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MERRILL LYNCH VARIABLE
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SERIES FUNDS, INC.
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PAGE
----
American Balanced Fund................ 1
Balanced Capital Focus Fund........... 15
Basic Value Focus Fund................ 29
Developing Capital Markets Focus
Fund................................ 44
Domestic Money Market Fund............ 64
Focus Twenty Select Fund.............. 76
Fundamental Growth Focus Fund......... 88
Global Bond Focus Fund................ 100
Global Growth Focus Fund.............. 114
Global Strategy Focus Fund............ 128
Government Bond Fund.................. 147
High Current Income Fund.............. 159
Index 500 Fund........................ 177
International Equity Focus Fund....... 194
Natural Resources Focus Fund.......... 215
Prime Bond Fund....................... 229
Quality Equity Fund................... 244
Reserve Assets Fund................... 259
Small Cap Value Focus Fund............ 270
Utilities and Telecommunications Focus
Fund................................ 287
Annual Report
December 31, 2000
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INTERNATIONAL EQUITY FOCUS FUND
DECEMBER 31, 2000--ANNUAL REPORT
- --------------------------------------------------------------------------------
DEAR SHAREHOLDER:
The year ended December 31, 2000 began amid great hope and optimism and
evolved into the worst year for international markets since 1990. The Morgan
Stanley Capital International (MSCI) World (Ex-US) Index, the Fund's benchmark,
fell by 14.4% over the 12-month period--in fact, only for a few days in late
March was the Index higher than its year-end 1999 level. The only markets to
deliver positive returns this year in US dollars terms were Switzerland, Canada
and Denmark. The markets in New Zealand, Japan and Singapore declined by more
than 25% over the course of the year.
As has been widely discussed in the media, technology and telecommunications
stocks were the drivers of equity markets around the world--propelling them
upward in 1999 and downward in 2000. Globally, the information technology sector
fell by 30.6% in US dollar terms, while telecommunications stocks fell by 39%
for the year ended December 31, 2000. These sectors had maintained their 1999
outperformance only until March 10, 2000, when the NASDAQ Composite Index peaked
at just over 5000.
The international investor was also hurt this year by the strength of the US
dollar against its major competitors. The US dollar gained 6.3% against the
euro, 11.6% against the yen and 7.7% against the pound. Had it not been for the
rising US dollar, international markets might have outperformed the Standard &
Poor's 500 Index, which declined 7.8% against a 10.2% fall in the United States.
FISCAL YEAR IN REVIEW
For the fiscal year ended December 31, 2000, the Fund's Class A Shares had a
total return of -17.28%. This compared to a return of -13.4% in US dollars for
the MSCI World (Ex-US) Index for the same period. The bulk of the Fund's
underperformance occurred in the last four months of the year and was triggered
by three factors: an underweighted position in the equity markets of the
European Monetary Union (EMU)-bloc and an overweighted position in Japan; an
underweighted position in defensive European sectors, such as food and
healthcare; and an overweighted position in Japanese technology and
telecommunications shares. The first factor contributed to the Fund's
underperformance as investors sold down their Japanese holdings despite strong
profits growth reported toward the end of the year, concentrating instead on
fears of an economic slowdown. The sector weightings mentioned above led to
underperformance following the sharp and sudden downturn in the US economy and
the 45% decline in the NASDAQ in the last third of the year as technology
companies of all types found themselves unable to match the earnings
expectations that investors had built into their high share prices.
Relative to the Fund's benchmark, we began the year with underweighted
positions in Japan, the United Kingdom and the Pacific Basin. The Fund was
broadly neutral in the EMU-bloc and held positions in emerging markets (not in
the benchmark) and in cash. In the first quarter of 2000, we reduced our
EMU-bloc weighting in favor of the Japanese and UK markets in anticipation of a
peak in the EMU economic cycle. Over the course of the year, we continued to
increase the Fund's weightings in Japan and the United Kingdom, while further
reducing our exposure to the EMU-bloc and emerging markets. This strategy proved
effective until the fourth quarter. In December, it became clear that investors
were prepared to overlook the favorable results in Japan, focusing instead on
the negatives in the economy, and we subsequently reduced our overweight
position in Japan to neutral.
The Fund ended 2000 with relatively small active positions, befitting a time
of major uncertainty and volatility. Our underweighted EMU-bloc equity position
was offset by an overweighted position in UK equities, where the cycle is more
advanced and interest rate cuts nearer at hand; by positions in EMU bonds, which
provide currency but not equity exposure; and by some cash.
IN CONCLUSION
The new year begins with more uncertainty than usual. The US economy has
slowed sharply and it is unclear whether this reflects a short-term reaction to
overstocking in many technology sectors or whether companies have over-invested
in technology and individuals have become over-exposed to the stock market. If
the latter is true, we could see a dramatic contraction in US private spending,
which would bring about difficult consequences for the world economy.
The new year began with an interest rate cut in the United States. We expect
the United Kingdom to follow, then Europe and Japan. These cuts were priced into
the various money markets at the end of 2000 and, therefore, are already
discounted to some extent. Should central banks introduce these interest rate
cuts
194
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slowly, worldwide equity markets could be disappointed.
We thank you for your investment in International Equity Focus Fund of Merrill
Lynch Variable Series Funds, Inc., and we look forward to reviewing our strategy
and performance with you in our next report to shareholders.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President and Director
/s/ Terry K. Glenn
Jeremy Beckwith
Vice President and Senior Portfolio Manager
January 19, 2001
- --------------------------------------------------------
We are pleased to announce that Jeremy Beckwith is responsible for the
day-to-day management of International Equity Focus Fund of Merrill Lynch
Variable Series Funds, Inc. Mr. Beckwith has been employed by Merrill Lynch
Investment Managers, L.P. since 1990.
- --------------------------------------------------------
195
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MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INTERNATIONAL EQUITY FOCUS FUND
TOTAL RETURN BASED ON A $10,000 INVESTMENT--CLASS A SHARES
- --------------------------------------------------------------------------------
MORGAN STANLEY CAPITAL
INTERNATIONAL EQUITY FOCUS FUND+ INTERNATIONAL WORLD (EX-US)
--CLASS A SHARES* INDEX++
-------------------------------- ---------------------------
07/01/93** 10000 10000
12/93 11030 10756
12/94 11091 11546
12/95 11698 12863
12/96 12472 13747
12/97 11904 14059
12/98 12833 16697
12/99 17661 21360
12/00 14609 18504
* Assuming transaction costs and other operating expenses, including advisory
fees. Does not include insurance-related fees and expenses.
** Commencement of operations.
+ International Equity Focus Fund invests in a portfolio of securities of
issuers from foreign countries, both developed and developing, throughout the
world.
++ This unmanaged market capitalization-weighted Index is comprised of a
representative sampling of stocks in 21 countries, excluding the United
States. The starting date for the Index is from 6/30/93.
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MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INTERNATIONAL EQUITY FOCUS FUND
AVERAGE ANNUAL TOTAL RETURN--CLASS A SHARES*
-----------------------------------------------------------------------------
PERIOD COVERED % RETURN
-----------------------------------------------------------------------------
One Year Ended 12/31/00 -17.28%
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Five Years Ended 12/31/00 + 4.55
-----------------------------------------------------------------------------
Inception (07/01/93) through 12/31/00 + 5.18
-----------------------------------------------------------------------------
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MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INTERNATIONAL EQUITY FOCUS FUND
RECENT PERFORMANCE RESULTS*
-----------------------------------------------------------------------------
6 MONTH 12 MONTH
AS OF DECEMBER 31, 2000 TOTAL RETURN TOTAL RETURN
- -----------------------------------------------------------------------------------------
Class A Shares -13.37% -17.28%
- -----------------------------------------------------------------------------------------
* 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.
Past results shown should not be considered a representation of future
performance.
196
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MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INTERNATIONAL EQUITY FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2000 (IN US DOLLARS)
- --------------------------------------------------------------------------------
LATIN SHARES PERCENT OF
AMERICA INDUSTRY HELD INVESTMENTS VALUE NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------------
BRAZIL AEROSPACE & 9,720 Embraer-Empresa Brasileira de Aeronautica SA
DEFENSE (Preferred)................................ $ 90,720 0.1%
-----------------------------------------------------------------------------------------------------
BANKS 1,400,000 Banco Itau SA (Preferred).................... 132,821 0.1
-----------------------------------------------------------------------------------------------------
EQUITY BASKET 8,000 MSCI Brazil OPALS(f)......................... 376,560 0.3
-----------------------------------------------------------------------------------------------------
TOBACCO 16,500 Souza Cruz SA(d)............................. 72,769 0.0
-----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN BRAZIL 672,870 0.5
- ----------------------------------------------------------------------------------------------------------------------------
MEXICO INSURANCE 1,538,000 United Mexican States (Value Recovery
Rights)(g)................................. 15 0.0
-----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN MEXICO 15 0.0
-----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN LATIN AMERICA
(COST--$735,655) 672,885 0.5
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NORTH AMERICA
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CANADA AEROSPACE & 15,300 Bombardier Inc. 'B'.......................... 235,816 0.2
DEFENSE 9,280 CAE, Inc.(d)................................. 150,754 0.1
------------ -----
386,570 0.3
-----------------------------------------------------------------------------------------------------
BANKS 4,090 Bank of Montreal............................. 214,031 0.2
7,640 Royal Bank of Canada......................... 258,651 0.2
2,330 The Toronto-Dominion Bank.................... 67,402 0.0
------------ -----
540,084 0.4
-----------------------------------------------------------------------------------------------------
COMMUNICATIONS 34,000 Nortel Networks Corporation.................. 1,092,210 0.8
EQUIPMENT
-----------------------------------------------------------------------------------------------------
DIVERSIFIED 10,860 C.I. Fund Management Inc.(d)................. 118,939 0.1
FINANCIALS
-----------------------------------------------------------------------------------------------------
ELECTRIC 6,260 TransAlta Corporation........................ 91,691 0.0
UTILITIES
-----------------------------------------------------------------------------------------------------
ELECTRONIC 2,660 Celestica Inc.(d)............................ 143,449 0.1
EQUIPMENT &
INSTRUMENTS
-----------------------------------------------------------------------------------------------------
FOOD & DRUG 5,470 Sobeys Inc. ................................. 91,045 0.1
RETAILING
-----------------------------------------------------------------------------------------------------
GOLD PRODUCERS 14,000 Barrick Gold Corporation..................... 229,387 0.2
-----------------------------------------------------------------------------------------------------
INSURANCE 7,100 Sun Life Financial Services of Canada........ 189,081 0.1
-----------------------------------------------------------------------------------------------------
MEDIA 6,700 The Thomson Corporation...................... 256,045 0.2
-----------------------------------------------------------------------------------------------------
OIL & GAS 5,950 Anderson Exploration Ltd.(d)................. 134,885 0.1
4,030 Canadian Hunter Exploration Ltd.(d).......... 110,275 0.1
------------ -----
245,160 0.2
-----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN NORTH AMERICA
(COST--$3,293,453) 3,383,661 2.5
- ----------------------------------------------------------------------------------------------------------------------------
PACIFIC BASIN
- ----------------------------------------------------------------------------------------------------------------------------
AUSTRALIA BANKS 25,000 National Australia Bank Limited.............. 400,243 0.3
32,000 Suncorp-Metway Limited....................... 191,641 0.1
16,000 Westpac Banking Corporation Limited.......... 117,310 0.1
------------ -----
709,194 0.5
-----------------------------------------------------------------------------------------------------
DIVERSIFIED 14,000 Lend Lease Corporation Limited............... 130,234 0.1
FINANCIALS
-----------------------------------------------------------------------------------------------------
HOLDING COMPANY 96,000 Southcorp Limited............................ 261,081 0.2
-----------------------------------------------------------------------------------------------------
INSURANCE 37,000 AMP Limited.................................. 415,762 0.3
32,000 QBE Insurance Group Limited.................. 175,868 0.1
------------ -----
591,630 0.4
-----------------------------------------------------------------------------------------------------
197
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MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INTERNATIONAL EQUITY FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2000 (CONTINUED) (IN US DOLLARS)
- --------------------------------------------------------------------------------
PACIFIC BASIN SHARES PERCENT OF
(CONTINUED) INDUSTRY HELD INVESTMENTS VALUE NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------------
AUSTRALIA MEDIA 19,200 The News Corporation Limited................. $ 149,372 0.1%
(CONCLUDED)
61,440 The News Corporation Limited (Preferred)..... 437,020 0.3
36,000 Publishing & Broadcasting Limited............ 261,008 0.2
------------ -----
847,400 0.6
-----------------------------------------------------------------------------------------------------
METALS & 7,000 OneSteel Limited(d).......................... 3,695 0.0
MINING 90,000 WMC Limited.................................. 382,950 0.3
------------ -----
386,645 0.3
-----------------------------------------------------------------------------------------------------
OIL & GAS 80,000 Santos Limited............................... 267,625 0.2
-----------------------------------------------------------------------------------------------------
REAL ESTATE 16,960 Westfield Holdings Limited................... 126,781 0.1
-----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN AUSTRALIA 3,320,590 2.4
- ----------------------------------------------------------------------------------------------------------------------------
CHINA BANKS 74,000 Citic Pacific Limited........................ 262,324 0.2
-----------------------------------------------------------------------------------------------------
WIRELESS 17,000 China Mobile (Hong Kong) Limited
TELECOMMUNICATION (ADR)(a)(d)................................ 461,125 0.3
SERVICES
-----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN CHINA 723,449 0.5
- ----------------------------------------------------------------------------------------------------------------------------
HONG KONG REAL ESTATE 60,000 Cheung Kong (Holdings) Ltd. ................. 767,318 0.6
42,000 Sun Hung Kai Properties Ltd. ................ 418,659 0.3
-----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN HONG KONG 1,185,977 0.9
- ----------------------------------------------------------------------------------------------------------------------------
JAPAN AUTO 34,000 Futaba Industrial Co., Ltd. ................. 406,988 0.3
COMPONENTS 106,000 Sanden Corporation 492,872 0.4
------------ -----
899,860 0.7
-----------------------------------------------------------------------------------------------------
AUTOMOBILES 115,000 Fuji Heavy Industries, Ltd. ................. 698,862 0.5
16,000 Honda Motor Co., Ltd. ....................... 596,848 0.4
------------ -----
1,295,710 0.9
-----------------------------------------------------------------------------------------------------
BANKS 53,000 The 77 Bank, Ltd. ........................... 302,128 0.2
11,550 Aiful Corporation............................ 943,621 0.7
68,000 The Gunma Bank Ltd. ......................... 332,855 0.3
58,000 The Sumitomo Bank, Ltd. ..................... 595,744 0.4
180,000 The Tokai Bank Ltd. ......................... 780,210 0.6
104,000 The Toyo Trust & Banking Co., Ltd. .......... 327,846 0.2
------------ -----
3,282,404 2.4
-----------------------------------------------------------------------------------------------------
BEVERAGES 94,000 Asahi Breweries Limited...................... 958,932 0.7
-----------------------------------------------------------------------------------------------------
BUILDING 45,000 Tostem Corporation........................... 559,151 0.4
PRODUCTS
-----------------------------------------------------------------------------------------------------
CHEMICALS 103,000 Asahi Chemical Industry Co., Ltd. ........... 593,468 0.4
85,000 Kaneka Corporation........................... 804,597 0.6
17,000 Shin-Etsu Chemical Co., Ltd. ................ 654,991 0.5
------------ -----
2,053,056 1.5
-----------------------------------------------------------------------------------------------------
CLOSED END 35,000 Atlantis Japan Growth Fund................... 297,500 0.2
INVESTMENT FUND
-----------------------------------------------------------------------------------------------------
COMMERCIAL 10,000 Secom Co., Ltd. ............................. 652,364 0.5
SERVICES &
SUPPLIES
-----------------------------------------------------------------------------------------------------
COMMUNICATIONS 4,800 Matsushita Communication Industrial Co.,
EQUIPMENT Ltd. ...................................... 603,152 0.4
-----------------------------------------------------------------------------------------------------
COMPUTERS & 133,000 Toshiba Corporation.......................... 889,772 0.7
PERIPHERALS
-----------------------------------------------------------------------------------------------------
DIVERSIFIED 6,900 Takefuji Corporation......................... 435,026 0.3
FINANCIALS
-----------------------------------------------------------------------------------------------------
DIVERSIFIED 135 Nippon Telegraph & Telephone Corporation
TELECOMMUNICATION (NTT)...................................... 972,898 0.7
SERVICES
-----------------------------------------------------------------------------------------------------
198
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MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INTERNATIONAL EQUITY FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2000 (CONTINUED) (IN US DOLLARS)
- --------------------------------------------------------------------------------
PACIFIC BASIN SHARES PERCENT OF
(CONTINUED) INDUSTRY HELD INVESTMENTS VALUE NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------------
JAPAN ELECTRICAL 18,000 Honda Tsushin Kogyo Co., Ltd................. $ 395,622 0.3%
(CONCLUDED)
EQUIPMENT 110,000 Mitsubishi Electric Corporation.............. 677,145 0.5
------------ -----
1,072,767 0.8
-----------------------------------------------------------------------------------------------------
ELECTRONIC 85 Hakuto Company Ltd. ......................... 2,397 0.0
EQUIPMENT & 20 Keyence Corporation.......................... 4,904 0.0
INSTRUMENTS 7,900 TDK Corporation.............................. 769,247 0.6
88,000 Toko, Inc. .................................. 426,130 0.3
------------ -----
1,202,678 0.9
-----------------------------------------------------------------------------------------------------
FOOD PRODUCTS 27,200 Katokichi Co., Ltd. ......................... 714,536 0.5
-----------------------------------------------------------------------------------------------------
HEALTH CARE 27,000 Fukuda Denshi Co., Ltd. ..................... 517,776 0.4
EQUIPMENT &
SUPPLIES
-----------------------------------------------------------------------------------------------------
HOUSEHOLD 49,000 Sharp Corporation............................ 591,261 0.4
DURABLES 18,900 Sony Corporation............................. 1,307,443 1.0
------------ -----
1,898,704 1.4
-----------------------------------------------------------------------------------------------------
HOUSEHOLD 24,000 Kao Corporation.............................. 697,723 0.5
PRODUCTS
-----------------------------------------------------------------------------------------------------
INTERNET 3,000 Trend Micro Incorporated(d).................. 217,250 0.2
SOFTWARE &
SERVICES
-----------------------------------------------------------------------------------------------------
MACHINERY 11,000 Fanuc Ltd. .................................. 748,424 0.6
74,000 Minebea Company Ltd. ........................ 685,569 0.5
56,000 Nippon Thompson Co., Ltd. ................... 420,736 0.3
------------ -----
1,854,729 1.4
-----------------------------------------------------------------------------------------------------
MEDIA 30,200 Aoi Advertising Promotion Inc. .............. 264,448 0.2
20,400 Asatsu-Dk Inc. .............................. 491,243 0.4
37 Fuji Television Network, Incorporated........ 257,898 0.2
14,000 Nippon Broadcasting System, Incorporated..... 529,597 0.4
------------ -----
1,543,186 1.2
-----------------------------------------------------------------------------------------------------
MULTILINE RETAIL 8,000 Ito-Yokado Co., Ltd. ........................ 399,299 0.3
34,000 Uny Co., Ltd. ............................... 363,222 0.3
------------ -----
762,521 0.6
-----------------------------------------------------------------------------------------------------
OFFICE 35,000 Ricoh Co., Ltd. ............................. 646,673 0.5
ELECTRONICS
-----------------------------------------------------------------------------------------------------
PHARMACEUTICALS 22,000 Fujisawa Pharmaceutical Co., Ltd. ........... 728,196 0.5
43,000 Kissei Pharmaceutical Co., Ltd. ............. 850,963 0.6
14,000 Takeda Chemical Industries, Ltd. ............ 828,722 0.6
------------ -----
2,407,881 1.7
-----------------------------------------------------------------------------------------------------
SEMICONDUCTOR 4,800 Rohm Company Ltd. ........................... 912,084 0.7
EQUIPMENT &
PRODUCTS
-----------------------------------------------------------------------------------------------------
SOFTWARE 470 Miroku Jyoho Service Co., Ltd. .............. 3,412 0.0
21,700 Square Co., Ltd. ............................ 560,552 0.4
------------ -----
563,964 0.4
-----------------------------------------------------------------------------------------------------
TEXTILES & 28,000 HIMIKO Co., Ltd. ............................ 291,769 0.2
APPAREL
-----------------------------------------------------------------------------------------------------
TRADING 101,000 Mitsubishi Corporation....................... 744,676 0.5
COMPANIES &
DISTRIBUTORS
-----------------------------------------------------------------------------------------------------
WIRELESS 68 NTT Mobile Communications Network, Inc. ..... 1,173,030 0.9
TELECOMMUNICATION
SERVICES
-----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN JAPAN 30,121,772 22.2
- ----------------------------------------------------------------------------------------------------------------------------
199
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INTERNATIONAL EQUITY FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2000 (CONTINUED) (IN US DOLLARS)
- --------------------------------------------------------------------------------
PACIFIC BASIN SHARES PERCENT OF
(CONCLUDED) INDUSTRY HELD INVESTMENTS VALUE NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------------
MALAYSIA BANKS 285 Rashid Hussain BHD (Warrants)(c)............. $ 30 0.0%
-----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN MALAYSIA 30 0.0
- ----------------------------------------------------------------------------------------------------------------------------
NEW ZEALAND DIVERSIFIED 160,000 Telecom Corporation of New Zealand Limited... 339,840 0.3
TELECOMMUNICATION
SERVICES
-----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN NEW ZEALAND 339,840 0.3
- ----------------------------------------------------------------------------------------------------------------------------
SINGAPORE BANKS 42,000 DBS Group Holdings Limited................... 474,740 0.3
-----------------------------------------------------------------------------------------------------
COMPUTERS & 9,000 Creative Technology Limited.................. 102,249 0.1
PERIPHERALS
-----------------------------------------------------------------------------------------------------
DIVERSIFIED 75,000 Keppel Corporation Ltd. ..................... 146,194 0.1
FINANCIALS
-----------------------------------------------------------------------------------------------------
EQUITY BASKET 21,400 MSCI Singapore OPALS 'B'(f).................. 923,196 0.7
-----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SINGAPORE 1,646,379 1.2
- ----------------------------------------------------------------------------------------------------------------------------
SOUTH KOREA SEMICONDUCTOR 5,600 Samsung Electronics (GDR)(b)(e).............. 396,200 0.3
EQUIPMENT &
PRODUCTS
-----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SOUTH KOREA 396,200 0.3
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN THE PACIFIC BASIN
(COST--$43,158,980) 37,734,237 27.8
- ----------------------------------------------------------------------------------------------------------------------------
WESTERN
EUROPE
- ----------------------------------------------------------------------------------------------------------------------------
DENMARK MARINE 75 D/S 1912 'B' 650,952 0.5
-----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN DENMARK 650,952 0.5
- ----------------------------------------------------------------------------------------------------------------------------
FINLAND COMMUNICATIONS 62,000 Nokia Oyj.................................... 2,765,061 2.0
EQUIPMENT
-----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN FINLAND 2,765,061 2.0
- ----------------------------------------------------------------------------------------------------------------------------
FRANCE AUTO COMPONENTS 14,000 Compagnie Generale des Etablissements
Michelin 'B'............................... 506,724 0.4
-----------------------------------------------------------------------------------------------------
AUTOMOBILES 4,600 PSA Peugeot Citroen.......................... 1,046,479 0.8
-----------------------------------------------------------------------------------------------------
BANKS 7,200 Banque Nationale de Paris (BNP).............. 632,067 0.5
14,000 Societe Generale 'A'......................... 870,173 0.6
------------ -----
1,502,240 1.1
-----------------------------------------------------------------------------------------------------
COMMUNICATIONS 21,600 Alcatel...................................... 1,226,955 0.9
EQUIPMENT
-----------------------------------------------------------------------------------------------------
DIVERSIFIED 11,000 France Telecom SA............................ 949,650 0.7
TELECOMMUNICATION
SERVICES
-----------------------------------------------------------------------------------------------------
ELECTRICAL 10,600 Schneider SA................................. 773,297 0.6
EQUIPMENT
-----------------------------------------------------------------------------------------------------
ENERGY EQUIPMENT 2,000 Coflexip..................................... 254,254 0.2
& SERVICES
-----------------------------------------------------------------------------------------------------
FOOD & DRUG 11,700 Carrefour SA................................. 734,905 0.5
RETAILING
-----------------------------------------------------------------------------------------------------
FOOD PRODUCTS 3,800 Groupe Danone................................ 572,992 0.4
-----------------------------------------------------------------------------------------------------
INSURANCE 8,000 Axa.......................................... 1,156,725 0.9
-----------------------------------------------------------------------------------------------------
MEDIA 4,600 Lagardere S.C.A. ............................ 266,910 0.2
-----------------------------------------------------------------------------------------------------
METALS & MINING 7,000 Pechiney SA 'A'.............................. 320,005 0.3
44,000 Usinor SA.................................... 580,841 0.4
------------ -----
900,846 0.7
-----------------------------------------------------------------------------------------------------
MULTI-UTILITIES 4,000 Suez Lyonnaise des Eaux SA................... 730,464 0.5
-----------------------------------------------------------------------------------------------------
200
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INTERNATIONAL EQUITY FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2000 (CONTINUED) (IN US DOLLARS)
- --------------------------------------------------------------------------------
SHARES
WESTERN HELD/
EUROPE FACE PERCENT OF
(CONTINUED) INDUSTRY AMOUNT INVESTMENTS VALUE NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------------
FRANCE MULTILINE RETAIL 4,000 Pinault-Printemps-Redoute SA................. $ 859,657 0.6%
(CONCLUDED)
-----------------------------------------------------------------------------------------------------
OIL & GAS 10,000 Total Fina SA 'B'............................ 1,487,218 1.1
-----------------------------------------------------------------------------------------------------
PHARMACEUTICALS 10,000 Aventis SA................................... 877,872 0.6
5,500 Sanofi-Synthelabo SA......................... 366,640 0.3
------------ -----
1,244,512 0.9
-----------------------------------------------------------------------------------------------------
UTILITIES--WATER 10,000 Vivendi Universal SA......................... 658,169 0.5
-----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN FRANCE 14,871,997 11.0
- ----------------------------------------------------------------------------------------------------------------------------
GERMANY AIRLINES 40,000 Deutsche Lufthansa AG (Registered Shares).... 1,013,636 0.8
-----------------------------------------------------------------------------------------------------
BANKS 15,400 HypoVereinsbank.............................. 864,652 0.6
-----------------------------------------------------------------------------------------------------
CHEMICALS 13,000 Bayer AG..................................... 684,740 0.5
-----------------------------------------------------------------------------------------------------
DIVERSIFIED 28,000 Deutsche Telekom AG (Registered Shares)...... 843,883 0.6
TELECOMMUNICATION
SERVICES
-----------------------------------------------------------------------------------------------------
FOREIGN E2,020,000 Bundesrepublic Deutschland, 5.25% due
GOVERNMENT 7/04/2010.................................. 1,956,643 1.4
OBLIGATIONS
-----------------------------------------------------------------------------------------------------
INDUSTRIAL 9,600 Preussag AG.................................. 347,919 0.2
CONGLOMERATES
5,800 Siemens AG................................... 758,303 0.6
------------ -----
1,106,222 0.8
-----------------------------------------------------------------------------------------------------
INSURANCE 2,400 Allianz AG (Registered Shares)............... 902,921 0.7
2,800 Muenchener Rueckversicherungs-Gesellschaft AG
(Registered Shares)........................ 998,990 0.7
------------ -----
1,901,911 1.4
-----------------------------------------------------------------------------------------------------
INVESTMENT 4,400 Marschollek, Lautenschlaeger und Partner
MANAGEMENT AG......................................... 481,280 0.4
-----------------------------------------------------------------------------------------------------
MULTI-UTILITIES 23,000 RWE AG....................................... 1,020,350 0.8
11,600 Veba AG...................................... 705,752 0.5
------------ -----
1,726,102 1.3
-----------------------------------------------------------------------------------------------------
SOFTWARE 2,800 SAP AG (Systeme, Anwendungen, Produkte in der
Datenverarbeitung)......................... 325,460 0.3
2,250 SAP AG (Systeme, Anwendungen, Produkte in der
Datenverarbeitung) (Preferred)............. 318,569 0.2
------------ -----
644,029 0.5
-----------------------------------------------------------------------------------------------------
TEXTILES & 12,000 Adidas-Salomon AG............................ 743,609 0.5
APPAREL
-----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN GERMANY 11,966,707 8.8
- ----------------------------------------------------------------------------------------------------------------------------
ITALY BANKS 74,000 Unicredito Italiano SpA...................... 386,996 0.3
-----------------------------------------------------------------------------------------------------
DIVERSIFIED 36,000 Telecom Italia SpA........................... 398,169 0.3
TELECOMMUNICATION
SERVICES
-----------------------------------------------------------------------------------------------------
ENERGY EQUIPMENT 54,000 Saipem SpA................................... 294,570 0.2
& SERVICES
-----------------------------------------------------------------------------------------------------
INSURANCE 30,000 Assicurazioni Generali....................... 1,191,464 0.9
-----------------------------------------------------------------------------------------------------
MEDIA 1,344 Seat Pagine Gialle SpA....................... 2,997 0.0
-----------------------------------------------------------------------------------------------------
WIRELESS 110,000 Telecom Italia Mobile (TIM) SpA.............. 877,872 0.6
TELECOMMUNICATION
SERVICES
-----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN ITALY 3,152,068 2.3
- ----------------------------------------------------------------------------------------------------------------------------
NETHERLANDS BANKS 48,000 ABN AMRO Holding NV.......................... 1,091,528 0.8
-----------------------------------------------------------------------------------------------------
CHEMICALS 7,500 Akzo Nobel NV................................ 402,788 0.3
-----------------------------------------------------------------------------------------------------
201
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INTERNATIONAL EQUITY FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2000 (CONTINUED) (IN US DOLLARS)
- --------------------------------------------------------------------------------
WESTERN
EUROPE SHARES PERCENT OF
(CONTINUED) INDUSTRY HELD INVESTMENTS VALUE NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------------
NETHERLANDS DIVERSIFIED 17,000 ING Groep NV................................. $ 1,357,987 1.0%
(CONCLUDED) FINANCIALS
-----------------------------------------------------------------------------------------------------
DIVERSIFIED 82,350 KPN NV....................................... 947,924 0.7
TELECOMMUNICATION
SERVICES
-----------------------------------------------------------------------------------------------------
ELECTRONIC 32,000 ASM Lithography Holding NV(d)................ 726,784 0.5
COMPONENTS
-----------------------------------------------------------------------------------------------------
FOODS 10,600 Koninklijke Ahold NV......................... 341,962 0.3
-----------------------------------------------------------------------------------------------------
HOUSEHOLD 16,000 Koninklijke (Royal) Philips Electronics
DURABLES NV(d)...................................... 586,174 0.4
-----------------------------------------------------------------------------------------------------
INSURANCE 28,000 Aegon NV..................................... 1,158,302 0.9
-----------------------------------------------------------------------------------------------------
MACHINERY 11,000 IHC Caland NV................................ 516,395 0.4
-----------------------------------------------------------------------------------------------------
OIL & GAS 33,500 Royal Dutch Petroleum Company................ 2,052,633 1.5
-----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN THE NETHERLANDS 9,182,477 6.8
- ----------------------------------------------------------------------------------------------------------------------------
NORWAY EQUITY BASKET 14,000 MSCI Norway OPALS 'B'(e)(f).................. 1,393,280 1.0
-----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN NORWAY 1,393,280 1.0
- ----------------------------------------------------------------------------------------------------------------------------
SPAIN BANKS 120,000 Banco Santander Central Hispano, SA.......... 1,284,415 0.9
-----------------------------------------------------------------------------------------------------
DIVERSIFIED 80,000 Telefonica SA(d)............................. 1,321,971 1.0
TELECOMMUNICATION
SERVICES
-----------------------------------------------------------------------------------------------------
ELECTRIC 54,000 Endesa SA.................................... 920,216 0.7
UTILITIES
-----------------------------------------------------------------------------------------------------
OIL & GAS 22,000 Repsol-YPF, SA............................... 351,562 0.3
-----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SPAIN 3,878,164 2.9
- ----------------------------------------------------------------------------------------------------------------------------
SWEDEN BANKS 34,000 Skandinaviska Enskilda Banken (SEB) 'A'...... 374,755 0.3
-----------------------------------------------------------------------------------------------------
COMMUNICATIONS 100,000 Telefonaktiebolaget LM Ericsson AB 'B'....... 1,139,314 0.8
EQUIPMENT
-----------------------------------------------------------------------------------------------------
EQUITY BASKET 2,000 MSCI Sweden OPALS 'B'(f)..................... 553,260 0.4
-----------------------------------------------------------------------------------------------------
MACHINERY 13,000 SKF AB 'B'................................... 196,333 0.1
-----------------------------------------------------------------------------------------------------
TOBACCO 160,000 Swedish Match AB............................. 624,026 0.5
-----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SWEDEN 2,887,688 2.1
- ----------------------------------------------------------------------------------------------------------------------------
SWITZERLAND BANKS 2,000 Credit Suisse Group (Registered Shares)...... 380,130 0.3
8,000 UBS AG (Registered).......................... 1,305,770 0.9
------------ -----
1,685,900 1.2
-----------------------------------------------------------------------------------------------------
CHEMICALS 843 Syngenta AG(d)............................... 45,258 0.0
-----------------------------------------------------------------------------------------------------
FOOD PRODUCTS 450 Nestle SA (Registered Shares)................ 1,049,676 0.8
-----------------------------------------------------------------------------------------------------
INSURANCE 500 Schweizerische Rueckversicherungs-
Gesellschaft (Registered Shares)........... 1,198,704 0.9
-----------------------------------------------------------------------------------------------------
PHARMACEUTICALS 860 Novartis AG (Registered Shares).............. 1,520,457 1.1
90 Roche Holding AG (Genuss).................... 916,939 0.7
------------ -----
2,437,396 1.8
-----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SWITZERLAND 6,416,934 4.7
- ----------------------------------------------------------------------------------------------------------------------------
UNITED KINGDOM AEROSPACE & 58,000 British Aerospace PLC........................ 330,966 0.3
DEFENSE
-----------------------------------------------------------------------------------------------------
BANKS 28,000 Abbey National PLC........................... 509,864 0.4
50,000 Bank of Scotland............................. 523,203 0.4
42,000 Barclays PLC................................. 1,299,965 0.9
80,000 HSBC Holdings PLC............................ 1,177,114 0.8
112,000 Lloyds TSB Group PLC......................... 1,184,524 0.9
26,000 Standard Chartered PLC....................... 374,600 0.3
------------ -----
5,069,270 3.7
-----------------------------------------------------------------------------------------------------
202
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INTERNATIONAL EQUITY FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2000 (CONTINUED) (IN US DOLLARS)
- --------------------------------------------------------------------------------
WESTERN
EUROPE SHARES PERCENT OF
(CONTINUED) INDUSTRY HELD INVESTMENTS VALUE NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------------
UNITED KINGDOM BEVERAGES 66,000 Allied Domecq PLC............................ $ 435,771 0.3%
(CONTINUED)
-----------------------------------------------------------------------------------------------------
BEVERAGES & 98,000 Cadbury Schweppes PLC........................ 677,797 0.5
TOBACCO
-----------------------------------------------------------------------------------------------------
BIOTECHNOLOGY 16,000 Celltech Group PLC(d)........................ 282,746 0.2
-----------------------------------------------------------------------------------------------------
CHEMICALS 26,000 BOC Group PLC................................ 394,991 0.3
42,000 Imperial Chemical Industries PLC............. 346,323 0.3
------------ -----
741,314 0.6
-----------------------------------------------------------------------------------------------------
COMMERCIAL 124,000 Shanks & McEwan Group PLC.................... 421,401 0.3
SERVICES &
SUPPLIES
-----------------------------------------------------------------------------------------------------
COMMUNICATIONS 70,000 Marconi PLC.................................. 751,830 0.6
EQUIPMENT
-----------------------------------------------------------------------------------------------------
CONSTRUCTION 16,000 RMC Group PLC................................ 140,776 0.1
MATERIALS
-----------------------------------------------------------------------------------------------------
CONTAINERS & 96,000 Rexam PLC.................................... 322,661 0.2
PACKAGING
-----------------------------------------------------------------------------------------------------
CRUISE LINES 80,000 P&O Princess Cruises PLC(d).................. 338,196 0.2
-----------------------------------------------------------------------------------------------------
DIVERSIFIED 118,000 British Telecommunications PLC............... 1,008,255 0.7
TELECOMMUNICATION
SERVICES
-----------------------------------------------------------------------------------------------------
ELECTRIC 54,000 British Energy PLC (Deferred Shares)......... 1 0.0
UTILITIES
84,000 International Power PLC(d)................... 314,953 0.2
40,000 National Grid Group PLC...................... 363,591 0.3
------------ -----
678,545 0.5
-----------------------------------------------------------------------------------------------------
FOOD & DRUG 80,000 J Sainsbury PLC.............................. 474,431 0.4
RETAILING
-----------------------------------------------------------------------------------------------------
GAS UTILITIES 80,000 BG Group PLC................................. 313,100 0.2
60,000 Centrica PLC................................. 232,361 0.2
------------ -----
545,461 0.4
-----------------------------------------------------------------------------------------------------
HOTELS, 36,000 Bass PLC..................................... 392,033 0.3
RESTAURANTS &
LEISURE
62,000 Granada Compass PLC.......................... 674,705 0.5
------------ -----
1,066,738 0.8
-----------------------------------------------------------------------------------------------------
HOUSEHOLD 35,000 The Berkeley Group PLC....................... 392,645 0.3
DURABLES
-----------------------------------------------------------------------------------------------------
INDUSTRIAL 100,000 Rentokil Initial PLC......................... 345,068 0.3
CONGLOMERATES
-----------------------------------------------------------------------------------------------------
INSURANCE 30,000 CGNU PLC..................................... 484,887 0.4
160,000 Legal & General Group PLC.................... 440,970 0.3
46,000 Prudential Corporation PLC................... 740,058 0.5
50,000 Royal & Sun Alliance Insurance Group PLC..... 427,974 0.3
------------ -----
2,093,889 1.5
-----------------------------------------------------------------------------------------------------
INTERNET & 80,000 The Great Universal Stores PLC............... 627,994 0.5
CATALOG RETAIL
-----------------------------------------------------------------------------------------------------
MACHINERY 150,000 Invensys PLC................................. 350,670 0.3
-----------------------------------------------------------------------------------------------------
MEDIA 37,000 EMI Group PLC................................ 303,988 0.2
16,000 Reuters Group PLC............................ 270,796 0.2
------------ -----
574,784 0.4
-----------------------------------------------------------------------------------------------------
METALS & MINING 6,000 Anglo American PLC........................... 330,727 0.2
-----------------------------------------------------------------------------------------------------
MULTILINE RETAIL 300,000 Marks & Spencer PLC.......................... 833,540 0.6
-----------------------------------------------------------------------------------------------------
203
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INTERNATIONAL EQUITY FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2000 (CONTINUED) (IN US DOLLARS)
- --------------------------------------------------------------------------------
WESTERN
EUROPE SHARES PERCENT OF
(CONCLUDED) INDUSTRY HELD INVESTMENTS VALUE NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------------
UNITED KINGDOM OIL & GAS 360,000 BP Amoco PLC................................. $ 2,903,947 2.1%
(CONCLUDED)
30,000 Enterprise Oil PLC........................... 254,095 0.2
------------ -----
3,158,042 2.3
-----------------------------------------------------------------------------------------------------
PHARMACEUTICALS 17,000 AstraZeneca Group PLC........................ 857,068 0.6
86,416 GlaxoSmithKline PLC(d)....................... 2,439,767 1.8
12,800 Shire Pharmaceuticals Group PLC(d)........... 201,723 0.2
------------ -----
3,498,558 2.6
-----------------------------------------------------------------------------------------------------
REAL ESTATE 160,000 The British Land Company PLC................. 1,135,288 0.8
34,000 Canary Wharf Finance PLC(d).................. 247,597 0.2
------------ -----
1,382,885 1.0
-----------------------------------------------------------------------------------------------------
SERVICES 36,000 Serco Group PLC.............................. 287,706 0.2
-----------------------------------------------------------------------------------------------------
SPECIALTY RETAIL 120,000 Dixons Group PLC............................. 401,533 0.3
-----------------------------------------------------------------------------------------------------
TOBACCO 54,000 British American Tobacco PLC................. 411,191 0.3
-----------------------------------------------------------------------------------------------------
WIRELESS 1,100,000 Vodafone AirTouch PLC........................ 4,034,007 3.0
TELECOMMUNICATION
SERVICES
-----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN THE UNITED KINGDOM 32,009,397 23.6
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN WESTERN EUROPE
(COST--$88,510,597) 89,174,725 65.7
- ----------------------------------------------------------------------------------------------------------------------------
SHORT-TERM FACE
SECURITIES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------------
COMMERCIAL US$3,260,000
PAPER*
General Motors Acceptance Corp., 6.75% due
1/02/2001.................................. 3,257,555 2.4
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN COMMERCIAL PAPER 3,257,555 2.4
- ----------------------------------------------------------------------------------------------------------------------------
US GOVERNMENT
OBLIGATIONS*
US Treasury Bills(h):
500,000 6.18% due 2/22/2001........................ 495,985 0.3
250,000 5.92% due 3/08/2001........................ 247,413 0.2
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN US GOVERNMENT
OBLIGATIONS.................................. 743,398 0.5
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SHORT-TERM SECURITIES
(COST--$3,999,998) 4,000,953 2.9
- ----------------------------------------------------------------------------------------------------------------------------
NOMINAL
VALUE
COVERED
OPTIONS BY OPTIONS
PURCHASED PURCHASED ISSUE
- ----------------------------------------------------------------------------------------------------------------------------
CURRENCY PUT 4,000,000
OPTIONS
PURCHASED
Japanese Yen, expiring February 2001 at
Y110....................................... 138,080 0.1
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL OPTIONS PURCHASED
(PREMIUMS PAID--$30,800) 138,080 0.1
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (COST--$139,729,483)....... 135,104,541 99.5
VARIATION MARGIN ON FINANCIAL FUTURES
CONTRACTS**.................................. 8,085 0.0
UNREALIZED APPRECIATION ON FORWARD FOREIGN
EXCHANGE CONTRACTS***........................ 234,329 0.2
OTHER ASSETS LESS LIABILITIES................ 430,522 0.3
------------ -----
NET ASSETS................................... $135,777,477 100.0%
============ =====
- ----------------------------------------------------------------------------------------------------------------------------
(a) American Depositary Receipts (ADR).
(b) Global Depositary Receipts (GDR).
(c) Warrants entitle the Fund to purchase a predetermined number of shares of
common stock and are non-income producing. The purchase price and number of
shares are subject to adjustment under certain conditions until the expiration
date.
(d) Non-income producing security.
(e) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
204
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INTERNATIONAL EQUITY FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2000 (CONCLUDED) (IN US DOLLARS)
- --------------------------------------------------------------------------------
(f) Optimized Portfolio As Listed Securities (OPALS) are investments that are
exchange quoted and provide an equivalent investment exposure to that of the
specific Morgan Stanley Capital International (MSCI) country index.
(g) The rights may be exercised until 6/30/2003.
(h) Securities held as collateral in connection with open financial futures
contracts.
* Commercial Paper and certain US Government Obligations are traded on a
discount basis; the interest rates shown reflect the discount rates paid at the
time of purchase by the Fund.
** Financial futures contracts purchased as of December 31, 2000 were as
follows:
- -----------------------------------------------------------------------------
NUMBER OF EXPIRATION
CONTRACTS ISSUE EXCHANGE DATE VALUE
- -----------------------------------------------------------------------------
8 FT-SE 100 LIFFE March 2001 $ 741,044
12 Hang Seng SIMEX January 2001 1,166,169
14 Taiwan MSCI SIMEX January 2001 310,520
- -----------------------------------------------------------------------------
TOTAL FINANCIAL FUTURES CONTRACTS PURCHASED (TOTAL CONTRACT
PRICE--$2,211,143) $2,217,733
==========
- -----------------------------------------------------------------------------
Financial futures contracts sold as of December 31, 2000 were as follows:
- -----------------------------------------------------------------------------
NUMBER OF EXPIRATION
CONTRACTS ISSUE EXCHANGE DATE VALUE
- -----------------------------------------------------------------------------
10 Nikkei 225 SIMEX March 2001 $ 602,890
13 CAC 40 MATIF January 2001 726,849
- -----------------------------------------------------------------------------
TOTAL FINANCIAL FUTURES CONTRACTS SOLD (TOTAL CONTRACT
PRICE--$1,364,031) $1,329,739
==========
- -----------------------------------------------------------------------------
*** Forward foreign exchange contracts as of December 31, 2000 were as follows:
- -----------------------------------------------------------------------------
FOREIGN CURRENCY EXPIRATION UNREALIZED
PURCHASED DATE APPRECIATION
- -----------------------------------------------------------------------------
E 4,620,616 January 2001 $ 230,775
- -----------------------------------------------------------------------------
(US$ Commitment--$4,110,502) $ 230,775
----------
- -----------------------------------------------------------------------------
FOREIGN CURRENCY
SOLD
- -----------------------------------------------------------------------------
A$ 2,692,515 January 2001 $ 3,554
- -----------------------------------------------------------------------------
(US$ Commitment--$1,500,000) $ 3,554
----------
- -----------------------------------------------------------------------------
UNREALIZED APPRECIATION ON FORWARD FOREIGN
EXCHANGE CONTRACTS--NET $ 234,329
==========
- -----------------------------------------------------------------------------
See Notes to Financial Statements.
205
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INTERNATIONAL EQUITY FOCUS FUND
STATEMENT OF ASSETS AND LIABILITIES AS OF DECEMBER 31, 2000
- --------------------------------------------------------------------------------
ASSETS:
Investments, at value (identified cost--$139,698,683)....... $134,966,461
Options purchased, at value (cost--$30,800)................. 138,080
Unrealized appreciation on forward foreign exchange
contracts................................................. 234,329
Cash........................................................ 4,438
Foreign cash................................................ 197,525
Receivables:
Securities sold........................................... $ 520,139
Dividends................................................. 322,585
Interest.................................................. 65,153
Variation margin.......................................... 8,085
Capital shares sold....................................... 2,724 918,686
----------
Prepaid expenses............................................ 8,520
------------
Total assets................................................ 136,468,039
------------
- ---------------------------------------------------------------------------------------
LIABILITIES:
Payables:
Securities purchased...................................... 455,159
Capital shares redeemed................................... 101,800
Investment adviser........................................ 77,622 634,581
----------
Accrued expenses and other liabilities...................... 55,981
------------
Total liabilities........................................... 690,562
------------
- ---------------------------------------------------------------------------------------
NET ASSETS.................................................. $135,777,477
============
- ---------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Class A Shares of Common Stock, $.10 par value, 100,000,000
shares authorized+........................................ $ 1,249,700
Paid-in capital in excess of par............................ 143,058,536
Undistributed investment income--net........................ 252,741
Accumulated realized capital losses on investments and
foreign currency transactions--net........................ (134,678)
Accumulated distributions in excess of realized capital
gains on investments and foreign currency
transactions--net......................................... (4,327,721)
Unrealized depreciation on investments and foreign currency
transactions--net......................................... (4,321,101)
------------
NET ASSETS.................................................. $135,777,477
============
- ---------------------------------------------------------------------------------------
NET ASSET VALUE:
Class A--Based on net assets of $135,777,477 and 12,496,998
shares outstanding........................................ $ 10.86
============
- ---------------------------------------------------------------------------------------
+ The Fund is also authorized to issue 100,000,000 Class B Shares.
See Notes to Financial Statements.
206
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INTERNATIONAL EQUITY FOCUS FUND
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2000
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends (net of $288,075 foreign withholding tax)......... $ 2,934,223
Interest and discount earned................................ 516,981
Other income................................................ 9,038
------------
Total income................................................ 3,460,242
------------
- -----------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees.................................... $ 1,259,320
Custodian fees.............................................. 142,167
Professional fees........................................... 32,479
Interest rate swap expense.................................. 26,048
Accounting services......................................... 25,278
Printing and shareholder reports............................ 10,103
Transfer agent fees......................................... 5,031
Directors' fees and expenses................................ 3,628
------------
Total expenses.............................................. 1,504,054
------------
Investment income--net...................................... 1,956,188
------------
- -----------------------------------------------------------------------------------------
REALIZED & UNREALIZED GAIN (LOSS) ON INVESTMENTS & FOREIGN
CURRENCY TRANSACTIONS--NET:
Realized gain (loss) on:
Investments--net.......................................... 6,351,540
Foreign currency transactions--net........................ (122,164) 6,229,376
------------
Change in unrealized appreciation/depreciation on:
Investments--net.......................................... (40,007,643)
Foreign currency transactions--net........................ 487,890 (39,519,753)
------------ ------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $(31,334,189)
============
- -----------------------------------------------------------------------------------------
See Notes to Financial Statements.
207
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INTERNATIONAL EQUITY FOCUS FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED
DECEMBER 31,
----------------------------
INCREASE (DECREASE) IN NET ASSETS: 2000 1999
- ------------------------------------------------------------------------------------------
OPERATIONS:
Investment income--net...................................... $ 1,956,188 $ 2,466,795
Realized gain on investments and foreign currency
transactions--net......................................... 6,229,376 27,762,316
Change in unrealized appreciation/depreciation on
investments and foreign currency transactions--net........ (39,519,753) 28,190,034
------------ ------------
Net increase (decrease) in net assets resulting from
operations................................................ (31,334,189) 58,419,145
------------ ------------
- ------------------------------------------------------------------------------------------
DIVIDENDS & DISTRIBUTIONS TO SHAREHOLDERS:
Investment income--net:
Class A................................................... (1,364,978) (9,348,952)
In excess of investment income--net:
Class A................................................... -- (211,899)
Realized gain on investments--net:
Class A................................................... (2,631,145) --
In excess of realized gain on investments--net:
Class A................................................... (4,327,721) --
------------ ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders............................. (8,323,844) (9,560,851)
------------ ------------
- ------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Net decrease in net assets derived from capital share
transactions.............................................. (23,483,833) (43,395,754)
------------ ------------
- ------------------------------------------------------------------------------------------
NET ASSETS:
Total increase (decrease) in net assets..................... (63,141,866) 5,462,540
Beginning of year........................................... 198,919,343 193,456,803
------------ ------------
End of year*................................................ $135,777,477 $198,919,343
============ ============
- ------------------------------------------------------------------------------------------
* Undistributed (accumulated distributions in excess of)
investment income--net.................................... $ 252,741 $ (473,147)
============ ============
- ------------------------------------------------------------------------------------------
See Notes to Financial Statements.
208
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INTERNATIONAL EQUITY FOCUS FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE BEEN DERIVED
FROM INFORMATION PROVIDED IN THE FINANCIAL STATEMENTS. CLASS A+
--------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------
INCREASE (DECREASE) IN NET ASSET VALUE: 2000 1999 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year....................... $ 13.99 $ 10.68 $ 10.80 $ 11.63 $ 11.06
-------- -------- -------- -------- --------
Investment income--net................................... .15 .16 .21 .20 .23
Realized and unrealized gain (loss) on investments and
foreign currency transactions--net..................... (2.58) 3.71 .56 (.71) .49
-------- -------- -------- -------- --------
Total from investment operations......................... (2.43) 3.87 .77 (.51) .72
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net................................. (.11) (.55) (.09) (.23) (.15)
In excess of investment income--net.................... -- (.01) -- -- --
Realized gain on investments--net...................... (.22) -- (.03) (.09) --
In excess of realized gain on investments--net......... (.37) -- (.77) -- --
-------- -------- -------- -------- --------
Total dividends and distributions........................ (.70) (.56) (.89) (.32) (.15)
-------- -------- -------- -------- --------
Net asset value, end of year............................. $ 10.86 $ 13.99 $ 10.68 $ 10.80 $ 11.63
======== ======== ======== ======== ========
- -------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:*
Based on net asset value per share....................... (17.28%) 37.63% 7.80% (4.55%) 6.62%
======== ======== ======== ======== ========
- -------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses................................................. .89% .92% .89% .90% .89%
======== ======== ======== ======== ========
Investment income--net................................... 1.16% 1.36% 2.03% 1.69% 1.96%
======== ======== ======== ======== ========
- -------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of year (in thousands)................... $135,777 $198,919 $193,457 $425,223 $349,080
======== ======== ======== ======== ========
Portfolio turnover....................................... 154.06% 154.72% 126.23% 127.96% 49.87%
======== ======== ======== ======== ========
- -------------------------------------------------------------------------------------------------------------------
*Total investment returns exclude insurance-related fees and expenses.
+Based on average shares outstanding.
See Notes to Financial Statements.
209
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INTERNATIONAL EQUITY 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 is comprised of 20 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. International Equity 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 conformity with accounting
principles generally accepted in the United States of America, which may require
the use of management accruals and estimates. 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). Futures contracts are valued at the
settlement price at the close of the applicable exchange. Short-term securities
are valued at amortized cost, which approximates market value. Securities and
assets for which market quotations are not readily available are valued at fair
value as determined in good faith by or under the direction of the Board of
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.
- - Equity swaps--The Fund is authorized to enter into equity swap agreements,
which are over-the-counter contracts in which one party agrees to make periodic
payments based on the change in market value of a specified equity security,
basket of equity securities or equity index in return for periodic payments
based on a fixed or variable interest rate of the change in market value of a
different equity security, basket of equity securities or equity index. Swap
agreements may be used to obtain exposure to an equity or market without owning
or taking physical custody of securities in circumstances in which direct
investment is restricted by local law or is otherwise impractical.
- - 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 non-income producing investments.
- - Financial futures contracts--The Fund may purchase or sell financial futures
contracts and options on such futures contracts for the pur-
210
- --------------------------------------------------------------------------------
pose of hedging the market risk on existing securities or the intended purchase
of securities. Futures contracts are contracts for delayed delivery of
securities at a specific future date and at a specific price or yield. Upon
entering into a contract, the Fund deposits and maintains as collateral such
initial margin as required by the exchange on which the transaction is effected.
Pursuant to the contract, the Fund agrees to receive from or pay to the broker
an amount of cash equal to the daily fluctuation in value of the contract. Such
receipts or payments are known as variation margin and are recorded by the Fund
as unrealized gains or losses. When the contract is closed, the Fund records a
realized gain or loss equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed.
- - 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 is recognized
on the accrual basis. Realized gains and losses on security transactions are
determined on the identified cost basis. The Fund will adopt the provisions of
the AICPA Audit and Accounting Guide for Investment Companies, as revised,
effective for fiscal years beginning after December 15, 2000. As required, the
Fund will amortize premiums and discounts on debt securities effective January
1, 2001. The cumulative effect of this accounting change will have no impact on
the total net assets of the Fund, but will result in a $205 decrease to cost of
securities and a $205 increase in net unrealized depreciation, based on
securities held as of December 31, 2000.
(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 in excess of realized gains on investments are due primarily to
differing tax treatments for futures, foreign currency transactions and
post-October losses.
(g) Reclassification--Accounting principles generally accepted in the United
States of America require that certain components of net assets be adjusted to
reflect permanent differences between financial and tax reporting. Accordingly,
the current year's permanent book/tax differences of $134,678 have been
reclassified between accumulated net realized capital losses and undistributed
net investment income. These reclassifications have no effect on net assets or
net asset value per share.
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
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reimbursed to the Fund by MLIM which, in turn, will be reimbursed by MLLA.
For the year ended December 31, 2000, Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("MLPF&S"), a subsidiary of ML & Co., earned $43,398 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 were provided to the Fund by MLIM.
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
year ended December 31, 2000 were $249,881,945 and $280,230,555, respectively.
Net realized gains (losses) for the year ended December 31, 2000 and net
unrealized gains (losses) as of December 31, 2000 were as follows:
- ---------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Gains (Losses)
- ---------------------------------------------------------------------
Investments:
Long-term.......................... $ 7,294,164 $(4,733,177)
Short-term......................... (38) 955
Financial futures contracts........ (1,472,067) 40,882
Options written.................... 6,745 --
Options purchased.................. 522,736 --
----------- -----------
Total investments................... 6,351,540 (4,691,340)
----------- -----------
Currency transactions:
Options purchased.................. 96,400 107,280
Foreign currency transactions...... 117,435 28,630
Forward foreign exchange
contracts........................ (335,999) 234,329
----------- -----------
Total currency transactions......... (122,164) 370,239
----------- -----------
Total............................... $ 6,229,376 $(4,321,101)
=========== ===========
- ---------------------------------------------------------------------
Transactions in options written for the year ended December 31, 2000, were as
follows:
- ---------------------------------------------------------------
Nominal Value
Covered by Premiums
Call Options Written Written Options Received
- ---------------------------------------------------------------
Outstanding call options written,
beginning of year............... -- --
Options written.................. 362,421 $ 230,522
Options closed................... (420) (34,372)
Options expired.................. (362,001) (196,150)
-------- ---------
Outstanding call options written,
end of year..................... -- $ --
======== =========
- ---------------------------------------------------------------
- ---------------------------------------------------------------
Nominal Value
Covered by Premiums
Put Options Written Written Options Received
- ---------------------------------------------------------------
Outstanding put options written,
beginning of year............... -- --
Options written.................. 362,001 $ 169,488
Options closed................... (362,001) (169,488)
-------- ---------
Outstanding put options written,
end of year..................... -- $ --
======== =========
- ---------------------------------------------------------------
At December 31, 2000, net unrealized depreciation for Federal income tax
purposes aggregated $6,064,865, of which $7,438,043 related to appreciated
securities and $13,502,908 related to depreciated securities. At December 31,
2000, the aggregate cost of investments for Federal income tax purposes was
$141,031,326.
4. CAPITAL SHARE TRANSACTIONS:
Transactions in capital shares were as follows:
- -----------------------------------------------------------------
Class A Shares for the Year Ended Dollar
December 31, 2000 Shares Amount
- -----------------------------------------------------------------
Shares sold.......................... 269,163 $ 3,606,892
Shares issued to shareholders in
reinvestment of dividends and
distributions....................... 771,337 8,323,844
---------- ------------
Total issued......................... 1,040,500 11,930,736
Shares redeemed...................... (2,760,299) (35,414,569)
---------- ------------
Net decrease......................... (1,719,799) $(23,483,833)
========== ============
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Class A Shares for the Year Ended Dollar
December 31, 1999 Shares Amount
- -----------------------------------------------------------------
Shares sold.......................... 2,232,377 $ 24,152,546
Shares issued to shareholders in
reinvestment of dividends and
distributions....................... 863,539 9,560,851
---------- ------------
Total issued......................... 3,095,916 33,713,397
Shares redeemed...................... (6,990,543) (77,109,151)
---------- ------------
Net decrease......................... (3,894,627) $(43,395,754)
========== ============
- -----------------------------------------------------------------
5. SHORT-TERM BORROWINGS:
On December 1, 2000, the Fund, along with certain other funds managed by MLIM
and its affiliates, renewed and amended a $1,000,000,000 credit agreement with
Bank One, N.A. and certain other lenders. The Fund may borrow under the credit
agreement to fund shareholder redemptions and for other lawful purposes other
than for leverage. The Fund may borrow up to the maximum amount allowable under
the Fund's current prospectus and statement of additional information, subject
to various other legal, regulatory or contractual limits. The Fund pays a
commitment fee of .09% per annum based on the Fund's pro rata share of the
unused portion of the facility. Amounts borrowed under the facility bear
interest at a rate equal to, at each fund's election, the Federal Funds rate
plus .50% or a base rate as determined by Bank One, N.A. The Fund did not borrow
under the
212
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facility during the year ended December 31, 2000.
6. COMMITMENTS:
At December 31, 2000, the Fund had entered into foreign exchange contracts, in
addition to the contracts listed in the Schedule of Investments, under which it
had agreed to sell various foreign currencies with an approximate value of
$32,000.
7. REORGANIZATION PLAN:
The Company's Board of Directors approved a plan of reorganization, subject to
shareholder approval and certain other conditions, whereby Mercury HW
International Value VIP Portfolio (the "Portfolio") would acquire substantially
all of the assets and liabilities of the Fund in exchange for newly issued
shares of the Portfolio. These funds are registered, open-end management
investment companies. Both entities have a similar investment objective. The
Portfolio is managed by Mercury Advisors, an affiliate of MLIM.
213
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MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INTERNATIONAL EQUITY FOCUS FUND
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS AND SHAREHOLDERS,
INTERNATIONAL EQUITY FOCUS FUND OF
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of International Equity Focus Fund of
Merrill Lynch Variable Series Funds, Inc. as of December 31, 2000, the related
statements of operations for the year then ended and changes in net assets for
each of the years in the two-year period then ended, and the financial
highlights for each of the years in the five-year period then ended. These
financial statements and the financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned at December 31, 2000 by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of International Equity
Focus Fund of Merrill Lynch Variable Series Funds, Inc. as of December 31, 2000,
the results of its operations, the changes in its net assets, and the financial
highlights for the respective stated periods in conformity with accounting
principles generally accepted in the United States of America.
Deloitte & Touche LLP
Princeton, New Jersey
February 9, 2001
214
- ---------------------------------------------------------
MERRILL LYNCH
VARIABLE SERIES FUNDS, INC.
- ---------------------------------------------------------
PRINCIPAL OFFICE OF THE FUNDS
Box 9011
Princeton, NJ 08543-9011
CUSTODIAN
For all Funds except Developing Capital
Markets Focus Fund:
The Bank of New York
110 Washington Street
New York, NY 10286
For Developing Capital Markets Focus Fund:
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109
TRANSFER AGENT
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
---------------------------------------
Arthur Zeikel, Director of Merrill
Lynch Variable Series Funds, Inc., has
recently retired. The Funds' Board of
Directors wishes Mr. Zeikel well in his
retirement.
---------------------------------------
DIRECTORS AND OFFICERS
Terry K. Glenn
President
Kevin M. Rendino
Senior Vice President
Joe Grills
Director
Thomas R. Robinson
Senior Vice President
Walter Mintz
Director
Walter D. Rogers
Senior Vice President
Robert S. Salomon Jr.
Director
Kurt Schansinger
Senior Vice President
Melvin R. Seiden
Director
Robert M. Shearer
Senior Vice President
Stephen B. Swensrud
Director
Daniel V. Szemis
Senior Vice President
Christopher G. Ayoub
Senior Vice President
Jeremy Beckwith
Vice President
R. Elise Baum
Senior Vice President
Edward F. Gobora
Vice President
Robert C. Doll, Jr.
Senior Vice President
Robert F. Murray
Vice President
Lawrence R. Fuller
Senior Vice President
Jacqueline L. Rogers
Vice President
Vincent T. Lathbury III
Senior Vice President
Donald C. Burke
Vice President and
Treasurer
James D. McCall
Senior Vice President
Allan J. Oster
Secretary
Kevin J. McKenna
Senior Vice President
Eric S. Mitofsky
Senior Vice President
Joseph T. Monagle Jr.
Senior Vice President
Grace Pineda
Senior Vice President
- --------------------------------------------------------------------------------
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