to issue 200,000,000 Class B Shares.
See Notes to Financial Statements.
ML-6
<PAGE>
------------------------------------------------------------------------------
MERCURY V.I. U.S. LARGE CAP FUND
Statement of Operations for the Six Months Ended June 30, 2000
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 146,892
Interest and discount earned . . . . . . . . . . . . . . . . . . . . . . 52,100
-----------
Total income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198,992
-----------
EXPENSES:
Investment advisory fees . . . . . . . . . . . . . . . . . . . . . . . . $110,612
Accounting services . . . . . . . . . . . . . . . . . . . . . . . . . . 39,246
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,186
Professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,333
Offering costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,173
Printing and shareholder reports . . . . . . . . . . . . . . . . . . . . 14,755
Director's fees and expenses . . . . . . . . . . . . . . . . . . . . . . 13,574
Transfer agent fees . . . . . . . . . . . . . . . . . . . . . . . . . . 4,802
Registration fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,026
Pricing fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,011
----------
Total expenses before reimbursement . . . . . . . . . . . . . . . . . . 262,018
Reimbursement of expenses . . . . . . . . . . . . . . . . . . . . . . . (49,303)
----------
Total expenses after reimbursement . . . . . . . . . . . . . . . . . . . 212,715
-----------
Investment loss -- net . . . . . . . . . . . . . . . . . . . . . . . . . (13,723)
-----------
REALIZED & UNREALIZED GAIN (LOSS) ON INVESTMENTS -- NET:
Realized gain from investments -- net . . . . . . . . . . . . . . . . . 284,188
Change in unrealized appreciation on investments -- net . . . . . . . . (1,322,958)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS . . . . . . . . . . $(1,052,493)
===========
</TABLE>
See Notes to Financial Statements.
ML-7
<PAGE>
--------------------------------------------------------------------------------
MERCURY V.I. U.S. LARGE CAP FUND
Statements of Changes in Net Assets
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX FOR THE PERIOD
MONTHS ENDED APRIL 30, 1999+
INCREASE (DECREASE) IN NET ASSETS: JUNE 30, 2000 TO DECEMBER 31, 1999
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Investment loss -- net ........................................................ $ (13,723) $ (5,446)
Realized gain (loss) on investments -- net .................................... 284,188 (47,005)
Change in unrealized appreciation on investments -- net ....................... (1,322,958) 3,135,732
----------- -----------
Net increase (decrease) in net assets resulting from operations ............... (1,052,493) 3,083,281
----------- -----------
DIVIDENDS & DISTRIBUTIONS TO SHAREHOLDERS:
In excess of investment income -- net:
Class A .............................................................. -- (69,125)
In excess of realized gain on investments -- net:
Class A .............................................................. -- (53,492)
----------- -----------
Net decrease in net assets resulting from dividends and distributions
to shareholders ...................................................... -- (122,617)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Increase in net assets derived from net capital share transactions ............ 21,743,094 21,053,083
----------- -----------
NET ASSETS:
Total increase in net assets .................................................. 20,690,601 24,013,747
Beginning of period ........................................................... 24,013,847 100
----------- -----------
End of period ................................................................. $44,704,448 $24,013,847
=========== ===========
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
ML-8
<PAGE>
--------------------------------------------------------------------------------
MERCURY V.I. U.S. LARGE CAP FUND
Financial Highlights
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THE FOLLOWING RATIOS HAVE BEEN DERIVED FROM INFORMATION CLASS A
PROVIDED IN THE FINANCIAL STATEMENTS. --------------------------------------------------
FOR THE SIX FOR THE PERIOD
MONTHS ENDED APRIL 30,1999+
INCREASE/DECREASE IN NET ASSET VALUE: JUNE 30, 2000 TO DECEMBER 31, 1999
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ................................ $ 12.03 $ 10.00
-------- --------
Investment loss -- net .............................................. --++ --++
Realized and unrealized gain (loss) on investments -- net............ (.47) 2.10
-------- --------
Total from investment operations .................................... (.47) 2.10
-------- --------
Less dividends and distributions:
In excess of investment income -- net....................... -- (.04)
In excess of realized gain on investments -- net............ -- (.03)
-------- --------
Total dividends and distributions ................................... -- (.07)
-------- --------
Net asset value, end of period ...................................... $ 11.56 $ 12.03
======== ========
TOTAL INVESTMENT RETURN:**
Based on net asset value per share .................................. (3.91%)+++ 20.94%+++
======== ========
RATIOS TO AVERAGE NET ASSETS:
Expenses, net of reimbursement ...................................... 1.25%* 1.25%*
======== ========
Expenses ............................................................ 1.54%* 2.83%*
======== ========
Investment loss -- net .............................................. (.08%)* (.07%)*
======== ========
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)............................. $ 44,704 $ 24,014
======== ========
Portfolio turnover................................................... 35.03% 37.25%
======== ========
</TABLE>
* Annualized.
** Total investment returns exclude insurance-related fees and expenses.
The Fund's Investment Adviser voluntarily waived a portion
of its management fee. Without such waiver, the Fund's performance would
have been lower.
+ Commencement of operations.
++ Amount is less than $.01 per share.
+++ Aggregate total investment return.
See Notes to Financial Statements.
ML-9
<PAGE>
--------------------------------------------------------------------------------
MERCURY V.I. U.S. LARGE CAP FUND
Notes to Financial Statements
================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES:
Mercury V.I. U.S Large Cap Fund ( the "Fund") is a series of Mercury Asset
Management V.I. Funds, Inc. (the "Corporation"). The Fund is registered under
the Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The Fund's financial statements are prepared
in accordance with accounting principles generally accepted in the United
States of America, which may require the use of management accruals and
estimates. These unaudited financial statements reflect all adjustments,
which are, in the opinion of management, necessary to a fair statement of the
results for the interim period presented. All such adjustments are of a
normal, recurring nature. The Fund offers two classes of shares. Class A and
Class B Shares have equal voting, dividend, liquidation and other rights,
except that only shares of the respective classes are entitled to vote on
matters concerning only that class and Class B Shares bear certain expenses
related to the distribution of such shares. 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 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 the last available ask price for
short positions. Securities traded in the over-the-counter market are valued
at the last available bid price in the over-the-counter market prior to the
time of valuation. Securities traded both in the over-the-counter market and
on a stock exchange are valued according to the broadest and most
representative market. Short positions in securities traded in the
over-the-counter market are valued at the last available ask price prior to
the time of valuation. Options written or purchased are valued at the last
sale price in the case of exchange-traded options. In the case of options
traded in the over-the-counter market, valuation is the last asked price
(options written) or the last bid price (options purchased). Short-term
securities are valued at amortized cost, which approximates market value.
Other investments, including futures contracts and related options, are
stated at market value. Securities and assets for which market quotations are
not readily available are valued at fair market value, as determined in good
faith by or under the direction of the Fund's Board of Directors.
(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.
* FINANCIAL FUTURES CONTRACTS -- The Fund may purchase or sell financial
futures contracts and options on such futures contracts for the purpose of
hedging the market risk on existing securities or the intended purchase of
securities. Upon entering into a contract, the Fund deposits and maintains as
collateral such initial margin as required by the exchange on which the
transaction is effected. Pursuant to the contract, the Fund agrees to receive
from or pay to the broker an amount of cash equal to the daily fluctuation in
value of the contract. Such receipts or payments are known as variation
margin and are recorded by the Fund as unrealized gains or losses. When the
contract is closed, the Fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and
the value at the time it was closed.
* OPTIONS -- The Fund is authorized to purchase and write call and put
options. When the Fund writes an option, an amount equal to the premium
received by the Fund is reflected as an asset and an equivalent liability.
The amount of the liability is subsequently marked to market to reflect the
current market value of the option written. When a security is purchased or
sold through an exercise of an option, the related premium paid (or received)
is added to (or deducted from) the basis of the security acquired or deducted
from (or added to) the proceeds of the security sold. When an option expires
(or the Fund enters into a closing transaction), the Fund realizes a gain or
loss on the option
ML-10
<PAGE>
--------------------------------------------------------------------------------
MERCURY V.I. U.S. LARGE CAP FUND
Notes to Financial Statements (Continued)
================================================================================
to the extent of the premiums received or paid (or a gain or loss to the
extent that the cost of the closing transaction exceeds the premium paid or
received).
Written and purchased options are non-income producing investments.
* FORWARD FOREIGN EXCHANGE CONTRACTS -- The Fund is authorized to enter into
forward foreign exchange contracts as a hedge against either specific
transactions or Fund positions. Such contracts are not entered on the Fund's
records. However, the effect on operations is recorded from the date the Fund
enters into such contracts.
(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 US 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, a withholding tax may be imposed on interest, dividends, and
capital gains at various rates.
(e) SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are
accounted for on the date the securities are purchased or sold (the trade
dates). 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 (including amortization of discount) is recognized on the
accrual basis. Realized gains and losses on security transactions are
determined on the identified cost basis.
(f) DIVIDENDS AND DISTRIBUTIONS -- Dividends and distributions paid by the
Fund are recorded on the ex-dividend dates. Distributions in excess of net
investment income and net realized capital gains are due primarily to
post-October losses.
2. INVESTMENT ADVISORY AGREEMENT AND TRANSACTIONS WITH AFFILIATES:
The Fund has entered into an Investment Advisory Agreement with Mercury
Asset Management International Limited ("Mercury International"), an indirect
wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co.").
Mercury International 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 .65% of the
average daily value of the Fund's net assets. Mercury International has
entered into a Sub-Advisory Agreement with Fund Asset Management, L.P.
("FAM"), another indirect wholly-owned subsidiary of ML & Co. with respect
to the Fund, pursuant to which FAM provides investment advisory services with
respect to the Fund's daily cash assets. Mercury International has agreed to
pay FAM a fee in an amount to be determined from time to time by both parties
but in no event in excess of the amount that Mercury International actually
receives for providing services to the Corporation pursuant to the Investment
Advisory Agreement.
Mercury International has agreed to limit the annual operating expenses of
the Fund to 1.25% and 1.40% of the Fund's average net assets with respect to
the Class A Shares and Class B Shares, respectively.
ML-11
<PAGE>
--------------------------------------------------------------------------------
MERCURY V.I. U.S. LARGE CAP FUND
Notes to Financial Statements (Concluded)
================================================================================
For the six months ended June 30, 2000, Mercury International earned fees of
$110,612, of which $49,303 were voluntarily waived.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Corporation are officers and/or
directors of Mercury International, FAM, PSI, and/or ML & Co.
3. INVESTMENTS:
Purchases and sales of investments, excluding short-term securities, for the
six months ended June 30, 2000 were $32,936,464 and $11,606,613, respectively.
Net realized gains for the six months ended June 30, 2000 and net unrealized
gains as of June 30, 2000 were as follows:
<TABLE>
<CAPTION>
REALIZED UNREALIZED
GAINS GAINS
--------------------------------------------------------------------------------
<S> <C> <C>
Long-term investments............................... $284,188 $1,812,774
--------- ----------
Total investments................................... $284,188 $1,812,774
========= ==========
</TABLE>
As of June 30, 2000, net unrealized appreciation for Federal income tax
purposes aggregated $1,812,774, of which $4,649,880 related to appreciated
securities and $2,837,106 related to depreciated securities. At June 30,
2000, the aggregate cost of investments for Federal income tax purposes was
$42,654,451.
4. CAPITAL SHARE TRANSACTIONS:
Transactions in capital shares for each class were as follows:
<TABLE>
<CAPTION>
DOLLAR
CLASS A SHARES FOR THE SIX MONTHS ENDED JUNE 30, 2000 SHARES AMOUNT
--------------------------------------------------------------------------------
<S> <C> <C>
Shares sold ........................................ 2,038,813 $23,701,088
Shares redeemed .................................... (168,231) (1,957,994)
--------- ----------
Net increase ....................................... 1,870,582 $21,743,094
========= ==========
</TABLE>
<TABLE>
<CAPTION>
DOLLAR
CLASS A SHARES FOR THE PERIOD APRIL 30, 1999+ TO DECEMBER 30, 1999 SHARES AMOUNT
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Shares sold ............................................................................ 2,113,257 $22,372,710
Shares issued to shareholders in reinvestment of dividends and distributions ........... 10,561 122,618
--------- -----------
Total issued ........................................................................... 2,123,818 22,495,328
Shares redeemed ........................................................................ (127,819) (1,442,245)
--------- -----------
Net increase ........................................................................... 1,995,999 $21,053,083
========= ===========
+ Prior to April 30, 1999 (commencement of operations), the Fund issued 10 shares to Mercury International for $100.
</TABLE>
ML-12
<PAGE>
--------------------------------------------------------------------------------
MERCURY V.I. U.S. LARGE CAP FUND
Officers and Directors
================================================================================
JEFFREY M. PEEK-Director and President
DAVID 0. BEIM-Director
JAMES T FLYNN-Director
W. CARL KESTER-Director
KAREN P. ROBARDS-Director
TERRY K. GLENN-Director and Executive Vice President
DONALD C. BURKE-Vice President and Treasurer
ALLAN J. OSTER-Secretary
CUSTODIAN
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109
TRANSFER AGENT
Financial Data Services, Inc.
P.O. Box 44062
Jacksonville, Florida 32232-4062
(888) 763-2260
ML-13
<PAGE>
This report is authorized for distribution only to current shareholders of
the 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.
Mercury V.I. U.S. Large Cap Fund of
Mercury Asset Management V.I. Funds, Inc.
Box 9011
Princeton, NJ
08543-9011
[ICON] Printed on post-consumer recycled paper MERCVI1-6/00
<PAGE>
MERRILL LYNCH VARIABLE
----------------------
SERIES FUNDS, INC.
------------------
INVESTMENT PORTFOLIOS
AVAILABLE WITH HARTFORD LIFE INSURANCE COMPANY
-Global Growth Focus Fund
Semi-Annual Report
June 30, 2000
<PAGE>
================================================================================
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--GLOBAL GROWTH FOCUS FUND
JUNE 30, 2000--SEMI-ANNUAL REPORT
--------------------------------------------------------------------------------
DEAR SHAREHOLDER:
Economic slowing has finally arrived in the United States. As a result,
significant increases in inflation and interest rates appear less likely,
which is usually good news for financial assets. On the other hand, profit
growth is likely to decelerate from unsustainably high levels.
Investor sentiment changed significantly during the first half of 2000. In
general, concerns centered on economic growth being too strong. A recent
inflection could indicate healthy, but slower economic and profit growth in
the second half of the year. Following potential uncertainty during the
adjustment period, the sustainability of the economic expansion could buoy
investor expectations.
During the first half of the year, equity investors switched
gears from an excessive focus on momentum, which was prevalent during most of
1999. This transition to a more balanced focus on both valuation and earnings
growth, which began in March, can provide a healthier investment backdrop.
However, this change has caused deterioration in many extremely highly valued
securities with speculative fundamentals and improvement in previously
neglected, solidly performing companies.
In the coming months, we believe investors are likely to focus on
continuing cyclical economic developments as well as the presidential
election campaign. Cyclical concerns remain, increasing labor costs as well
as volatile, but rising, commodity prices. Federal budget policy, social
security funding options and trade policy are likely to shape investor
interest in the outcome of the election. Generally, financial markets have
tended to do better under divided governments, preferring legislative
gridlock. In part, US markets historically have done well as a result of
fiscal policy restraint and could react poorly to any significant reversal of
that trend.
Despite near-term uncertainties surrounding economic slowdown,
earnings growth and valuation levels, long-term forces supporting US economic
and financial market leadership seem to remain in place. Chief among these
are continued heavy investments in technology, telecommunications and other
efficiency-enhancing projects, thus potentially enabling productivity-led
growth.
PORTFOLIO MATTERS
For the six-month period ended June 30, 2000, Global Growth Focus Fund's
Class A Shares had a total return of -1.19%, as compared to -2.56% (in US
dollars) for the unmanaged Morgan Stanley Capital International (MSCI) World
Stock Index. For the 12 months ended June 30, 2000, Global Growth Focus
Fund's Class A Shares returned +29.64% and the MSCI World Stock Index
returned +12.19% (in US dollars). For the six months ended June 30, 2000, the
actively managed portfolios in the Lipper Analytical Services Global Funds
Average returned -1.20%.
The primary reason for the Fund's comparative investment performance is our
continued focus on the investment strategy that we implemented early in the
September 1999 quarter. During the third calendar quarter of 1999, we shifted
company investments in banking and financial, financial services, insurance,
health care, food and household product industries into technology
organizations where the focus was providing systems for the new Internet
communication infrastructure.
We have continued to focus the company investments on the leading technology
organizations in the communications systems and components areas, such as
Cisco Systems, Inc., Nortel Networks Corporation, Texas Instruments
Incorporated, STMicroelectronics NV, JDS Uniphase Corporation and Nokia Oyj.
Secondarily, we have emphasized company investments in large global energy
and oil service organizations, such as Enron Corp. and Schlumberger Limited.
Also, we continued to invest positive cash inflows during the months of April
and May 2000 as the overall declines took place in the global stock markets.
IN CONCLUSION
We appreciate your investment in Global Growth Focus Fund of Merrill Lynch
Variable Series Funds, Inc., and we look forward to
<PAGE>
sharing our investment outlook and strategies
with you in our next report to shareholders.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President and Director
/s/ Lawrence R. Fuller
Lawrence R. Fuller
Senior Vice President and Portfolio Manager
July 26, 2000
ML-15
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--GLOBAL GROWTH FOCUS FUND
AVERAGE ANNUAL TOTAL RETURN--CLASS A SHARES
--------------------------------------------------------------------------------
PERIOD COVERED % RETURN
--------------------------------------------------------------------------------
<S> <C>
Year Ended 6/30/00 +29.64%
--------------------------------------------------------------------------------
Inception (6/05/98) to 6/30/00 +20.98
--------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--GLOBAL GROWTH FOCUS FUND
RECENT PERFORMANCE RESULTS*
--------------------------------------------------------------------------------
6 MONTH 12 MONTH
TOTAL RETURN TOTAL RETURN
--------------------------------------------------------------------------------
<S> <C> <C>
Class A Shares -1.19% +29.64%
--------------------------------------------------------------------------------
</TABLE>
* Total investment returns are based on changes in net asset value for the
periods shown, and 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.
Past results shown should not be considered a representation of future
performance.
ML-16
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--GLOBAL GROWTH FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2000 (IN US DOLLARS)
----------------------------------------------------------------------------------------------------------------------------
NORTH SHARES PERCENT OF
AMERICA INDUSTRY HELD INVESTMENTS VALUE NET ASSETS
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CANADA COMMUNICATIONS 160,000 Nortel Networks Corporation .................... $11,089,964 4.1%
EQUIPMENT
----------------------------------------------------------------------------------------------------------------------------
WIRELINE 28,328 +AT&T Canada Inc ................................ 936,594 0.4
COMMUNICATIONS 100,000 +Rogers Communications,
Inc. 'B' ..................................... 2,831,207 1.0
----------- ----
3,767,801 1.4
----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN CANADA 14,857,765 5.5
----------------------------------------------------------------------------------------------------------------------------
UNITED STATES ADVERTISING 11,863 The Interpublic Group of Companies, Inc ........ 510,109 0.2
------------------------------------------------------------------------------------------------------------
BIOTECHNOLOGY 5,000 +Affymetrix, Inc ................................ 825,312 0.3
73,000 +Immunex Corporation ............................ 3,608,937 1.3
----------- ----
4,434,249 1.6
------------------------------------------------------------------------------------------------------------
BROADCASTING 10,056 +AMFM Inc ...................................... 693,864 0.2
13,150 +Infinity Broadcasting Corporation (Class A) 479,153 0.2
----------- ----
1,173,017 0.4
------------------------------------------------------------------------------------------------------------
BROADCASTING--RADIO 8,665 +Viacom, Inc. (Class B) ........................ 590,845 0.2
& TELEVISION
------------------------------------------------------------------------------------------------------------
COMMUNICATIONS 57,643 +3Com Corporation .............................. 3,318,075 1.2
EQUIPMENT 210,200 +Cisco Systems, Inc . .......................... 13,360,837 5.0
46,000 +JDS Uniphase Corporation ...................... 5,511,375 2.0
----------- ----
22,190,287 8.2
------------------------------------------------------------------------------------------------------------
COMPUTERS 84,000 +EMC Corporation ............................... 6,462,750 2.4
100,000 +Sun Microsystems, Inc . ....................... 9,093,750 3.4
----------- ----
15,556,500 5.8
------------------------------------------------------------------------------------------------------------
ELECTRICAL 115,000 General Electric Company ...................... 6,095,000 2.3
EQUIPMENT
------------------------------------------------------------------------------------------------------------
ELECTRONICS 24,000 +Broadcom Corporation (Class A) ................ 5,254,500 2.0
24,000 +LSI Logic Corporation ......................... 1,299,000 0.5
40,000 Texas Instruments Incorporated ................ 2,747,500 1.0
21,000 +Xilinx, Inc . ................................. 1,733,813 0.6
----------- ----
11,034,813 4.1
------------------------------------------------------------------------------------------------------------
ENERGY 21,968 El Paso Energy Corporation ................... 1,118,995 0.4
68,685 Enron Corp . ................................. 4,430,182 1.6
----------- ----
5,549,177 2.0
------------------------------------------------------------------------------------------------------------
ENTERTAINMENT 19,816 The Walt Disney Company ...................... 769,109 0.3
------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES 52,016 T. Rowe Price Associates, Inc . .............. 2,210,680 0.8
------------------------------------------------------------------------------------------------------------
INFORMATION 45,000 +America Online, Inc . ........................ 2,373,750 0.9
PROCESSING 132,000 +Exodus Communications, Inc . ................. 6,080,250 2.3
11,000 +Palm, Inc . .................................. 367,125 0.1
----------- ----
8,821,125 3.3
------------------------------------------------------------------------------------------------------------
OIL SERVICES 64,497 Baker Hughes Incorporated .................... 2,063,904 0.8
2,725 Diamond Offshore Drilling, Inc . ............. 95,716 0.0
24,000 Halliburton Company .......................... 1,132,500 0.4
51,555 Schlumberger Limited ......................... 3,847,292 1.4
----------- ----
7,139,412 2.6
------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS 15,000 Merck & Co., Inc . ........................... 1,149,375 0.4
45,486 Pfizer Inc . ................................. 2,183,328 0.8
----------- ----
3,332,703 1.2
------------------------------------------------------------------------------------------------------------
RESTAURANTS 14,273 McDonald's Corporation ....................... 470,117 0.2
------------------------------------------------------------------------------------------------------------
RETAIL 44,000 +Amazon.com, Inc . ............................ 1,597,750 0.6
42,000 +eBay Inc . ................................... 2,278,500 0.8
----------- ----
3,876,250 1.4
------------------------------------------------------------------------------------------------------------
</TABLE>
ML-17
<PAGE>
===============================================================================
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--GLOBAL GROWTH FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2000 (CONTINUED) (IN US DOLLARS)
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NORTH
AMERICA SHARES PERCENT OF
(CONCLUDED) INDUSTRY HELD INVESTMENTS VALUE NET ASSETS
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UNITED STATES SEMICONDUCTORS 42,000 +Applied Materials, Inc ................. $ 3,806,250 1.4%
------------------------------------------------------------------------------------------------
(CONCLUDED)
SOFTWARE--COMPUTER 152,000 +BEA Systems, Inc. ...................... 7,505,000 2.8
84,000 +Commerce One, Inc. ..................... 3,827,250 1.4
10,000 +Rational Software Corporation .......... 928,750 0.3
--------- ----
12,261,000 4.5
-------------------------------------------------------------------------------------------------
SPECIALTY RETAILING 13,000 +Staples, Inc. .......................... 199,875 0.1
-------------------------------------------------------------------------------------------------
WIRELESS 2,198 +Sprint Corp. (PCS Group) ............... 130,781 0.1
COMMUNICATIONS 25,000 +Western Wireless Corporation (Class A).. 1,360,937 0.5
--------- ----
1,491,718 0.6
-------------------------------------------------------------------------------------------------
WIRELINE 27,312 AT&T Corp. ............................ 863,742 0.3
COMMUNICATIONS 3,100 +Infonet Services Corporation (Class B).. 37,006 0.0
64,000 +NorthPoint Communications Group, Inc. .. 712,000 0.3
78,420 +WorldCom, Inc. ......................... 3,597,517 1.3
--------- ----
5,210,265 1.9
--------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN THE
UNITED STATES 116,722,501 43.1
-----------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN NORTH AMERICA
(COST--$111,850,637) 131,580,266 48.6
-----------------------------------------------------------------------------------------------------------------
PACIFIC
BASIN
-----------------------------------------------------------------------------------------------------------------
AUSTRALIA WIRELESS 275,000 +Cable & Wireless Optus
COMMUNICATIONS Limited ................................ 822,248 0.3
-------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN AUSTRALIA 822,248 0.3
-----------------------------------------------------------------------------------------------------------------
CHINA INFORMATION 40,000 +China.Com Corporation 'A' ................. 815,000 0.3
PROCESSING
-------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN CHINA 815,000 0.3
-----------------------------------------------------------------------------------------------------------------
JAPAN AUTOMOBILES 2,000 Honda Motor Co., Ltd. ..................... 68,239 0.0
60,000 Toyota Motor Corporation .................. 2,739,001 1.0
--------- ----
2,807,240 1.0
-------------------------------------------------------------------------------------------------
COMPUTERS 75,000 Fujitsu Limited ........................... 2,601,484 1.0
-------------------------------------------------------------------------------------------------
LEISURE 28,600 Sony Corporation .......................... 2,676,055 1.0
-------------------------------------------------------------------------------------------------
PHOTOGRAPHY 1,000 Fuji Photo Film ........................... 41,019 0.0
-------------------------------------------------------------------------------------------------
RETAIL STORES 67,000 Ito-Yokado Co., Ltd . ..................... 4,040,074 1.5
-------------------------------------------------------------------------------------------------
SEMICONDUCTORS 4,000 Tokyo Electron Limited .................... 548,934 0.2
-------------------------------------------------------------------------------------------------
TRANSPORT SERVICES 500 East Japan Railway Company ................ 2,911,016 1.1
-------------------------------------------------------------------------------------------------
WIRELESS 290 NTT Mobile Communications
COMMUNICATIONS Network, Inc. ........................... 7,866,358 2.9
-------------------------------------------------------------------------------------------------
WIRELINE 280 Nippon Telegraph & Telephone
COMMUNICATIONS Corporation (NTT) ....................... 3,731,393 1.4
-------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN JAPAN 27,223,573 10.1
------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN THE
PACIFIC BASIN (COST--$29,723,948) 28,860,821 10.7
------------------------------------------------------------------------------------------------------------------
WESTERN
EUROPE
------------------------------------------------------------------------------------------------------------------
DENMARK WIRELINE 20,880 Tele Danmark A/S ........................ 1,411,246 0.5
COMMUNICATIONS
--------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN DENMARK 1,411,246 0.5
------------------------------------------------------------------------------------------------------------------
</TABLE>
ML-18
<PAGE>
===============================================================================
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--GLOBAL GROWTH FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2000 (CONTINUED) (IN US DOLLARS)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
WESTERN
EUROPE SHARES PERCENT OF
(CONTINUED) INDUSTRY HELD INVESTMENTS VALUE NET ASSETS
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FINLAND COMMUNICATIONS 200,160 Nokia Oyj ............................... $ 10,255,632 3.8%
EQUIPMENT
--------------------------------------------------------------------------------------------------
WIRELESS 14,000 Sonera Oyj .............................. 640,824 0.2
COMMUNICATIONS
--------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN FINLAND 10,896,456 4.0
----------------------------------------------------------------------------------------------------------------
FRANCE BANKING & FINANCIAL 8,900 Credit Lyonnais ......................... 424,871 0.1
---------------------------------------------------------------------------------------------------
BROADCASTING & 25,740 Societe Television
PUBLISHING Francaise 1 ........................... 1,801,229 0.7
--------------------------------------------------------------------------------------------------
CHEMICALS 21,717 Aventis SA .............................. 1,563,426 0.6
--------------------------------------------------------------------------------------------------
COSMETICS 130 +L'Oreal SA .............................. 113,029 0.0
--------------------------------------------------------------------------------------------------
ELECTRICAL 20,000 Alstom .................................. 542,759 0.2
EQUIPMENT
--------------------------------------------------------------------------------------------------
ELECTRONICS 111,000 STMicroelectronics NV ................... 7,022,704 2.6
--------------------------------------------------------------------------------------------------
FOOD 2,296 Groupe Danone ........................... 305,931 0.1
--------------------------------------------------------------------------------------------------
INSURANCE 2,946 Axa ..................................... 465,966 0.2
--------------------------------------------------------------------------------------------------
OIL/INTEGRATED-- 15,000 Total Fina SA 'B'........................ 2,309,267 0.8
INTERNATIONAL
--------------------------------------------------------------------------------------------------
PHARMACEUTICALS 3,060 Aventis SA .............................. 224,252 0.1
--------------------------------------------------------------------------------------------------
RETAIL STORES 6,648 Carrefour SA ............................ 456,291 0.2
--------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN FRANCE 15,229,725 5.6
----------------------------------------------------------------------------------------------------------------
GERMANY AUTOMOBILES 17,529 DaimlerChrysler AG ...................... 923,341 0.3
--------------------------------------------------------------------------------------------------
CHEMICALS 7,187 BASF AG ................................. 292,458 0.1
17,155 Bayer AG ................................ 670,947 0.3
1,588 Celanese AG ............................. 30,902 0.0
--------- ----
994,307 0.4
--------------------------------------------------------------------------------------------------
ELECTRONICS 26,000 Siemens AG .............................. 3,925,467 1.5
--------------------------------------------------------------------------------------------------
INSURANCE 1,646 Allianz AG (Registered Shares) .......... 599,585 0.2
--------------------------------------------------------------------------------------------------
RETAIL STORES 55,000 Metro AG ........ .... .................. 1,940,206 0.7
--------------------------------------------------------------------------------------------------
SOFTWARE--COMPUTER 2,800 +Brokat Infosystems AG ................... 218,753 0.1
--------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN GERMANY 8,601,659 3.2
----------------------------------------------------------------------------------------------------------------
ITALY BANKING & 120,000 +Banca di Roma SpA ....................... 147,931 0.1
FINANCIAL 54,750 Unicredito Italiano SpA ................. 262,942 0.1
---------- ----
410,873 0.2
--------------------------------------------------------------------------------------------------
INSURANCE 7,500 Assicurazioni Generali .................. 258,103 0.1
228,725 Istituto Nazionale delle Assicurazioni (INA)
SpA ................................... 565,680 0.2
--------- ----
823,783 0.3
--------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN ITALY 1,234,656 0.5
----------------------------------------------------------------------------------------------------------------
NETHERLANDS CHEMICALS 18,000 Akzo Nobel NV ........................... 767,839 0.3
36,000 DSM NV .................................. 1,159,523 0.4
--------- ----
1,927,362 0.7
--------------------------------------------------------------------------------------------------
ENERGY 55,000 Royal Dutch Petroleum Company ........... 3,432,267 1.3
--------------------------------------------------------------------------------------------------
INSURANCE 8,784 Aegon NV ................................ 313,826 0.1
16,282 ING Groep NV ............................ 1,105,041 0.4
--------- ----
1,418,867 0.5
--------------------------------------------------------------------------------------------------
</TABLE>
ML-19
<PAGE>
===============================================================================
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--GLOBAL GROWTH FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2000 (CONTINUED) (IN US DOLLARS)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
WESTERN
EUROPE SHARES PERCENT OF
(CONCLUDED) INDUSTRY HELD INVESTMENTS VALUE NET ASSETS
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NETHERLANDS LEISURE 31,584 Koninklijke (Royal) Philips
(CONCLUDED) Electronics NV ........................ $ 1,495,655 0.6%
-----------------------------------------------------------------------------------------------
SEMICONDUCTORS 75,000 +ASM Lithography Holding NV .............. 3,236,713 1.2
21,000 +ASM Lithography Holding NV (ADR) (a)..... 925,313 0.3
--------- ----
4,162,026 1.5
-----------------------------------------------------------------------------------------------
WIRELINE 33,195 +Equant .................................. 1,354,290 0.5
COMMUNICATIONS
-----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN THE NETHERLANDS 13,790,467 5.1
----------------------------------------------------------------------------------------------------------------
PORTUGAL WIRELINE 93,500 Portugal Telecom SA (Registered Shares).. 1,054,038 0.4
COMMUNICATIONS
-----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN PORTUGAL 1,054,038 0.4
----------------------------------------------------------------------------------------------------------------
SPAIN BANKING & FINANCIAL 16,929 +Banco Bilbao Vizcaya, SA ................ 253,970 0.1
55,530 Banco Santander Central Hispano, SA ..... 588,203 0.2
--------- ----
842,173 0.3
-----------------------------------------------------------------------------------------------
INFORMATION 132,000 Telefonica Publicidad e
PROCESSING Informacion, SA ........................ 1,251,433 0.5
-----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SPAIN 2,093,606 0.8
----------------------------------------------------------------------------------------------------------------
SWEDEN COMMUNICATIONS 183,060 Telefonaktiebolaget LM Ericsson AB 'B' .. 3,641,999 1.3
EQUIPMENT
-----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SWEDEN 3,641,999 1.3
----------------------------------------------------------------------------------------------------------------
SWITZERLAND FOOD 300 Nestle SA (Registered Shares) ........... 602,361 0.2
-----------------------------------------------------------------------------------------------
PHARMACEUTICALS 520 Novartis AG (Registered Shares) ......... 826,321 0.3
--------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SWITZERLAND 1,428,682 0.5
----------------------------------------------------------------------------------------------------------------
UNITED BANKING & FINANCIAL 20,655 HSBC Holdings PLC ....................... 236,242 0.1
KINGDOM
-----------------------------------------------------------------------------------------------
ENERGY 400,000 BP Amoco PLC ............................ 3,839,250 1.4
-----------------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS 18,892 Unilever PLC ............................ 114,402 0.0
-----------------------------------------------------------------------------------------------
PHARMACEUTICALS 8,500 AstraZeneca Group PLC ................... 396,982 0.1
23,550 Glaxo Wellcome PLC ...................... 687,021 0.3
43,776 SmithKline Beecham PLC .................. 573,257 0.2
--------- ----
1,657,260 0.6
-----------------------------------------------------------------------------------------------
PUBLISHING 20,000 EMAP PLC ................................ 321,855 0.2
11,160 Pearson PLC ............................. 354,798 0.1
--------- ----
676,653 0.3
-----------------------------------------------------------------------------------------------
WIRELESS 1,813,433 Vodafone AirTouch PLC ................... 7,330,101 2.7
COMMUNICATIONS
-----------------------------------------------------------------------------------------------
WIRELINE 185,071 +COLT Telecom Group PLC .................. 6,163,938 2.3
COMMUNICATIONS 81,000 +Energis PLC ............................. 3,038,670 1.1
--------- ----
9,202,608 3.4
-----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN THE
UNITED KINGDOM 23,056,516 8.5
----------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN WESTERN EUROPE
(COST--$70,529,008) 82,439,050 30.4
----------------------------------------------------------------------------------------------------------------
</TABLE>
ML-20
<PAGE>
===============================================================================
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--GLOBAL GROWTH FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2000 (CONCLUDED) (IN US DOLLARS)
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHORT-TERM FACE PERCENT OF
SECURITIES AMOUNT ISSUE VALUE NET ASSETS
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMERCIAL $ 8,511,000 General Motors Acceptance Corp., 7.13% due
PAPER* 7/03/2000 ............................ $ 8,505,943 3.1%
10,000,000 Goldman Sachs Group, Inc., 6.75% due
7/06/2000 ............................ 9,988,750 3.7
--------- ----
18,494,693 6.8
----------------------------------------------------------------------------------------------------------------
US GOVERNMENT Federal Home Loan Mortgage Corporation:
AGENCY OBLIGATIONS* 3,180,000 6.48% due 7/14/2000 .................. 3,171,986 1.2
6,030,000 6.46% due 7 /18 /2000 ................ 6,010,523 2.2
--------- ----
9,182,509 3.4
----------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SHORT-TERM SECURITIES
(COST--$27,677,202) ................... 27,677,202 10.2
----------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (COST--$239,780,795).. 270,557,339 99.9
OTHER ASSETS LESS LIABILITIES .......... 249,425 0.1
--------- ----
NET ASSETS ............................. $270,806,764 100.0%
============ =====
----------------------------------------------------------------------------------------------------------------
* Commercial Paper and certain US Government Agency Obligations are traded on
a discount basis; the interest rates shown reflect the discount rates paid
at the time of purchase by the Fund.
+ Non-income producing security.
(a) American Depositary Receipts (ADR)
</TABLE>
See Notes to Financial Statements.
ML-21
<PAGE>
===============================================================================
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--GLOBAL GROWTH FOCUS FUND
STATEMENT OF ASSETS AND LIABILITIES AS OF JUNE 30, 2000
-------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
Investments, at value (identified cost--$239,780,795) ............................... $270,557,339
Cash ................................................................................ 111,300
Receivables:
Capital shares sold ............................................................... $ 529,170
Securities sold ................................................................... 388,951
Dividends.......................................................................... 129,702 1,047,823
--------
Prepaid expenses and other assets ................................................... 1,156,349
-----------
Total assets ........................................................................ 272,872,811
-----------
---------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payables:
Custodian bank .................................................................... 1,107,461
Securities purchased .............................................................. 628,484
Investment adviser ................................................................ 155,114
Capital shares redeemed ........................................................... 105,791 1,996,850
--------
Accrued expenses and other liabilities .............................................. 69,197
---------
Total liabilities ................................................................... 2,066,047
-----------
---------------------------------------------------------------------------------------------------------------
NET ASSETS .......................................................................... $270,806,764
============
---------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Class A Shares of Common Stock, $10 par value, 100,000,000 shares authorized+ ....... $ 1,862,681
Paid-in capital in excess of par .................................................... 229,931,078
Undistributed investment income--net ................................................ 173,633
Undistributed realized capital gains on investments and foreign currency
transactions--net................................................................... 8,058,592
Unrealized appreciation on investments and foreign currency transactions--net ....... 30,780,780
------------
NET ASSETS .......................................................................... $270,806,764
============
---------------------------------------------------------------------------------------------------------------
NET ASSET VALUE:
Class A--Based on net assets of $270,806,764 and 18,626,806 shares outstanding ....... $ 14.54
============
---------------------------------------------------------------------------------------------------------------
+ THE FUND IS ALSO AUTHORIZED TO ISSUE 100,000,000 CLASS B SHARES.
</TABLE>
See Notes to Financial Statements.
ML-22
<PAGE>
-------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--GLOBAL GROWTH FOCUS FUND
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000
-------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest and discount earned .............................................................. $ 592,995
Dividends (net of $69,098 foreign withholding tax) ........................................ 589,068
-------------
Total income ............................................................................... 1,182,063
-------------
-----------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees .... ................................................ $ 896,636
Custodian fees ............................................................... 38,897
Accounting services .......................................................... 20,074
Registration fees ............................................................ 19,797
Professional fees ............................................................ 13,343
Printing and shareholder reports ............................................. 9,276
Transfer agent fees .......................................................... 2,007
Directors' fees and expenses ................................................. 1,753
Pricing services ............................................................. 927
Other ........................................................................ 1,618
-----------
Total expenses ............................................................... 1,004,328
-------------
Investment income--net ....................................................... 177,735
-------------
-----------------------------------------------------------------------------------------------------------
REALIZED & UNREALIZED GAIN (LOSS) ON INVESTMENTS & FOREIGN
CURRENCY TRANSACTIONS--NET:
Realized gain (loss) from:
Investments--net ............................................................ 8,151,397
Foreign currency transactions--net .......................................... (57,092) 8,094,035
----------
Change in unrealized appreciation/depreciation on:
Investments--net ............................................................(16,043,032)
Foreign currency transactions--net .......................................... 7,743 (16,035,289)
----------- -------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ......................... $ (7,763,249)
=============
------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
ML-23
<PAGE>
-------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--GLOBAL GROWTH FOCUS FUND
STATEMENTS OF CHANGES IN NET ASSETS
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX FOR THE
MONTHS ENDED YEAR ENDED
INCREASE (DECREASE) IN NET ASSETS: JUNE 30, 2000 DECEMBER 31, 1999
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Investment income--net ........................................................ $ 177,735 $ 1,268,598
Realized gain on investments and foreign currency transactions--net ........... 8,094,305 2,090,153
Change in unrealized appreciation on investments and foreign currency
transactions--net ........................................................... (16,035,289) 45,178,580
------------ -----------
Net increase (decrease) in net assets resulting from operations ............... (7,763,249) 48,537,331
------------ -----------
--------------------------------------------------------------------------------------------------------------------
DIVIDENDS & DISTRIBUTIONS TO SHAREHOLDERS:
Investment income--net:
Class A ..................................................................... (4,102) (1,171,390)
Realized gain on investments--net:
Class A ..................................................................... (1,153,439) (1,105,991)
------------ -----------
Net decrease in net assets resulting from dividends and distributions to
shareholders ................................................................ (1,157,541) (2,277,381)
------------ -----------
--------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Net increase in net assets derived from capital share transactions ............ 99,319,780 114,490,492
------------ -----------
--------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Total increase in net assets .................................................. 90,398,990 160,750,442
Beginning of period ........................................................... 180,407,774 19,657,332
------------ -----------
End of period* ................................................................ $270,806,764 $180,407,774
============ ===========
--------------------------------------------------------------------------------------------------------------------
* UNDISTRIBUTED INVESTMENT INCOME--NET ........................................ $ 173,633 $ --
============ ===========
</TABLE>
See Notes to Financial Statements.
ML-24
<PAGE>
-------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--GLOBAL GROWTH FOCUS FUND
FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------------------
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE BEEN
DERIVED FROM INFORMATION PROVIDED IN THE FINANCIAL
STATEMENTS.
<TABLE>
<CAPTION>
ClASS A++
-------------------------------------------------------
FOR THE SIX FOR THE FOR THE PERIOD
MONTHS ENDED YEAR ENDED JUNE 5, 1998+
INCREASE (DECREASE) IN NET ASSET VALUE: JUNE 30, 2000 DECEMBER 31, 1999 TO DECEMBER 31, 1998
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ...................... $ 14.78 $ 10.82 $ 10.00
------- ------- -------
Investment income--net .................................... .01 .11 .03
Realized and unrealized gain (loss) on investments and
foreign currency transactions--net ....................... (.18) 4.06 .79
------- ------- -------
Total from investment operations .......................... (.17) 4.17 .82
------- ------- -------
Less dividends and distributions:
Investment income--net ................................... --++++ (.12) --
Realized gain on investments--net ........................ (.07) (.09) --
------- ------- -------
Total dividends and distributions ......................... (.07) (.21) --
------- ------- -------
Net asset value, end of period ............................ $ 14.54 $ 14.78 $ 10.82
======= ======= =======
----------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:**
Based on net asset value per share ........................ (1.19%)+++ 38.69% 8.20%+++
======= ======= =======
----------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses .................................................. .84%* .87% 1.03%*
======= ======= =======
Investment income--net .................................... .15%* .97% .63%*
======= ======= =======
----------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) .................. $270,807 $180,408 $ 19,657
======= ======= =======
Portfolio turnover ........................................ 24.34% 99.09% 15.25%
======= ======= =======
----------------------------------------------------------------------------------------------------------------------
</TABLE>
* ANNUALIZED.
** TOTAL INVESTMENT RETURNS EXCLUDE INSURANCE-RELATED FEES AND EXPENSES.
+ COMMENCEMENT OF OPERATIONS.
++ BASED ON AVERAGE SHARES OUTSTANDING.
+++ AGGREGATE TOTAL INVESTMENT RETURN.
++++ AMOUNT IS LESS THAN $.01 PER SHARE.
See Notes to Financial Statements.
ML-25
<PAGE>
-------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--GLOBAL GROWTH FOCUS FUND
NOTES TO FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES:
Merrill Lynch Variable Series Funds, Inc. (the "Company") is an open-end
management investment company that as of June 30, 2000 was comprised of 19
separate funds. Each fund offers two classes of shares to the Merrill Lynch
Life Insurance Company, ML Life Insurance Company of New York (indirect
wholly-owned subsidiaries of Merrill Lynch & Co., Inc. ("ML & Co.")), and
other insurance companies, that are not affiliated with ML & Co., for their
separate accounts to fund benefits under certain variable annuity and
variable life insurance contracts. Class A and Class B Shares have equal
voting, dividend, liquidation and other rights, except that only shares of
the respective classes are entitled to vote on matters concerning only that
class and Class B Shares bear certain expenses related to the distribution of
such shares. Global Growth Focus Fund (the "Fund") is classified as
"diversified," as defined in the Investment Company Act of 1940. The Fund's
financial statements are prepared in accordance with accounting principles
generally accepted in the United States of America, which may require the use
of management accruals and estimates. These unaudited financial statements
reflect all adjustments, which are, in the opinion of management, necessary
to a fair statement of the results for the interim period presented. All such
adjustments are of a normal, recurring nature. The following is a summary of
significant accounting policies followed by the Fund.
(a) VALUATION OF INVESTMENTS--Portfolio securities that are traded on stock
exchanges are valued at the last sale price as of the close of business on
the day the securities are being valued, or lacking any sales, at the closing
bid price. Securities traded in the over-the-counter market are valued at the
last available bid price prior to the time of valuation. 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). Short-term
securities are valued at amortized cost, which approximates market value.
Futures contracts are valued at the settlement price at the close of the
applicable exchange. 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 Directors of the Company.
(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. Such contracts are not entered on the
Fund's records. However, the effect on operations is recorded from the date
the Fund enters into such contracts.
- OPTIONS--The Fund may write and purchase call and put options. When the Fund
writes an option, an amount equal to the premium received by the Fund is
reflected as an asset and an equivalent liability. The amount of the
liability is subsequently marked to market to reflect the current market
value of the option written. When a security is purchased or sold through an
exercise of an option, the related premium paid or received is added to (or
deducted from) the basis of the security acquired or deducted from (or added
to) the proceeds of the security sold. When an option expires (or the Fund
enters into a closing transaction), the Fund realizes a gain or loss on the
option to the extent of the premiums received or paid (or gain or loss to the
extent the cost of the closing transaction exceeds the premium paid or
received).
Written and purchased options are nonincome producing investments.
- FINANCIAL FUTURES CONTRACTS--The Fund may purchase or sell financial futures
contracts and options on such futures contracts for the purpose of hedging
the market risk on existing securities or the intended purchase of
securities. Futures contracts are contracts for delayed delivery of
securities at a specific future date and at a specific price or yield. Upon
entering into a contract, the Fund deposits and maintains as collateral such
initial margin as required by the exchange on which the transaction is
effected. Pursuant to the contract, the Fund agrees to receive from or pay to
the broker an
ML-26
<PAGE>
amount of cash equal to the daily fluctuation in value of the contract. Such
receipts or payments are known as variation margin and are recorded by the
Fund as unrealized gains or losses. When the contract is closed, the Fund
records a realized gain or loss equal to the difference between the value of
the contract at the time it was opened and the value at the time it was
closed.
- FOREIGN CURRENCY OPTIONS AND FUTURES--The Fund may also purchase or sell
listed or over-the-counter foreign currency options, foreign currency futures
and related options on foreign currency futures as a short or long hedge
against possible variations in foreign exchange rates. Such transactions may
be effected with respect to hedges on non-US dollar denominated securities
owned by the Fund, sold by the Fund but not yet delivered, or committed or
anticipated to be purchased by the Fund.
(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 and liabilities
expressed in foreign currencies into US 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, a withholding tax 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). 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 (including amortization of premium and discount) is
recognized on the accrual basis. Realized gains and losses on security
transactions are determined on the identified cost basis.
(f) DIVIDENDS AND DISTRIBUTIONS--Dividends and distributions paid by the
Fund are recorded on the ex-dividend dates.
(g) CUSTODIAN BANK--The Fund recorded an amount payable to the Custodian
Bank reflecting an overnight overdraft which resulted from a failed trade
which settled the next day.
2. INVESTMENT ADVISORY AGREEMENT AND TRANSACTIONS WITH AFFILIATES:
The Company has entered into an Investment Advisory Agreement with Merrill
Lynch Investment Managers, L.P. ("MLIM"). The general partner of MLIM is
Princeton Services, Inc. ("PSI"), an indirect, wholly-owned subsidiary of ML
& Co., which is the limited partner.
MLIM is responsible for the management of the Company's funds and provides
the necessary personnel, facilities, equipment and certain other services
necessary to the operations of the funds. For such services, the Fund pays a
monthly fee at the annual rate of .75% of the average daily value of the
Fund's net assets.
MLIM and Merrill Lynch Life Agency, Inc. ("MLLA") have entered into an
agreement which limits the operating expenses paid by the Fund, exclusive of
any distribution fees imposed on Class B Shares, to 1.25% of its average
daily net assets. Any such expenses in excess of 1.25% of average daily net
assets will be reimbursed to the Fund by MLIM which, in turn, will be
reimbursed by MLLA.
For the six months ended June 30, 2000, Merrill Lynch, Pierce, Fenner &
Smith Incorporated, a subsidiary of ML & Co., earned $25,501 in commissions
on the execution of portfolio security transactions.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of ML &
Co., is the Company's transfer agent.
FAM Distributors, Inc. ("FAMD"), which is a wholly-owned subsidiary of
Merrill Lynch Group, Inc., is the Fund's Distributor.
Accounting services are provided to the Fund by MLIM at cost.
Certain officers and/or directors of the Company are officers and/or
directors of MLIM, PSI, FDS, FAMD, and/or ML & Co.
3. INVESTMENTS:
Purchases and sales of investments, excluding short-term securities, for the
six months ended June 30, 2000 were $133,822,384 and $52,760,365,
respectively.
ML-27
<PAGE>
Net realized gains (losses) for the six months ended June 30, 2000 and net
unrealized gains as of June 30, 2000 were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Gains
-------------------------------------------------------------------------------
<S> <C> <C>
Long-term investments ............. $8,151,464 $30,776,544
Short-term investments ............ (67) --
Foreign currency transactions ..... (57,092) 4,236
---------- ----------
Total ............................. $8,094,305 $30,780,780
========== ==========
-------------------------------------------------------------------------------
</TABLE>
At June 30, 2000, net unrealized appreciation for Federal income tax
purposes aggregated $30,776,544, of which $54,194,075 related to appreciated
securities and $23,417,531 related to depreciated securities. At June 30,
2000, the aggregate cost of investments for Federal income tax purposes was
$239,780,795.
4. CAPITAL SHARE TRANSACTIONS:
Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
Class A for the Six Months Ended Dollar
June 30, 2000 Shares Amount
-------------------------------------------------------------------------------
<S> <C> <C>
Shares sold........................... 6,765,461 $104,423,985
Shares issued to shareholders in
reinvestment of dividends and
distributions....................... 69,522 1,157,541
--------- -----------
Total issued.......................... 6,834,983 105,581,526
Shares redeemed....................... (415,822) (6,261,746)
--------- -----------
Net increase.......................... 6,419,161 $ 99,319,780
========= ===========
-------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
Class A for the Year Ended Dollar
December 31, 1999 Shares Amount
-------------------------------------------------------------------------------
<S> <C> <C>
Shares sold ........................... 15,332,216 $170,032,328
Shares issued to shareholders in
reinvestment of dividends and
distributions........................ 159,398 2,277,381
---------- -----------
Total issued........................... 15,491,614 172,309,709
Shares redeemed........................ (5,100,726) (57,819,217)
---------- -----------
Net increase........................... 10,390,888 $114,490,492
========== ===========
-------------------------------------------------------------------------------
</TABLE>
5. COMMITMENTS:
At June 30, 2000, the Fund had entered into foreign exchange contracts, under
which it had agreed to purchase and sell various foreign currencies with
approximate values of $113,000 and $394,000, respectively.
ML-28
<PAGE>
This report is only for distribution to shareholders of one of the Funds
of Merrill Lynch Variable Series Funds, Inc. Past performance results shown
in this report should not be considered a representation of future
performance. Investment return and principal value of non-money market fund
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.
Merrill Lynch Variable Series Funds, Inc.
Box 9011
Princeton, NJ
08543-9011
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
PRUDENTIAL JENNISON PORTFOLIO
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
June 30, 2000
<S> <C>
ASSETS
Investments, at value (cost: $2,719,430,030) ............ $ 3,478,239,086
Cash .................................................... 749
Receivable for investments sold ......................... 8,349,032
Receivable for capital stock sold ....................... 1,519,254
Interest and dividends receivable ....................... 1,228,980
Receivable for securities lending, net .................. 436,026
----------------
Total Assets ......................................... 3,489,773,127
----------------
LIABILITIES
Payable to investment adviser ........................... 4,845,097
Payable for investments purchased ....................... 11,274,047
Payable for capital stock repurchased ................... 349,577
Distribution fee payable ................................ 465
Administration fee payable .............................. 279
Accrued expenses and other liabilities .................. 173,711
----------------
Total Liabilities ..................................... 16,643,176
----------------
NET ASSETS ................................................ $ 3,473,129,951
================
Net assets were comprised of:
Common stock, at $0.01 par value ...................... $ 1,048,296
Paid-in capital, in excess of par ..................... 2,473,158,889
----------------
2,474,207,185
Undistributed net investment income ................... 923,669
Accumulated net realized gain on investments .......... 239,190,019
Net unrealized appreciation on investments and
foreign currencies .................................. 758,809,078
----------------
Net assets, June 30, 2000 ........................... $ 3,473,129,951
================
Class I:
Net asset value and redemption price per share,
3,470,354,015/104,745,716 outstanding shares of
common stock (authorized 110,000,000 shares) .......... $ 33.13
================
Class II:
Net asset value and redemption price per share,
2,775,935/83,915 outstanding shares of common
stock (authorized 5,000,000 shares) ..................... $ 33.08
================
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30, 2000
<S> <C>
INVESTMENT INCOME
Dividends (net of $189,126 foreign withholding tax) ..... $ 6,178,414
Interest ................................................ 3,995,743
Income from securities loaned, net ...................... 565,833
----------------
10,739,990
----------------
EXPENSES
Investment advisory fee ................................. 9,532,134
Administration fee -- Class II .......................... 285
Distribution fee -- Class II ............................ 476
Shareholders' reports ................................... 186,000
Accounting fee .......................................... 40,000
Custodian's fees and expenses ........................... 35,000
Audit fees and expenses ................................. 17,000
Commitment fee on syndicated credit agreement ........... 13,000
Legal fees and expenses ................................. 5,000
Transfer agent's fees and expenses ...................... 5,000
Directors' fees ......................................... 2,000
Miscellaneous ........................................... 4,616
----------------
Total expenses ........................................ 9,840,511
Less: custodian fee credit .............................. (24,190)
----------------
Net expenses .......................................... 9,816,321
----------------
NET INVESTMENT INCOME ....................................... 923,669
----------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Net realized gain on investments ........................ 240,205,243
----------------
Net change in unrealized appreciation (depreciation) on:
Investments ........................................... (133,489,787)
Foreign currencies .................................... 22
----------------
(133,489,765)
----------------
NET GAIN ON INVESTMENTS ..................................... 106,715,478
----------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ................................... $ 107,639,147
================
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
---------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income ..................................................... $ 923,669 $ 3,100,657
Net realized gain on investments .......................................... 240,205,243 147,534,996
Net change in unrealized appreciation (depreciation) on investments........ (133,489,765) 574,663,580
---------------- -----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ...................... 107,639,147 725,299,233
---------------- -----------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income -- Class I ........................... -- (3,100,657)
Distributions from net realized capital gains
Class I ................................................................... (49,620,027) (109,146,897)
Class II .................................................................. (2,217) --
---------------- -----------------
TOTAL DIVIDENDS AND DISTRIBUTIONS ......................................... (49,622,244) (112,247,554)
---------------- -----------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [22,430,665 and 46,076,803 shares, respectively] ....... 752,106,237 1,238,109,549
Capital stock issued in reinvestment of dividends and distributions
[1,630,701 and 3,815,423 shares, respectively] .......................... 49,622,244 112,247,554
Capital stock repurchased [(4,763,710) and (14,500,046) shares,
respectively] .......................................................... (157,283,294) (391,470,256)
---------------- -----------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL STOCK TRANSACTIONS ... 644,445,187 958,886,847
---------------- -----------------
TOTAL DECREASE IN NET ASSETS ................................................. 702,462,090 1,571,938,526
NET ASSETS:
Beginning of period ....................................................... 2,770,667,861 1,198,729,335
---------------- -----------------
End of period(a) .......................................................... $ 3,473,129,951 $ 2,770,667,861
================ =================
(a) Includes undistributed net investment income of: ......................... $ 923,669 $ --
---------------- -----------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
A
<PAGE>
THE PRUDENTIAL SERIES FUND, INC.
SCHEDULE OF INVESTMENTS
PRUDENTIAL JENNISON PORTFOLIO
<TABLE>
<CAPTION>
JUNE 30, 2000 (UNAUDITED)
LONG-TERM INVESTMENTS--95.9%
VALUE
COMMON STOCKS SHARES (NOTE 2)
---------- ---------------
<S> <C> <C>
ADVERTISING -- 1.1%
Omnicom Group Inc. ......................... 420,200 $ 37,424,063
---------------
COMPUTERS -- 8.9%
Compaq Computer Corp. ...................... 1,348,100 34,460,806
Dell Computer Corp.(a) ..................... 775,300 38,231,981
EMC Corp.(a) ............................... 968,000 74,475,500
Hewlett-Packard Co. ........................ 965,500 120,566,812
Sun Microsystems, Inc.(a) .................. 471,800 42,904,313
---------------
310,639,412
---------------
COMPUTER SOFTWARE & SERVICES -- 7.2%
ASM Lithography Holding N.V.(a) ............ 555,100 24,493,787
Cisco Systems, Inc.(a) ..................... 1,854,000 117,844,875
Juniper Networks, Inc.(a) .................. 142,200 20,698,988
Microsoft Corp.(a) ......................... 758,600 60,688,000
VERITAS Software Corp.(a) .................. 229,050 25,886,229
---------------
249,611,879
---------------
COSMETICS & SOAPS -- 0.6%
Estee Lauder Companies
(Class "A") .............................. 414,500 20,491,844
---------------
DIVERSIFIED OPERATIONS -- 3.2%
Corning, Inc. .............................. 154,200 41,614,725
General Electric Co. ....................... 1,330,000 70,490,000
---------------
112,104,725
---------------
DRUGS & MEDICAL SUPPLIES -- 12.8%
American Home Products Corp. ............... 1,061,300 62,351,375
Amgen, Inc.(a) ............................. 744,300 52,287,075
Genetech, Inc.(a) .......................... 232,800 40,041,600
Lilly (Eli) & Co. .......................... 270,200 26,986,225
Merck & Co., Inc. .......................... 714,200 54,725,575
Pfizer, Inc. ............................... 2,819,300 135,326,400
Pharmacia Corp. ............................ 1,373,994 71,018,315
---------------
442,736,565
---------------
ELECTRONICS -- 8.5%
Applied Materials, Inc.(a) ................. 532,600 48,266,875
Applied Micro Circuits Corp.(a) ............ 232,800 22,989,000
Broadcom Corp.(a) .......................... 90,200 19,748,162
Intel Corp. ................................ 954,800 127,644,825
Texas Instruments, Inc. .................... 1,122,100 77,074,244
---------------
295,723,106
---------------
FINANCIAL SERVICES -- 10.0%
American Express Co. ....................... 1,278,600 66,647,025
Citigroup, Inc. ............................ 1,927,200 116,113,800
Merrill Lynch & Co., Inc. .................. 638,600 73,439,000
Morgan Stanley Dean Witter & Co. ........... 1,111,340 92,519,055
---------------
348,718,880
---------------
INSURANCE -- 2.2%
American International Group, Inc. ......... 636,425 74,779,937
---------------
INTERNET SOFTWARE -- 1.7%
America Online, Inc.(a) .................... 706,600 37,273,150
Verisign, Inc. ............................. 128,000 22,592,000
---------------
59,865,150
---------------
MEDIA--8.2%
AT&T Corp. -- Liberty Media Group
(Class "A" Stock) ........................ 2,239,000 54,295,750
ClearChannelCommunications,Inc.(a) ......... 779,100 58,432,500
Time Warner, Inc. .......................... 476,900 36,244,400
Univision Communications Inc(a) ............ 338,300 35,014,050
Viacom, Inc.(a) ............................ 1,477,119 100,721,052
---------------
284,707,752
---------------
OIL & GAS SERVICES -- 1.0%
Schlumberger, Ltd. ......................... 479,600 35,790,150
---------------
RETAIL -- 9.7%
Costco Wholesale Corp.(a) .................. 137,500 4,537,500
Gap, Inc. (The) ............................ 1,228,850 38,401,562
Home Depot, Inc. ........................... 2,269,700 113,343,144
Kohl's Corp.(a) ............................ 1,277,200 71,044,250
Tiffany & Co. .............................. 525,900 35,498,250
Wal-Mart Stores, Inc. ...................... 1,273,400 73,379,675
---------------
336,204,381
---------------
TELECOMMUNICATIONS -- 20.8%
Allegiance Telecom, Inc.(a) ................ 475,150 30,409,600
Ericsson (L.M.) Telephone Co., Inc.
(ADR) (Sweden) ........................... 2,318,900 46,378,000
General Motors Corp (Class "H"
Stock) ................................... 508,300 44,603,325
Global Crossing Ltd.(a) .................... 1,580,000 41,573,750
JDS Uniphase Corp.(a) ...................... 307,800 36,897,525
Level 3 Communications, Inc.(a) ............ 173,300 15,250,400
Metromedia Fiber Network, Inc. ............. 709,200 28,146,375
Motorola, Inc. ............................. 1,026,100 29,821,031
Nextel Communications, Inc. ................ 502,400 30,740,600
Nextlink Communications(a) ................. 501,600 19,029,450
Nokia Corp. (ADR) (Finland)(a) ............. 2,331,500 116,429,281
Nortel Networks Corp ....................... 576,100 39,318,825
NTL, Inc.(a)(b) ............................ 740,850 44,358,394
Qwest Communications International,
Inc.(a)(b) ............................... 1,896,100 94,212,469
Vodafone AirTouch Group PLC,
ADR (United Kingdom) ..................... 2,574,581 106,684,217
---------------
723,853,242
---------------
TOTAL LONG-TERM INVESTMENTS
(cost $2,573,842,030) ...................... 3,332,651,086
---------------
<CAPTION>
PRINCIPAL
SHORT-TERM AMOUNT VALUE
INVESTMENTS -- 4.2% (000) (NOTE 2)
------------ ---------------
<S> <C> <C>
REPURCHASE AGREEMENT
Joint Repurchase Agreement Account
6.49%, 07/03/00
(cost $145,588,000; Note 5) .............. $ 145,588 $ 145,588,000
---------------
TOTAL INVESTMENTS -- 100.1%
(cost $2,719,430,030; Note 6) ............................ 3,478,239,086
LIABILITIES IN EXCESS OF OTHER
ASSETS -- (0.1%) ......................................... (5,109,135)
---------------
NET ASSETS -- 100.0% ....................................... $ 3,473,129,951
===============
</TABLE>
The following abbreviations are used in portfolio descriptions:
ADR American Depository Receipt
PLC Public Limited Company (British Corporation)
NV Naamloze Vennootschap (Dutch Corporation)
(a) Non-income producing security.
(b) Portion of the security on loans: As of June 30, 2000, the Fund had
securities on loan with an aggregate market value of $113,899,238. As of this
date, the collateral held for securities on loan was comprised of U.S.
government securities with an aggregate market value of $119,174,485.
SEE NOTES TO FINANCIAL STATEMENTS
B
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
PRUDENTIAL JENNISON PORTFOLIO
(UNAUDITED)
NOTE 1: GENERAL
The Prudential Series Fund, Inc. ("Series Fund"), a Maryland
corporation, organized on November 15, 1982, is a diversified open-end
management investment company registered under the Investment Company
Act of 1940, as amended. The Series Fund is composed of seventeen
Portfolios ("Portfolio" or "Portfolios"), each with a separate series of
capital stock. The information presented in these financial statements
pertains to only one Portfolio: Prudential Jennison Portfolio. The
Portfolio's investment objective is long-term growth of capital by
investing primarily in common stocks of established companies with
above-average growth prospects.
NOTE 2: ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed
by the Series Fund and the Portfolio in preparation of its financial
statements. These policies are in conformity with generally accepted
accounting principles.
SECURITIES VALUATION: Equity securities traded on an exchange or NASDAQ
(whether domestic or foreign) are valued at the last reported sales
price on the primary exchange on which they are traded, or if there is
not a sale, at the mean of the last reported bid and asked prices or at
the bid price on such day in the absence of an asked price. Equity
securities that are not sold on an exchange or NASDAQ are valued by an
independent pricing agent or a principal market maker. Debt securities,
in general, are valued using an independent pricing service or a
principal market maker. Options on stock or stock indices are valued at
the average of the last reported bid and asked prices on the exchange on
which they are traded. Futures contracts and options on futures
contracts are valued at the last reported sale price, or if there is not
a sale, at the mean between the last reported bid and asked prices on
the commodity exchange or the board of trade on which they are traded.
Any security for which a reliable market quotation is unavailable is
valued at fair value by The Prudential Insurance Company of America
("The Prudential") under the direction of the Series Fund's Board of
Directors.
Short-term securities which mature in more than 60 days are valued at
current market quotations and those short-term securities which mature
in 60 days or less are valued at amortized cost.
REPURCHASE AGREEMENTS: In connection with transactions in repurchase
agreements with U.S. financial institutions, it is the Series Fund's
policy that its custodian or designated subcustodians, as the case may
be under triparty repurchase agreements, take possession of the
underlying collateral securities, the value of which exceeds the
principal amount of the repurchase transaction including accrued
interest. If the seller defaults and the value of the collateral
declines or if bankruptcy proceedings are commenced with respect to the
seller of the security, realization of the collateral by the Series Fund
may by delayed or limited.
FOREIGN CURRENCY TRANSLATION: The books and records of the Series Fund
are maintained in U.S. dollars. Foreign currency amounts are translated
into U.S. dollars on the following basis:
(i) market value of investment securities, other assets and
liabilities-at the current rates of exchange.
(ii) purchases and sales of investment securities, income and
expenses-at the rate of exchange prevailing on the respective dates of
such transactions.
Although the net assets of the Series Fund are presented at the foreign
exchange rates and market values at the close of the fiscal period, the
Series Fund does not isolate that portion of the results of operations
arising as a result of changes in the foreign exchange rates from the
fluctuations arising from changes in the market prices of securities
held at the end of the fiscal period. Similarly, the Series Fund does
not isolate the effect of changes in foreign exchange rates from the
fluctuations arising from changes in the market prices of long-term
portfolio securities sold during the fiscal period. Accordingly, these
realized and unrealized foreign currency gains (losses) are included in
the reported net realized gains (losses) on investment transactions.
Net realized gains (losses) on foreign currency transactions represent
net foreign exchange gains or losses from holdings of foreign
currencies, currency gains or losses realized between the trade and
settlement dates on security transactions, and the difference between
the amounts of dividends, interest and foreign taxes recorded on the
Series Fund's books and the U.S. dollar equivalent amounts actually
received or paid. Net unrealized currency gains or losses from valuing
foreign currency denominated assets and liabilities (other than
investments) at fiscal period end exchange rates are reflected as a
component of net unrealized appreciation (depreciation) on investments
and foreign currencies.
C1
<PAGE>
Foreign security and currency transactions may involve certain
considerations and risks not typically associated with those of
domestic origin as a result of, among other factors, the possibility
of political and economic instability and the level of governmental
supervision and regulation of foreign securities markets.
SECURITIES LENDING: The Series Fund may lend its portfolio securities
to broker-dealers, qualified banks and certain institutional
investors. The loans are secured by collateral in an amount equal to
at least the market value at all times of the loaned securities plus
any accrued interest and dividends. During the time the securities are
on loan, the Series Fund will continue to receive the interest and
dividends or amounts equivalent thereto, on the loaned securities
while receiving a fee from the borrower or earning interest on the
investment of the cash collateral. Loans are subject to termination at
the option of the borrower or the Series Fund. Upon termination of the
loan, the borrower will return to the lender securities identical to
the loaned securities. The Series Fund may pay reasonable finders',
administrative and custodial fees in connection with a loan of its
securities and may share the interest earned on the collateral with
the borrower. The Series Fund bears the risk of delay in recovery of,
or even loss of rights in, the securities loaned should the borrower
of the securities fail financially. Prudential Securities Incorporated
("PSI") is the securities lending agent for the Series Fund. PSI is an
indirect, wholly owned subsidiary of The Prudential. For the six
months ended June 30, 2000, PSI has been compensated $175,958 for
these services.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions
are recorded on the trade date. Realized gains and losses on sales of
securities are calculated on the identified cost basis. Dividend
income is recorded on the ex-dividend date; interest income, which is
comprised of four elements: stated coupon, original issue discount,
market discount and market premium is recorded on the accrual basis.
Certain portfolios own shares of real estate investment trusts
("REITs") which report information on the source of their
distributions annually. A portion of distributions received from REITs
during the year is estimated to be a return of capital and is recorded
as a reduction of their costs. These estimates are adjusted when the
actual source of the distributions is disclosed. Expenses are recorded
on the accrual basis which may require the use of certain estimates by
management. The Series Fund's expenses are allocated to the respective
Portfolios on the basis of relative net assets except for Portfolio
specific expenses, which are attributable directly at a Portfolio or
class level.
Net investment income, other than administration and distribution
fees, and unrealized and realized gains or losses are allocated daily
to each class of shares based upon the relative proportion of net
assets of each class at the beginning of the day.
CUSTODY FEE CREDITS: The Series Fund has an arrangement with its
custodian bank, whereby uninvested monies earn credits, which reduce
the fees charged by the custodian. Such custody fee credits are
presented as a reduction of gross expenses in the accompanying
statement of operations.
TAXES: For federal income tax purposes, each portfolio in the
Series Fund is treated as a separate taxpaying entity. It is the
intent of each Portfolio of the Series Fund to continue to meet the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its net income to
shareholders. Therefore, no federal income tax provision is required.
Withholding taxes on foreign dividends, interest and capital gains
have been provided for in accordance with the Series Fund's
understanding of the applicable country's tax rules and regulations.
DIVIDENDS AND DISTRIBUTIONS: Dividends and distributions of each
Portfolio are declared in cash and automatically reinvested in
additional shares of the same Portfolio. The Portfolio will declare
and distribute dividends from net investment income, if any, quarterly
and distributions from net capital gains, if any, at least annually.
Dividends and distributions are recorded on the ex-dividend date.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations, which may differ from
generally accepted accounting principles.
NOTE 3: AGREEMENTS
The Series Fund has an investment advisory agreement with The
Prudential. Pursuant to this agreement The Prudential has
responsibility for all investment advisory services and supervises
the subadvisers' performance of such services. The Prudential has
entered into a subadvisory agreement with Jennison Associates LLC
("Jennison"), under which Jennison furnishes investment advisory
services in connection with the management of the Portfolio. The
Prudential pays for the services of Jennison, compensation of
officers of the Series Fund, occupancy and certain clerical and
administrative expenses of the Series Fund. The Series Fund bears all
other costs and expenses.
C2
<PAGE>
The investment advisory fee paid to The Prudential is computed daily
and payable quarterly, at the annual rate of 0.60% of the value of the
Portfolio's average daily net assets.
The Prudential compensates Jennison for its services at the annual
rate of 0.75% on the first $10 million of the value of the Portfolio's
average daily net assets, 0.50% on the next $30 million, 0.35% on the
next $25 million, 0.25% on the next $335 million, 0.22% on the next
$600 million and 0.20% thereafter. The fees are computed daily and
paid quarterly.
The Series Fund has a distribution agreement with Prudential
Investment Management Services LLC ("PIMS") which acts as the
distributor of the Class I and Class II shares of the Series Fund. The
Series Fund compensates PIMS for distributing and servicing the Series
Fund's Class II shares pursuant to a plan of distribution (the
"Class II Plan"), regardless of expenses actually incurred by PIMS.
The distribution fees are accrued daily and payable quarterly. No
distribution or service fees are paid to PIMS as distributor of the
Class I shares of the Series Fund. Pursuant to the Class II Plan, the
Class II shares of each Portfolio compensates PIMS for
distribution-related activities at an annual rate of 0.25% of the
average daily net assets of the Class II shares.
The Series Fund has an administration agreement with Prudential
Investments Fund Management LLC ("PIFM") which acts as the
administrator of the Class II shares of the Series Fund. The
administration fee paid to PIFM is accrued daily and payable
quarterly, at the annual rate of 0.15% of the average daily net assets
of the Class II shares.
The Prudential has agreed to reimburse the Portfolio the portion of
the investment advisory fee for that Portfolio equal to the amount
that the aggregate annual ordinary operating expenses (excluding
interest, taxes and brokerage commissions) exceeds 0.75% of the
Portfolio's average daily net assets. No reimbursement was required
for the six months ended June 30, 2000.
PIMS, PIFM and Jennison are wholly-owned subsidiaries of The
Prudential.
The Series Fund, along with other affiliated registered investment
companies (the "Funds"), entered into a syndicated credit agreement
("SCA") with an unaffiliated lender. The maximum commitment under the
SCA is $1 billion. Interest on any such borrowings outstanding will be
at market rates. The purpose of the agreement is to serve as an
alternative source of funding for capital share redemptions. The Funds
pays a commitment fee at an annual rate of 0.080 of 1% on the unused
portion of the credit facility. The commitment fee is accrued and paid
quarterly on a pro rata basis by the Funds. The expiration date of the
SCA is March 9, 2001. Prior to March 9, 2000, the commitment fee was
0.065 of 1% of the unused portion of the facility. The Series Fund did
not borrow any amounts pursuant to the SCA during the six months ended
June 30, 2000.
NOTE 4: OTHER TRANSACTIONS WITH AFFILIATES
Prudential Mutual Fund Services LLC ("PMFS"), a wholly owned
subsidiary of PIFM, serves as the Series Fund's transfer agent.
During the six months ended June 30, 2000, the Portfolio incurred
fees of approximately $5,100 for the services of PMFS and as of June
30, 2000, $900 of such fees were due to PMFS. Transfer agent fees and
expenses in the statement of operations include certain out-of-pocket
expense paid to nonaffiliates.
For the six months ended June 30, 2000, PSI earned $138,270
in brokerage commissions from transactions executed on behalf of the
Portfolio.
NOTE 5: JOINT REPURCHASE AGREEMENT ACCOUNT
The Series Fund may transfer uninvested cash balances into a single
joint repurchase agreement account, the daily aggregate balance of
which is invested in one or more repurchase agreements collateralized
by U.S. Government obligations. The Portfolio had a 23.05% undivided
interest in the joint repurchase agreement account which represented
$145,588,000 in principal amount as of June 30, 2000.
As of such date, each repurchase agreement in the joint account and
the collateral therefor were as follows:
ABN AMRO Inc., 6.60%, in the principal amount of $130,000,000,
repurchase price $130,071,500, due 7/3/00. The value of the collateral
including accrued interest was $132,600,710.
ABN AMRO Inc., 6.20%, in the principal amount of $76,455,000,
repurchase price $76,494,502, due 7/3/00. The value of the collateral
including accrued interest was $77,984,334.
Bear, Stearns & Co., Inc., 6.55%, in the principal amount of
$125,000,000, repurchase price $125,068,229, due 7/3/00. The value of
the collateral including accrued interest was $127,935,940.
Credit Suisse First Boston Corp., 6.65%, in the principal amount of
$125,000,000, repurchase price $125,069,271, due 7/3/00. The value of
the collateral including accrued interest was $130,618,178.
UBS Warburg, 6.55%, in the principal amount of $100,000,000,
repurchase price $100,054,583, due 7/3/00. The value of the collateral
including accrued interest was $102,001,028.
C3
<PAGE>
UBS Warburg, 6.25%, in the principal amount of $75,216,000,
repurchase price $75,255,175, due 7/3/00. The value of the collateral
including accrued interest was $76,721,755.
NOTE 6: PORTFOLIO SECURITIES
The aggregate cost of purchase and proceeds from sales of securities
(excluding short-term issues) for the six months ended June 30, 2000
were $1,842,685,398 and $1,266,685,655, respectively, for the
Portfolio.
The federal income tax basis of the Portfolio's investments was
$2,724,954,392 and, accordingly, net unrealized appreciation for
federal income tax purposes was $753,284,694 (gross unrealized
appreciation - $852,783,794; gross unrealized depreciation
- $99,499,100).
NOTE 7: CAPITAL
The Series Fund offers Class I and Class II shares. Both Class I and
Class II shares of a Portfolio are not subject to any sales charge or
redemption charge and are sold at the net asset value of the
Portfolio. Class I shares are sold only to certain separate accounts
of The Prudential to fund benefits under certain variable life
insurance and variable annuity contracts ("contracts"). Class II
shares are sold only to separate accounts of non-Prudential insurance
companies as investment options under certain contracts. The accounts
invest in shares of the Series Fund through subaccounts that
correspond to the portfolios. The accounts will redeem shares of the
Series Fund to the extent necessary to provide benefits under the
contracts or for such other purposes as may be consistent with the
contracts.
Transactions in shares of common stock of the Portfolio were as
follows:
<TABLE>
<CAPTION>
Class I Shares Amount
------- ---------- -------------
<S> <C> <C>
Six months ended June 30, 2000:
Capital stock sold ......................................................... 22,342,715 $ 749,265,516
Capital stock issued in reinvestment of dividends and distributions ........ 1,630,628 49,620,027
Capital stock repurchased .................................................. (4,759,602) (157,150,860)
---------- -------------
Net increase in shares outstanding ......................................... 19,213,741 $ 641,734,683
========== =============
</TABLE>
<TABLE>
<CAPTION>
Class II Shares Amount
-------- ---------- -------------
<S> <C> <C>
February 10, 2000 (b) through June 30, 2000:
Capital stock sold ......................................................... 87,950 $ 2,840,721
Capital stock issued in reinvestment of dividends and distributions ........ 73 2,217
Capital stock repurchased .................................................. (4,108) (132,434)
---------- -------------
Net increase in shares outstanding ......................................... 83,915 $ 2,710,504
========== =============
(b) Commencement of offering of Prudential Jennison Portfolio Class II shares.
</TABLE>
C4
<PAGE>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<TABLE>
<CAPTION>
PRUDENTIAL JENNISON PORTFOLIO
----------------------------------------------------------------------------------
CLASS I CLASS II
-------------------------------------------------------------------- ------------
FEBRUARY 10,
SIX MONTHS YEAR ENDED APRIL 25, 1995(d) 2000(e)
ENDED DECEMBER 31, THROUGH THROUGH
JUNE 30, ------------------------------- DECEMBER 31, JUNE 30,
2000 1999 1998 1997 1996 1995(c) 2000
----------- -------- -------- ------ ------ ----------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of period ..... $ 32.39 $ 23.91 $ 17.73 $14.32 $12.55 $10.00 $ 34.25
-------- -------- -------- ------ ------ ------ --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .................... 0.01 0.05 0.04 0.04 0.02 0.02 -(f)
Net realized and unrealized gains
(losses) on investments ................ 1.23 9.88 6.56 4.48 1.78 2.54 (0.67)
-------- -------- -------- ------ ------ ------ --------
Total from investment operations .... 1.24 9.93 6.60 4.52 1.80 2.56 (0.67)
-------- -------- -------- ------ ------ ------ --------
LESS DISTRIBUTIONS:
Dividends from net investment income ..... - (0.05) (0.04) (0.04) (0.03) (0.01) -
Distributions from net realized gains .... (0.50) (1.40) (0.38) (1.07) - - (0.50)
-------- -------- -------- ------ ------ ------ --------
Total distributions ................. (0.50) (1.45) (0.42) (1.11) (0.03) (0.01) (0.50)
-------- -------- -------- ------ ------ ------ --------
Net Asset Value, end of period ........... $ 33.13 $ 32.39 $ 23.91 $17.73 $14.32 $12.55 $ 33.08
======== ======== ======== ====== ====== ====== ========
TOTAL INVESTMENT RETURN(a) ............... 3.98% 41.76% 37.45% 31.71% 14.41% 24.20% (1.81)
RATIOS /SUPPLEMENTAL DATA:
Net assets, end of period (in millions) .. $3,470.3 $2,770.7 $1,198.7 $495.9 $226.5 $ 63.1 $2,775.9
Ratios to average net assets:
Expenses ............................... 0.62%(b) 0.63% 0.63% 0.64% 0.66% 0.79%(b) 1.02%(b)
Net investment income .................. 0.06%(b) 0.17% 0.20% 0.25% 0.20% 0.15%(b) (0.34)%(b)
Portfolio turnover rate .................. 41% 58% 54% 60% 46% 37% 41%
(a) Total investment return is calculated assuming a purchase of shares on the first day and a sale on the last day of each period
reported and includes reinvestment of dividends and distributions. Total investment returns for less than a full year are not
annualized.
(b) Annualized.
(c) Calculations are based on average month-end shares outstanding.
(d) Commencement of offering of Class I shares.
(e) Commencement of offering of Class II shares.
(f) Less than ($0.003).
</TABLE>
D
<PAGE>
------------------------------------------------------------------------------
Hartford LIfe Insurance Companies
P.O. Box 2999 PRSRT STD
Hartford, CT 06104-2999 U.S. POSTAGE
PAID
LEOMINSTER, MA
PERMIT NO. 17
HV-2234-2
Printed in U.S.A. -Registered Trademark- 2000 The Hartford, Hartford, CT 06115
