UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-03290
Name of Fund: BlackRock Variable Series Funds, Inc.
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Robert C. Doll, Jr., Chief Executive
Officer, BlackRock Variable Series Funds, Inc., 800 Scudders Mill Road,
Plainsboro, NJ, 08536. Mailing address: P.O. Box 9011, Princeton, NJ,
08543-9011
Registrant's telephone number, including area code: (800) 456-4587
Date of fiscal year end: 12/31/07
Date of reporting period: 01/01/07 -- 06/30/07
Item 1 -- Report to Stockholders
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BLACKROCK VARIABLE
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SERIES FUNDS, INC.
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<Table>
<Caption>
</Table>
Semi-Annual Report (Unaudited)
June 30, 2007
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BLACKROCK VARIABLE SERIES FUNDS, INC.
A Letter to Shareholders
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DEAR SHAREHOLDER
At the mid-point of 2007, investor sentiment appeared quite buoyant,
notwithstanding some undertones of caution. For equity markets, positive
momentum as the year began was interrupted by a notable but transitory set-back
at the end of February. Markets resumed their ascent through May, but entered a
trading range in June as investors began to question the sustainability of the
rally. For the most part, equities found support in robust merger-and-
acquisition activity, healthy global economies, tame inflation, relatively low
interest rates, still-positive earnings growth and attractive valuations. These
tailwinds prevailed over such headwinds as a weakening U.S. economy, slowing
housing market, credit-related lending problems, escalating geopolitical
concerns and high energy prices, leading the Standard & Poor's (S&P) 500 Index
to a new record high in May.
Meanwhile, turmoil in the subprime mortgage market and generally mixed
economic signals weighed on bonds. In June, bond prices dropped precipitously as
long-term yields rose to their highest levels in five years. The 10-year
Treasury yield, which began 2007 at 4.68%, reached nearly 5.30% in mid-June
before retracing to 5.03% by month's end. Notably, this year has brought some
re-steepening of the yield curve, which had been flat to inverted throughout
2006. Still, at the end of June, yields along the curve remained below the
federal funds rate of 5.25%, the level at which the Federal Reserve Board (the
Fed) has left it since first pausing in August 2006. While first-quarter gross
domestic product growth of 0.7% represented the slowest rate of expansion since
2002, the Fed reiterated that inflation, not a slowing economy, remains its
primary concern. Many observers interpreted the Fed's reaction to mean that the
economy has hit its low and is bound for renewed strength, thereby reducing the
likelihood of an interest rate cut in the near future.
Against this backdrop, the major equity market indexes posted strong returns
for the annual and semi-annual periods ended June 30, 2007, while fixed income
assets were more mixed:
TOTAL RETURNS AS OF JUNE 30, 2007
<Table>
<Caption>
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6-month 12-month
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U.S. equities (S&P 500 Index)....... +6.96% +20.59%
Small cap U.S. equities (Russell
2000 Index)....................... +6.45 +16.43
International equities (MSCI Europe,
Australasia, Far East Index)...... +10.74 +27.00
Fixed income (Lehman Brothers U.S.
Aggregate Bond Index)............. +0.98 +6.12
Tax-exempt fixed income (Lehman
Brothers Municipal Bond Index).... +0.14 +4.69
High yield bonds (Lehman Brothers
U.S. Corporate High Yield 2%
Issuer Cap Index)................. +2.96 +11.22
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</Table>
We expect market volatility to linger throughout the second half of 2007. As
you navigate the uncertainties, we encourage you to review your investment goals
with your financial professional and to make portfolio changes, as needed. For
more market insight, we invite you to view "What's Ahead in 2007: The
Second-Quarter Update" and "Are You Prepared for Volatility?" at
WWW.BLACKROCK.COM/FUNDS. We thank you for entrusting BlackRock with your
investment assets, and we look forward to continuing to serve you in the months
and years ahead.
Sincerely,
/s/ Robert C. Doll, Jr.
Robert C. Doll, Jr.
Fund President and Director
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BLACKROCK BALANCED CAPITAL V.I. FUND
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Semi-Annual Report (Unaudited)
June 30, 2007
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BLACKROCK VARIABLE SERIES FUNDS
BlackRock Balanced Capital V.I. Fund
A Discussion With Your Fund's Portfolio Managers
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The Fund provided favorable returns in a strong but volatile period for
equities and somewhat challenging time for bonds.
HOW DID THE FUND PERFORM DURING THE PERIOD IN LIGHT OF THE EXISTING MARKET
CONDITIONS?
For the six-month period ended June 30, 2007, BlackRock Balanced Capital V.I.
Fund's Class I Shares had a total return of +6.10%. For the same period, the
benchmark Standard & Poor's 500 (S&P 500) Index returned +6.96%, the benchmark
Lehman Brothers U.S. Aggregate Bond Index returned +.98%, and the Lipper
Mixed-Asset Target Allocation Growth Funds (Variable Products) category had an
average return of +5.69%. (Funds in this Lipper category maintain a mix of
between 60%-80% equity securities, with the remainder invested in bonds, cash
and cash equivalents.)
The S&P 500 Index advanced over the semi-annual period, posting gains in four
of the six months. Stocks continued to benefit from a favorable combination of
moderating economic growth, strong corporate earnings results and soaring
takeover activity. However, volatility increased, punctuated by a sharp
correction in February and another decline in June as investors began to fear
the affects of tightening global monetary policy. In particular, the
deterioration in subprime mortgage credit quality as mortgage rates reset higher
led to concerns over the sustainability of consumer spending growth. Value
stocks continued to outperform their growth-oriented counterparts and smaller-
capitalization companies outpaced their larger brethren. However, all major
indexes, styles and market-capitalization categories delivered attractive
results.
Bonds provided positive returns for the period as well, rallying in the first
quarter of the year as investors were encouraged by evidence of weakening U.S.
economic activity. In the second quarter, however, interest rates rose and
credit spreads widened as investors reacted negatively to the aforementioned
liquidity and subprime contagion concerns.
WHAT FACTORS MOST INFLUENCED FUND PERFORMANCE?
The Fund's asset allocation was favorable and equities comfortably outpaced
the S&P 500 Index, while bonds slightly lagged the benchmark Lehman index.
Within the equity portfolio, good stock selection in the health care sector was
the primary driver of performance, led by better-than-20% returns from positions
in Baxter International Inc. and Schering-Plough Corp. Our underweight position
and good stock selection in the financials sector further aided results, largely
due to our avoidance of such poorly performing stocks as Bank of America Corp.
and Wachovia Corp. Good stock selection in the consumer staples area also
benefited performance, led by strong gains in selected non-U.S. holdings like
Cadbury Schweppes Plc and Unilever NV. These areas of outperformance more than
offset relative weakness in the technology sector where poor stock selection
detracted from results, largely due to weakness in Symantec Corp. and Sun
Microsystems, Inc. and from not owning Apple Inc. Poor stock selection in the
industrials sector also impaired performance, led by weakness in shares of Masco
Corp.
In the fixed income portfolio, overweight positions in mortgage product and
the financials subsector of the corporate market hampered results, as these
high-quality assets struggled amid the subprime scare. Certain global bond and
currency positions also disappointed during the six-month period. On the
positive side of the ledger, the portfolio's allocation to high yield bonds,
albeit modest, benefited performance as non-investment-grade assets continued to
outperform. An underweight exposure to agency debentures also proved
advantageous on a relative basis.
WHAT CHANGES WERE MADE TO THE PORTFOLIO DURING THE PERIOD?
We continued to adjust our holdings during the period in response to ongoing
market volatility. Within the equity portfolio, we strove to enhance our
risk/reward profile, eliminating positions in stocks that had performed well or
where we grew increasingly concerned about fundamental trends, while introducing
stocks whose expectations and valuations were more reasonable. We added to and
further repositioned our technology holdings, introducing new positions in
Motorola, Inc., Micron Technology, Inc. and Texas Instruments, Inc., adding to
an existing position in Sun Microsystems, reducing positions in Accenture Ltd.
and Juniper Networks, Inc. and eliminating Symantec from the portfolio. At
Motorola, Inc. problems in the company's core wireless handset business have
resulted in dramatic earnings estimate downgrades and valuation compression. We
believe
2
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most of this bad news has now been incorporated into expectations while
valuation is approaching trough levels. Micron is the leading manufacturer of
computer memory chips, where we expect improving prices in the second half of
the year as favorable seasonal trends and increasing memory content in both PCs
and cellular handsets drive improved demand. Meanwhile, the stock price has
declined 36% from its September 2006 high and now trades near a historical low.
At Texas Instruments, investor concern regarding the sustainability of the
company's position in the wireless handset semiconductor market created an
attractive buying opportunity. We anticipate a favorable mix-shift toward the
high-performance analog business to drive margin improvements and valuation
expansion. Meanwhile, the stock is selling near trough price-to-sales and
price-to-book value multiples. By contrast, while we still believe the security
market offers Symantec an attractive longer-term growth opportunity, the intense
competitive environment and poor management execution caused us to question
whether the company can participate in this growth and deliver improved results.
We continued to increase our pharmaceutical exposure, adding to our existing
position in Pfizer Inc. and introducing Bristol-Myers Squibb Co. to the
portfolio. Bristol-Myers has been a poor performer, essentially unchanged over
the last five years, as numerous headwinds have caused revenues to stagnate and
earnings to decline 50%. We now believe the company has passed the point of
maximum pressure, creating an attractive buying opportunity. Bristol-Myers
appears poised to deliver sharply accelerating growth as eight recent product
launches and its sizable product pipeline reverse the recent negative sales
trend. We believe downside in the stock is limited by the better-than-4%
dividend yield and take-over potential.
We added to a number of media-related holdings such as Comcast Corp. and
Electronic Arts, Inc. on the back of stock price weakness. We believe these
companies' control of unique content will ultimately command premium valuations.
In the insurance sector, we reduced our position in Ace Limited and sold
Endurance Specialty Holdings Ltd. while increasing our stake in RenaissanceRe.
At Endurance, a new diversification strategy is a source of concern as it may
lead to margin degradation. We believe RenaissanceRe Holdings Ltd. offers much
better value at the current depressed multiple. We also added to a number of
consumer-related holdings like Harley-Davidson, Inc. and Sony Corp. on recent
price weakness, while introducing Wal-Mart Stores, Inc. to the portfolio.
Wal-Mart, the nation's largest retailer, has changed its capital allocation
priorities, which we believe represents a positive inflection point for the
company. As a result, we anticipate a reversal in the extended period of
valuation compression from which the stock has suffered and greatly enhanced
shareholder value. Selling at the bottom of its historical range, we believe
risk/reward in the stock appears very attractive. We eliminated both Coca-Cola
Enterprises and Genworth Financial, Inc. from the portfolio. At Coca-Cola
Enterprises, we became concerned over the negative implications of the
increasingly adversarial relationship between Coke Enterprises and parent
Coca-Cola Company. At Genworth Financial we believe the company's mortgage
insurance and long-term care businesses, representing over 25% of earnings, will
confront increasingly challenging operating environments through the remainder
of 2007, limiting any share price advance.
In the fixed income portfolio, the biggest change involved an increase in our
allocation to mortgages. Given their underperformance during the period,
mortgages offered good relative value and, we believe, should perform well in
the coming months. The second major shift in the portfolio involved our duration
posture, which was short at the start of the period and neutral to slightly long
by period-end. Broadly speaking, our view on interest rates moved from one where
we thought rates would move slightly higher to an expectation for a more range-
bound environment.
HOW WOULD YOU CHARACTERIZE THE FUND'S POSITION AT THE CLOSE OF THE PERIOD?
At period-end, the portfolio allocation comprised 69% equities, 29% fixed
income securities and 2% cash equivalents. While we remain constructive on the
prospects for equities as we move through the remainder of 2007, the recent
advance in the market reflects heightened expectations for economic and
corporate earnings growth, which may prove difficult to fulfill. The U.S.
economy appears to be in good shape. Corporate balance sheets and free cash flow
remain strong, but high energy prices and a weakening housing sector seem likely
to impede consumer spending growth while deteriorating liquidity conditions may
precipitate increased credit quality problems at the banks. Therefore, we are
becoming more cautious in the short-term, concentrating our equity exposures in
those areas where expectations and valuations are more reasonable and where
risk/reward profiles are more favorable. Meanwhile, bonds may represent a
relatively more attractive investment given that interest rates have risen,
spreads widened and the yield curve normal-
3
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ized. As always, we will continue to take full advantage of the Fund's
flexibility as market conditions evolve.
Kurt Schansinger
Senior Portfolio Manager
Keith Anderson
Fixed Income Portfolio Manager
Scott Amero
Fixed Income Portfolio Manager
Matthew Marra
Fixed Income Portfolio Manager
Andrew Phillips
Fixed Income Portfolio Manager
July 17, 2007
4
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BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Balanced Capital V.I. Fund
Total Return Based on a $10,000 Investment
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[LINE GRAPH]
<Table>
<Caption>
BLACKROCK BALANCED
CAPITAL V.I. FUND+--CLASS I LEHMAN BROTHERS U.S.
SHARES* S&P 500 INDEX++ AGGREGATE BOND INDEX+++
--------------------------- --------------- -----------------------
6/97 10000 10000 10000
6/98 12117 13016 11054
6/99 12909 15978 11402
6/00 13777 17137 11922
6/01 12458 14595 13261
6/02 11550 11970 14405
6/03 11524 12000 15903
6/04 13132 14293 15954
6/05 13880 15197 17039
6/06 15014 16508 16902
6/07 17728 19907 17937
</Table>
[LINE GRAPH]
<Table>
<Caption>
BLACKROCK BALANCED BLACKROCK BALANCED LEHMAN BROTHERS
CAPITAL V.I. FUND+-- CAPITAL V.I. FUND+-- U.S. AGGREGATE
CLASS II SHARES* CLASS III SHARES* S&P 500 INDEX++ BOND INDEX+++
-------------------- -------------------- --------------- ---------------
9/30/04** 10000 10000 10000 10000
6/05 10634 10634 10835 10349
6/06 11495 11495 11770 10266
6/07 13539 13539 14193 10894
</Table>
* Assuming transaction costs, if any, and other operating expenses, including
advisory fees. Does not include insurance-related fees and expenses.
Effective September 2, 2003, Class A Shares were redesignated Class I
Shares.
** Commencement of Operations.
+ The Fund invests in a balanced portfolio of fixed income and equity
securities.
++ This unmanaged Index covers 500 industrial, utility, transportation and
financial companies of the U.S. markets (mostly NYSE issues), representing
about 75% of NYSE market capitalization and 30% of NYSE issues.
+++ This unmanaged market-weighted Index is comprised of U.S. government and
agency securities, mortgage-backed securities issued by the Government
National Mortgage Association, Freddie Mac or Fannie Mae and investment
grade (rated BBB or better) corporate bonds.
Past results shown should not be considered a representation of future
performance.
5
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BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Balanced Capital V.I. Fund
Average Annual Total Return--Class I Shares*
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<Table>
<Caption>
PERIOD COVERED RETURN
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One Year Ended 6/30/07 +18.08%
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Five Years Ended 6/30/07 + 8.95
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Ten Years Ended 6/30/07 + 5.89
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</Table>
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BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Balanced Capital V.I. Fund
Average Annual Total Return--Class II Shares*
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<Table>
<Caption>
PERIOD COVERED RETURN
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One Year Ended 6/30/07 +17.78%
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Inception (9/30/04) through 6/30/07 +11.66
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</Table>
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BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Balanced Capital V.I. Fund
Average Annual Total Return--Class III Shares*
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<Table>
<Caption>
PERIOD COVERED RETURN
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One Year Ended 6/30/07 +17.78%
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Inception (9/30/04) through 6/30/07 +11.66
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</Table>
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BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Balanced Capital V.I. Fund
Recent Performance Results
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<Table>
<Caption>
6-MONTH 12-MONTH
AS OF JUNE 30, 2007 TOTAL RETURN TOTAL RETURN
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Class I Shares* +6.10% +18.08%
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Class II Shares* +5.98 +17.78
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Class III Shares* +5.98 +17.78
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S&P 500(R) Index** +6.96 +20.59
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Lehman Brothers U.S. Aggregate Bond Index*** +0.98 + 6.12
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</Table>
* Average annual and cumulative 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. For a portion of the period, returns do not show the effects
of distribution fees (12b-1 fees) applicable to Class II and Class III
Shares. If such fees were included, returns shown would have been lower.
** This unmanaged Index covers 500 industrial, utility, transportation and
financial companies of the U.S. markets (mostly NYSE issues), representing
about 75% of NYSE market capitalization and 30% of NYSE issues.
*** This unmanaged market-weighted Index is comprised of U.S. government and
agency securities, mortgage-backed securities issued by the Government
National Mortgage Association, Freddie Mac or Fannie Mae and investment
grade (rated BBB or better) corporate bonds.
Past results shown should not be considered a representation of future
performance.
S&P 500 is a registered trademark of the McGraw-Hill Companies.
6
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BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Balanced Capital V.I. Fund
Disclosure of Expenses
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Shareholders of this Fund may incur the following charges: (a) expenses related
to transactions, including sales charges, redemption fees and exchange fees; and
(b) operating expenses including advisory fees, distribution fees including
12b-1 fees, and other Fund expenses. The following example (which is based on a
hypothetical investment of $1,000 invested on January 1, 2007 and held through
June 30, 2007) is intended to assist shareholders both in calculating expenses
based on an investment in the Fund and in comparing these expenses with similar
costs of investing in other mutual funds.
The first table below provides information about actual account values and
actual expenses. In order to estimate the expenses a shareholder paid during the
period covered by this report, shareholders can divide their account value by
$1,000 and then multiply the result by the number in the first line under the
heading entitled "Expenses Paid During the Period."
The second table below provides information about hypothetical account values
and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses. In order to assist
shareholders in comparing the ongoing expenses of investing in this Fund and
other funds, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in other funds' shareholder reports.
The expenses shown in the table are intended to highlight shareholders'
ongoing costs only and do not reflect any transactional expenses, such as sales
charges, redemption fees or exchange fees. Therefore, the second table is useful
in comparing ongoing expenses only, and will not help shareholders determine the
relative total expenses of owning different funds. If these transactional
expenses were included, shareholder expenses would have been higher.
<Table>
<Caption>
EXPENSES PAID
BEGINNING ENDING DURING THE PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JANUARY 1, 2007 TO
JANUARY 1, 2007 JUNE 30, 2007 JUNE 30, 2007
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ACTUAL
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Class I $1,000 $1,061.00 $3.85
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Class II $1,000 $1,059.80 $4.83
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Class III $1,000 $1,059.80 $5.34
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HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES)**
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Class I $1,000 $1,021.16 $3.78
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Class II $1,000 $1,020.21 $4.73
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Class III $1,000 $1,019.71 $5.24
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</Table>
* For each class of the Fund, expenses are equal to the annualized expense
ratio for the class (.75% for Class I, .94% for Class II and 1.04% for Class
III), multiplied by the average account value over the period, multiplied by
182/365 (to reflect the one-half year period shown).
** Hypothetical 5% annual return before expenses is calculated by pro-rating
the number of days in the most recent fiscal half year divided by 365.
7
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BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Balanced Capital V.I. Fund
Portfolio Information as of June 30, 2007
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<Table>
<Caption>
PERCENT OF
ASSET MIX LONG-TERM INVESTMENTS
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Common Stocks............................................... 64.3%
U.S. Government Agency Mortgage-Backed Securities........... 20.3
Non-Government Agency Mortgage-Backed Securities............ 4.4
Corporate Bonds............................................. 4.4
Asset-Backed Securities..................................... 3.1
U.S. Government Agency Mortgage-Backed
Securities--Collateralized Mortgage Obligations........... 1.6
U.S. Government Obligations................................. 1.2
Preferred Securities........................................ 0.4
Foreign Government Obligations.............................. 0.3
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</Table>
8
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BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Balanced Capital V.I. Fund
Schedule of Investments as of June 30, 2007 (unaudited) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES
INDUSTRY HELD COMMON STOCKS VALUE
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AEROSPACE & DEFENSE--2.9% 12,300 Honeywell International, Inc. .............. $ 692,244
5,500 Raytheon Co. ............................... 296,395
12,200 United Technologies Corp. .................. 865,346
-----------
1,853,985
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AUTOMOBILES--1.0% 11,000 Harley-Davidson, Inc. ...................... 655,710
- ----------------------------------------------------------------------------------------------------------------------
BEVERAGES--0.9% 10,800 Anheuser-Busch Cos., Inc. .................. 563,328
- ----------------------------------------------------------------------------------------------------------------------
BUILDING PRODUCTS--1.1% 24,500 Masco Corp. ................................ 697,515
- ----------------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS--4.1% 7,000 Legg Mason, Inc. ........................... 688,660
22,000 Mellon Financial Corp. ..................... 968,000
12,200 Morgan Stanley.............................. 1,023,336
-----------
2,679,996
- ----------------------------------------------------------------------------------------------------------------------
CHEMICALS--1.4% 17,700 E.I. du Pont de Nemours & Co. .............. 899,868
- ----------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS--1.3% 24,500 Wells Fargo & Co. .......................... 861,665
- ----------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT--3.0% 37,500 Cisco Systems, Inc.(h)...................... 1,044,375
18,000 Juniper Networks, Inc.(h)................... 453,060
25,000 Motorola, Inc. ............................. 442,500
-----------
1,939,935
- ----------------------------------------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS--3.5% 20,100 Hewlett-Packard Co. ........................ 896,862
8,300 International Business Machines Corp. ...... 873,575
97,500 Sun Microsystems, Inc.(h)................... 512,850
-----------
2,283,287
- ----------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES--2.8% 19,100 Citigroup, Inc. ............................ 979,639
17,600 JPMorgan Chase & Co. ....................... 852,720
-----------
1,832,359
- ----------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION 16,700 AT&T Inc. .................................. 693,050
SERVICES--2.3%
19,600 Verizon Communications, Inc. ............... 806,932
-----------
1,499,982
- ----------------------------------------------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES--2.9% 8,800 GlobalSantaFe Corp. ........................ 635,800
5,400 Schlumberger Ltd. .......................... 458,676
13,700 Weatherford International Ltd.(h)........... 756,788
-----------
1,851,264
- ----------------------------------------------------------------------------------------------------------------------
FOOD & STAPLES RETAILING--0.4% 5,500 Wal-Mart Stores, Inc. ...................... 264,605
- ----------------------------------------------------------------------------------------------------------------------
FOOD PRODUCTS--4.1% 8,500 Cadbury Schweppes Plc(a).................... 461,550
6,500 General Mills, Inc. ........................ 379,730
2,700 Nestle SA Registered Shares................. 1,025,929
25,000 Unilever NV(a).............................. 775,500
-----------
2,642,709
- ----------------------------------------------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & 19,000 Baxter International, Inc. ................. 1,070,460
SUPPLIES--1.7%
- ----------------------------------------------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & 7,800 AmerisourceBergen Corp. .................... 385,866
SERVICES--0.6%
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HOTELS, RESTAURANTS & LEISURE--1.6% 21,000 McDonald's Corp. ........................... 1,065,960
- ----------------------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES--0.9% 11,500 Sony Corp.(a)............................... 590,755
- ----------------------------------------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS--1.5% 15,000 Kimberly-Clark Corp. ....................... 1,003,350
- ----------------------------------------------------------------------------------------------------------------------
IT SERVICES--0.8% 12,500 Accenture Ltd. Class A...................... 536,125
- ----------------------------------------------------------------------------------------------------------------------
</Table>
9
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BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Balanced Capital V.I. Fund
Schedule of Investments as of June 30, 2007 (continued) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES
INDUSTRY HELD COMMON STOCKS VALUE
- ----------------------------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES--4.9% 7,500 3M Co. ..................................... $ 650,925
29,000 General Electric Co. ....................... 1,110,120
10,500 Textron, Inc. .............................. 1,156,155
8,000 Tyco International Ltd.(h).................. 270,320
-----------
3,187,520
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INSURANCE--5.4% 15,500 ACE Ltd. ................................... 969,060
15,200 American International Group, Inc. ......... 1,064,456
8,800 Prudential Financial, Inc. ................. 855,624
9,500 RenaissanceRe Holdings Ltd. ................ 588,905
-----------
3,478,045
- ----------------------------------------------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES--0.9% 20,600 Yahoo! Inc.(h).............................. 558,878
- ----------------------------------------------------------------------------------------------------------------------
MACHINERY--1.0% 13,300 Dover Corp. ................................ 680,295
- ----------------------------------------------------------------------------------------------------------------------
MEDIA--2.0% 8,500 CBS Corp. Class B........................... 283,220
25,000 Comcast Corp. Special Class A(h)............ 699,000
9,500 Walt Disney Co. ............................ 324,330
-----------
1,306,550
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METALS & MINING--0.9% 14,000 Alcoa, Inc. ................................ 567,420
- ----------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS--4.8% 10,800 Devon Energy Corp. ......................... 845,532
7,300 EnCana Corp. ............................... 448,585
6,900 Exxon Mobil Corp. .......................... 578,772
16,700 Murphy Oil Corp. ........................... 992,648
2,700 Total SA(a)................................. 218,646
-----------
3,084,183
- ----------------------------------------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS--0.7% 5,500 International Paper Co. .................... 214,775
7,000 MeadWestvaco Corp. ......................... 247,240
-----------
462,015
- ----------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS--4.6% 19,500 Bristol-Myers Squibb Co. ................... 615,420
6,000 GlaxoSmithKline Plc(a)...................... 314,220
10,000 Pfizer, Inc. ............................... 255,700
22,000 Schering-Plough Corp. ...................... 669,680
20,100 Wyeth....................................... 1,152,534
-----------
3,007,554
- ----------------------------------------------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR 16,500 Applied Materials, Inc. .................... 327,855
EQUIPMENT--2.5%
16,500 Intersil Corp. Class A...................... 519,090
14,000 Micron Technology, Inc.(h).................. 175,420
16,500 Texas Instruments, Inc. .................... 620,895
-----------
1,643,260
- ----------------------------------------------------------------------------------------------------------------------
SOFTWARE--1.3% 10,000 Electronic Arts, Inc.(h).................... 473,200
13,200 Microsoft Corp. ............................ 389,004
-----------
862,204
- ----------------------------------------------------------------------------------------------------------------------
SPECIALTY RETAIL--1.6% 25,000 Limited Brands, Inc. ....................... 686,250
11,000 Office Depot, Inc.(h)....................... 333,300
-----------
1,019,550
- ----------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST--$32,973,037)--69.4%.................. 45,036,198
- ----------------------------------------------------------------------------------------------------------------------
</Table>
10
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Balanced Capital V.I. Fund
Schedule of Investments as of June 30, 2007 (continued) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PREFERRED SECURITIES
- ----------------------------------------------------------------------------------------------------------------------
<Caption>
FACE
INDUSTRY AMOUNT CAPITAL TRUSTS VALUE
- ----------------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS--0.1% USD 50,000 Lehman Brothers Holdings Capital Trust V,
5.857%(c)(g).............................. $ 48,978
25,000 Mellon Capital IV Series 1, 6.244%(c)(g).... 25,226
-----------
74,204
- ----------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS--0.1% 30,000 BAC Capital Trust VI, 5.625% due 3/08/2035.. 26,787
25,000 USB Capital IX, 6.189%(c)(g)................ 25,185
25,000 Wachovia Capital Trust III, 5.80%(c)(g)..... 24,891
-----------
76,863
- ----------------------------------------------------------------------------------------------------------------------
TOTAL CAPITAL TRUSTS
(COST--$154,536)--0.2%...................... 151,067
- ----------------------------------------------------------------------------------------------------------------------
<Caption>
SHARES
HELD PREFERRED STOCKS
- ----------------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE--0.2% 1,900 Fannie Mae Series O, 7%..................... 98,503
- ----------------------------------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS
(COST--$105,687)--0.2%...................... 98,503
- ----------------------------------------------------------------------------------------------------------------------
<Caption>
FACE
AMOUNT TRUST PREFERREDS
- ----------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS--0.0% USD 25,000 SunTrust Capital VIII, 6.10% due
12/15/2036(c)............................. 22,894
- ----------------------------------------------------------------------------------------------------------------------
TOTAL TRUST PREFERREDS
(COST--$24,595)--0.0%....................... 22,894
- ----------------------------------------------------------------------------------------------------------------------
TOTAL PREFERRED SECURITIES
(COST--$284,818)--0.4%...................... 272,464
- ----------------------------------------------------------------------------------------------------------------------
<Caption>
FIXED INCOME SECURITIES
- ----------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS
- ----------------------------------------------------------------------------------------------------------------------
AEROSPACE & DEFENSE--0.0% 30,000 Honeywell International, Inc., 5.70% due
3/15/2036................................. 27,696
2,000 L-3 Communications Corp. Series B, 6.375%
due 10/15/2015............................ 1,890
-----------
29,586
- ----------------------------------------------------------------------------------------------------------------------
AIRLINES--0.0% 21,329 American Airlines, Inc. Series 2003-1,
3.857% due 1/09/2012(n)................... 20,449
- ----------------------------------------------------------------------------------------------------------------------
BUILDING PRODUCTS--0.0% 15,000 Momentive Performance Materials, Inc.,
10.125% due 12/01/2014(b)(d).............. 15,037
- ----------------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS--0.6% 80,000 Credit Suisse Guernsey Ltd., 5.86%(c)(g).... 77,077
35,000 Goldman Sachs Capital II, 5.793%(c)(g)...... 34,158
130,000 Goldman Sachs Group, Inc., 5.25% due
10/15/2013................................ 126,026
125,000 Morgan Stanley Series F, 5.55% due
4/27/2017................................. 119,927
-----------
357,188
- ----------------------------------------------------------------------------------------------------------------------
CHEMICALS--0.0% 15,000 Lyondell Chemical Co., 6.875% due
6/15/2017................................. 14,475
- ----------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS--0.3% 55,000 Barclays Bank Plc, 8.55%(b)(g).............. 60,568
50,000 Corporacion Andina de Fomento, 6.875% due
3/15/2012................................. 52,363
JPY 9,000,000 Kreditanstalt fuer Wiederaufbau, 0.325% due
8/08/2011(c).............................. 73,107
-----------
186,038
- ----------------------------------------------------------------------------------------------------------------------
</Table>
11
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Balanced Capital V.I. Fund
Schedule of Investments as of June 30, 2007 (continued) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
FACE
INDUSTRY AMOUNT CORPORATE BONDS VALUE
- ----------------------------------------------------------------------------------------------------------------------
CONSUMER FINANCE--0.3% USD 165,000 HSBC Finance Corp., 6.50% due 11/15/2008.... $ 167,317
30,000 MBNA Corp., 4.625% due 9/15/2008............ 29,712
25,000 SLM Corp., 5.125% due 8/27/2012............. 22,130
-----------
219,159
- ----------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES--0.7% 65,000 Bank of America Corp., 4.875% due
9/15/2012................................. 62,813
Citigroup, Inc.:
90,000 5.625% due 8/27/2012...................... 90,019
65,000 5.50% due 2/15/2017....................... 62,954
15,000 5.875% due 5/29/2037...................... 14,300
205,000 General Electric Capital Corp., 5% due
11/15/2011................................ 200,894
-----------
430,980
- ----------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION 50,000 GTE Corp., 6.84% due 4/15/2018.............. 52,542
SERVICES--0.2%
JPY 5,000,000 Nippon Telegraph & Telephone Corp., 2.50%
due 7/25/2007............................. 40,652
USD 10,000 Telecom Italia Capital SA, 6% due
9/30/2034................................. 9,009
-----------
102,203
- ----------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES--0.2% 15,000 Jersey Central Power & Light Co., 6.40% due
5/15/2036................................. 14,876
40,000 Public Service Co. of New Mexico, 4.40% due
9/15/2008................................. 39,373
40,000 Sierra Pacific Power Co., 6% due 5/15/2016.. 39,231
36,000 Southern California Edison Co., 5.625% due
2/01/2036................................. 33,639
-----------
127,119
- ----------------------------------------------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & 25,000 Cooper Cos., Inc., 7.125% due 2/15/2015(b).. 24,750
SUPPLIES--0.0%
- ----------------------------------------------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & 25,000 UnitedHealth Group, Inc., 5.80% due
SERVICES--0.0% 3/15/2036................................. 23,007
- ----------------------------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES--0.1% 40,000 Hutchison Whampoa International (03/33)
Ltd., 7.45% due 11/24/2033(b)............. 44,149
- ----------------------------------------------------------------------------------------------------------------------
INSURANCE--0.2% 25,000 Chubb Corp., 6.375% due 3/29/2067(c)........ 24,447
25,000 Lincoln National Corp., 7% due
5/17/2066(c).............................. 25,652
45,000 Metlife, Inc., 6.40% due 12/15/2066......... 41,686
35,000 Progressive Corp., 6.70% due 6/15/2037(c)... 34,785
25,000 The Travelers Cos., Inc., 6.25% due
3/15/2067(c).............................. 24,024
-----------
150,594
- ----------------------------------------------------------------------------------------------------------------------
MEDIA--0.7% 30,000 Cablevision Systems Corp. Series B, 9.82%
due 4/01/2009(c).......................... 31,350
Comcast Corp.:
50,000 5.85% due 1/15/2010....................... 50,333
50,000 6.50% due 1/15/2017....................... 51,048
30,000 6.45% due 3/15/2037....................... 28,912
30,000 Cox Communications, Inc., 7.125% due
10/01/2012................................ 31,694
15,000 Idearc, Inc., 8% due 11/15/2016............. 15,150
News America, Inc.:
40,000 6.40% due 12/15/2035...................... 38,092
85,000 6.75% due 1/09/2038....................... 88,965
50,000 Time Warner Cable, Inc., 5.85% due
5/01/2017(b).............................. 48,632
85,000 Time Warner Companies, Inc., 9.125% due
1/15/2013................................. 97,639
-----------
481,815
- ----------------------------------------------------------------------------------------------------------------------
</Table>
12
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Balanced Capital V.I. Fund
Schedule of Investments as of June 30, 2007 (continued) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
FACE
INDUSTRY AMOUNT CORPORATE BONDS VALUE
- ----------------------------------------------------------------------------------------------------------------------
METALS & MINING--0.1% USD 30,000 Freeport-McMoRan Copper & Gold, Inc., 8.375%
due 4/01/2017............................. $ 32,025
- ----------------------------------------------------------------------------------------------------------------------
MULTI-UTILITIES--0.1% 30,000 CMS Energy Corp., 6.55% due 7/17/2017....... 29,599
20,000 Xcel Energy, Inc., 6.50% due 7/01/2036...... 20,228
-----------
49,827
- ----------------------------------------------------------------------------------------------------------------------
OFFICE ELECTRONICS--0.1% 40,000 Xerox Corp., 6.40% due 3/15/2016............ 40,247
- ----------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS--0.6% 65,000 Anadarko Petroleum Corp., 6.45% due
9/15/2036................................. 62,519
25,000 Colonial Pipeline Co., 7.63% due
4/15/2032(b).............................. 29,914
25,000 Midamerican Energy Holdings Co., 5.95% due
5/15/2037(b).............................. 23,561
60,000 Motiva Enterprises LLC, 5.20% due
9/15/2012(b).............................. 58,709
45,000 Northwest Pipeline Corp., 7% due 6/15/2016.. 46,913
150,000 Pemex Project Funding Master Trust, 6.66%
due 6/15/2010(b)(c)....................... 153,900
10,000 Sabine Pass LNG LP, 7.50% due
11/30/2016(b)............................. 9,950
5,000 Tennessee Gas Pipeline Co., 7% due
10/15/2028................................ 5,149
-----------
390,615
- ----------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS--0.2% 5,000 Eli Lilly & Co., 7.125% due 6/01/2025....... 5,546
JPY 7,000,000 Pfizer, Inc., .80% due 3/18/2008............ 56,783
USD 40,000 Wyeth, 6% due 2/15/2036..................... 38,569
-----------
100,898
- ----------------------------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS 20,000 Developers Diversified Realty Corp., 6.625%
(REITS)--0.0% due 1/15/2008............................. 20,110
- ----------------------------------------------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT--0.3%
Freescale Semiconductor, Inc.(b):
25,000 9.125% due 12/15/2014(d).................. 23,500
5,000 9.235% due 12/15/2014(c).................. 4,825
165,000 International Rectifier Corp., 4.25% due
7/15/2007(i).............................. 164,588
-----------
192,913
- ----------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(COST--$3,111,027)--4.7%.................... 3,053,184
- ----------------------------------------------------------------------------------------------------------------------
<Caption>
FOREIGN GOVERNMENT OBLIGATIONS
- ----------------------------------------------------------------------------------------------------------------------
52,500 Argentina Bonos, 5.475% due
8/03/2012(c)(n)........................... 49,959
5,682 Argentina Government International Bond,
8.28% due 12/31/2033(m)(n)................ 5,483
JPY 6,300,000 Finland Government International Bond, 0.30%
due 10/18/2007............................ 51,079
Mexico Government International Bond:
USD 15,000 6.375% due 1/16/2013...................... 15,510
25,000 5.875% due 1/15/2014...................... 25,125
39,800 Russia Government International Bond, 7.50%
due 3/31/2030(n).......................... 43,840
10,000 Venezuela Government International Bond,
7.65% due 4/21/2025....................... 9,150
- ----------------------------------------------------------------------------------------------------------------------
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(COST--$203,637)--0.3%...................... 200,146
- ----------------------------------------------------------------------------------------------------------------------
</Table>
13
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Balanced Capital V.I. Fund
Schedule of Investments as of June 30, 2007 (continued) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
FACE
AMOUNT ASSET-BACKED SECURITIES* VALUE
- ----------------------------------------------------------------------------------------------------------------------
USD 100,000 ACE Securities Corp. Series 2005-ASP1 Class
M1, 6% due 9/25/2035(c)................... $ 101,743
100,000 Ameriquest Mortgage Securities, Inc. Series
2003-7 Class M1, 6.17% due 8/25/2033(c)... 100,829
200,000 Capital Auto Receivables Asset Trust Series
2006-1 Class A4, 5.04% due 5/17/2010...... 198,953
Countrywide Asset Backed Certificates(c):
18,284 Series 2004-5 Class A, 5.77% due
10/25/2034................................ 18,417
50,000 Series 2004-13 Class AF4, 4.583% due
1/25/2033................................. 49,264
50,000 Series 2004-13 Class MF1, 5.071% due
12/25/2034................................ 48,473
191,288 Series 2007-5 Class 2A1, 5.42% due
9/25/2037................................. 191,303
12,889 Home Equity Asset Trust Series 2005-3 Class
1A2, 5.57% due 8/25/2035(c)............... 12,891
39,026 Irwin Home Equity Series 2005-C Class 1A1,
5.58% due 4/25/2030(c).................... 39,035
Morgan Stanley ABS Capital I, Inc.(c):
31,445 Series 2005-HE1 Class A2MZ, 5.62% due
12/25/2034................................ 31,465
7,646 Series 2005-NC2 Class A1MZ, 5.57% due
3/25/2035................................. 7,649
7,447 Series 2005-NC2 Class A2MZ, 5.57% due
3/25/2035................................. 7,450
185,196 Morgan Stanley Home Equity Loans Series
2007-2 Class A1, 5.42% due 4/25/2037(c)... 185,195
42,517 New Century Home Equity Loan Trust Series
2005-2 Class A2MZ, 5.58% due
6/25/2035(c).............................. 42,323
Park Place Securities, Inc. Series 2005-
WCH1(c):
11,817 Class A1B, 5.62% due 1/25/2035............ 11,823
11,020 Class A3D, 5.66% due 1/25/2035............ 11,025
30,000 Popular ABS Mortgage Pass-Through Trust
Series 2005-1 Class M2, 5.51% due
5/25/2035................................. 28,869
Residential Asset Mortgage Products, Inc(c):
46,903 Series 2005-RS3 Class AI2, 5.49% due
3/25/2035................................. 46,934
94,328 Series 2007-RZ1 Class A1, 5.39% due
2/25/2037................................. 94,334
Structured Asset Investment Loan Trust(c):
150,000 Series 2003-BC6 Class M1, 6.07% due
7/25/2033................................. 150,107
150,000 Series 2003-BC7 Class M1, 6.07% due
7/25/2033................................. 150,243
100,000 Series 2004-8 Class M4, 6.32% due
9/25/2034................................. 100,320
42,522 Structured Asset Securities Corp. Series
2004-23XS Class 2A1, 5.62% due
1/25/2035(c).............................. 42,680
150,000 USAA Auto Owner Trust Series 2005-3 Class
A4, 4.63% due 5/15/2012................... 148,119
100,000 Wachovia Auto Owner Trust Series 2005-B
Class A3, 4.79% due 4/20/2010............. 99,713
275,000 World Omni Auto Receivables Trust Series
2006-B Class A3, 5.15% due 11/15/2010..... 274,472
- ----------------------------------------------------------------------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES
(COST--$2,196,604)--3.4%.................... 2,193,629
- ----------------------------------------------------------------------------------------------------------------------
</Table>
14
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Balanced Capital V.I. Fund
Schedule of Investments as of June 30, 2007 (continued) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
FACE NON-GOVERNMENT AGENCY
AMOUNT MORTGAGE-BACKED SECURITIES* VALUE
- ----------------------------------------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE USD 34,549 Impac Secured Assets CMN Owner Trust Series
OBLIGATIONS--0.7% 2004-3 Class 1A4, 5.72% due
11/25/2034(c)............................. $ 34,638
156,854 Residential Accredit Loans, Inc. Series
2005-QS12 Class A8, 5.646% due
8/25/2035(c).............................. 156,731
Structured Asset Securities Corp.(c):
26,461 Series 2005-GEL2 Class A, 5.60% due
4/25/2035................................. 26,454
65,599 Series 2005-OPT1 Class A4M, 5.67% due
11/25/2035................................ 65,539
196,713 Washington Mutual Alternative Mortgage
Pass-Through Series 2007-OC1 Class A,
5.56% due 1/25/2047(c).................... 196,736
- ----------------------------------------------------------------------------------------------------------------------
COMMERCIAL MORTGAGE-BACKED 250,000 Banc of America Commercial Mortgage, Inc.
SECURITIES--4.0% Series 2006-2 Class A4, 5.741% due
5/10/2045(c).............................. 249,254
155,110 Capco America Securitization Corp. Series
1998-D7 Class A1B, 6.26% due 10/15/2030... 156,118
120,000 First Union-Lehman Brothers-Bank of America
Series 1998-C2 Class B, 6.64% due
11/18/2035................................ 121,985
170,000 GE Capital Commercial Mortgage Corp. Series
2001-2 Class A4, 6.29% due 8/11/2033...... 173,813
400,000 GMAC Commercial Mortgage Securities, Inc.
Series 2004-C3 Class AAB, 4.702% due
12/10/2041................................ 382,096
150,000 GS Mortgage Securities Corp. II Series
2006-GG6 Class A2, 5.506% due
4/10/2038(c).............................. 149,749
Greenwich Capital Commercial Funding Corp.:
170,000 Series 2004-GG1 Class A4, 4.755% due
6/10/2036................................. 167,185
150,000 Series 2006-GG7 Class A4, 6.11% due
7/10/2038(c).............................. 151,386
JPMorgan Chase Commercial Mortgage
Securities Corp.(c):
250,000 Series 2006-CB15 Class A4, 5.814% due
6/12/2043............................... 249,226
250,000 Series 2006-LDP7 Class A4, 6.066% due
4/15/2045............................... 251,512
171,630 LB Commercial Conduit Mortgage Trust Series
1999-C1 Class A2, 6.78% due 6/15/2031..... 174,411
LB-UBS Commercial Mortgage Trust:
150,000 Series 2005-C3 Class A5, 4.739% due
7/15/2030................................. 140,125
100,000 Series 2007-C2 Class A3, 5.43% due
2/15/2040................................. 96,469
140,000 Mortgage Capital Funding, Inc. Series
1998-MC1 Class E, 7.06% due 3/18/2030..... 140,708
- ----------------------------------------------------------------------------------------------------------------------
TOTAL NON-GOVERNMENT AGENCY MORTGAGE-BACKED
SECURITIES
(COST--$3,129,189)--4.7%.................... 3,084,135
- ----------------------------------------------------------------------------------------------------------------------
</Table>
15
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Balanced Capital V.I. Fund
Schedule of Investments as of June 30, 2007 (continued) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
FACE U.S. GOVERNMENT AGENCY
AMOUNT MORTGAGE-BACKED SECURITIES* VALUE
- ----------------------------------------------------------------------------------------------------------------------
Fannie Mae Guaranteed Pass-Through
Certificates
USD 93,014 4% due 12/01/2020......................... $ 86,066
985,545 4.50% due 9/01/2020-7/15/2022(j).......... 935,202
2,138,233 5.00% due 9/01/2020-8/15/2037(j).......... 2,031,871
6,914,859 5.50% due 10/01/2020-7/15/2037(j)......... 6,704,341
2,423,460 6.00% due 6/01/2020-7/15/2037(j).......... 2,407,280
278,674 6.50% due 7/01/2032-8/15/2037(j).......... 282,117
Freddie Mac Mortgage Participation
Certificates
571,731 5.00% due 11/01/2035-6/01/2036............ 537,320
677,729 5.50% due 9/01/2019-8/15/2037(j).......... 655,426
125,000 5.752% due 4/01/2037(c)................... 124,600
149,996 5.884% due 5/01/2037(c)................... 149,811
112,301 6.00% due 6/01/2035....................... 111,466
129,003 6.009% due 11/01/2036(c).................. 129,692
40,622 7.00% due 12/01/2031-7/01/2032............ 41,985
- ----------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES
(COST--$14,331,752)--21.9%.................. 14,197,177
- ----------------------------------------------------------------------------------------------------------------------
<Caption>
U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES*--
COLLATERALIZED MORTGAGE OBLIGATIONS
- ----------------------------------------------------------------------------------------------------------------------
Fannie Mae Trust:
260,347 5% Series 378 Class 4 due 7/01/2036(l).... 63,200
140,000 4.50% Series 2003-87 Class TJ due
9/25/2018................................. 130,623
251,480 5.50% Series 2005-69 Class LE due
11/25/2033................................ 249,713
210,000 5.75% Series 2005-84 Class XM due
10/25/2035................................ 209,792
153,938 5.50% Series 2006-9 Class DA due
7/25/2025................................. 153,522
Freddie Mac Multiclass Certificates:
71,130 5.50% Series 3068 Class VA due
10/15/2016................................ 70,635
208,695 5.50% Series 3087 Class VA, due
3/15/2015................................. 207,645
- ----------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES--
COLLATERALIZED MORTGAGE OBLIGATIONS
(COST--$1,090,176)--1.7%.................... 1,085,130
- ----------------------------------------------------------------------------------------------------------------------
<Caption>
U.S. GOVERNMENT OBLIGATIONS
- ----------------------------------------------------------------------------------------------------------------------
20,000 U.S. Treasury Bonds, 8.75% due 8/15/2020.... 26,709
U.S. Treasury Inflation Indexed Bonds:
167,545 3.875% due 1/15/2009...................... 170,216
148,379 3.50% due 1/15/2011(e).................... 152,656
324,591 1.625% due 1/15/2015...................... 301,717
U.S. Treasury Notes:
50,000 6% due 2/15/2026.......................... 54,578
150,000 4.75% due 2/15/2037....................... 141,434
- ----------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(COST--$814,307)--1.3%...................... 847,310
- ----------------------------------------------------------------------------------------------------------------------
TOTAL FIXED INCOME SECURITIES
(COST--$24,876,692)--38.0%.................. 24,660,711
- ----------------------------------------------------------------------------------------------------------------------
</Table>
16
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Balanced Capital V.I. Fund
Schedule of Investments as of June 30, 2007 (continued) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
BENEFICIAL
INTEREST SHORT-TERM SECURITIES VALUE
- ----------------------------------------------------------------------------------------------------------------------
USD 1,431,111 BlackRock Liquidity Series, LLC Cash Sweep
Series, 5.33%(f)(k)....................... $ 1,431,111
- ----------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM SECURITIES
(COST--$1,431,111)--2.2%.................... 1,431,111
- ----------------------------------------------------------------------------------------------------------------------
<Caption>
NUMBER OF
CONTRACTS+ OPTIONS PURCHASED
- ----------------------------------------------------------------------------------------------------------------------
PUT OPTIONS PURCHASED 1 Pay a fixed rate of 5.95% and receive a
floating rate based on 3-month LIBOR,
expiring August 2007
Broker, Deutsche Bank AG(o)............... 1,903
- ----------------------------------------------------------------------------------------------------------------------
TOTAL OPTIONS PURCHASED
(PREMIUMS PAID--$2,862)--0.0%............... 1,903
- ----------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST--$59,568,518)--110.0%................. 71,402,387
- ----------------------------------------------------------------------------------------------------------------------
<Caption>
FACE
AMOUNT TBA SALE COMMITMENTS
- ----------------------------------------------------------------------------------------------------------------------
Fannie Mae Guaranteed Pass-Through
Certificates
USD 500,000 5.00% due 9/01/2020-7/15/2022............. (471,912)
2,300,000 5.50% due 10/01/2020-7/15/2037............ (2,240,468)
900,000 6.00% due 6/01/2020-7/15/2037............. (898,103)
- ----------------------------------------------------------------------------------------------------------------------
TBA SALE COMMITMENTS--
(PREMIUMS RECEIVED $3,621,560)--(5.6%)...... (3,610,483)
- ----------------------------------------------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF OTHER
ASSETS--(4.4%)............................ (2,845,994)
-----------
NET ASSETS--100.0%.......................... $64,945,910
===========
- ----------------------------------------------------------------------------------------------------------------------
</Table>
* Asset-Backed and Mortgage-Backed Securities are subject to principal
paydowns. As a result of prepayments or refinancing of the underlying
mortgage instruments, the average life may be substantially less than the
original maturity.
+ One contract represents a notional amount of $1,000,000.
(a) Depositary receipts.
(b) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(c) Floating rate security.
(d) Represents a pay-in-kind security which may pay interest/dividends in
additional face/shares.
(e) All or a portion of security held as collateral in connection with open
financial futures contracts.
(f) Investments in companies considered to be an affiliate of the Fund, for
purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as
follows:
<Table>
<Caption>
- ------------------------------------------------------------------------------------
NET INTEREST
AFFILIATE ACTIVITY INCOME
- ------------------------------------------------------------------------------------
BlackRock Liquidity Series, LLC Cash Sweep Series........... $(866,169) $28,500
- ------------------------------------------------------------------------------------
</Table>
(g) The security is a perpetual bond and has no stated maturity date.
(h) Non-income producing security.
(i) Convertible security.
(j) Represents or includes a "to-be-announced" transaction. The Fund has
committed to purchasing securities for which all specific information is
not available at this time.
(k) Represents the current yield as of June 30, 2007.
(l) Represents the interest only portion of a mortgage-backed security and has
either a nominal or a notional amount of principal.
(m) Brady Bonds are securities which have been issued to refinance commercial
bank loans and other debt. The risk associated with these instruments is
the amount of any uncollateralized principal or interest payments since
there is a high default rate of commercial bank loans by countries issuing
these securities.
(n) Subject to principal paydowns.
(o) This European style swaption, which can be exercised only on the expiration
date, represents a standby commitment whereby the writer of the option is
obligated to enter into a predetermined interest rate swap contract upon
exercise of the swaption.
17
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Balanced Capital V.I. Fund
Schedule of Investments as of June 30, 2007 (continued) (in U.S. dollars)
- --------------------------------------------------------------------------------
- For Fund compliance purposes, the Fund's industry classifications refer to
any one or more of the industry sub-classifications used by one or more
widely recognized market indexes or ratings group indexes, and/or as
defined by Fund management. This definition may not apply for purposes of
this report which may combine industry sub-classifications for reporting
ease. Industries are shown as a percent of net assets.
- - The cost and unrealized appreciation (depreciation) of investments, net of
TBA sale commitments, as of June 30, 2007, as computed for federal income
tax purposes, were as follows:
<Table>
Aggregate cost.............................................. $56,497,455
===========
Gross unrealized appreciation............................... $12,449,301
Gross unrealized depreciation............................... (1,154,852)
-----------
Net unrealized appreciation................................. $11,294,449
===========
</Table>
- Forward foreign exchange contracts purchased as of June 30, 2007 were as
follows:
<Table>
<Caption>
- -------------------------------------------------
FOREIGN CURRENCY SETTLEMENT UNREALIZED
PURCHASED DATE DEPRECIATION
- -------------------------------------------------
AUD 721,000 July 2007 $ (73)
- -------------------------------------------------
TOTAL UNREALIZED DEPRECIATION ON
FORWARD FOREIGN EXCHANGE CONTRACTS
PURCHASED (USD
COMMITMENT--$611,030) $ (73)
========
- -------------------------------------------------
</Table>
- - Forward foreign exchange contracts sold as of June 30, 2007 were as follows:
<Table>
<Caption>
- -------------------------------------------------
SETTLEMENT UNREALIZED
FOREIGN CURRENCY SOLD DATE DEPRECIATION
- -------------------------------------------------
AUD 721,000 July 2007 $(23,918)
- -------------------------------------------------
TOTAL UNREALIZED DEPRECIATION ON
FORWARD FOREIGN EXCHANGE CONTRACTS
SOLD (USD COMMITMENT--$587,040) $(23,918)
========
- -------------------------------------------------
</Table>
- - Financial futures contracts purchased as of June 30, 2007 were as follows:
<Table>
<Caption>
- --------------------------------------------------------------------------------
NUMBER OF EXPIRATION FACE UNREALIZED
CONTRACTS ISSUE DATE VALUE DEPRECIATION
- --------------------------------------------------------------------------------
14 30-Year U.S. Treasury Bond September 2007 $1,522,000 $(13,500)
3 EuroBond Futures September 2007 $ 454,822 (5,137)
8 EuroDollar Futures December 2008 $1,898,813 (3,213)
- --------------------------------------------------------------------------------
TOTAL UNREALIZED DEPRECIATION $(21,850)
========
- --------------------------------------------------------------------------------
</Table>
- - Financial futures contracts sold as of June 30, 2007 were as follows:
<Table>
<Caption>
- ----------------------------------------------------------------------------------
UNREALIZED
NUMBER OF EXPIRATION FACE APPRECIATION
CONTRACTS ISSUE DATE VALUE (DEPRECIATION)
- ----------------------------------------------------------------------------------
8 2-Year U.S. Treasury Bond September 2007 $1,627,845 $(2,405)
24 5-Year U.S. Treasury Bond September 2007 $2,511,116 13,241
9 10-Year U.S. Treasury Bond September 2007 $ 954,509 3,181
- ----------------------------------------------------------------------------------
TOTAL UNREALIZED APPRECIATION--NET $14,017
=======
- ----------------------------------------------------------------------------------
</Table>
- - Swap contracts outstanding as of June 30, 2007 were as follows:
<Table>
<Caption>
- -----------------------------------------------------------------------------------------
UNREALIZED
NOTIONAL APPRECIATION
AMOUNT (DEPRECIATION)
- -----------------------------------------------------------------------------------------
Receive (pay) a variable return based on the change in the
spread return of the Lehman Brothers CMBS AAA 8.5+ Index and
receive a floating rate based on the spread plus .40%
Broker, Morgan Stanley Capital Services Inc.
Expires October 2007........................................ $ 420,000 --
Receive a fixed rate of 3.401% and pay 3.875% on Treasury
Inflation Protected Securities (TIPS) adjusted principal
Broker, JPMorgan Chase
Expires January 2009........................................ $ 171,000 $ (2,184)
Pay a fixed rate of 5.0675% and receive a floating rate
based on 3-month LIBOR
Broker, Deutsche Bank AG London
Expires April 2009.......................................... $ 600,000 3,185
</Table>
18
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Balanced Capital V.I. Fund
Schedule of Investments as of June 30, 2007 (concluded) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
NOTIONAL UNREALIZED
AMOUNT DEPRECIATION
- -----------------------------------------------------------------------------------------
Receive a fixed rate of 5.2725% and pay a floating rate
based on 3-month LIBOR
Broker, Citibank, N.A.
Expires October 2009........................................ $ 600,000 $ (1,469)
Receive a fixed rate of 5.215% and pay a floating rate based
on 3-month LIBOR
Broker, Lehman Brothers Special Finance
Expires October 2010........................................ $1,000,000 (6,202)
Bought credit default protection on Sara Lee Corp. and pay
0.57%
Broker, Lehman Brothers Special Finance
Expires December 2010....................................... $ 60,000 (612)
Bought credit default protection on RadioShack Corp. and pay
1.16%
Broker, UBS Warburg
Expires December 2010....................................... $ 60,000 (709)
Bought credit default protection on Limited Brands, Inc. and
pay 1.065%
Broker, UBS Warburg
Expires December 2010....................................... $ 60,000 (1,400)
Receive a fixed rate of 4.17% and pay 3.50% on Treasury
Inflation Protected Securities (TIPS) adjusted principal
Broker, Morgan Stanley Capital Services Inc.
Expires January 2011........................................ $ 150,000 (7,537)
Bought credit default protection on Sara Lee Corp. and pay
0.604%
Broker, JPMorgan Chase
Expires March 2011.......................................... $ 60,000 (667)
Bought credit default protection on Limited Brands, Inc. and
pay 0.73%
Broker, Lehman Brothers Special Finance
Expires March 2011.......................................... $ 60,000 (701)
Bought credit default protection on Computer Sciences Corp.
and pay 0.88%
Broker, Morgan Stanley Capital Services Inc.
Expires June 2011........................................... $ 60,000 (511)
Receive a fixed rate of 5.035% and pay a floating rate based
on 3-month LIBOR
Broker, Morgan Stanley Capital Services Inc.
Expires November 2011....................................... $ 600,000 (9,959)
Receive a fixed rate of 4.946% and pay a floating rate based
on 3-month LIBOR
Broker, Citibank, N.A.
Expires December 2011....................................... $ 500,000 (10,195)
Receive a fixed rate of 4.897% and pay a floating rate based
on 3-month LIBOR
Broker, JPMorgan Chase
Expires December 2011....................................... $1,000,000 (22,299)
Bought credit default protection on Eastman Chemical Co. and
pay 0.68%
Broker, Morgan Stanley Capital Services Inc.
Expires September 2013...................................... $ 55,000 (502)
Receive a fixed rate of 5.085% and pay a floating rate based
on 3-month LIBOR
Broker, Deutsche Bank AG London
Expires November 2016....................................... $ 100,000 (4,107)
Receive a fixed rate of 5.16% and pay a floating rate based
on 3-month LIBOR
Broker, Deutsche Bank AG London
Expires February 2017....................................... $ 200,000 (4,734)
Pay a fixed rate of 5.725% and receive a floating rate based
on 3-month LIBOR
Broker, Deutsche Bank AG London
Expires June 2017........................................... $ 400,000 (1,720)
Receive a fixed rate of 5.409% and pay a floating rate based
on 3-month LIBOR
Broker, Deutsche Bank AG London
Expires April 2027.......................................... $ 100,000 (4,659)
- -----------------------------------------------------------------------------------------
TOTAL....................................................... $(76,982)
========
- -----------------------------------------------------------------------------------------
</Table>
- - Currency Abbreviations:
<Table>
AUD Australian Dollar
JPY Japanese Yen
USD U.S. Dollar
</Table>
See Notes to Financial Statements.
19
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Balanced Capital V.I. Fund
Statement of Assets and Liabilities as of June 30, 2007 (unaudited)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments in unaffiliated securities, at value (identified
cost--$58,134,545)........................................ $69,969,373
Investments in affiliated securities, at value (identified
cost--$1,431,111)......................................... 1,431,111
Options purchased, at value (premiums paid--$2,862)......... 1,903
Foreign cash (cost--$192,667)............................... 183,558
Unrealized appreciation on swaps............................ 3,185
Receivables:
Securities sold........................................... $ 8,538,381
Interest.................................................. 120,594
Dividends................................................. 56,324
Paydowns.................................................. 5,569
Variation margin.......................................... 478
Swaps..................................................... 157
Capital Share Sold........................................ 4 8,721,507
-----------
Prepaid expenses............................................ 930
-----------
Total assets................................................ 80,311,567
-----------
- -----------------------------------------------------------------------------------------
LIABILITIES:
Unrealized depreciation on swaps............................ 80,167
Unrealized depreciation on forward foreign exchange
contracts................................................. 23,991
Bank overdraft.............................................. 8,628
TBA sale commitments, at value (premiums
received--$3,621,560)..................................... 3,610,483
Payables:
Securities purchased...................................... 11,519,299
Capital shares redeemed................................... 37,889
Swaps..................................................... 33,106
Investment adviser........................................ 28,595
Other affiliates.......................................... 1,886
Distributor............................................... 2 11,620,777
-----------
Accrued expenses and other liabilities...................... 21,611
-----------
Total liabilities........................................... 15,365,657
-----------
- -----------------------------------------------------------------------------------------
NET ASSETS.................................................. $64,945,910
===========
- -----------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Class I Shares of Common Stock, $.10 par value, 100,000,000
shares authorized......................................... $ 444,885
Class II Shares of Common Stock, $.10 par value, 100,000,000
shares authorized......................................... 9
Class III Shares of Common Stock, $.10 par value,
100,000,000 shares authorized............................. 9
Paid-in capital in excess of par............................ 57,618,584
Undistributed investment income--net........................ $ 657,587
Accumulated realized capital losses--net.................... (5,502,529)
Unrealized appreciation--net................................ 11,727,365
-----------
Total accumulated earnings--net............................. 6,882,423
-----------
NET ASSETS.................................................. $64,945,910
===========
- -----------------------------------------------------------------------------------------
NET ASSET VALUE:
Class I--Based on net assets of $64,943,202 and 4,448,847
shares outstanding........................................ $ 14.60
===========
Class II--Based on net assets of $1,354 and 93.118 shares
outstanding............................................... $ 14.54
===========
Class III--Based on net assets of $1,354 and 93.118 shares
outstanding............................................... $ 14.54
===========
- -----------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements.
20
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Balanced Capital V.I. Fund
Statement of Operations for the Six Months Ended June 30, 2007 (unaudited)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Interest (including $28,500 from affiliates and net of $850
foreign withholding tax).................................. $ 552,555
Dividends (net of $5,617 foreign withholding tax)........... 390,698
----------
Total income................................................ 943,253
----------
- ---------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees.................................... $ 180,285
Professional fees........................................... 17,128
Pricing services............................................ 10,762
Custodian fees.............................................. 10,550
Accounting services......................................... 8,883
Printing and shareholder reports............................ 7,360
Transfer agent fees--Class I................................ 2,703
Directors' fees and expenses................................ 2,350
Distribution fees--Class III................................ 2
Distribution fees--Class II................................. 1
Other....................................................... 5,265
----------
Total expenses.............................................. 245,289
----------
Investment income--net...................................... 697,964
----------
- ---------------------------------------------------------------------------------------
REALIZED & UNREALIZED GAIN (LOSS)--NET:
Realized gain (loss) on:
Investments--net.......................................... 2,463,100
Financial futures contracts and swaps--net................ (95,333)
Options written--net...................................... 9,120
Foreign currency transactions--net........................ (25,151) 2,351,736
----------
Change in unrealized appreciation/depreciation on:
Investments--net.......................................... 965,942
Financial futures contracts and swaps--net................ (71,237)
Options written--net...................................... (3,365)
Foreign currency transactions--net........................ (26,781) 864,559
---------- ----------
Total realized and unrealized gain--net..................... 3,216,295
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $3,914,259
==========
- ---------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements.
21
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Balanced Capital V.I. Fund
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<Table>
<Caption>
FOR THE SIX
MONTHS ENDED FOR THE
JUNE 30, 2007 YEAR ENDED
INCREASE (DECREASE) IN NET ASSETS: (UNAUDITED) DECEMBER 31, 2006
- -----------------------------------------------------------------------------------------------
OPERATIONS:
Investment income--net...................................... $ 697,964 $ 1,386,550
Realized gain--net.......................................... 2,351,736 2,981,046
Change in unrealized appreciation/depreciation--net......... 864,559 5,214,275
----------- ------------
Net increase in net assets resulting from operations........ 3,914,259 9,581,871
----------- ------------
- -----------------------------------------------------------------------------------------------
DIVIDENDS TO SHAREHOLDERS:
Investment income--net:
Class I................................................... -- (1,418,048)
Class II.................................................. -- (27)
Class III................................................. -- (27)
----------- ------------
Net decrease in net assets resulting from dividends to
shareholders.............................................. -- (1,418,102)
----------- ------------
- -----------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Net decrease in net assets derived from capital share
transactions.............................................. (5,650,524) (13,995,502)
----------- ------------
- -----------------------------------------------------------------------------------------------
NET ASSETS:
Total decrease in net assets................................ (1,736,265) (5,831,733)
Beginning of period......................................... 66,682,175 72,513,908
----------- ------------
End of period*.............................................. $64,945,910 $ 66,682,175
=========== ============
- -----------------------------------------------------------------------------------------------
* Undistributed (accumulated distributions in excess of)
investment income--net.................................... $ 657,587 $ (40,377)
=========== ============
- -----------------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements.
22
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Balanced Capital V.I. Fund
Financial Highlights
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS I
----------------------------------------------------------------
FOR THE SIX
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE MONTHS ENDED FOR THE YEAR ENDED DECEMBER 31,
BEEN DERIVED FROM INFORMATION PROVIDED IN THE JUNE 30, 2007 ------------------------------------------------
FINANCIAL STATEMENTS. (UNAUDITED) 2006 2005 2004 2003 2002
- ------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............ $ 13.76 $ 12.21 $ 11.95 $ 11.22 $ 9.43 $ 11.27
------- ------- ------- ------- ------- --------
Investment income--net**........................ .15 .26 .21 .19 .20 .27
Realized and unrealized gain (loss)--net........ .69 1.59 .28 .78 1.83 (1.81)
------- ------- ------- ------- ------- --------
Total from investment operations................ .84 1.85 .49 .97 2.03 (1.54)
------- ------- ------- ------- ------- --------
Less dividends from investment income--net...... -- (.30) (.23) (.24) (.24) (.30)
------- ------- ------- ------- ------- --------
Net asset value, end of period.................. $ 14.60 $ 13.76 $ 12.21 $ 11.95 $ 11.22 $ 9.43
======= ======= ======= ======= ======= ========
- ------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:***
Based on net asset value per share.............. 6.10%+ 15.14% 4.13% 8.67% 21.55% (13.68%)
======= ======= ======= ======= ======= ========
- ------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses........................................ .75%* .78% .78% .72% .68% .66%
======= ======= ======= ======= ======= ========
Investment income--net.......................... 2.13%* 2.03% 1.78% 1.69% 2.00% 2.55%
======= ======= ======= ======= ======= ========
- ------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)........ $64,943 $66,680 $72,512 $82,904 $92,438 $ 91,504
======= ======= ======= ======= ======= ========
Portfolio turnover.............................. 48%++ 112% 84% 87% 109% 32%
======= ======= ======= ======= ======= ========
- ------------------------------------------------------------------------------------------------------------------
</Table>
* Annualized.
** Based on average shares outstanding.
*** Total investment returns exclude insurance-related fees and expenses.
+ Aggregate total investment return.
++ Excludes dollar roll transactions.
See Notes to Financial Statements.
23
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Balanced Capital V.I. Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS II
------------------------------------------------------------
FOR THE SIX FOR THE YEAR ENDED
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE MONTHS ENDED DECEMBER 31, FOR THE PERIOD
BEEN DERIVED FROM INFORMATION PROVIDED IN THE JUNE 30, 2007 ------------------- SEPTEMBER 30, 2004@
FINANCIAL STATEMENTS. (UNAUDITED) 2006 2005 TO DECEMBER 31, 2004
- ------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................ $13.72 $ 12.20 $11.94 $11.41
------ ------- ------ ------
Investment income--net**............................ .13 .25 .20 .08
Realized and unrealized gain--net................... .69 1.57 .29 .69
------ ------- ------ ------
Total from investment operations.................... .82 1.82 .49 .77
------ ------- ------ ------
Less dividends from investment income--net.......... -- (.30) (.23) (.24)
------ ------- ------ ------
Net asset value, end of period...................... $14.54 $ 13.72 $12.20 $11.94
====== ======= ====== ======
- ------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:***
Based on net asset value per share.................. 5.98%+ 14.91% 4.13% 6.77%+
====== ======= ====== ======
- ------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses............................................ .94%* .90% .78% .72%*
====== ======= ====== ======
Investment income--net.............................. 1.95%* 1.93% 1.67% 2.59%*
====== ======= ====== ======
- ------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)............ $ 1 $ 1 $ 1 $ 1
====== ======= ====== ======
Portfolio turnover.................................. 48%++ 112% 84% 87%
====== ======= ====== ======
- ------------------------------------------------------------------------------------------------------------------
</Table>
* Annualized.
** Based on average shares outstanding.
*** Total investment returns exclude insurance-related fees and expenses.
+ Aggregate total investment return.
++ Excludes dollar roll transactions.
@ Commencement of operations.
See Notes to Financial Statements.
24
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Balanced Capital V.I. Fund
Financial Highlights (concluded)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS III
-------------------------------------------------------------
FOR THE SIX FOR THE YEAR ENDED
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE MONTHS ENDED DECEMBER 31, FOR THE PERIOD
BEEN DERIVED FROM INFORMATION PROVIDED IN THE JUNE 30, 2007 -------------------- SEPTEMBER 30, 2004@
FINANCIAL STATEMENTS. (UNAUDITED) 2006 2005 TO DECEMBER 31, 2004
- ------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............... $ 13.72 $ 12.20 $ 11.94 $ 11.41
------- ------- ------- -------
Investment income--net**........................... .12 .25 .20 .08
Realized and unrealized gain--net.................. .70 1.57 .29 .69
------- ------- ------- -------
Total from investment operations................... .82 1.82 .49 .77
------- ------- ------- -------
Less dividends from investment income--net......... -- (.30) (.23) (.24)
------- ------- ------- -------
Net asset value, end of period..................... $ 14.54 $ 13.72 $ 12.20 $ 11.94
======= ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:***
Based on net asset value per share................. 5.98%+ 14.91% 4.13% 6.77%+
======= ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses........................................... 1.04%* .92% .78% .72%*
======= ======= ======= =======
Investment income--net............................. 1.92%* 1.90% 1.67% 2.59%*
======= ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)........... $ 1 $ 1 $ 1 $ 1
======= ======= ======= =======
Portfolio turnover................................. 48%++ 112% 84% 87%
======= ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------
</Table>
* Annualized.
** Based on average shares outstanding.
*** Total investment returns exclude insurance-related fees and expenses.
+ Aggregate total investment return.
++ Excludes dollar roll transactions.
@ Commencement of operations.
See Notes to Financial Statements.
25
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.,
BlackRock Balanced Capital V.I. Fund
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES:
BlackRock Variable Series Funds, Inc. (the "Company") is an open-end management
investment company that is comprised of 16 separate funds. Each fund offers
three 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. ("Merrill Lynch")), and other insurance companies that are not
affiliated with Merrill Lynch, for their separate accounts to fund benefits
under certain variable annuity and variable life insurance contracts. BlackRock
Balanced Capital V.I. Fund (the "Fund") is classified as "diversified," as
defined in the Investment Company Act of 1940, as amended. Class I, Class II and
Class III 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. In addition, Class II and Class III Shares
bear certain expenses related to the distribution of such shares. The Fund's
financial statements are prepared in conformity with U.S. generally accepted
accounting principles, which may require the use of management accruals and
estimates. Actual results may differ from these estimates. These unaudited
financial statements reflect all adjustments, which are, in the opinion of
management, necessary to present a fair statement of the results for the interim
period. All such adjustments are of a normal, recurring nature. Income, expenses
(other than expenses attributable to a specific class) and realized and
unrealized gains and losses are allocated daily to each class based on its
relative net assets. The following is a summary of significant accounting
policies followed by the Fund.
(a) Valuation of investments--Debt securities are traded primarily in the
over-the-counter ("OTC") markets and are valued at the last available bid price
in the OTC market or on the basis of values obtained by a pricing service.
Pricing services use valuation matrixes that incorporate both dealer-supplied
valuations and valuation models. The procedures of the pricing service and its
valuations are reviewed by the officers of the Company under the general
direction of the Board of Directors. Such valuations and procedures will be
reviewed periodically by the Board of Directors of the Company. Financial
futures contracts and options thereon, which are traded on exchanges, are valued
at their closing prices as of the close of such exchanges. Options written or
purchased are valued at the last sale price in the case of exchange-traded
options. Options traded in the OTC market are valued at the last asked price
(options written) or the last bid price (options purchased). Swap agreements are
valued based upon quoted fair valuations received daily by the Fund from a
pricing service or counterparty. Valuation of short-term investment vehicles is
generally based on the net asset value of the underlying investment vehicle or
amortized cost. Repurchase agreements are valued at cost plus accrued interest.
Investments in open-end investment companies are valued at their net asset value
each business day. Securities and other 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.
Equity securities held by the Fund that are traded on stock exchanges or the
NASDAQ Global Market are valued at the last sale price or official close price
on the exchange, as of the close of business on the day the securities are being
valued or, lacking any sales, at the last available bid price for long
positions, and at the last available asked price for short positions. In cases
where equity securities are traded on more than one exchange, the securities are
valued on the exchange designated as the primary market by or under the
authority of the Board of Directors of the Company. Long positions traded in the
OTC markets, NASDAQ Capital Market or Bulletin Board are valued at the last
available bid price obtained from one or more dealers or pricing services
approved by the Board of Directors of the Company. Short positions traded in the
OTC markets are valued at the last available asked price. Portfolio securities
that are traded both in the OTC markets and on a stock exchange are valued
according to the broadest and most representative market.
Generally, trading in foreign securities, as well as U.S. government
securities, money market instruments and certain fixed income securities, is
substantially completed each day at various times prior to the close of business
on the New York Stock Exchange ("NYSE"). The values of such securities used in
computing the net asset value of the Fund's shares are determined as of such
times. Foreign currency exchange rates will generally be determined as of the
close of business on the NYSE. Occasionally, events affecting the values of such
securities and such exchange rates may occur between the times at which they are
determined and the close of
26
- --------------------------------------------------------------------------------
business on the NYSE that may not be reflected in the computation of the Fund's
net asset value. If events (for example, a company announcement, market
volatility or a natural disaster) occur during such periods that are expected to
materially affect the value of such securities, those securities will be valued
at their fair value as determined in good faith by the Company's Board of
Directors or by BlackRock Advisors, LLC (the "Manager"), an indirect, wholly
owned subsidiary of BlackRock, Inc., using a pricing service and/or procedures
approved by the Company's Board of Directors.
(b) Derivative financial instruments--The Fund may engage in various portfolio
investment strategies both to increase the return of the Fund and to hedge, or
protect, its exposure to interest rate movements and movements in the securities
markets. Losses may arise due to changes in the value of the contract due to an
unfavorable change in price of the underlying security or index, or if the
counterparty does not perform under the contract. The counterparty for certain
investments may pledge cash or securities as collateral.
- - Financial futures contracts--The Fund may purchase or sell financial futures
contracts and options on such financial futures contracts. Financial futures
contracts are contracts for delayed delivery of securities at a specific future
date and at a specific price or yield. Upon entering into a contract, the Fund
deposits and maintains as collateral such initial margin as required by the
exchange on which the transaction is effected. Pursuant to the contract, the
Fund agrees to receive from or pay to the broker an amount of cash equal to the
daily fluctuation in value of the contract. Such receipts or payments are known
as variation margin and are recorded by the Fund as unrealized gains or losses.
When the contract is closed, the Fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed.
- - Options--The Fund may purchase and write call and put options. When the Fund
writes an option, an amount equal to the premium received by the Fund is
reflected as an asset and an equivalent liability. The amount of the liability
is subsequently marked-to-market to reflect the current market value of the
option written. When a security is purchased or sold through an exercise of an
option, the related premium paid (or received) is added to (or deducted from)
the basis of the security acquired or deducted from (or added to) the proceeds
of the security sold. When an option expires (or the Fund enters into a closing
transaction), the Fund realizes a gain or loss on the option to the extent of
the premiums received or paid (or loss or gain to the extent the cost of the
closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
- - Swaps--The Fund may enter into swap agreements, which are OTC contracts in
which the Fund and a counterparty agree to make periodic net payments on a
specified notional amount. The net payments can be made for a set period of time
or may be triggered by a predetermined credit event. The net periodic payments
may be based on a fixed or variable interest rate; the change in market value of
a specified security, basket of securities, or index; or the return generated by
a security. These periodic payments received or made by the Fund are recorded in
the accompanying Statement of Operations as realized gains or losses,
respectively. Gains or losses are also realized upon termination of the swap
agreements. Swaps are marked-to-market daily and changes in value are recorded
as unrealized appreciation (depreciation). Risks include changes in the returns
of the underlying instruments, failure of the counterparties to perform under
the contracts' terms and the possible lack of liquidity with respect to the swap
agreements.
- - Forward foreign exchange contracts--The Fund may enter into forward foreign
exchange contracts as a hedge against either specific transactions or portfolio
positions. The contract is marked-to-market daily and the change in market value
is recorded by the Fund as an unrealized gain or loss. When the contract is
closed, the Fund records a realized gain or loss equal to the difference between
the value at the time it was opened and the value at the time it was closed.
(c) Foreign currency transactions--Transactions denominated in foreign
currencies are recorded at the exchange rate prevailing when recognized. Assets
and liabilities denominated in foreign currencies are valued at the exchange
rate at the end of the period. Foreign currency transactions are the result of
settling (realized) or valuing (unrealized) assets or liabilities expressed in
foreign currencies into U.S. dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates on investments.
The Fund invests in foreign securities, which may involve a number of risk
factors and special considerations not present with investments in securities of
U.S. corporations.
(d) Income taxes--It is the Fund's policy to comply with the requirements of
the Internal
27
- --------------------------------------------------------------------------------
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).
Realized gains and losses on security transactions are determined on the
identified cost basis. Dividend income is recorded on the ex-dividend dates.
Interest income is recognized on the accrual basis. The Fund amortizes all
premiums and discounts on debt securities.
(f) Dividends and distributions--Dividends and distributions paid by the Fund
are recorded on the ex-dividend dates.
(g) Expenses--Certain expenses have been allocated to the individual funds in
the Company on a pro rata basis based upon the respective aggregate net asset
value of each fund included in the Company.
(h) Securities lending--The Fund may lend securities to financial institutions
that provide cash or securities issued or guaranteed by the U.S. government as
collateral, which will be maintained at all times in an amount equal to at least
100% of the current market value of the loaned securities. The market value of
the loaned securities is determined at the close of business of the Fund and any
additional required collateral is delivered to the Fund on the next business
day. Where the Fund receives securities as collateral for the loaned securities,
it receives a fee from the borrower. The Fund typically receives the income on
the loaned securities but does not receive the income on the collateral. Where
the Fund receives cash collateral, it may invest such collateral and retain the
amount earned on such investment, net of any amount rebated to the borrower.
Loans of securities are terminable at any time and the borrower, after notice,
is required to return borrowed securities within five business days. The Fund
may pay reasonable finder's, lending agent, administrative and custodial fees in
connection with its loans. In the event that the borrower defaults on its
obligation to return borrowed securities because of insolvency or for any other
reason, the Fund could experience delays and costs in gaining access to the
collateral. The Fund also could suffer a loss where the value of the collateral
falls below the market value of the borrowed securities, in the event of
borrower default or in the event of losses on investments made with cash
collateral.
(i) TBA commitments--The Fund may enter into to be announced ("TBA")
commitments to purchase or sell securities for a fixed price at a future date.
TBA commitments are considered securities in themselves, and involve a risk of
loss if the value of the security to be purchased/sold declines/increases prior
to settlement date, which is in addition to the risk of decline in the value of
a Fund's other assets. Unsettled TBA commitments are valued at the current
market value of the underlying securities, according to the procedures described
under "Valuation of investments."
(j) Mortgage dollar rolls--The Fund may sell mortgage-backed securities for
delivery in the current month and simultaneously contract to repurchase
substantially similar (same type, coupon and maturity) securities on a specific
future date.
(k) Bank overdraft--The Fund recorded a bank overdraft which resulted from
management estimates of available cash.
(l) Recent accounting pronouncements--Effective June 29, 2007, the Fund
implemented Financial Accounting Standards Board ("FASB") Interpretation No. 48,
"Accounting for Uncertainty in Income Taxes--an interpretation of FASB Statement
No. 109" ("FIN 48"). FIN 48 prescribes the minimum recognition threshold a tax
position must meet in connection with accounting for uncertainties in income tax
positions taken or expected to be taken by an entity, including investment
companies, before being measured and recognized in the financial statements.
Management has evaluated the application of FIN 48 to the Fund, and has
determined that the adoption of FIN 48 does not have a material impact on the
Fund's financial statements. The Fund files U.S. and various state tax returns.
No income tax returns are currently under examination. The statute of
limitations on the Fund's tax returns remains open for the years ended December
31, 2003 through December 31, 2006.
In September 2006, Statement of Financial Accounting Standards No. 157, "Fair
Value Measurements" ("FAS 157"), was issued and is effective for fiscal years
beginning after November 15, 2007. FAS 157 defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. At this time, management is evaluating the implications of FAS 157
and its impact on the Fund's financial statements, if any, has not been
determined.
28
- --------------------------------------------------------------------------------
In addition, in February 2007, Statement of Financial Accounting Standards No.
159, "The Fair Value Option for Financial Assets and Financial Liabilities"
("FAS 159"), was issued and is effective for fiscal years beginning after
November 15, 2007. Early adoption is permitted as of the beginning of a fiscal
year that begins on or before November 15, 2007, provided the entity also elects
to apply the provisions of FAS 157. FAS 159 permits entities to choose to
measure many financial instruments and certain other items at fair value that
are not currently required to be measured at fair value. FAS 159 also
establishes presentation and disclosure requirements designed to facilitate
comparisons between entities that choose different measurement attributes for
similar types of assets and liabilities. At this time, management is evaluating
the implications of FAS 159 and its impact on the Fund's financial statements,
if any, has not been determined.
2. INVESTMENT ADVISORY AGREEMENT AND TRANSACTIONS WITH AFFILIATES:
The Fund has entered into an Investment Advisory Agreement with the Manager. The
Fund has also entered into separate Distribution Agreements and Distribution
Plans with FAM Distributors, Inc. ("FAMD") and BlackRock Distributors, Inc. and
its affiliates ("BDI") (collectively, the "Distributor"). FAMD is a wholly owned
subsidiary of Merrill Lynch Group, Inc., and BDI is an affiliate of BlackRock,
Inc. Merrill Lynch and The PNC Financial Services Group, Inc. ("PNC") are the
principal owners of BlackRock, Inc.
The Manager 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 Fund. For such services, the Fund
pays a monthly fee at an annual rate of .55% of the average daily value of the
Fund's net assets. In addition, the Manager has entered into sub-advisory
agreements with BlackRock Investment Management, LLC ("BIM") and BlackRock
Financial Management, Inc., both affiliates of the Manager, under which the
Manager pays each Sub-Adviser for services they provide a monthly fee at an
annual rate that is a percentage of the management fee paid by the Fund to the
Manager.
Pursuant to the Distribution Plans adopted by the Company, in accordance with
Rule 12b-1 under the Investment Company Act of 1940, the Fund pays the
Distributor an ongoing distribution fee each month at the annual rate of .15%
and .25% of the average daily value of the Fund's Class II and Class III net
assets, respectively.
The Company has received an exemptive order from the Securities and Exchange
Commission permitting it to lend portfolio securities to Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S"), a wholly owned subsidiary of Merrill
Lynch, or its affiliates. Pursuant to that order, the Company has also retained
BIM as the securities lending agent for a fee based on a share of the returns on
investment of cash collateral. BIM may, on behalf of the Company and the Fund,
invest cash collateral received by the Fund for such loans, among other things,
in a private investment company managed by the Manager or in registered money
market funds advised by the Manager or its affiliates.
For the six months ended June 30, 2007, the Fund reimbursed the Manager $687
for certain accounting services.
In addition, MLPF&S received $2,645 in commissions on the execution of
portfolio security transactions for the Fund for the six months ended June 30,
2007.
PFPC Inc., an indirect, wholly owned subsidiary of PNC and an affiliate of the
Manager, is the Fund's transfer agent.
Certain officers and/or directors of the Company are officers and/or directors
of BlackRock, Inc. or its affiliates.
3. INVESTMENTS:
Purchases and sales (including paydowns and excluding dollar roll transactions)
of investments, excluding short-term securities, for the six months ended June
30, 2007 were $33,114,412 and $35,800,532, respectively.
Transactions in options written for the six months ended June 30, 2007 were as
follows:
<Table>
<Caption>
- --------------------------------------------------------------------
Number of Premiums
Call Options Written Contracts+ Received
- --------------------------------------------------------------------
Outstanding call options written, beginning
of period................................... 1 $ 13,200
Options closed............................... (1) (13,200)
-- --------
Outstanding call options written, end of
period...................................... -- --
== ========
- --------------------------------------------------------------------
</Table>
+ One contract represents a notional amount of $1,000,000.
<Table>
<Caption>
- --------------------------------------------------------------------
Number of Premiums
Put Options Written Contracts+ Received
- --------------------------------------------------------------------
Outstanding put options written, beginning of
period...................................... 1 $ 13,200
Options closed............................... (1) (13,200)
-- --------
Outstanding put options written, end of
period...................................... -- --
== ========
- --------------------------------------------------------------------
</Table>
+ One contract represents a notional amount of $1,000,000.
4. CAPITAL SHARE TRANSACTIONS:
Net decrease in net assets derived from capital share transactions was
$5,650,524 and $13,995,502 for the six months ended June 30, 2007 and the year
ended December 31, 2006, respectively.
29
- --------------------------------------------------------------------------------
Transactions in capital shares for each class were as follows:
<Table>
<Caption>
- -------------------------------------------------------------------
Class I Shares for the Six Months Ended
June 30, 2007 Shares Dollar Amount
- -------------------------------------------------------------------
Shares sold............................. 448 $ 6,185
Shares redeemed......................... (398,932) (5,656,709)
-------- -----------
Net decrease............................ (398,484) $(5,650,524)
======== ===========
- -------------------------------------------------------------------
</Table>
<Table>
<Caption>
- ------------------------------------------------------------------
Class I Shares for the Year Ended
December 31, 2006 Shares Dollar Amount
- ------------------------------------------------------------------
Shares sold.......................... 1,341 $ 17,009
Shares issued to shareholders in
reinvestment of dividends........... 103,158 1,418,048
---------- ------------
Total issued......................... 104,499 1,435,057
Shares redeemed...................... (1,194,176) (15,430,613)
---------- ------------
Net decrease......................... (1,089,677) $(13,995,556)
========== ============
- ------------------------------------------------------------------
</Table>
<Table>
<Caption>
- ------------------------------------------------------------------
Class II Shares for the Six Months Ended Dollar
June 30, 2007 Shares Amount
- ------------------------------------------------------------------
Shares sold..................................... -- --
Shares issued to shareholders in reinvestment of
dividends...................................... -- --
---- -----
Net increase.................................... -- --
==== =====
- ------------------------------------------------------------------
</Table>
<Table>
<Caption>
- ------------------------------------------------------------------
Class II Shares for Year Ended Dollar
December 31, 2006 Shares Amount
- ------------------------------------------------------------------
Shares issued to shareholders in reinvestment of
dividends...................................... 2 $27
-- ---
Net increase.................................... 2 $27
-- ---
- ------------------------------------------------------------------
</Table>
<Table>
<Caption>
- ------------------------------------------------------------------
Class III Shares for the Six Months Ended Dollar
June 30, 2007 Shares Amount
- ------------------------------------------------------------------
Shares sold..................................... -- --
Shares issued to shareholders in reinvestment of
dividends...................................... -- --
---- -----
Net increase.................................... -- --
==== =====
- ------------------------------------------------------------------
</Table>
<Table>
<Caption>
- ------------------------------------------------------------------
Class III Shares for the Year Ended Dollar
December 31, 2006 Shares Amount
- ------------------------------------------------------------------
Shares issued to shareholders in reinvestment of
dividends...................................... 2 $27
-- ---
Net increase.................................... 2 $27
== ===
- ------------------------------------------------------------------
</Table>
5. SHORT-TERM BORROWINGS:
The Company, on behalf of the Fund, along with certain other funds managed by
the Manager and its affiliates, is party to a $500,000,000 credit agreement with
a group of lenders, which expires November 2007. 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 .06% per annum based on the Fund's pro rata share of the
unused portion of the credit agreement. Amounts borrowed under the credit
agreement bear interest at a rate equal to, at each fund's election, the federal
funds rate plus .35% or a base rate as defined in the credit agreement. The Fund
did not borrow under the credit agreement during the six months ended June 30,
2007.
6. CAPITAL LOSS CARRYFORWARD:
On December 31, 2006, the Fund had a net capital loss carryforward of
$7,341,133, of which $4,638,157 expires in 2010 and $2,702,976 expires in 2011.
This amount will be available to offset like amounts of any future taxable
gains.
30
- --------------------------------------------------------------------------------
BLACKROCK BASIC VALUE V.I. FUND
-------------------------------------------------------------------------
Semi-Annual Report (Unaudited)
June 30, 2007
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Basic Value V.I. Fund
Semi-Annual Report, June 30, 2007
- --------------------------------------------------------------------------------
A DISCUSSION WITH YOUR FUND'S PORTFOLIO MANAGERS
The Fund outperformed its benchmark and comparable Lipper category average for
the period, benefiting from successful stock selection and favorable sector
biases.
HOW DID THE FUND PERFORM DURING THE PERIOD IN LIGHT OF THE EXISTING MARKET
CONDITIONS?
For the six-month period ended June 30, 2007, BlackRock Basic Value V.I.
Fund's Class I, Class II and Class III Shares had total returns of +8.30%,
+8.20% and +8.13%, respectively. For the same period, the Standard & Poor's 500
(S&P 500) Index returned +6.96%, the S&P 500 Citigroup Value Index returned
+7.37% and the Lipper Large-Cap Value Funds (Variable Products) category had an
average return of +6.31%. (Funds in this Lipper category are variable insurance
products that invest in companies considered to be undervalued relative to a
major unmanaged stock index.)
Despite volatility along the way, the U.S. equity markets posted positive
returns for the six-month period. 2007 began much like 2006 ended, with stocks
on a solid upward trajectory. The momentum was interrupted at the end of
February, when concern over rising delinquencies in the subprime mortgage market
sparked fears that contagion from the already weak housing market could spill
over to the rest of the economy. This, and a 10% correction in the Chinese stock
market, prompted a global sell-off that led U.S. stocks to register their most
significant one-week decline in four years. In retrospect, the correction was
short lived and surging corporate merger-and-acquisition (M&A) activity, healthy
global economies and moderate inflation pressures, among other factors, led the
S&P 500 Index to a new record high in late May.
The biggest positive impact for the Fund during the six months came from our
strategy in the financials sector, where our underweight position and good stock
selection resulted in 150 basis points (1.5%) in outperformance versus the S&P
500 Citigroup Value Index. Given the flatness of the yield curve, we chose to
avoid many of the regional banks and lenders whose profits depend on the net
interest margin of the loans they issue. Instead, we focused on investment banks
and brokerages, which we felt were poised to benefit from the robust M&A
activity and healthy calendar of initial public offerings (IPOs). Also additive
to performance in financials was our position in Sallie Mae, which appreciated
significantly upon news that it would be taken over by private equity interests.
Overweight positions in the energy and health care sectors also benefited
performance. Leading offshore driller GlobalSantaFe Corp., our second-largest
energy holding, was the single biggest contributor to Fund performance in the
six months. GlobalSantaFe has benefited as oil service companies have increased
their spending on oil and gas exploration efforts. In health care, performance
was driven by Schering-Plough Corp., a maker of prescription and over-
the-counter drugs, and Baxter International Inc., manufacturer of medical
equipment and supplies. Also among the Fund's top performers was materials name
Alcoa Inc., a leading aluminum company that has been in the news recently. Alcoa
had launched an unsuccessful bid for rival aluminum producer Alcan Inc. and is
now an acquisition target itself.
Detracting somewhat from Fund performance was stock selection in information
technology, led by semiconductor company LSI Corp., which dropped sharply after
missing its second quarter earnings projection. Despite the recent weakness, we
maintain confidence in LSI and would expect improved results following its
acquisition of Agere Systems Inc. Other detractors were two insurance names,
American International Group, Inc. (AIG) and Travelers Cos. Inc., which
struggled in anticipation of the impending hurricane season and investor fears
that the price increases seen in insurance stocks in recent years could abate.
We retained both stocks and, in fact, increased exposure to AIG, which has
continuously met its earnings targets and issued a significant share repurchase
program. AIG represents attractive value, in our view, given its global presence
and the diverse nature of its business, yet remains one of the least expensive
insurance stocks.
WHAT CHANGES WERE MADE TO THE PORTFOLIO DURING THE PERIOD?
We had been preparing the portfolio for a Goldilocks economy for some
time -- a not-too-hot, not-too-cold scenario, characterized by relatively
moderate inflation and low interest rates. In our minds, it was clear that as
the economic cycle matures, the pace of growth inevitably would need to slow. We
see this as a natural progression of the business cycle.
The portfolio has evolved along with the economy. We have started to shy away
from con-
2
- --------------------------------------------------------------------------------
sumer cyclicality, materials and, more generally, companies that are heavily
dependent on the economy for success. Although we believe they may continue to
do well, we expect that there will be more bumps in the road. We saw this at the
end of February when markets corrected amid the turmoil in the subprime mortgage
market. After five years of double-digit earnings growth, we expect to see more
companies missing their earnings targets going forward. At this juncture, we
believe it makes sense to favor large-cap, multinational companies that can
offer more consistency of earnings.
Many of our new purchases during the period occurred in the information
technology (IT) sector, where we initiated positions in Micron Technology, Inc.,
Intel Corp., Taiwan Semiconductor Manufacturer Co. Ltd., Applied Materials Inc.
and Alcatel-Lucent. The result was an increase in our overweighting of IT. For
the most part, we are not seeking technology companies that are trying to create
the next blockbuster product or application, but are focused on what we believe
to be well-run, shareholder-friendly companies that are making smart moves with
their capital allocations and, in some cases, are offering dividends or buying
back shares. In general, we believe IT companies will benefit from a new cycle
of capital spending on technology. On the sell side, we reduced exposure to
Hewlett-Packard Co. after strong performance.
We maintained the Fund's overweight position in energy. Oil prices ended the
period at roughly $72/barrel, up from the $50 range in January, yet many energy
stocks continue to trade at low multiples. We expect to maintain our relatively
heavy exposure to energy stocks as long as commodity prices remain elevated.
Within energy, we initiated a position in Anadarko Petroleum Corp., which
represented good value after a recent merger resulted in underperformance. We
also increased exposure to Peabody Energy Corp. and Consol Energy Inc.
Conversely, we eliminated Devon Energy Corp. from the portfolio and trimmed
GlobalSantaFe on appreciation.
Also worth noting is our exposure to the health care sector, where last year
we established an overweight position for the first time in more than 10 years.
In part, this reflects attractive valuations in the sector but also our view
that, after years of poor performance and a limited product pipeline, the worst
is passed. In the past six months, we initiated a position in Bristol-Myers
Squibb Co. and dramatically increased exposure to Wyeth, two pharmaceutical
giants. Looking ahead, we are more cautious on the sector given the potential
for industry-related legislation coming out of Washington as the political
season approaches.
For the most part, changes to the portfolio were largely stock-specific rather
than thematic. As such, other notable additions included Quest Communications
International Inc. in the telecommunications sector, Wal-Mart Stores, Inc. and
Kraft Foods Inc. in consumer staples, Honda Motor Co. Ltd. in consumer
discretionary and Sallie Mae (bought and sold) and Fannie Mae in financials.
Conversely, we reduced exposure to defense contractor Raytheon Co., as we are
somewhat concerned about defense spending as political jockeying intensifies.
Raytheon has contributed solidly to Fund performance over multiple time periods.
We also reduced exposure to insurance company, The Travelers Cos., Inc.
HOW WOULD YOU CHARACTERIZE THE FUND'S POSITION AT THE CLOSE OF THE PERIOD?
At period-end, the portfolio was overweight versus the S&P 500 Citigroup Value
Index in information technology, energy, consumer staples, health care and
materials. It had underweights in utilities, telecommunication services,
industrials, financials and consumer discretionary.
Looking ahead, we intend to maintain the approach that contributed to the
Fund's outperformance during this reporting period. That involves a focus on
large-cap, multinational companies with the ability to deliver shareholder value
amid a slower economic backdrop. We had argued that the U.S. equity market would
be up in the high single digits to low double digits this year and that, if
wrong, the error would be to the upside (that is, the market would be higher
than we thought). At this juncture, that view stands. In our opinion, the market
has fared well despite some substantial bumps in the road. More potholes are
expected, particularly given such formidable unknowns as global terrorism,
geopolitical concerns and the scope of the subprime collapse. Despite these
worries, there remains a great deal of cash on company balance sheets, which can
be deployed via continued M&A, leveraged buyout and private equity activity.
Importantly, stocks look quite attractive compared to bonds and relative to
expectations for growth, underpinning our cautiously optimistic outlook.
Kevin M. Rendino
Co-Portfolio Manager
Robert J. Martorelli
Co-Portfolio Manager
July 13, 2007
3
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Basic Value V.I. Fund
Total Return Based on a $10,000 Investment
- --------------------------------------------------------------------------------
[LINE GRAPH]
<Table>
<Caption>
BLACKROCK BASIC VALUE
V.I. FUND+--CLASS I STANDARD & POOR'S 500 S&P 500 CITIGROUP VALUE
SHARES* INDEX++ INDEX+++
--------------------- --------------------- -----------------------
6/97 10000 10000 10000
6/98 12144 13016 12627
6/99 14282 15978 14563
6/00 14252 17137 13378
6/01 16648 14595 13395
6/02 15209 11970 12193
6/03 15087 12000 11813
6/04 19147 14293 14482
6/05 19619 15197 16108
6/06 21854 16508 18508
6/07 27489 19907 22536
</Table>
[LINE GRAPH]
<Table>
<Caption>
BLACKROCK BASIC VALUE
V.I. FUND+--CLASS II STANDARD & POOR'S 500 S&P 500 CITIGROUP VALUE
SHARES* INDEX++ INDEX+++
--------------------- --------------------- -----------------------
11/03/97** 10000 10000 10000
6/98 11325 12202 11752
6/99 13303 14979 13554
6/00 13257 16065 12451
6/01 15461 13682 12468
6/02 14102 11221 11348
6/03 13963 11249 10994
6/04 17697 13399 13479
6/05 18096 14246 14992
6/06 20144 15476 17226
6/07 25287 18662 20975
</Table>
[LINE GRAPH]
<Table>
<Caption>
BLACKROCK BASIC VALUE
V.I. FUND+--CLASS III STANDARD & POOR'S 500 S&P 500 CITIGROUP VALUE
SHARES* INDEX++ INDEX+++
--------------------- --------------------- -----------------------
5/25/04** 10000 10000 10000
6/04 10518 10267 10319
6/05 10749 10916 11477
6/06 11946 11858 13187
6/07 14988 14300 16057
</Table>
* Assuming transaction costs, if any, and other operating expenses, including
advisory fees. Does not include insurance-related fees and expenses.
Effective September 2, 2003, Class A and Class B Shares were redesignated
Class I and Class II Shares.
** Commencement of operations.
+ The Fund invests primarily in equities that Fund management believes are
undervalued.
++ This unmanaged Index covers 500 industrial, utility, transportation and
financial companies of the U.S. markets (mostly NYSE issues), representing
about 75% of NYSE market capitalization and 30% of NYSE issues.
+++ This unmanaged Index is designed to provide a comprehensive measure of
large-cap U.S. equity "value" performance. It is an unmanaged float adjusted
market capitalization weighted index comprised of stocks representing
approximately half the market capitalization of the S&P 500 Index that have
been identified as being on the value end of the growth-value spectrum.
Past results shown should not be considered a representation of future
performance.
4
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Basic Value V.I. Fund
Average Annual Total Return--Class I Shares*
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERIOD COVERED RETURN
- --------------------------------------------------------------------------
One Year Ended 6/30/07 +25.79%
- --------------------------------------------------------------------------
Five Years Ended 6/30/07 +12.57
- --------------------------------------------------------------------------
Ten Years Ended 6/30/07 +10.64
- --------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Basic Value V.I. Fund
Average Annual Total Return--Class II Shares*
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERIOD COVERED RETURN
- --------------------------------------------------------------------------
One Year Ended 6/30/07 +25.53%
- --------------------------------------------------------------------------
Five Years Ended 6/30/07 +12.39
- --------------------------------------------------------------------------
Inception (11/03/97) through 6/30/07 +10.09
- --------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Basic Value V.I. Fund
Average Annual Total Return--Class III Shares*
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERIOD COVERED RETURN
- --------------------------------------------------------------------------
One Year Ended 6/30/07 +25.47%
- --------------------------------------------------------------------------
Inception (5/25/04) through 6/30/07 +13.95
- --------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Basic Value V.I. Fund
Recent Performance Results
- --------------------------------------------------------------------------------
<Table>
<Caption>
6-MONTH 12-MONTH
AS OF JUNE 30, 2007 TOTAL RETURN TOTAL RETURN
- -----------------------------------------------------------------------------------------
Class I Shares* +8.30% +25.79%
- -----------------------------------------------------------------------------------------
Class II Shares* +8.20 +25.53
- -----------------------------------------------------------------------------------------
Class III Shares* +8.13 +25.47
- -----------------------------------------------------------------------------------------
S&P 500(R) Index** +6.96 +20.59
- -----------------------------------------------------------------------------------------
S&P 500 Citigroup Value Index*** +7.37 +21.77
- -----------------------------------------------------------------------------------------
</Table>
* Average annual and cumulative 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.
** This unmanaged Index covers 500 industrial, utility, transportation and
financial companies of the U.S. markets (mostly NYSE issues), representing
about 75% of NYSE market capitalization and 30% of NYSE issues.
*** This unmanaged Index is designed to provide a comprehensive measure of
large-cap U.S. equity "value" performance. It is an unmanaged float adjusted
market capitalization weighted index comprised of stocks representing
approximately half the market capitalization of the S&P 500 Index that have
been identified as being on the value of the growth-value spectrum.
Past results shown should not be considered a representation of future
performance.
S&P 500 is a registered trademark of the McGraw-Hill Companies.
5
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Basic Value V.I. Fund
Disclosure of Expenses
- --------------------------------------------------------------------------------
Shareholders of this Fund may incur the following charges: (a) expenses related
to transactions, including sales charges, redemption fees and exchange fees; and
(b) operating expenses including advisory fees, distribution fees including
12b-1 fees, and other Fund expenses. The following example (which is based on a
hypothetical investment of $1,000 invested on January 1, 2007 and held through
June 30, 2007) is intended to assist shareholders both in calculating expenses
based on an investment in the Fund and in comparing these expenses with similar
costs of investing in other mutual funds.
The first table below provides information about actual account values and
actual expenses. In order to estimate the expenses a shareholder paid during the
period covered by this report, shareholders can divide their account value by
$1,000 and then multiply the result by the number in the first line under the
heading entitled "Expenses Paid During the Period."
The second table below provides information about hypothetical account values
and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses. In order to assist
shareholders in comparing the ongoing expenses of investing in this Fund and
other funds, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in other funds' shareholder reports.
The expenses shown in the table are intended to highlight shareholders'
ongoing costs only and do not reflect any transactional expenses, such as sales
charges, redemption fees or exchange fees. Therefore, the second table is useful
in comparing ongoing expenses only, and will not help shareholders determine the
relative total expenses of owning different funds. If these transactional
expenses were included, shareholder expenses would have been higher.
<Table>
<Caption>
EXPENSES PAID
BEGINNING ENDING DURING THE PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JANUARY 1, 2007 TO
JANUARY 1, 2007 JUNE 30, 2007 JUNE 30, 2007
- -------------------------------------------------------------------------------------------------------------------
ACTUAL
- -------------------------------------------------------------------------------------------------------------------
Class I $1,000 $1,083.00 $3.48
- -------------------------------------------------------------------------------------------------------------------
Class II $1,000 $1,082.00 $4.20
- -------------------------------------------------------------------------------------------------------------------
Class III $1,000 $1,081.30 $4.72
- -------------------------------------------------------------------------------------------------------------------
HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES)**
- -------------------------------------------------------------------------------------------------------------------
Class I $1,000 $1,021.56 $3.38
- -------------------------------------------------------------------------------------------------------------------
Class II $1,000 $1,020.86 $4.08
- -------------------------------------------------------------------------------------------------------------------
Class III $1,000 $1,020.36 $4.58
- -------------------------------------------------------------------------------------------------------------------
</Table>
* For each class of the Fund, expenses are equal to the annualized expense
ratio for the class (.67% for Class I, .81% for Class II and .91% for Class
III), multiplied by the average account value over the period, multiplied by
182/365 (to reflect the one-half year period shown).
** Hypothetical 5% annual return before expenses is calculated by pro-rating
the number of days in the most recent fiscal half year divided by 365.
6
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Basic Value V.I. Fund
Portfolio Information as of June 30, 2007
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENT OF
INVESTMENT CRITERIA LONG-TERM INVESTMENTS
- -----------------------------------------------------------------------------------
Above-Average Yield......................................... 34.3%
Below-Average Price/Earnings Ratio.......................... 29.7
Low Price-to-Book Value..................................... 24.9
Special Situations.......................................... 4.3
Price-to-Cash Flow.......................................... 3.6
Below-Average Price/Earnings Ratio.......................... 3.2
- -----------------------------------------------------------------------------------
</Table>
7
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Basic Value V.I. Fund
Schedule of Investments as of June 30, 2007 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES PERCENT OF
INDUSTRY HELD COMMON STOCKS VALUE NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------
ABOVE-AVERAGE YIELD
- ------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION 579,995 AT&T Inc. .............................. $ 24,069,792 2.3%
SERVICES
COMMUNICATIONS EQUIPMENT 700,900 Alcatel SA(a)........................... 9,812,600 0.9
METALS & MINING 427,400 Alcoa, Inc. ............................ 17,322,522 1.7
CAPITAL MARKETS 605,400 The Bank of New York Co., Inc.(b)....... 25,087,776 2.4
PHARMACEUTICALS 401,300 Bristol-Myers Squibb Co. ............... 12,665,028 1.2
MULTI-UTILITIES 94,000 Dominion Resources, Inc.(e)............. 8,113,140 0.8
CHEMICALS 487,000 E.I. du Pont de Nemours & Co.(e)........ 24,759,080 2.4
OIL, GAS & CONSUMABLE FUELS 493,600 Exxon Mobil Corp. ...................... 41,403,168 4.0
INDUSTRIAL CONGLOMERATES 537,500 General Electric Co. ................... 20,575,500 2.0
FOOD PRODUCTS 349,700 General Mills, Inc. .................... 20,429,474 2.0
PHARMACEUTICALS 319,200 GlaxoSmithKline Plc(a).................. 16,716,504 1.6
AEROSPACE & DEFENSE 304,900 Honeywell International, Inc.(e)........ 17,159,772 1.7
DIVERSIFIED FINANCIAL SERVICES 794,276 JPMorgan Chase & Co. ................... 38,482,672 3.7
PHARMACEUTICALS 182,900 Johnson & Johnson....................... 11,270,298 1.1
CONTAINERS & PACKAGING 396,100 Packaging Corp. of America.............. 10,025,291 1.0
PHARMACEUTICALS 788,700 Pfizer, Inc. ........................... 20,167,059 1.9
SEMICONDUCTORS & SEMICONDUCTOR 891,233 Taiwan Semiconductor Manufacturing Co.,
EQUIPMENT Ltd.(a)............................... 9,919,425 1.0
DIVERSIFIED TELECOMMUNICATION 477,500 Verizon Communications, Inc.(e)......... 19,658,675 1.9
SERVICES
PHARMACEUTICALS 160,100 Wyeth................................... 9,180,134 0.9
-------------- -----
356,817,910 34.5
- ------------------------------------------------------------------------------------------------------------------------
BELOW-AVERAGE PRICE/EARNINGS RATIO
- ------------------------------------------------------------------------------------------------------------------------
INSURANCE 467,900 American International Group, Inc. ..... 32,767,037 3.2
DIVERSIFIED FINANCIAL SERVICES 429,814 Bank of America Corp. .................. 21,013,606 2.0
HEALTH CARE EQUIPMENT & 369,900 Baxter International, Inc. ............. 20,840,166 2.0
SUPPLIES
FOOD PRODUCTS 50,700 Cadbury Schweppes Plc(a)................ 2,753,010 0.3
DIVERSIFIED FINANCIAL SERVICES 613,020 Citigroup, Inc. ........................ 31,441,796 3.0
BEVERAGES 673,400 Coca-Cola Enterprises, Inc.(e).......... 16,161,600 1.6
OIL, GAS & CONSUMABLE FUELS 75,800 Consol Energy, Inc. .................... 3,495,138 0.3
THRIFTS & MORTGAGE FINANCE 102,700 Fannie Mae.............................. 6,709,391 0.6
ENERGY EQUIPMENT & SERVICES 170,200 Halliburton Co. ........................ 5,871,900 0.6
COMPUTERS & PERIPHERALS 246,831 Hewlett-Packard Co.(e).................. 11,013,599 1.1
SEMICONDUCTORS & SEMICONDUCTOR 704,700 Intel Corp. ............................ 16,743,672 1.6
EQUIPMENT
HOUSEHOLD DURABLES 256,600 Koninklijke Philips Electronics NV...... 10,859,312 1.0
FOOD PRODUCTS 168,400 Kraft Foods, Inc. ...................... 5,936,100 0.6
HOTELS, RESTAURANTS & LEISURE 450,700 McDonald's Corp. ....................... 22,877,532 2.2
CAPITAL MARKETS 307,800 Morgan Stanley.......................... 25,818,264 2.5
PHARMACEUTICALS 613,500 Schering-Plough Corp. .................. 18,674,940 1.8
FOOD PRODUCTS 698,700 Unilever NV(a).......................... 21,673,674 2.1
IT SERVICES 1,596,000 Unisys Corp.(b)......................... 14,587,440 1.4
FOOD & STAPLES RETAILING 79,000 Wal-Mart Stores, Inc. .................. 3,800,690 0.4
OFFICE ELECTRONICS 813,700 Xerox Corp.(b).......................... 15,037,176 1.5
-------------- -----
308,076,043 29.8
- ------------------------------------------------------------------------------------------------------------------------
LOW PRICE-TO-BOOK VALUE
- ------------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS 217,000 Anadarko Petroleum Corp. ............... 11,281,830 1.1
SOFTWARE 653,400 Borland Software Corp.(b)............... 3,881,196 0.4
OIL, GAS & CONSUMABLE FUELS 167,400 Chevron Corp. .......................... 14,101,776 1.4
MEDIA 601,450 Comcast Corp. Special Class A(b)........ 16,816,542 1.6
MACHINERY 110,600 Deere & Co.(e).......................... 13,353,844 1.3
SEMICONDUCTORS & SEMICONDUCTOR 639,400 Fairchild Semiconductor International,
EQUIPMENT Inc.(b)(e)............................ 12,353,208 1.2
ENERGY EQUIPMENT & SERVICES 310,500 GlobalSantaFe Corp.(e).................. 22,433,625 2.2
HOUSEHOLD PRODUCTS 370,300 Kimberly-Clark Corp. ................... 24,769,367 2.4
</Table>
8
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Basic Value V.I. Fund
Schedule of Investments as of June 30, 2007 (continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES PERCENT OF
INDUSTRY HELD COMMON STOCKS VALUE NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------
LOW PRICE-TO-BOOK VALUE (CONCLUDED)
- ------------------------------------------------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR 1,744,600 LSI Logic Corp.(b)(e)................... $ 13,101,946 1.3%
EQUIPMENT
SEMICONDUCTORS & SEMICONDUCTOR 787,800 Micron Technology, Inc.(b)(e)........... 9,871,134 0.9
EQUIPMENT
AEROSPACE & DEFENSE 270,100 Northrop Grumman Corp. ................. 21,032,687 2.0
AEROSPACE & DEFENSE 372,400 Raytheon Co. ........................... 20,068,636 1.9
COMPUTERS & PERIPHERALS 1,684,800 Sun Microsystems, Inc.(b)............... 8,862,048 0.9
MEDIA 1,133,500 Time Warner, Inc.(e).................... 23,848,840 2.3
INDUSTRIAL CONGLOMERATES 837,200 Tyco International Ltd.(b).............. 28,288,988 2.7
MEDIA 415,300 Walt Disney Co.(e)...................... 14,178,342 1.4
-------------- -----
258,244,009 25.0
- ------------------------------------------------------------------------------------------------------------------------
BELOW-AVERAGE PRICE/EARNINGS RATIO
- ------------------------------------------------------------------------------------------------------------------------
INSURANCE 389,608 The Travelers Cos., Inc. ............... 20,844,028 2.0
INSURANCE 142,900 XL Capital Ltd. Class A(e).............. 12,045,041 1.2
-------------- -----
32,889,069 3.2
- ------------------------------------------------------------------------------------------------------------------------
PRICE-TO-CASH FLOW
- ------------------------------------------------------------------------------------------------------------------------
AUTOMOBILES 62,700 Honda Motor Co., Ltd.(a)................ 2,275,383 0.2
FOOD & STAPLES RETAILING 114,300 The Kroger Co. ......................... 3,215,259 0.3
OIL, GAS & CONSUMABLE FUELS 175,000 Peabody Energy Corp. ................... 8,466,500 0.8
DIVERSIFIED TELECOMMUNICATION 888,200 Qwest Communications International
SERVICES Inc.(b)(e)............................ 8,615,540 0.9
WIRELESS TELECOMMUNICATION 731,900 Sprint Nextel Corp.(e).................. 15,157,649 1.5
SERVICES
-------------- -----
37,730,331 3.7
- ------------------------------------------------------------------------------------------------------------------------
SPECIAL SITUATIONS
- ------------------------------------------------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR 281,200 Applied Materials, Inc. ................ 5,587,444 0.5
EQUIPMENT
ENERGY EQUIPMENT & SERVICES 344,000 BJ Services Co. ........................ 9,783,360 1.0
MEDIA 31,893 Citadel Broadcasting Corp.(e)........... 205,710 0.0
COMPUTERS & PERIPHERALS 273,610 International Business Machines
Corp. ................................ 28,797,453 2.8
-------------- -----
44,373,967 4.3
- ------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST--$793,193,528).................... 1,038,131,329 100.5
- ------------------------------------------------------------------------------------------------------------------------
<Caption>
BENEFICIAL
INTEREST SHORT-TERM SECURITIES
- ------------------------------------------------------------------------------------------------------------------------
$ 5,948,996 BlackRock Liquidity Series, LLC Cash
Sweep Series, 5.33%(c)(d)............. 5,948,996 0.6
151,424,650 BlackRock Liquidity Series, LLC Money
Market Series, 5.33%(c)(d)(f)......... 151,424,650 14.6
- ------------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM SECURITIES
(COST--$157,373,646).................... 157,373,646 15.2
- ------------------------------------------------------------------------------------------------------------------------
<Caption>
NUMBER OF
CONTRACTS OPTIONS WRITTEN
- ------------------------------------------------------------------------------------------------------------------------
CALL OPTIONS WRITTEN 400 Chevron Corp., expiring January 2008 at
USD 90................................ (152,000) 0.0
- ------------------------------------------------------------------------------------------------------------------------
TOTAL OPTIONS WRITTEN
(PREMIUMS RECEIVED--$(119,118))......... (152,000) 0.0
- ------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, NET OF OPTIONS
WRITTEN
(COST--$950,448,056*)................... 1,195,352,975 115.7
LIABILITIES IN EXCESS OF OTHER ASSETS... (162,463,903) (15.7)
-------------- -----
NET ASSETS.............................. $1,032,889,072 100.0%
============== =====
- ------------------------------------------------------------------------------------------------------------------------
</Table>
9
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Basic Value V.I. Fund
Schedule of Investments as of June 30, 2007 (concluded)
- --------------------------------------------------------------------------------
* The cost and unrealized appreciation (depreciation) of investments as of
June 30, 2007, net of options written, as computed for federal income tax
purposes, were as follows:
<Table>
Aggregate cost.............................................. $958,109,264
============
Gross unrealized appreciation............................... $243,921,650
Gross unrealized depreciation............................... (6,677,939)
------------
Net unrealized appreciation................................. $237,243,711
============
</Table>
(a) Depositary receipts.
(b) Non-income producing security.
(c) Investments in companies considered to be an affiliate of the Fund, for
purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as
follows:
<Table>
<Caption>
- --------------------------------------------------------------------------------------
NET INTEREST
AFFILIATE ACTIVITY INCOME
- --------------------------------------------------------------------------------------
BlackRock Liquidity Series, LLC Cash Sweep Series........... $ 5,948,996 $547,076
BlackRock Liquidity Series, LLC Money Market Series......... $37,456,024 $ 73,031
- --------------------------------------------------------------------------------------
</Table>
(d) Represents the current yield as of June 30, 2007.
(e) Security, or a portion of security, is on loan.
(f) Security was purchased with the cash proceeds from securities loans.
- - For Fund compliance purposes, the Fund's industry classifications refer to
any one or more of the industry sub-classifications used by one or more
widely recognized market indexes or ratings group indexes, and/or as defined
by Fund management. This definition may not apply for purposes of this
report, which may combine industry sub-classifications for reporting ease.
See Notes to Financial Statements.
10
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Basic Value V.I. Fund
Statement of Assets and Liabilities as of June 30, 2007 (unaudited)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments in unaffiliated securities, at value (including
securities loaned of $146,884,364) (identified
cost--$793,193,528)....................................... $1,038,131,329
Investments in affiliated securities, at value (identified
cost--$157,373,646)....................................... 157,373,646
Cash........................................................ 3
Receivables:
Securities sold........................................... $ 4,555,297
Dividends................................................. 1,400,564
Capital shares sold....................................... 120,404
Securities lending........................................ 21,508 6,097,773
------------
Prepaid expenses and other assets........................... 14,722
--------------
Total assets.............................................. 1,201,617,473
--------------
- --------------------------------------------------------------------------------------------
LIABILITIES:
Collateral on securities loaned, at value................... 151,424,650
Options written, at value (premiums received--$119,118)..... 152,000
Payables:
Capital shares redeemed................................... 14,175,669
Securities purchased...................................... 2,228,013
Investment adviser........................................ 505,069
Other affiliates.......................................... 10,694
Distributor............................................... 7,456 16,926,901
------------
Accrued expenses............................................ 224,850
--------------
Total liabilities........................................... 168,728,401
--------------
- --------------------------------------------------------------------------------------------
NET ASSETS.................................................. $1,032,889,072
==============
- --------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Class I Shares of Common Stock, $.10 par value, 300,000,000
shares authorized......................................... $ 5,719,793
Class II Shares of Common Stock, $.10 par value, 100,000,000
shares authorized......................................... 147,022
Class III Shares of Common Stock, $.10 par value,
100,000,000 shares authorized............................. 129,449
Paid-in capital in excess of par............................ 729,671,951
Undistributed investment income--net........................ $ 7,254,869
Undistributed realized capital gains--net................... 45,061,069
Unrealized appreciation--net................................ 244,904,919
------------
Total accumulated earnings--net............................. 297,220,857
--------------
NET ASSETS.................................................. $1,032,889,072
==============
- --------------------------------------------------------------------------------------------
NET ASSET VALUE:
Class I--Based on net assets of $985,451,874 and 57,197,926
shares outstanding........................................ $ 17.23
==============
Class II--Based on net assets of $25,234,499 and 1,470,223
shares outstanding........................................ $ 17.16
==============
Class III--Based on net assets of $22,202,699 and 1,294,486
shares outstanding........................................ $ 17.15
==============
- --------------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements.
11
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Basic Value V.I. Fund
Statement of Operations for the Six Months Ended June 30, 2007 (unaudited)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividends (net of $192,606 foreign withholding tax)......... $10,094,928
Interest from affiliates.................................... 547,076
Securities lending--net..................................... 73,031
-----------
Total income................................................ 10,715,035
-----------
- -----------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees.................................... $ 3,081,609
Accounting services......................................... 177,284
Printing and shareholder reports............................ 59,760
Professional fees........................................... 27,577
Directors' fees and expenses................................ 27,222
Custodian fees.............................................. 24,302
Distribution fees--Class III................................ 23,916
Distribution fees--Class II................................. 19,923
Transfer agent fees--Class I................................ 2,403
Pricing services............................................ 415
Transfer agent fees--Class II............................... 66
Transfer agent fees--Class III.............................. 47
Other....................................................... 15,642
-----------
Total expenses.............................................. 3,460,166
-----------
Investment income--net...................................... 7,254,869
-----------
- -----------------------------------------------------------------------------------------
REALIZED & UNREALIZED GAIN (LOSS)--NET
Realized gain from investments--net......................... 46,695,372
Change in unrealized appreciation/depreciation on:
Investments--net.......................................... 28,657,187
Options written--net...................................... (32,882) 28,624,305
----------- -----------
Total realized and unrealized gain--net..................... 75,319,677
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $82,574,546
===========
- -----------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements.
12
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Basic Value V.I. Fund
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<Table>
<Caption>
FOR THE SIX
MONTHS ENDED FOR THE
JUNE 30, 2007 YEAR ENDED
INCREASE (DECREASE) IN NET ASSETS: (UNAUDITED) DECEMBER 31, 2006
- ---------------------------------------------------------------------------------------------------
OPERATIONS:
Investment income--net...................................... $ 7,254,869 $ 15,342,542
Realized gain--net.......................................... 46,695,372 102,380,773
Change in unrealized appreciation/depreciation--net......... 28,624,305 81,058,222
-------------- --------------
Net increase in net assets resulting from operations........ 82,574,546 198,781,537
-------------- --------------
- ---------------------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Investment income--net:
Class I................................................... -- (14,726,833)
Class II.................................................. -- (386,841)
Class III................................................. -- (234,261)
Realized gain--net:
Class I................................................... -- (99,068,860)
Class II.................................................. -- (2,908,805)
Class III................................................. -- (1,674,181)
-------------- --------------
Net decrease in net assets resulting from dividends and
distributions to shareholders............................. -- (118,999,781)
-------------- --------------
- ---------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Net decrease in net assets derived from capital share
transactions.............................................. (64,740,341) (125,798,024)
-------------- --------------
- ---------------------------------------------------------------------------------------------------
NET ASSETS:
Total increase(decrease) in net assets...................... 17,834,205 (46,016,268)
Beginning of period......................................... 1,015,054,867 1,061,071,135
-------------- --------------
End of period*.............................................. $1,032,889,072 $1,015,054,867
============== ==============
- ---------------------------------------------------------------------------------------------------
* Undistributed investment income--net..................... $ 7,254,869 --
============== ==============
-------------------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements.
13
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Basic Value V.I. Fund
Financial Highlights
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS I
-------------------------------------------------------------------------------
FOR THE SIX
THE FOLLOWING PER SHARE DATA AND RATIOS MONTHS ENDED FOR THE YEAR ENDED DECEMBER 31,
HAVE BEEN DERIVED FROM INFORMATION JUNE 30, 2007 ------------------------------------------------------------
PROVIDED IN THE FINANCIAL STATEMENTS. (UNAUDITED) 2006 2005 2004 2003 2002
- ---------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period...... $ 15.91 $ 14.77 $ 15.70 $ 14.31 $ 10.85 $ 13.47
-------- -------- ---------- ---------- ---------- ----------
Investment income--net*................... .12 .24 .19 .16 .14 .12
Realized and unrealized gain
(loss)--net............................. 1.20 2.97 .27 1.42 3.47 (2.48)
-------- -------- ---------- ---------- ---------- ----------
Total from investment operations.......... 1.32 3.21 .46 1.58 3.61 (2.36)
-------- -------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net.................. -- (.27) (.22) (.17) (.15) (.13)
Realized gain--net...................... -- (1.80) (1.17) (.02) -- (.13)
-------- -------- ---------- ---------- ---------- ----------
Total dividends and distributions......... -- (2.07) (1.39) (.19) (.15) (.26)
-------- -------- ---------- ---------- ---------- ----------
Net asset value, end of period............ $ 17.23 $ 15.91 $ 14.77 $ 15.70 $ 14.31 $ 10.85
======== ======== ========== ========== ========== ==========
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:**
Based on net asset value per share........ 8.30%+ 21.86% 2.94% 11.07% 33.23% (17.77%)
======== ======== ========== ========== ========== ==========
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................. .67%*** .67% .67% .66% .67% .67%
======== ======== ========== ========== ========== ==========
Investment income--net.................... 1.42%*** 1.53% 1.23% 1.09% 1.17% 1.02%
======== ======== ========== ========== ========== ==========
- ---------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands).............................. $985,452 $969,759 $1,024,308 $1,306,051 $1,306,427 $1,051,063
======== ======== ========== ========== ========== ==========
Portfolio turnover........................ 15% 25% 37% 47% 25% 41%
======== ======== ========== ========== ========== ==========
- ---------------------------------------------------------------------------------------------------------------------------
</Table>
* Based on average shares outstanding.
** Total investment returns exclude insurance-related fees and expenses.
*** Annualized.
+ Aggregate total investment return.
See Notes to Financial Statements.
14
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Basic Value V.I. Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS II
-------------------------------------------------------------------
FOR THE SIX
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE MONTHS ENDED FOR THE YEAR ENDED DECEMBER 31,
BEEN DERIVED FROM INFORMATION PROVIDED IN THE JUNE 30, 2007 ------------------------------------------------
FINANCIAL STATEMENTS. (UNAUDITED) 2006 2005 2004 2003 2002
- ----------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............. $ 15.86 $ 14.73 $ 15.66 $ 14.27 $ 10.82 $ 13.43
------- ------- ------- ------- ------- --------
Investment income--net*.......................... .10 .22 .16 .14 .12 .11
Realized and unrealized gain (loss)--net......... 1.20 2.96 .27 1.42 3.46 (2.48)
------- ------- ------- ------- ------- --------
Total from investment operations................. 1.30 3.18 .43 1.56 3.58 (2.37)
------- ------- ------- ------- ------- --------
Less dividends and distributions:
Investment income--net......................... -- (.25) (.19) (.15) (.13) (.11)
Realized gain--net............................. -- (1.80) (1.17) (.02) -- (.13)
------- ------- ------- ------- ------- --------
Total dividends and distributions................ -- (2.05) (1.36) (.17) (.13) (.24)
------- ------- ------- ------- ------- --------
Net asset value, end of period................... $ 17.16 $ 15.86 $ 14.73 $ 15.66 $ 14.27 $ 10.82
======= ======= ======= ======= ======= ========
- ----------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:**
Based on net asset value per share............... 8.20%+ 21.67% 2.78% 10.94% 33.05% (17.89%)
======= ======= ======= ======= ======= ========
- ----------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses......................................... .81%*** .82% .82% .81% .82% .82%
======= ======= ======= ======= ======= ========
Investment income--net........................... 1.27%*** 1.38% 1.08% .94% 1.02% .87%
======= ======= ======= ======= ======= ========
- ----------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)......... $25,234 $28,254 $30,552 $36,886 $38,154 $ 33,535
======= ======= ======= ======= ======= ========
Portfolio turnover............................... 15% 25% 37% 47% 25% 41%
======= ======= ======= ======= ======= ========
- ----------------------------------------------------------------------------------------------------------------------
</Table>
* Based on average shares outstanding.
** Total investment returns exclude insurance-related fees and expenses.
*** Annualized.
+ Aggregate total investment return.
See Notes to Financial Statements.
15
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Basic Value V.I. Fund
Financial Highlights (concluded)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS III
--------------------------------------------------------------
FOR THE SIX FOR THE YEAR ENDED
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE MONTHS ENDED DECEMBER 31, FOR THE PERIOD
BEEN DERIVED FROM INFORMATION PROVIDED IN THE JUNE 30, 2007 ------------------ MAY 25, 2004++ TO
FINANCIAL STATEMENTS. (UNAUDITED) 2006 2005 DECEMBER 31, 2004
- -----------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............. $ 15.86 $ 14.74 $ 15.69 $ 14.29
------- ------- ------- -------
Investment income--net*.......................... .10 .20 .15 .08
Realized and unrealized gain--net................ 1.19 2.97 .26 1.50
------- ------- ------- -------
Total from investment operations................. 1.29 3.17 .41 1.58
------- ------- ------- -------
Less dividends and distributions:
Investment income--net......................... -- (.25) (.19) (.16)
Realized gain--net............................. -- (1.80) (1.17) (.02)
------- ------- ------- -------
Total dividends and distributions................ -- (2.05) (1.36) (0.18)
------- ------- ------- -------
Net asset value, end of period................... $ 17.15 $ 15.86 $ 14.74 $ 15.69
======= ======= ======= =======
- -----------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:**
Based on net asset value per share............... 8.13%+ 21.59% 2.62% 11.08%+
======= ======= ======= =======
- -----------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses......................................... .91%*** .92% .92% .92%***
======= ======= ======= =======
Investment income--net........................... 1.18%*** 1.30% .98% .89%***
======= ======= ======= =======
- -----------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)......... $22,203 $17,042 $ 6,211 $ 2,730
======= ======= ======= =======
Portfolio turnover............................... 15% 25% 37% 47%
======= ======= ======= =======
- -----------------------------------------------------------------------------------------------------------------
</Table>
* Based on average shares outstanding.
** Total investment returns exclude insurance-related fees and expenses.
*** Annualized.
+ Aggregate total investment return.
++ Commencement of operations.
See Notes to Financial Statements.
16
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Basic Value V.I. Fund
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES:
BlackRock Variable Series Funds, Inc. (the "Company") is an open-end management
investment company that is comprised of 16 separate funds. Each fund offers
three 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. ("Merrill Lynch")), and other insurance companies that are not
affiliated with Merrill Lynch, for their separate accounts to fund benefits
under certain variable annuity and variable life insurance contracts. BlackRock
Basic Value V.I Fund (the "Fund") is classified as "diversified," as defined in
the Investment Company Act of 1940, as amended. Class I, Class II and Class III
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. In addition, Class II and Class III Shares bear certain
expenses related to the distribution of such shares. The Fund's financial
statements are prepared in conformity with U.S. generally accepted accounting
principles, which may require the use of management accruals and estimates.
Actual results may differ from these estimates. These unaudited financial
statements reflect all adjustments, which are, in the opinion of management,
necessary to present a fair statement of the results for the interim period. All
such adjustments are of a normal, recurring nature. Income, expenses (other than
expenses attributable to a specific class) and realized and unrealized gains and
losses are allocated daily to each class based on its relative net assets. The
following is a summary of significant accounting policies followed by the Fund.
(a) Valuation of investments--Equity securities held by the Fund that are
traded on stock exchanges or the NASDAQ Global Market are valued at the last
sale price or official close price on the exchange, as of the close of business
on the day the securities are being valued or, lacking any sales, at the last
available bid price for long positions, and at the last available asked price
for short positions. In cases where equity securities are traded on more than
one exchange, the securities are valued on the exchange designated as the
primary market by or under the authority of the Board of Directors of the
Company. Long positions traded in the over-the-counter ("OTC") market, NASDAQ
Capital Market or Bulletin Board are valued at the last available bid price or
yield equivalent obtained from one or more dealers or pricing services approved
by the Board of Directors of the Company. Short positions traded in the OTC
market are valued at the last available asked price. Portfolio securities that
are traded both in the OTC market and on a stock exchange are valued according
to the broadest and most representative market.
Options written are valued at the last sale price in the case of
exchange-traded options or, in the case of options traded in the OTC market, the
last asked price. Options purchased are valued at their last sale price in the
case of exchange-traded options or, in the case of options traded in the OTC
market, the last bid price. Swap agreements are valued based upon quoted fair
valuations received daily by the Fund from a pricing service or counterparty.
Financial futures contracts and options thereon, which are traded on exchanges,
are valued at their last sale price as of the close of such exchanges. Valuation
of short-term investment vehicles is generally based on the net asset value of
the underlying investment vehicle or amortized cost.
Repurchase agreements are valued at cost plus accrued interest. The Fund
employs pricing services to provide certain securities prices for the Fund.
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, including valuations furnished by the
pricing services retained by the Fund, which may use a matrix system for
valuations. The procedures of a pricing service and its valuations are reviewed
by the officers of the Fund under the general supervision of the Company's Board
of Directors. Such valuations and procedures will be reviewed periodically by
the Board of Directors of the Company.
Generally, trading in foreign securities, as well as U.S. government
securities, money market instruments and certain fixed income securities, is
substantially completed each day at various times prior to the close of business
on the New York Stock Exchange ("NYSE"). The values of such securities used in
computing the net asset value of the Fund's shares are determined as of such
times. Foreign currency exchange rates will generally be determined as of the
close of business on the NYSE. Occasionally, events affecting the values of such
securities and such exchange rates may occur between the times at which they are
determined and the close of business on the NYSE that may not be reflected
17
- --------------------------------------------------------------------------------
in the computation of the Fund's net asset value. If events (for example, a
company announcement, market volatility or a natural disaster) occur during such
periods that are expected to materially affect the value of such securities,
those securities will be valued at their fair value as determined in good faith
by the Company's Board of Directors or by BlackRock Advisors, LLC (the
"Manager"), an indirect, wholly owned subsidiary of BlackRock, Inc., using a
pricing service and/or procedures approved by the Company's Board of Directors.
(b) Derivative financial instruments--The Fund may engage in various portfolio
investment strategies both to increase the return of the Fund and to hedge, or
protect, its exposure to interest rate movements and movements in the securities
markets. Losses may arise due to changes in the value of the contract due to an
unfavorable change in price of the underlying security or if the counterparty
does not perform under the contract. The counterparty for certain instruments
may pledge cash or securities as collateral.
- - 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 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.
(c) 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.
(d) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Realized gains and losses on security transactions are determined on the
identified cost basis. Dividend income is recorded on the ex-dividend dates.
Dividends from foreign securities where the ex-dividend date may have passed are
subsequently recorded when the Fund has determined the ex-dividend date.
Interest income is recognized on the accrual basis.
(e) Dividends and distributions--Dividends and distributions paid by the Fund
are recorded on the ex-dividend dates.
(f) Expenses--Certain expenses have been allocated to the individual funds in
the Company on a pro rata basis based upon the respective aggregate net asset
value of each fund included in the Company.
(g) Securities lending--The Fund may lend securities to financial institutions
that provide cash or securities issued or guaranteed by the U.S. government as
collateral, which will be maintained at all times in an amount equal to at least
100% of the current market value of the loaned securities. The market value of
the loaned securities is determined at the close of business of the Fund and any
additional required collateral is delivered to the Fund on the next business
day. Where the Fund receives securities as collateral for the loaned securities,
it receives a fee from the borrower. The Fund typically receives the income on
the loaned securities, but does not receive the income on the collateral. Where
the Fund receives cash collateral, it may invest such collateral and retain the
amount earned on such investment, net of any amount rebated to the borrower.
Loans of securities are terminable at any time and the borrower, after notice,
is required to return borrowed securities within five business days. The Fund
may pay reasonable finder's, lending agent, administrative and custodial fees in
connection with its loans. In the event that the borrower defaults on its
obligation to return borrowed securities because of insolvency or for any other
reason, the Fund could experience delays and costs in gaining access to the
collateral. The Fund also could suffer a loss where the value of the collateral
falls below the market value of the borrowed securities, in the event of
borrower default or in the event of losses on investments made with cash
collateral.
(h) Recent accounting pronouncements--Effective June 29, 2007, the Fund
implemented Financial Accounting Standards Board ("FASB") Interpretation No. 48,
"Accounting for Uncertainty in Income Taxes -- an interpretation of FASB
Statement No. 109" ("FIN 48"). FIN 48 prescribes the minimum recognition
18
- --------------------------------------------------------------------------------
threshold a tax position must meet in connection with accounting for
uncertainties in income tax positions taken or expected to be taken by an
entity, including investment companies, before being measured and recognized in
the financial statements. Management has evaluated the application of FIN 48 to
the Fund, and has determined that the adoption of FIN 48 does not have a
material impact on the Fund's financial statements. The Fund files U.S. and
various state tax returns. No income tax returns are currently under
examination. The statute of limitations on the Fund's tax returns remains open
for the years ended December 31, 2003 through December 31, 2006.
In September 2006, Statement of Financial Accounting Standards No. 157, "Fair
Value Measurements" ("FAS 157"), was issued and is effective for fiscal years
beginning after November 15, 2007. FAS 157 defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. At this time, management is evaluating the implications of FAS 157
and its impact on the Fund's financial statements, if any, has not been
determined.
In addition, in February 2007, Statement of Financial Accounting Standards No.
159, "The Fair Value Option for Financial Assets and Financial Liabilities"
("FAS 159"), was issued and is effective for fiscal years beginning after
November 15, 2007. Early adoption is permitted as of the beginning of a fiscal
year that begins on or before November 15, 2007, provided the entity also elects
to apply the provisions of FAS 157. FAS 159 permits entities to choose to
measure many financial instruments and certain other items at fair value that
are not currently required to be measured at fair value. FAS 159 also
establishes presentation and disclosure requirements designed to facilitate
comparisons between entities that choose different measurement attributes for
similar types of assets and liabilities. At this time, management is evaluating
the implications of FAS 159 and its impact on the Fund's financial statements,
if any, has not been determined.
2. INVESTMENT ADVISORY AGREEMENT AND TRANSACTIONS WITH AFFILIATES:
The Fund has entered into an Investment Advisory Agreement with the Manager. The
Fund has also entered into separate Distribution Agreements and Distribution
Plans with FAM Distributors, Inc. ("FAMD") and BlackRock Distributors, Inc. and
its affiliates ("BDI") (collectively, the "Distributor"). FAMD is a wholly owned
subsidiary of Merrill Lynch Group, Inc., and BDI is an affiliate of BlackRock,
Inc. Merrill Lynch and The PNC Financial Services Group, Inc. ("PNC") are the
principal owners of BlackRock, Inc.
The Manager 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 Fund. For such services, the Fund
pays a monthly fee at an annual rate of .60% of the average daily value of the
Fund's net assets. In addition, the Manager has entered into sub-advisory
agreements with BlackRock Investment Management, LLC ("BIM"), an affiliate of
the Manager, under which the Manager pays BIM for services it provides a monthly
fee at an annual rate that is a percentage of the management fee paid by the
Fund to the Manager.
Pursuant to the Distribution Plans adopted by the Company, in accordance with
Rule 12b-1 under the Investment Company Act of 1940, the Fund pays the
Distributor an ongoing distribution fee each month at the annual rate of .15%
and .25% of the average daily value of the Fund's Class II and Class III net
assets, respectively.
The Company has received an exemptive order from the Securities and Exchange
Commission permitting it to lend portfolio securities to Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S"), a wholly owned subsidiary of Merrill
Lynch, or its affiliates. As of June 30, 2007, the Fund lent securities with a
value of $31,448,051 to MLPF&S or its affiliates. Pursuant to that order, the
Company has also retained BIM as the securities lending agent for a fee based on
a share of the returns on investment of cash collateral. BIM may, on behalf of
the Company and the Fund, invest cash collateral received by the Fund for such
loans, among other things, in a private investment company managed by the
Manager or in registered money market funds advised by the Manager or its
affiliates. For the six months ended June 30, 2007, BIM received $24,356 in
securities lending agent fees from the Fund.
For the six months ended June 30, 2007, the Fund reimbursed the Manager $9,430
for certain accounting services.
In addition, MLPF&S received $65,555 in commissions on the execution of
portfolio security transactions for the Fund for the six months ended June 30,
2007.
PFPC Inc., an indirect, wholly owned subsidiary of PNC and an affiliate of the
Manager, is the Fund's transfer agent.
19
- --------------------------------------------------------------------------------
Certain officers and/or directors of the Company are officers and/or directors
of BlackRock, Inc. or its affiliates.
3. INVESTMENTS:
Purchases and sales of investments, excluding short-term securities, for the six
months ended June 30, 2007 were $154,226,726 and $206,154,951, respectively.
Transactions in call options written for the six months ended June 30, 2007
were as follows:
<Table>
<Caption>
- ------------------------------------------------------------------
Number of Premiums
Contracts Received
- ------------------------------------------------------------------
Outstanding call options written, beginning
of period................................. -- --
Options written............................ 400 $119,118
--- --------
Outstanding call options written, end of
period.................................... 400 $119,118
=== ========
- ------------------------------------------------------------------
</Table>
4. CAPITAL SHARE TRANSACTIONS:
Net decrease in net assets derived from capital share transactions was
$64,740,341 and $125,798,024 for the six months ended June 30, 2007 and the year
ended December 31, 2006, respectively.
Transactions in capital shares for each class were as follows:
<Table>
<Caption>
- -----------------------------------------------------------------
Class I Shares for Six Months Ended
June 30, 2007 Shares Dollar Amount
- -----------------------------------------------------------------
Shares sold......................... 2,490,704 $ 40,293,193
Shares redeemed..................... (6,237,576) (103,644,248)
---------- -------------
Net decrease........................ (3,746,872) $ (63,351,055)
========== =============
- -----------------------------------------------------------------
</Table>
<Table>
<Caption>
- -----------------------------------------------------------------
Class I Shares for the Year Ended
December 31, 2006 Shares Dollar Amount
- -----------------------------------------------------------------
Shares sold........................ 593,312 $ 9,476,559
Shares issued to shareholders in
reinvestment of dividends and
distributions..................... 7,158,864 113,795,693
----------- -------------
Total issued....................... 7,752,176 123,272,252
Shares redeemed.................... (16,151,194) (254,858,750)
----------- -------------
Net decrease....................... (8,399,018) $(131,586,498)
=========== =============
- -----------------------------------------------------------------
</Table>
<Table>
<Caption>
- -----------------------------------------------------------------
Class II Shares for the Six Months Ended Dollar
June 30, 2007 Shares Amount
- -----------------------------------------------------------------
Shares sold............................. 6,431 $ 106,980
Share redeemed.......................... (317,240) (5,262,740)
-------- -----------
Net decrease............................ (310,809) $(5,155,760)
======== ===========
- -----------------------------------------------------------------
</Table>
<Table>
<Caption>
- -----------------------------------------------------------------
Class II Shares for the Year Ended Dollar
December 31, 2006 Shares Amount
- -----------------------------------------------------------------
Shares sold............................. 17,035 $ 289,436
Shares issued to shareholders in
reinvestment of dividends and
distributions.......................... 207,992 3,295,646
-------- -----------
Total issued............................ 225,027 3,585,082
Share redeemed.......................... (517,924) (8,342,928)
-------- -----------
Net decrease............................ (292,897) $(4,757,846)
======== ===========
- -----------------------------------------------------------------
</Table>
<Table>
<Caption>
- ------------------------------------------------------------------
Class III Shares for the Six Months Ended Dollar
June 30, 2007 Shares Amount
- ------------------------------------------------------------------
Shares sold............................. 588,527 $ 9,722,193
Shares redeemed......................... (368,536) (5,955,719)
-------- -----------
Net increase............................ 219,991 $ 3,766,474
======== ===========
- ------------------------------------------------------------------
</Table>
<Table>
<Caption>
- -----------------------------------------------------------------
Class III Shares for the Year Ended Dollar
December 31, 2006 Shares Amount
- -----------------------------------------------------------------
Shares sold............................. 723,635 $11,785,595
Shares issued to shareholders in
reinvestment of dividends and
distributions.......................... 120,383 1,908,442
-------- -----------
Total issued............................ 844,018 13,694,037
Shares redeemed......................... (190,808) (3,147,717)
-------- -----------
Net increase............................ 653,210 $10,546,320
======== ===========
- -----------------------------------------------------------------
</Table>
5. SHORT-TERM BORROWINGS:
The Company, on behalf of the Fund, along with certain other funds managed by
the Manager and its affiliates, is party to a $500,000,000 credit agreement with
a group of lenders, which expires November 2007. 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 .06% per annum based on the Fund's pro rata share of the
unused portion of the credit agreement. Amounts borrowed under the credit
agreement bear interest at a rate equal to, at each fund's election, the federal
funds rate plus .35% or a base rate as defined in the credit agreement. The Fund
did not borrow under the credit agreement during the six months ended June 30,
2007.
20
- --------------------------------------------------------------------------------
BLACKROCK BOND V.I. FUND
------------------------------------------------------------------------------
Semi-Annual Report (Unaudited)
June 30, 2007
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Bond V.I. Fund
A Discussion With Your Fund's Portfolio Managers
- --------------------------------------------------------------------------------
Despite a challenging six-month period, we believe the Fund is positioned to
perform well upon a return to strength in the mortgage market.
HOW DID THE FUND PERFORM DURING THE PERIOD IN LIGHT OF THE EXISTING MARKET
CONDITIONS?
For the six-month period ended June 30, 2007, BlackRock Bond V.I. Fund's Class
I, Shares had a total return of -.09%. For the same period, the benchmark Lehman
Brothers U.S. Aggregate Bond Index returned +.98%.
It was a challenging six months for fixed income markets in general, as
evidenced by the modestly positive return of the benchmark index. The 10-year
Treasury yield increased 35 basis points (.35%) during the period as bond prices
correspondingly fell. June was particularly volatile, with the 10-year Treasury
yield reaching 5.30%, its highest level in more than five years, before
retrenching to 5.03% by period-end.
In the first three months of the semi-annual period, a crisis in the subprime
mortgage market rekindled fears of a housing-induced slowdown in the United
States and led to increased financial market volatility and expanded risk
premiums. With the jump in volatility came a decline in investor risk appetite.
Although the subprime fears had subsided somewhat in the latter half of the
period, credit spreads had widened from their historically tight levels.
Mortgage securities, even the high-quality, securitized product in which we
invest, were among the most punished.
The portfolio's positioning throughout the period included an underweight
exposure to credit product (that is, investment-grade bonds) and overweight to
higher-quality spread assets, particularly commercial mortgages. In the first
three months of the period, we saw modest outperformance from credit and modest
underperformance from those higher-quality assets. Some of the underperformance
in mortgages stemmed from the initial reactions to the subprime scare, which
translated into some widening in high-quality spreads while lower-quality
investment-grade credit held its ground. As a result, the Fund's overweight in
commercial mortgages and underweight in credit hampered relative results.
In the latter half of the period, we used the weakness in the mortgage market
as an opportunity to increase our allocation to mortgage passthrough securities.
We view mortgages as a high-quality fixed income asset with yield-enhancement
potential. Although the market failed to recognize this as the period
progressed, and the Fund's relative performance was further hampered as a result
of our increased exposure, we believe our overweight position in mortgage
product will serve the Fund well in the longer term.
Although the Fund was underweight in credit product throughout the period, we
had an above-average exposure to the financial subsector of the corporate
market. This dragged on performance as financials, like mortgages, struggled
amid the subprime spillover fears and general spread widening among high-quality
assets. Finally, our opportunistic position in global bond markets also was a
negative during the six-month period. Specifically, we had a long position in
European bonds, which detracted from performance as European interest rates
followed U.S. interest rates higher. Similarly, our long position in the
Japanese yen proved negative as the yen declined versus the U.S. dollar.
On the positive side of the ledger, the Fund's allocation to high yield bonds,
albeit modest, benefited performance as non-investment-grade assets continued to
outperform. An underweight exposure to agency debentures also proved
advantageous on a relative basis.
WHAT CHANGES WERE MADE TO THE PORTFOLIO DURING THE PERIOD?
The biggest change in the portfolio during the period involved the
aforementioned increase in our allocation to mortgages. We moved from an
underweight position in mortgages at the start of 2007 to a significant
overweight. At period-end, the portfolio was roughly 25%-29% overweight
mortgages, which included above-benchmark exposures to 30-year and 15-year
mortgage passthrough securities, as well as commercial mortgages and
asset-backed securities, areas we had overweighted for some time. Despite their
underperformance during this particular period, we believe mortgages represent
good relative value and high quality, and we look forward to solid performance
over the coming months.
The second major shift in the portfolio had to do with our duration posture.
We began the period with a short duration relative to our benchmark index.
Duration is a measure of
2
- --------------------------------------------------------------------------------
interest rate sensitivity and we entered the period with a defensive position
based on our belief that the Federal Reserve Board (the Fed) would not cut
interest rates as some had anticipated. The Fed did remain on hold, but
weakening economic data and the subprime turmoil in the first quarter resulted
in falling interest rates and a resteepening of the yield curve. In light of the
back-up (that is, increase) in rates seen in the second quarter, and given
greater likelihood that the Fed would remain on hold, it appeared that the
market was more fairly priced and we increased the Fund's duration. Broadly
speaking, our view on interest rates moved from one where we thought rates would
move slightly higher to an expectation for a more range-bound environment. Most
recently, we have been tactically trading the portfolio with a neutral to
slightly long duration bias.
HOW WOULD YOU CHARACTERIZE THE FUND'S POSITION AT THE CLOSE OF THE PERIOD?
At June 30, 2007, the Fund was underweight in U.S. Treasury issues, U.S.
agency securities and corporate securities. The portfolio maintained its notable
overweights in high-quality, short-duration spread product, including mortgage
passthrough securities, commercial mortgages and asset-backed securities.
In general, we find high-quality spread-related assets to be an attractive
investment, offering yields beyond those provided by Treasury securities alone
but without the risk associated with corporate bonds. We think spreads in the
corporate market have a fair amount of room to grow wider given how tight they
had become. In fact, since March 30, credit spreads have widened, equity market
volatility has increased, liquidity has deteriorated and yet overall valuations
in the credit market have not adjusted in response. This, coupled with
heightened event risk associated with aggressive leveraged buyout activity,
gives us reason for concern. Meanwhile, high-quality spreads, particularly
mortgages, have underperformed dramatically, presenting us with compelling
investment opportunities.
Additionally, we ended the period with a modest allocation to high yield
bonds, although we maintain a more defensive view on this asset class as well.
After several months of solid returns, June marked the first negative month for
high yield bonds since June 2006. We believe below-investment-grade bonds face a
challenging technical environment given a large new-issuance calendar and recent
deterioration in demand. Fundamentally, however, the sector appears solid given
relatively low default rates and inexpensive valuations. We will continue to
monitor the Fund's exposure to this traditionally risky asset class.
Keith Anderson
Portfolio Manager
Scott Amero
Portfolio Manager
Matthew Marra
Portfolio Manager
Andrew Phillips
Portfolio Manager
July 13, 2007
3
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Bond V.I. Fund
Total Return Based on a $10,000 Investment
- --------------------------------------------------------------------------------
[LINE GRAPH]
<Table>
<Caption>
BLACKROCK BOND V.I. FUND+-- LEHMAN BROTHERS U.S. AGGREGATE
CLASS I SHARES* BOND INDEX++
--------------------------- ------------------------------
6/97 10000 10000
6/98 11022 11054
6/99 11128 11402
6/00 11370 11922
6/01 12614 13261
6/02 13518 14405
6/03 14916 15903
6/04 15019 15954
6/05 16023 17039
6/06 15866 16902
6/07 16671 17937
</Table>
[LINE GRAPH]
<Table>
<Caption>
BLACKROCK BOND V.I. BLACKROCK BOND V.I. LEHMAN BROTHERS U.S.
FUND+--CLASS II SHARES* FUND+--CLASS III SHARES* AGGREGATE BOND INDEX++
----------------------- ------------------------ ----------------------
9/30/04** 10000 10000 10000
6/05 10333 10333 10349
6/06 10254 10254 10266
6/07 10771 10752 10894
</Table>
* Assuming transaction costs, if any, and other operating expenses, including
advisory fees. Does not include insurance-related fees and expenses.
Effective September 2, 2003, Class A Shares were redesignated Class I
Shares.
** Commencement of Operations.
+ The Fund invests at least 90% of its net assets in fixed income securities.
++ This unmanaged market-weighted Index is comprised of U.S. government and
agency securities, mortgage-backed securities issued by the Government
National Mortgage Association, Freddie Mac or Fannie Mae and
investment-grade (rated BBB or better) corporate bonds.
Past results shown should not be considered a representation of future
performance.
4
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Bond V.I. Fund
Average Annual Total Return--Class I Shares*
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERIOD COVERED RETURN
- --------------------------------------------------------------------------
One Year Ended 6/30/07 +5.07%
- --------------------------------------------------------------------------
Five Years Ended 6/30/07 +4.28
- --------------------------------------------------------------------------
Ten Years Ended 6/30/07 +5.24
- --------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Bond V.I. Fund
Average Annual Total Return--Class II Shares*
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERIOD COVERED RETURN
- --------------------------------------------------------------------------
One Year Ended 6/30/07 +5.04%
- --------------------------------------------------------------------------
Inception (9/30/04) through 6/30/07 +2.74
- --------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Bond V.I. Fund
Average Annual Total Return--Class III Shares*
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERIOD COVERED RETURN
- --------------------------------------------------------------------------
One Year Ended 6/30/07 +4.85%
- --------------------------------------------------------------------------
Inception (9/30/04) through 6/30/07 +2.67
- --------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Bond V.I. Fund
Recent Performance Results
- --------------------------------------------------------------------------------
<Table>
<Caption>
6-MONTH 12-MONTH STANDARDIZED
AS OF JUNE 30, 2007 TOTAL RETURN TOTAL RETURN 30-DAY YIELD
- --------------------------------------------------------------------------------------------------------
Class I Shares* -0.09% +5.07% 4.95%
- --------------------------------------------------------------------------------------------------------
Class II Shares* -0.09 +5.04 --
- --------------------------------------------------------------------------------------------------------
Class III Shares* -0.19 +4.85 --
- --------------------------------------------------------------------------------------------------------
Lehman Brothers U.S. Aggregate Bond Index** +0.98 +6.12 --
- --------------------------------------------------------------------------------------------------------
</Table>
* Average annual and cumulative 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 payable
date. Insurance-related fees and expenses are not reflected in these
returns. For a portion of the period, returns do not show the effects of
distribution fees (12b-1 fees) applicable to Class II and Class III Shares.
If such fees were included, returns shown would have been lower.
** This unmanaged market-weighted Index is comprised of U.S. government and
agency securities, mortgage-backed securities issued by the Government
National Mortgage Association, Freddie Mac or Fannie Mae and investment
grade (rated BBB or better) corporate bonds.
Past results shown should not be considered a representation of future
performance.
5
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Bond V.I. Fund
Disclosure of Expenses
- --------------------------------------------------------------------------------
Shareholders of this Fund may incur the following charges: (a) expenses related
to transactions, including sales charges, redemption fees and exchange fees; and
(b) operating expenses including advisory fees, distribution fees including
12b-1 fees, and other Fund expenses. The following example (which is based on a
hypothetical investment of $1,000 invested on January 1, 2007 and held through
June 30, 2007) is intended to assist shareholders both in calculating expenses
based on an investment in the Fund and in comparing these expenses with similar
costs of investing in other mutual funds.
The first table below provides information about actual account values and
actual expenses. In order to estimate the expenses a shareholder paid during the
period covered by this report, shareholders can divide their account value by
$1,000 and then multiply the result by the number in the first line under the
heading entitled "Expenses Paid During the Period."
The second table below provides information about hypothetical account values
and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses. In order to assist
shareholders in comparing the ongoing expenses of investing in this Fund and
other funds, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in other fund's shareholder reports.
The expenses shown in the table are intended to highlight shareholders'
ongoing costs only and do not reflect any transactional expenses, such as sales
charges, redemption fees or exchange fees. Therefore, the second table is useful
in comparing ongoing expenses only, and will not help shareholders determine the
relative total expenses of owning different funds. If these transactional
expenses were included, shareholder expenses would have been higher.
<Table>
<Caption>
EXPENSES PAID
BEGINNING ENDING DURING THE PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JANUARY 1, 2007 TO
JANUARY 1, 2007 JUNE 30, 2007 JUNE 30, 2007
- -------------------------------------------------------------------------------------------------------------------
ACTUAL
- -------------------------------------------------------------------------------------------------------------------
Class I $1,000 $ 999.10 $2.78
- -------------------------------------------------------------------------------------------------------------------
Class II $1,000 $ 999.10 $3.52
- -------------------------------------------------------------------------------------------------------------------
Class III $1,000 $ 998.10 $4.01
- -------------------------------------------------------------------------------------------------------------------
HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES)**
- -------------------------------------------------------------------------------------------------------------------
Class I $1,000 $1,022.02 $2.81
- -------------------------------------------------------------------------------------------------------------------
Class II $1,000 $1,021.28 $3.56
- -------------------------------------------------------------------------------------------------------------------
Class III $1,000 $1,020.78 $4.06
- -------------------------------------------------------------------------------------------------------------------
</Table>
* For each class of the Fund, expenses are equal to the annualized expense
ratio for the class (.56% for Class I, .71% for Class II and .81% for Class
III), multiplied by the average account value over the period, multiplied by
181/365 (to reflect the one-half year period shown).
** Hypothetical 5% annual return before expenses is calculated by pro-rating
the number of days in the most recent fiscal half year divided by 365.
6
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Bond V.I. Fund
Portfolio Information as of June 30, 2007
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENT OF
ASSET MIX LONG-TERM INVESTMENTS
- -----------------------------------------------------------------------------------
U.S. Government Agency Mortgage-Backed Securities........... 47.6%
Asset-Backed Securities..................................... 20.3
Non-Government Agency Mortgage-Backed Securities............ 12.9
Corporate Bonds............................................. 10.3
U.S. Government & Agency Obligations........................ 3.7
U.S. Government Agency Mortgage-Backed
Securities--Collateralized Mortgage Obligations........... 3.5
Preferred Securities........................................ 1.0
Foreign Government Obligations.............................. 0.7
- -----------------------------------------------------------------------------------
</Table>
7
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Bond V.I. Fund
Schedule of Investments as of June 30, 2007 (unaudited) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
FACE
AMOUNT ASSET-BACKED SECURITIES+ VALUE
- --------------------------------------------------------------------------------------------------------------------
ACE Securities Corp.(b):
USD 122,036 Series 2003-OP1 Class A2, 5.68% due 12/25/2033.. $ 122,347
2,000,000 Series 2005-ASP1 Class M1, 6% due 9/25/2035..... 2,034,860
5,200,000 Series 2005-HE6 Class A2B, 5.52% due
10/25/2035...................................... 5,201,240
2,689,150 Series 2006-NC3 Class A2A, 5.37% due
12/25/2036...................................... 2,689,143
2,452,102 Aegis Asset Backed Securities Trust Series 2006-1
Class A1, 5.40% due 1/25/2037(b)................ 2,452,095
Ameriquest Mortgage Securities, Inc.(b):
1,800,000 Series 2003-7 Class M1, 6.17% due 8/25/2033..... 1,814,927
1,600,000 Series 2004-R1 Class M2, 5.90% due 2/25/2034.... 1,603,585
2,312,626 Asset Backed Funding Certificates Series 2006-
OPT3 Class A3A, 5.38% due 11/25/2036(b)......... 2,312,761
Bear Stearns Asset Backed Securities, Inc.(b):
1,377,537 Series 2005-4 Class A, 5.65% due 1/25/2036...... 1,377,705
5,300,000 Series 2005-HE10 Class A2, 5.61% due 8/25/2035.. 5,311,901
2,000,000 Series 2005-SD1 Class 1A2, 5.62% due 7/25/2027.. 2,005,338
2,709,567 Series 2006-HE8 Class 1A1, 5.39% due
10/25/2036...................................... 2,709,559
900,000 Capital Auto Receivables Asset Trust Series 2004-2
Class D, 5.82% due 5/15/2012(a)................. 888,620
3,315,526 Carrington Mortgage Loan Trust Series 2007-RFC1
Class A1, 5.37% due 12/25/2036(b)............... 3,315,516
4,675,000 Citibank Credit Card Issuance Trust Series 2003-A8
Class A8, 3.50% due 8/16/2010................... 4,580,885
Countrywide Asset Backed Certificates(b):
444,072 Series 2003-2 Class M1, 6.02% due 6/26/2033..... 444,724
171,868 Series 2003-BC3 Class A2, 5.94% due 9/25/2033... 171,932
370,261 Series 2004-5 Class A, 5.77% due 10/25/2034..... 372,951
1,600,000 Series 2004-5 Class M2, 5.99% due 7/25/2034..... 1,608,619
1,750,000 Series 2004-13 Class AF4, 4.583% due 1/25/2033.. 1,724,237
1,750,000 Series 2004-13 Class MF1, 5.071% due
12/25/2034...................................... 1,696,555
3,201,643 Series 2006-20 Class 2A1, 5.37% due 4/25/2037... 3,201,634
2,288,282 Series 2006-22 Class 2A1, 5.37% due 5/25/2037... 2,290,640
3,421,891 Series 2007-1 Class 2A1, 5.37% due 7/25/2037.... 3,421,881
3,325,000 Daimler Chrysler Auto Trust Series 2006-D Class
A3, 4.98% due 2/08/2011......................... 3,308,270
2,800,000 Equifirst Mortgage Loan Trust Series 2004-2 Class
M1, 5.87% due 7/25/2034(b)...................... 2,806,633
First Franklin Mortgage Loan Asset Backed
Certificates(b):
443,373 Series 2004-FF10 Class A2, 5.72% due
12/25/2032...................................... 443,735
3,426,547 Series 2005-FF10 Class A6, 5.67% due
11/25/2035...................................... 3,422,812
2,051,768 Fremont Home Loan Trust Series 2005-E Class 2A2,
5.49% due 1/25/2036(b).......................... 2,052,169
2,850,000 GE Dealer Floorplan Master Note Trust Series
2004-2 Class B, 5.61% due 7/20/2009(b).......... 2,850,259
Home Equity Asset Trust(b):
473,272 Series 2005-1 Class A2, 5.60% due 5/25/2035..... 473,482
354,445 Series 2005-3 Class 1A2, 5.57% due 8/25/2035.... 354,506
3,500,000 Honda Auto Receivables Owner Trust Series 2006-3
Class A3, 5.12% due 10/15/2010.................. 3,488,312
2,802,637 Indymac Residential Asset Backed Trust Series
2006-E Class 2A1, 5.38% due 4/25/2037(b)........ 2,801,655
</Table>
8
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Bond V.I. Fund
Schedule of Investments as of June 30, 2007 (continued) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
FACE
AMOUNT ASSET-BACKED SECURITIES+ VALUE
- --------------------------------------------------------------------------------------------------------------------
USD 936,618 Irwin Home Equity Series 2005-C Class 1A1, 5.58%
due 4/25/2030(b)................................ $ 936,845
3,480,346 Ixis Real Estate Capital Trust Series 2007-HE1
Class A1, 5.38% due 5/25/2037(b)................ 3,478,707
1,882,952 JPMorgan Mortgage Acquisition Corp. Series 2006-
HE3 Class A2, 5.39% due 11/25/2036(b)........... 1,882,947
4,600,000 MBNA Credit Card Master Note Trust Series
2005-A7 Class A7, 4.30% due 2/15/2011........... 4,546,446
Morgan Stanley ABS Capital I, Inc.(b):
634,134 Series 2005-HE1 Class A2MZ, 5.62% due
12/25/2034...................................... 634,548
156,733 Series 2005-NC2 Class A1MZ, 5.57% due
3/25/2035....................................... 156,800
152,664 Series 2005-NC2 Class A2MZ, 5.57% due
3/25/2035....................................... 152,728
2,312,391 Series 2006-HE8 Class A2A, 5.37% due
10/25/2036...................................... 2,311,289
2,744,592 Series 2007-NC1 Class A2A, 5.37% due
11/25/2036...................................... 2,743,170
1,615,248 Nationstar Home Equity Loan Trust Series 2006-B
Class AV1, 6.02% due 9/25/2036(b)............... 1,615,245
New Century Home Equity Loan Trust(b):
1,009,777 Series 2005-2 Class A2MZ, 5.58% due 6/25/2035... 1,005,177
679,138 Series 2005-3 Class A2B, 5.50% due 7/25/2035.... 679,099
550,663 Option One Mortgage Loan Trust Series 2003-4 Class
A2, 5.64% due 7/25/2033(b)...................... 551,467
Park Place Securities, Inc. Series 2005-WCH1(b):
319,067 Class A1B, 5.62% due 1/25/2035.................. 319,222
247,946 Class A3D, 5.66% due 1/25/2035.................. 248,053
750,000 Popular ABS Mortgage Pass-Through Trust Series
2005-1 Class M2, 5.51% due 5/25/2035............ 721,733
2,834,143 RAAC Series 2005-SP2 Class 2A, 5.62% due
6/25/2044(b).................................... 2,835,286
Residential Asset Mortgage Products, Inc.(b):
487,890 Series 2004-RS11 Class A2, 5.59% due
12/25/2033...................................... 488,034
1,242,933 Series 2005-RS3 Class AI2, 5.49% due
3/25/2035....................................... 1,243,744
2,337,770 Series 2006-EFC2 Class A1, 5.38% due
12/25/2036...................................... 2,338,033
457,105 Residential Asset Securities Corp. Series 2003-KS5
Class AIIB, 5.61% due 7/25/2033(b).............. 457,262
2,722,186 SLM Student Loan Trust Series 2002-1 Class A2,
5.47% due 4/25/2017(b).......................... 2,728,610
4,500,000 Soundview Home Equity Loan Trust Series 2005-OPT3
Class A4, 5.62% due 11/25/2035(b)............... 4,505,846
Structured Asset Investment Loan Trust(b):
3,250,000 Series 2003-BC6 Class M1, 6.07% due 7/25/2033... 3,252,321
2,600,000 Series 2003-BC7 Class M1, 6.07% due 7/25/2033... 2,604,207
1,090,000 Series 2004-8 Class M4, 6.32% due 9/25/2034..... 1,093,493
829,179 Structured Asset Securities Corp. Series 2004-23XS
Class 2A1, 5.62% due 1/25/2035(b)............... 832,259
USAA Auto Owner Trust:
2,850,000 Series 2005-3 Class A4, 4.63% due 5/15/2012..... 2,814,254
3,050,000 Series 2006-4 Class A3, 5.01% due 6/15/2011..... 3,037,551
2,825,000 Series 2006-4 Class A4, 4.98% due 10/15/2012.... 2,796,682
- --------------------------------------------------------------------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES
(COST--$128,497,244)--32.2%....................... 128,366,546
- --------------------------------------------------------------------------------------------------------------------
<Caption>
U.S. GOVERNMENT & AGENCY OBLIGATIONS
- --------------------------------------------------------------------------------------------------------------------
4,840,000 Fannie Mae, 7.125% due 1/15/2030.................. 5,759,760
</Table>
9
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Bond V.I. Fund
Schedule of Investments as of June 30, 2007 (continued) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
FACE
AMOUNT U.S. GOVERNMENT & AGENCY OBLIGATIONS VALUE
- --------------------------------------------------------------------------------------------------------------------
U.S. Treasury Inflation Indexed Bonds:
USD 3,960,622 3.875% due 1/15/2009(c)......................... $ 4,023,747
3,461,379 3.50% due 1/15/2011............................. 3,561,164
7,303,297 1.625% due 1/15/2015............................ 6,788,641
U.S. Treasury Notes:
825,000 6% due 2/15/2026................................ 900,539
2,900,000 4.75% due 2/15/2037............................. 2,734,384
- --------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(COST--$22,665,818)--5.9%......................... 23,768,235
- --------------------------------------------------------------------------------------------------------------------
<Caption>
U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES+--COLLATERALIZED
MORTGAGE OBLIGATIONS
- --------------------------------------------------------------------------------------------------------------------
Fannie Mae Trust:
3,866,553 Series 360 Class 2, 5% due 8/01/2035(h)......... 1,004,836
4,780,916 Series 378 Class 4, 5% due 7/01/2036(h)......... 1,160,577
3,001,530 Series 2003-9 Class DA, 4.50% due 12/25/2016.... 2,936,184
2,730,000 Series 2003-87 Class TJ, 4.50% due 9/25/2018.... 2,547,150
1,043,553 Series 2005-47 Class PA, 5.50% due 9/25/2024.... 1,041,069
4,778,411 Series 2005-69 Class LE, 5.50% due 11/25/2033... 4,744,852
Freddie Mac Multiclass Certificates:
1,342,580 Series 3068 Class VA, 5.50% due 10/15/2016...... 1,333,238
3,844,787 Series 3087 Class VA, 5.50% due 3/15/2015....... 3,825,449
2,304,590 Series 3137 Class XP, 6% due 4/15/2036.......... 2,321,186
1,180,106 Series 3138 Class PA, 5.50% due 2/15/2027....... 1,178,361
- --------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES--COLLATERALIZED
MORTGAGE OBLIGATIONS
(COST--$22,129,000)--5.5%......................... 22,092,902
- --------------------------------------------------------------------------------------------------------------------
<Caption>
U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES+
- --------------------------------------------------------------------------------------------------------------------
Fannie Mae Guaranteed Pass-Through Certificates:
2,971,326 4.00% due 10/01/2020-3/01/2022.................. 2,749,340
10,500,000 4.50% due 7/15/2022(g).......................... 9,961,875
57,320,300 5.00% due 7/15/2022-8/15/2037(g)................ 54,199,462
134,766,117 5.50% due 7/15/2022-7/15/2037(g)................ 130,484,377
56,645,324 6.00% due 2/01/2017-7/15/2037(g)................ 56,205,620
8,916,572 6.50% due 5/01/2032-8/15/2037(g)................ 9,002,781
Freddie Mac Mortgage Participation Certificates:
9,300,000 5.00% due 8/15/2037(g).......................... 8,712,938
17,044,355 5.50% due 10/01/2034-8/15/2037(g)............... 16,431,996
9,630,534 6.00% due 5/01/2035-7/15/2037(g)................ 9,543,414
2,775,736 6.009% due 11/01/2036(b)........................ 2,790,551
586,921 7.00% due 10/01/2031-9/01/2032.................. 605,675
186,920 7.50% due 5/01/2032............................. 194,622
722,113 Ginnie Mae MBS Certificates, 6.50% due
4/15/2032-9/15/2034............................. 735,520
- --------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES
(COST--$302,155,081)--75.6%....................... 301,618,171
- --------------------------------------------------------------------------------------------------------------------
<Caption>
NON-GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES+
- --------------------------------------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE 1,981,493 Countrywide Alternative Loan Trust Series
OBLIGATIONS--2.8% 2006-OC10 Class 2A1, 5.41% due 11/25/2036(b).... 1,980,824
Impac Secured Assets CMN Owner Trust Series
2004-3(b):
856,811 Class 1A4, 5.72% due 11/25/2034................. 859,019
2,200,000 Class M1, 5.92% due 11/25/2034.................. 2,206,623
667,093 RMAC Plc Series 2003-NS2A Class A2C, 5.76% due
9/12/2035(b).................................... 667,301
</Table>
10
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Bond V.I. Fund
Schedule of Investments as of June 30, 2007 (continued) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
FACE NON-GOVERNMENT AGENCY
AMOUNT MORTGAGE-BACKED SECURITIES+ VALUE
- --------------------------------------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE USD 3,450,797 Residential Accredit Loans, Inc. Series 2005-QS12
OBLIGATIONS (CONCLUDED) Class A8, 5.646% due 8/25/2035(b)............... $ 3,448,073
Structured Asset Securities Corp.(b):
542,448 Series 2005-GEL2 Class A, 5.60% due 4/25/2035... 542,311
1,574,374 Series 2005-OPT1 Class A4M, 5.67% due
11/25/2035...................................... 1,572,935
-------------
11,277,086
- --------------------------------------------------------------------------------------------------------------------
COMMERCIAL MORTGAGE-
Banc of America Commercial Mortgage, Inc.:
BACKED SECURITIES--17.7% 2,800,000 Series 2003-2 Class A3, 4.873% due 3/11/2041.... 2,711,048
2,400,000 Series 2007-2 Class A4, 5.688% due
3/10/2017(b).................................... 2,373,845
Bear Stearns Commercial Mortgage Securities:
3,280,000 Series 1998-C1 Class A2, 6.44% due 6/16/2030.... 3,296,877
2,800,000 Series 2005-PWR8 Class A4, 4.674% due
6/11/2041....................................... 2,604,653
1,883,920 CS First Boston Mortgage Securities Corp. Series
2002-CP5 Class A1, 4.106% due 12/15/2035........ 1,826,249
2,360,000 CWCapital Cobalt Series 2006-C1 Class A4, 5.223%
due 8/15/2048................................... 2,245,492
2,932,557 Capco America Securitization Corp. Series 1998-D7
Class A1B, 6.26% due 10/15/2030................. 2,951,603
2,486,083 Chase Commercial Mortgage Securities Corp. Series
1999-2 Class A2, 7.198% due 1/15/2032........... 2,564,505
2,350,000 Credit Suisse Mortgage Capital Certificates Series
2007-C3 Class A4, 5.723% due 6/15/2039(b)....... 2,320,190
2,399,838 DLJ Commercial Mortgage Corp. Series 1998-CG1
Class A1B, 6.41% due 6/10/2031.................. 2,408,424
2,452,113 First Union-Lehman Brothers-Bank of America Series
1998-C2 Class A2, 6.56% due 11/18/2035.......... 2,461,702
First Union National Bank Commercial Mortgage:
2,770,000 Series 1999-C4 Class E, 8.15% due
12/15/2031(a)(b)................................ 2,912,761
3,275,000 Series 2001-C2 Class B, 6.819% due 1/12/2043.... 3,403,909
2,850,000 GS Mortgage Securities Corp. II Series 2006-GG6
Class A2, 5.506% due 4/10/2038(b)............... 2,845,233
Greenwich Capital Commercial Funding Corp.:
4,180,000 Series 2004-GG1 Class A4, 4.755% due 6/10/2036.. 4,110,778
2,720,000 Series 2004-GG1 Class A5, 4.883% due 6/10/2036.. 2,659,960
785,000 Series 2005-GG5 Class AJ, 5.301% due
4/10/2037(b).................................... 757,021
JPMorgan Chase Commercial Mortgage Securities
Corp.:
2,735,000 Series 2001-CIB2 Class A3, 6.429% due
4/15/2035....................................... 2,809,657
2,300,000 Series 2006-CB17 Class A4, 5.429% due
12/12/2043...................................... 2,226,177
LB-UBS Commercial Mortgage Trust:
2,650,428 Series 2000-C3 Class A2, 7.95% due 5/15/2025.... 2,785,408
2,950,000 Series 2005-C3 Class A5, 4.739% due 7/15/2030... 2,755,796
1,750,000 Series 2007-C2 Class A3, 5.43% due 2/15/2040.... 1,688,203
1,080,000 Morgan Stanley Capital I Series 2006-IQ12 Class
A4, 5.332% due 12/15/2043....................... 1,037,573
2,462,861 Morgan Stanley Dean Witter Capital I Series 2000-
LIFE Class A2, 7.57% due 11/15/2036............. 2,558,347
Mortgage Capital Funding, Inc.:
2,600,000 Series 1998-MC1 Class E, 7.06% due 3/18/2030.... 2,613,153
2,780,000 Series 1998-MC2 Class B, 6.549% due 6/18/2030... 2,789,763
</Table>
11
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Bond V.I. Fund
Schedule of Investments as of June 30, 2007 (continued) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
FACE NON-GOVERNMENT AGENCY
AMOUNT MORTGAGE-BACKED SECURITIES+ VALUE
- --------------------------------------------------------------------------------------------------------------------
COMMERCIAL MORTGAGE-BACKED
SECURITIES (CONCLUDED)
USD 2,425,000 Salomon Brothers Mortgage Securities VII Series
2000-C1 Class A2, 7.52% due 12/18/2009.......... $ 2,515,617
2,480,000 Wachovia Bank Commercial Mortgage Trust Series
2005-C20 Class A6A, 5.11% due 7/15/2042(b)...... 2,413,610
-------------
70,647,554
- --------------------------------------------------------------------------------------------------------------------
TOTAL NON-GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES
(COST--$83,168,224)--20.5%........................ 81,924,640
- --------------------------------------------------------------------------------------------------------------------
<Caption>
INDUSTRY CORPORATE BONDS
- --------------------------------------------------------------------------------------------------------------------
AEROSPACE & DEFENSE--0.1% 640,000 Honeywell International, Inc., 5.70% due
3/15/2036....................................... 590,849
- --------------------------------------------------------------------------------------------------------------------
AIRLINES--0.5% 511,904 American Airlines, Inc. Series 2003-1, 3.857% due
1/09/2012(j).................................... 490,787
600,000 Continental Airlines, Inc. Series 2002-1, 6.563%
due 8/15/2013................................... 618,750
940,000 Southwest Airlines Co., 7.875% due 9/01/2007...... 943,149
-------------
2,052,686
- --------------------------------------------------------------------------------------------------------------------
BUILDING PRODUCTS--0.1% 245,000 Momentive Performance Materials, Inc., 10.125% due
12/01/2014(a)(i)................................ 245,612
- --------------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS--1.8% 1,530,000 Credit Suisse Guernsey Ltd., 5.86%(b)(e).......... 1,474,097
585,000 Goldman Sachs Capital II, 5.793%(b)(e)............ 570,928
2,550,000 Goldman Sachs Group, Inc., 5.25% due 10/15/2013... 2,472,057
2,825,000 Morgan Stanley Series F, 5.55% due 4/27/2017...... 2,710,345
-------------
7,227,427
- --------------------------------------------------------------------------------------------------------------------
CHEMICALS--0.1% 260,000 Lyondell Chemical Co., 6.875% due 6/15/2017....... 250,900
- --------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS--0.9% 1,250,000 Barclays Bank Plc, 8.55%(a)(e).................... 1,376,554
810,000 Corporacion Andina de Fomento, 6.875% due
3/15/2012....................................... 848,290
JPY154,000,000 Kreditanstalt fuer Wiederaufbau, 0.325% due
8/08/2011(b).................................... 1,250,935
-------------
3,475,779
- --------------------------------------------------------------------------------------------------------------------
CONSUMER FINANCE--0.3% USD 665,000 MBNA America Bank NA, 4.625% due 8/03/2009........ 655,028
625,000 SLM Corp., 5.40% due 10/25/2011................... 572,441
-------------
1,227,469
- --------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL 780,000 Bank of America Corp., 4.875% due 9/15/2012....... 753,751
SERVICES--3.6%
Citigroup, Inc.:
1,910,000 5.625% due 8/27/2012............................ 1,910,407
1,315,000 5.50% due 2/15/2017............................. 1,273,605
195,000 5.875% due 5/29/2037............................ 185,903
General Electric Capital Corp.:
4,125,000 5% due 11/15/2011............................... 4,042,372
4,625,000 Series A, 5% due 12/01/2010..................... 4,563,469
1,550,000 JPMorgan Chase Bank NA, 6% due 7/05/2017.......... 1,537,894
-------------
14,267,401
- --------------------------------------------------------------------------------------------------------------------
DIVERSIFIED 1,620,000 GTE Corp., 6.84% due 4/15/2018.................... 1,702,371
TELECOMMUNICATION
SERVICES--0.7%
JPY 87,000,000 Nippon Telegraph & Telephone Corp., 2.50% due
7/25/2007....................................... 707,347
USD 405,000 Telecom Italia Capital SA, 6% due 9/30/2034....... 364,874
-------------
2,774,592
- --------------------------------------------------------------------------------------------------------------------
</Table>
12
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Bond V.I. Fund
Schedule of Investments as of June 30, 2007 (continued) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
FACE
INDUSTRY AMOUNT CORPORATE BONDS VALUE
- --------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES--0.6% USD 285,000 Jersey Central Power & Light Co., 6.40% due
5/15/2036....................................... $ 282,636
575,000 Nevada Power Co., 6.65% due 4/01/2036............. 576,906
780,000 Sierra Pacific Power Co., 6% due 5/15/2016........ 764,998
740,000 Southern California Edison Co., 5.625% due
2/01/2036....................................... 691,460
-------------
2,316,000
- --------------------------------------------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & 495,000 The Cooper Cos., Inc., 7.125% due 2/15/2015(a).... 490,050
SUPPLIES--0.1%
- --------------------------------------------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & 540,000 UnitedHealth Group, Inc., 5.80% due 3/15/2036..... 496,959
SERVICES--0.1%
- --------------------------------------------------------------------------------------------------------------------
INDUSTRIAL 800,000 Hutchison Whampoa International (03/33) Ltd.,
CONGLOMERATES--0.2% 7.45% due 11/24/2033(a)......................... 882,978
- --------------------------------------------------------------------------------------------------------------------
INSURANCE--1.3% 805,000 American International Group, Inc., 6.25% due
5/01/2036....................................... 812,453
675,000 Chubb Corp., 6.375% due 3/29/2067(b).............. 660,082
470,000 Lincoln National Corp., 7% due 5/17/2066(b)....... 482,258
895,000 Metlife, Inc., 6.40% due 12/15/2066............... 829,085
650,000 Progressive Corp., 6.70% due 6/15/2037(b)......... 646,015
345,000 Reinsurance Group of America, 6.75% due
12/15/2065(b)................................... 336,237
830,000 The Travelers Cos., Inc., 6.25% due 3/15/2067(b).. 797,588
530,000 ZFS Finance USA Trust I, 6.50% due
5/09/2037(a)(b)................................. 512,587
-------------
5,076,305
- --------------------------------------------------------------------------------------------------------------------
MEDIA--1.9%
Comcast Corp.:
1,055,000 6.50% due 1/15/2017............................. 1,077,108
800,000 6.45% due 3/15/2037............................. 770,979
660,000 Cox Communications, Inc., 7.125% due 10/01/2012... 697,273
220,000 Idearc, Inc., 8% due 11/15/2016................... 222,200
330,000 News America Holdings, 9.25% due 2/01/2013........ 381,861
News America, Inc.:
890,000 6.40% due 12/15/2035............................ 847,558
555,000 6.75% due 1/09/2038............................. 580,888
850,000 Time Warner Cable, Inc., 5.85% due 5/01/2017(a)... 826,751
1,790,000 Time Warner Companies, Inc., 9.125% due
1/15/2013....................................... 2,056,166
-------------
7,460,784
- --------------------------------------------------------------------------------------------------------------------
METALS & MINING--0.2% 585,000 Freeport-McMoRan Copper & Gold, Inc., 8.375% due
4/01/2017....................................... 624,487
- --------------------------------------------------------------------------------------------------------------------
MULTI-UTILITIES--0.1% 365,000 Xcel Energy, Inc., 6.50% due 7/01/2036............ 369,153
- --------------------------------------------------------------------------------------------------------------------
OFFICE ELECTRONICS--0.2% 915,000 Xerox Corp., 6.40% due 3/15/2016.................. 920,642
- --------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE 1,375,000 Anadarko Petroleum Corp., 6.45% due 9/15/2036..... 1,322,512
FUELS--2.0%
800,000 Midamerican Energy Holdings Co., 5.95% due
5/15/2037(a).................................... 753,968
695,000 Motiva Enterprises LLC, 5.20% due 9/15/2012(a).... 680,048
990,000 Northwest Pipeline Corp., 7% due 6/15/2016........ 1,032,075
3,350,000 Pemex Project Funding Master Trust, 6.66% due
6/15/2010(a)(b)................................. 3,437,100
530,000 Sabine Pass LNG LP, 7.50% due 11/30/2016(a)....... 527,350
135,000 Tennessee Gas Pipeline Co., 7% due 10/15/2028..... 139,026
-------------
7,892,079
- --------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS--0.5% 270,000 Bristol-Myers Squibb Co., 5.875% due 11/15/2036... 254,709
JPY143,000,000 Pfizer, Inc., .80% due 3/18/2008.................. 1,159,997
USD 790,000 Wyeth, 6% due 2/15/2036........................... 761,733
-------------
2,176,439
- --------------------------------------------------------------------------------------------------------------------
</Table>
13
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Bond V.I. Fund
Schedule of Investments as of June 30, 2007 (continued) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
FACE
INDUSTRY AMOUNT CORPORATE BONDS VALUE
- --------------------------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT USD 775,000 Nationwide Health Properties, Inc., 6.59% due
TRUSTS (REITS)--0.2% 7/07/2038....................................... $ 774,457
- --------------------------------------------------------------------------------------------------------------------
SEMICONDUCTORS &
SEMICONDUCTOR
EQUIPMENT--0.9%
Freescale Semiconductor, Inc.(a):
460,000 9.125% due 12/15/2014(i)........................ 432,400
60,000 9.235% due 12/15/2014(b)........................ 57,900
3,250,000 International Rectifier Corp., 4.25% due
7/15/2007(d).................................... 3,241,875
-------------
3,732,175
- --------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(COST--$66,551,812)--16.4%........................ 65,325,223
- --------------------------------------------------------------------------------------------------------------------
<Caption>
FOREIGN GOVERNMENT OBLIGATIONS
- --------------------------------------------------------------------------------------------------------------------
1,065,000 Argentina Bonos, 5.475% due 8/03/2012(b)(j)....... 1,012,966
102,282 Argentina Government International Bond, 8.28% due
12/31/20339(f).................................. 98,702
JPY125,700,000 Finland Government International Bond, .30% due
10/18/2007...................................... 1,019,138
Mexico Government International Bond:
USD 596,000 6.375% due 1/16/2013............................ 616,264
565,000 5.875% due 1/15/2014............................ 567,825
756,200 Russia Government International Bond, 7.50% due
3/31/2030(j).................................... 832,954
170,000 Venezuela Government International Bond, 7.65% due
4/21/2025....................................... 155,550
- --------------------------------------------------------------------------------------------------------------------
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(COST--$4,347,453)--1.1%.......................... 4,303,399
- --------------------------------------------------------------------------------------------------------------------
<Caption>
PREFERRED SECURITIES
- --------------------------------------------------------------------------------------------------------------------
<Caption>
CAPITAL TRUSTS
- --------------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS--0.4% 1,010,000 Lehman Brothers Holdings Capital Trust V,
5.857%(b)(e).................................... 989,354
575,000 Mellon Capital IV Series 1, 6.244%(b)(e).......... 580,186
-------------
1,569,540
- --------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS--0.4% 665,000 BAC Capital Trust VI, 5.625% due 3/08/2035........ 593,769
525,000 USB Capital IX, 6.189%(b)(e)...................... 528,877
650,000 Wachovia Capital Trust III, 5.80% (b)(e).......... 647,167
-------------
1,769,813
- --------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE 560,000 Pemex Project Funding Master Trust, 7.375% due
FUELS--0.2% 12/15/2014...................................... 608,633
- --------------------------------------------------------------------------------------------------------------------
TOTAL CAPITAL TRUSTS
(COST--$3,997,764)--1.0% 3,947,986
- --------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
SHARES
HELD PREFERRED STOCKS
- --------------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE 38,800 Fannie Mae Series O, 7%........................... 2,011,539
FINANCE--0.5%
- --------------------------------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS
(COST--$2,158,250)--0.5%.......................... 2,011,539
- --------------------------------------------------------------------------------------------------------------------
<Caption>
FACE
AMOUNT TRUST PREFERREDS
- --------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS--0.1% USD 550,000 SunTrust Capital VIII, 6.10% due 12/15/2036(b).... 503,666
- --------------------------------------------------------------------------------------------------------------------
TOTAL TRUST PREFERREDS
(COST--$541,101)--0.1%............................ 503,666
- --------------------------------------------------------------------------------------------------------------------
TOTAL PREFERRED SECURITIES
(COST--$6,697,115)--1.6%.......................... 6,463,191
- --------------------------------------------------------------------------------------------------------------------
</Table>
14
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Bond V.I. Fund
Schedule of Investments as of June 30, 2007 (continued) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
FACE
AMOUNT SHORT-TERM SECURITIES VALUE
- --------------------------------------------------------------------------------------------------------------------
USD 5,400,000 Federal Home Loan Bank System, 4.80% due
7/02/2007....................................... $ 5,400,000
- --------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM SECURITIES
(COST--$5,400,000)--1.4%.......................... 5,400,000
- --------------------------------------------------------------------------------------------------------------------
<Caption>
NUMBER OF
CONTRACTS++ OPTIONS PURCHASED
- --------------------------------------------------------------------------------------------------------------------
CALL OPTIONS PURCHASED--0.4% 21 Receive a fixed rate of 5.525% and pay a floating
rate based on 3-month LIBOR, expiring May 2012,
Broker Citibank(k).............................. 379,743
19 Receive a fixed rate of 5.705% and pay a floating
rate based on 3-month LIBOR, expiring May 2012,
Broker Deutsche Bank AG(k)...................... 924,374
8 Receive a fixed rate of 6.025% and pay a floating
rate based on 3-month LIBOR, expiring June 2012,
Broker Lehman Brothers Special Finance(k)....... 322,790
-------------
1,626,907
- --------------------------------------------------------------------------------------------------------------------
PUT OPTIONS PURCHASED--0.4% 21 Pay a fixed rate of 5.525% and receive a floating
rate based on 3-month LIBOR, expiring May 2012,
Broker Citibank(k).............................. 634,893
19 Pay a fixed rate of 5.705% and receive a floating
rate based on 3-month LIBOR, expiring May 2012,
Broker Deutsche Bank AG(k)...................... 535,961
8 Pay a fixed rate of 6.025% and receive a floating
rate based on 3-month LIBOR, expiring June 2012,
Broker Lehman Brothers Special Finance(k)....... 327,034
-------------
1,497,888
- --------------------------------------------------------------------------------------------------------------------
TOTAL OPTIONS PURCHASED
(PREMIUMS PAID--$3,705,890)--0.8% 3,124,795
- --------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (COST--$645,317,637)--161.0%.... 642,387,102
- --------------------------------------------------------------------------------------------------------------------
<Caption>
FACE
AMOUNT TBA SALE COMMITMENTS
- --------------------------------------------------------------------------------------------------------------------
Fannie Mae Guaranteed Pass-Through Certificates:
USD 1,000,000 4.50% due 7/15/2022............................. (949,005)
20,800,000 5.00% due 7/15/2022-8/15/2037................... (19,537,775)
9,600,000 5.50% due 7/15/2022-7/15/2037................... (9,345,123)
13,500,000 6.00% due 2/01/2017-7/15/2037................... (13,510,369)
2,000,000 6.50% due 5/01/2032-8/15/2037................... (2,018,994)
1,100,000 Freddie Mac Mortgage Participation
Certificates 6.00% due 5/01/2035-7/15/2037...... (1,089,969)
- --------------------------------------------------------------------------------------------------------------------
TOTAL TBA SALE COMMITMENTS--(PREMIUMS
RECEIVED--$46,934,418)--(11.6%) (46,451,235)
- --------------------------------------------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF OTHER ASSETS--(49.4%).... (197,089,618)
-------------
NET ASSETS--100.0%................................ $ 398,846,249
=============
- --------------------------------------------------------------------------------------------------------------------
</Table>
+ Asset-Backed and Mortgage-Backed Securities are subject to principal
paydowns. As a result of the prepayments or refinancings of the underlying
instruments, the average life may be substantially less than the original
maturity.
15
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Bond V.I. Fund
Schedule of Investments as of June 30, 2007 (continued) (in U.S. dollars)
- --------------------------------------------------------------------------------
++ One contract represents a notional amount of $1,000,000.
(a) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(b) Floating rate security.
(c) All or a portion of security held as collateral in connection with open
financial futures contracts.
(d) Convertible security.
(e) The security is a perpetual bond and has no stated maturity date.
(f) Brady Bonds are securities which have been issued to refinance commercial
bank loans and other debt. The risk associated with these instruments is
the amount of any uncollateralized principal or interest payments since
there is a high default rate of commercial bank loans by countries issuing
these securities.
(g) Represents or includes a "to-be-announced" transaction. The Fund has
committed to purchasing securities for which all specific information is
not available at this time.
(h) Represents the interest only portion of a mortgage-backed security and has
either a nominal or a notional amount of principal.
(i) Represents a pay-in-kind security which may pay interest/dividends in
additional face/shares.
(j) Subject to principal paydowns.
(k) This European style swaption, which can be exercised only on the expiration
date, represents a standby commitment whereby the writer of the option is
obligated to enter into a predetermined interest rate swap contract upon
exercise of swaption.
- - For Fund compliance purposes, the Fund's industry classifications refer to
any one or more of the industry sub-classifications used by one or more
widely recognized market indexes or ratings group indexes, and/or as defined
by Fund management. This definition may not apply for purposes of this
report, which may combine industry sub-classifications for reporting ease.
Industries are shown as a percent of net assets.
- - The cost and unrealized appreciation (depreciation) of investments net of
TBA sale commitments as of June 30 ,2007, as computed for federal income
tax purposes, were as follows:
- --------------------------------------------------------------------------------
<Table>
Aggregate cost.............................................. $599,499,902
============
Gross unrealized appreciation............................... $ 2,378,825
Gross unrealized depreciation............................... (5,942,860)
------------
Net unrealized depreciation................................. $ (3,564,035)
============
</Table>
- --------------------------------------------------------------------------------
- - Financial futures contracts purchased as of June 30, 2007 were as follows:
<Table>
<Caption>
- ---------------------------------------------------------------------------------
NUMBER OF EXPIRATION FACE UNREALIZED
CONTRACTS ISSUE DATE VALUE DEPRECIATION
- ---------------------------------------------------------------------------------
52 EuroDollar Futures September 2007 $7,883,582 $ (89,037)
78 30-Year U.S. Treasury Bond September 2007 $8,493,055 (88,555)
- ---------------------------------------------------------------------------------
TOTAL UNREALIZED DEPRECIATION $(177,592)
=========
- ---------------------------------------------------------------------------------
</Table>
- - Financial futures contracts sold as of June 30, 2007 were as follows:
<Table>
<Caption>
- ------------------------------------------------------------------------------------
UNREALIZED
NUMBER OF EXPIRATION FACE APPRECIATION
CONTRACTS ISSUE DATE VALUE (DEPRECIATION)
- ------------------------------------------------------------------------------------
127 EuroDollar Futures September 2007 $30,212,885 $ 155,160
245 2-Year U.S. Treasury Bond September 2007 $49,954,900 28,494
670 5-Year U.S. Treasury Bond September 2007 $69,629,274 (103,070)
139 10-Year U.S. Treasury Bond September 2007 $14,588,693 (104,041)
- ------------------------------------------------------------------------------------
TOTAL UNREALIZED DEPRECIATION--NET $ (23,457)
=========
- ------------------------------------------------------------------------------------
</Table>
- - Currency Abbreviations:
<Table>
JPY Japanese Yen
USD U.S. Dollar
</Table>
16
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Bond V.I. Fund
Schedule of Investments as of June 30, 2007 (concluded) (in U.S. dollars)
- --------------------------------------------------------------------------------
- - Swap contracts outstanding as of June 30, 2007 were as follows:
<Table>
<Caption>
- ------------------------------------------------------------------------------------------
UNREALIZED
NOTIONAL APPRECIATION
AMOUNT (DEPRECIATION)
- ------------------------------------------------------------------------------------------
Sold credit default protection on Comcast Cable
Communications, Inc. and receive 1.15%
Broker, Morgan Stanley Capital Services Inc.
Expires September 2008...................................... $ 1,980,000 $ 26,512
Receive a fixed rate of 3.401% and pay 3.875% on Treasury
Inflation Protected Securities (TIPS) adjusted principal
Broker, JPMorgan Chase
Expires January 2009........................................ $ 4,062,000 (70,162)
Receive a fixed rate of 5.2725% and pay a floating rate
based on 3-month LIBOR
Broker, Citibank, N.A.
Expires October 2009........................................ $14,000,000 (33,615)
Bought credit default protection on Sara Lee Corp. and pay
0.57%
Broker, Lehman Brothers Special Finance
Expires December 2010....................................... $ 1,395,000 (14,225)
Bought credit default protection on RadioShack Corp. and pay
1.16%
Broker, UBS Warburg
Expires December 2010....................................... $ 1,355,000 (16,021)
Bought credit default protection on Limited Brands, Inc. and
pay 1.065%
Broker, UBS Warburg
Expires December 2010....................................... $ 1,355,000 (31,607)
Receive a fixed rate of 4.17% and pay 3.50% on Treasury
Inflation Protected Securities (TIPS) adjusted principal
Broker, Morgan Stanley Capital Services Inc.
Expires January 2011........................................ $ 3,500,000 (185,598)
Bought credit default protection on Sara Lee Corp. and pay
0.604%
Broker, JPMorgan Chase
Expires March 2011.......................................... $ 1,225,000 (13,612)
Bought credit default protection on Limited Brands, Inc. and
pay 0.73%
Broker, Lehman Brothers Special Finance
Expires March 2011.......................................... $ 1,225,000 (14,317)
Bought credit default protection on Computer Sciences Corp.
and pay 0.88%
Broker, Morgan Stanley Capital Services Inc.
Expires June 2011........................................... $ 1,185,000 (10,090)
Receive a fixed rate of 5.035% and pay a floating rate based
on 3-month LIBOR
Broker, Morgan Stanley Capital Services Inc.
Expires November 2011....................................... $13,000,000 (215,196)
Bought credit default protection on Eastman Chemical Co. and
pay 0.68%
Broker, Morgan Stanley Capital Services Inc.
Expires September 2013...................................... $ 1,170,000 (10,686)
Pay a fixed rate of 5.071% and receive a floating rate based
on 3-month LIBOR
Broker, UBS Warburg
Expires March 2017.......................................... $10,000,000 442,195
Receive a fixed rate of 5.10% and pay a floating rate based
on 3-month LIBOR
Broker, Deutsche Bank AG London
Expires March 2017.......................................... $11,800,000 (495,386)
Pay a fixed rate of 5.6825% and receive a floating rate
based on 3-month LIBOR
Broker, Lehman Brothers Special Finance
Expires June 2017........................................... $ 4,900,000 (6,552)
Receive a fixed rate of 5.411% and pay a floating rate based
on 3-month LIBOR
Broker, JPMorgan Chase
Expires August 2022......................................... $ 9,930,000 (354,260)
- ------------------------------------------------------------------------------------------
TOTAL....................................................... $(1,002,620)
===========
- ------------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements.
17
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Bond V.I. Fund
Statement of Assets and Liabilities as of June 30, 2007 (unaudited)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments in unaffiliated securities, at value (identified
cost--$641,611,747)....................................... $639,262,307
Unrealized appreciation on swaps............................ 468,707
Options purchased, at value (premiums paid--$3,705,890)..... 3,124,795
Cash........................................................ 8,805
Foreign cash (cost--$4,076,693)............................. 3,903,285
Receivables:
Securities sold........................................... $170,588,831
Capital shares sold....................................... 18,588,614
Interest.................................................. 2,922,434
Swaps..................................................... 290,290
Paydowns.................................................. 69,262
Dividends................................................. 33,925 192,493,356
------------
Prepaid expenses............................................ 4,819
------------
Total assets.............................................. 839,266,074
------------
- -------------------------------------------------------------------------------------------
LIABILITIES:
Unrealized depreciation on swaps............................ 1,471,327
TBA sale commitments, at value (proceeds paid TBA sale
commitments--$46,934,418)................................. 46,451,235
Payables:
Securities purchased...................................... 389,818,521
Dividends to shareholders................................. 1,360,011
Swaps..................................................... 748,185
Variation margin.......................................... 292,635
Investment adviser........................................ 150,974
Other affiliates.......................................... 5,360
Capital shares redeemed................................... 154
Distributor............................................... 1 392,375,841
------------
Accrued expenses and other liabilities...................... 121,422
------------
Total liabilities........................................... 440,419,825
------------
- -------------------------------------------------------------------------------------------
NET ASSETS.................................................. $398,846,249
============
- -------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Class I Shares of Common Stock, $.10 par value, 600,000,000
shares authorized......................................... $ 3,429,847
Class II Shares of Common Stock, $.10 par value, 100,000,000
shares authorized......................................... 9
Class III Shares of Common Stock, $.10 par value,
100,000,000 shares authorized............................. 9
Paid-in capital in excess of par............................ 412,554,668
Accumulated distributions in excess of investment
income--net............................................... $ (387,264)
Accumulated realized capital losses--net.................... (12,929,033)
Unrealized depreciation--net................................ (3,821,987)
------------
Total accumulated losses--net............................... (17,138,284)
------------
NET ASSETS.................................................. $398,846,249
============
- -------------------------------------------------------------------------------------------
NET ASSET VALUE:
Class I--Based on net assets of $398,844,103 and 34,298,470
shares outstanding........................................ $ 11.63
============
Class II--Based on net assets of $1,073.7 and 92.22 shares
outstanding............................................... $ 11.64
============
Class III--Based on net assets of $1,072 and 92.1 shares
outstanding............................................... $ 11.64
============
- -------------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements.
18
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Bond V.I. Fund
Statement of Operations for the Year Ended June 30, 2007 (unaudited)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Interest (net of $2,002 foreign withholding tax)............ $10,891,785
Dividends................................................... 67,900
-----------
Total income................................................ 10,959,685
-----------
- -----------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees.................................... $ 938,584
Accounting services......................................... 73,015
Printing and shareholder reports............................ 40,565
Custodian fees.............................................. 20,627
Professional fees........................................... 20,455
Pricing services............................................ 13,611
Directors' fees and expenses................................ 12,394
Transfer agent fees--Class I................................ 2,433
Distribution fees--Class III................................ 3
Distribution fees--Class II................................. 1
Other....................................................... 12,457
-----------
Total expenses.............................................. 1,134,145
-----------
Investment income--net...................................... 9,825,540
-----------
- -----------------------------------------------------------------------------------------
REALIZED & UNREALIZED LOSS--NET:
Realized loss on:
Investments--net.......................................... (3,878,077)
Futures contracts and swaps--net.......................... (226,145)
Foreign currency transactions--net........................ (262,619) (4,366,841)
-----------
Change in unrealized appreciation/depreciation on:
Investments--net.......................................... (2,610,688)
Futures contracts and swaps--net.......................... (2,681,767)
Foreign currency transactions--net........................ (44,343) (5,336,798)
----------- -----------
Total realized and unrealized loss--net..................... (9,703,639)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ 121,901
===========
- -----------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements.
19
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Bond V.I. Fund
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<Table>
<Caption>
FOR THE SIX
MONTHS ENDED FOR THE
JUNE 30, 2007 YEAR ENDED
INCREASE (DECREASE) IN NET ASSETS: (UNAUDITED) DECEMBER 31, 2006
- -----------------------------------------------------------------------------------------------
OPERATIONS:
Investment income--net...................................... $ 9,825,540 $ 21,549,275
Realized loss--net.......................................... (4,366,841) (5,523,754)
Change in unrealized appreciation/depreciation--net......... (5,336,798) 2,291,972
------------ ------------
Net increase in net assets resulting from operations........ 121,901 18,317,493
------------ ------------
- -----------------------------------------------------------------------------------------------
DIVIDENDS TO SHAREHOLDERS:
Investment income--net:
Class I................................................... (9,408,112) (21,281,066)
Class II.................................................. (25) (49)
Class III................................................. (23) (49)
------------ ------------
Net decrease in net assets resulting from dividends to
shareholders.............................................. (9,408,160) (21,281,164)
------------ ------------
- -----------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Net decrease in net assets derived from capital share
transactions.............................................. (26,740,704) (70,412,138)
------------ ------------
- -----------------------------------------------------------------------------------------------
NET ASSETS:
Total decrease in net assets................................ (36,026,963) (73,375,809)
Beginning of period......................................... 434,873,212 508,249,021
------------ ------------
End of period*.............................................. $398,846,249 $434,873,212
============ ============
- -----------------------------------------------------------------------------------------------
* Accumulated distributions in excess of investment
income--net............................................... $ (387,264) $ (804,644)
============ ============
- -----------------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements.
20
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Bond V.I. Fund
Financial Highlights
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS I
--------------------------------------------------------------------
FOR THE SIX
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE MONTHS ENDED FOR THE YEAR ENDED DECEMBER 31,
BEEN DERIVED FROM INFORMATION PROVIDED IN THE JUNE 30, 2007 ----------------------------------------------------
FINANCIAL STATEMENTS. (UNAUDITED) 2006 2005 2004 2003 2002
- -------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......... $ 11.91 $ 11.95 $ 12.31 $ 12.21 $ 12.11 $ 11.59
-------- -------- -------- -------- -------- --------
Investment income--net***.................... .28 .55 .46 .39 .44 .56
Realized and unrealized gain (loss)--net..... (.29) (.03) (.22) .15 .13 .52
-------- -------- -------- -------- -------- --------
Total from investment operations............. (.01) .52 .24 .54 .57 1.08
-------- -------- -------- -------- -------- --------
Less dividends from investment income--net... (.27) (.56) (.60) (.44) (.47) (.56)
-------- -------- -------- -------- -------- --------
Net asset value, end of period............... $ 11.63 $ 11.91 $ 11.95 $ 12.31 $ 12.21 $ 12.11
======== ======== ======== ======== ======== ========
- -------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:**
Based on net asset value per share........... (.09%)+ 4.39% 1.98% 4.51% 4.76% 9.57%
======== ======== ======== ======== ======== ========
- -------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses..................................... .56%* .55% .53% .51% .50% .50%
======== ======== ======== ======== ======== ========
Investment income--net....................... 4.82%* 4.70% 3.71% 3.17% 3.62% 4.76%
======== ======== ======== ======== ======== ========
- -------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)..... $398,844 $434,871 $508,247 $613,572 $693,508 $672,305
======== ======== ======== ======== ======== ========
Portfolio turnover........................... 54%++ 272% 235% 194% 254% 274%
======== ======== ======== ======== ======== ========
- -------------------------------------------------------------------------------------------------------------------
</Table>
* Annualized.
** Total investment returns exclude insurance-related fees and expenses.
*** Based on average shares outstanding.
+ Aggregate total investment return.
++ Excludes dollar roll transactions.
See Notes to Financial Statements.
21
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Bond V.I. Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS II
-----------------------------------------------------------
FOR THE SIX FOR THE YEAR ENDED
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE MONTHS ENDED DECEMBER 31, FOR THE PERIOD
BEEN DERIVED FROM INFORMATION PROVIDED IN THE JUNE 30, 2007 ------------------ SEPTEMBER 30, 2004++
FINANCIAL STATEMENTS. (UNAUDITED) 2006 2005 TO DECEMBER 31, 2004
- ------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................. $11.92 $11.96 $12.31 $12.28
------ ------ ------ ------
Investment income--net***............................ .28 .58 .46 .10
Realized and unrealized gain (loss)--net............. (.29) (.05) (.21) .03
------ ------ ------ ------
Total from investment operations..................... (.01) .53 .25 .13
------ ------ ------ ------
Less dividends from investment income--net........... (.27) (.57) (.60) (.10)
------ ------ ------ ------
Net asset value, end of period....................... $11.64 $11.92 $11.96 $12.31
====== ====== ====== ======
- ------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:**
Based on net asset value per share................... (.09%)+ 4.49% 2.07% 1.08%+
====== ====== ====== ======
- ------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses............................................. .71%* .49% .53% .51%*
====== ====== ====== ======
Investment income--net............................... 4.67%* 4.86% 3.79% 3.40%*
====== ====== ====== ======
- ------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)............. $ 1 $ 1 $ 1 $ 1
====== ====== ====== ======
Portfolio turnover................................... 54%+++ 272% 235% 194%
====== ====== ====== ======
- ------------------------------------------------------------------------------------------------------------------
</Table>
* Annualized.
** Total investment returns exclude insurance-related fees and expenses.
*** Based on average shares outstanding.
+ Aggregate total investment return.
++ Commencement of operations.
+++ Excludes dollar roll transactions.
See Notes to Financial Statements.
22
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Bond V.I. Fund
Financial Highlights (concluded)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS III
-----------------------------------------------------------
FOR THE SIX FOR THE YEAR ENDED
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE MONTHS ENDED DECEMBER 31, FOR THE PERIOD
BEEN DERIVED FROM INFORMATION PROVIDED IN THE JUNE 30, 2007 ------------------ SEPTEMBER 30, 2004++
FINANCIAL STATEMENTS. (UNAUDITED) 2006 2005 TO DECEMBER 31, 2004
- ------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................. $11.91 $11.96 $12.31 $12.28
------ ------ ------ ------
Investment income--net***............................ .26 .57 .46 .10
Realized and unrealized gain (loss)--net............. (.28) (.05) (.21) .03
------ ------ ------ ------
Total from investment operations..................... (.02) .52 .25 .13
------ ------ ------ ------
Less dividends from investment income--net........... (.25) (.57) (.60) (.10)
------ ------ ------ ------
Net asset value, end of period....................... $11.64 $11.91 $11.96 $12.31
====== ====== ====== ======
- ------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:**
Based on net asset value per share................... (.19%)+ 4.40% 2.07% 1.08%+
====== ====== ====== ======
- ------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses............................................. .81%* .52% .53% .51%*
====== ====== ====== ======
Investment income--net............................... 4.57%* 4.83% 3.79% 3.40%*
====== ====== ====== ======
- ------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)............. $ 1 $ 1 $ 1 $ 1
====== ====== ====== ======
Portfolio turnover................................... 54%+++ 272% 235% 194%
====== ====== ====== ======
- ------------------------------------------------------------------------------------------------------------------
</Table>
* Annualized.
** Total investment returns exclude insurance-related fees and expenses.
*** Based on average shares outstanding.
+ Aggregate total investment return.
++ Commencement of operations.
+++ Excludes dollar roll transactions.
See Notes to Financial Statements.
23
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Bond V.I. Fund
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES:
BlackRock Variable Series Funds, Inc. (the "Company") is an open-end management
investment company that is comprised of 16 separate funds. Each fund offers
three 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. ("Merrill Lynch")), and other insurance companies that are not
affiliated with Merrill Lynch, for their separate accounts to fund benefits
under certain variable annuity and variable life insurance contracts. BlackRock
Bond V.I. Fund (the "Fund") is classified as "diversified," as defined in the
Investment Company Act of 1940, as amended. Class I, Class II and Class III
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. In addition, Class II and Class III Shares bear certain
expenses related to the distribution of such shares. The Fund's financial
statements are prepared in conformity with U.S. generally accepted accounting
principles, which may require the use of management accruals and estimates.
Actual results may differ from these estimates. These unaudited financial
statements reflect all adjustments, which are, in the opinion of management,
necessary to present a fair statement of the results for the interim period. All
such adjustments are of a normal, recurring nature. Income, expenses (other than
expenses attributable to a specific class) and realized and unrealized gains and
losses are allocated daily to each class based on its relative net assets. The
following is a summary of significant accounting policies followed by the Fund.
(a) Valuation of investments--Debt securities are traded primarily in the
over-the-counter ("OTC") markets and are valued at the last available bid price
in the OTC market or on the basis of values obtained by a pricing service.
Pricing services use valuation matrixes that incorporate both dealer-supplied
valuations and valuation models. The procedures of the pricing service and its
valuations are reviewed by the officers of the Company under the general
direction of the Board of Directors. Such valuations and procedures will be
reviewed periodically by the Board of Directors of the Company. Financial
futures contracts and options thereon, which are traded on exchanges, are valued
at their closing prices as of the close of such exchanges. Options written or
purchased are valued at the last sale price in the case of exchange-traded
options. Options traded in the OTC market are valued at the last asked price
(options written) or the last bid price (options purchased). Swap agreements are
valued based upon quoted fair valuations received daily by the Fund from a
pricing service or counterparty. Valuation of short-term investment vehicles is
generally based on the net asset value of the underlying investment vehicle or
amortized cost. Repurchase agreements are valued at cost plus accrued interest.
Securities and other 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.
Equity securities held by the Fund that are traded on stock exchanges or the
NASDAQ Global Market are valued at the last sale price or official close price
on the exchange, as of the close of business on the day the securities are being
valued or, lacking any sales, at the last available bid price for long
positions, and at the last available asked price for short positions. In cases
where equity securities are traded on more than one exchange, the securities are
valued on the exchange designated as the primary market by or under the
authority of the Board of Directors of the Company. Long positions traded in the
OTC market, NASDAQ Capital Market or Bulletin Board are valued at the last
available bid price obtained from one or more dealers or pricing services
approved by the Board of Directors of the Company. Short positions traded in the
OTC market are valued at the last available asked price. Portfolio securities
that are traded both in the OTC market and on a stock exchange are valued
according to the broadest and most representative market.
Generally, trading in foreign securities, as well as U.S. government
securities, money market instruments and certain fixed income securities, is
substantially completed each day at various times prior to the close of business
on the New York Stock Exchange ("NYSE"). The values of such securities used in
computing the net asset value of the Fund's shares are determined as of such
times. Foreign currency exchange rates will generally be determined as of the
close of business on the NYSE. Occasionally, events affecting the values of such
securities and such exchange rates may occur between the times at which they are
determined and the close of business on the NYSE that may not be reflected in
the computation of the Fund's net asset value. If events (for example, a company
24
- --------------------------------------------------------------------------------
announcement, market volatility or a natural disaster) occur during such periods
that are expected to materially affect the value of such securities, those
securities will be valued at their fair value as determined in good faith by the
Company's Board of Directors or by BlackRock Advisors, LLC (the "Manager"), an
indirect, wholly owned subsidiary of BlackRock, Inc., using a pricing service
and/or procedures approved by the Company's Board of Directors.
(b) Derivative financial instruments--The Fund may engage in various portfolio
investment strategies either to increase the return of the Fund and to hedge, or
protect its exposure to interest rate movements and movements in the securities
markets. Losses may arise due to changes in the value of the contract due to an
unfavorable change in the price of the underlying security or index, or if the
counterparty does not perform under the contract. The counterparty for certain
investments may pledge cash or securities as collateral.
- - Financial futures contracts--The Fund may purchase or sell financial futures
contracts and options on such financial futures contracts. Financial futures
contracts are contracts for delayed delivery of securities at a specific future
date and at a specific price or yield. Upon entering into a contract, the Fund
deposits and maintains as collateral such initial margin as required by the
exchange on which the transaction is effected. Pursuant to the contract, the
Fund agrees to receive from or pay to the broker an amount of cash equal to the
daily fluctuation in value of the contract. Such receipts or payments are known
as variation margin and are recorded by the Fund as unrealized gains or losses.
When the contract is closed, the Fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed.
- - Options--The Fund 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.
- - Forward foreign exchange contracts--The Fund may enter into forward foreign
exchange contracts as a hedge against either specific transactions or portfolio
positions. The contract is marked-to-market daily and the change in market value
is recorded by the Fund as an unrealized gain or loss. When the contract is
closed, the Fund records a realized gain or loss equal to the difference between
the value at the time it was opened and the value at the time it was closed.
- - Swaps--The Fund may enter into swap agreements, which are OTC contracts in
which the Fund and a counterparty agree to make periodic net payments on a
specified notional amount. The net payments can be made for a set period of time
or may be triggered by a predetermined credit event. The net periodic payments
may be based on a fixed or variable interest rate; the change in market value of
a specified security, basket of securities, or index; or the return generated by
a security. These periodic payments received or made by the Fund are recorded in
the accompanying Statement of Operations as realized gains or losses,
respectively. Gains or losses are realized upon termination of the swap
agreements. Swaps are marked-to-market daily and changes in value are recorded
as unrealized appreciation (depreciation). Risks include changes in the returns
of the underlying instruments, failure of the counterparties to perform under
the contracts' terms and the possible lack of liquidity with respect to the swap
agreements.
(c) Foreign currency transactions--Transactions denominated in foreign
currencies are recorded at the exchange rate prevailing when recognized. Assets
and liabilities denominated in foreign currencies are valued at the exchange
rate at the end of the period. Foreign currency transactions are the result of
settling (realized) or valuing (unrealized) assets or liabilities expressed in
foreign currencies into U.S. dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates on investments.
The Fund invests in foreign securities, which may involve a number of risk
factors and special considerations not present with investments in securities of
U.S. corporations.
(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.
25
- --------------------------------------------------------------------------------
Therefore, no federal income tax provision is required.
(e) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Realized gains and losses on security transactions are determined on the
identified cost basis. Interest income is recognized on the accrual basis. The
Fund amortizes all premiums and discounts on debt securities.
(f) Dividends and distributions--Dividends from net investment income are
declared daily and paid monthly. Distributions of capital gains are recorded on
the ex-dividend dates.
(g) Expenses--Certain expenses have been allocated to the individual funds in
the Company on a pro rata basis based upon the respective aggregate net asset
value of each fund included in the Company.
(h) Securities lending--The Fund may lend securities to financial institutions
that provide cash or securities issued or guaranteed by the U.S. government as
collateral, which will be maintained at all times in an amount equal to at least
100% of the current market value of the loaned securities. The market value of
the loaned securities is determined at the close of business of the Fund and any
additional required collateral is delivered to the Fund on the next business
day. Where the Fund receives securities as collateral for the loaned securities,
it receives a fee from the borrower. The Fund typically receives the income on
the loaned securities but does not receive the income on the collateral. Where
the Fund receives cash collateral, it may invest such collateral and retain the
amount earned on such investment, net of any amount rebated to the borrower.
Loans of securities are terminable at any time and the borrower, after notice,
is required to return borrowed securities within five business days. The Fund
may pay reasonable finder's, lending agent, administrative and custodial fees in
connection with its loans. In the event that the borrower defaults on its
obligation to return borrowed securities because of insolvency or for any other
reason, the Fund could experience delays and costs in gaining access to the
collateral. The Fund also could suffer a loss where the value of the collateral
falls below the market value of the borrowed securities, in the event of
borrower default or in the event of losses on investments made with cash
collateral.
(i) Mortgage dollar rolls--The Fund may sell mortgage-backed securities for
delivery in the current month and simultaneously contract to repurchase
substantially similar (same type, coupon and maturity) securities on a specific
future date.
(j) TBA commitments--The Fund may enter into to be announced ("TBA")
commitments to purchase or sell securities for a fixed price at a future date.
TBA commitments are considered securities in themselves, and involve a risk of
loss if the value of the security to be purchased/sold declines/increases prior
to settlement date, which is in addition to the risk of decline in the value of
the Fund's other assets. Unsettled TBA commitments are valued at the current
market value of the underlying securities, according to the procedures described
under "Valuation of investments."
(k) Recent accounting pronouncements--Effective June 29, 2007, the Fund
implemented Financial Accounting Standards Board ("FASB") Interpretation No. 48,
"Accounting for Uncertainty in Income Taxes--an interpretation of FASB Statement
No. 109" ("FIN 48"). FIN 48 prescribes the minimum recognition threshold a tax
position must meet in connection with accounting for uncertainties in income tax
positions taken or expected to be taken by an entity, including investment
companies, before being measured and recognized in the financial statements.
Management has evaluated the application of FIN 48 to the Fund, and has
determined that the adoption of FIN 48 does not have a material impact on the
Fund's financial statements. The Fund files U.S. and various state tax returns.
No income tax returns are currently under examination. The statute of
limitations on the Fund's tax returns remains open for the years ended December
31, 2003 through December 31, 2006.
In September 2006, Statement of Financial Accounting Standards No. 157, "Fair
Value Measurements" ("FAS 157"), was issued and is effective for fiscal years
beginning after November 15, 2007. FAS 157 defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. At this time, management is evaluating the implications of FAS 157
and its impact on the Fund's financial statements, if any, has not been
determined.
In addition, in February 2007, Statement of Financial Accounting Standards No.
159, "The Fair Value Option for Financial Assets and Financial Liabilities"
("FAS 159"), was issued and is effective for fiscal years beginning after
November 15, 2007. Early adoption is permitted as of the beginning of a fiscal
year that begins on or before November 15, 2007, provided the entity also elects
to apply the provisions of FAS 157. FAS 159 permits entities to choose to
measure many financial instruments and certain
26
- --------------------------------------------------------------------------------
other items at fair value that are not currently required to be measured at fair
value. FAS 159 also establishes presentation and disclosure requirements
designed to facilitate comparisons between entities that choose different
measurement attributes for similar types of assets and liabilities. At this
time, management is evaluating the implications of FAS 159 and its impact on the
Fund's financial statements, if any, has not been determined.
2. INVESTMENT ADVISORY AGREEMENT AND TRANSACTIONS WITH AFFILIATES:
The Fund has entered into an Investment Advisory Agreement with the Manager. The
Fund has also entered into separate Distribution Agreements and Distribution
Plans with FAM Distributors, Inc. ("FAMD") and BlackRock Distributors, Inc. and
its affiliates ("BDI") (collectively, the "Distributor"). FAMD is a wholly owned
subsidiary of Merrill Lynch Group, Inc., and BDI is an affiliate of BlackRock,
Inc. Merrill Lynch and The PNC Financial Services Group, Inc. ("PNC") are the
principal owners of BlackRock, Inc.
The Manager 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 Fund. For such services, the Fund
pays a monthly fee based upon the aggregate daily value of net assets of the
Fund and the Company's BlackRock High Income V.I. Fund at the following annual
rates: .50% of the average daily net assets not exceeding $250 million; .45% of
average daily net assets in excess of $250 million but not exceeding $500
million; .40% of average daily net assets in excess of $500 million but not
exceeding $750 million; and .35% of average daily net assets in excess of $750
million. In addition, the Manager has entered into a sub-advisory agreement with
BlackRock Financial Management, Inc., an affiliate of the Manager, under which
the Manager pays the Sub-Adviser for services it provides a monthly fee at an
annual rate that is a percentage of the management fee paid by the Fund to the
Manager. For the six months ended June 30, 2007, the aggregate average daily net
assets of the Fund and the Company's BlackRock High Income V.I. Fund was
approximately $621,540,000.
Pursuant to the Distribution Plans adopted by the Company, in accordance with
Rule 12b-1 under the Investment Company Act of 1940, the Fund pays the
Distributor an ongoing distribution fee each month at the annual rate of .15%
and .25% of the average daily value of the Fund's Class II and Class III net
assets, respectively.
The Company has received an exemptive order from the Securities and Exchange
Commission permitting it to lend portfolio securities to Merrill Lynch, Pierce,
Fenner & Smith Incorporated, a wholly owned subsidiary of Merrill Lynch, or its
affiliates. Pursuant to that order, the Company has also retained BlackRock
Investment Management, LLC ("BIM"), an affiliate of the Manager, as the
securities lending agent for a fee based on a share of the returns on investment
of cash collateral. BIM may, on behalf of the Company and the Fund, invest cash
collateral received by the Fund for such loans, among other things, in a private
investment company managed by the Manager or in registered money market funds
advised by the Manager or its affiliates.
For the six months ended June 30, 2007, the Fund reimbursed the Manager $3,946
for certain accounting services.
PFPC Inc., an indirect, wholly owned subsidiary of PNC and an affiliate of the
Manager, is the Fund's transfer agent.
Certain officers and/or directors of the Company are officers and/or directors
of BlackRock, Inc. or its affiliates.
3. INVESTMENTS:
Purchases and sales (including paydowns and excluding dollar roll transactions)
of investments, excluding short-term securities, for the six months ended June
30, 2007 were $329,466,127 and $307,874,671, respectively.
4. CAPITAL SHARE TRANSACTIONS:
Net decrease in net assets derived from capital share transactions was
$26,740,704 and $70,412,138 for the six months ended June 30, 2007 and the year
ended December 31, 2006, respectively.
Transactions in capital shares for each class were as follows:
<Table>
<Caption>
- --------------------------------------------------------------------
Class I Shares for the Six Months Ended
June 30, 2007 Shares Dollar Amount
- --------------------------------------------------------------------
Shares sold........................... 1,664,344 $ 19,369,484
Shares issued to shareholders in
reinvestment of dividends............ 806,688 9,592,035
---------- ------------
Total issued.......................... 2,471,032 28,961,519
Shares redeemed....................... (4,691,224) (55,702,271)
---------- ------------
Net decrease.......................... (2,220,192) $(26,740,752)
========== ============
- --------------------------------------------------------------------
</Table>
<Table>
<Caption>
- -----------------------------------------------------------------
Class I Shares for the Year Ended
December 31, 2006 Shares Dollar Amount
- -----------------------------------------------------------------
Shares sold........................ 1,664,344 $ 19,369,459
Shares issued to shareholders in
reinvestment of dividends......... 306,688 9,592,035
----------- -------------
Total issued....................... 5,649,911 66,712,708
Shares redeemed.................... (11,661,276) (137,124,944)
----------- -------------
Net decrease....................... (6,011,365) $ (70,412,236)
=========== =============
- -----------------------------------------------------------------
</Table>
27
- --------------------------------------------------------------------------------
<Table>
<Caption>
- ------------------------------------------------------------------
Class II Shares for the Six Months Ended Dollar
June 30, 2007 Shares Amount
- ------------------------------------------------------------------
Shares issued to shareholders in reinvestment of
dividends...................................... 2 $25
-- ---
Net increase.................................... 2 $25
== ===
- ------------------------------------------------------------------
</Table>
<Table>
<Caption>
- ------------------------------------------------------------------
Class II Shares for the Year Ended Dollar
December 31, 2006 Shares Amount
- ------------------------------------------------------------------
Shares issued to shareholders in reinvestment of
dividends...................................... 4 $49
-- ---
Net increase.................................... 4 $49
== ===
- ------------------------------------------------------------------
</Table>
<Table>
<Caption>
- ------------------------------------------------------------------
Class III Shares for the Six Months Ended Dollar
June 30, 2007 Shares Amount
- ------------------------------------------------------------------
Shares issued to shareholders in reinvestment of
dividends...................................... 2 $23
-- ---
Net increase.................................... 2 $23
== ===
- ------------------------------------------------------------------
</Table>
<Table>
<Caption>
- ------------------------------------------------------------------
Class III Shares for the Year Ended Dollar
December 31, 2006 Shares Amount
- ------------------------------------------------------------------
Shares issued to shareholders in reinvestment of
dividends...................................... 4 $49
-- ---
Net increase.................................... 4 $49
== ===
- ------------------------------------------------------------------
</Table>
5. SHORT-TERM BORROWINGS:
The Company, on behalf of the Fund, along with certain other funds managed by
the Manager and its affiliates, is party to a $500,000,000 credit agreement with
a group of lenders, which expires November 2007. 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 .06% per annum based on the Fund's pro rata share of the
unused portion of the credit agreement. Amounts borrowed under the credit
agreement bear interest at a rate equal to, at each fund's election, the federal
funds rate plus .35% or a base rate as defined in the credit agreement. The Fund
did not borrow under the credit agreement during the six months ended June 30,
2007.
6. CAPITAL LOSS CARRYFORWARD:
On December 31, 2006, the Fund had a net capital loss carryforward of
$7,013,385, of which $456,713 expires in 2008 and $6,556,672 expires in 2014.
This amount will be available to offset like amounts of any future taxable
gains.
28
- --------------------------------------------------------------------------------
BLACKROCK FUNDAMENTAL GROWTH V.I. FUND
-------------------------------------------------------------------------
Semi-Annual Report (Unaudited)
June 30, 2007
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS
BlackRock Fundamental Growth V.I. Fund
A Discussion With Your Fund's Portfolio Manager
- --------------------------------------------------------------------------------
The Fund provided competitive returns for the period as we sought to balance
our enthusiasm for growth stocks with the realities of a slowing U.S. economy.
HOW DID THE FUND PERFORM DURING THE PERIOD IN LIGHT OF THE EXISTING MARKET
CONDITIONS?
For the six-month period ended June 30, 2007, BlackRock Fundamental Growth
V.I. Fund's Class I Shares posted a total return of +6.81%, outperforming the
+6.53% return of the benchmark Standard & Poor's (S&P) 500 Citigroup Growth
Index, but lagging the +7.08% average return of the Lipper Large-Cap Growth
Funds (Variable Products) category. (Funds in this Lipper category invest at
least 75% of their equity assets in companies with market capitalizations--on a
three-year weighted basis--greater than 300% of the dollar-weighted median
market capitalization of the middle 1,000 securities of the S&P SuperComposite
1500 Index. Large-cap growth funds typically have an above-average
price-to-earnings ratio, price-to-book ratio, and three-year sales-per-share
growth value, compared to the S&P 500 Index.) The broad U.S. equity market, as
measured by the S&P 500 Index, returned +6.96% over the six-month period.
The positive returns enjoyed by the equity markets over the semi-annual period
were largely realized in the second quarter of 2007. A near 5% retreat in the
broad market (as measured by the S&P 500 Index) in late February was triggered
by fears of overheating in global equity markets (specifically, China's Shanghai
stock exchange) as well as resurfacing concern over the fate of the global
"carrytrade" that has, in effect, supported perceived liquidity for some time.
These issues were short-lived, however, as equities staged a fairly persistent
price recovery through the majority of the second quarter. Slower U.S. economic
growth (that is, gross domestic product growth) was well discounted by the
market and inflation fears became more controlled. Market leadership alternated
between larger- and mid-cap stocks. A gradual, although still hesitant, shift
toward the growth style of investing became more evident by the end of the
period. In general, actively managed funds saw improved performance as the
median of the Lipper Large-Cap Growth Funds category outperformed the S&P 500
Citigroup Growth Index.
The Fund's performance for the period benefited from stock selection,
particularly in the energy, materials and health care sectors. An underweight
position in consumer staples also was modestly additive. These positive effects
were partially offset by security selection and an overweight position in the
consumer discretionary and information technology sectors, as well as the Fund's
cash position.
Fund holdings that contributed to performance in the period included National
Oilwell Varco Inc., Corning Inc. and Grant Prideco Inc., as well as the absence
of a position in Johnson & Johnson and the timely elimination of Amgen Inc.
Detracting from performance in the six-month period were our positions in
Starbucks Corp., Genentech Inc., Abbott Laboratories, SAP AG and International
Game Technology.
WHAT CHANGES WERE MADE TO THE PORTFOLIO DURING THE PERIOD?
Throughout the period, we attempted to balance our enthusiasm for growth
stocks against the realities of a slowing U.S. economy and the shift of
leadership to larger companies. This resulted in a number of sector changes,
which were driven by individual stock-selection criteria.
Given the current challenges facing the U.S. housing market and their
potential impact on consumer spending, the Fund's exposure to the consumer
discretionary sector was reduced to a significant underweight position.
Investments in the financials sector were trimmed in response to growing credit
and interest rate risks. At the same time, we continued to favor companies whose
businesses benefit from globalization and infrastructure investment worldwide,
which led to increased exposures in the industrials and materials sectors by
period-end. Although the Fund remained underweight in consumer staples and
healthcare, we made select purchases within these groups.
Significant portfolio additions during the period included Exxon Mobil Corp.,
Boeing Co., CVS Caremark Corp., Monsanto Co., Comcast Corp., Zimmer Holdings
Inc., Abbott Laboratories, Coach Inc., Altria Group Inc., Gilead Sciences Inc.,
McDonalds Corp., Microsoft Corp. and Merck & Co Inc., among others. Significant
sales or reductions included Staples Inc., Bank of America Corp., Corning Inc.,
Walt Disney Co., Novartis AG, Target Corp., The Goldman Sachs Group Inc., Kohl's
Corp., SAP AG, Nike Inc. and Amgen Inc., among others.
2
- --------------------------------------------------------------------------------
HOW WOULD YOU CHARACTERIZE THE FUND'S POSITION AT THE CLOSE OF THE PERIOD?
U.S. economic growth (that is, gross domestic product growth) has decelerated
over recent quarters in what we view as a typical mid-cycle slowdown scenario.
At the same time, most other global economies continue to experience strong
rates of growth, providing a rather balanced demand backdrop worldwide. While
the U.S. housing market is experiencing some dislocation, we do not expect a
recession to unfold and, in fact, suspect there is upside risk to accelerating
economic growth from current levels by year-end 2007. Although this mid-cycle
slowdown may challenge broader market earnings growth and particular sectors
over the near term, it should provide an attractive investment environment for
growth stocks going forward.
At the end of the period, the portfolio was overweight relative to its
benchmark in the industrials, information technology and materials sectors.
Significant underweights included the consumer staples and consumer
discretionary sectors.
Thomas E. Burke, CFA
Portfolio Manager
July 13, 2007
3
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Fundamental Growth V.I. Fund
Total Return Based on a $10,000 Investment
- --------------------------------------------------------------------------------
(LINE GRAPH)
<Table>
<Caption>
BLACKROCK FUNDAMENTAL
GROWTH V.I. FUND+--CLASS I STANDARD & POOR'S 500 STANDARD & POOR'S 500
SHARES* INDEX++ CITIGROUP GROWTH INDEX+++
-------------------------- --------------------- -------------------------
4/03/00** 10000 10000 10000
6/00 10190 9687 9818
6/01 7878 8250 6944
6/02 6284 6766 5074
6/03 5948 6783 5255
6/04 7236 8079 6088
6/05 7473 8590 6190
6/06 8148 9331 6355
6/07 9030 11253 7586
</Table>
(LINE GRAPH)
<Table>
<Caption>
BLACKROCK BLACKROCK
FUNDAMENTAL GROWTH FUNDAMENTAL GROWTH STANDARD & POOR'S
V.I. FUND+--CLASS II V.I. FUND+--CLASS III STANDARD & POOR'S 500 CITIGROUP
SHARES* SHARES* 500 INDEX++ GROWTH INDEX+++
-------------------- --------------------- ----------------- -----------------
9/30/04** 10000 10000 10000 10000
6/05 10840 10840 10835 10569
6/06 11836 11836 11770 10851
6/07 13100 13100 14193 12952
</Table>
* Assuming transaction costs, if any, and other operating expenses, including
advisory fees. Does not include insurance-related fees and expenses.
Effective September 2, 2003, Class A Shares were redesignated Class I
Shares.
** Commencement of operations.
+ The Fund invests primarily in equity securities with a particular emphasis
on companies that have exhibited above-average rates of growth earnings over
the long term.
++ This unmanaged Index covers 500 industrial, utility, transportation and
financial companies of the U.S. markets (mostly NYSE issues), representing
about 75% of NYSE market capitalization and 30% of NYSE issues.
+++ This unmanaged Index is designed to provide a comprehensive measure of
large-cap U.S. equity "growth" performance. It is an unmanaged float
adjusted market capitalization weighted index comprised of stocks
representing approximately half the market capitalization of the S&P 500
Index that have been identified as being on the growth end of the
growth-value spectrum.
Past results shown should not be considered a representation of future
performance.
4
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Fundamental Growth V.I. Fund
Average Annual Total Return--Class I Shares*
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERIOD COVERED RETURN
- --------------------------------------------------------------------------
One Year Ended 6/30/07 +10.82%
- --------------------------------------------------------------------------
Five Years Ended 6/30/07 + 7.52
- --------------------------------------------------------------------------
Inception (4/03/00) through 6/30/07 - 1.40
- --------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Fundamental Growth V.I. Fund
Average Annual Total Return--Class II Shares*
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERIOD COVERED RETURN
- --------------------------------------------------------------------------
One Year Ended 6/30/07 +10.68%
- --------------------------------------------------------------------------
Inception (9/30/04) through 6/30/07 +10.32
- --------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Fundamental Growth V.I. Fund
Average Annual Total Return--Class III Shares*
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERIOD COVERED RETURN
- --------------------------------------------------------------------------
One Year Ended 6/30/07 +10.68%
- --------------------------------------------------------------------------
Inception (9/30/04) through 6/30/07 +10.32
- --------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Fundamental Growth V.I. Fund
Recent Performance Results
- --------------------------------------------------------------------------------
<Table>
<Caption>
6-MONTH 12-MONTH
AS OF JUNE 30, 2007 TOTAL RETURN TOTAL RETURN
- -----------------------------------------------------------------------------------------
Class I Shares* +6.81% +10.82%
- -----------------------------------------------------------------------------------------
Class II Shares* +6.81 +10.68
- -----------------------------------------------------------------------------------------
Class III Shares* +6.81 +10.68
- -----------------------------------------------------------------------------------------
S&P 500(R) Index** +6.96 +20.59
- -----------------------------------------------------------------------------------------
S&P 500 Citigroup Growth Index*** +6.53 +19.37
- -----------------------------------------------------------------------------------------
</Table>
* Average annual and cumulative total investment returns are based on changes
in net asset value for the periods shown, and assume reinvestment of all
dividends and capital gains distributions at net asset value on the
ex-dividend date. Insurance-related fees and expenses are not reflected in
these returns. For a portion of the period, returns do not show the effects
of distribution fees (12b-1 fees) applicable to Class II and Class III
Shares. If such fees were included, returns shown would have been lower.
** This unmanaged Index covers 500 industrial, utility, transportation and
financial companies of the U.S. markets (mostly NYSE issues), representing
about 75% of the NYSE market capitalization and 30% of NYSE issues.
*** This unmanaged Index is designed to provide a comprehensive measure of
large-cap U.S. equity "growth" performance. It is an unmanaged float
adjusted market capitalization weighted index comprised of stocks
representing approximately half the market capitalization of the S&P 500
Index that have been identified as being on the growth end of the
growth-value spectrum.
Past results shown should not be considered a representation of future
performance.
S&P 500 is a registered trademark of the McGraw-Hill Companies.
5
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Fundamental Growth V.I. Fund
Disclosure of Expenses
- --------------------------------------------------------------------------------
Shareholders of this Fund may incur the following charges: (a) expenses related
to transactions, including sales charges, redemption fees and exchange fees; and
(b) operating expenses including advisory fees, distribution fees including
12b-1 fees, and other Fund expenses. The following example (which is based on a
hypothetical investment of $1,000 invested on January 1, 2007 and held through
June 30, 2007) is intended to assist shareholders both in calculating expenses
based on an investment in the Fund and in comparing these expenses with similar
costs of investing in other mutual funds.
The first table below provides information about actual account values and
actual expenses. In order to estimate the expenses a shareholder paid during the
period covered by this report, shareholders can divide their account value by
$1,000 and then multiply the result by the number in the first line under the
heading entitled "Expenses Paid During the Period."
The second table below provides information about hypothetical account values
and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses. In order to assist
shareholders in comparing the ongoing expenses of investing in this Fund and
other funds, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in other funds' shareholder reports.
The expenses shown in the table are intended to highlight shareholders'
ongoing costs only and do not reflect any transactional expenses, such as sales
charges, redemption fees or exchange fees. Therefore, the second table is useful
in comparing ongoing expenses only, and will not help shareholders determine the
relative total expenses of owning different funds. If these transactional
expenses were included, shareholder expenses would have been higher.
<Table>
<Caption>
EXPENSES PAID
BEGINNING ENDING DURING THE PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JANUARY 1, 2007 TO
JANUARY 1, 2007 JUNE 30, 2007 JUNE 30, 2007
- ------------------------------------------------------------------------------------------------------------------
ACTUAL
- ------------------------------------------------------------------------------------------------------------------
Class I $1,000 $1,068.10 $4.12
- ------------------------------------------------------------------------------------------------------------------
Class II $1,000 $1,068.10 $4.85
- ------------------------------------------------------------------------------------------------------------------
Class III $1,000 $1,068.10 $5.52
- ------------------------------------------------------------------------------------------------------------------
HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES)**
- ------------------------------------------------------------------------------------------------------------------
Class I $1,000 $1,020.91 $4.03
- ------------------------------------------------------------------------------------------------------------------
Class II $1,000 $1,020.21 $4.73
- ------------------------------------------------------------------------------------------------------------------
Class III $1,000 $1,019.56 $5.39
- ------------------------------------------------------------------------------------------------------------------
</Table>
* For each class of the Fund, expenses are equal to the annualized expense
ratio for the class (.80% for Class I, .94% for Class II and 1.07% for Class
III), multiplied by the average account value over the period, multiplied by
182/365 (to reflect the one-half year period shown).
** Hypothetical 5% annual return before expenses is calculated by pro-rating the
number of days in the most recent fiscal half year divided by 365.
6
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Fundamental Growth V.I. Fund
Portfolio Information as of June 30, 2007
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENT OF
SECTOR REPRESENTATION LONG-TERM INVESTMENTS
- -----------------------------------------------------------------------------------
Information Technology...................................... 24.7%
Industrials................................................. 15.1
Health Care................................................. 15.1
Energy...................................................... 11.9
Financials.................................................. 9.2
Consumer Discretionary...................................... 8.2
Consumer Staples............................................ 8.2
Materials & Processing...................................... 7.6
- -----------------------------------------------------------------------------------
</Table>
For Fund compliance purposes, the Fund's sector classifications refer to any one
or more of the sector sub-classifications used by one or more widely recognized
market indexes or ratings group indexes, and/or as defined by Fund management.
This definition may not apply for purposes of this report, which may combine
sector sub-classifications for reporting ease.
7
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Fundamental Growth V.I. Fund
Schedule of Investments as of June 30, 2007 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES
INDUSTRY HELD COMMON STOCKS VALUE
- ------------------------------------------------------------------------------------------------------------------------
AEROSPACE & DEFENSE--6.0% 6,600 BE Aerospace, Inc.(c)........................ $ 272,580
23,000 Boeing Co. .................................. 2,211,680
13,800 Lockheed Martin Corp. ....................... 1,298,994
2,400 Precision Castparts Corp. ................... 291,264
12,800 Spirit Aerosystems Holdings, Inc. Class
A(c)....................................... 461,440
25,700 United Technologies Corp. ................... 1,822,901
------------
6,358,859
- ------------------------------------------------------------------------------------------------------------------------
BEVERAGES--1.8% 29,900 PepsiCo, Inc. ............................... 1,939,015
- ------------------------------------------------------------------------------------------------------------------------
BIOTECHNOLOGY--4.2% 23,700 Celgene Corp.(c)............................. 1,358,721
16,900 Genentech, Inc.(c)........................... 1,278,654
47,000 Gilead Sciences, Inc.(c)(e).................. 1,822,190
------------
4,459,565
- ------------------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS--4.4% 4,200 Affiliated Managers Group, Inc.(c)........... 540,793
58,200 The Charles Schwab Corp. .................... 1,194,264
10,000 Franklin Resources, Inc. .................... 1,324,700
23,800 State Street Corp.(e)........................ 1,627,920
------------
4,687,677
- ------------------------------------------------------------------------------------------------------------------------
CHEMICALS--5.8% 14,000 Air Products & Chemicals, Inc. .............. 1,125,180
30,900 Monsanto Co. ................................ 2,086,986
13,600 The Mosaic Co.(c)............................ 530,672
8,100 Potash Corp. of Saskatchewan, Inc. .......... 631,557
24,100 Praxair, Inc. ............................... 1,734,959
------------
6,109,354
- ------------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT--4.9% 142,300 Cisco Systems, Inc.(c)(e).................... 3,963,055
27,900 QUALCOMM, Inc. .............................. 1,210,581
------------
5,173,636
- ------------------------------------------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS--2.8% 12,400 Apple Computer, Inc.(c)...................... 1,513,296
83,400 EMC Corp.(c)................................. 1,509,540
------------
3,022,836
- ------------------------------------------------------------------------------------------------------------------------
CONSTRUCTION & ENGINEERING--1.6% 8,300 Fluor Corp. ................................. 924,371
13,600 Jacobs Engineering Group, Inc.(c)............ 782,139
------------
1,706,510
- ------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES--2.7% 2,500 Chicago Mercantile Exchange Holdings,
Inc.(e).................................... 1,335,900
3,500 IntercontinentalExchange, Inc.(c)............ 517,475
21,700 JPMorgan Chase & Co. ........................ 1,051,365
------------
2,904,740
- ------------------------------------------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT--1.8% 35,400 Emerson Electric Co. ........................ 1,656,720
3,600 General Cable Corp.(c)....................... 272,700
------------
1,929,420
- ------------------------------------------------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES--8.5% 16,400 Baker Hughes, Inc. .......................... 1,379,732
7,000 FMC Technologies, Inc.(c).................... 554,540
23,400 Grant Prideco, Inc.(c)....................... 1,259,622
15,700 National Oilwell Varco, Inc.(c).............. 1,636,568
23,400 Schlumberger Ltd. ........................... 1,987,596
17,900 Transocean, Inc.(c).......................... 1,897,042
5,700 Weatherford International Ltd.(c)............ 314,868
------------
9,029,968
- ------------------------------------------------------------------------------------------------------------------------
FOOD & STAPLES RETAILING--2.0% 57,000 CVS/Caremark Corp............................ 2,077,650
- ------------------------------------------------------------------------------------------------------------------------
</Table>
8
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Fundamental Growth V.I. Fund
Schedule of Investments as of June 30, 2007 (continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES
INDUSTRY HELD COMMON STOCKS VALUE
- ------------------------------------------------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES--4.6% 8,100 Alcon, Inc. ................................. $ 1,092,771
7,800 Cytyc Corp.(c)............................... 336,258
4,000 Hologic, Inc.(c)............................. 221,240
8,700 Intuitive Surgical, Inc.(c).................. 1,207,299
23,200 Zimmer Holdings, Inc.(c)..................... 1,969,448
------------
4,827,016
- ------------------------------------------------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE--3.5% 31,600 McDonald's Corp. ............................ 1,604,016
47,700 Starbucks Corp.(c) .......................... 1,251,648
28,000 Yum! Brands, Inc. ........................... 916,160
------------
3,771,824
- ------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS--2.6% 44,400 The Procter & Gamble Co. .................... 2,716,836
- ------------------------------------------------------------------------------------------------------------------------
IT SERVICES--3.5% 10,000 Cognizant Technology Solutions Corp.(c)...... 750,900
29,000 Infosys Technologies Ltd. ................... 1,372,469
63,100 Satyam Computer Services Ltd. ............... 724,673
29,500 Tata Consultancy Services Ltd. .............. 834,485
------------
3,682,527
- ------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES--4.1% 70,900 General Electric Co. ........................ 2,714,052
14,400 Textron, Inc. ............................... 1,585,584
------------
4,299,636
- ------------------------------------------------------------------------------------------------------------------------
INSURANCE--1.9% 29,500 American International Group, Inc. .......... 2,065,885
- ------------------------------------------------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES--6.4% 30,800 Akamai Technologies, Inc.(c)(e).............. 1,498,112
7,400 Google, Inc. Class A(c)...................... 3,873,012
700 Limelight Networks, Inc.(c).................. 13,846
49,600 Yahoo! Inc.(c)............................... 1,345,648
------------
6,730,618
- ------------------------------------------------------------------------------------------------------------------------
LIFE SCIENCES TOOLS & SERVICES--2.8% 10,600 Covance, Inc.(c)............................. 726,736
34,300 Thermo Fisher Scientific, Inc.(c)............ 1,773,996
8,700 Waters Corp.(c).............................. 516,432
------------
3,017,164
- ------------------------------------------------------------------------------------------------------------------------
MACHINERY--1.5% 7,200 Bucyrus International, Inc. ................. 509,616
4,400 Deere & Co. ................................. 531,256
6,600 Terex Corp.(c)............................... 536,580
------------
1,577,452
- ------------------------------------------------------------------------------------------------------------------------
MEDIA--1.9% 70,600 Comcast Corp. Class A(c)(e).................. 1,985,272
- ------------------------------------------------------------------------------------------------------------------------
METALS & MINING--1.7% 7,100 Allegheny Technologies, Inc. ................ 744,648
13,100 Freeport-McMoRan Copper & Gold, Inc. Class
B ......................................... 1,084,942
------------
1,829,590
- ------------------------------------------------------------------------------------------------------------------------
MULTILINE RETAIL--0.9% 19,200 Nordstrom, Inc. ............................. 981,504
- ------------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS--3.3% 5,600 Consol Energy, Inc. ......................... 258,216
38,300 Exxon Mobil Corp. ........................... 3,212,604
------------
3,470,820
- ------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS--3.3% 36,500 Abbott Laboratories.......................... 1,954,575
31,000 Merck & Co., Inc. ........................... 1,543,800
------------
3,498,375
- ------------------------------------------------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR 42,700 Applied Materials, Inc. ..................... 848,449
EQUIPMENT--1.5%
18,800 NVIDIA Corp.(c).............................. 776,628
------------
1,625,077
- ------------------------------------------------------------------------------------------------------------------------
SOFTWARE--5.3% 30,300 Adobe Systems, Inc.(c)....................... 1,216,545
24,200 Electronic Arts, Inc.(c)..................... 1,145,144
52,500 Microsoft Corp. ............................. 1,547,175
85,400 Oracle Corp.(c).............................. 1,683,234
------------
5,592,098
- ------------------------------------------------------------------------------------------------------------------------
</Table>
9
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Fundamental Growth V.I. Fund
Schedule of Investments as of June 30, 2007 (continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES
INDUSTRY HELD COMMON STOCKS VALUE
- ------------------------------------------------------------------------------------------------------------------------
TEXTILES, APPAREL & LUXURY GOODS--1.8% 39,200 Coach, Inc.(c)............................... $ 1,857,688
- ------------------------------------------------------------------------------------------------------------------------
TOBACCO--1.7% 26,300 Altria Group, Inc. .......................... 1,844,682
- ------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST--$92,764,496)--98.8%................... 104,773,294
- ------------------------------------------------------------------------------------------------------------------------
<Caption>
BENEFICIAL
INTEREST SHORT-TERM SECURITIES
- ------------------------------------------------------------------------------------------------------------------------
$ 644,623 BlackRock Liquidity Series, LLC Cash Sweep
Series, 5.33%(b)(d)........................ 644,623
7,480,150 BlackRock Liquidity Series, LLC Money Market
Series, 5.33%(a)(b)(d)..................... 7,480,150
- ------------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM SECURITIES
(COST--$8,124,773)--7.7%..................... 8,124,773
- ------------------------------------------------------------------------------------------------------------------------
<Caption>
NUMBER OF
CONTRACTS OPTIONS PURCHASED
- ------------------------------------------------------------------------------------------------------------------------
CALL OPTIONS PURCHASED 638 General Electric Co., expiring January 2008
at USD 35.................................. 283,910
590 Semiconductor HOLDRs Trust, expiring November
2007 at USD 37.5........................... 169,920
744 Yahoo! Inc., expiring January 2008 at USD
35......................................... 55,800
------------
509,630
- ------------------------------------------------------------------------------------------------------------------------
PUT OPTIONS PURCHASED 124 Apple Computer, Inc., expiring August 2007 at
USD 120.................................... 78,120
- ------------------------------------------------------------------------------------------------------------------------
TOTAL OPTIONS PURCHASED
(PREMIUMS PAID--$597,431)--0.6%.............. 587,750
- ------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST--$101,486,700)--107.1%................. 113,485,817
- ------------------------------------------------------------------------------------------------------------------------
<Caption>
OPTIONS WRITTEN
- ------------------------------------------------------------------------------------------------------------------------
CALL OPTIONS WRITTEN 124 Apple Computer, Inc., expiring January 2008
at USD 150................................. (78,120)
1,347 General Electric Co., expiring January 2008
at USD 37.5................................ (366,384)
496 Yahoo! Inc., expiring January 2008 at USD
32.5....................................... (58,528)
------------
(503,032)
- ------------------------------------------------------------------------------------------------------------------------
PUT OPTIONS WRITTEN 496 Yahoo! Inc., expiring January 2008 at USD
32.5....................................... (297,600)
- ------------------------------------------------------------------------------------------------------------------------
TOTAL OPTIONS WRITTEN
(PREMIUMS RECEIVED--$(534,735))--(0.8%)...... (800,632)
- ------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, NET OF OPTIONS WRITTEN
(COST--$100,951,965*)--106.3%................ 112,685,185
LIABILITIES IN EXCESS OF OTHER
ASSETS--(6.3%)............................. (6,700,824)
------------
NET ASSETS--100.0%........................... $105,984,361
============
- ------------------------------------------------------------------------------------------------------------------------
</Table>
* The cost and unrealized appreciation (depreciation) of investments, net of
options written, as of June 30,, 2007, as computed for federal income tax
purposes, were as follows:
<Table>
Aggregate cost.............................................. $101,187,019
============
Gross unrealized appreciation............................... $ 13,836,565
Gross unrealized depreciation............................... (2,338,399)
------------
Net unrealized appreciation................................. $ 11,498,166
============
</Table>
10
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Fundamental Growth V.I. Fund
Schedule of Investments as of June 30, 2007 (concluded)
- --------------------------------------------------------------------------------
(a) Security was purchased with the cash proceeds from securities loans.
(b) Investments in companies considered to be an affiliate of the Fund, for
purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as
follows:
<Table>
<Caption>
- -------------------------------------------------------------------------------------
NET INTEREST
AFFILIATE ACTIVITY INCOME
- -------------------------------------------------------------------------------------
BlackRock Liquidity Series, LLC Cash Sweep Series........... $ (186,168) $58,766
BlackRock Liquidity Series, LLC Money Market Series......... $6,392,150 $ 959
- -------------------------------------------------------------------------------------
</Table>
(c) Non-income producing security.
(d) Represents the current yield as of June 30, 2007.
(e) Security, or a portion of security, is on loan.
* For Fund compliance purposes, the Fund's industry classifications refer to
any one or more of the industry sub-classifications used by one or more
widely recognized market indexes or ratings group indexes, and/or as defined
by Fund management. This definition may not apply for purposes of this
report, which may combine industry sub-classifications for reporting ease.
Industries are shown as a percent of net assets.
See Notes to Financial Statements.
11
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Fundamental Growth V.I. Fund
Statement of Assets and Liabilities as of June 30, 2007 (unaudited)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments in unaffiliated securities, at value (including
securities loaned of $7,259,352) (identified
cost--$92,764,496)........................................ $104,773,294
Investments in affiliated securities, at value (identified
cost--$8,124,773)......................................... 8,124,773
Cash held as collateral for financial futures contracts..... 1,692,600
Options purchased, at value (premiums paid--$597,431)....... 587,750
Receivables:
Dividends................................................. $ 100,771
Securities lending........................................ 231
Securities sold........................................... 53 101,055
-----------
Prepaid expenses and other assets........................... 2,957
------------
Total assets.............................................. 115,282,429
------------
- ------------------------------------------------------------------------------------------
LIABILITIES:
Collateral on securities loaned, at value................... 7,480,150
Options written, at value (premiums received--$534,735)..... 800,632
Deferred foreign capital gain tax........................... 291,583
Payables:
Securities purchased...................................... 312,085
Capital shares redeemed................................... 193,439
Investment adviser........................................ 55,481
Other affiliates.......................................... 1,308
Distributor............................................... 3 562,316
-----------
Accrued expenses............................................ 163,387
------------
Total liabilities........................................... 9,298,068
------------
- ------------------------------------------------------------------------------------------
NET ASSETS.................................................. $105,984,361
============
- ------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Class I Shares of Common Stock, $10 par value, 100,000,000
shares authorized......................................... $ 1,206,474
Class II Shares of Common Stock, $10 par value, 100,000,000
shares authorized......................................... 15
Class III Shares of Common Stock, $10 par value, 100,000,000
shares authorized......................................... 15
Paid-in capital in excess of par............................ 87,251,642
Undistributed investment income--net........................ $ 269,404
Undistributed realized capital gains--net................... 5,815,104
Unrealized appreciation--net................................ 11,441,707
-----------
Total accumulated earnings--net............................. 17,526,215
------------
NET ASSETS.................................................. $105,984,361
============
- ------------------------------------------------------------------------------------------
NET ASSET VALUE:
Class I--Based on net assets of $105,981,741 and 12,064,742
shares outstanding........................................ $ 8.78
============
Class II--Based on net assets of $1,310 and 149.2 shares
outstanding............................................... $ 8.78
============
Class III--Based on net assets of $1,310 and 149.2 shares
outstanding............................................... $ 8.78
============
- ------------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements.
12
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Fundamental Growth V.I. Fund
Statement of Operations for the Six Months Ended June 30, 2007 (unaudited)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividends (net of $11,608 foreign withholding tax).......... $ 526,403
Interest from affiliates.................................... 58,766
Securities lending--net..................................... 959
----------
Total income................................................ 586,128
----------
- ---------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees.................................... $ 358,459
Custodian fees.............................................. 14,807
Professional fees........................................... 18,851
Accounting services......................................... 22,892
Printing and shareholder reports............................ 10,637
Directors' fees and expenses................................ 3,357
Transfer agent fees--Class I................................ 2,431
Pricing services............................................ 925
Distribution fees--Class III................................ 2
Distribution fees--Class II................................. 1
Other....................................................... 7,948
----------
Total expenses.............................................. 440,310
----------
Investment income--net...................................... 145,818
----------
- ---------------------------------------------------------------------------------------
REALIZED & UNREALIZED GAIN (LOSS)--NET
Realized gain (loss) on:
Investments--net (including $78,730 in foreign capital
gain tax)............................................... 6,202,233
Foreign currency transactions--net........................ (16,006) 6,186,227
----------
Change in unrealized appreciation/depreciation on:
Investments--net (including $291,583 deferred foreign
capital gain tax)....................................... 1,239,480
Options written--net...................................... (265,897)
Foreign currency transactions--net........................ (2,871) 970,712
---------- ----------
Total realized and unrealized gain--net..................... 7,156,939
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $7,302,757
==========
- ---------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements.
13
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Fundamental Growth V.I. Fund
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<Table>
<Caption>
FOR THE SIX
MONTHS ENDED FOR THE
JUNE 30, 2007 YEAR ENDED
INCREASE (DECREASE) IN NET ASSETS: (UNAUDITED) DECEMBER 31, 2006
- -----------------------------------------------------------------------------------------------
OPERATIONS:
Investment income--net...................................... $ 145,818 $ 874,848
Realized gain--net.......................................... 6,186,227 19,245,486
Change in unrealized appreciation/depreciation--net......... 970,712 (13,822,332)
------------ ------------
Net increase in net assets resulting from operations........ 7,302,757 6,298,002
------------ ------------
- -----------------------------------------------------------------------------------------------
DIVIDENDS TO SHAREHOLDERS:
Investment income--net:
Class I................................................... -- (664,413)
Class II.................................................. -- (7)
Class III................................................. -- (7)
------------ ------------
Net decrease in net assets resulting from dividends to
shareholders.............................................. -- (664,427)
------------ ------------
- -----------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Net decrease in net assets derived from capital share
transactions.............................................. (16,001,593) (69,644,981)
------------ ------------
- -----------------------------------------------------------------------------------------------
NET ASSETS:
Total decrease in net assets................................ (8,698,836) (64,011,406)
Beginning of period......................................... 114,683,197 178,694,603
------------ ------------
End of period*.............................................. $105,984,361 $114,683,197
============ ============
- -----------------------------------------------------------------------------------------------
* Undistributed investment income--net...................... $ 269,404 $ 123,586
============ ============
- -----------------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements.
14
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Fundamental Growth V.I. Fund
Financial Highlights
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS I
--------------------------------------------------------------------
FOR THE SIX
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE MONTHS ENDED FOR THE YEAR ENDED DECEMBER 31,
BEEN DERIVED FROM INFORMATION PROVIDED IN THE JUNE 30, 2007 ----------------------------------------------------
FINANCIAL STATEMENTS. (UNAUDITED) 2006 2005 2004 2003 2002
- -----------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............. $ 8.22 $ 7.91 $ 7.40 $ 6.98 $ 5.46 $ 7.54
-------- -------- -------- -------- -------- --------
Investment income--net***........................ .01 .05 .04 .05 .01 .01
Realized and unrealized gain (loss)--net......... .55 .31 .51 .42 1.52 (2.08)
-------- -------- -------- -------- -------- --------
Total from investment operations................. .56 .36 .55 .47 1.53 (2.07)
-------- -------- -------- -------- -------- --------
Less dividends from investment income--net....... -- (.05) (.04) (.05) (.01) (.01)
-------- -------- -------- -------- -------- --------
Net asset value, end of period................... $ 8.78 $ 8.22 $ 7.91 $ 7.40 $ 6.98 $ 5.46
======== ======== ======== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:**
Based on net asset value per share............... 6.81%+ 4.54% 7.49% 6.80% 27.98% (27.51%)
======== ======== ======== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses......................................... .80%* .75% .76% .74% .74% .75%
======== ======== ======== ======== ======== ========
Investment income--net........................... .26%* .58% .56% .75% .13% .09%
======== ======== ======== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)......... $105,982 $114,681 $178,692 $199,342 $197,010 $200,524
======== ======== ======== ======== ======== ========
Portfolio turnover............................... 46% 69% 82% 78% 135% 90%
======== ======== ======== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------
</Table>
* Annualized.
** Total investment returns exclude insurance-related fees and expenses.
*** Based on average shares outstanding.
+ Aggregate total investment return.
See Notes to Financial Statements.
15
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Fundamental Growth V.I. Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS II
------------------------------------------------------------
FOR THE SIX FOR THE YEAR
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE MONTHS ENDED ENDED DECEMBER 31, FOR THE PERIOD
BEEN DERIVED FROM INFORMATION PROVIDED IN THE JUNE 30, 2007 ------------------- SEPTEMBER 30, 2004+
FINANCIAL STATEMENTS. (UNAUDITED) 2006 2005 TO DECEMBER 31, 2004
- ------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................ $ 8.22 $ 7.92 $ 7.40 $ 6.83
------ ------ ------ ------
Investment income--net***........................... .01 .05 .04 .05
Realized and unrealized gain--net................... .55 .30 .52 .57
------ ------ ------ ------
Total from investment operations.................... .56 .35 .56 .62
------ ------ ------ ------
Less dividends from investment income--net.......... -- (.05) (.04) (.05)
------ ------ ------ ------
Net asset value, end of period...................... $ 8.78 $ 8.22 $ 7.92 $ 7.40
====== ====== ====== ======
- ------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:**
Based on net asset value per share.................. 6.81%@ 4.41% 7.63% 9.14%@
====== ====== ====== ======
- ------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses............................................ .94%* .73% .76% .74%*
====== ====== ====== ======
Investment income--net.............................. .12%* .59% .58% 2.79%*
====== ====== ====== ======
- ------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)............ $ 1 $ 1 $ 1 $ 1
====== ====== ====== ======
Portfolio turnover.................................. 46% 69% 82% 78%
====== ====== ====== ======
- ------------------------------------------------------------------------------------------------------------------
</Table>
* Annualized.
** Total investment returns exclude insurance-related fees and expenses.
*** Based on average shares outstanding.
+ Commencement of operations.
@ Aggregate total investment return.
See Notes to Financial Statements.
16
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Fundamental Growth V.I. Fund
Financial Highlights (concluded)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS III
-----------------------------------------------------------
FOR THE SIX FOR THE YEAR ENDED
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE MONTHS ENDED DECEMBER 31, FOR THE PERIOD
BEEN DERIVED FROM INFORMATION PROVIDED IN THE JUNE 30, 2007 ------------------ SEPTEMBER 30, 2004+
FINANCIAL STATEMENTS. (UNAUDITED) 2006 2005 TO DECEMBER 31, 2004
- ------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................. $ 8.22 $ 7.92 $ 7.40 $ 6.83
------ ------ ------ ------
Investment income--net***............................ --++ .05 .04 .05
Realized and unrealized gain--net.................... .56 .30 .52 .57
------ ------ ------ ------
Total from investment operations..................... .56 .35 .56 .62
------ ------ ------ ------
Less dividends from investment income--net........... -- (.05) (.04) (.05)
------ ------ ------ ------
Net asset value, end of period....................... $ 8.78 $ 8.22 $ 7.92 $ 7.40
====== ====== ====== ======
- ------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:**
Based on net asset value per share................... 6.81%@ 4.41% 7.63% 9.14%@
====== ====== ====== ======
- ------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses............................................. 1.07%* .76% .76% .74%*
====== ====== ====== ======
Investment income--net............................... (.02%)* .57% .58% 2.79%*
====== ====== ====== ======
- ------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)............. $ 1 $ 1 $ 1 $ 1
====== ====== ====== ======
Portfolio turnover................................... 46% 69% 82% 78%
====== ====== ====== ======
- ------------------------------------------------------------------------------------------------------------------
</Table>
* Annualized.
** Total investment returns exclude insurance-related fees and expenses.
*** Based on average shares outstanding.
+ Commencement of operations.
++ Amount is less than ($.01).
@ Aggregate total investment return.
See Notes to Financial Statements.
17
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Fundamental Growth V.I. Fund
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES:
BlackRock Variable Series Funds, Inc. (the "Company") is an open-end management
investment company that is comprised of 16 separate funds. Each fund offers
three 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. ("Merrill Lynch")), and other insurance companies that are not
affiliated with Merrill Lynch, for their separate accounts to fund benefits
under certain variable annuity and variable life insurance contracts. BlackRock
Fundamental Growth V.I. Fund (the "Fund") is classified as "diversified," as
defined in the Investment Company Act of 1940, as amended. Class I, Class II and
Class III 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. In addition, Class II and Class III Shares
bear certain expenses related to the distribution of such shares. The Fund's
financial statements are prepared in conformity with U.S. generally accepted
accounting principles, which may require the use of management accruals and
estimates. Actual results may differ from these estimates. These unaudited
financial statements reflect all adjustments, which are, in the opinion of
management, necessary to present a fair statement of the results for the interim
period. All such adjustments are of a normal, recurring nature. Income, expenses
(other than expenses attributable to a specific class) and realized and
unrealized gains and losses are allocated daily to each class based on its
relative net assets. The following is a summary of significant accounting
policies followed by the Fund.
(a) Valuation of investments--Equity securities held by the Fund that are
traded on stock exchanges or the NASDAQ Global Market are valued at the last
sale price or official close price on the exchange, as of the close of business
on the day the securities are being valued or, lacking any sales, at the last
available bid price for long positions, and at the last available asked price
for short positions. In cases where equity securities are traded on more than
one exchange, the securities are valued on the exchange designated as the
primary market by or under the authority of the Board of Directors of the
Company. Long positions traded in the over-the-counter ("OTC") market, NASDAQ
Capital Market or Bulletin Board are valued at the last available bid price or
yield equivalent obtained from one or more dealers or pricing services approved
by the Board of Directors of the Company. Short positions traded in the OTC
market are valued at the last available asked price. Portfolio securities that
are traded both in the OTC market and on a stock exchange are valued according
to the broadest and most representative market.
Options written or purchased are valued at the last sale price in the case of
exchange-traded options. Options traded in the OTC market are valued at the last
asked price (options written) or the last bid price (options purchased). Swap
agreements are valued based upon quoted fair valuations received daily by the
Fund from a pricing service or counterparty. Financial futures contracts and
options thereon, which are traded on exchanges, are valued at their last sale
price as of the close of such exchanges. Valuation of other short-term
investment vehicles is generally based on the net asset value of the underlying
investment vehicle or amortized cost.
Repurchase agreements are valued at cost plus accrued interest. The Fund
employs pricing services to provide certain securities prices for the Fund.
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, including valuations furnished by the
pricing services retained by the Fund, which may use a matrix system for
valuations. The procedures of a pricing service and its valuations are reviewed
by the officers of the Fund under the general supervision of the Company's Board
of Directors. Such valuations and procedures will be reviewed periodically by
the Board of Directors of the Company.
Generally, trading in foreign securities, as well as U.S. government
securities, money market instruments and certain fixed income securities, is
substantially completed each day at various times prior to the close of business
on the New York Stock Exchange ("NYSE"). The values of such securities used in
computing the net asset value of the Fund's shares are determined as of such
times. Foreign currency exchange rates will generally be determined as of the
close of business on the NYSE. Occasionally, events affecting the values of such
securities and such exchange rates may occur between the times at which they are
determined and the close of business on the NYSE that may not be reflected in
the computation of the Fund's net asset
18
- --------------------------------------------------------------------------------
value. If events (for example, a company announcement, market volatility or a
natural disaster) occur during such periods that are expected to materially
affect the value of such securities, those securities will be valued at their
fair value as determined in good faith by the Company's Board of Directors or by
BlackRock Advisors, LLC (the "Manager"), an indirect wholly owned subsidiary of
BlackRock, Inc., using a pricing service and/or procedures approved by the
Company's Board of Directors.
(b) Derivative financial instruments--The Fund may engage in various portfolio
investment strategies both to increase the return of the Fund and to hedge, or
protect, its exposure to interest rate movements and movements in the securities
markets. Losses may arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
- - 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 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 financial futures contracts. Financial 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.
(c) Foreign currency transactions--Transactions denominated in foreign
currencies are recorded at the exchange rate prevailing when recognized. Assets
and liabilities denominated in foreign currencies are valued at the exchange
rate at the end of the period. Foreign currency transactions are the result of
settling (realized) or valuing (unrealized) assets or liabilities expressed in
foreign currencies into U.S. dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates on investments.
The Fund invests in foreign securities, which may involve a number of risk
factors and special considerations not present with investments in securities of
U.S. corporations.
(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).
Realized gains and losses on security transactions are determined on the
identified cost basis. Dividend income is recorded on the ex-dividend dates.
Dividends from foreign securities where the ex-dividend date may have passed are
subsequently recorded when the Fund has determined the ex-dividend date.
Interest income is recognized on the accrual basis.
(f) Dividends and distributions--Dividends and distributions paid by the Fund
are recorded on the ex-dividend dates.
(g) Expenses--Certain expenses have been allocated to the individual funds in
the Company on a pro rata basis based upon the respective aggregate net asset
value of each fund included in the Company.
(h) Securities lending--The Fund may lend securities to financial institutions
that provide cash or securities issued or guaranteed by the U.S. government as
collateral, which will be maintained at all times in an amount equal to at least
100% of the current market value of the loaned securities. The market value of
the loaned securities is determined at the close of business of the Fund and any
additional required collateral is delivered to the Fund on the next business
day. Where the Fund receives
19
- --------------------------------------------------------------------------------
securities as collateral for the loaned securities, it receives a fee from the
borrower. The Fund typically receives the income on the loaned securities, but
does not receive the income on the collateral. Where the Fund receives cash
collateral, it may invest such collateral and retain the amount earned on such
investment, net of any amount rebated to the borrower. Loans of securities are
terminable at any time and the borrower, after notice, is required to return
borrowed securities within five business days. The Fund may pay reasonable
finder's, lending agent, administrative and custodial fees in connection with
its loans. In the event that the borrower defaults on its obligation to return
borrowed securities because of insolvency or for any other reason, the Fund
could experience delays and costs in gaining access to the collateral. The Fund
also could suffer a loss where the value of the collateral falls below the
market value of the borrowed securities, in the event of borrower default or in
the event of losses on investments made with cash collateral.
(i) Recent accounting pronouncements--Effective June 29, 2007, the Fund
implemented Financial Accounting Standards Board ("FASB") Interpretation No. 48,
"Accounting for Uncertainty in Income Taxes -- an interpretation of FASB
Statement No. 109" ("FIN 48"). FIN 48 prescribes the minimum recognition
threshold a tax position must meet in connection with accounting for
uncertainties in income tax positions taken or expected to be taken by an
entity, including investment companies, before being measured and recognized in
the financial statements. Management has evaluated the application of FIN 48 to
the Fund, and has determined that the adoption of FIN 48 does not have a
material impact on the Fund's financial statements. The Fund files U.S. and
various state tax returns. No income tax returns are currently under
examination. The statute of limitations on the Fund's tax returns remains open
for the years ended December 31, 2003 through December 31, 2006.
In September 2006, Statement of Financial Accounting Standards No. 157, "Fair
Value Measurements" ("FAS 157"), was issued and is effective for fiscal years
beginning after November 15, 2007. FAS 157 defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. At this time, management is evaluating the implications of FAS 157
and its impact on the Fund's financial statements, if any, has not been
determined.
In addition, in February 2007, Statement of Financial Accounting Standards No.
159, "The Fair Value Option for Financial Assets and Financial Liabilities"
("FAS 159"), was issued and is effective for fiscal years beginning after
November 15, 2007. Early adoption is permitted as of the beginning of a fiscal
year that begins on or before November 15, 2007, provided the entity also elects
to apply the provisions of FAS 157. FAS 159 permits entities to choose to
measure many financial instruments and certain other items at fair value that
are not currently required to be measured at fair value. FAS 159 also
establishes presentation and disclosure requirements designed to facilitate
comparisons between entities that choose different measurement attributes for
similar types of assets and liabilities. At this time, management is evaluating
the implications of FAS 159 and its impact on the Fund's financial statements,
if any, has not been determined.
2. INVESTMENT ADVISORY AGREEMENT AND TRANSACTIONS WITH AFFILIATES:
The Fund has entered into an Investment Advisory Agreement with the Manager. The
Fund has also entered into separate Distribution Agreements and Distribution
Plans with FAM Distributors, Inc. ("FAMD") and BlackRock Distributors, Inc. and
its affiliates ("BDI") (collectively, the "Distributor"). FAMD is a wholly owned
subsidiary of Merrill Lynch Group, Inc., and BDI is an affiliate of BlackRock,
Inc. Merrill Lynch and The PNC Financial Services Group, Inc. ("PNC") are the
principal owners of BlackRock, Inc.
The Manager 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 Fund. For such services, the Fund
pays a monthly fee at an annual rate of .65% of the average daily value of the
Fund's net assets. In addition, the Manager has entered into a sub-advisory
agreement with BlackRock Investment Management, LLC ("BIM") an affiliate of the
Manager, under which the Manager pays BIM for services they provide a monthly
fee that is a percentage of the management fee paid by the Fund to the Manager.
Pursuant to the Distribution Plans adopted by the Company, in accordance with
Rule 12b-1 under the Investment Company Act of 1940, the Fund pays the
Distributor ongoing distribution fees each month at the annual rate of .15% and
..25% of the average daily value of the Fund's Class II and Class III net assets,
respectively.
The Company has received an exemptive order from the Securities and Exchange
Commission permitting it to lend portfolio securities
20
- --------------------------------------------------------------------------------
to Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), a wholly owned
subsidiary of Merrill Lynch, or its affiliates. As of June 30, 2007 the Fund
lent securities with a value of $1,493,248 to MLPF&S or its affiliates. Pursuant
to that order, the Company has also retained BIM as the securities lending agent
for a fee based on a share of the returns on investment of cash collateral. BIM
may, on behalf of the Company and the Fund, invest cash collateral received by
the Fund for such loans, among other things, in a private investment company
managed by the Manager or in registered money market funds advised by the
Manager or its affiliates. For the six months ended June 30, 2007, BIM received
$363 in securities lending agent fees from the Fund.
For the six months ended June 30, 2007, the Fund reimbursed the Manager $1,323
for certain accounting services.
In addition, MLPF&S received $20,438 in commissions on the execution of
portfolio security transactions for the Fund for the six months ended June 30,
2007.
PFPC Inc., an indirect, wholly owned subsidiary of PNC and an affiliate of the
Manager, is the Fund's transfer agent.
Certain officers and/or directors of the Company are officers and/or directors
of BlackRock, Inc. or its affiliates.
3. INVESTMENTS:
Purchases and sales of investments, excluding short-term securities, for the six
months ended June 30, 2007 were $49,589,484 and $63,297,740, respectively.
Transactions in call options written for the six months ended June 30, 2007
were as follows:
<Table>
<Caption>
- -------------------------------------------------------------------
Number of Premiums
Call Options Written Contracts Received
- -------------------------------------------------------------------
Outstanding call options written, beginning
of period................................... -- --
Options written.............................. 1,967 $417,185
----- --------
Outstanding call options written, end of
period...................................... 1,967 $417,185
===== ========
- -------------------------------------------------------------------
</Table>
Transactions in put options written for the six months ended June 30, 2007
were as follows:
<Table>
<Caption>
- -------------------------------------------------------------------
Number of Premiums
Put Options Written Contracts Received
- -------------------------------------------------------------------
Outstanding put options written, beginning of
period...................................... -- --
Options written.............................. 496 $117,550
--- --------
Outstanding put options written, end of
period...................................... 496 $117,550
=== ========
- -------------------------------------------------------------------
</Table>
4. CAPITAL SHARE TRANSACTIONS:
Net decrease in net assets derived from capital share transactions was
$16,001,593 and $69,644,981 for the six months ended June 30, 2007 and the year
ended December 31, 2006, respectively.
Transactions in capital shares for each class were as follows:
<Table>
<Caption>
- ------------------------------------------------------------------
Class I Shares for Six Months Ended
June 30, 2007 Shares Dollar Amount
- ------------------------------------------------------------------
Shares sold.......................... 35,518 $ 306,796
Shares redeemed...................... (1,928,492) (16,308,389)
---------- ------------
Net decrease......................... (1,892,974) $(16,001,593)
========== ============
- ------------------------------------------------------------------
</Table>
<Table>
<Caption>
- ------------------------------------------------------------------
Class I Shares for Year Ended
December 31, 2006 Shares Dollar Amount
- ------------------------------------------------------------------
Shares sold.......................... 909,847 $ 7,381,150
Shares issued to shareholders in
reinvestment of dividends........... 80,829 664,413
---------- ------------
Total issued......................... 990,676 8,045,563
Shares redeemed...................... (9,611,063) (77,690,558)
---------- ------------
Net decrease......................... (8,620,387) $(69,644,995)
========== ============
- ------------------------------------------------------------------
</Table>
<Table>
<Caption>
- ------------------------------------------------------------------
Class II Shares for the Six Months Ended Dollar
June 30, 2007 Shares Amount
- ------------------------------------------------------------------
Shares issued to shareholders in reinvestment of
dividends...................................... -- --
-- --
Net increase.................................... -- --
== ==
- ------------------------------------------------------------------
</Table>
<Table>
<Caption>
- ------------------------------------------------------------------
Class II Shares for the Year Ended Dollar
December 31, 2006 Shares Amount
- ------------------------------------------------------------------
Shares issued to shareholders in reinvestment of
dividends...................................... 1 $7
-- --
Net increase.................................... 1 $7
== ==
- ------------------------------------------------------------------
</Table>
<Table>
<Caption>
- ------------------------------------------------------------------
Class III Shares for the Six Months Ended Dollar
June 30, 2007 Shares Amount
- ------------------------------------------------------------------
Shares issued to shareholders in reinvestment of
dividends...................................... -- --
-- --
Net increase.................................... -- --
== ==
- ------------------------------------------------------------------
</Table>
<Table>
<Caption>
- ------------------------------------------------------------------
Class III Shares for the Year Ended Dollar
December 31, 2006 Shares Amount
- ------------------------------------------------------------------
Shares issued to shareholders in reinvestment of
dividends...................................... 1 $7
-- --
Net increase.................................... 1 $7
== ==
- ------------------------------------------------------------------
</Table>
21
- --------------------------------------------------------------------------------
5. SHORT-TERM BORROWINGS:
The Company, on behalf of the Fund, along with certain other funds managed by
the Manager and its affiliates, is party to a $500,000,000 credit agreement with
a group of lenders, which expires November 2007. 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 .06% per annum based on the Fund's pro rata share of the
unused portion of the credit agreement. Amounts borrowed under the credit
agreement bear interest at a rate equal to, at each fund's election, the federal
funds rate plus .35% or a base rate as defined in the credit agreement. The Fund
did not borrow under the credit agreement during the six months ended June 30,
2007.
6. CAPITAL LOSS CARRYFORWARD:
On December 31, 2006, the Fund had a net capital loss carryforward of $136,069,
all of which expires in 2011. This amount will be available to offset like
amounts of any future taxable gains.
22
- --------------------------------------------------------------------------------
BLACKROCK GLOBAL ALLOCATION V.I. FUND
-------------------------------------------------------------------------
Semi-Annual Report (Unaudited)
June 30, 2007
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS
BlackRock Global Allocation V.I. Fund
A Discussion With Your Fund's Portfolio Managers
- --------------------------------------------------------------------------------
The Portfolio benefited from strong global equity markets and outperformed its
Reference Portfolio, providing its shareholders with high single-digit returns
for the period.
HOW DID THE FUND PERFORM DURING THE PERIOD IN LIGHT OF THE EXISTING MARKET
CONDITIONS?
For the six-month period ended June 30, 2007, BlackRock Global Allocation V.I.
Fund's Class I, Class II and Class III Shares had total returns of +8.05%,
+7.98% and +7.92%, respectively. Fund results exceeded the +5.70% return of its
Reference Portfolio for the period, but trailed the +10.12% return of its broad-
based, all-equity benchmark, the Financial Times Stock Exchange (FTSE) World
Index. The Fund invests in a combination of equities and bonds; therefore, the
Reference Portfolio provides both a truer representation of the Fund's
composition and a more comparable means for measurement. Returns for each
component of the Reference Portfolio for the six months ended June 30, 2007,
were as follows: the Standard & Poor's 500 (S&P 500) Index returned +6.96%; the
FTSE World Index (ex-U.S.) returned +12.74%; the Merrill Lynch Treasury Index
GA05 returned +1.22%; and the Citigroup (non-U.S. dollar) World Government Bond
Index returned -.77%. (A full description of the Reference Portfolio can be
found on page 4 of this report to shareholders.) The Fund outpaced the +6.60%
average return of the Lipper Global Flexible Portfolio Funds (Variable Products)
category for the same six-month period. (As defined by Lipper, funds in this
category allocate their investments across various asset classes, including both
domestic and foreign stocks, bonds and money market instruments, and focus on
total return.)
Global equity markets continued their ascent in the first half of 2007,
despite such headwinds as increasing oil prices, higher interest rates and
rising volatility. U.S. equities, as measured by the S&P 500 Index, returned
+6.96% while foreign (non-U.S.) international equities, as measured by the MSCI
EAFE Index, returned +10.74%. In the United States, the deterioration in the
residential housing market contributed to relatively weak first quarter gross
domestic product growth of .7%, the slowest rate of expansion since the fourth
quarter of 2002. Meanwhile, economic growth remained relatively robust outside
the U.S., with particular strength coming from the emerging markets of Asia and
improvements in continental Europe.
From a regional perspective, European equity markets, as measured by the MSCI
Europe Index, returned +12.49%, as high levels of merger-and-acquisition (M&A)
activity and increases in consumer confidence pushed share prices higher. Within
Europe, Germany's DAX Index returned +24.59%, as Europe's largest economy
benefited from lower unemployment and increases in business confidence. From a
currency standpoint, the euro continued its appreciation relative to the U.S.
dollar, although the pace was significantly more constrained than that seen in
2006. Over the first six months of 2007, the euro appreciated 2.6% versus the
U.S. dollar, reaching an all-time high in April (at 1.3651). In the Pacific
region, equity markets trended higher with notable divergence among major
indexes. China's Shenzhen Composite Index more than doubled, returning +101.73%,
while Japan's Nikkei 225 returned +2.27%. Despite increasing interest rates in
February, Japan's short-term interest rates remained the lowest in the developed
world at .50%. Recent economic data from Japan suggests that the world's
second-largest economy may be experiencing a resurgence in growth.
In fixed income markets, the prevailing topic continued to be the threat of
higher inflation as the global economy enters its fifth year of expansion.
Although the U.S. Federal Reserve Board has left interest rates unchanged for a
year, foreign central banks have maintained their vigilance toward inflation and
higher economic growth. The European Central Bank, the Bank of England, the Bank
of Japan and the Reserve Bank of Australia are among the many foreign central
banks that have raised interest rates in 2007. Rising short-term, and more
recently long-term, interest rates have produced a poor environment for
investors in both domestic and foreign bonds. The 10-year U.S. Treasury yield
started the year at 4.70% and reached 5.30% in mid-June before ending the period
at 5.03%. Yields across foreign markets also have trended higher, with German
government bonds rising 60 basis points (.60%) over the first half of the year.
In Japan, government bond yields rose approximately 20 basis points. As a
result, U.S. bonds, as measured by the Lehman Brothers U.S. Aggregate Bond
Index, returned +.98% for the first six months of the year, while global bonds,
as measured by the Lehman Brothers Global Aggregate Bond Index, returned +.40%.
2
- --------------------------------------------------------------------------------
WHAT FACTORS MOST INFLUENCED FUND PERFORMANCE DURING THE PERIOD?
The Fund capitalized on favorable equity performance in most developed markets
around the world. At the start of the period, the Fund's asset allocation
strategy included an underweight in equities, notably in the U.S., and a
significant underweight in fixed income securities, particularly high-quality,
long-term non-U.S.-dollar sovereign debt.
The Fund benefited from a significant overweight exposure to Asian equities,
especially in India and Singapore, and effective stock selection in the United
States, China and Hong Kong. Security selection in the energy and industrials
sectors also boosted performance as significant growth in Asia, especially
China, continued to fuel demand for raw materials, particularly energy
resources, and capital investment in energy-related production. Detracting from
relative results was the Fund's overweight position in Japanese stocks, as
equity markets there sold off sharply in February and the yen declined over the
six-month period.
Although considerably underweight in fixed income, the Fund continued to
benefit from the makeup of its fixed income component. This included a modest
exposure to U.S. corporate bonds, convertible securities and emerging markets
debt. The Fund maintained its relatively neutral position in U.S. Treasury
issues and its underweight position in non-U.S.-dollar sovereign debt (notably
in Japan), as yields remained relatively unattractive.
WHAT CHANGES WERE MADE TO THE PORTFOLIO DURING THE PERIOD?
The Fund's Reference Portfolio comprises 60% equities and 40% fixed income
securities. The Fund's equity allocation decreased from 58% of net assets to 56%
during the period, primarily reflecting reduced exposure to equities in Japan
and Europe, particularly Germany. This was partially offset by an increase in
U.S. equities, notably in the energy and industrials sectors. Our strategy
included reducing the cyclicality of the equity portfolio and taking profits in
stocks that had significantly appreciated, notably in Japan and the
strong-performing energy sector. We added to our overweight positions in the
materials and industrials sectors as the demand in developing economies for new
and improved infrastructure remained robust, and metals consumption continued to
rise. We continued to slowly increase our underweight positions in both the
consumer discretionary and financials sectors, given our belief that the
slowdown in the U.S. housing sector eventually will constrict the sustainability
of consumer spending and credit growth.
The Fund remained underweight in fixed income securities throughout the
six-month period, particularly high-quality, long-term non-U.S.-dollar sovereign
debt. The Fund's fixed income allocation declined from 33% of net assets to 30%,
mainly reflecting a decrease in exposure to European sovereign debt and a modest
decrease in U.S. corporate debt as U.S. Treasury yields increased over the
period. (Please note that the Fund's U.S. fixed income exposure includes bonds
of non-U.S. issuers denominated in U.S. dollars.) Approximately 3.30% of the
Fund's net assets was invested in convertible securities as of period-end. These
securities are reported as a portion of the Fund's fixed income allocation,
although some may tend to perform similar to equities.
Given the aforementioned changes, the Fund's position in cash equivalent
securities increased from 9% of net assets to 14% over the six-month period.
Cash is actively managed and, as such, allocations to cash are an integral part
of the Fund's investment strategy. Currently, cash is considered primarily
zero-duration fixed income and includes short-term U.S. dollar and
non-U.S.-dollar fixed income securities and other money market-type instruments.
HOW WOULD YOU CHARACTERIZE THE FUND'S POSITION AT THE CLOSE OF THE PERIOD?
Broadly speaking, compared to its Reference Portfolio, the Fund closed the
period underweight in equities and non-U.S. fixed income securities, and
overweight in cash reserves.
Within its equity segment, the Fund was significantly underweight in the
United States, slightly underweight in Europe and overweight in Asia. From a
sector perspective, the Fund was overweight in energy, industrials,
telecommunication services and materials; underweight in consumer discretionary,
technology, financials, health care and consumer staples; and relatively neutral
in utilities.
The Fund's underweight fixed income exposure reflects the assessment that
available yields are insufficiently attractive relative to the risks of higher
inflation and higher interest rates, especially outside the United States. With
respect to currency, we ended the six-month period with a significant
underweighting of the U.S. dollar, a relatively neutral stance on the euro, and
slight overweight positions in the Brazilian real and several Asian currencies.
The portfolio's equity allocation at year-end--although underweight relative
to our Reference Portfolio--was still higher than during most of the Fund's
history. Accordingly, we expect that
3
- --------------------------------------------------------------------------------
the Fund may exhibit a somewhat higher beta versus the S&P 500 Index and higher
volatility in net asset value than historically has been the case. Nevertheless,
given the Fund's current posture, we believe both of these measures should
remain below those typical of the majority of all-equity funds in most market
conditions.
Dennis Stattman
Senior Portfolio Manager
Dan Chamby
Associate Portfolio Manager
Romualdo Roldan
Associate Portfolio Manager
James A. MacMillan
Associate Portfolio Manager
July 13, 2007
4
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Allocation V.I. Fund
Total Return Based on a $10,000 Investment
- --------------------------------------------------------------------------------
[LINE GRAPH]
<Table>
<Caption>
BLACKROCK GLOBAL
ALLOCATION V.I. FUND+--
CLASS I SHARES* FTSE WORLD INDEX++ REFERENCE PORTFOLIO+++
----------------------- ------------------ ----------------------
6/97 10000 10000 10000
6/98 10801 11598 11362
6/99 11128 13495 12765
6/00 12826 15181 13862
6/01 10633 12405 12529
6/02 10381 10617 12009
6/03 11279 10451 12641
6/04 13584 13039 14535
6/05 15200 14594 15795
6/06 17769 17285 17212
6/07 20935 21964 19942
</Table>
[LINE GRAPH]
<Table>
<Caption>
BLACKROCK GLOBAL
ALLOCATION V.I. FUND+--
CLASS II SHARES* FTSE WORLD INDEX++ REFERENCE PORTFOLIO+++
----------------------- ------------------ ----------------------
11/24/03** 10000 10000 10000
6/04 11157 11019 10657
6/05 12465 12334 11581
6/06 14553 14608 12619
6/07 17121 18334 14621
</Table>
[LINE GRAPH]
<Table>
<Caption>
BLACKROCK GLOBAL
ALLOCATION V.I. FUND+--
CLASS III SHARES* FTSE WORLD INDEX++ REFERENCE PORTFOLIO+++
----------------------- ------------------ ----------------------
11/18/03** 10000 10000 10000
6/04 11112 11019 10657
6/05 12396 12334 11581
6/06 14477 14608 12619
6/07 17012 18334 14621
</Table>
* Assuming transaction costs, if any, and other operating expenses, including
advisory fees. Does not include insurance-related fees and expenses.
Effective September 2, 2003, Class A Shares were redesignated Class I
Shares.
** Commencement of operations.
+ The Fund invests primarily in a portfolio of equity and fixed-income
securities of U.S. and foreign issuers.
++ This unmanaged market capitalization-weighted Index is comprised of nearly
2000 equities from 24 countries in 12 regions, including the United States.
The starting date for the Index in the Class II and Class III Shares' graph
is from 11/30/03.
+++ The unmanaged Reference Portfolio is a weighted index comprised of 36% of
the unmanaged S&P 500 Index, 24% Financial Times/Standard &
Poor's--Actuaries World Index (Ex-US), 24% Merrill Lynch Treasury Index
GA05, and 16% Citigroup World Government Bond Index (Ex-US). The starting
date for the Index in the Class II and Class III Shares' graph is 11/30/03.
Past results shown should not be considered a representation of future
performance.
5
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Allocation V.I. Fund
Average Annual Total Return--Class I Shares*
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERIOD COVERED RETURN
- --------------------------------------------------------------------------
One Year Ended 6/30/07 +17.82%
- --------------------------------------------------------------------------
Five Years Ended 6/30/07 +15.06
- --------------------------------------------------------------------------
Ten Years Ended 6/30/07 + 7.67
- --------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Allocation V.I. Fund
Average Annual Total Return--Class II Shares*
- --------------------------------------------------------------------------------
<Table>
<Caption>
RETURN
- --------------------------------------------------------------------------
One Year Ended 6/30/07 +17.65%
- --------------------------------------------------------------------------
Inception (11/24/03) through 6/30/07 +16.11
- --------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Allocation V.I. Fund
Average Annual Total Return--Class III Shares*
- --------------------------------------------------------------------------------
<Table>
<Caption>
RETURN
- --------------------------------------------------------------------------
One Year Ended 6/30/07 +17.51%
- --------------------------------------------------------------------------
Inception (11/18/03) through 6/30/07 +15.83
- --------------------------------------------------------------------------
</Table>
* Average Annual Total 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.
6
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Allocation V.I. Fund
Recent Performance Results
- --------------------------------------------------------------------------------
<Table>
<Caption>
6-MONTH 12-MONTH
AS OF JUNE 30, 2007 TOTAL RETURN TOTAL RETURN
- -----------------------------------------------------------------------------------------
Class I Shares* + 8.05% +17.82%
- -----------------------------------------------------------------------------------------
Class II Shares* + 7.98 +17.65
- -----------------------------------------------------------------------------------------
Class III Shares* + 7.92 +17.51
- -----------------------------------------------------------------------------------------
FTSE World Index** +10.12 +25.51
- -----------------------------------------------------------------------------------------
Reference Portfolio*** + 5.70 +15.86
- -----------------------------------------------------------------------------------------
U.S. Stocks: S&P 500(R) Index**** + 6.96 +20.59
- -----------------------------------------------------------------------------------------
Non-U.S. Stocks: FTSE World Index (Ex-U.S.) Equities***** +12.74 +29.92
- -----------------------------------------------------------------------------------------
U.S. Bonds: ML Treasury Index GA05+ + 1.22 + 5.30
- -----------------------------------------------------------------------------------------
Non-U.S. Bonds: Citigroup World Government Bond Index
(Ex-U.S.)++ - 0.77 + 2.20
- -----------------------------------------------------------------------------------------
</Table>
* Cumulative 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.
** This unmanaged market capitalization-weighted Index is comprised of nearly
2000 equities from 24 countries in 12 regions, including the United
States.
*** The Reference Portfolio is an unmanaged weighted Index comprised as
follows: 36% of the S&P 500 Index; 24% FTSE World Index (Ex-U.S.)
Equities; 24% Merrill Lynch Treasury Index GA05; and 16% Citigroup World
Government Bond Index (Ex-U.S.).
**** This unmanaged broad-based Index is comprised of common stocks.
***** This unmanaged capitalization-weighted Index is comprised of 1,631
companies in 28 countries, excluding the United States.
+ This unmanaged Index is designed to track the total return of the current
coupon five-year U.S. Treasury bond.
++ This unmanaged market capitalization-weighted Index tracks 10 government
bond indexes, excluding the United States.
Past results shown should not be considered a representation of future
performance.
S&P 500 is a registered trademark of the McGraw-Hill Companies.
- --------------------------------------------------------------------------------
SUMMARY OF FUND'S OVERALL ASSET MIX
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENT OF FUND'S REFERENCE PORTFOLIO+
AS OF 6/30/07 NET ASSETS PERCENTAGES
- ------------------------------------------------------------------------------------------------------
U.S. Equities 21.7%* 36.0%
- ------------------------------------------------------------------------------------------------------
European Equities 12.5* 14.4
- ------------------------------------------------------------------------------------------------------
Pacific Basin Equities 17.5* 7.4
- ------------------------------------------------------------------------------------------------------
Other Equities 4.0 2.2
- ------------------------------------------------------------------------------------------------------
TOTAL EQUITIES 55.7 60.0
- ------------------------------------------------------------------------------------------------------
U.S. Dollar-Denominated Fixed Income Securities 22.3 24.0
- ------------------------------------------------------------------------------------------------------
U.S. Issuer 19.2 --
- ------------------------------------------------------------------------------------------------------
Non-U.S. Issuer 3.1 --
- ------------------------------------------------------------------------------------------------------
Non-U.S. Dollar-Denominated Fixed Income Securities 7.2 16.0
- ------------------------------------------------------------------------------------------------------
TOTAL FIXED INCOME SECURITIES 29.5 40.0
- ------------------------------------------------------------------------------------------------------
CASH & CASH EQUIVALENTS 14.8** --
- ------------------------------------------------------------------------------------------------------
</Table>
* Includes value of financial futures contracts.
** Cash & Cash Equivalents are reduced by the market (or nominal) value of long
financial futures contracts.
+ The unmanaged Reference Portfolio is an unmanaged weighted index comprised as
follows: 36% of the S&P 500 Index; 24% FTSE World Index (Ex-U.S.) Equities;
24% Merrill Lynch Treasury Index GA05; and 16% Citigroup World Government
Bond Index (Ex-U.S.).
7
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Allocation V.I. Fund
Disclosure of Expenses
- --------------------------------------------------------------------------------
Shareholders of this Fund may incur the following charges: (a) expenses related
to transactions, including sales charges, redemption fees and exchange fees; and
(b) operating expenses including advisory fees, distribution fees including
12b-1 fees, and other Fund expenses. The following example (which is based on a
hypothetical investment of $1,000 invested on January 1, 2007 and held through
June 30, 2007), is intended to assist shareholders both in calculating expenses
based on an investment in the Fund and in comparing these expenses with similar
costs of investing in other mutual funds.
The first table below provides information about actual account values and
actual expenses. In order to estimate the expenses a shareholder paid during the
period covered by this report, shareholders can divide their account value by
$1,000 and then multiply the result by the number in the first line under the
heading entitled "Expenses Paid During the Period."
The second table below provides information about hypothetical account values
and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses. In order to assist
shareholders in comparing the ongoing expenses of investing in this Fund and
other funds, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in other funds' shareholder reports.
The expenses shown in the table are intended to highlight shareholders'
ongoing costs only and do not reflect any transactional expenses, such as sales
charges, redemption fees or exchange fees. Therefore, the second table is useful
in comparing ongoing expenses only, and will not help shareholders determine the
relative total expenses of owning different funds. If these transactional
expenses were included, shareholder expenses would have been higher.
<Table>
<Caption>
EXPENSES PAID
BEGINNING ENDING DURING THE PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JANUARY 1, 2007 TO
JANUARY 1, 2007 JUNE 30, 2007 JUNE 30, 2007
- --------------------------------------------------------------------------------------------------------------------
ACTUAL
- --------------------------------------------------------------------------------------------------------------------
Class I $1,000 $1,080.50 $3.94
- --------------------------------------------------------------------------------------------------------------------
Class II $1,000 $1,079.80 $4.72
- --------------------------------------------------------------------------------------------------------------------
Class III $1,000 $1,079.20 $5.24
- --------------------------------------------------------------------------------------------------------------------
HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES)**
- --------------------------------------------------------------------------------------------------------------------
Class I $1,000 $1,021.11 $3.83
- --------------------------------------------------------------------------------------------------------------------
Class II $1,000 $1,020.36 $4.58
- --------------------------------------------------------------------------------------------------------------------
Class III $1,000 $1,019.86 $5.09
- --------------------------------------------------------------------------------------------------------------------
</Table>
* For each class of the Fund, expenses are equal to the annualized expense
ratio for the class (.76% for Class I, .91% for Class II and 1.01% for Class
III), multiplied by the average account value over the period, multiplied by
182/365 (to reflect the one-half year period shown).
** Hypothetical 5% annual return before expenses is calculated by pro-rating
the number of days in the most recent fiscal half year divided by 365.
8
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Allocation V.I. Fund
Schedule of Investments as of June 30, 2007 (unaudited) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES
COUNTRY INDUSTRY HELD COMMON STOCKS VALUE
- ------------------------------------------------------------------------------------------------------------------
AUSTRALIA--1.1% BEVERAGES--0.0% 47,600 Coca-Cola Amatil Ltd. ........... $ 384,312
-----------------------------------------------------------------------------------------
CAPITAL MARKETS--0.2% 21,100 Macquarie Bank Ltd. ............. 1,515,513
-----------------------------------------------------------------------------------------
COMMERCIAL BANKS--0.0% 13,713 National Australia Bank Ltd. .... 476,563
-----------------------------------------------------------------------------------------
METALS & MINING--0.5% 59,000 BHP Billiton Ltd. ............... 1,762,963
21,000 Newcrest Mining Ltd. ............ 405,304
17,000 Rio Tinto Ltd. .................. 1,418,101
45,400 Zinifex Ltd. .................... 719,982
------------
4,306,350
-----------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE 20,000 Woodside Petroleum Ltd. ......... 773,155
FUELS--0.1%
-----------------------------------------------------------------------------------------
PAPER & FOREST 72,800 Great Southern Plantations
PRODUCTS--0.0% Ltd. .......................... 184,675
-----------------------------------------------------------------------------------------
TRANSPORTATION 108,000 Macquarie Airports Group......... 369,061
INFRASTRUCTURE--0.3%
363,900 Macquarie Infrastructure Group... 1,108,407
124,596 Transurban Group................. 844,767
------------
2,322,235
-----------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN
AUSTRALIA...................... 9,962,803
- ------------------------------------------------------------------------------------------------------------------
AUSTRIA--0.0% DIVERSIFIED 5,900 Telekom Austria AG............... 146,926
TELECOMMUNICATION
SERVICES--0.0%
-----------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN AUSTRIA... 146,926
- ------------------------------------------------------------------------------------------------------------------
BELGIUM--0.1% HEALTH CARE 30,980 AGFA-Gevaert NV.................. 799,138
TECHNOLOGY--0.1%
-----------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN BELGIUM... 799,138
- ------------------------------------------------------------------------------------------------------------------
BRAZIL--1.9% COMMERCIAL BANKS--0.1% 19,000 Banco Bradesco SA................ 458,305
4,200 Uniao de Bancos Brasileiros
SA(i).......................... 474,054
------------
932,359
-----------------------------------------------------------------------------------------
CONSTRUCTION & 29,500 Obrascon Huarte Lain Brasil SA... 556,661
ENGINEERING--0.1%
-----------------------------------------------------------------------------------------
ELECTRIC 21,300 Cia Energetica de Minas
UTILITIES--0.0% Gerais(i)...................... 449,429
-----------------------------------------------------------------------------------------
FOOD & STAPLES 6,840,400 Cia Brasileira de Distribuicao
RETAILING--0.0% Grupo Pao de Acucar............ 265,814
-----------------------------------------------------------------------------------------
FOOD PRODUCTS--0.1% 26,400 Cosan SA Industria e
Comercio(j).................... 433,841
72,000 SLC Agricola SA(j)............... 528,149
------------
961,990
-----------------------------------------------------------------------------------------
HOUSEHOLD 38,000 Gafisa SA........................ 592,753
DURABLES--0.1%
-----------------------------------------------------------------------------------------
LEISURE EQUIPMENT & 36,900 Localiza Rent A Car SA........... 416,248
PRODUCTS--0.0%
-----------------------------------------------------------------------------------------
METALS & MINING--0.2% 38,000 Companhia Vale do Rio Doce
(Preference 'A' Shares)(i)..... 1,432,600
13,600 Usinas Siderurgicas de Minas
Gerais SA (Preference 'A'
Shares)........................ 774,826
------------
2,207,426
-----------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE 38,400 Petroleo Brasileiro SA(i)........ 4,656,768
FUELS--0.9%
33,700 Petroleo Brasileiro SA(i)(m)..... 3,595,116
------------
8,251,884
-----------------------------------------------------------------------------------------
ROAD & RAIL--0.1% 67,000 All America Latina Logistica
SA............................. 912,089
-----------------------------------------------------------------------------------------
SOFTWARE--0.1% 41,900 Datasul.......................... 543,026
-----------------------------------------------------------------------------------------
WATER UTILITIES--0.1% 30,900 Companhia de Saneamento de Minas
Gerais......................... 462,938
-----------------------------------------------------------------------------------------
</Table>
9
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Allocation V.I. Fund
Schedule of Investments as of June 30, 2007 (continued) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES
COUNTRY INDUSTRY HELD COMMON STOCKS VALUE
- ------------------------------------------------------------------------------------------------------------------
BRAZIL
(CONCLUDED)
WIRELESS 115,000 Vivo Participacoes SA(i)(m)...... $ 576,150
TELECOMMUNICATION
SERVICES--0.1%
-----------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN BRAZIL.... 17,128,767
- ------------------------------------------------------------------------------------------------------------------
CANADA--1.1% COMMUNICATIONS 34,300 Nortel Networks Corp.(j)......... 824,915
EQUIPMENT--0.1%
-----------------------------------------------------------------------------------------
DIVERSIFIED 900 BCE, Inc. ....................... 34,010
TELECOMMUNICATION
SERVICES--0.0%
-----------------------------------------------------------------------------------------
FOOD PRODUCTS--0.1% 45,400 Saskatchewan Wheat Pool(j)....... 468,383
-----------------------------------------------------------------------------------------
INSURANCE--0.0% 600 Sun Life Financial, Inc. ........ 28,649
-----------------------------------------------------------------------------------------
METALS & MINING--0.3% 101,800 Alamos Gold, Inc.(j)............. 525,604
19,286 Barrick Gold Corp. .............. 560,644
160,285 Kinross Gold Corp.(j)............ 1,864,286
160,000 Peak Gold Ltd.(j)................ 99,132
------------
3,049,666
-----------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE 6,800 Canadian Natural Resources
FUELS--0.3% Ltd. .......................... 451,180
18,200 Petro-Canada Inc. ............... 969,585
11,200 Suncor Energy, Inc.(i)........... 1,007,104
13,800 Talisman Energy, Inc. ........... 266,867
------------
2,694,736
-----------------------------------------------------------------------------------------
ROAD & RAIL--0.3% 30,000 Canadian Pacific Railway Ltd. ... 2,071,908
13,900 Canadian Pacific Railway Ltd.
(USD).......................... 956,598
------------
3,028,506
-----------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN CANADA.... 10,128,865
- ------------------------------------------------------------------------------------------------------------------
CHILE--0.1% COMMERCIAL BANKS--0.1% 15,800 Banco Santander Chile SA(i)...... 782,732
-----------------------------------------------------------------------------------------
ELECTRIC 20,000 Enersis SA(i).................... 401,000
UTILITIES--0.0%
-----------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN CHILE..... 1,183,732
- ------------------------------------------------------------------------------------------------------------------
CHINA--2.0% AUTOMOBILES--0.0% 494,000 Denway Motors Ltd. .............. 233,747
-----------------------------------------------------------------------------------------
DIVERSIFIED 17,100 China Communications Services
TELECOMMUNICATION Corp. Ltd.(j).................. 12,627
SERVICES--0.0%
-----------------------------------------------------------------------------------------
ELECTRICAL 1,391,400 Shanghai Electric Group Corp. ... 626,811
EQUIPMENT--0.1%
-----------------------------------------------------------------------------------------
FOOD PRODUCTS--0.1% 1,234,700 Chaoda Modern Agriculture
Holdings Ltd. ................. 954,269
-----------------------------------------------------------------------------------------
INDUSTRIAL 1,388,378 Beijing Enterprises Holdings
CONGLOMERATES--0.8% Ltd. .......................... 5,269,148
139,300 Shanghai Industrial Holdings
Ltd. .......................... 534,383
901,000 Tianjin Development Holdings
Ltd. .......................... 980,875
------------
6,784,406
-----------------------------------------------------------------------------------------
INSURANCE--0.1% 10,932 China Life Insurance Co.
Ltd.(i)........................ 586,774
81,100 Ping An Insurance Group Co. of
China Ltd. .................... 572,921
------------
1,159,695
-----------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE 1,033,100 China Shenhua Energy Co. Ltd.
FUELS--0.7% Class H........................ 3,604,862
1,773,500 Yanzhou Coal Mining Co. Ltd. .... 2,700,070
------------
6,304,932
-----------------------------------------------------------------------------------------
TRANSPORTATION 248,100 Hainan Meilan International
INFRASTRUCTURE--0.1% Airport Co., Ltd.(j)........... 253,147
220,000 Jiangsu Express.................. 222,260
991,200 Xiamen International Port Co.
Ltd. .......................... 392,866
------------
868,273
-----------------------------------------------------------------------------------------
</Table>
10
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Allocation V.I. Fund
Schedule of Investments as of June 30, 2007 (continued) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES
COUNTRY INDUSTRY HELD COMMON STOCKS VALUE
- ------------------------------------------------------------------------------------------------------------------
CHINA
(CONCLUDED)
WIRELESS 89,000 China Mobile Ltd. ............... $ 957,553
TELECOMMUNICATION
SERVICES--0.1%
-----------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN CHINA..... 17,902,313
- ------------------------------------------------------------------------------------------------------------------
DENMARK--0.2% COMMERCIAL BANKS--0.2% 32,259 Danske Bank A/S.................. 1,319,142
-----------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN DENMARK... 1,319,142
- ------------------------------------------------------------------------------------------------------------------
FINLAND--0.1% ELECTRIC 41,995 Fortum Oyj....................... 1,312,238
UTILITIES--0.1%
-----------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN FINLAND... 1,312,238
- ------------------------------------------------------------------------------------------------------------------
FRANCE--1.7% AEROSPACE & 30,300 European Aeronautic Defense and
DEFENSE--0.1% Space Co. ..................... 983,348
-----------------------------------------------------------------------------------------
AUTOMOBILES--0.3% 14,811 Renault SA....................... 2,375,523
-----------------------------------------------------------------------------------------
COMMERCIAL BANKS--0.2% 10,534 Societe Generale SA.............. 1,951,723
-----------------------------------------------------------------------------------------
DIVERSIFIED 43,500 France Telecom SA................ 1,193,050
TELECOMMUNICATION
SERVICES--0.1%
-----------------------------------------------------------------------------------------
ELECTRIC 18,594 Electricite de France SA......... 2,009,698
UTILITIES--0.2%
-----------------------------------------------------------------------------------------
INSURANCE--0.2% 41,742 AXA SA........................... 1,794,308
-----------------------------------------------------------------------------------------
MACHINERY--0.2% 4,992 Vallourec SA..................... 1,596,072
-----------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE 35,185 Total SA......................... 2,852,737
FUELS--0.3%
-----------------------------------------------------------------------------------------
PHARMACEUTICALS--0.1% 8,664 Sanofi-Aventis................... 699,941
-----------------------------------------------------------------------------------------
SOFTWARE--0.0% 451,200 Infogrames Entertainment SA(j)... 140,456
-----------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN FRANCE.... 15,596,856
- ------------------------------------------------------------------------------------------------------------------
GERMANY--2.0% AIR FREIGHT & 49,356 Deutsche Post AG................. 1,603,711
LOGISTICS--0.2%
-----------------------------------------------------------------------------------------
AUTOMOBILES--0.4% 22,505 Bayerische Motoren Werke AG...... 1,459,012
20,012 DaimlerChrysler AG............... 1,851,350
------------
3,310,362
-----------------------------------------------------------------------------------------
CHEMICALS--0.3% 31,493 Bayer AG......................... 2,384,578
-----------------------------------------------------------------------------------------
DIVERSIFIED 95,878 Deutsche Telekom AG.............. 1,772,307
TELECOMMUNICATION
SERVICES--0.2%
-----------------------------------------------------------------------------------------
ELECTRIC 11,469 E.ON AG.......................... 1,925,740
UTILITIES--0.2%
-----------------------------------------------------------------------------------------
INDUSTRIAL 18,722 Siemens AG....................... 2,694,168
CONGLOMERATES--0.3%
-----------------------------------------------------------------------------------------
INSURANCE--0.2% 9,369 Allianz AG Registered Shares..... 2,197,358
-----------------------------------------------------------------------------------------
MULTI-UTILITIES--0.2% 17,084 RWE AG........................... 1,823,354
-----------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN GERMANY... 17,711,578
- ------------------------------------------------------------------------------------------------------------------
HONG KONG--0.7% COMMERCIAL BANKS--0.1% 45,000 HSBC Holdings Plc Hong Kong
Registered..................... 822,887
-----------------------------------------------------------------------------------------
COMPUTERS & 1,104,000 Lenovo Group Ltd. ............... 651,104
PERIPHERALS--0.0%
-----------------------------------------------------------------------------------------
ELECTRIC 204,600 Cheung Kong Infrastructure
UTILITIES--0.1% Holdings Ltd. ................. 754,920
-----------------------------------------------------------------------------------------
INDUSTRIAL 158,690 Hutchison Whampoa Ltd. .......... 1,575,323
CONGLOMERATES--0.2%
-----------------------------------------------------------------------------------------
</Table>
11
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Allocation V.I. Fund
Schedule of Investments as of June 30, 2007 (continued) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES
COUNTRY INDUSTRY HELD COMMON STOCKS VALUE
- ------------------------------------------------------------------------------------------------------------------
HONG KONG
(CONCLUDED)
REAL ESTATE MANAGEMENT 73,000 Cheung Kong Holdings Ltd. ....... $ 956,561
& DEVELOPMENT--0.3%
90,500 Sun Hung Kai Properties Ltd. .... 1,088,955
181,100 Wharf Holdings Ltd. ............. 723,299
------------
2,768,815
-----------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN HONG
KONG............................. 6,573,049
- ------------------------------------------------------------------------------------------------------------------
HUNGARY--0.1% OIL, GAS & CONSUMABLE 8,742 Mol Magyar Olaj-es Gazipari
FUELS--0.1% Rt............................. 1,317,220
-----------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN HUNGARY... 1,317,220
- ------------------------------------------------------------------------------------------------------------------
INDIA--2.2% AUTOMOBILES--0.1% 7,500 Bajaj Auto Ltd. ................. 394,656
38,345 Tata Motors Ltd. ................ 631,535
------------
1,026,191
-----------------------------------------------------------------------------------------
COMMERCIAL BANKS--0.1% 44,300 Karnataka Bank Ltd. ............. 190,458
29,550 State Bank of India Ltd. ........ 1,108,808
------------
1,299,266
-----------------------------------------------------------------------------------------
CONSTRUCTION & 9,100 Larsen & Toubro Ltd. ............ 491,704
ENGINEERING--0.1%
-----------------------------------------------------------------------------------------
CONSTRUCTION 214,295 Gujarat Ambuja Cements Ltd. ..... 656,468
MATERIALS--0.1%
-----------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL 10,005 Reliance Capital Ltd. ........... 267,853
SERVICES--0.0%
-----------------------------------------------------------------------------------------
ELECTRIC 13,897 Reliance Energy Ltd. ............ 209,415
UTILITIES--0.0%
-----------------------------------------------------------------------------------------
HOUSEHOLD 20,000 Hindustan Lever Ltd. ............ 92,824
PRODUCTS--0.0%
-----------------------------------------------------------------------------------------
IT SERVICES--0.1% 20,052 Infosys Technologies Ltd. ....... 948,991
-----------------------------------------------------------------------------------------
INDEPENDENT POWER 247,600 Reliance Natural Resources
PRODUCERS & ENERGY Ltd.(j)........................ 236,988
TRADERS--0.0%
-----------------------------------------------------------------------------------------
MEDIA--0.3% 170,193 Wire and Wireless India
Ltd.(j)........................ 265,644
153,888 Zee News Ltd.(j)................. 173,623
275,387 Zee Telefilms Ltd. .............. 2,011,778
------------
2,451,045
-----------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE 14,300 Hindustan Petroleum Corp. ....... 94,990
FUELS--0.9%
202,000 Reliance Industries Ltd. ........ 8,455,577
------------
8,550,567
-----------------------------------------------------------------------------------------
PHARMACEUTICALS--0.0% 10,700 Wockhardt Ltd. .................. 101,343
-----------------------------------------------------------------------------------------
ROAD & RAIL--0.1% 20,000 Container Corp. of India......... 1,142,464
-----------------------------------------------------------------------------------------
THRIFTS & MORTGAGE 26,000 Housing Development Finance
FINANCE--0.2% Corp. ......................... 1,298,155
-----------------------------------------------------------------------------------------
WIRELESS 102,500 Reliance Communication Ventures
TELECOMMUNICATION Ltd. .......................... 1,300,919
SERVICES--0.2%
-----------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN INDIA..... 20,074,193
- ------------------------------------------------------------------------------------------------------------------
IRELAND--0.3% COMMERCIAL BANKS--0.1% 43,474 Allied Irish Banks Plc........... 1,187,576
-----------------------------------------------------------------------------------------
CONSTRUCTION 33,202 CRH Plc.......................... 1,640,816
MATERIALS--0.2%
-----------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN IRELAND... 2,828,392
- ------------------------------------------------------------------------------------------------------------------
ISRAEL--0.3% COMMUNICATIONS 189,000 ECI Telecom Ltd.(i)(j)........... 1,729,350
EQUIPMENT--0.2%
-----------------------------------------------------------------------------------------
PHARMACEUTICALS--0.1% 13,681 Teva Pharmaceutical Industries
Ltd.(i)........................ 564,341
-----------------------------------------------------------------------------------------
</Table>
12
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Allocation V.I. Fund
Schedule of Investments as of June 30, 2007 (continued) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES
COUNTRY INDUSTRY HELD COMMON STOCKS VALUE
- ------------------------------------------------------------------------------------------------------------------
ISRAEL
(CONCLUDED)
SOFTWARE--0.0% 12,832 Ectel Ltd.(i)(j)................. $ 41,961
-----------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN ISRAEL.... 2,335,652
- ------------------------------------------------------------------------------------------------------------------
ITALY--0.6% COMMERCIAL BANKS--0.4% 216,511 Banca Intesa SpA................. 1,614,249
192,923 UniCredito Italiano SpA.......... 1,722,852
------------
3,337,101
-----------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE 59,091 Eni SpA.......................... 2,142,487
FUELS--0.2%
-----------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN ITALY..... 5,479,588
- ------------------------------------------------------------------------------------------------------------------
JAPAN--6.5% AUTO COMPONENTS--0.1% 23,900 Toyota Industries Corp. ......... 1,110,467
-----------------------------------------------------------------------------------------
AUTOMOBILES--0.3% 13,600 Honda Motor Co., Ltd. ........... 493,847
86,300 Suzuki Motor Corp. .............. 2,450,748
------------
2,944,595
-----------------------------------------------------------------------------------------
BEVERAGES--0.4% 67,295 Coca-Cola West Holdings Co.,
Ltd. .......................... 1,563,085
15,000 Hokkaido Coca-Cola Bottling Co.,
Ltd. .......................... 87,604
62,400 Kirin Holdings Co., Ltd. ........ 933,405
57,100 Mikuni Coca-Cola Bottling Co.,
Ltd. .......................... 592,182
------------
3,176,276
-----------------------------------------------------------------------------------------
BUILDING PRODUCTS--0.1% 57,900 Asahi Glass Co., Ltd. ........... 780,691
5,600 Daikin Industries Ltd. .......... 203,969
------------
984,660
-----------------------------------------------------------------------------------------
CAPITAL MARKETS--0.0% 22,000 Nomura Holdings, Inc. ........... 427,314
-----------------------------------------------------------------------------------------
CHEMICALS--0.4% 132,500 Mitsubishi Rayon Co., Ltd. ...... 943,773
24,000 Shin-Etsu Chemical Co., Ltd. .... 1,713,542
193,000 Sumitomo Chemical Co., Ltd. ..... 1,295,109
------------
3,952,424
-----------------------------------------------------------------------------------------
COMMERCIAL BANKS--0.3% 62,714 The Bank of Yokohama Ltd. ....... 439,235
111,830 Fukuoka Financial Group, Inc. ... 739,327
135,900 Shinsei Bank Ltd. ............... 549,244
105 Sumitomo Mitsui Financial Group,
Inc. .......................... 978,853
------------
2,706,659
-----------------------------------------------------------------------------------------
CONSTRUCTION & 64,000 JGC Corp. ....................... 1,199,269
ENGINEERING--0.4%
65,000 Kinden Corp. .................... 564,366
186,500 Okumura Corp. ................... 954,460
80,900 Toda Corp. ...................... 430,119
------------
3,148,214
-----------------------------------------------------------------------------------------
CONSUMER FINANCE--0.1% 27,000 Credit Saison Co., Ltd. ......... 702,744
-----------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL 2,150 NCB Holdings Ltd.(j)............. 204,250
SERVICES--0.4%
141,300 RHJ International(j)............. 2,792,150
46,600 RHJ International(a)(i)(j)....... 920,836
------------
3,917,236
-----------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & 18,100 Murata Manufacturing Co.,
INSTRUMENTS--0.2% Ltd. .......................... 1,361,853
-----------------------------------------------------------------------------------------
FOOD & STAPLES 11,000 Ministop Co., Ltd. .............. 211,752
RETAILING--0.2%
50,000 Seven & I Holdings Co. Ltd. ..... 1,429,269
------------
1,641,021
-----------------------------------------------------------------------------------------
</Table>
13
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Allocation V.I. Fund
Schedule of Investments as of June 30, 2007 (continued) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES
COUNTRY INDUSTRY HELD COMMON STOCKS VALUE
- ------------------------------------------------------------------------------------------------------------------
JAPAN
(CONCLUDED)
FOOD PRODUCTS--0.1% 69,000 Ajinomoto Co., Inc. ............. $ 794,758
14,000 House Foods Corp. ............... 214,883
------------
1,009,641
-----------------------------------------------------------------------------------------
GAS UTILITIES--0.2% 295,100 Tokyo Gas Co., Ltd. ............. 1,399,315
-----------------------------------------------------------------------------------------
HOUSEHOLD 10,000 Rinnai Corp. .................... 311,781
DURABLES--0.1%
51,000 Sekisui House Ltd. .............. 679,806
------------
991,587
-----------------------------------------------------------------------------------------
INSURANCE--1.5% 327,600 Aioi Insurance Co., Ltd. ........ 2,131,093
115,100 Millea Holdings, Inc. ........... 4,732,022
308,000 Mitsui Sumitomo Insurance Co.,
Ltd. .......................... 3,951,559
291,400 Nipponkoa Insurance Co., Ltd. ... 2,623,167
------------
13,437,841
-----------------------------------------------------------------------------------------
MACHINERY--0.1% 96,700 Kubota Corp. .................... 781,663
2,400 Tadano Ltd. ..................... 35,766
------------
817,429
-----------------------------------------------------------------------------------------
MEDIA--0.1% 59,500 Toho Co., Ltd. .................. 1,077,450
-----------------------------------------------------------------------------------------
OFFICE 33,450 Canon, Inc. ..................... 1,961,609
ELECTRONICS--0.2%
-----------------------------------------------------------------------------------------
PHARMACEUTICALS--0.4% 45,000 Takeda Pharmaceutical Co.,
Ltd. .......................... 2,907,065
54,000 Tanabe Seiyaku Co., Ltd. ........ 642,046
------------
3,549,111
-----------------------------------------------------------------------------------------
REAL ESTATE MANAGEMENT 263 Marco Polo Investment Holdings
& DEVELOPMENT--0.2% Ltd.(j)........................ 220,500
660 NTT Urban Development Co. ....... 1,277,983
------------
1,498,483
-----------------------------------------------------------------------------------------
ROAD & RAIL--0.1% 165 East Japan Railway Co. .......... 1,271,360
-----------------------------------------------------------------------------------------
SPECIALTY RETAIL--0.0% 1,300 Shimachu Co., Ltd. .............. 34,956
-----------------------------------------------------------------------------------------
TOBACCO--0.1% 225 Japan Tobacco, Inc. ............. 1,109,080
-----------------------------------------------------------------------------------------
TRADING COMPANIES & 82,000 Mitsubishi Corp. ................ 2,148,567
DISTRIBUTORS--0.2%
-----------------------------------------------------------------------------------------
WIRELESS 1,420 NTT DoCoMo, Inc. ................ 2,245,870
TELECOMMUNICATION
SERVICES--0.3%
-----------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN JAPAN..... 58,625,762
- ------------------------------------------------------------------------------------------------------------------
MALAYSIA--0.6% DIVERSIFIED 160,000 Telekom Malaysia Bhd............. 478,035
TELECOMMUNICATION
SERVICES--0.1%
-----------------------------------------------------------------------------------------
ELECTRIC 551,203 Tenaga Nasional Bhd.............. 1,823,210
UTILITIES--0.2%
-----------------------------------------------------------------------------------------
FOOD PRODUCTS--0.2% 1,174,545 IOI Corp. Bhd.................... 1,772,622
-----------------------------------------------------------------------------------------
TOBACCO--0.1% 50,000 British American Tobacco Malaysia
Bhd............................ 651,671
-----------------------------------------------------------------------------------------
TRANSPORTATION 189,600 PLUS Expressways Bhd............. 176,060
INFRASTRUCTURE--0.0%
-----------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN MALAYSIA.. 4,901,598
- ------------------------------------------------------------------------------------------------------------------
MEXICO--0.3% BEVERAGES--0.1% 27,300 Fomento Economico Mexicano, SA de
CV(i).......................... 1,073,436
-----------------------------------------------------------------------------------------
MEDIA--0.2% 63,700 Grupo Televisa, SA(i)............ 1,758,757
-----------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN MEXICO.... 2,832,193
- ------------------------------------------------------------------------------------------------------------------
NETHERLANDS--0.2% METALS & MINING--0.2% 24,186 Arcelor Mittal................... 1,510,481
-----------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN THE
NETHERLANDS...................... 1,510,481
- ------------------------------------------------------------------------------------------------------------------
</Table>
14
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Allocation V.I. Fund
Schedule of Investments as of June 30, 2007 (continued) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES
COUNTRY INDUSTRY HELD COMMON STOCKS VALUE
- ------------------------------------------------------------------------------------------------------------------
NEW ZEALAND--0.1% DIVERSIFIED 113,800 Telecom Corp. of New Zealand
TELECOMMUNICATION Ltd. .......................... $ 399,164
SERVICES--0.1%
-----------------------------------------------------------------------------------------
ELECTRIC 57,000 Contact Energy Ltd. ............. 395,802
UTILITIES--0.0%
-----------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN NEW
ZEALAND.......................... 794,966
- ------------------------------------------------------------------------------------------------------------------
NORWAY--0.3% DIVERSIFIED 16,800 Telenor ASA...................... 328,388
TELECOMMUNICATION
SERVICES--0.0%
-----------------------------------------------------------------------------------------
INDUSTRIAL 35,946 Orkla ASA........................ 677,758
CONGLOMERATES--0.1%
-----------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE 63,436 Statoil ASA...................... 1,968,152
FUELS--0.2%
-----------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN NORWAY.... 2,974,298
- ------------------------------------------------------------------------------------------------------------------
PERU--0.1% METALS & MINING--0.1% 4,200 Southern Copper Corp.(m)......... 395,892
-----------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN PERU...... 395,892
- ------------------------------------------------------------------------------------------------------------------
SINGAPORE--1.2% COMMERCIAL BANKS--0.1% 135,800 Oversea-Chinese Banking Corp. ... 811,812
-----------------------------------------------------------------------------------------
DIVERSIFIED 1,127,230 Singapore Telecommunications
TELECOMMUNICATION Ltd. .......................... 2,506,984
SERVICES--0.3%
-----------------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & 396,000 Parkway Holdings Ltd. ........... 1,036,746
SERVICES--0.1%
-----------------------------------------------------------------------------------------
INDUSTRIAL 344,000 Fraser and Neave Ltd. ........... 1,226,235
CONGLOMERATES--0.4%
316,000 Keppel Corp. Ltd. ............... 2,585,051
------------
3,811,286
-----------------------------------------------------------------------------------------
REAL ESTATE MANAGEMENT 258,625 CapitaLand Ltd. ................. 1,370,214
& DEVELOPMENT--0.2%
99,329 Keppel Land Ltd. ................ 569,270
------------
1,939,484
-----------------------------------------------------------------------------------------
TRADING COMPANIES & 205,467 Noble Group Ltd. ................ 231,454
DISTRIBUTORS--0.0%
-----------------------------------------------------------------------------------------
WIRELESS 488,430 MobileOne Ltd. .................. 702,123
TELECOMMUNICATION
SERVICES--0.1%
-----------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN
SINGAPORE........................ 11,039,889
- ------------------------------------------------------------------------------------------------------------------
SOUTH AFRICA--0.1% METALS & MINING--0.1% 26,700 Gold Fields Ltd.(i).............. 419,190
-----------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE 7,300 Sasol Ltd. ...................... 274,071
FUELS--0.0%
-----------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN SOUTH
AFRICA........................... 693,261
- ------------------------------------------------------------------------------------------------------------------
SOUTH KOREA--2.2% CHEMICALS--0.1% 27,100 Samsung Fine Chemicals Co.,
Ltd. .......................... 1,051,154
-----------------------------------------------------------------------------------------
COMMERCIAL BANKS--0.2% 21,700 Daegu Bank....................... 379,531
8,400 Hana Financial Group, Inc. ...... 408,825
10,100 Kookmin Bank..................... 885,857
28,100 Pusan Bank....................... 405,193
------------
2,079,406
-----------------------------------------------------------------------------------------
DIVERSIFIED 94,000 KT Corp.(i)...................... 2,205,240
TELECOMMUNICATION
SERVICES--0.2%
-----------------------------------------------------------------------------------------
ELECTRIC 31,200 Korea Electric Power Corp. ...... 1,378,099
UTILITIES--0.2%
-----------------------------------------------------------------------------------------
ELECTRICAL 16,000 LS Cable Ltd. ................... 1,120,830
EQUIPMENT--0.1%
-----------------------------------------------------------------------------------------
</Table>
15
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Allocation V.I. Fund
Schedule of Investments as of June 30, 2007 (continued) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES
COUNTRY INDUSTRY HELD COMMON STOCKS VALUE
- ------------------------------------------------------------------------------------------------------------------
SOUTH KOREA
(CONCLUDED)
ELECTRONIC EQUIPMENT & 23,000 Fine DNC Co., Ltd. .............. $ 124,230
INSTRUMENTS--0.0%
20,500 Interflex Co., Ltd. ............. 132,191
------------
256,421
-----------------------------------------------------------------------------------------
FOOD PRODUCTS--0.2% 9,900 CJ Corp. ........................ 1,198,642
1,100 Nong Shim Co., Ltd. ............. 312,581
------------
1,511,223
-----------------------------------------------------------------------------------------
HOTELS, RESTAURANTS & 97,918 Paradise Co. Ltd. ............... 419,533
LEISURE--0.1%
-----------------------------------------------------------------------------------------
INSURANCE--0.2% 15,900 Dongbu Insurance Co., Ltd. ...... 532,084
58,000 Korean Reinsurance Co. .......... 903,862
59,600 Meritz Fire & Marine Insurance
Co. Ltd. ...................... 580,875
------------
2,016,821
-----------------------------------------------------------------------------------------
METALS & MINING--0.5% 2,887 POSCO............................ 1,386,002
27,500 POSCO(i)......................... 3,300,000
------------
4,686,002
-----------------------------------------------------------------------------------------
MULTILINE RETAIL--0.0% 9,400 Lotte Shopping Co.(a)(i)......... 183,136
-----------------------------------------------------------------------------------------
TEXTILES, APPAREL & 11,053 Cheil Industries, Inc. .......... 530,126
LUXURY GOODS--0.1%
-----------------------------------------------------------------------------------------
TOBACCO--0.2% 26,900 KT&G Corp. ...................... 1,892,352
-----------------------------------------------------------------------------------------
WIRELESS 3,300 SK Telecom Co., Ltd. ............ 759,636
TELECOMMUNICATION
SERVICES--0.1%
-----------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN SOUTH
KOREA............................ 20,089,979
- ------------------------------------------------------------------------------------------------------------------
SPAIN--0.5% COMMERCIAL BANKS--0.4% 75,318 Banco Bilbao Vizcaya Argentaria
SA............................. 1,841,894
112,067 Banco Santander Central Hispano
SA............................. 2,060,014
------------
3,901,908
-----------------------------------------------------------------------------------------
TRANSPORTATION 23,625 Cintra Concesiones de
INFRASTRUCTURE--0.1% Infraestructuras de Transporte
SA............................. 375,348
-----------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN SPAIN..... 4,277,256
- ------------------------------------------------------------------------------------------------------------------
SWEDEN--0.2% DIVERSIFIED FINANCIAL 65,651 Investor AB...................... 1,694,661
SERVICES--0.2%
-----------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN SWEDEN.... 1,694,661
- ------------------------------------------------------------------------------------------------------------------
SWITZERLAND--1.2% CAPITAL MARKETS--0.4% 25,509 Credit Suisse Group.............. 1,810,911
29,886 UBS AG........................... 1,787,312
------------
3,598,223
-----------------------------------------------------------------------------------------
FOOD PRODUCTS--0.3% 7,446 Nestle SA Registered Shares...... 2,829,283
-----------------------------------------------------------------------------------------
INSURANCE--0.1% 11,953 Swiss Reinsurance Registered
Shares......................... 1,090,115
-----------------------------------------------------------------------------------------
PHARMACEUTICALS--0.4% 6,900 Novartis AG(i)................... 386,883
46,154 Novartis AG Registered Shares.... 2,591,113
------------
2,977,996
-----------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN
SWITZERLAND...................... 10,495,617
- ------------------------------------------------------------------------------------------------------------------
</Table>
16
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Allocation V.I. Fund
Schedule of Investments as of June 30, 2007 (continued) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES
COUNTRY INDUSTRY HELD COMMON STOCKS VALUE
- ------------------------------------------------------------------------------------------------------------------
TAIWAN--0.8% COMMERCIAL BANKS--0.1% 662,320 Chinatrust Financial Holding
Co. ........................... $ 515,905
703,337 SinoPac Financial Holdings Co.,
Ltd. .......................... 335,701
557,943 Taishin Financial Holdings Co.,
Ltd.(j)........................ 307,878
------------
1,159,484
-----------------------------------------------------------------------------------------
CONSTRUCTION 1,111,871 Taiwan Cement Corp. ............. 1,288,172
MATERIALS--0.1%
-----------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL 498,500 Fubon Financial Holding Co.
SERVICES--0.1% Ltd. .......................... 455,032
-----------------------------------------------------------------------------------------
DIVERSIFIED 198,040 Chunghwa Telecom Co. Ltd. ....... 376,729
TELECOMMUNICATION
SERVICES--0.2%
91,776 Chunghwa Telecom Co. Ltd.(i)..... 1,730,895
------------
2,107,624
-----------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & 359,322 Delta Electronics, Inc. ......... 1,414,629
INSTRUMENTS--0.2%
-----------------------------------------------------------------------------------------
INSURANCE--0.1% 376,059 Cathay Financial Holding Co.,
Ltd. .......................... 897,713
-----------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN TAIWAN.... 7,322,654
- ------------------------------------------------------------------------------------------------------------------
THAILAND--0.6% COMMERCIAL BANKS--0.1% 566,100 Siam Commercial Bank PCL......... 1,196,967
-----------------------------------------------------------------------------------------
CONSTRUCTION 106,000 Siam Cement PCL Foreign Shares... 823,060
MATERIALS--0.1%
-----------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & 547,800 Hana Microelectronics PCL........ 448,236
INSTRUMENTS--0.1%
-----------------------------------------------------------------------------------------
FOOD PRODUCTS--0.0% 197,800 Thai Union Frozen Products PCL
Foreign Shares................. 141,590
-----------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE 269,300 PTT Exploration & Production
FUELS--0.3% PCL............................ 842,416
188,500 PTT PCL.......................... 1,474,149
------------
2,316,565
-----------------------------------------------------------------------------------------
TRANSPORTATION 89,300 Airports of Thailand PCL......... 152,605
INFRASTRUCTURE--0.0%
256,600 Bangkok Expressway PCL Foreign
Shares......................... 175,402
------------
328,007
-----------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN THAILAND.. 5,254,425
- ------------------------------------------------------------------------------------------------------------------
UNITED KINGDOM--3.5% AEROSPACE & 187,974 BAE Systems Plc.................. 1,516,855
DEFENSE--0.2%
-----------------------------------------------------------------------------------------
BEVERAGES--0.1% 15,500 Diageo Plc(i).................... 1,291,305
-----------------------------------------------------------------------------------------
COMMERCIAL BANKS--0.3% 84,787 Barclays Plc..................... 1,179,634
88,203 HBOS Plc......................... 1,734,893
------------
2,914,527
-----------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL 301,004 Guinness Peat Group Plc.......... 477,802
SERVICES--0.1%
-----------------------------------------------------------------------------------------
FOOD PRODUCTS--0.5% 36,600 Cadbury Schweppes Plc(i)......... 1,987,380
42,000 Premier Foods Plc................ 242,891
69,565 Unilever Plc..................... 2,246,244
------------
4,476,515
-----------------------------------------------------------------------------------------
INSURANCE--0.3% 75,666 Aviva Plc........................ 1,123,242
104,673 Prudential Plc................... 1,489,947
------------
2,613,189
-----------------------------------------------------------------------------------------
METALS & MINING--0.4% 60,510 Anglo American Plc(j)............ 3,511,652
-----------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE 12,400 Royal Dutch Shell Plc(i)......... 1,006,880
FUELS--0.5%
86,563 Royal Dutch Shell Plc Class B.... 3,608,466
------------
4,615,346
-----------------------------------------------------------------------------------------
</Table>
17
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Allocation V.I. Fund
Schedule of Investments as of June 30, 2007 (continued) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES
COUNTRY INDUSTRY HELD COMMON STOCKS VALUE
- ------------------------------------------------------------------------------------------------------------------
UNITED KINGDOM
(CONCLUDED)
PHARMACEUTICALS--0.2% 86,093 GlaxoSmithKline Plc.............. $ 2,242,723
-----------------------------------------------------------------------------------------
SPECIALTY RETAIL--0.1% 136,826 Kesa Electricals Plc............. 858,570
-----------------------------------------------------------------------------------------
TOBACCO--0.2% 52,379 British American Tobacco Plc..... 1,786,411
-----------------------------------------------------------------------------------------
WIRELESS 1,191,247 Vodafone Group Plc............... 3,991,644
TELECOMMUNICATION
SERVICES--0.6%
44,280 Vodafone Group Plc(i)............ 1,489,136
------------
5,480,780
-----------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN THE UNITED
KINGDOM.......................... 31,785,675
- ------------------------------------------------------------------------------------------------------------------
UNITED STATES--22.5% AEROSPACE & 200 Boeing Co. ...................... 19,232
DEFENSE--0.1%
3,900 General Dynamics Corp. .......... 305,058
600 Honeywell International, Inc. ... 33,768
400 L-3 Communications Holdings,
Inc. .......................... 38,956
300 Lockheed Martin Corp. ........... 28,239
400 Northrop Grumman Corp. .......... 31,148
500 Raytheon Co. .................... 26,945
13,700 Spirit Aerosystems Holdings, Inc.
Class A(j)..................... 493,885
------------
977,231
-----------------------------------------------------------------------------------------
AIR FREIGHT & 2,000 FedEx Corp. ..................... 221,940
LOGISTICS--0.0%
-----------------------------------------------------------------------------------------
AIRLINES--0.0% 700 AMR Corp.(j)..................... 18,445
600 Continental Airlines, Inc. Class
B(j)........................... 20,322
------------
38,767
-----------------------------------------------------------------------------------------
AUTO COMPONENTS--0.0% 300 Johnson Controls, Inc. .......... 34,731
-----------------------------------------------------------------------------------------
AUTOMOBILES--0.1% 11,500 General Motors Corp. ............ 434,700
-----------------------------------------------------------------------------------------
BEVERAGES--0.2% 20,600 The Coca-Cola Co. ............... 1,077,586
15,100 Constellation Brands, Inc. Class
A(j)........................... 366,628
1,000 Pepsi Bottling Group, Inc. ...... 33,680
7,300 PepsiAmericas, Inc. ............. 179,288
------------
1,657,182
-----------------------------------------------------------------------------------------
BIOTECHNOLOGY--0.0% 18,300 Senomyx, Inc.(j)(m).............. 247,050
-----------------------------------------------------------------------------------------
BUILDING PRODUCTS--0.0% 600 American Standard Cos., Inc. .... 35,388
-----------------------------------------------------------------------------------------
CAPITAL MARKETS--0.4% 600 American Capital Strategies
Ltd. .......................... 25,512
400 Ameriprise Financial, Inc. ...... 25,428
35,900 The Bank of New York Co.,
Inc. .......................... 1,487,696
200 The Bear Stearns Cos., Inc. ..... 28,000
18,100 Blackstone Group LP(j)........... 529,787
200 The Goldman Sachs Group, Inc. ... 43,350
1,900 Mellon Financial Corp. .......... 83,600
300 Morgan Stanley................... 25,164
23,200 Northern Trust Corp. ............ 1,490,368
3,800 State Street Corp. .............. 259,920
------------
3,998,825
-----------------------------------------------------------------------------------------
CHEMICALS--0.1% 800 Albemarle Corp. ................. 30,824
1,000 Celanese Corp. Series A.......... 38,780
9,400 E.I. du Pont de Nemours & Co. ... 477,896
600 Lubrizol Corp. .................. 38,730
------------
586,230
-----------------------------------------------------------------------------------------
</Table>
18
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Allocation V.I. Fund
Schedule of Investments as of June 30, 2007 (continued) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES
COUNTRY INDUSTRY HELD COMMON STOCKS VALUE
- ------------------------------------------------------------------------------------------------------------------
UNITED STATES
(CONTINUED)
COMMERCIAL BANKS--0.1% 2,900 Wachovia Corp. .................. $ 148,625
11,700 Wells Fargo & Co. ............... 411,489
------------
560,114
-----------------------------------------------------------------------------------------
COMMERCIAL SERVICES & 300 Manpower, Inc. .................. 27,672
SUPPLIES--0.0%
-----------------------------------------------------------------------------------------
COMMUNICATIONS 331,800 3Com Corp.(j).................... 1,370,334
EQUIPMENT--1.4%
1,900 Avaya, Inc.(j)................... 31,996
60,500 Ciena Corp.(j)................... 2,185,865
118,800 Cisco Systems, Inc.(j)........... 3,308,580
113,100 Comverse Technology, Inc.(j)..... 2,358,135
38,500 Extreme Networks, Inc.(j)........ 155,925
11,962 JDS Uniphase Corp.(j)............ 160,650
65,500 Motorola, Inc. .................. 1,159,350
42,400 QUALCOMM, Inc. .................. 1,839,736
13,700 Tellabs, Inc.(j)................. 147,412
------------
12,717,983
-----------------------------------------------------------------------------------------
COMPUTERS & 28,500 Apple Computer, Inc.(j).......... 3,478,140
PERIPHERALS--1.0%
22,811 Hewlett-Packard Co. ............. 1,017,827
32,700 International Business Machines
Corp. ......................... 3,441,675
500 Lexmark International, Inc. Class
A(j)........................... 24,655
700 NCR Corp.(j)..................... 36,778
181,800 Sun Microsystems, Inc.(j)........ 956,268
------------
8,955,343
-----------------------------------------------------------------------------------------
CONSTRUCTION & 43,920 Foster Wheeler Ltd.(j)........... 4,699,001
ENGINEERING--0.6%
11,831 KBR, Inc.(j)..................... 310,327
------------
5,009,328
-----------------------------------------------------------------------------------------
CONSUMER FINANCE--0.1% 6,900 SLM Corp. ....................... 397,302
-----------------------------------------------------------------------------------------
CONTAINERS & 24,600 Crown Holdings, Inc.(j).......... 614,262
PACKAGING--0.1%
1,000 Sealed Air Corp. ................ 31,020
24,000 Smurfit-Stone Container
Corp.(j)....................... 319,440
800 Sonoco Products Co. ............. 34,248
------------
998,970
-----------------------------------------------------------------------------------------
DISTRIBUTORS--0.0% 700 Genuine Parts Co. ............... 34,720
-----------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL 22,600 Bank of America Corp. ........... 1,104,914
SERVICES--0.7%
400 CIT Group, Inc. ................. 21,932
90,800 Citigroup, Inc. ................. 4,657,132
9,100 JPMorgan Chase & Co. ............ 440,895
------------
6,224,873
-----------------------------------------------------------------------------------------
DIVERSIFIED 58,122 AT&T Inc. ....................... 2,412,063
TELECOMMUNICATION
SERVICES--0.6%
500 CenturyTel, Inc. ................ 24,525
2,200 Citizens Communications Co. ..... 33,594
2,920 Embarq Corp. .................... 185,040
2,800 Qwest Communications
International Inc.(j).......... 27,160
66,100 Verizon Communications, Inc. .... 2,721,337
13,578 Windstream Corp. ................ 200,411
------------
5,604,130
-----------------------------------------------------------------------------------------
ELECTRIC 600 Edison International............. 33,672
UTILITIES--0.3%
24,300 Mirant Corp.(j).................. 1,036,395
26,700 PPL Corp. ....................... 1,249,293
------------
2,319,360
-----------------------------------------------------------------------------------------
</Table>
19
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Allocation V.I. Fund
Schedule of Investments as of June 30, 2007 (continued) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES
COUNTRY INDUSTRY HELD COMMON STOCKS VALUE
- ------------------------------------------------------------------------------------------------------------------
UNITED STATES
(CONTINUED)
ELECTRONIC EQUIPMENT & 900 Avnet, Inc.(j)................... $ 35,676
INSTRUMENTS--0.0%
-----------------------------------------------------------------------------------------
ENERGY EQUIPMENT & 4,500 Baker Hughes, Inc. .............. 378,585
SERVICES--1.3%
31,900 Complete Production Services,
Inc.(j)........................ 824,615
11,000 ENSCO International, Inc. ....... 671,110
19,000 GlobalSantaFe Corp. ............. 1,372,750
32,500 Grant Prideco, Inc.(j)........... 1,749,475
20,460 Halliburton Co. ................. 705,870
34,100 Key Energy Services, Inc.(j)..... 631,873
8,700 National Oilwell Varco,
Inc.(j)........................ 906,888
4,500 Noble Corp. ..................... 438,840
20,300 Schlumberger Ltd. ............... 1,724,282
20,000 Smith International, Inc. ....... 1,172,800
5,700 Transocean, Inc.(j).............. 604,086
8,700 Weatherford International
Ltd.(j)........................ 480,588
------------
11,661,762
-----------------------------------------------------------------------------------------
FOOD & STAPLES 17,135 CVS Corp./Caremark Corp. ........ 624,571
RETAILING--0.2%
1,100 The Kroger Co. .................. 30,943
7,982 SUPERVALU INC.................... 369,726
800 Safeway, Inc. ................... 27,224
7,600 Wal-Mart Stores, Inc. ........... 365,636
------------
1,418,100
-----------------------------------------------------------------------------------------
FOOD PRODUCTS--0.2% 19,900 ConAgra Foods, Inc. ............. 534,514
600 Dean Foods Co. .................. 19,122
500 General Mills, Inc. ............. 29,210
600 H.J. Heinz Co. .................. 28,482
29,318 Kraft Foods, Inc. ............... 1,033,460
15,100 Sara Lee Corp. .................. 262,740
1,200 Tyson Foods, Inc. Class A........ 27,648
------------
1,935,176
-----------------------------------------------------------------------------------------
GAS UTILITIES--0.0% 700 Oneok, Inc. ..................... 35,287
-----------------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & 3,000 Bausch & Lomb, Inc. ............. 208,320
SUPPLIES--0.1%
10,600 Baxter International, Inc. ...... 597,204
18,200 Boston Scientific Corp.(j)....... 279,188
------------
1,084,712
-----------------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & 14,000 Aetna, Inc. ..................... 691,600
SERVICES--0.8%
6,800 AmerisourceBergen Corp. ......... 336,396
700 Cigna Corp. ..................... 36,554
500 Coventry Health Care, Inc.(j).... 28,825
4,500 DaVita, Inc.(j).................. 242,460
700 Health Net, Inc.(j).............. 36,960
13,740 HealthSouth Corp.(j)(m).......... 248,831
6,300 Humana, Inc.(j).................. 383,733
11,400 Manor Care, Inc. ................ 744,306
7,400 McKesson Corp. .................. 441,336
11,800 Medco Health Solutions,
Inc.(j)........................ 920,282
11,700 Tenet Healthcare Corp.(j)........ 76,167
6,875 Triad Hospitals, Inc.(j)......... 369,600
27,300 UnitedHealth Group, Inc. ........ 1,396,122
15,100 WellPoint, Inc.(j)............... 1,205,433
------------
7,158,605
-----------------------------------------------------------------------------------------
HOTELS, RESTAURANTS & 27,200 McDonald's Corp. ................ 1,380,672
LEISURE--0.4%
53,000 Panera Bread Co. Class A(j)...... 2,441,180
------------
3,821,852
-----------------------------------------------------------------------------------------
</Table>
20
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Allocation V.I. Fund
Schedule of Investments as of June 30, 2007 (continued) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES
COUNTRY INDUSTRY HELD COMMON STOCKS VALUE
- ------------------------------------------------------------------------------------------------------------------
UNITED STATES
(CONTINUED)
HOUSEHOLD 400 Black & Decker Corp. ............ $ 35,324
DURABLES--0.0%
400 Mohawk Industries, Inc.(j)....... 40,316
------------
75,640
-----------------------------------------------------------------------------------------
HOUSEHOLD 400 Energizer Holdings, Inc.(j)...... 39,840
PRODUCTS--0.1%
7,900 The Procter & Gamble Co. ........ 483,401
------------
523,241
-----------------------------------------------------------------------------------------
IT SERVICES--0.0% 900 Accenture Ltd. Class A........... 38,601
1,200 Electronic Data Systems Corp. ... 33,276
1,000 Total System Services, Inc. ..... 29,510
------------
101,387
-----------------------------------------------------------------------------------------
INDEPENDENT POWER 24,500 The AES Corp.(j)................. 536,060
PRODUCERS & ENERGY
TRADERS--0.2%
400 Constellation Energy Group,
Inc. .......................... 34,868
40,506 Dynegy, Inc. Class A(j).......... 382,377
800 NRG Energy, Inc.(j).............. 33,256
15,800 TXU Corp. ....................... 1,063,340
------------
2,049,901
-----------------------------------------------------------------------------------------
INDUSTRIAL 278,500 General Electric Co.(m).......... 10,660,980
CONGLOMERATES--1.4%
60,313 Tyco International Ltd.(j)....... 2,037,976
------------
12,698,956
-----------------------------------------------------------------------------------------
INSURANCE--2.3% 29,800 ACE Ltd. ........................ 1,863,096
400 AMBAC Financial Group, Inc. ..... 34,876
12,000 The Allstate Corp. .............. 738,120
86,500 American International Group,
Inc. .......................... 6,057,595
9,800 Assurant, Inc. .................. 577,416
800 Axis Capital Holdings Ltd. ...... 32,520
6,100 Bristol West Holdings, Inc. ..... 136,457
700 CNA Financial Corp. ............. 33,383
300 Chubb Corp. ..................... 16,242
5,400 Darwin Professional Underwriters,
Inc.(j)........................ 135,918
36,300 Endurance Specialty Holdings
Ltd. .......................... 1,453,452
1,600 Everest Re Group Ltd. ........... 173,824
700 Genworth Financial, Inc. Class
A.............................. 24,080
8,300 Hartford Financial Services
Group, Inc. ................... 817,633
20,100 IPC Holdings, Ltd. .............. 649,029
300 Lincoln National Corp. .......... 21,285
600 Loews Corp. ..................... 30,588
400 MBIA, Inc. ...................... 24,888
10,600 Marsh & McLennan Cos., Inc. ..... 327,328
15,500 Platinum Underwriters Holdings
Ltd. .......................... 538,625
4,900 Prudential Financial, Inc. ...... 476,427
10,000 RenaissanceRe Holdings Ltd. ..... 619,900
34,145 The Travelers Cos., Inc. ........ 1,826,758
45,745 XL Capital Ltd. Class A.......... 3,855,846
------------
20,465,286
-----------------------------------------------------------------------------------------
INTERNET & CATALOG 1,500 Expedia, Inc.(j)................. 43,935
RETAIL--0.0%
700 IAC/InterActiveCorp(j)........... 24,227
1,984 Liberty Media Holding Corp.-
Interactive(j)................. 44,303
------------
112,465
-----------------------------------------------------------------------------------------
INTERNET SOFTWARE & 23,700 eBay, Inc.(j).................... 762,666
SERVICES--0.4%
5,100 Google, Inc. Class A(j).......... 2,669,238
------------
3,431,904
-----------------------------------------------------------------------------------------
</Table>
21
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Allocation V.I. Fund
Schedule of Investments as of June 30, 2007 (continued) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES
COUNTRY INDUSTRY HELD COMMON STOCKS VALUE
- ------------------------------------------------------------------------------------------------------------------
UNITED STATES
(CONTINUED)
LEISURE EQUIPMENT & 1,100 Hasbro, Inc. .................... $ 34,551
PRODUCTS--0.0%
1,200 Mattel, Inc. .................... 30,348
------------
64,899
-----------------------------------------------------------------------------------------
LIFE SCIENCES TOOLS & 4,600 Thermo Fisher Scientific,
SERVICES--0.1% Inc.(j)........................ 237,912
11,300 Waters Corp.(j).................. 670,768
------------
908,680
-----------------------------------------------------------------------------------------
MACHINERY--0.0% 300 Deere & Co. ..................... 36,222
300 Eaton Corp. ..................... 27,900
500 ITT Corp. ....................... 34,140
400 Parker Hannifin Corp. ........... 39,164
400 SPX Corp. ....................... 35,124
500 Terex Corp.(j)................... 40,650
------------
213,200
-----------------------------------------------------------------------------------------
MARINE--0.1% 18,500 American Commercial Lines,
Inc.(j)........................ 481,925
-----------------------------------------------------------------------------------------
MEDIA--0.4% 1,100 CBS Corp. Class B................ 36,652
73,318 Comcast Corp. Class A(j)......... 2,061,702
2,690 Discovery Holding Co.(j)......... 61,843
3,392 Idearc, Inc. .................... 119,839
8 Liberty Media Holding Corp.-
Capital(j)..................... 941
300 The McGraw-Hill Cos., Inc. ...... 20,424
21,300 Time Warner, Inc. ............... 448,152
9,279 Viacom, Inc. Class B(j).......... 386,285
17,897 Virgin Media, Inc. .............. 436,150
------------
3,571,988
-----------------------------------------------------------------------------------------
METALS & MINING--0.6% 29,400 Alcoa, Inc. ..................... 1,191,582
10,000 Freeport-McMoRan Copper & Gold,
Inc. Class B................... 828,200
86,400 Newmont Mining Corp. ............ 3,374,784
300 Nucor Corp. ..................... 17,595
400 United States Steel Corp. ....... 43,500
------------
5,455,661
-----------------------------------------------------------------------------------------
MULTI-UTILITIES--0.0% 21,300 CMS Energy Corp. ................ 366,360
1,500 CenterPoint Energy, Inc. ........ 26,100
500 Sempra Energy.................... 29,615
------------
422,075
-----------------------------------------------------------------------------------------
MULTILINE RETAIL--0.0% 1,200 Big Lots, Inc.(j)................ 35,304
900 Family Dollar Stores, Inc. ...... 30,888
300 JC Penney Co., Inc. ............. 21,714
700 Macy's, Inc. .................... 27,846
100 Sears Holdings Corp.(j).......... 16,950
------------
132,702
-----------------------------------------------------------------------------------------
OFFICE 1,500 Xerox Corp.(j)................... 27,720
ELECTRONICS--0.0%
-----------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE 27,112 Chevron Corp. ................... 2,283,915
FUELS--2.7%
22,400 ConocoPhillips................... 1,758,400
50,200 Consol Energy, Inc. ............. 2,314,722
12,900 Devon Energy Corp. .............. 1,009,941
244,800 El Paso Corp. ................... 4,217,904
64,950 Exxon Mobil Corp. ............... 5,448,006
39,100 Foundation Coal Holdings,
Inc. .......................... 1,589,024
9,800 Hess Corp. ...................... 577,808
15,800 Marathon Oil Corp. .............. 947,368
11,100 Murphy Oil Corp. ................ 659,784
17,250 Occidental Petroleum Corp. ...... 998,430
</Table>
22
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Allocation V.I. Fund
Schedule of Investments as of June 30, 2007 (continued) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES
COUNTRY INDUSTRY HELD COMMON STOCKS VALUE
- ------------------------------------------------------------------------------------------------------------------
UNITED STATES
(CONTINUED)
OIL, GAS & CONSUMABLE
FUELS (CONCLUDED)
30,300 Peabody Energy Corp. ............ $ 1,465,914
26,300 Rosetta Resources, Inc.(a)(j).... 566,502
8,075 Stone Energy Corp.(j)............ 276,650
------------
24,114,368
-----------------------------------------------------------------------------------------
PAPER & FOREST 18,700 International Paper Co. ......... 730,235
PRODUCTS--0.1%
-----------------------------------------------------------------------------------------
PERSONAL PRODUCTS--0.1% 13,200 Avon Products, Inc. ............. 485,100
-----------------------------------------------------------------------------------------
PHARMACEUTICALS--1.6% 12,600 Abbott Laboratories.............. 674,730
47,200 Bristol-Myers Squibb Co. ........ 1,489,632
16,200 Eli Lilly & Co. ................. 905,256
48,900 Johnson & Johnson................ 3,013,218
31,900 Merck & Co., Inc. ............... 1,588,620
167,500 Pfizer, Inc. .................... 4,282,975
34,400 Schering-Plough Corp. ........... 1,047,136
31,500 Valeant Pharmaceuticals
International.................. 525,735
4,600 Watson Pharmaceuticals,
Inc.(j)........................ 149,638
20,500 Wyeth............................ 1,175,470
------------
14,852,410
-----------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT 5,713 Ventas, Inc. .................... 207,096
TRUSTS (REITS)--0.0%
-----------------------------------------------------------------------------------------
ROAD & RAIL--1.1% 31,500 Burlington Northern Santa Fe
Corp. ......................... 2,681,910
16,800 Norfolk Southern Corp. .......... 883,176
57,900 Union Pacific Corp. ............. 6,667,185
------------
10,232,271
-----------------------------------------------------------------------------------------
SEMICONDUCTORS & 1,700 Applied Materials, Inc. ......... 33,779
SEMICONDUCTOR
EQUIPMENT--0.2%
59,300 Genesis Microchip, Inc.(j)....... 555,048
33,300 Intel Corp. ..................... 791,208
1,200 Intersil Corp. Class A........... 37,752
9,631 LSI Logic Corp.(j)............... 72,329
1,100 Novellus Systems, Inc.(j)........ 31,207
------------
1,521,323
-----------------------------------------------------------------------------------------
SOFTWARE--1.3% 800 BMC Software, Inc.(j)............ 24,240
107,052 CA, Inc. ........................ 2,765,153
1,400 Cadence Design Systems, Inc.(j).. 30,744
900 McAfee, Inc.(j).................. 31,680
277,600 Microsoft Corp. ................. 8,180,872
23,300 Novell, Inc.(j).................. 181,507
1,200 Synopsys, Inc.(j)................ 31,716
95,700 TIBCO Software, Inc.(j).......... 866,085
------------
12,111,997
-----------------------------------------------------------------------------------------
SPECIALTY RETAIL--0.0% 750 American Eagle Outfitters,
Inc. .......................... 19,245
300 AutoZone, Inc.(j)................ 40,987
400 The Sherwin-Williams Co. ........ 26,588
------------
86,820
-----------------------------------------------------------------------------------------
TEXTILES, APPAREL & 1,887 Hanesbrands, Inc.(j)............. 51,006
LUXURY GOODS--0.0%
77,700 Unifi, Inc.(j)................... 203,574
------------
254,580
-----------------------------------------------------------------------------------------
THRIFTS & MORTGAGE 600 Countrywide Financial Corp. ..... 21,810
FINANCE--0.1%
17,000 Fannie Mae....................... 1,110,610
11,300 Fremont General Corp.(m)......... 121,588
------------
1,254,008
-----------------------------------------------------------------------------------------
</Table>
23
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Allocation V.I. Fund
Schedule of Investments as of June 30, 2007 (continued) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES
COUNTRY INDUSTRY HELD COMMON STOCKS VALUE
- ------------------------------------------------------------------------------------------------------------------
UNITED STATES
(CONCLUDED)
TOBACCO--0.2% 11,600 Alliance One International,
Inc.(j)........................ $ 116,580
16,500 Altria Group, Inc. .............. 1,157,311
400 Loews Corp.-Carolina Group....... 30,908
500 UST, Inc. ....................... 26,855
------------
1,331,654
-----------------------------------------------------------------------------------------
TRADING COMPANIES & 400 WW Grainger, Inc. ............... 37,220
DISTRIBUTORS--0.0%
-----------------------------------------------------------------------------------------
TRANSPORTATION 67,500 Macquarie Infrastructure Co.
INFRASTRUCTURE--0.3% LLC............................ 2,799,900
-----------------------------------------------------------------------------------------
WIRELESS 14,600 Alltel Corp. .................... 986,230
TELECOMMUNICATION
SERVICES--0.4%
112,000 Sprint Nextel Corp. ............. 2,319,520
500 Telephone & Data Systems,
Inc. .......................... 31,285
------------
3,337,035
-----------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN THE UNITED
STATES........................... 202,326,656
- ------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST--$350,455,063)--55.4%...... 498,815,715
- ------------------------------------------------------------------------------------------------------------------
<Caption>
PREFERRED STOCKS
- ------------------------------------------------------------------------------------------------------------------
UNITED STATES--0.4% INSURANCE--0.1% 4,200 IPC Holdings, Ltd., 7.25%(f)..... 121,800
22,500 MetLife, Inc. Series B,
6.375%(f)...................... 728,100
------------
849,900
-----------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE 510 El Paso Corp., 4.99%(a)(f)....... 743,963
FUELS--0.1%
-----------------------------------------------------------------------------------------
THRIFTS & MORTGAGE 24 Fannie Mae Series 2004-1,
FINANCE--0.2% 5.375%(f)...................... 2,379,465
-----------------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS
(COST--$3,570,000)--0.4%......... 3,973,328
- ------------------------------------------------------------------------------------------------------------------
<Caption>
EXCHANGE-TRADED FUNDS
- ------------------------------------------------------------------------------------------------------------------
66,100 Consumer Staples Select Sector
SPDR Fund(m)................... 1,787,344
66,300 Health Care Select Sector SPDR
Fund........................... 2,337,075
34,500 iShares Dow Jones US
Telecommunications Sector Index
Fund........................... 1,162,995
2,500 iShares Dow Jones US Utilities
Sector Index Fund.............. 240,851
12,700 iShares Silver Trust(j).......... 1,570,355
8,900 Telecom HOLDRs Trust............. 360,628
97,800 Utilities Select Sector SPDR
Fund........................... 3,857,232
1,100 Vanguard Telecommunication
Services ETF................... 90,915
-----------------------------------------------------------------------------------------
TOTAL EXCHANGE-TRADED FUNDS
(COST--$10,233,096)--1.3%........ 11,407,395
- ------------------------------------------------------------------------------------------------------------------
<Caption>
MUTUAL FUNDS
- ------------------------------------------------------------------------------------------------------------------
VIETNAM--0.3% 350,261 Vietnam Enterprise Investments
Ltd.--R Shares(j).............. 1,733,795
88,000 Vietnam Opportunity Fund
Ltd.(j)........................ 299,640
580,000 Vinaland Ltd.(j)................. 861,300
-----------------------------------------------------------------------------------------
TOTAL MUTUAL FUNDS
(COST--$2,187,645)--0.3%......... 2,894,735
- ------------------------------------------------------------------------------------------------------------------
</Table>
24
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Allocation V.I. Fund
Schedule of Investments as of June 30, 2007 (continued) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES
COUNTRY INDUSTRY HELD WARRANTS VALUE
- ------------------------------------------------------------------------------------------------------------------
CANADA--0.0% METALS & MINING--0.0% 80,000 Peak Gold Ltd. (expires
4/03/2012)..................... $ 23,656
-----------------------------------------------------------------------------------------
TOTAL WARRANTS IN CANADA......... 23,656
- ------------------------------------------------------------------------------------------------------------------
UNITED STATES--0.0% COMMUNICATIONS 17,905 Lucent Technologies, Inc.
EQUIPMENT--0.0% (expires 12/10/2007)........... 3,044
-----------------------------------------------------------------------------------------
DIVERSIFIED AboveNet, Inc.
TELECOMMUNICATION
SERVICES--0.0%
795 (expires 9/08/2008)............ 15,900
936 (expires 9/08/2010)............ 19,656
------------
35,556
-----------------------------------------------------------------------------------------
PAPER & FOREST 1,250 Mandra Forestry Finance Ltd.
PRODUCTS--0.0% (expires 5/15/2013)............ 0
-----------------------------------------------------------------------------------------
TOTAL WARRANTS IN THE
UNITED STATES.................... 38,600
- ------------------------------------------------------------------------------------------------------------------
TOTAL WARRANTS
(COST--$255,827)--0.0%........... 62,256
- ------------------------------------------------------------------------------------------------------------------
<Caption>
FIXED INCOME SECURITIES
- ------------------------------------------------------------------------------------------------------------------
<Caption>
FACE
AMOUNT CORPORATE BONDS
- ------------------------------------------------------------------------------------------------------------------
BRAZIL--0.2% COMMERCIAL BANKS--0.0% USD 275,000 Banco Nacional de Desenvolvimento
Economico e Social, 5.84% due
6/16/2008(n)................... 273,625
-----------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL Brazil Notas do Tesouro Nacional
SERVICES--0.1% Series F:
BRL 850,000 10% due 1/01/2012.............. 449,599
872,000 10% due 1/01/2017.............. 404,960
------------
854,559
-----------------------------------------------------------------------------------------
FOOD PRODUCTS--0.1% USD 285,000 Cosan Finance Ltd., 7% due
2/01/2017(a)................... 276,108
400,000 Cosan SA Industria e Comercio, 9%
due 11/01/2009(a).............. 423,000
------------
699,108
-----------------------------------------------------------------------------------------
METALS & MINING--0.0% BRL 10,296 Cia Vale do Rio Doce(s).......... 0
-----------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS IN
BRAZIL........................... 1,827,292
- ------------------------------------------------------------------------------------------------------------------
CANADA--0.0% WIRELESS CAD 325,000 Rogers Wireless Communications,
TELECOMMUNICATION Inc., 7.625% due 12/15/2011.... 330,702
SERVICES--0.0%
-----------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS IN CANADA.. 330,702
- ------------------------------------------------------------------------------------------------------------------
CHILE--0.3% ELECTRIC USD 2,905,193 Empresa Electrica del Norte
UTILITIES--0.3% Grande SA, 6% due
11/05/2017(q)(r)............... 2,759,933
-----------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS IN CHILE... 2,759,933
- ------------------------------------------------------------------------------------------------------------------
CHINA--0.2% AUTOMOBILES--0.1% 370,000 Brilliance China Finance Ltd., 0%
due 6/07/2011(f)(k)............ 448,625
-----------------------------------------------------------------------------------------
FOOD PRODUCTS--0.1% Chaoda Modern Agriculture
Holdings Ltd.:
660,000 7.75% due 2/08/2010............ 613,800
HKD 4,210,000 0% due 5/08/2011(f)(k)......... 645,429
------------
1,259,229
-----------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS IN CHINA... 1,707,854
- ------------------------------------------------------------------------------------------------------------------
</Table>
25
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Allocation V.I. Fund
Schedule of Investments as of June 30, 2007 (continued) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
FACE
COUNTRY/REGION INDUSTRY AMOUNT CORPORATE BONDS VALUE
- ------------------------------------------------------------------------------------------------------------------
EUROPE--0.6% COMMERCIAL BANKS--0.6% European Investment Bank(k):
BRL 1,000,000 0% due 5/01/2008............... $ 469,939
5,181,190 0% due 9/12/2008(a)............ 2,396,670
6,160,000 0% due 9/21/2010(a)............ 2,334,650
-----------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS IN EUROPE.. 5,201,259
- ------------------------------------------------------------------------------------------------------------------
FRANCE--0.4% COMMERCIAL BANKS--0.4% EUR 2,750,000 ERAP, 3.375% due 4/25/2008....... 3,692,403
-----------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS IN FRANCE.. 3,692,403
- ------------------------------------------------------------------------------------------------------------------
GERMANY--0.7% COMMERCIAL BANKS--0.7% KfW--Kreditanstalt fuer
Wiederaufbau:
GBP 700,000 5.375% due 12/07/2007.......... 1,402,162
700,000 4.50% due 12/07/2008........... 1,377,952
EUR 2,000,000 4.25% due 7/04/2014............ 2,641,778
JPY120,000,000 Norddeutsche Landesbank
Girozentrale, 0.45% due
1/19/2009...................... 966,670
-----------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS IN
GERMANY.......................... 6,388,562
- ------------------------------------------------------------------------------------------------------------------
HONG KONG--0.1% INDUSTRIAL USD 725,000 Hutchison Whampoa International
CONGLOMERATES--0.1% 03/33 Ltd., 5.45% due
11/24/2010..................... 719,053
-----------------------------------------------------------------------------------------
REAL ESTATE MANAGEMENT 400,000 Hongkong Land CB 2005 Ltd., 2.75%
& DEVELOPMENT--0.0% due 12/21/2012(f).............. 513,965
-----------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS IN HONG
KONG............................. 1,233,018
- ------------------------------------------------------------------------------------------------------------------
INDIA--0.7% AUTOMOBILES--0.1% 975,000 Tata Motors Ltd., 1% due
4/27/2011(f)................... 1,134,062
-----------------------------------------------------------------------------------------
BEVERAGES--0.0% 80,000 Mcdowell & Co, 2% due
3/30/2011(f)................... 136,400
-----------------------------------------------------------------------------------------
METALS & MINING--0.1% 500,000 Gujarat NRE Coke Ltd., 0% due
4/12/2011(f)(k)................ 537,500
-----------------------------------------------------------------------------------------
THRIFTS & MORTGAGE 800,000 Housing Development Finance
FINANCE--0.1% Corp., 0% due 9/27/2010(f)(k).. 1,251,000
-----------------------------------------------------------------------------------------
TRANSPORTATION 600,000 Punj Lloyd Ltd., 0% due
INFRASTRUCTURE--0.1% 4/08/2011(f)(k)................ 690,000
-----------------------------------------------------------------------------------------
WIRELESS Reliance Communications
TELECOMMUNICATION Ltd.(f)(k):
SERVICES--0.3%
475,000 0% due 5/10/2011............... 633,236
2,000,000 0% due 3/01/2012............... 2,190,000
------------
2,823,236
-----------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS IN INDIA... 6,572,198
- ------------------------------------------------------------------------------------------------------------------
JAPAN--0.4% COMMERCIAL BANKS--0.4% JPY 80,000,000 The Bank of Kyoto Ltd. Series 1,
1.90% due 9/30/2009(f)......... 1,505,609
200,000,000 International Bank for
Reconstruction & Development
Series 670, 2% due 2/18/2008... 1,635,275
17,000,000 The Mie Bank Ltd., 1% due
10/31/2011(f).................. 165,685
------------
3,306,569
-----------------------------------------------------------------------------------------
INSURANCE--0.0% 20,000,000 ASIF II, 1.20% due 3/20/2008..... 162,551
-----------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS IN JAPAN... 3,469,120
- ------------------------------------------------------------------------------------------------------------------
MALAYSIA--0.8% DIVERSIFIED FINANCIAL USD 800,000 Feringghi Capital Ltd., 0% due
SERVICES--0.2% 12/22/2009(f)(k)............... 910,000
MYR 2,225,000 Johor Corp., 1% due
7/31/2009(r)................... 760,463
------------
1,670,463
-----------------------------------------------------------------------------------------
</Table>
26
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Allocation V.I. Fund
Schedule of Investments as of June 30, 2007 (continued) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
FACE
COUNTRY/REGION INDUSTRY AMOUNT CORPORATE BONDS VALUE
- ------------------------------------------------------------------------------------------------------------------
MALAYSIA
(CONCLUDED)
DIVERSIFIED USD 2,800,000 Rafflesia Capital Ltd., 1.25% due
TELECOMMUNICATION 10/04/2011(f).................. $ 3,192,000
SERVICES--0.3%
-----------------------------------------------------------------------------------------
HOTELS, RESTAURANTS & MYR 1,680,000 Berjaya Land BHD, 8% due
LEISURE--0.1% 8/15/2011(f)................... 526,749
580,000 Resorts World BHD, 0% due
9/19/2008(f)(k)................ 217,133
------------
743,882
-----------------------------------------------------------------------------------------
MULTI-UTILITIES--0.2% USD 1,400,000 YTL Power Finance Cayman Ltd., 0%
due 5/09/2010(f)(k)............ 1,627,500
-----------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS IN
MALAYSIA......................... 7,233,845
- ------------------------------------------------------------------------------------------------------------------
NETHERLANDS--0.1% SEMICONDUCTORS & ASM International NV(f):
SEMICONDUCTOR
EQUIPMENT--0.1%
70,000 4.25% due 12/06/2011........... 96,216
265,000 4.25% due 12/06/2011(a)........ 354,438
-----------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS IN THE
NETHERLANDS...................... 450,654
- ------------------------------------------------------------------------------------------------------------------
SINGAPORE--0.2% COMMERCIAL BANKS--0.0% SGD 250,000 Somerset Global, 0% due
1/12/2009(f)(k)................ 210,273
-----------------------------------------------------------------------------------------
REAL ESTATE MANAGEMENT 1,000,000 CapitaLand Ltd., 2.10% due
& DEVELOPMENT--0.2% 11/15/2016(f).................. 835,724
800,000 Keppel Land Ltd., 2.50% due
6/23/2013(f)................... 775,029
------------
1,610,753
-----------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS IN
SINGAPORE........................ 1,821,026
- ------------------------------------------------------------------------------------------------------------------
SOUTH KOREA--0.1% WIRELESS LG Telecom Ltd.:
TELECOMMUNICATION
SERVICES--0.1%
USD 50,000 8.25% due 7/15/2009............ 52,355
900,000 8.25% due 7/15/2009(a)......... 938,250
-----------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS IN SOUTH
KOREA............................ 990,605
- ------------------------------------------------------------------------------------------------------------------
SWEDEN--0.1% DIVERSIFIED FINANCIAL TRY 1,396,720 Svensk Exportkredit AB,10.50% due
SERVICES--0.1% 9/29/2015...................... 883,259
-----------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS IN SWEDEN.. 883,259
- ------------------------------------------------------------------------------------------------------------------
TAIWAN--0.0% INSURANCE--0.0% USD 40,000 Shin Kong Financial Holding Co.
Ltd., 0% due 6/17/2009(f)(k)... 51,628
-----------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS IN TAIWAN.. 51,628
- ------------------------------------------------------------------------------------------------------------------
UNITED KINGDOM--0.1% COMMERCIAL BANKS--0.1% GBP 235,000 International Bank for
Reconstruction & Development,
7.125% due 7/30/2007........... 472,340
-----------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS IN THE
UNITED KINGDOM................... 472,340
- ------------------------------------------------------------------------------------------------------------------
UNITED STATES--1.4% AIRLINES--0.0% USD 356,242 Northwest Airlines, Inc. Series
1999-3-B, 9.485% due
10/01/2016(g)(h)............... 72,139
-----------------------------------------------------------------------------------------
BIOTECHNOLOGY--0.0% 150,000 Cell Genesys, Inc., 3.125% due
11/01/2011(f).................. 117,375
200,000 Nabi Biopharmaceuticals, 2.875%
due 4/15/2025(f)............... 175,500
------------
292,875
-----------------------------------------------------------------------------------------
</Table>
27
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Allocation V.I. Fund
Schedule of Investments as of June 30, 2007 (continued) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
FACE
COUNTRY/REGION INDUSTRY AMOUNT CORPORATE BONDS VALUE
- ------------------------------------------------------------------------------------------------------------------
UNITED STATES
(CONCLUDED)
COMMERCIAL BANKS--0.1% USD 400,000 Preferred Term Securities XXIV,
Ltd., 5.965% due
3/22/2037(a)(n)................ $ 384,000
300,000 Preferred Term Securities XXV,
Ltd., 5.758% due 6/22/2037(n).. 283,500
500,000 Preferred Term Securities XXVI,
Ltd., 6.191% due 9/22/2037(n).. 495,750
------------
1,163,250
-----------------------------------------------------------------------------------------
CONTAINERS & 375,000 Crown Cork & Seal Co., Inc.,
PACKAGING--0.0% 7.50% due 12/15/2096........... 315,000
-----------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL JPY300,000,000 General Electric Capital Corp.,
SERVICES--0.3% 0.685% due 1/15/2010(n)........ 2,436,485
USD 100,000 Triad Acquisition Corp. Series B,
11.125% due 5/01/2013.......... 95,500
------------
2,531,985
-----------------------------------------------------------------------------------------
FOOD PRODUCTS--0.1% 1,050,000 IOI Capital BHD Series IOI, 0%
due 12/18/2011(f)(k)........... 1,218,000
-----------------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & 600,000 Tenet Healthcare Corp., 9.25% due
SERVICES--0.1% 2/01/2015...................... 570,000
-----------------------------------------------------------------------------------------
HOTELS, RESTAURANTS & 220,000 Uno Restaurant Corp.,10% due
LEISURE--0.0% 2/15/2011(a)................... 191,400
-----------------------------------------------------------------------------------------
INDEPENDENT POWER GBP 213,000 The AES Corp., 8.375% due
PRODUCERS & ENERGY 3/01/2011...................... 436,283
TRADERS--0.1%
USD 400,000 Calpine Corp., 8.75% due
7/15/2013(a)(h)................ 432,000
Calpine Generating Company
LLC(a)(h):
12,200 9.07% due 4/01/2009............ 915
126,936 11.07% due 4/01/2010(g)........ 34,908
------------
904,106
-----------------------------------------------------------------------------------------
INSURANCE--0.1% 291,000 Fortis Insurance NV, 7.75% due
1/26/2008(a)(f)................ 432,979
-----------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE McMoRan Exploration Co.(f):
FUELS--0.1%
560,000 5.25% due 10/06/2011........... 618,800
325,000 5.25% due 10/06/2011(a)........ 359,125
------------
977,925
-----------------------------------------------------------------------------------------
PAPER & FOREST 1,250,000 Mandra Forestry,12% due
PRODUCTS--0.2% 5/15/2013(a)(q)................ 1,262,500
-----------------------------------------------------------------------------------------
REAL ESTATE MANAGEMENT 1,300,000 Aldar Funding Limited, 5.767% due
& DEVELOPMENT--0.2% 11/10/2011(f).................. 1,599,000
-----------------------------------------------------------------------------------------
WIRELESS 800,000 Nextel Communications, Inc.,
TELECOMMUNICATION 5.25% due 1/15/2010(f)......... 795,000
SERVICES--0.1%
-----------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS IN THE
UNITED STATES.................... 12,326,159
-----------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(COST--$52,679,122)--6.4%........ 57,411,857
-----------------------------------------------------------------------------------------
<Caption>
ASSET-BACKED SECURITIES**
- ------------------------------------------------------------------------------------------------------------------
300,000 Latitude CLO Ltd. Series 2005-1I
Class SUB, 0% due
12/15/2017(a).................. 270,000
-----------------------------------------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES
(COST--$287,095)--0.0%........... 270,000
-----------------------------------------------------------------------------------------
</Table>
28
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Allocation V.I. Fund
Schedule of Investments as of June 30, 2007 (continued) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
FACE
COUNTRY INDUSTRY AMOUNT FLOATING RATE LOAN INTERESTS(B) VALUE
- ------------------------------------------------------------------------------------------------------------------
UNITED STATES--0.0% TEXTILES, APPAREL & USD 531,669 Galey & Lord, Inc. Term Loan,
LUXURY GOODS--0.0% 10.17% due 9/05/2009(h) $ 0
-----------------------------------------------------------------------------------------
TOTAL FLOATING RATE LOAN
INTERESTS
(COST--$353,808)--0.0%........... 0
-----------------------------------------------------------------------------------------
<Caption>
FOREIGN GOVERNMENT OBLIGATIONS
- ------------------------------------------------------------------------------------------------------------------
EUR 8,250,000 Bundesrepublik Deutschland, 4%
due 7/04/2016.................. 10,714,448
1,125,000 Caisse d'Amortissement de la
Dette Sociale, 4% due
10/25/2014..................... 1,460,687
CAD 2,355,000 Canadian Government Bond, 4% due
9/01/2010...................... 2,172,923
ISK 71,000,000 Iceland Rikisbref, 7.25% due
5/17/2013...................... 1,049,402
Malaysia Government Bond:
MYR 7,400,000 3.756% due 4/28/2011........... 2,175,169
2,000,000 Series 3/06, 3.869% due
4/13/2010...................... 587,774
8,750,000 Series 386X, 8.60% due
12/01/2007..................... 2,589,432
EUR 1,300,000 Netherlands Government Bond,
3.75% due 7/15/2014............ 1,673,751
NZD 1,175,000 New Zealand Government Bond
Series 216, 4.50% due
2/14/2016...................... 1,210,462
PLN 6,000,000 Poland Government Bond, 3% due
8/24/2016...................... 2,177,346
SEK 19,125,000 Sweden Government Bond Series
3101, 4% due 12/01/2008........ 3,402,635
EUR 2,750,000 Unedic, 3.50% due 9/18/2008...... 3,680,705
GBP 1,250,000 United Kingdom Gilt, 4.25% due
3/07/2011...................... 2,383,517
-----------------------------------------------------------------------------------------
TOTAL FOREIGN GOVERNMENT
OBLIGATIONS
(COST--$33,735,920)--3.9%........ 35,278,251
- ------------------------------------------------------------------------------------------------------------------
<Caption>
U.S. GOVERNMENT & AGENCY
OBLIGATIONS
- ------------------------------------------------------------------------------------------------------------------
UNITED STATES--17.8% USD 70,000 Fannie Mae, 5.40% due 2/01/2008.. 70,002
U.S. Treasury Inflation Indexed
Bonds:
9,923,914 0.875% due 4/15/2010........... 9,424,622
25,709,242 2.375% due 4/15/2011........... 25,428,034
9,362,764 1.875% due 7/15/2015(p)........ 8,847,812
27,532,070 2% due 1/15/2016............... 26,140,406
21,588,369 2.50% due 7/15/2016............ 21,347,184
3,047,769 2.375% due 1/15/2027........... 2,926,809
</Table>
29
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Allocation V.I. Fund
Schedule of Investments as of June 30, 2007 (continued) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
FACE U.S. GOVERNMENT & AGENCY
COUNTRY/REGION AMOUNT OBLIGATIONS VALUE
- ------------------------------------------------------------------------------------------------------------------
UNITED STATES
(CONCLUDED)
U.S. Treasury Notes:
USD 1,800,000 4.375% due 12/31/2007.......... $ 1,795,360
1,250,000 4.875% due 4/30/2008........... 1,248,341
1,385,000 4% due 6/15/2009............... 1,362,386
12,500,000 4.875% due 5/31/2011........... 12,481,450
10,750,000 4.625% due 2/29/2012(m)........ 10,612,271
1,000,000 4% due 11/15/2012.............. 958,672
7,925,000 4.25% due 11/15/2014........... 7,561,567
6,100,000 4.50% due 11/15/2015........... 5,883,640
6,125,000 5.125% due 5/15/2016........... 6,159,453
4,550,000 4.875% due 8/15/2016........... 4,494,190
5,100,000 4.625% due 11/15/2016.......... 4,942,619
8,351,000 4.625% due 2/15/2017(m)........ 8,087,426
-----------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT & AGENCY
OBLIGATIONS
(COST--$160,187,347)--17.8%...... 159,772,244
- ------------------------------------------------------------------------------------------------------------------
<Caption>
STRUCTURED NOTES
- ------------------------------------------------------------------------------------------------------------------
BRAZIL--0.9% JPMorgan Chase & Co. (NTN--B
Linked Notes)(t):
BRL 13,285,791 6% due 8/15/2010............... 6,781,305
2,849,611 6% due 8/17/2010............... 1,454,587
-----------------------------------------------------------------------------------------
TOTAL STRUCTURED NOTES IN
BRAZIL........................... 8,235,892
- ------------------------------------------------------------------------------------------------------------------
EUROPE--0.8% USD 3,450,000 Goldman Sachs & Co. (Dow Jones
EURO STOXX 50(R) Index Linked
Notes), due 6/20/2008(j)(t).... 3,873,473
3,450,000 JPMorgan Chase & Co. (Dow Jones
EURO STOXX 50(R) Index Linked
Notes), due 6/17/2008(j)(t).... 3,829,845
-----------------------------------------------------------------------------------------
TOTAL STRUCTURED NOTES IN
EUROPE........................... 7,703,318
- ------------------------------------------------------------------------------------------------------------------
GERMANY--0.4% 3,000,000 Goldman Sachs & Co. (DAX Linked
Notes), due 10/19/2007(j)(t)... 3,658,569
-----------------------------------------------------------------------------------------
TOTAL STRUCTURED NOTES IN
GERMANY.......................... 3,658,569
- ------------------------------------------------------------------------------------------------------------------
JAPAN--0.7% 7,000,000 Goldman Sachs & Co. (TOPIX(R)
Index Linked Notes), due
1/28/2008(u)................... 6,163,654
-----------------------------------------------------------------------------------------
TOTAL STRUCTURED NOTES IN
JAPAN............................ 6,163,654
- ------------------------------------------------------------------------------------------------------------------
TAIWAN--0.2% 1,650,000 UBS AG (Total Return TWD Linked
Notes), due 12/01/2010(a)(t)... 1,667,160
-----------------------------------------------------------------------------------------
TOTAL STRUCTURED NOTES IN
TAIWAN........................... 1,667,160
- ------------------------------------------------------------------------------------------------------------------
</Table>
30
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Allocation V.I. Fund
Schedule of Investments as of June 30, 2007 (continued) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
FACE
COUNTRY AMOUNT STRUCTURED NOTES VALUE
- ------------------------------------------------------------------------------------------------------------------
UNITED STATES--2.0% USD 12,746,000 Morgan Stanley (Bear Market PLUS
S&P 500 Index Linked Notes),
Series F, due 7/07/2008(u)..... $ 12,115,073
UBS AG (Gold Linked Notes)(t):
700,000 due 4/23/2008.................. 764,023
780,000 due 4/28/2008.................. 863,338
730,000 due 5/27/2008.................. 761,695
770,000 due 6/18/2008.................. 791,615
780,000 due 6/19/2008.................. 803,548
800,000 due 7/09/2008.................. 821,677
790,000 due 7/11/2008.................. 846,237
-----------------------------------------------------------------------------------------
TOTAL STRUCTURED NOTES IN THE
UNITED STATES.................... 17,767,206
-----------------------------------------------------------------------------------------
TOTAL STRUCTURED NOTES
(COST--$43,523,969)--5.0%........ 45,195,799
-----------------------------------------------------------------------------------------
TOTAL FIXED INCOME SECURITIES
(COST--$290,767,261)--33.1%...... 297,928,151
- ------------------------------------------------------------------------------------------------------------------
<Caption>
BENEFICIAL
INDUSTRY INTEREST OTHER INTERESTS(E)
- ------------------------------------------------------------------------------------------------------------------
UNITED STATES--0.0% DIVERSIFIED USD 1,400,000 AboveNet, Inc. (Litigation Trust
TELECOMMUNICATION Certificates).................. 14
SERVICES--0.0%
- ------------------------------------------------------------------------------------------------------------------
TOTAL OTHER INTERESTS
(COST--$0)--0.0%................. 14
- ------------------------------------------------------------------------------------------------------------------
<Caption>
FACE
AMOUNT SHORT-TERM SECURITIES
- ------------------------------------------------------------------------------------------------------------------
CANADA--0.3% FOREIGN COMMERCIAL CAD 2,800,000 Canada Treasury Bill, 0% due
PAPER--0.3% 3/20/2008...................... 2,542,513
-----------------------------------------------------------------------------------------
TOTAL SHORT-TERM SECURITIES IN
CANADA........................... 2,542,513
- ------------------------------------------------------------------------------------------------------------------
ICELAND--0.0% TIME DEPOSITS--0.0% ISK 17,007,298 ISK Time Deposit, 13.58% due
7/27/2007...................... 273,232
-----------------------------------------------------------------------------------------
TOTAL SHORT-TERM SECURITIES IN
ICELAND.......................... 273,232
- ------------------------------------------------------------------------------------------------------------------
SINGAPORE--0.2% TIME DEPOSITS--0.2% SGD 3,667,535 SGD Time Deposit, 2.63% due
7/16/2007...................... 2,395,908
-----------------------------------------------------------------------------------------
TOTAL SHORT-TERM SECURITIES IN
SINGAPORE........................ 2,395,908
- ------------------------------------------------------------------------------------------------------------------
<Caption>
BENEFICIAL
INTEREST
- ------------------------------------------------------------------------------------------------------------------
UNITED STATES--12.3% USD 79,466,002 BlackRock Liquidity Series, LLC
Cash Sweep Series,
5.33%(d)(o).................... 79,466,002
30,907,900 BlackRock Liquidity Series, LLC
Money Market Series,
5.33%(d)(l)(o)................. 30,907,900
-----------------------------------------------------------------------------------------
TOTAL SHORT-TERM SECURITIES IN
THE UNITED STATES................ 110,373,902
-----------------------------------------------------------------------------------------
TOTAL SHORT-TERM SECURITIES
(COST--$115,373,800)--12.8%...... 115,585,555
- ------------------------------------------------------------------------------------------------------------------
</Table>
31
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Allocation V.I. Fund
Schedule of Investments as of June 30, 2007 (continued) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
NUMBER OF
CONTRACTS OPTIONS PURCHASED VALUE
- ------------------------------------------------------------------------------------------------------------------
CALL OPTIONS PURCHASED 458 The Gap, Inc., expiring January
2008 at USD 22.5............... $ 20,610
457 Newmont Mining Corp., expiring
January 2008 at USD 55......... 6,855
------------
27,465
- ------------------------------------------------------------------------------------------------------------------
PUT OPTIONS PURCHASED 260 Bed Bath & Beyond, Inc., expiring
November 2007 at USD 35........ 39,000
226 Black & Decker Corp., expiring
August 2007 at USD 75.......... 7,910
iShares Russell 2000 Index Fund:
1,827 expiring September 2007 at USD
75............................. 200,970
2,732 expiring September 2007 at USD
78............................. 428,924
2,250 expiring September 2007 at USD
80............................. 522,000
1,358 expiring November 2007 at USD
80............................. 420,980
456 JB Hunt Transport Services, Inc.,
expiring August 2007 at USD
22.5........................... 4,560
451 Leggett & Platt, Inc., expiring
September 2007 at USD 22.5..... 54,120
522 Masco Corp., expiring October
2007 at USD 25................. 28,710
455 Royal Caribbean Cruises Ltd.,
expiring September 2007 at USD
35............................. 13,650
227 The Sherwin-Williams Co.,
expiring September 2007 at USD
60............................. 23,835
226 Washington Mutual, Inc., expiring
October 2007 at USD 42.5....... 48,138
229 Whirlpool Corp., expiring
September 2007 at USD 75....... 4,580
Williams-Sonoma, Inc.:
455 expiring August 2007 at USD
32.5........................... 79,625
81 expiring November 2007 at USD
30............................. 12,555
2,624 Yen Call 2/8/95 64.75, expiring
February 2008 at USD 106.9..... 6,975
------------
1,896,532
-----------------------------------------------------------------------------------------
TOTAL OPTIONS PURCHASED (PREMIUMS
PAID--$3,043,637)--0.2%.......... 1,923,997
-----------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST--$775,886,329)--103.5%..... 932,591,146
- ------------------------------------------------------------------------------------------------------------------
<Caption>
OPTIONS WRITTEN
- ------------------------------------------------------------------------------------------------------------------
CALL OPTIONS WRITTEN 1,390 3Com Corp., expiring January 2008
at USD 5....................... (27,800)
285 Apple Computer, Inc., expiring
January 2008 at USD 85......... (1,168,500)
30 Bausch & Lomb, Inc., expiring
January 2008 at USD 45......... (76,200)
Burlington Northern Santa Fe
Corp.:
55 expiring January 2008 at USD
90............................. (30,250)
138 expiring January 2008 at USD
95............................. (51,060)
144 Ciena Corp., expiring January
2008 at USD 30................. (125,280)
</Table>
32
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Allocation V.I. Fund
Schedule of Investments as of June 30, 2007 (continued) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
NUMBER OF
CONTRACTS OPTIONS WRITTEN VALUE
- ------------------------------------------------------------------------------------------------------------------
CALL OPTIONS WRITTEN
(CONCLUDED)
Comverse Technology, Inc.:
1,091 expiring January 2008 at USD
17.5........................... $ (512,770)
20 expiring January 2008 at USD
20............................. (5,500)
eBay, Inc.:
117 expiring January 2008 at USD
20............................. (152,100)
120 expiring January 2008 at USD
25............................. (98,400)
244 El Paso Corp., expiring January
2008 at USD 15................. (75,640)
151 Foundation Coal Holdings, Inc.,
expiring September 2007 at USD
30............................. (167,610)
277 Genesis Microchip, Inc., expiring
September 2007 at USD 7.5...... (58,170)
Motorola, Inc.,
333 expiring January 2008 at USD
17.5........................... (56,610)
253 expiring January 2008 at USD
20............................. (16,445)
168 Norfolk Southern Corp., expiring
January 2008 at USD 50......... (114,240)
343 Nortel Networks Corp., expiring
January 2008 at USD 22.5....... (126,910)
138 Novell, Inc., expiring January
2008 at USD 7.5................ (14,490)
Panera Bread Co. Class A:
133 expiring January 2008 at USD
50............................. (42,560)
231 expiring January 2008 at USD
55............................. (35,805)
166 expiring January 2008 at USD
60............................. (12,450)
198 Peabody Energy Corp., expiring
January 2008 at USD 40......... (221,760)
Petroleo Brasileiro SA:
91 expiring January 2008 at USD
105............................ (193,830)
68 expiring January 2008 at USD
110............................ (120,360)
424 QUALCOMM, Inc., expiring January
2008 at USD 40................. (279,840)
102 Smith International, Inc.,
expiring January 2008 at USD
40............................. (205,020)
Sprint Nextel Corp.:
179 expiring January 2008 at USD
20............................. (44,750)
367 expiring January 2008 at USD
22.5........................... (53,215)
112 Suncor Energy, Inc., expiring
January 2008 at USD 75......... (220,640)
446 TIBCO Software, Inc., expiring
January 2008 at USD 10......... (26,760)
315 Valeant Pharmaceuticals
International, expiring January
2009 at USD.................... (138,600)
-----------------------------------------------------------------------------------------
TOTAL OPTIONS WRITTEN
(PREMIUMS RECEIVED--
$3,378,755)--(0.5%).............. (4,473,565)
- ------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, NET OF OPTIONS
WRITTEN
(COST--$772,507,574*)--103.0%.... 928,117,581
LIABILITIES IN EXCESS OF OTHER
ASSETS--(3.0%)................... (27,226,202)
------------
NET ASSETS--100.0%............... $900,891,379
============
- ------------------------------------------------------------------------------------------------------------------
</Table>
33
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Allocation V.I. Fund
Schedule of Investments as of June 30, 2007 (continued) (in U.S. dollars)
- --------------------------------------------------------------------------------
* The cost and unrealized appreciation (depreciation) of investments, net of
options written, as of June 30, 2007, as computed for federal income tax
purposes, were as follows:
<Table>
- --------------------------------------------------------------------------
Aggregate cost.............................................. $777,562,637
============
Gross unrealized appreciation............................... $164,572,188
Gross unrealized depreciation............................... (14,017,244)
------------
Net unrealized appreciation................................. $150,554,944
============
- --------------------------------------------------------------------------
</Table>
(a) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(b) Floating rate loan interests in which the Fund invests generally pay
interest at rates that are periodically redetermined by reference to a base
lending rate plus a premium. The base lending rates are generally (i) the
lending rate offered by one or more European banks, such as LIBOR (London
InterBank Offered Rate), (ii) the prime rate offered by one or more U.S.
banks or (iii) the certificate of deposit rate.
(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) Investments in companies considered to be an affiliate of the Fund, for
purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as
follows:
<Table>
<Caption>
- ---------------------------------------------------------------------------------------
NET INTEREST
AFFILIATE ACTIVITY INCOME
- ---------------------------------------------------------------------------------------
BlackRock Liquidity Series, LLC Cash Sweep Series........... $31,254,692 $1,119,175
BlackRock Liquidity Series, LLC Money Market Series......... $30,639,100 $ 5,163
- ---------------------------------------------------------------------------------------
</Table>
(e) Other interests represent beneficial interest in liquidation trusts and
other reorganization entities and are non-income producing.
(f) Convertible security.
(g) Subject to principal paydowns.
(h) Non-income producing security; issuer filed for bankruptcy or is in default
of interest payments.
(i) Depositary receipts.
(j) Non-income producing security.
(k) Represents a zero coupon bond.
(l) Security was purchased with the cash proceeds from securities loans.
(m) Security, or a portion of security, is on loan.
(n) Floating rate security.
(o) Represents the current yield as of June 30, 2007.
(p) All or a portion of security held as collateral in connection with open
financial futures contracts.
(q) Issued with warrants.
(r) Represents a step bond.
(s) Received through a bonus issue from Cia Vale do Rio Doce. As of June 30,
2007, the bond has not commenced trading and the coupon rate has not been
determined. The security is a perpetual bond and has no definite maturity.
(t) Security represents an index linked note. The value of the instrument is
derived from the price fluctuations in the underlying index.
(u) Security represents an index linked note. The value of the instrument is
inversely derived from the price fluctuations in the underlying index.
- - For Fund compliance purposes, the Fund's industry classifications refer to
any one or more of the industry sub-classifications used by one or more
widely recognized market indexes or ratings group indexes, and/or as defined
by Fund management. This definition may not apply for purposes of this
report, which may combine industry sub-classifications for reporting ease.
Industries are shown as a percent of net assets.
34
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Allocation V.I. Fund
Schedule of Investments as of June 30, 2007 (continued) (in U.S. dollars)
- --------------------------------------------------------------------------------
- - Forward foreign exchange contracts purchased as of June 30, 2007 were as
follows:
<Table>
<Caption>
- -------------------------------------------------
UNREALIZED
FOREIGN CURRENCY SETTLEMENT APPRECIATION
PURCHASED DATE (DEPRECIATION)
- -------------------------------------------------
CHF 7,402,156 July 2007 $ 95,505
EUR 24,380,674 July 2007 292,552
EUR 8,094,135 August 2007 90,166
IDR 9,031,000,000 August 2007 47,788
INR 16,620,000 December 2007 3,580
INR 17,408,000 April 2008 18,685
JPY 943,860,650 July 2007 (114,596)
JPY 1,487,595,091 August 2007 37,336
VND 18,445,942,500 May 2008 (6,577)
- -------------------------------------------------
TOTAL UNREALIZED APPRECIATION ON
FORWARD FOREIGN
EXCHANGE CONTRACTS--NET (USD
COMMITMENT--$72,376,578) $ 464,439
=========
- -------------------------------------------------
</Table>
- - Forward foreign exchange contracts sold as of June 30, 2007 were as follows:
<Table>
<Caption>
- ---------------------------------------------
FOREIGN CURRENCY SETTLEMENT UNREALIZED
SOLD DATE DEPRECIATION
- ---------------------------------------------
IDR 5,925,600,000 August 2007 $(21,418)
INR 16,620,000 December 2007 (1,548)
- ---------------------------------------------
TOTAL UNREALIZED DEPRECIATION
ON FORWARD FOREIGN
EXCHANGE CONTRACTS (USD
COMMITMENT--$1,035,278) $(22,966)
========
- ---------------------------------------------
</Table>
- - Swaps outstanding as of June 30, 2007 were as follows:
<Table>
<Caption>
- -------------------------------------------------------------------------------------
NOTIONAL UNREALIZED
AMOUNT DEPRECIATION
- -------------------------------------------------------------------------------------
Bought credit default protection on United Mexican States
and pay 1.12%
Broker, Credit Suisse International
Expires May 2010............................................ $380,000 $ (8,733)
Bought credit default protection on DaimlerChrysler NA
Holding Corp. and pay 0.53%
Broker, JPMorgan Chase
Expires June 2011........................................... $314,518 (3,374)
Bought credit default protection on Carnival Corp. and pay
0.25%
Broker, JPMorgan Chase
Expires September 2011...................................... $475,000 (1,086)
Bought credit default protection on Whirlpool Corp. and pay
0.48%
Broker, JPMorgan Chase
Expires September 2011...................................... $150,000 (1,255)
Bought credit default protection on McDonald's Corp. and pay
0.16%
Broker, JPMorgan Chase
Expires September 2011...................................... $150,000 (115)
Bought credit default protection on JC Penney Corp. and pay
0.53%
Broker, JPMorgan Chase
Expires September 2011...................................... $150,000 (455)
- -------------------------------------------------------------------------------------
TOTAL $(15,018)
========
- -------------------------------------------------------------------------------------
</Table>
- - Financial futures purchased as of June 30, 2007 were as follows:
<Table>
<Caption>
- ----------------------------------------------------------------------------------------------
UNREALIZED
NUMBER OF EXPIRATION FACE APPRECIATION
CONTRACTS ISSUE EXCHANGE DATE VALUE (DEPRECIATION)
- ----------------------------------------------------------------------------------------------
2 DAX Index 25 Euro Eurex Deutschland September 2007 $ 526,678 $20,015
10 DJ Euro Stoxx 50 Eurex Deutschland September 2007 $ 597,083 14,003
1 EuroDollar Future Chicago September 2008 $ 237,901 (864)
8 FTSE 100 Index LIFFE September 2007 $1,055,089 11,299
12 S&P TSE 60 Index Montreal September 2007 $1,793,517 19,917
- ----------------------------------------------------------------------------------------------
TOTAL UNREALIZED
APPRECIATION--NET $64,370
=======
- ----------------------------------------------------------------------------------------------
</Table>
35
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Allocation V.I. Fund
Schedule of Investments as of June 30, 2007 (concluded)
- --------------------------------------------------------------------------------
- - Financial futures sold as of June 30, 2007 were as follows:
<Table>
<Caption>
- ------------------------------------------------------------------------------------------------
NUMBER OF EXPIRATION FACE UNREALIZED
CONTRACTS ISSUE EXCHANGE DATE VALUE APPRECIATION
- ------------------------------------------------------------------------------------------------
1 EuroDollar Future Chicago September 2009 $ 237,549 $ 937
9 Japan 10-year Government Bond Tokyo September 2007 $ 9,690,902 41,440
30 S&P 500 Index Chicago September 2007 $11,373,444 7,944
- ------------------------------------------------------------------------------------------------
TOTAL UNREALIZED APPRECIATION $50,321
=======
- ------------------------------------------------------------------------------------------------
</Table>
- - Currency Abbreviations:
<Table>
BRL Brazilian Real
CAD Canadian Dollar
CHF Swiss Franc
EUR Euro
GBP British Pound
HKD Hong Kong Dollar
IDR Indonesian Rupiah
INR Indian Rupee
ISK Icelandic Krona
JPY Japanese Yen
MYR Malaysian Ringgit
NZD New Zealand Dollar
PLN Polish Zloty
SEK Swedish Krona
SGD Singapore Dollar
TRY Turkish Lira
USD U.S. Dollar
VND Vietnam Dong
</Table>
See Notes to Financial Statements.
36
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Allocation V.I. Fund
Statement of Assets and Liabilities as of June 30, 2007 (unaudited)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments in unaffiliated securities, at value (including
securities loaned of $29,982,417) (identified
cost--$662,468,790)....................................... $820,293,247
Investments in affiliated securities, at value (identified
cost--$110,373,902)....................................... 110,373,902
Options purchased, at value (premiums paid--$3,043,637)..... 1,923,997
Unrealized appreciation on forward foreign exchange
contracts................................................. 585,612
Cash........................................................ 595,284
Foreign cash (cost--$1,175,840)............................. 1,179,604
Receivables:
Interest.................................................. $ 3,154,349
Securities sold........................................... 2,088,599
Dividends................................................. 1,373,350
Capital shares sold....................................... 718,646
Variation margin.......................................... 28,606
Securities lending........................................ 2,249 7,365,799
------------
Prepaid expenses and other assets........................... 21,625
------------
Total assets................................................ 942,339,070
------------
- -------------------------------------------------------------------------------------------
LIABILITIES:
Collateral on securities loaned, at value................... 30,907,900
Options written, at value (premiums received--$3,378,755)... 4,473,565
Unrealized depreciation on swaps............................ 15,018
Unrealized depreciation on forward foreign exchange
contracts................................................. 144,139
Deferred foreign capital gain tax........................... 67,541
Payables:
Securities purchased...................................... 4,871,433
Investment adviser........................................ 460,934
Capital shares redeemed................................... 187,274
Distributor............................................... 29,654
Other affiliates.......................................... 6,738
Swaps..................................................... 512 5,556,545
------------
Accrued expenses and other liabilities...................... 282,983
------------
Total liabilities........................................... 41,447,691
------------
- -------------------------------------------------------------------------------------------
NET ASSETS.................................................. $900,891,379
============
- -------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Class I Shares of Common Stock, $.10 par value, 200,000,000
shares authorized......................................... $ 4,641,048
Class II Shares of Common Stock, $.10 par value, 200,000,000
shares authorized......................................... 9,556
Class III Shares of Common Stock, $.10 par value,
200,000,000 shares authorized............................. 1,085,961
Paid-in capital in excess of par............................ 699,807,819
Undistributed investment income--net........................ $ 7,505,595
Undistributed realized capital gains--net................... 31,702,335
Unrealized appreciation--net................................ 156,139,065
------------
Total accumulated earnings--net............................. 195,346,995
------------
NET ASSETS.................................................. $900,891,379
============
- -------------------------------------------------------------------------------------------
NET ASSET VALUE:
Class I--Based on net assets of $741,045,900 and 46,410,480
shares outstanding........................................ $ 15.97
============
Class II--Based on net assets of $1,524,654 and 95,557
shares outstanding........................................ $ 15.96
============
Class III--Based on net assets of $158,320,825 and
10,859,611 shares outstanding............................. $ 14.58
============
- -------------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements.
37
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Allocation V.I. Fund
Statement of Operations for the Six Months Ended June 30, 2007 (unaudited)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividends (net of $405,196 foreign withholding tax)......... $ 6,730,729
Interest (including $1,119,175 from affiliates and net of
$9,004 foreign withholding tax)........................... 6,510,737
Securities lending--net..................................... 5,163
-----------
Total income................................................ 13,246,629
-----------
- ----------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees.................................... $2,716,713
Custodian fees.............................................. 166,198
Accounting services......................................... 140,673
Distribution fees--Class III................................ 136,867
Printing and shareholder reports............................ 69,271
Professional fees........................................... 32,503
Directors' fees and expenses................................ 22,908
Pricing services............................................ 16,004
Transfer agent fees--Class I................................ 2,215
Distribution fees--Class II................................. 1,245
Transfer agent fees--Class III.............................. 330
Transfer agent fees--Class II............................... 5
Other....................................................... 14,319
----------
Total expenses.............................................. 3,319,251
-----------
Investment income--net...................................... 9,927,378
-----------
- ----------------------------------------------------------------------------------------
REALIZED & UNREALIZED GAIN (LOSS)--NET:
Realized gain (loss) on:
Investments--net (including $10,037 in foreign capital
gain tax)............................................... 30,088,353
Financial futures contracts and swaps--net................ (762,974)
Options written--net...................................... 701,935
Foreign currency transactions--net........................ (929,974) 29,097,340
----------
Change in unrealized appreciation/depreciation on:
Investments--net (including $58,353 in foreign capital
gain tax credit)........................................ 24,442,582
Financial futures contracts and swaps--net................ 261,917
Options written--net...................................... 1,284,868
Foreign currency transactions--net........................ 304,356 26,293,723
---------- -----------
Total realized and unrealized gain--net..................... 55,391,063
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $65,318,441
===========
- ----------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements.
38
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Allocation V.I. Fund
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<Table>
<Caption>
FOR THE SIX
MONTHS ENDED FOR THE
JUNE 30, 2007 YEAR ENDED
INCREASE (DECREASE) IN NET ASSETS: (UNAUDITED) DECEMBER 31, 2006
- -----------------------------------------------------------------------------------------------
OPERATIONS:
Investment income--net...................................... $ 9,927,378 $ 15,834,185
Realized gain--net.......................................... 29,097,340 72,675,236
Change in unrealized appreciation/depreciation--net......... 26,293,723 25,105,044
------------ ------------
Net increase in net assets resulting from operations........ 65,318,441 113,614,465
------------ ------------
- -----------------------------------------------------------------------------------------------
DIVIDENDS & DISTRIBUTIONS TO SHAREHOLDERS:
Investment income--net:
Class I................................................... -- (18,496,788)
Class II.................................................. -- (43,035)
Class III................................................. -- (1,901,349)
Realized gain--net:
Class I................................................... -- (26,938,871)
Class II.................................................. -- (66,550)
Class III................................................. -- (2,881,439)
------------ ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders............................. -- (50,328,032)
------------ ------------
- -----------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Net increase in net assets derived from capital share
transactions.............................................. 44,666,402 17,122,624
------------ ------------
- -----------------------------------------------------------------------------------------------
NET ASSETS:
Total increase in net assets................................ 109,984,843 80,409,057
Beginning of period......................................... 790,906,536 710,497,479
------------ ------------
End of period*.............................................. $900,891,379 $790,906,536
============ ============
- -----------------------------------------------------------------------------------------------
* Undistributed (accumulated distributions in excess of)
investment income--net.................................... $ 7,505,595 $ (2,421,783)
============ ============
- -----------------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements.
39
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Allocation V.I. Fund
Financial Highlights
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS I
-------------------------------------------------------------------------
FOR THE
THE FOLLOWING PER SHARE DATA AND RATIOS SIX MONTHS ENDED FOR THE YEAR ENDED DECEMBER 31,
HAVE BEEN DERIVED FROM INFORMATION JUNE 30, 2007 ------------------------------------------------------
PROVIDED IN THE FINANCIAL STATEMENTS. (UNAUDITED) 2006 2005 2004 2003 2002
- ----------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period....... $ 14.78 $ 13.54 $ 12.56 $ 11.29 $ 8.62 $ 9.74
-------- -------- -------- -------- -------- --------
Investment income--net***.................. .18 .32 .27 .23 .21 .26
Realized and unrealized gain (loss)--net... 1.01 1.92 1.03 1.41 2.77 (1.05)
-------- -------- -------- -------- -------- --------
Total from investment operations........... 1.19 2.24 1.30 1.64 2.98 (.79)
-------- -------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net................... -- (.41) (.32) (.37) (.31) (.33)
Realized gain--net....................... -- (.59) -- -- -- --
-------- -------- -------- -------- -------- --------
Total dividends and distributions.......... -- (1.00) (.32) (.37) (.31) (.33)
-------- -------- -------- -------- -------- --------
Net asset value, end of period............. $ 15.97 $ 14.78 $ 13.54 $ 12.56 $ 11.29 $ 8.62
======== ======== ======== ======== ======== ========
- ----------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:**
Based on net asset value per share......... 8.05%+ 16.53%++ 10.43% 14.57% 34.57% (8.15%)
======== ======== ======== ======== ======== ========
- ----------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses................................... .76%* .79% .77% .76% .75% .77%
======== ======== ======== ======== ======== ========
Investment income--net..................... 2.40%* 2.18% 2.07% 1.93% 2.16% 2.77%
======== ======== ======== ======== ======== ========
- ----------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)... $741,046 $717,928 $679,681 $613,145 $507,674 $349,514
======== ======== ======== ======== ======== ========
Portfolio turnover......................... 18% 55% 57% 44% 47% 56%
======== ======== ======== ======== ======== ========
- ----------------------------------------------------------------------------------------------------------------------
</Table>
* Annualized.
** Total investment returns exclude insurance-related fees and expenses.
*** Based on average shares outstanding.
+ Aggregate total investment return.
++ In 2006, Merrill Lynch Investment Managers, L.P. fully reimbursed the Fund
in order to resolve a regulatory issue relating to an investment, which had
a minimal impact on total investment return.
See Notes to Financial Statements.
40
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Allocation V.I. Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS II
------------------------------------------------------------------------
FOR THE
FOR THE YEAR ENDED
THE FOLLOWING PER SHARE DATA AND RATIOS SIX MONTHS ENDED DECEMBER 31, FOR THE PERIOD
HAVE BEEN DERIVED FROM INFORMATION JUNE 30, 2007 ------------------------------ NOVEMBER 24, 2003@
PROVIDED IN THE FINANCIAL STATEMENTS. (UNAUDITED) 2006 2005 2004 TO DECEMBER 31, 2003
- --------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period...... $ 14.78 $ 13.54 $ 12.56 $ 11.29 $ 10.73
------- ------- ------- ------- -------
Investment income--net***................. .17 .29 .25 .21 .01
Realized and unrealized gain--net......... 1.01 1.92 1.03 1.41 .85
------- ------- ------- ------- -------
Total from investment operations.......... 1.18 2.21 1.28 1.62 .86
------- ------- ------- ------- -------
Less dividends and distributions:
Investment income--net.................. -- (.38) (.30) (.35) (.30)
Realized gain--net...................... -- (.59) -- -- --
------- ------- ------- ------- -------
Total dividends and distributions......... -- (.97) (.30) (.35) (.30)
------- ------- ------- ------- -------
Net asset value, end of period............ $ 15.96 $ 14.78 $ 13.54 $ 12.56 $ 11.29
======= ======= ======= ======= =======
- --------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:**
Based on net asset value per share........ 7.98%+ 16.36%++ 10.27% 14.40% 8.05%+
======= ======= ======= ======= =======
- --------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................. .91%* .94% .92% .91% .95%*
======= ======= ======= ======= =======
Investment income--net.................... 2.24%* 2.03% 1.92% 1.78% 0.87%*
======= ======= ======= ======= =======
- --------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands).............................. $ 1,525 $ 1,771 $ 1,743 $ 1,720 $ 1,797
======= ======= ======= ======= =======
Portfolio turnover........................ 18% 55% 57% 44% 47%
======= ======= ======= ======= =======
- --------------------------------------------------------------------------------------------------------------------
</Table>
* Annualized.
** Total investment returns exclude insurance-related fees and expenses.
*** Based on average shares outstanding.
+ Aggregate total investment return.
++ In 2006, Merrill Lynch Investment Managers, L.P. fully reimbursed the Fund
in order to resolve a regulatory issue relating to an investment, which had
a minimal impact on total investment return.
@ Commencement of operations.
See Notes to Financial Statements.
41
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Allocation V.I. Fund
Financial Highlights (concluded)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS III
-----------------------------------------------------------------------
FOR THE
FOR THE YEAR ENDED
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE SIX MONTHS ENDED DECEMBER 31, FOR THE PERIOD
BEEN DERIVED FROM INFORMATION PROVIDED IN JUNE 30, 2007 ----------------------------- NOVEMBER 18, 2003@
THE FINANCIAL STATEMENTS. (UNAUDITED) 2006 2005 2004 TO DECEMBER 31, 2003
- ---------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........ $ 13.51 $ 12.45 $ 11.58 $ 10.46 $ 10.00
-------- ------- ------- ------- -------
Investment income (loss)--net***............ .02 .23 .22 .19 --+++
Realized and unrealized gain--net........... 1.05 1.81 .95 1.29 .76
-------- ------- ------- ------- -------
Total from investment operations............ 1.07 2.04 1.17 1.48 .76
-------- ------- ------- ------- -------
Less dividends and distributions:
Investment income--net.................... -- (.39) (.30) (.36) (.30)
Realized gain--net........................ -- (.59) -- -- --
-------- ------- ------- ------- -------
Total dividends and distributions........... -- (.98) (.30) (.36) (.30)
-------- ------- ------- ------- -------
Net asset value, end of period.............. $ 14.58 $ 13.51 $ 12.45 $ 11.58 $ 10.46
======== ======= ======= ======= =======
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:**
Based on net asset value per share.......... 7.92%+ 16.40%++ 10.18% 14.20% 7.62%+
======== ======= ======= ======= =======
- ---------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................... 1.01%* 1.04% 1.02% 1.01% 1.08%*
======== ======= ======= ======= =======
Investment income (loss)--net............... 2.21%* 1.88% 1.85% 1.79% (0.24%)*
======== ======= ======= ======= =======
- ---------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands).... $158,321 $71,208 $29,074 $ 9,455 $ 37
======== ======= ======= ======= =======
Portfolio turnover.......................... 18% 55% 57% 44% 47%
======== ======= ======= ======= =======
- ---------------------------------------------------------------------------------------------------------------------
</Table>
* Annualized.
** Total investment returns exclude insurance-related fees and expenses.
*** Based on average shares outstanding.
+ Aggregate total investment return.
++ In 2006, Merrill Lynch Investment Managers, L.P. fully reimbursed the Fund
in order to resolve a regulatory issue relating to an investment, which had
a minimal impact on total investment return.
+++ Amount is less than ($.01) per share.
@ Commencement of operations.
See Notes to Financial Statements.
42
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Allocation V.I. Fund
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES:
BlackRock Variable Series Funds, Inc. (the "Company") is an open-end management
investment company that is comprised of 16 separate funds. Each fund offers
three 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. ("Merrill Lynch")), and other insurance companies that are not
affiliated with Merrill Lynch, for their separate accounts to fund benefits
under certain variable annuity and variable life insurance contracts. BlackRock
Global Allocation V.I Fund (the "Fund") is classified as "diversified," as
defined in the Investment Company Act of 1940, as amended. Class I, Class II and
Class III 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. In addition, Class II and Class III Shares
bear certain expenses related to the distribution of such shares. The Fund's
financial statements are prepared in conformity with U.S. generally accepted
accounting principles, which may require the use of management accruals and
estimates. Actual results may differ from these estimates. These unaudited
financial statements reflect all adjustments, which are, in the opinion of
management, necessary to present a fair statement of the results for the interim
period. All such adjustments are of a normal, recurring nature. Income, expenses
(other than expenses attributable to a specific class) and realized and
unrealized gains and losses are allocated daily to each class based on its
relative net assets. The following is a summary of significant accounting
policies followed by the Fund.
(a) Valuation of investments--Debt securities are traded primarily in the
over-the-counter ("OTC") markets and are valued at the last available bid price
in the OTC market or on the basis of values obtained by a pricing service.
Pricing services use valuation matrixes that incorporate both dealer-supplied
valuations and valuation models. The procedures of the pricing service and its
valuations are reviewed by the officers of the Company under the general
direction of the Board of Directors. Such valuations and procedures will be
reviewed periodically by the Board of Directors of the Company. Financial
futures contracts and options thereon, which are traded on exchanges, are valued
at their closing prices as of the close of such exchanges.
Options written or purchased are valued at the last sales price in the case of
exchange-traded options. Options traded in the OTC market are valued at the last
asked price (options written) or the last bid price (options purchased). Swap
agreements and structured notes are valued based upon quoted fair valuations
received daily by the Fund from a pricing service or counterparty. Valuation of
short-term investment vehicles is generally based on the net asset value of the
underlying investment vehicle or amortized cost. Repurchase agreements are
valued at cost plus accrued interest. Investments in open-end investment
companies are valued at their net asset value each business day. Securities and
other 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.
Equity securities held by the Fund that are traded on stock exchanges or the
NASDAQ Global Market are valued at the last sale price or official close price
on the exchange, as of the close of business on the day the securities are being
valued or, lacking any sales, at the last available bid price for long
positions, and at the last available asked price for short positions. In cases
where equity securities are traded on more than one exchange, the securities are
valued on the exchange designated as the primary market by or under the
authority of the Board of Directors of the Company. Long positions traded in the
OTC market, NASDAQ Capital Market or Bulletin Board are valued at the last
available bid price or yield equivalent obtained from one or more dealers or
pricing services approved by the Board of Directors of the Company. Short
positions traded in the OTC market are valued at the last available asked price.
Portfolio securities that are traded both in the OTC market and on a stock
exchange are valued according to the broadest and most representative market.
Generally, trading in foreign securities, as well as U.S. government
securities, money market instruments and certain fixed income securities, is
substantially completed each day at various times prior to the close of business
on the New York Stock Exchange ("NYSE"). The values of such securities used in
computing the net asset value of the Fund's shares are determined as of such
times. Foreign currency exchange rates will
43
- --------------------------------------------------------------------------------
generally be determined as of the close of business on the NYSE. Occasionally,
events affecting the values of such securities and such exchange rates may occur
between the times at which they are determined and the close of business on the
NYSE that may not be reflected in the computation of the Fund's net asset value.
If events (for example, a company announcement, market volatility or a natural
disaster) occur during such periods that are expected to materially affect the
value of such securities, those securities will be valued at their fair value as
determined in good faith by the Company's Board of Directors or by BlackRock
Advisors, LLC (the "Manager"), an indirect, wholly owned subsidiary of
BlackRock, Inc., using a pricing service and/or procedures approved by the
Company's Board of Directors.
(b) Derivative financial instruments--The Fund may engage in various portfolio
investment strategies both to increase the return of the Fund and to hedge, or
protect, its exposure to interest rate movements and movements in the securities
markets. Losses may arise due to changes in the value of the contract due to an
unfavorable change in the price of the underlying security or index, or if the
counterparty does not perform under the contract. The counterparty for certain
instruments may pledge cash or securities as collateral.
- - Forward foreign exchange contracts--The Fund may enter into forward foreign
exchange contracts as a hedge against either specific transactions or portfolio
positions. The contract is marked-to-market daily and the change in market value
is recorded by the Fund as an unrealized gain or loss. When the contract is
closed, the Fund records a realized gain or loss equal to the difference between
the value at the time it was opened and the value at the time it was closed.
- - Options--The Fund may purchase and write covered 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 financial futures contracts. Financial 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 OTC foreign currency options, foreign currency futures and related
options on foreign currency futures as a short or long hedge against possible
variations in foreign exchange rates. Such transactions may be effected with
respect to hedges on non-U.S. dollar denominated securities owned by the Fund,
sold by the Fund but not yet delivered, or committed or anticipated to be
purchased by the Fund.
(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 U.S. dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates on investments.
The Fund invests in foreign securities, which may involve a number of risk
factors and special considerations not present with investments in securities of
U.S. corporations.
(d) Swaps--The Fund may enter into swap agreements, which are OTC contracts in
which the Fund and a counterparty agree to make periodic net payments on a
specified notional amount. The net payments can be made for a set period of time
or may be triggered by a predetermined credit event. The net periodic payments
may be based on a fixed or variable
44
- --------------------------------------------------------------------------------
interest rate; the change in market value of a specified security, basket of
securities, or index; or the return generated by a security. These periodic
payments received or made by the Fund are recorded in the accompanying Statement
of Operations as realized gains or losses, respectively. Gains or losses are
also realized upon termination of the swap agreements. Swaps are
marked-to-market daily and changes in value are recorded as unrealized
appreciation (depreciation). Risks include changes in the returns of the
underlying instruments, failure of the counterparties to perform under the
contracts' terms and the possible lack of liquidity with respect to the swap
agreements.
(e) Income taxes--It is the Fund's policy to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no federal income tax provision is required. Under the applicable
foreign tax law, a withholding tax may be imposed on interest, dividends and
capital gains at various rates.
(f) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Realized gains and losses on security transactions are determined on the
identified cost basis. Dividend income is recorded on the ex-dividend dates.
Dividends from foreign securities where the ex-dividend date may have passed are
subsequently recorded when the Fund has determined the ex-dividend date.
Interest income is recognized on the accrual basis. The Fund amortizes all
premiums and discounts on debt securities.
(g) Dividends and distributions--Dividends and distributions paid by the Fund
are recorded on the ex-dividend dates.
(h) Securities lending--The Fund may lend securities to financial institutions
that provide cash or securities issued or guaranteed by the U.S. government as
collateral, which will be maintained at all times in an amount equal to at least
100% of the current market value of the loaned securities. The market value of
the loaned securities is determined at the close of business of the Fund and any
additional required collateral is delivered to the Fund on the next business
day. Where the Fund receives securities as collateral for the loaned securities,
it collects a fee from the borrower. The Fund typically receives the income on
the loaned securities but does not receive the income on the collateral. Where
the Fund receives cash collateral, it may invest such collateral and retain the
amount earned on such investment, net of any amount rebated to the borrower.
Loans of securities are terminable at any time and the borrower, after notice,
is required to return borrowed securities within five business days. The Fund
may pay reasonable finder's, lending agent, administrative and custodial fees in
connection with its loans. In the event that the borrower defaults on its
obligation to return borrowed securities because of insolvency or for any other
reason, the Fund could experience delays and costs in gaining access to the
collateral. The Fund also could suffer a loss where the value of the collateral
falls below the market value of the borrowed securities, in the event of
borrower default or in the event of losses on investments made with cash
collateral.
(i) Expenses--Certain expenses have been allocated to the individual funds in
the Company on a pro rata basis based upon the respective aggregate net asset
value of each fund included in the Company.
(j) Recent accounting pronouncements--Effective June 29, 2007, the Fund
implemented Financial Accounting Standards Board ("FASB") Interpretation No. 48,
"Accounting for Uncertainty in Income Taxes--an interpretation of FASB Statement
No. 109" ("FIN 48"). FIN 48 prescribes the minimum recognition threshold a tax
position must meet in connection with accounting for uncertainties in income tax
positions taken or expected to be taken by an entity, including investment
companies, before being measured and recognized in the financial statements.
Management has evaluated the application of FIN 48 to the Fund, and has
determined that the adoption of FIN 48 does not have a material impact on the
Fund's financial statements. The Fund files U.S. and various state tax returns.
No income tax returns are currently under examination. The statute of
limitations on the Fund's tax returns remains open for the years ended December
31, 2003 through December 31, 2006.
In September 2006, Statement of Financial Accounting Standards No. 157, "Fair
Value Measurements" ("FAS 157"), was issued and is effective for fiscal years
beginning after November 15, 2007. FAS 157 defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. At this time, management is evaluating the implications of FAS 157
and its impact on the Fund's financial statements, if any, has not been
determined.
45
- --------------------------------------------------------------------------------
In addition, in February 2007, Statement of Financial Accounting Standards No.
159, "The Fair Value Option for Financial Assets and Financial Liabilities"
("FAS 159"), was issued and is effective for fiscal years beginning after
November 15, 2007. Early adoption is permitted as of the beginning of a fiscal
year that begins on or before November 15, 2007, provided the entity also elects
to apply the provisions of FAS 157. FAS 159 permits entities to choose to
measure many financial instruments and certain other items at fair value that
are not currently required to be measured at fair value. FAS 159 also
establishes presentation and disclosure requirements designed to facilitate
comparisons between entities that choose different measurement attributes for
similar types of assets and liabilities. At this time, management is evaluating
the implications of FAS 159 and its impact on the Fund's financial statements,
if any, has not been determined.
2. INVESTMENT ADVISORY AGREEMENT AND TRANSACTIONS WITH AFFILIATES:
The Fund has entered into an Investment Advisory Agreement with the Manager. The
Fund has also entered into separate Distribution Agreements and Distribution
Plans with FAM Distributors, Inc. ("FAMD") and BlackRock Distributors, Inc. and
its affiliates ("BDI") (collectively, the "Distributor"). FAMD is a wholly owned
subsidiary of Merrill Lynch Group, Inc., and BDI is an affiliate of BlackRock,
Inc. Merrill Lynch and The PNC Financial Services Group, Inc. ("PNC") are the
principal owners of BlackRock, Inc.
The Manager 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 Fund. For such services, the Fund
pays a monthly fee at the annual rate of .65% of the average daily value of the
Fund's net assets. In addition, the Manager has entered into sub-advisory
agreements with BlackRock Investment Management, LLC ("BIM") and BlackRock Asset
Management U.K. Limited, both affiliates of the Manager, under which the Manager
pays each Sub-Adviser for services it provides a monthly fee at an annual rate
that is a percentage of the management fee paid by the Fund to the Manager.
Pursuant to the Distribution Plans adopted by the Company, in accordance with
Rule 12b-1 under the Investment Company Act of 1940, the Fund pays the
Distributor an ongoing distribution fee each month at the annual rate of .15%
and .25% of the average daily value of the Fund's Class II and Class III net
assets, respectively.
The Company has received an exemptive order from the Securities and Exchange
Commission permitting it to lend portfolio securities to Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S"), a wholly owned subsidiary of Merrill
Lynch, or its affiliates. Pursuant to that order, the Company also has retained
BIM as the securities lending agent for a fee based on a share of the returns on
investment of cash collateral. BIM may, on behalf of the Company and the Fund,
invest cash collateral received by the Fund for such loans, among other things,
in a private investment company managed by the Manager or in registered money
market funds advised by the Manager or its affiliates. For the six months ended
June 30, 2007, BIM received $2,132 in securities lending agent fees from the
Fund.
For the six months ended June 30, 2007, the Fund reimbursed the Manager $6,769
for certain accounting services.
In addition, MLPF&S received $15,371 in commissions on the execution of
portfolio security transactions for the Fund for the six months ended June 30,
2007.
PFPC Inc., an indirect, wholly owned subsidiary of PNC and an affiliate of the
Manager, is the Fund's transfer agent.
Certain officers and/or directors of the Company are officers and/or directors
of BlackRock, Inc. or its affiliates.
3. INVESTMENTS:
Purchases and sales (including paydowns) of investments, excluding short-term
securities, for the six months ended June 30, 2007 were $165,001,141 and
$138,511,356, respectively.
Transactions in call options written for the six months ended June 30, 2007
were as follows:
<Table>
<Caption>
- -------------------------------------------------------------------
Number of Premiums
Call Options Written Contracts Received
- -------------------------------------------------------------------
Outstanding call options written,
beginning of period...................... 13,987 $ 4,174,336
Options written........................... 3,731 1,753,611
Options closed............................ (1,834) (820,261)
Options expired........................... (3,360) (418,281)
Options exercised......................... (4,395) (1,310,650)
------ -----------
Outstanding call options written, end of
period................................... 8,129 $ 3,378,755
====== ===========
- -------------------------------------------------------------------
</Table>
4. CAPITAL SHARE TRANSACTIONS:
Net increase in net assets derived from capital share transactions was
$44,666,402 and $17,122,624 for the six months ended June 30, 2007 and the year
ended December 31, 2006, respectively.
46
- --------------------------------------------------------------------------------
Transactions in capital shares for each class were as follows:
<Table>
<Caption>
- -------------------------------------------------------------------
Class I Shares for the Six Months Ended
June 30, 2007 Shares Dollar Amount
- -------------------------------------------------------------------
Shares sold............................ 521,835 $ 7,946,036
Shares redeemed........................ (2,690,816) (41,152,625)
---------- ------------
Net decrease........................... (2,168,981) $(33,206,589)
========== ============
- -------------------------------------------------------------------
</Table>
<Table>
<Caption>
- -------------------------------------------------------------------
Class I Shares for the Year Ended
December 31, 2006 Shares Dollar Amount
- -------------------------------------------------------------------
Shares sold............................ 1,937,901 $ 28,171,478
Shares issued to shareholders in
reinvestment of dividends and
distributions......................... 3,074,131 45,435,659
---------- ------------
Total issued........................... 5,012,032 73,607,137
Shares redeemed........................ (6,631,759) (96,744,542)
---------- ------------
Net decrease........................... (1,619,727) $(23,137,405)
========== ============
- -------------------------------------------------------------------
</Table>
<Table>
<Caption>
- ------------------------------------------------------------------
Class II Shares for the Six Months Ended Dollar
June 30, 2007 Shares Amount
- ------------------------------------------------------------------
Shares sold.................................. 2,012 $ 31,480
Shares redeemed.............................. (26,285) (405,779)
------- ---------
Net decrease................................. (24,273) $(374,299)
======= =========
- ------------------------------------------------------------------
</Table>
<Table>
<Caption>
- ------------------------------------------------------------------
Class II Shares for the Year Ended Dollar
December 31, 2006 Shares Amount
- ------------------------------------------------------------------
Shares sold.................................. 42 $ 653
Shares issued to shareholders in reinvestment
of dividends and distributions.............. 7,414 109,585
------- ---------
Total issued................................. 7,456 110,238
Shares redeemed.............................. (16,330) (240,056)
------- ---------
Net decrease................................. (8,874) $(129,818)
======= =========
- ------------------------------------------------------------------
</Table>
<Table>
<Caption>
- -------------------------------------------------------------------
Class III Shares for the Six Months Ended Dollar
June 30, 2007 Shares Amount
- -------------------------------------------------------------------
Shares sold............................. 5,819,918 $81,477,964
Shares redeemed......................... (231,038) (3,230,674)
---------- -----------
Net increase............................ 5,588,880 $78,247,290
========== ===========
- -------------------------------------------------------------------
</Table>
<Table>
<Caption>
- -------------------------------------------------------------------
Class III Shares for the Year Ended
December 31, 2006 Shares Dollar Amount
- -------------------------------------------------------------------
Shares sold............................ 5,046,538 $ 69,004,565
Shares issued to shareholders in
reinvestment of dividends and
distributions......................... 354,018 4,782,788
---------- ------------
Total issued........................... 5,400,556 73,787,353
Shares redeemed........................ (2,464,621) (33,397,506)
---------- ------------
Net increase........................... 2,935,935 $ 40,389,847
========== ============
- -------------------------------------------------------------------
</Table>
5. SHORT-TERM BORROWINGS:
The Company, on behalf of the Fund, along with certain other funds managed by
the Manager and its affiliates, is party to a $500,000,000 credit agreement with
a group of lenders, which expires November 2007. 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 .06% per annum based on the Fund's pro rata share of the
unused portion of the credit agreement. Amounts borrowed under the credit
agreement bear interest at a rate equal to, at each fund's election, the federal
funds rate plus .35% or a base rate as defined in the credit agreement. The Fund
did not borrow under the credit agreement during the six months ended June 30,
2007.
6. COMMITMENTS:
At June 30, 2007, the Fund had entered into foreign exchange contracts, in
addition to the contracts listed on the Schedule of Investments, under which it
had agreed to purchase various foreign currencies with an approximate value of
$1,109,000.
47
- --------------------------------------------------------------------------------
BLACKROCK GLOBAL GROWTH V.I. FUND
-------------------------------------------------------------------------
Semi-Annual Report (Unaudited)
June 30, 2007
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS
BlackRock Global Growth V.I. Fund
A Discussion With Your Fund's Portfolio Manager
- --------------------------------------------------------------------------------
The Fund solidly outperformed its benchmark index and comparable Lipper
category average for the period, benefiting significantly from favorable
geographic exposures and successful stock selection.
HOW DID THE FUND PERFORM DURING THE PERIOD IN LIGHT OF THE EXISTING MARKET
CONDITIONS?
For the six-month period ended June 30, 2007, BlackRock Global Growth V.I.
Fund's Class I Shares had a total return of +17.38%. For the same period, the
benchmark Morgan Stanley Capital International (MSCI) World Index returned
+9.17% (in U.S. dollar terms) and the Lipper Global Growth Funds (Variable
Products) category posted an average return of +10.26%. (Funds in this Lipper
category invest at least 75% of their equity assets in companies both inside and
outside the United States. Growth funds typically have an above-average
price-to-cash flow ratio, price-to-book ratio and three-year sales-per-share
growth value compared to the S&P Citigroup World Broad Market Index.)
Global equity markets enjoyed strong returns over the six-month period ended
June 2007. Most major markets significantly outperformed the MSCI World Index
(in U.S.-dollar terms), with the notable exceptions of the United States and
Japan. Markets in emerging/developing economies outperformed developed markets
by a nearly two-to-one margin over the period.
Despite the positive performance overall, a near 6% retreat in the MSCI World
Index in late February was triggered by fears of overheating in Asian markets
(specifically, China's Shanghai stock exchange) as well as resurfacing concern
over the fate of the global "carrytrade" that has, in effect, supported
perceived liquidity for some time. These issues were short-lived, however, as
global equities recovered briskly from their early March lows. Slower
first-quarter gross domestic product growth in the United States did not impede
overall global growth patterns as many had feared, as emerging/developing
economies continued to expand at attractive rates. Sector leadership reverted
back to a more cyclical orientation by period-end, with the industrials,
materials and energy sectors generating strong returns.
WHAT FACTORS MOST INFLUENCED FUND PERFORMANCE?
The Fund outperformed the benchmark MSCI World Index and its comparable Lipper
category average for the period. Country allocation and stock selection were
significant positive contributors to the Fund's results. Specifically, our
considerable underweight of the U.S. market (approximately 31% in the portfolio
at period-end versus 47% for the MSCI World Index) and a significant overweight
in Australia (approximately 19% of portfolio assets at period-end) benefited
performance. Our exposures in Hong Kong/China (9%) and Switzerland (5%) also
generated favorable returns for the Fund.
Outperformance from security selection in the financials, industrials, energy
and health care sectors also was meaningful during the period. Specific holdings
that contributed to Fund returns included Leighton Holdings Ltd. (Australia),
National Oilwell Varco Inc. (U.S.), Wacker Chemie AG (Germany), BEAerospace Inc.
(U.S.) and CSL Ltd. (Australia).
A slightly overweight position in information technology and stock selection
in the materials sector marginally detracted from relative performance, as did
the Fund's cash balances. Specific holdings that negatively impacted returns
included Starbucks Corp. (U.S.), International Game Technology (U.S.), Samsung
Electronics Co. Ltd. (South Korea), Nutrisystem Inc. (U.S.) and Zinifex Ltd.
(Australia).
WHAT CHANGES WERE MADE TO THE PORTFOLIO DURING THE PERIOD?
After the late-February market pullback, we regained confidence in the global
outlook and took steps to position the portfolio accordingly. Exposure to the
industrials, energy and materials sectors was increased measurably to reflect
various opportunities we have identified, particularly in the Asia-Pacific
region. The Fund's exposure to the financials sector was reduced to a further
underweight on concerns over higher global interest rates and lack of convincing
investment ideas. (At more than 25%, financials is the largest sector in the
benchmark MSCI World Index.) Positions in the health care and consumer
discretionary sectors also were lowered for stock-specific reasons.
From a geographic perspective, we modestly reduced the portfolio's exposure to
India early in the period from approximately 12% of net assets to about 8% on
near-term concern over recent interest rate increases in the country. The Fund's
exposure to Australia was lowered from 21% of net assets to roughly 19% in March
on profit-taking opportunities. We established modest positions in Brazil (3%)
and Mexico (1%)
2
- --------------------------------------------------------------------------------
based upon a favorable consumer growth profile. The portfolio's allocation to
the U.S. market increased slightly from approximately 29% of net assets to
approximately 31%.
Significant additions to the portfolio during the period included Monsanto Co.
(U.S.), ABB Ltd (Switzerland), Deere & Co., Altria Group Inc., McDonalds Corp.
and EMC Corp. (all U.S.), Net Servicos De Communicao (Brazil), America Movil SAB
(Mexico), Worley Parsons Ltd. (Australia), MEMC Electronic Materials, Inc.
(U.S.), Freeport McMoRan Copper & Gold Inc. (U.S.) and Standard Chartered PLC
(U.K.), among others. Significant reductions or liquidations included Publishing
& Broadcasting Ltd. (Australia), National Australia Bank (Australia), Cerner
Corp. (U.S.), Energy Resources of Australia Ltd (Australia), Corning Inc.
(U.S.), Charles Schwab Corp. (U.S.), The Goldman Sachs Group, Inc. (U.S.),
Cognizant Technology Solutions Corp. (U.S.), Commonwealth Bank of Australia
(Australia), ZTE Corp. (Hong Kong), Kohls Corp. (U.S.), Best Buy Co., Inc.
(U.S.), Trinity Industries, Inc. (U.S.), ICICI Bank Ltd. (India), Grant Prideco,
Inc. (U.S.) and SAP (Germany), among others.
HOW WOULD YOU CHARACTERIZE THE FUND'S POSITION AT THE CLOSE OF THE PERIOD?
U.S. economic growth (that is, gross domestic product growth) has decelerated
over recent quarters in what we view as a typical mid-cycle slowdown scenario.
At the same time, most other global economies continue to experience strong
rates of growth, providing a rather balanced demand backdrop worldwide. While
the U.S. housing market is experiencing some dislocation, we do not expect a
recession to unfold and, in fact, suspect there is upside risk to accelerating
economic growth from current levels by year-end 2007.
We continue to find relatively attractive investment opportunities worldwide.
At period-end, roughly 42% of the portfolio's net assets was invested in stocks
in the Asia-Pacific region and about 17% in emerging market economies. From a
sector perspective, the Fund ended the period overweight in industrials,
materials and energy, and underweight in financials, consumer discretionary and
health care.
Thomas E. Burke, CFA
Portfolio Manager
July 13, 2007
3
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Growth V.I. Fund
Total Return Based on a $10,000 Investment
- --------------------------------------------------------------------------------
(LINE GRAPH)
<Table>
<Caption>
BLACKROCK GLOBAL GROWTH V.I. MORGAN STANLEY CAPITAL
FUND+--CLASS I SHARES* INTERNATIONAL WORLD INDEX++
---------------------------- ---------------------------
6/05/98** 10000 10000
6/98 10160 10000
6/99 11437 11567
6/00 14827 12977
6/01 10673 10343
6/02 8253 8769
6/03 7580 8561
6/04 9508 10616
6/05 10951 11683
6/06 13416 13661
6/07 17991 16884
</Table>
(LINE GRAPH)
<Table>
<Caption>
BLACKROCK GLOBAL GROWTH BLACKROCK GLOBAL GROWTH
V.I. FUND+--CLASS II V.I. FUND+--CLASS III MORGAN STANLEY CAPITAL
SHARES* SHARES* INTERNATIONAL WORLD INDEX++
----------------------- ----------------------- ---------------------------
9/30/04** 10000 10000 10000
6/05 11228 11228 11117
6/06 13756 13756 12999
6/07 18423 18411 16065
</Table>
* Assuming transaction costs, if any, and other operating expenses, including
advisory fees. Does not include insurance-related fees and expenses.
Effective September 2, 2003, Class A Shares were redesignated Class I
Shares.
** Commencement of operations.
+ The Fund invests in a diversified portfolio of equity securities of issuers
located in various foreign countries and the United States, placing
particular emphasis on companies that have exhibited above-average earnings
growth.
++ This unmanaged market capitalization-weighted Index is comprised of a
representative sampling of large-, medium- and small-capitalization
companies in 23 countries, including the United States. The starting date
for the Index in the graph for Class I Shares is from 6/30/98.
4
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Growth V.I. Fund
Average Annual Total Return--Class I Shares*
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERIOD COVERED RETURN
- --------------------------------------------------------------------------
One Year Ended 6/30/07 +34.10%
- --------------------------------------------------------------------------
Five Years Ended 6/30/07 +16.87
- --------------------------------------------------------------------------
Inception (6/05/98) through 6/30/07 + 6.69
- --------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Growth V.I. Fund
Average Annual Total Return--Class II Shares*
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERIOD COVERED RETURN
- --------------------------------------------------------------------------
One Year Ended 6/30/07 +33.93%
- --------------------------------------------------------------------------
Inception (9/30/04) through 6/30/07 +24.90
- --------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Growth V.I. Fund
Average Annual Total Return--Class III Shares*
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERIOD COVERED RETURN
- --------------------------------------------------------------------------
One Year Ended 6/30/07 +33.84%
- --------------------------------------------------------------------------
Inception (9/30/04) through 6/30/07 +24.87
- --------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Growth V.I. Fund
Recent Performance Results
- --------------------------------------------------------------------------------
<Table>
<Caption>
6-MONTH 12-MONTH
AS OF JUNE 30, 2007 TOTAL RETURN TOTAL RETURN
- -----------------------------------------------------------------------------------------
Class I Shares* +17.38% +34.10%
- -----------------------------------------------------------------------------------------
Class II Shares* +17.23 +33.93
- -----------------------------------------------------------------------------------------
Class III Shares* +17.24 +33.84
- -----------------------------------------------------------------------------------------
MSCI World Index** + 9.17 +23.59
- -----------------------------------------------------------------------------------------
</Table>
* Average annual and cumulative 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. For a portion of the period, returns do not show the effects
of distribution fees (12b-1 fees) applicable to Class II and Class III
Shares. If such fees were included, returns shown would have been lower.
** This unmanaged market-capitalization weighted Index is comprised of a
representative sampling of large-, medium- and small-capitalization
companies in 23 countries, including the United States.
Past results shown should not be considered a representation of future
performance.
5
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Growth V.I. Fund
Disclosure of Expenses
- --------------------------------------------------------------------------------
Shareholders of this Fund may incur the following charges: (a) expenses related
to transactions, including sales charges, redemption fees and exchange fees; and
(b) operating expenses including advisory fees, distribution fees including
12b-1 fees, and other Fund expenses. The following example (which is based on a
hypothetical investment of $1,000 invested on January 1, 2007 and held through
June 30, 2007) is intended to assist shareholders both in calculating expenses
based on an investment in the Fund and in comparing these expenses with similar
costs of investing in other mutual funds.
The first table below provides information about actual account values and
actual expenses. In order to estimate the expenses a shareholder paid during the
period covered by this report, shareholders can divide their account value by
$1,000 and then multiply the result by the number in the first line under the
heading entitled "Expenses Paid During the Period."
The second table below provides information about hypothetical account values
and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses. In order to assist
shareholders in comparing the ongoing expenses of investing in this Fund and
other funds, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in other funds' shareholder reports.
The expenses shown in the table are intended to highlight shareholders'
ongoing costs only and do not reflect any transactional expenses, such as sales
charges, redemption fees or exchange fees. Therefore, the second table is useful
in comparing ongoing expenses only, and will not help shareholders determine the
relative total expenses of owning different funds. If these transactional
expenses were included, shareholder expenses would have been higher.
<Table>
<Caption>
EXPENSES PAID
BEGINNING ENDING DURING THE PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JANUARY 1, 2007 TO
JANUARY 1, 2007 JUNE 30, 2007 JUNE 30, 2007
- ------------------------------------------------------------------------------------------------------------------
ACTUAL
- ------------------------------------------------------------------------------------------------------------------
Class I $1,000 $1,173.80 $5.15
- ------------------------------------------------------------------------------------------------------------------
Class II $1,000 $1,172.30 $6.01
- ------------------------------------------------------------------------------------------------------------------
Class III $1,000 $1,172.40 $6.55
- ------------------------------------------------------------------------------------------------------------------
HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES)**
- ------------------------------------------------------------------------------------------------------------------
Class I $1,000 $1,020.16 $4.78
- ------------------------------------------------------------------------------------------------------------------
Class II $1,000 $1,019.37 $5.59
- ------------------------------------------------------------------------------------------------------------------
Class III $1,000 $1,018.87 $6.09
- ------------------------------------------------------------------------------------------------------------------
</Table>
* For each class of the Fund, expenses are equal to the annualized expense
ratio for the class (.95% for Class I, 1.11% for Class II and 1.21% for
Class III), multiplied by the average account value over the period,
multiplied by 182/365 (to reflect the one-half year period shown).
** Hypothetical 5% annual return before expenses is calculated by pro-rating
the number of days in the most recent fiscal half year divided by 365.
6
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Growth V.I. Fund
Portfolio Information as of June 30, 2007
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENT OF
GEOGRAPHIC ALLOCATION LONG-TERM INVESTMENTS
- -----------------------------------------------------------------------------------
United States............................................... 30.9%
Australia................................................... 19.0
India....................................................... 8.0
Hong Kong................................................... 7.4
Japan....................................................... 5.5
Switzerland................................................. 5.4
Canada...................................................... 4.3
Brazil...................................................... 3.6
France...................................................... 3.1
United Kingdom.............................................. 2.3
China....................................................... 1.6
South Africa................................................ 1.5
Germany..................................................... 1.5
Singapore................................................... 1.1
Mexico...................................................... 1.0
South Korea................................................. 1.0
Italy....................................................... 0.8
Spain....................................................... 0.6
Norway...................................................... 0.6
Sweden...................................................... 0.5
Bermuda..................................................... 0.3
- -----------------------------------------------------------------------------------
</Table>
7
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Growth V.I. Fund
Schedule of Investments as of June 30, 2007 (unaudited) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES
AFRICA INDUSTRY HELD COMMON STOCKS VALUE
- ------------------------------------------------------------------------------------------------------------------------
SOUTH AFRICA--1.5% CONSTRUCTION 3,400 Pretoria Portland Cement Co. Ltd. ..... $ 235,227
MATERIALS--0.3%
-------------------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & 99,400 Network Healthcare Holdings Ltd. ...... 202,386
SERVICES--0.2%
-------------------------------------------------------------------------------------------
INDUSTRIAL 11,400 Barloworld Ltd. ....................... 316,764
CONGLOMERATES--0.4%
-------------------------------------------------------------------------------------------
MEDIA--0.3% 10,500 Naspers Ltd. .......................... 269,770
-------------------------------------------------------------------------------------------
METALS & MINING--0.3% 9,600 Impala Platinum Holdings Ltd. ......... 291,861
-------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN AFRICA--1.5%.... 1,316,008
- ------------------------------------------------------------------------------------------------------------------------
<Caption>
EUROPE
- ------------------------------------------------------------------------------------------------------------------------
FRANCE--3.1% CONSTRUCTION & 7,200 Vinci SA............................... 537,387
ENGINEERING--0.6%
-------------------------------------------------------------------------------------------
ELECTRIC UTILITIES--0.3% 2,100 Electricite de France SA............... 226,975
-------------------------------------------------------------------------------------------
ELECTRICAL 400 Areva SA............................... 426,714
EQUIPMENT--0.5%
-------------------------------------------------------------------------------------------
MULTI-UTILITIES--1.1% 12,825 Veolia Environnement SA................ 1,007,288
-------------------------------------------------------------------------------------------
TEXTILES, APPAREL & 4,700 LVMH Moet Hennessy Louis Vuitton SA.... 540,804
LUXURY GOODS--0.6%
-------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN FRANCE.......... 2,739,168
- ------------------------------------------------------------------------------------------------------------------------
GERMANY--1.5% AUTOMOBILES--0.4% 200 Porsche AG (Preference Shares)......... 356,701
-------------------------------------------------------------------------------------------
CHEMICALS--0.8% 2,900 Wacker Chemie AG....................... 683,020
-------------------------------------------------------------------------------------------
INDUSTRIAL 1,700 Siemens AG............................. 244,637
CONGLOMERATES--0.3%
-------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN GERMANY......... 1,284,358
- ------------------------------------------------------------------------------------------------------------------------
ITALY--0.8% COMMERCIAL BANKS--0.8% 78,600 UniCredito Italiano SpA................ 701,918
-------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN ITALY........... 701,918
- ------------------------------------------------------------------------------------------------------------------------
NORWAY--0.6% ELECTRICAL 14,500 Renewable Energy Corp. AS(a)........... 561,562
EQUIPMENT--0.6%
-------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN NORWAY.......... 561,562
- ------------------------------------------------------------------------------------------------------------------------
SPAIN--0.6% DIVERSIFIED FINANCIAL 9,700 Bolsas y Mercados Espanoles............ 566,196
SERVICES--0.6%
-------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN SPAIN........... 566,196
- ------------------------------------------------------------------------------------------------------------------------
SWEDEN--0.5% DIVERSIFIED FINANCIAL 14,200 OMHEX AB............................... 422,914
SERVICES--0.5%
-------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN SWEDEN.......... 422,914
- ------------------------------------------------------------------------------------------------------------------------
SWITZERLAND--5.3% CHEMICALS--0.6% 5,600 Lonza Group AG Registered Shares....... 513,804
-------------------------------------------------------------------------------------------
COMMERCIAL SERVICES & 400 SGS SA................................. 472,986
SUPPLIES--0.5%
-------------------------------------------------------------------------------------------
ELECTRICAL 49,700 ABB Ltd. .............................. 1,120,625
EQUIPMENT--1.3%
-------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE 3,850 Petroplus Holdings AG(a)............... 393,494
FUELS--0.4%
-------------------------------------------------------------------------------------------
PHARMACEUTICALS--1.8% 13,700 Novartis AG Registered Shares.......... 769,126
4,700 Roche Holding AG....................... 832,777
-----------
1,601,903
-------------------------------------------------------------------------------------------
TEXTILES, APPAREL & 11,400 The Swatch Group Ltd. Registered
LUXURY GOODS--0.7% Shares............................... 644,787
-------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN SWITZERLAND..... 4,747,599
- ------------------------------------------------------------------------------------------------------------------------
</Table>
8
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Growth V.I. Fund
Schedule of Investments as of June 30, 2007 (continued) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
EUROPE SHARES
(CONCLUDED) INDUSTRY HELD COMMON STOCKS VALUE
- ------------------------------------------------------------------------------------------------------------------------
UNITED KINGDOM--2.2% BEVERAGES--1.2% 50,000 Diageo Plc............................. $ 1,039,246
-------------------------------------------------------------------------------------------
COMMERCIAL BANKS--0.6% 17,000 Standard Chartered Plc................. 554,495
-------------------------------------------------------------------------------------------
COMMERCIAL SERVICES & 20,000 Intertek Group Plc..................... 392,497
SUPPLIES--0.4%
-------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN THE UNITED
KINGDOM................................ 1,986,238
- ------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN EUROPE--14.6%... 13,009,953
- ------------------------------------------------------------------------------------------------------------------------
<Caption>
LATIN
AMERICA
- ------------------------------------------------------------------------------------------------------------------------
BRAZIL--3.6% BEVERAGES--0.7% 8,400 Cia de Bebidas das Americas (Preference
Shares)(b)........................... 588,000
-------------------------------------------------------------------------------------------
COMMERCIAL BANKS--0.4% 13,000 Banco Bradesco SA(b)................... 313,430
-------------------------------------------------------------------------------------------
MEDIA--0.8% 44,047 NET Servicos de Comunicacao SA
(Preference Shares)(a)............... 727,266
-------------------------------------------------------------------------------------------
METALS & MINING--0.3% 4,800 Companhia Vale do Rio Doce (Common
Shares)(b)........................... 213,840
-------------------------------------------------------------------------------------------
MULTILINE RETAIL--0.4% 20,600 Lojas Renner SA........................ 382,312
-------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE 4,600 Petroleo Brasileiro SA(b).............. 557,842
FUELS--0.6%
-------------------------------------------------------------------------------------------
PERSONAL PRODUCTS--0.4% 26,700 Natura Cosmeticos SA................... 385,482
-------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN BRAZIL.......... 3,168,172
- ------------------------------------------------------------------------------------------------------------------------
MEXICO--1.0% MEDIA--0.2% 6,600 Grupo Televisa, SA(b).................. 182,226
-------------------------------------------------------------------------------------------
WIRELESS 11,500 America Movil, SA de CV(b)............. 712,195
TELECOMMUNICATION
SERVICES--0.8%
-------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN MEXICO.......... 894,421
- ------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN LATIN
AMERICA--4.6%.......................... 4,062,593
- ------------------------------------------------------------------------------------------------------------------------
<Caption>
NORTH
AMERICA
- ------------------------------------------------------------------------------------------------------------------------
BERMUDA--0.3% ENERGY EQUIPMENT & 12,800 SeaDrill Ltd.(a)....................... 274,595
SERVICES--0.3%
-------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN BERMUDA......... 274,595
- ------------------------------------------------------------------------------------------------------------------------
CANADA--4.3% CHEMICALS--1.3% 14,400 Potash Corp. of Saskatchewan Inc. ..... 1,124,397
-------------------------------------------------------------------------------------------
COMMERCIAL BANKS--1.1% 8,800 Bank of Nova Scotia.................... 428,662
9,800 Royal Bank of Canada................... 520,888
-----------
949,550
-------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL 6,400 TSX Group, Inc. ....................... 250,533
SERVICES--0.3%
-------------------------------------------------------------------------------------------
ENERGY EQUIPMENT & 16,800 Ensign Resource Service Group.......... 299,648
SERVICES--0.3%
-------------------------------------------------------------------------------------------
FOOD & STAPLES 8,000 Shoppers Drug Mart Corp. .............. 370,542
RETAILING--0.4%
-------------------------------------------------------------------------------------------
</Table>
9
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Growth V.I. Fund
Schedule of Investments as of June 30, 2007 (continued) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
NORTH
AMERICA SHARES
(CONTINUED) INDUSTRY HELD COMMON STOCKS VALUE
- ------------------------------------------------------------------------------------------------------------------------
CANADA
(CONCLUDED)
METALS & MINING--0.3% 5,800 Teck Cominco Ltd. Class B.............. $ 246,102
-------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE 10,600 Cameco Corp. .......................... 537,339
FUELS--0.6%
-------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN CANADA.......... 3,778,111
- ------------------------------------------------------------------------------------------------------------------------
UNITED STATES--30.5% AEROSPACE & 21,800 BE Aerospace, Inc.(a).................. 900,340
DEFENSE--1.5%
3,700 Precision Castparts Corp. ............. 449,032
-----------
1,349,372
-------------------------------------------------------------------------------------------
CAPITAL MARKETS--0.8% 15,200 E*Trade Financial Corp.(a)............. 335,768
6,200 Northern Trust Corp. .................. 398,288
-----------
734,056
-------------------------------------------------------------------------------------------
CHEMICALS--1.1% 14,300 Monsanto Co. .......................... 965,822
-------------------------------------------------------------------------------------------
COMMUNICATIONS 55,300 Cisco Systems, Inc.(a)................. 1,540,105
EQUIPMENT--2.2%
9,400 QUALCOMM, Inc. ........................ 407,866
-----------
1,947,971
-------------------------------------------------------------------------------------------
COMPUTERS & 43,900 EMC Corp.(a)........................... 794,590
PERIPHERALS--0.9%
-------------------------------------------------------------------------------------------
CONSTRUCTION & 16,000 Jacobs Engineering Group, Inc.(a)...... 920,160
ENGINEERING--1.0%
-------------------------------------------------------------------------------------------
ELECTRICAL 8,700 General Cable Corp.(a)................. 659,025
EQUIPMENT--1.7%
14,900 Roper Industries, Inc. ................ 850,790
-----------
1,509,815
-------------------------------------------------------------------------------------------
ENERGY EQUIPMENT & 8,200 Complete Production Services,
SERVICES--2.5% Inc.(a).............................. 211,970
4,200 Core Laboratories NV(a)................ 427,098
6,600 National Oilwell Varco, Inc.(a)........ 687,984
10,000 Schlumberger Ltd. ..................... 849,400
-----------
2,176,452
-------------------------------------------------------------------------------------------
FOOD PRODUCTS--0.5% 5,100 Bunge Ltd. ............................ 430,950
-------------------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & 6,300 Intuitive Surgical, Inc.(a)(f)......... 874,251
SUPPLIES--1.0%
-------------------------------------------------------------------------------------------
HOTELS, RESTAURANTS & 13,100 McDonald's Corp. ...................... 664,956
LEISURE--1.4%
22,200 Starbucks Corp.(a)..................... 582,528
-----------
1,247,484
-------------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS--0.7% 10,800 The Procter & Gamble Co. .............. 660,852
-------------------------------------------------------------------------------------------
INSURANCE--1.0% 12,600 American International Group, Inc. .... 882,378
-------------------------------------------------------------------------------------------
INTERNET SOFTWARE & 18,800 Akamai Technologies, Inc.(a)........... 914,432
SERVICES--2.7%
2,900 Google, Inc. Class A(a)................ 1,517,802
-----------
2,432,234
-------------------------------------------------------------------------------------------
LIFE SCIENCES TOOLS & 12,900 Thermo Fisher Scientific, Inc.(a)...... 667,188
SERVICES--1.2%
6,800 Waters Corp.(a)........................ 403,648
-----------
1,070,836
-------------------------------------------------------------------------------------------
MACHINERY--3.0% 5,500 Bucyrus International, Inc. ........... 389,290
7,500 Deere & Co. ........................... 905,550
12,300 Joy Global, Inc. ...................... 717,459
7,700 Terex Corp.(a)......................... 626,010
-----------
2,638,309
-------------------------------------------------------------------------------------------
MEDIA--0.6% 10,200 Focus Media Holding Ltd.(a)(b)......... 515,100
-------------------------------------------------------------------------------------------
</Table>
10
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Growth V.I. Fund
Schedule of Investments as of June 30, 2007 (continued) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
NORTH
AMERICA SHARES
(CONCLUDED) INDUSTRY HELD COMMON STOCKS VALUE
- ------------------------------------------------------------------------------------------------------------------------
UNITED STATES
(CONCLUDED)
METALS & MINING--1.6% 7,000 Allegheny Technologies, Inc. .......... $ 734,160
8,000 Freeport-McMoRan Copper & Gold, Inc.
Class B.............................. 662,560
-----------
1,396,720
-------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE 10,500 Exxon Mobil Corp. ..................... 880,740
FUELS--1.0%
-------------------------------------------------------------------------------------------
SEMICONDUCTORS & 7,300 MEMC Electronic Materials, Inc.(a)..... 446,176
SEMICONDUCTOR
EQUIPMENT--0.8%
6,500 NVIDIA Corp.(a)........................ 268,515
-----------
714,691
-------------------------------------------------------------------------------------------
SOFTWARE--0.9% 6,600 Factset Research Systems, Inc. ........ 451,110
18,700 Oracle Corp.(a)........................ 368,577
-----------
819,687
-------------------------------------------------------------------------------------------
TEXTILES, APPAREL & 12,200 Coach, Inc.(a)......................... 578,158
LUXURY GOODS--0.7%
-------------------------------------------------------------------------------------------
TOBACCO--1.0% 13,200 Altria Group, Inc. .................... 925,848
-------------------------------------------------------------------------------------------
WIRELESS 19,400 SBA Communications Corp. Class A(a).... 651,646
TELECOMMUNICATION
SERVICES--0.7%
-------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN THE UNITED
STATES................................. 27,118,122
- ------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN NORTH
AMERICA--35.1%......................... 31,170,828
- ------------------------------------------------------------------------------------------------------------------------
<Caption>
PACIFIC
BASIN/ASIA
- ------------------------------------------------------------------------------------------------------------------------
AUSTRALIA--18.7% BIOTECHNOLOGY--0.9% 10,200 CSL Ltd. .............................. 759,263
-------------------------------------------------------------------------------------------
CAPITAL MARKETS--2.1% 90,100 Australian Wealth Management Ltd. ..... 202,212
14,800 Macquarie Bank Ltd. ................... 1,063,014
9,200 Perpetual Trustees Australia Ltd. ..... 611,437
-----------
1,876,663
-------------------------------------------------------------------------------------------
CHEMICALS--1.1% 4,400 Incitec Pivot Ltd. .................... 296,584
22,100 Nufarm Ltd. ........................... 258,986
16,000 Orica Ltd. ............................ 403,169
-----------
958,739
-------------------------------------------------------------------------------------------
COMMERCIAL BANKS--2.1% 30,100 Australia & New Zealand Banking Group
Ltd. ................................ 739,292
6,500 Commonwealth Bank of Australia Ltd. ... 304,087
11,300 National Australia Bank Ltd. .......... 392,705
20,100 Westpac Banking Corp. ................. 436,467
-----------
1,872,551
-------------------------------------------------------------------------------------------
COMMERCIAL SERVICES & 44,300 Seek Ltd. ............................. 276,581
SUPPLIES--0.3%
-------------------------------------------------------------------------------------------
CONSTRUCTION & 324,200 Boart Longyear Group(a)................ 612,932
ENGINEERING--1.8%
28,400 Leighton Holdings Ltd. ................ 989,917
-----------
1,602,849
-------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL 14,800 Australian Stock Exchange Ltd. ........ 609,482
SERVICES--1.3%
21,300 Babcock & Brown Ltd. .................. 577,413
-----------
1,186,895
-------------------------------------------------------------------------------------------
ENERGY EQUIPMENT & 26,111 WorleyParsons Ltd. .................... 751,086
SERVICES--0.8%
-------------------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & 12,600 Cochlear Ltd. ......................... 650,602
SUPPLIES--0.7%
-------------------------------------------------------------------------------------------
</Table>
11
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Growth V.I. Fund
Schedule of Investments as of June 30, 2007 (continued) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PACIFIC
BASIN/ASIA SHARES
(CONTINUED) INDUSTRY HELD COMMON STOCKS VALUE
- ------------------------------------------------------------------------------------------------------------------------
AUSTRALIA
(CONCLUDED)
INSURANCE--1.0% 35,000 QBE Insurance Group Ltd. .............. $ 923,475
-------------------------------------------------------------------------------------------
METALS & MINING--3.7% 42,800 BHP Billiton Ltd. ..................... 1,278,895
428,724 Lihir Gold Ltd.(a)..................... 1,100,318
56,800 Zinifex Ltd. .......................... 900,770
-----------
3,279,983
-------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE 55,900 Origin Energy Ltd. .................... 470,043
FUELS--1.6%
47,500 Paladin Resources Ltd.(a).............. 330,059
15,600 Woodside Petroleum Ltd. ............... 603,061
-----------
1,403,163
-------------------------------------------------------------------------------------------
TRANSPORTATION 224,800 Macquarie Infrastructure Group......... 684,721
INFRASTRUCTURE--1.3%
62,300 Transurban Group....................... 422,397
-----------
1,107,118
-------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN AUSTRALIA....... 16,648,968
- ------------------------------------------------------------------------------------------------------------------------
CHINA--1.5% ELECTRICAL 6,300 Suntech Power Holdings Co.
EQUIPMENT--0.3% Ltd.(a)(b)(f)........................ 229,761
-------------------------------------------------------------------------------------------
METALS & MINING--0.5% 247,500 China Molybdenum Co. Ltd.(a) .......... 477,958
-------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE 188,100 China Shenhua Energy Co. Ltd. Class H.. 656,349
FUELS--0.7%
-------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN CHINA........... 1,364,068
- ------------------------------------------------------------------------------------------------------------------------
HONG KONG--7.3% COMMUNICATIONS 80,700 ZTE Corp. ............................. 383,845
EQUIPMENT--0.4%
-------------------------------------------------------------------------------------------
DISTRIBUTORS--1.0% 235,000 China Resources Enterprise, Ltd. ...... 883,617
-------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL 66,500 Hong Kong Exchanges and Clearing
SERVICES--1.0% Ltd. ................................ 938,781
-------------------------------------------------------------------------------------------
ELECTRIC UTILITIES--0.7% 174,300 Cheung Kong Infrastructure Holdings
Ltd. ................................ 643,121
-------------------------------------------------------------------------------------------
FOOD PRODUCTS--0.8% 222,500 Chaoda Modern Agriculture Holdings
Ltd. ................................ 171,965
151,200 China Mengniu Dairy Co., Ltd. ......... 521,679
-----------
693,644
-------------------------------------------------------------------------------------------
INDUSTRIAL 203,000 NWS Holdings Ltd. ..................... 506,521
CONGLOMERATES--0.6%
-------------------------------------------------------------------------------------------
REAL ESTATE MANAGEMENT & 34,100 Henderson Land Development Co., Ltd. .. 232,457
DEVELOPMENT--0.7%
267,700 Midland Holdings Ltd. ................. 168,375
16,400 Sun Hung Kai Properties Ltd. .......... 197,335
-----------
598,167
-------------------------------------------------------------------------------------------
TRANSPORTATION 156,100 COSCO Pacific Ltd. .................... 409,198
INFRASTRUCTURE--1.3%
113,500 China Merchants Holdings International
Co., Ltd. ........................... 549,451
54,500 Hopewell Holdings Ltd. ................ 222,421
-----------
1,181,070
-------------------------------------------------------------------------------------------
WIRELESS 64,600 China Mobile Ltd. ..................... 695,033
TELECOMMUNICATION
SERVICES--0.8%
-------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN HONG KONG....... 6,523,799
- ------------------------------------------------------------------------------------------------------------------------
INDIA--8.0% AUTOMOBILES--0.2% 12,300 Tata Motors Ltd. ...................... 202,579
-------------------------------------------------------------------------------------------
CONSTRUCTION & 20,400 IVRCL Infrastructures & Projects
ENGINEERING--1.3% Ltd. ................................ 179,946
14,400 Jaiprakash Associates Ltd. ............ 262,303
13,600 Larsen & Toubro Ltd. .................. 734,855
-----------
1,177,104
-------------------------------------------------------------------------------------------
</Table>
12
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Growth V.I. Fund
Schedule of Investments as of June 30, 2007 (continued) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PACIFIC
BASIN/ASIA SHARES
(CONTINUED) INDUSTRY HELD COMMON STOCKS VALUE
- ------------------------------------------------------------------------------------------------------------------------
INDIA
(CONCLUDED)
ELECTRICAL 11,600 Bharat Heavy Electricals Ltd. ......... $ 438,744
EQUIPMENT--0.8%
7,600 Suzlon Energy Ltd. .................... 279,278
-----------
718,022
-------------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS--0.4% 84,900 Hindustan Lever Ltd. .................. 394,040
-------------------------------------------------------------------------------------------
IT SERVICES--1.3% 9,900 Infosys Technologies Ltd. ............. 468,533
28,800 Satyam Computer Services Ltd. ......... 330,754
11,600 Tata Consultancy Services Ltd. ........ 328,136
-----------
1,127,423
-------------------------------------------------------------------------------------------
INDUSTRIAL 7,000 Siemens India Ltd. .................... 239,536
CONGLOMERATES--0.3%
-------------------------------------------------------------------------------------------
MEDIA--0.3% 15,371 Zee News Ltd.(a)....................... 17,342
34,000 Zee Telefilms Ltd. .................... 248,379
-----------
265,721
-------------------------------------------------------------------------------------------
METALS & MINING--1.0% 85,600 Hindalco Industries Ltd. .............. 336,878
36,200 Sterlite Industries India Ltd. ........ 520,572
-----------
857,450
-------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE 13,700 Reliance Industries Ltd. .............. 573,472
FUELS--0.7%
-------------------------------------------------------------------------------------------
PHARMACEUTICALS--0.5% 36,000 Cipla Ltd. ............................ 184,193
10,100 Sun Pharma Advanced Rese(a)............ 20,681
10,100 Sun Pharmaceuticals Industries Ltd. ... 254,355
-----------
459,229
-------------------------------------------------------------------------------------------
WIRELESS 33,000 Bharti Tele-Ventures Ltd.(a)........... 678,296
TELECOMMUNICATION
SERVICES--1.2%
29,000 Reliance Communication Ventures Ltd.... 368,065
-----------
1,046,361
-------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN INDIA........... 7,060,937
- ------------------------------------------------------------------------------------------------------------------------
JAPAN--5.5% CAPITAL MARKETS--0.4% 18,700 Nomura Holdings, Inc. ................. 363,217
-------------------------------------------------------------------------------------------
CHEMICALS--1.2% 13,400 JSR Corp. ............................. 323,342
42,000 Mitsubishi Rayon Co., Ltd. ............ 299,158
21,100 Toho Tenax Co. Ltd.(a)................. 132,036
42,000 Toray Industries, Inc. ................ 310,355
-----------
1,064,891
-------------------------------------------------------------------------------------------
CONSTRUCTION & 16,500 Chiyoda Corp. ......................... 314,405
ENGINEERING--0.4%
-------------------------------------------------------------------------------------------
ELECTRICAL 32,000 Matsushita Electric Works Ltd. ........ 409,141
EQUIPMENT--0.5%
-------------------------------------------------------------------------------------------
FOOD & STAPLES 11,100 Seven & I Holdings Co. Ltd. ........... 317,298
RETAILING--0.4%
-------------------------------------------------------------------------------------------
OFFICE ELECTRONICS--0.9% 14,000 Canon, Inc. ........................... 821,002
-------------------------------------------------------------------------------------------
REAL ESTATE MANAGEMENT & 8,000 Mitsubishi Estate Co., Ltd. ........... 217,045
DEVELOPMENT--0.8%
13,000 Mitsui Fudosan Co., Ltd. .............. 364,368
5,000 Sumitomo Realty & Development Co.,
Ltd. ................................ 162,832
-----------
744,245
-------------------------------------------------------------------------------------------
ROAD & RAIL--0.4% 50 East Japan Railway Co. ................ 385,261
-------------------------------------------------------------------------------------------
WIRELESS 275 NTT DoCoMo, Inc. ...................... 434,940
TELECOMMUNICATION
SERVICES--0.5%
-------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN JAPAN........... 4,854,400
- ------------------------------------------------------------------------------------------------------------------------
</Table>
13
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Growth V.I. Fund
Schedule of Investments as of June 30, 2007 (concluded) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PACIFIC
BASIN/ASIA SHARES
(CONCLUDED) INDUSTRY HELD COMMON STOCKS VALUE
- ------------------------------------------------------------------------------------------------------------------------
SINGAPORE--1.0% FOOD PRODUCTS--0.4% 168,000 Wilmar International Ltd. ............. $ 348,726
-------------------------------------------------------------------------------------------
INDUSTRIAL 70,400 Keppel Corp. Ltd. ..................... 575,910
CONGLOMERATES--0.6%
-------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN SINGAPORE....... 924,636
- ------------------------------------------------------------------------------------------------------------------------
SOUTH KOREA--1.0% SEMICONDUCTORS & 1,375 Samsung Electronics Co., Ltd. ......... 840,610
SEMICONDUCTOR
EQUIPMENT--1.0%
-------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN SOUTH KOREA..... 840,610
- ------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN
THE PACIFIC BASIN/ASIA--43.0%.......... 38,217,418
- ------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST--$68,049,480)--98.8%............. 87,776,800
- ------------------------------------------------------------------------------------------------------------------------
<Caption>
BENEFICIAL
INTEREST SHORT-TERM SECURITIES
- ------------------------------------------------------------------------------------------------------------------------
$1,335,107 BlackRock Liquidity Series, LLC Cash
Sweep Series, 5.33%(c)(d)............ 1,335,107
472,350 BlackRock Liquidity Series, LLC Money
Market Series, 5.33%(c)(d)(e)........ 472,350
- ------------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM SECURITIES
(COST--$1,807,457)--2.0%............... 1,807,457
- ------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST--$69,856,937*)--100.8%........... 89,584,257
LIABILITIES IN EXCESS
OF OTHER ASSETS--(0.8%)................ (741,731)
-----------
NET ASSETS--100.0%..................... $88,842,526
===========
- ------------------------------------------------------------------------------------------------------------------------
</Table>
* The cost and unrealized appreciation (depreciation) of investments as of
June 30, 2007, as computed for federal income tax purposes, were as
follows:
<Table>
Aggregate cost.............................................. $69,944,656
===========
Gross unrealized appreciation............................... $20,506,502
Gross unrealized depreciation............................... (866,901)
-----------
Net unrealized appreciation................................. $19,639,601
===========
</Table>
(a) Non-income producing security.
(b) Depositary receipts.
(c) Investments in companies considered to be an affiliate of the Fund, for
purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as
follows:
<Table>
<Caption>
- --------------------------------------------------------------------------------------
NET INTEREST
AFFILIATE ACTIVITY INCOME
- --------------------------------------------------------------------------------------
BlackRock Liquidity Series, LLC Cash Sweep Series........... $(1,447,171) $52,739
BlackRock Liquidity Series, LLC Money Market Series......... $ 90,550 $ 610
- --------------------------------------------------------------------------------------
</Table>
(d) Represents the current yield as of June 30, 2007.
(e) Security was purchased with the cash proceeds from securities loans.
(f) Security, or a portion of security, is on loan.
- For Fund compliance purposes, the Fund's industry classifications refer
to any one or more of the industry sub-classifications used by one or
more widely recognized market indexes or ratings group indexes, and/or
as defined by Fund management. This definition may not apply for
purposes of this report, which may combine industry sub-classifications
for reporting ease. Industries are shown as a percent of net assets.
See Notes to Financial Statements.
14
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Growth V.I. Fund
Statement of Assets and Liabilities as of June 30, 2007 (unaudited)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments in unaffiliated securities, at value (including
securities loaned of $458,376) (identified
cost--$68,049,480)........................................ $ 87,776,800
Investments in affiliated securities, at value (identified
cost--$1,807,457)......................................... 1,807,457
Cash........................................................ 1,577
Foreign cash (cost--$71,228)................................ 64,533
Receivables:
Dividends................................................. $ 197,304
Securities lending........................................ 258 197,562
------------
Prepaid expenses and other assets........................... 1,167
------------
Total assets................................................ 89,849,096
------------
- -------------------------------------------------------------------------------------------
LIABILITIES:
Collateral on securities loaned, at value................... 472,350
Deferred foreign capital gain tax........................... 209,522
Payables:
Securities purchased...................................... 185,355
Capital shares redeemed................................... 67,558
Investment adviser........................................ 51,809
Other affiliates.......................................... 690 305,412
------------
Accrued expenses and other liabilities...................... 19,286
------------
Total liabilities........................................... 1,006,570
------------
- -------------------------------------------------------------------------------------------
NET ASSETS.................................................. $ 88,842,526
============
- -------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Class I Shares of Common Stock, $.10 par value, 100,000,000
shares authorized......................................... $ 569,452
Class II Shares of Common Stock, $.10 par value, 100,000,000
shares authorized......................................... 12
Class III Shares of Common Stock, $.10 par value,
100,000,000 shares authorized............................. 12
Paid-in capital in excess of par............................ 140,589,149
Undistributed investment income--net........................ $ 414,545
Accumulated realized capital losses--net.................... (72,245,195)
Unrealized appreciation--net................................ 19,514,551
------------
Total accumulated losses--net............................... (52,316,099)
------------
NET ASSETS.................................................. $ 88,842,526
============
- -------------------------------------------------------------------------------------------
NET ASSET VALUE:
Class I--Based on net assets of $88,838,842 and 5,694,520
shares outstanding........................................ $ 15.60
============
Class II--Based on net assets of $1,842.60 and 118.24 shares
outstanding............................................... $ 15.58
============
Class III--Based on net assets of $1,841.50 and 118.24
shares outstanding........................................ $ 15.57
============
- -------------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements.
15
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Growth V.I. Fund
Statement of Operations for the Six Months Ended June 30, 2007 (unaudited)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividends (net of $29,184 foreign withholding tax).......... $ 759,687
Interest from affiliates.................................... 52,739
Securities lending--net..................................... 610
-----------
Total income................................................ 813,036
-----------
- ----------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees.................................... $ 301,808
Custodian fees.............................................. 30,099
Professional fees........................................... 19,824
Printing and shareholder reports............................ 8,490
Accounting services......................................... 8,461
Pricing services............................................ 3,769
Directors' fees and expenses................................ 2,512
Transfer agent fees--Class I................................ 2,318
Distribution fees--Class III................................ 2
Distribution fees--Class II................................. 1
Other....................................................... 5,795
----------
Total expenses.............................................. 383,079
-----------
Investment income--net...................................... 429,957
-----------
- ----------------------------------------------------------------------------------------
REALIZED & UNREALIZED GAIN (LOSS)--NET:
Realized gain on:
Investments--net (including $16,423 in foreign capital
gain tax)............................................... 5,538,744
Foreign currency transactions--net........................ 5,672 5,544,416
----------
Change in unrealized appreciation/depreciation on:
Investments--net (includes $147,854 deferred foreign
capital gain tax)....................................... 7,006,846
Foreign currency transactions--net........................ (25,657) 6,981,189
---------- -----------
Total realized and unrealized gain--net..................... 12,525,605
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $12,955,562
===========
- ----------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements.
16
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Growth V.I. Fund
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<Table>
<Caption>
FOR THE SIX
MONTHS ENDED FOR THE
JUNE 30, 2007 YEAR ENDED
INCREASE (DECREASE) IN NET ASSETS: (UNAUDITED) DECEMBER 31, 2006
- -----------------------------------------------------------------------------------------------
OPERATIONS:
Investment income--net...................................... $ 429,957 $ 759,003
Realized gain--net.......................................... 5,544,416 10,978,837
Change in unrealized appreciation/depreciation--net......... 6,981,189 1,630,076
----------- -----------
Net increase in net assets resulting from operations........ 12,955,562 13,367,916
----------- -----------
- -----------------------------------------------------------------------------------------------
DIVIDENDS TO SHAREHOLDERS:
Investment income--net:
Class I................................................... -- (676,423)
Class II.................................................. -- (14)
Class III................................................. -- (14)
----------- -----------
Net decrease in net assets resulting from dividends to
shareholders.............................................. -- (676,451)
----------- -----------
- -----------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Net decrease in net assets derived from capital share
transactions.............................................. (148,662) (152,106)
----------- -----------
- -----------------------------------------------------------------------------------------------
NET ASSETS:
Total increase in net assets................................ 12,806,900 12,539,359
Beginning of period......................................... 76,035,626 63,496,267
----------- -----------
End of period*.............................................. $88,842,526 $76,035,626
=========== ===========
- -----------------------------------------------------------------------------------------------
* Undistributed (accumulated distributions in excess of)
investment income--net.................................... $ 414,545 $ (15,412)
=========== ===========
- -----------------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements.
17
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Growth V.I. Fund
Financial Highlights
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS I
----------------------------------------------------------------
FOR THE SIX
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE MONTHS ENDED FOR THE YEAR ENDED DECEMBER 31,
BEEN DERIVED FROM INFORMATION PROVIDED IN THE JUNE 30, 2007 ------------------------------------------------
FINANCIAL STATEMENTS. (UNAUDITED) 2006 2005 2004 2003 2002
- ------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............ $ 13.29 $ 10.99 $ 9.65 $ 8.52 $ 6.43 $ 8.91
------- ------- ------- -------- ------- -------
Investment income--net**........................ .08 .13 .13 .14 .09 .02
Realized and unrealized gain (loss)--net........ 2.23 2.29 1.34 1.14 2.08 (2.49)
------- ------- ------- -------- ------- -------
Total from investment operations................ 2.31 2.42 1.47 1.28 2.17 (2.47)
------- ------- ------- -------- ------- -------
Less dividends from investment income--net...... -- (.12) (.13) (.15) (.08) (.01)
------- ------- ------- -------- ------- -------
Net asset value, end of period.................. $ 15.60 $ 13.29 $ 10.99 $ 9.65 $ 8.52 $ 6.43
======= ======= ======= ======== ======= =======
- --------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:***
Based on net asset value per share.............. 17.38%+ 22.01% 15.19% 15.10% 33.56% 27.74%
======= ======= ======= ======== ======= =======
- --------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses........................................ .95%* .96% 1.00% .92% .88% .90%
======= ======= ======= ======== ======= =======
Investment income--net.......................... 1.07%* 1.08% 1.32% 1.66% 1.23% .24%
======= ======= ======= ======== ======= =======
- --------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)........ $88,839 $76,032 $63,494 $100,900 $97,736 $81,176
======= ======= ======= ======== ======= =======
Portfolio turnover.............................. 37% 85% 117% 78% 132% 138%
======= ======= ======= ======== ======= =======
- --------------------------------------------------------------------------------------------------------
</Table>
* Annualized.
** Based on average shares outstanding.
*** Total investment returns exclude insurance-related fees and expenses.
+ Aggregate total investment return.
See Notes to Financial Statements.
18
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Growth V.I. Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS II
-----------------------------------------------------------
FOR THE SIX FOR THE YEAR ENDED
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE MONTHS ENDED DECEMBER 31, FOR THE PERIOD
BEEN DERIVED FROM INFORMATION PROVIDED IN THE JUNE 30, 2007 ------------------ SEPTEMBER 30, 2004+
FINANCIAL STATEMENTS (UNAUDITED) 2006 2005 TO DECEMBER 31, 2004
- ------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................. $ 13.29 $ 11.00 $ 9.65 $ 8.76
------- ------- ------- -------
Investment income--net**............................. .06 .12 .10 .05
Realized and unrealized gain--net.................... 2.23 2.29 1.38 .99
------- ------- ------- -------
Total from investment operations..................... 2.29 2.41 1.48 1.04
------- ------- ------- -------
Less dividends from investment income--net........... -- (.12) (.13) (.15)
------- ------- ------- -------
Net asset value, end of period....................... $ 15.58 $ 13.29 $ 11.00 $ 9.65
======= ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:***
Based on net asset value per share................... 17.23%@ 21.90% 15.29% 11.82%@
======= ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses............................................. 1.11%* 1.04% 1.00% .92%*
======= ======= ======= =======
Investment income--net............................... .91%* 1.03% 1.24% 2.09%*
======= ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)............. $ 2 $ 2 $ 1 $ 1
======= ======= ======= =======
Portfolio turnover................................... 37% 85% 117% 78%
======= ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------
</Table>
* Annualized.
** Based on average shares outstanding.
*** Total investment returns exclude insurance-related fees and expenses.
+ Commencement of operations.
@ Aggregate total investment return.
See Notes to Financial Statements.
19
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Growth V.I. Fund
Financial Highlights (concluded)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS III
-----------------------------------------------------------
FOR THE SIX FOR THE YEAR ENDED
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE MONTHS ENDED DECEMBER 31, FOR THE PERIOD
BEEN DERIVED FROM INFORMATION PROVIDED IN THE JUNE 30, 2007 ------------------ SEPTEMBER 30, 2004+
FINANCIAL STATEMENTS. (UNAUDITED) 2006 2005 TO DECEMBER 31, 2004
- ------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................. $ 13.28 $ 11.00 $ 9.65 $ 8.76
------- ------- ------- -------
Investment income--net**............................. .06 .12 .10 .05
Realized and unrealized gain--net.................... 2.23 2.28 1.38 .99
------- ------- ------- -------
Total from investment operations..................... 2.29 2.40 1.48 1.04
------- ------- ------- -------
Less dividends from investment income--net........... -- (.12) (.13) (.15)
------- ------- ------- -------
Net asset value, end of period....................... $ 15.57 $ 13.28 $ 11.00 $ 9.65
======= ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:***
Based on net asset value per share................... 17.24%@ 21.81% 15.29% 11.82%@
======= ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses............................................. 1.21%* 1.07% 1.00% .92%*
======= ======= ======= =======
Investment income--net............................... .81%* 1.00% 1.24% 2.09%*
======= ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)............. $ 2 $ 2 $ 1 $ 1
======= ======= ======= =======
Portfolio turnover................................... 37% 85% 117% 78%
======= ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------
</Table>
* Annualized.
** Based on average shares outstanding.
*** Total investment returns exclude insurance-related fees and expenses.
+ Commencement of operations.
@ Aggregate total investment return.
See Notes to Financial Statements.
20
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Growth V.I. Fund
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES:
BlackRock Variable Series Funds, Inc. (the "Company") is an open-end management
investment company that is comprised of 16 separate funds. Each fund offers
three 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. ("Merrill Lynch")), and other insurance companies that are not
affiliated with Merrill Lynch, for their separate accounts to fund benefits
under certain variable annuity and variable life insurance contracts. BlackRock
Global Growth V.I. Fund (the "Fund") is classified as "diversified," as defined
in the Investment Company Act of 1940, as amended. Class I, Class II and Class
III 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. In addition, Class II and Class III Shares bear
certain expenses related to the distribution of such shares. The Fund's
financial statements are prepared in conformity with U.S. generally accepted
accounting principles, which may require the use of management accruals and
estimates. Actual results may differ from these estimates. These unaudited
financial statements reflect all adjustments, which are, in the opinion of
management, necessary to present a fair statement of the results for the interim
period. All such adjustments are of a normal, recurring nature. Income, expenses
(other than expenses attributable to a specific class) and realized and
unrealized gains and losses are allocated daily to each class based on its
relative net assets. The following is a summary of significant accounting
policies followed by the Fund.
(a) Valuation of investments--Equity securities held by the Fund that are
traded on stock exchanges or the NASDAQ Global Market are valued at the last
sale price or official close price on the exchange, as of the close of business
on the day the securities are being valued or, lacking any sales, at the last
available bid price for long positions, and at the last available asked price
for short positions. In cases where equity securities are traded on more than
one exchange, the securities are valued on the exchange designated as the
primary market by or under the authority of the Board of Directors of the
Company. Long positions traded in the over-the-counter ("OTC") markets, NASDAQ
Capital Market or Bulletin Board are valued at the last available bid price
obtained from one or more dealers or pricing services approved by the Board of
Directors of the Company. Short positions traded in the OTC markets are valued
at the last available asked price. Portfolio securities that are traded both in
the OTC markets and on a stock exchange are valued according to the broadest and
most representative market.
Options written or purchased are valued at the last sale price in the case of
exchange-traded options. Options traded in the OTC market are valued at the last
asked price (options written) or the last bid price (options purchased). Swap
agreements are valued based upon quoted fair valuations received daily by the
Fund from a pricing service or counterparty. Financial futures contracts and
options thereon, which are traded on exchanges, are valued at their last sale
price as of the close of such exchanges. Valuation of other short-term
investment vehicles is generally based on the net asset value of the underlying
investment vehicle or amortized cost.
Repurchase agreements are valued at cost plus accrued interest. The Fund
employs pricing services to provide certain securities prices for the Fund.
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, including valuations furnished by the
pricing services retained by the Fund, which may use a matrix system for
valuations. The procedures of a pricing service and its valuations are reviewed
by the officers of the Fund under the general supervision of the Company's Board
of Directors. Such valuations and procedures will be reviewed periodically by
the Board of Directors of the Company.
Generally, trading in foreign securities, as well as U.S. government
securities, money market instruments and certain fixed income securities, is
substantially completed each day at various times prior to the close of business
on the New York Stock Exchange ("NYSE"). The values of such securities used in
computing the net asset value of the Fund's shares are determined as of such
times. Foreign currency exchange rates will generally be determined as of the
close of business on the NYSE. Occasionally, events affecting the values of such
securities and such exchange rates may occur between the times at which they are
determined and the close of business on the NYSE that may not be reflected in
the computation of the Fund's net asset
21
- --------------------------------------------------------------------------------
value. If events (for example, a company announcement, market volatility or a
natural disaster) occur during such periods that are expected to materially
affect the value of such securities, those securities will be valued at their
fair value as determined in good faith by the Company's Board of Directors or by
BlackRock Advisors, LLC (the "Manager"), an indirect, wholly owned subsidiary of
BlackRock, Inc. using a pricing service and/or procedures approved by the
Company's Board of Directors.
(b) Derivative financial instruments--The Fund may engage in various portfolio
investment strategies both to increase the return of the Fund and to hedge, or
protect, its exposure to interest rate movements and movements in the securities
markets. Losses may arise due to changes in the value of the contract or if the
counterparty does not perform under the contract. The counterparty for certain
instruments may pledge cash or securities as collateral.
- - Forward foreign exchange contracts--The Fund may enter into forward foreign
exchange contracts as a hedge against either specific transactions or portfolio
positions. The contract is marked-to-market daily and the change in market value
is recorded by the Fund as an unrealized gain or loss. When the contract is
closed, the Fund records a realized gain or loss equal to the difference between
the value at the time it was opened and the value at the time it was closed.
- - Options--The Fund may write covered call and purchase 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 financial futures contracts. Financial 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 OTC foreign currency options, foreign currency futures and related
options on foreign currency futures as a short or long hedge against possible
variations in foreign exchange rates. Such transactions may be effected with
respect to hedges on non-U.S. dollar-denominated securities owned by the Fund,
sold by the Fund but not yet delivered, or committed or anticipated to be
purchased by the Fund.
(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 U.S. dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates on investments.
The Fund invests in foreign securities, which may involve a number of risk
factors and special considerations not present with investments in securities of
U.S. corporations.
(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).
Realized gains and losses on security transactions are determined on the
identified cost basis. Dividend income is recorded on the ex-dividend dates.
Dividends from foreign securities where the ex-dividend date may have passed are
subsequently
22
- --------------------------------------------------------------------------------
recorded when the Fund has determined the ex-dividend date. Interest income is
recognized on the accrual basis.
(f) Dividends and distributions--Dividends and distributions paid by the Fund
are recorded on the ex-dividend dates.
(g) Expenses--Certain expenses have been allocated to the individual funds in
the Company on a pro rata basis based upon the respective aggregate net asset
value of each fund included in the Company.
(h) Securities lending--The Fund may lend securities to financial institutions
that provide cash or securities issued or guaranteed by the U.S. government as
collateral, which will be maintained at all times in an amount equal to at least
100% of the current market value of the loaned securities. The market value of
the loaned securities is determined at the close of business of the Fund and any
additional required collateral is delivered to the Fund on the next business
day. Where the Fund receives securities as collateral for the loaned securities,
it collects a fee from the borrower. Where the Fund receives cash collateral, it
may invest such collateral and retain the amount earned on such investment, net
of any amount rebated to the borrower. The Fund typically receives the income on
the loaned securities but does not receive the income on the collateral. Loans
of securities are terminable at any time and the borrower, after notice, is
required to return borrowed securities within five business days. The Fund may
pay reasonable finder's, lending agent, administrative and custodial fees in
connection with its loans. In the event that the borrower defaults on its
obligation to return borrowed securities because of insolvency or for any other
reason, the Fund could experience delays and costs in gaining access to the
collateral. The Fund also could suffer a loss where the value of the collateral
falls below the market value of the borrowed securities, in the event of
borrower default or in the event of losses on investments made with cash
collateral.
(i) Recent accounting pronouncements--Effective June 29, 2007, the Fund
implemented Financial Accounting Standards Board ("FASB") Interpretation No. 48,
"Accounting for Uncertainty in Income Taxes -- an interpretation of FASB
Statement No. 109" ("FIN 48"). FIN 48 prescribes the minimum recognition
threshold a tax position must meet in connection with accounting for
uncertainties in income tax positions taken or expected to be taken by an
entity, including investment companies, before being measured and recognized in
the financial statements. Management has evaluated the application of FIN 48 to
the Fund, and has determined that the adoption of FIN 48 does not have a
material impact on the Fund's financial statements. The Fund files U.S. and
various state tax returns. No income tax returns are currently under
examination. The statute of limitations on the Fund's tax returns remains open
for the years ended December 31, 2003 through December 31, 2006.
In September 2006, Statement of Financial Accounting Standards No. 157, "Fair
Value Measurements" ("FAS 157"), was issued and is effective for fiscal years
beginning after November 15, 2007. FAS 157 defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. At this time, management is evaluating the implications of FAS 157
and its impact on the Fund's financial statements, if any, has not been
determined.
In addition, in February 2007, Statement of Financial Accounting Standards No.
159, "The Fair Value Option for Financial Assets and Financial Liabilities"
("FAS 159"), was issued and is effective for fiscal years beginning after
November 15, 2007. Early adoption is permitted as of the beginning of a fiscal
year that begins on or before November 15, 2007, provided the entity also elects
to apply the provisions of FAS 157. FAS 159 permits entities to choose to
measure many financial instruments and certain other items at fair value that
are not currently required to be measured at fair value. FAS 159 also
establishes presentation and disclosure requirements designed to facilitate
comparisons between entities that choose different measurement attributes for
similar types of assets and liabilities. At this time, management is evaluating
the implications of FAS 159 and its impact on the Fund's financial statements,
if any, has not been determined.
2. INVESTMENT ADVISORY AGREEMENT AND TRANSACTIONS WITH AFFILIATES:
The Fund has entered into an Investment Advisory Agreement with the Manager. The
Fund has also entered into separate Distribution Agreements and Distribution
Plans with FAM Distributors, Inc. ("FAMD") and BlackRock Distributors, Inc. and
its affiliates ("BDI") (collectively, the "Distributor"). FAMD is a wholly owned
subsidiary of Merrill Lynch Group, Inc., and BDI is an affiliate of BlackRock,
Inc. Merrill Lynch and The PNC Financial Services Group, Inc. ("PNC") are the
principal owners of BlackRock, Inc.
The Manager is responsible for the management of the Company's funds and
provides the necessary personnel, facilities, equipment and
23
- --------------------------------------------------------------------------------
certain other services necessary to the operations of the Fund. 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. In addition, the Manager has entered into
a sub-advisory agreement with BlackRock Investment Management, LLC ("BIM"), an
affiliate of the Manager, under which the Manager pays BIM for services it
provides a monthly fee at an annual rate that is a percentage of the management
fee paid by the Fund to the Manager.
Pursuant to the Distribution Plans adopted by the Company, in accordance with
Rule 12b-1 under the Investment Company Act of 1940, the Fund pays the
Distributor an ongoing distribution fee each month at the annual rate of .15%
and .25% of the average daily value of the Fund's Class II and Class III net
assets, respectively.
The Company has received an exemptive order from the Securities and Exchange
Commission permitting it to lend portfolio securities to Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S"), a wholly owned subsidiary of Merrill
Lynch, or its affiliates. Pursuant to that order, the Company has also retained
BIM as the securities lending agent for a fee based on a share of the returns on
investment of cash collateral. BIM may, on behalf of the Company and the Fund,
invest cash collateral received by the Fund for such loans, among other things,
in a private investment company managed by the Manager or in registered money
market funds advised by the Manager or its affiliates. For the six months ended
June 30, 2007, BIM received $191 in securities lending agent fees from the Fund.
For the six months ended June 30, 2007, the Fund reimbursed the Manager $659
for certain accounting services.
In addition, MLPF&S received $5,297 in commissions on the execution of
portfolio security transactions for the Fund for the six months ended June 30,
2007.
PFPC Inc., an indirect, wholly owned subsidiary of PNC and an affiliate of the
Manager, is the Fund's transfer agent.
Certain officers and/or directors of the Company are officers and/or directors
of BlackRock, Inc. or its affiliates.
3. INVESTMENTS:
Purchases and sales of investments, excluding short-term securities, for the six
months ended June 30, 2007 were $33,339,996 and $28,989,203, respectively.
4. CAPITAL SHARE TRANSACTIONS:
Net decrease in net assets derived from capital share transactions was $148,662
and $152,106 for the six months ended June 30, 2007 and the year ended December
31, 2006, respectively.
Transactions in capital shares for each class were as follows:
<Table>
<Caption>
- -----------------------------------------------------------------
Class I Shares for the Six Months Ended Dollar
June 30, 2007 Shares Amount
- -----------------------------------------------------------------
Shares sold............................. 604,478 $ 8,801,767
Shares redeemed......................... (630,943) (8,950,429)
-------- -----------
Net decrease............................ (26,465) $ (148,662)
======== ===========
- -----------------------------------------------------------------
</Table>
<Table>
<Caption>
- ------------------------------------------------------------------
Class I Shares for the Year Ended
December 31, 2006 Shares Dollar Amount
- ------------------------------------------------------------------
Shares sold.......................... 1,408,523 $ 17,087,219
Shares issued to shareholders in
reinvestment of dividends........... 51,095 676,423
---------- ------------
Total issued......................... 1,459,618 17,763,642
Shares redeemed...................... (1,514,419) (17,915,776)
---------- ------------
Net decrease......................... (54,801) $ (152,134)
========== ============
- ------------------------------------------------------------------
</Table>
<Table>
<Caption>
- ------------------------------------------------------------------
Class II Shares for the Six Months Ended Dollar
June 30, 2007 Shares Amount
- ------------------------------------------------------------------
Shares sold..................................... -- --
---- -----
Net increase.................................... -- --
==== =====
- ------------------------------------------------------------------
</Table>
<Table>
<Caption>
- ------------------------------------------------------------------
Class II Shares for the Year Ended Dollar
December 31, 2006 Shares Amount
- ------------------------------------------------------------------
Shares issued to shareholders in reinvestment of
dividends...................................... 1 $14
-- ---
Net increase.................................... 1 $14
== ===
- ------------------------------------------------------------------
</Table>
<Table>
<Caption>
- ------------------------------------------------------------------
Class III Shares for the Six Months Ended Dollar
June 30, 2007 Shares Amount
- ------------------------------------------------------------------
Shares sold..................................... -- --
---- -----
Net increase.................................... -- --
==== =====
- ------------------------------------------------------------------
</Table>
<Table>
<Caption>
- ------------------------------------------------------------------
Class III Shares for the Year Ended Dollar
December 31, 2006 Shares Amount
- ------------------------------------------------------------------
Shares issued to shareholders in reinvestment of
dividends...................................... 1 $14
-- ---
Net increase.................................... 1 $14
== ===
- ------------------------------------------------------------------
</Table>
24
- --------------------------------------------------------------------------------
5. SHORT-TERM BORROWINGS:
The Company, on behalf of the Fund, along with certain other funds managed by
the Manager and its affiliates, is party to a $500,000,000 credit agreement with
a group of lenders, which expires November 2007. 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 .06% per annum based on the Fund's pro rata share of the
unused portion of the credit agreement. Amounts borrowed under the credit
agreement bear interest at a rate equal to, at each fund's election, the federal
funds rate plus .35% or a base rate as defined in the credit agreement. The Fund
did not borrow under the credit agreement during the six months ended June 30,
2007.
6. CAPITAL LOSS CARRYFORWARD:
On December 31, 2006, the Fund had a net capital loss carryforward of
$77,786,343, of which $29,961,675 expires in 2009, $41,396,526 expires in 2010
and $6,428,142 expires in 2011. This amount will be available to offset like
amounts of any future taxable gains.
25
- --------------------------------------------------------------------------------
BLACKROCK GOVERNMENT INCOME V.I. FUND
-------------------------------------------------------------------------
Semi-Annual Report (Unaudited)
June 30, 2007
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Government Income V.I. Fund
A Discussion With Your Fund's Portfolio Managers
- --------------------------------------------------------------------------------
Mortgages suffered amid the turmoil in the subprime segment of the market, but
we believe are positioned for strong performance in the months ahead.
HOW DID THE FUND PERFORM DURING THE PERIOD IN LIGHT OF THE EXISTING MARKET
CONDITIONS?
For the six-month period ended June 30, 2007, BlackRock Government Income V.I.
Fund's Class I Shares had a total return of -1.12%. For the same period, The
Citigroup Government/Mortgage Index returned +.94%. The Fund's new benchmark,
which is comprised 50% of the Lehman Brothers Mortgage-Backed Securities Index
and 50% of the Merrill Lynch 10-Year U.S. Treasury Index, returned +.31% for the
six-month period. In our experience, the Treasury exposure (not a notable
component of the former benchmark) enhances our ability to manage risk in a
portfolio dominated by mortgage securities. The new benchmark also provides a
more comparable means for measuring Fund performance.
It was a difficult period for the Fund based on solid underperformance on the
part of mortgages and a more general flight to quality that resulted in a
difficult period for spread product (that is, fixed income assets less
correlated with Treasury issues), particularly in June.
Generally speaking, our strategy is to achieve yields above those offered by
U.S. Treasuries alone through investment in mortgage product--including
mortgage-backed securities (MBS), commercial MBS (CMBS), collateralized mortgage
obligations (CMOs) and adjustable-rate mortgages (ARMs). During this period, a
crisis in the subprime segment of the mortgage market rekindled fears of a
housing-induced recession in the United States and helped to increase financial
market volatility and expand risk premiums. As credit spreads widened, mortgages
bore the early brunt of the underperformance given the headlines around the
subprime crisis. In reality, that risk does not apply to the Fund's holdings
because the mortgages in which we invest are not credit product, but rather are
mortgages securitized by Fannie Mae, Freddie Mac and Ginnie Mae. These are based
on the prime segment of the market. Exacerbating the problem was the fact that
mortgages are such liquid assets that investor efforts to reduce risk are often
aimed there rather than at their less liquid (and, in fact, more risky) credit
positions. This further weighed on mortgage market performance.
Based on our experience investing in mortgages throughout market cycles, we
felt mortgages were being unduly punished. As such, we increased exposure to
mortgages during the period from 90% of net assets at December 31, 2006, to 100%
at June 30, 2007. We continue to view mortgages as a high-quality fixed income
asset with yield-enhancement potential. Although the market failed to recognize
this as the period progressed, and Fund performance for the period was hampered
as a result, we believe our overweight position in mortgage product should
benefit Fund results in the longer term.
WHAT CHANGES WERE MADE TO THE PORTFOLIO DURING THE PERIOD?
The most significant change, as mentioned earlier, was the increased exposure
to the mortgage market. Within our portfolio of mortgages, we have a focus on
those established in 2001, 2002 and 2003, versus an underweight to mortgages
created in 2006 and 2007. By taking on holdings of mortgages that were created
several years ago, we are seeking to benefit from favorable prepayment
characteristics. Individuals that took mortgages in the 2001-2003 timeframe have
likely seen their home prices appreciate 30% to 40% and may be in a position to
move on and pay down that original mortgage in a timely fashion. In contrast,
homeowners who established mortgages in 2006 and 2007 may have seen their house
prices come down so that an 80% mortgage loan may now be 90% of their home
price. These are not as conducive to prepayment, as these individuals may be in
their homes longer than anticipated. As such, they are not as attractive on a
relative value basis.
However, we do have positions in interest-only mortgages with 2006-2007
vintages. The advantage is that these mortgages will continue to pay interest
for the next few years with little principal pay-down given the home price
trends mentioned above, offering a predictable level of income.
Notably, the Fund's duration (a measure of interest rate sensitivity) was
short versus the benchmark throughout the period; however, we do not view
interest rate or yield curve plays as part of our strategy. Instead, we might
employ duration as a hedge, generally remaining short if the market appears
ready to sell off and long in times of market strength.
2
- --------------------------------------------------------------------------------
HOW WOULD YOU CHARACTERIZE THE FUND'S POSITION AT THE CLOSE OF THE PERIOD?
We ended the period with an overweight position in mortgages and a
corresponding underweight in U.S. Treasury issues. We have made strides in
building a portfolio that we believe is well positioned for longer-term
outperformance. Our years of experience in the mortgage market, coupled with
state-of-the-art technology that allows us to run home price analyses and other
stress tests, bring us a level of comfort in our investments. Despite some
underperformance as the market adjusts to the subprime scare, we are confident
in the positions we have and look forward to solid performance over the coming
months. We believe mortgages represent good relative value and anticipate that
we may not have to change the portfolio's structure significantly for some time.
At period-end, the Fund's primary sector exposures were broken out roughly as
follows: 0% U.S. Treasury securities, 75% passthrough mortgages, 20% CMOs and 5%
CMBS.
Andrew J. Phillips
Portfolio Manager
Eric Pellicciaro
Portfolio Manager
July 13, 2007
3
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Government Income V.I. Fund
Total Return Based on a $10,000 Investment
- --------------------------------------------------------------------------------
[LINE GRAPH]
<Table>
<Caption>
50% LEHMAN
BROTHERS
BLACKROCK MORTGAGE-
GOVERNMENT BACKED LEHMAN BROTHERS
INCOME V.I. CITIGROUP MERRILL LYNCH 10 SECURITIES INDEX MORTGAGE-
FUND+--CLASS I GOVERNMENT/MORTGAGE YR US TREASURY & 50% ML 10 YR BACKED
SHARES* INDEX++ SECURITIES@ TREASURY@ SECURITIES INDEX@
-------------- ------------------- ---------------- ---------------- ------------------
6/97 10000 10000 10000 10000 10000
6/98 11047 11040 11305 11099 10893
6/99 11311 11420 11458 11402 11330
6/00 11822 11994 11852 11887 11900
6/01 13010 13282 12842 13055 13242
6/02 14109 14477 13948 14207 14432
6/03 15324 15723 16125 15720 15257
6/04 15245 15777 15545 15616 15597
6/05 16281 16814 17032 16843 16554
6/06 16199 16733 16046 16383 16620
6/07 16772 17712 16846 17316 17682
</Table>
- --------------------------------------------------------------------------------
[LINE GRAPH]
<Table>
<Caption>
50% LEHMAN
BROTHERS
MORTGAGE-
BLACKROCK BLACKROCK BACKED
GOVERNMENT GOVERNMENT MERRILL LYNCH SECURITIES
INCOME V.I. INCOME V.I. CITIGROUP 10 YR US INDEX & 50%
FUND+--CLASS II FUND+--CLASS III GOVERNMENT/MORTGAGE TREASURY ML 10 YR
SHARES* SHARES* INDEX++ SECURITIES@ TREASURY@
--------------- ---------------- ------------------- ------------- -----------
9/30/04** 10000 10000 10000 10000 10000
6/05 10328 10318 10352 10431 10389
6/06 10291 10291 10302 9827 10105
6/07 10657 10652 10905 10317 10681
<Caption>
LEHMAN
BROTHERS
MORTGAGE-
BACKED
SECURITIES
INDEX@
----------
9/30/04** 10000
6/05 10344
6/06 10385
6/07 11049
</Table>
* Assuming transaction costs, if any, and other operating expenses, including
advisory fees. Does not include insurance-related fees and expenses.
Effective September 2, 2003, Class A Shares were redesignated Class I Shares.
** Commencement of Operations.
+ The Fund invests in debt securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities and mortgage securities issued
by U.S. government agencies.
++ This unmanaged Index is comprised of 30-year and 15-year GNMA, FNMA and FHLMC
securities, and FNMA and FHLMC debentures and Treasury securities.
@ This composite index is comprised of the returns of the Lehman Brothers
Mortgage-Backed Securities Index (50%) and the Merrill Lynch 10-Year Treasury
Index (50%). The Lehman Brothers Mortgage-Backed Securities Index is a widely
recognized unmanaged index that includes the mortgage-backed pass through
securities of the Government National Mortgage Association, the Federal
National Mortgage Association and the Federal Home Loan Mortgage Corporation
that meet certain maturity and liquidity criteria. The Merrill Lynch 10-Year
Treasury Index is a widely recognized unmanaged one security index that
consists of the current "on-the-run" 10-Year Treasury issue.
Past results shown should not be considered a representation of future
performance.
4
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Government Income V.I. Fund
Average Annual Total Return--Class I Shares*
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERIOD COVERED RETURN
- --------------------------------------------------------------------------
One Year Ended 6/30/07 +3.54%
- --------------------------------------------------------------------------
Five Years Ended 6/30/07 +3.52
- --------------------------------------------------------------------------
Ten Years Ended 6/30/07 +5.31
- --------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Government Income V.I. Fund
Average Annual Total Return--Class II Shares*
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERIOD COVERED RETURN
- --------------------------------------------------------------------------
One Year Ended 6/30/07 +3.55%
- --------------------------------------------------------------------------
Inception (9/30/04) through 6/30/07 +2.34
- --------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Government Income V.I. Fund
Average Annual Total Return--Class III Shares*
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERIOD COVERED RETURN
- --------------------------------------------------------------------------
One Year Ended 6/30/07 +3.51%
- --------------------------------------------------------------------------
Inception (9/30/04) through 6/30/07 +2.33
- --------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Government Income V.I. Fund
Recent Performance Results
- --------------------------------------------------------------------------------
<Table>
<Caption>
6-MONTH 12-MONTH STANDARDIZED
AS OF JUNE 30, 2007 TOTAL RETURN TOTAL RETURN 30-DAY YIELD
- --------------------------------------------------------------------------------------------------------
Class I Shares* -1.12% +3.54% 4.94%
- --------------------------------------------------------------------------------------------------------
Class II Shares* -1.18 +3.55 --
- --------------------------------------------------------------------------------------------------------
Class III Shares* -1.22 +3.51 --
- --------------------------------------------------------------------------------------------------------
50% Lehman Brothers Mortgage-Backed Securities Index/
50% Merrill Lynch 10-Year Treasury Index** +0.31 +5.69 --
- --------------------------------------------------------------------------------------------------------
Lehman Brothers Mortgage-Backed Securities Index** +1.05 +6.39 --
- --------------------------------------------------------------------------------------------------------
Merrill Lynch 10-Year Treasury Index** -0.43 +4.98 --
- --------------------------------------------------------------------------------------------------------
Citigroup Government/Mortgage Index*** +0.94 +5.85 --
- --------------------------------------------------------------------------------------------------------
</Table>
* Average annual and cumulative 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 payable
date. Insurance-related fees and expenses are not reflected in these
returns. For a portion of the period, returns do not show the effects of
distribution fees (12b-1 fees) applicable to Class II and Class III Shares.
If such fees were included, returns shown would have been lower.
** This composite index is comprised of the returns of the Lehman Brothers
Mortgage-Backed Securities Index (50%) and the Merrill Lynch 10-Year
Treasury Index (50%). The Lehman Brothers Mortgage-Backed Securities Index
is a widely recognized unmanaged index that includes the mortgage-backed
pass through securities of the Government National Mortgage Association, the
Federal National Mortgage Association and the Federal Home Loan Mortgage
Corporation that meet certain maturity and liquidity criteria. The Merrill
Lynch 10-Year Treasury Index is a widely recognized unmanaged one security
index that consists of the current "on-the-run" 10-Year Treasury issue.
*** This unmanaged index is comprised of 30-year and 15-year GNMA, FNMA, and
debentures and Treasury Securities.
Past results shown should not be considered a representation of future
performance.
5
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Government Income V.I. Fund
Disclosure of Expenses
- --------------------------------------------------------------------------------
Shareholders of this Fund may incur the following charges: (a) expenses related
to transactions, including sales charges, redemption fees and exchange fees; and
(b) operating expenses including advisory fees, distribution fees including
12b-1 fees, and other Fund expenses. The following example (which is based on a
hypothetical investment of $1,000 invested on January 1, 2007 and held through
June 30, 2007) is intended to assist shareholders both in calculating expenses
based on an investment in the Fund and in comparing these expenses with similar
costs of investing in other mutual funds.
The first table below provides information about actual account values and
actual expenses. In order to estimate the expenses a shareholder paid during the
period covered by this report, shareholders can divide their account value by
$1,000 and then multiply the result by the number in the first line under the
heading entitled "Expenses Paid During the Period."
The second table below provides information about hypothetical account values
and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses. In order to assist
shareholders in comparing the ongoing expenses of investing in this Fund and
other funds, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in other funds' shareholder reports.
The expenses shown in the table are intended to highlight shareholders'
ongoing costs only and do not reflect any transactional expenses, such as sales
charges, redemption fees or exchange fees. Therefore, the second table is useful
in comparing ongoing expenses only, and will not help shareholders determine the
relative total expenses of owning different funds. If these transactional
expenses were included, shareholder expenses would have been higher.
<Table>
<Caption>
EXPENSES PAID
BEGINNING ENDING DURING THE PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JANUARY 1, 2007 TO
JANUARY 1, 2007 JUNE 30, 2007 JUNE 30, 2007
- -------------------------------------------------------------------------------------------------------------------
ACTUAL
- -------------------------------------------------------------------------------------------------------------------
Class I $1,000 $ 988.80 $2.96
- -------------------------------------------------------------------------------------------------------------------
Class II $1,000 $ 988.20 $3.70
- -------------------------------------------------------------------------------------------------------------------
Class III $1,000 $ 986.80 $4.19
- -------------------------------------------------------------------------------------------------------------------
HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES)**
- -------------------------------------------------------------------------------------------------------------------
Class I $1,000 $1,021.82 $3.01
- -------------------------------------------------------------------------------------------------------------------
Class II $1,000 $1,021.08 $3.76
- -------------------------------------------------------------------------------------------------------------------
Class III $1,000 $1,020.58 $4.26
- -------------------------------------------------------------------------------------------------------------------
</Table>
* For each class of the Fund, expenses are equal to the annualized expense
ratio for the class (.60% for Class I, .75% for Class II and .85% for Class
III), multiplied by the average account value over the period, multiplied by
181/365 (to reflect the one-half year period shown). All of the outstanding
shares of Class II and Class III were owned by an affiliated entity.
** Hypothetical 5% annual return before expenses is calculated by pro-rating
the number of days in the most recent fiscal half year divided by 365.
6
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Government Income V.I. Fund
Portfolio Information as of June 30, 2007
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENT OF
ASSET MIX LONG-TERM INVESTMENTS
- -----------------------------------------------------------------------------------
U.S. Government Agency Mortgage-Backed Securities........... 59.6%
Non-Government Agency Mortgage-Backed Securities............ 18.4
U.S. Government Agency Mortgage-Backed
Securities--Collaterized Mortgage Obligations............... 18.4
Asset-Backed Securities..................................... 2.8
U.S. Government Obligations................................. 0.8
- -----------------------------------------------------------------------------------
</Table>
7
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Government Income V.I. Fund
Schedule of Investments as of June 30, 2007 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
FACE INTEREST MATURITY
ISSUE AMOUNT RATE DATE(S) VALUE
- --------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--1.7%
- --------------------------------------------------------------------------------------------------------------------
U.S. TREASURY INFLATION INDEXED BONDS $ 4,673,337 3.50 % 1/15/2011(d) $ 4,808,060
- --------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS 4,808,060
(COST--$4,798,170)--1.7%.....................
- --------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES+--126.0%
- --------------------------------------------------------------------------------------------------------------------
FANNIE MAE GUARANTEED PASS-THROUGH CERTIFICATES 40,200,000 4.50 7/15/2022-(c)
7/15/2037 38,072,280
48,500,000 5.00 7/15/2022(c) 46,863,125
4,431,660 5.086 11/01/2035(a) 4,395,116
2,665,625 5.137 11/01/2035(a) 2,644,779
2,125,367 5.271 9/01/2035(a) 2,097,425
2,460,736 5.482 12/01/2036(a) 2,445,872
131,600,000 5.50 7/15/2037(c) 126,905,898
44,400,000 6.00 7/15/2037(c) 43,914,353
8,381,523 6.50 7/01/2032-(c)
7/15/2037 8,493,406
439,011 7.50 5/01/2032 457,350
301,357 8.00 4/01/2008-(a)(d)
11/01/2032 313,595
- --------------------------------------------------------------------------------------------------------------------
FREDDIE MAC MORTGAGE PARTICIPATION CERTIFICATES 29,000,000 5.50 7/15/2037(c) 27,966,875
10,519,712 6.00 4/01/2016-(a)(c)
7/15/2037 10,452,874
16,130 7.50 8/01/2029-
9/01/2031 16,853
326,415 8.00 12/01/2029-
7/01/2030 343,997
- --------------------------------------------------------------------------------------------------------------------
GINNIE MAE MBS CERTIFICATES 35,000,000 5.50 6/01/2037-(c)
7/15/2037 33,949,985
2,400,000 8.00 7/15/2037(c) 2,538,000
- --------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES 351,871,783
(COST--$350,690,915)--126.0%.................
- --------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
FACE
AMOUNT ISSUE
- ---------------------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES+--6.0%
- ---------------------------------------------------------------------------------------------------------------------
$ 11,000,000 Carrington Mortgage Loan Trust Series 2006-NC1 Class
A2, 5.48% due 1/25/2036(a)......................... 11,002,005
2,844,030 IXIS Real Estate Capital Trust Series 2006-HE3 Class
A1, 5.37% due 1/25/2037(a)......................... 2,843,216
2,969,403 Soundview Home Equity Loan Trust Series 2006-EQ1
Class A1, 5.37% due 10/25/2036(a).................. 2,969,532
- ---------------------------------------------------------------------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES
(COST--$16,813,433)--6.0%............................ 16,814,753
- ---------------------------------------------------------------------------------------------------------------------
NON-GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES+--39.0%
- ---------------------------------------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE 4,769,042 ABN AMRO Mortgage Corp. Series 2003-7 Class A1, 4.75%
OBLIGATIONS--39.0% due 7/25/2018...................................... 4,582,771
Banc of America Funding Corp.:
3,890,000 Series 2006-7 Class 1A7, 6% due 9/25/2036.......... 3,894,636
2,687,509 Series 2006-B Class 5A1, 5.818% due 3/20/2036(a)... 2,695,605
2,945,694 Banc of America Mortgage Securities Inc. Series
2003-5 Class 2A1, 5% due 7/25/2018................. 2,826,026
CS First Boston Mortgage Securities Corp:
1,447,625 Series 2003-8 Class 2A1, 5% due 4/25/2018.......... 1,386,463
1,789,030 Series 2003-10 Class 4A1, 5% due 5/25/2018......... 1,731,163
4,772,624 Series 2003-S12 2A1, 5% due 12/25/2018............. 4,674,797
</Table>
8
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Government Income V.I. Fund
Schedule of Investments as of June 30, 2007 (continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
FACE
AMOUNT ISSUE VALUE
- ---------------------------------------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE
Chase Mortgage Finance Corp.:
OBLIGATIONS (CONCLUDED) $ 688,834 Series 2003-S3 Class A1, 5% due 3/25/2018.......... $ 662,142
1,948,514 Series 2003-S4 Class 2A1, 5% due 4/25/2018(d)...... 1,915,375
Countrywide Alternative Loan Trust:
2,523,470 Series 2006-6CB Class 1A10, 5.50% due 5/25/2036.... 2,511,891
4,424,292 Series 2006-41CB Class 2A17, 6% due 1/25/2037...... 4,433,750
5,071,716 Series 2006-43CB Class 1A7, 6% due 2/25/2037....... 5,076,298
1,548,345 Series 2007-3T1 Class 1A7, 6% due 4/25/2037........ 1,552,774
5,955,507 Series 2007-7T2 Class A9, 6% due 4/25/2037......... 5,942,731
4,190,000 Series 2007-16CB Class 5A3, 6.25% due 8/25/2037.... 4,229,118
2,565,355 Countrywide Home Loan Mortgage Pass-Through Trust
Series 2003-10 Class A6, 5.67% due 5/25/2033(a).... 2,568,470
Countrywide Home Loans:
2,210,063 Series 2004-J1 Class 2A1, 4.75% due 1/25/2019...... 2,149,037
5,436,114 Series 2006-20 Class 1A33, 6% due 2/25/2037........ 5,446,890
2,324,364 Deutsche Mortgage Securities, Inc. Series 2004-1
Class 2A1, 4.75% due 10/25/2018.................... 2,260,066
1,587,073 First Horizon Alternative Mortgage Securities Series
2005-FA9 Class A5, 5.50% due 12/25/2035............ 1,576,775
7,801,564 GMAC Mortgage Corp. Loan Trust Series 2003-J10 Class
A1, 4.75% due 1/25/2019............................ 7,561,996
5,615,000 JP Morgan Chase Commercial Mortgage Securities Corp.
Series 2006-LDP9 Class A3, 5.336% due 5/15/2047.... 5,381,974
Master Asset Securitization Trust:
1,366,739 Series 2003-4 Class 2A7, 4.75% due 5/25/2018....... 1,337,708
1,808,193 Series 2003-5 Class 2A1, 5% due 6/25/2018.......... 1,743,731
2,510,403 Series 2003-7 Class 2A1, 4.75% due 8/25/2018....... 2,445,841
2,648,254 Merrill Lynch Mortgage Investors Trust Series 2006-A3
Class 3A1, 5.833% due 5/25/2036(a)(e).............. 2,647,609
4,391,923 Residential Accredit Loans, Inc. Series 2005-QS12
Class A8, 5.646% due 8/25/2035(a).................. 4,388,456
3,038,010 Residential Asset Securitization Trust Series
2006-A10 Class A4, 6.50% due 9/25/2036............. 3,067,735
Residential Funding Mortgage Securities I:
2,605,631 Series 2003-S8 Class A1, 5% due 5/25/2018.......... 2,551,866
2,274,143 Series 2003-S16 Class A3, 5% due 9/25/2018......... 2,181,401
4,970,000 Residential Funding Mortgage Securities Inc. Series
2007-S6 Class 2A12, 6% due 6/25/2037............... 4,960,293
Washington Mutual:
747,527 Series 2002-AR19 Class A8, 4.556% due
2/25/2033(a)....................................... 744,267
1,777,926 Series 2003-S3 Class 2A1, 5% due 5/25/2018......... 1,727,435
2,186,102 Series 2003-S5 Class 2A, 5% due 6/25/2018.......... 2,123,936
2,516,978 Series 2003-S7 Class A1, 4.50% due 8/25/2018....... 2,429,649
1,598,588 Series 2003-S8 Class A2, 5% due 9/25/2018.......... 1,541,599
- ---------------------------------------------------------------------------------------------------------------------
TOTAL NON-GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES
(COST--$109,715,197)--39.0%.......................... 108,952,274
- ---------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES+--COLLATERALIZED MORTGAGE OBLIGATIONS--38.9%
- ---------------------------------------------------------------------------------------------------------------------
Fannie Mae Trust:
6,841,839 Series 353 Class 2, 5% due 8/01/2034(b)............ 1,766,319
6,111,928 Series 367 Class 2, 5.50% due 1/25/2036(b)......... 1,660,080
4,368,612 Series 370 Class 2, 6% due 5/25/2036(b)............ 1,159,317
198,246 Series 2002-W11 Class AV1, 5.69% due
11/25/2032(a).................................... 198,254
2,632,207 Series 2003-27 Class FP, 5.65% due 6/25/2028(a).... 2,643,541
4,190,635 Series 2003-33 Class LF, 5.70% due 7/25/2017(a).... 4,213,043
3,854,885 Series 2003-34 Class FS, 5.75% due 1/25/2032(a).... 3,869,562
3,306,285 Series 2003-41 Class YF, 5.65% due 6/25/2028(a).... 3,313,639
</Table>
9
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Government Income V.I. Fund
Schedule of Investments as of June 30, 2007 (continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
FACE
AMOUNT ISSUE VALUE
- ---------------------------------------------------------------------------------------------------------------------
Fannie Mae Trust (concluded):
$ 6,444,791 Series 2006-106 Class PA, 5.50% due 6/25/2030...... $ 6,418,788
3,425,000 Series 2006-M2 Class A2A, 5.271% due
10/20/2032(a).................................... 3,299,310
Freddie Mac Multiclass Certificates:
6,379,589 Series 2564 Class OF, 5.65% due 2/15/2026(a)....... 6,391,195
6,143,236 Series 2594 Class DF, 5.65% due 12/15/2027(a)...... 6,157,550
6,723,235 Series 2614 Class EF, 5.75% due 12/15/2017(a)...... 6,771,897
1,800,000 Series 2634 Class TH, 4.50% due 6/15/2018.......... 1,655,430
1,670,000 Series 2743 Class HE, 4.50% due 2/15/2019.......... 1,548,646
1,470,000 Series 2746 Class EG, 4.50% due 2/15/2019.......... 1,364,413
2,310,000 Series 2783 Class AY, 4% due 4/15/2019............. 2,043,901
1,980,000 Series 2798 Class JK, 4.50% due 5/15/2019.......... 1,831,664
2,100,000 Series 2827 Class DG, 4.50% due 7/15/2019.......... 1,922,361
2,030,000 Series 2882 Class UW, 4.50% due 11/15/2019......... 1,844,859
1,500,000 Series 2899 Class KT, 4.50% due 12/15/2019......... 1,359,815
1,860,000 Series 2924 Class DB, 4.50% due 1/15/2020.......... 1,697,811
1,240,000 Series 2948 Class KT, 4.50% due 3/15/2020.......... 1,121,939
2,850,000 Series 2971 Class GD, 5% due 5/15/2020............. 2,711,470
1,470,000 Series 2987 Class HE, 4.50% due 6/15/2020.......... 1,348,395
1,140,000 Series 2995 Class JK, 4.50% due 6/15/2020.......... 1,039,765
3,850,000 Series 3042 Class EA, 4.50% due 9/15/2035.......... 3,424,371
4,776,346 Series 3192 Class GA, 6% due 3/15/2027............. 4,809,548
1,825,000 Series 3215 Class QH, 6% due 9/15/2036............. 1,786,964
1,825,000 Series 3218 Class BG, 6% due 9/15/2036............. 1,785,451
4,468,580 Series 3242 Class NC, 5.75% due 12/15/2028......... 4,477,920
Ginnie Mae Trust:
53,737,959 Series 2002-83 Class IO, 1.574% due 10/16/2042(b).. 2,046,488
34,181,705 Series 2002-94 Class XB, 2.349% due
11/16/2007(b)...................................... 58,365
90,162,092 Series 2003-17 Class IO, 1.24% due 3/16/2043(b).... 4,014,476
3,609,974 Series 2003-105 Class A, 4.50% due 11/16/2027...... 3,523,066
39,440,799 Series 2003-109 Class IO, 1.098% due
11/16/2043(b)...................................... 1,662,004
24,599,691 Series 2004-9 Class IO, 1.383% due 3/16/2034(b).... 1,041,554
3,723,226 Series 2004-43 Class Z, 4.50% due 6/16/2044(a)..... 2,776,430
3,865,611 Series 2004-45 Class Z, 5.748% due 6/16/2045(a).... 3,751,107
56,813,899 Series 2004-77 Class IO, 1.065% due 9/16/2044(b)... 2,502,561
1,518,629 Series 2005-71 Class AB, 5.50% due 9/20/2035....... 1,504,934
- ---------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES--
COLLATERALIZED MORTGAGE OBLIGATIONS
(COST--$106,363,419)--38.9%.......................... 108,518,203
- ---------------------------------------------------------------------------------------------------------------------
<Caption>
NUMBER OF
CONTRACTS++ OPTIONS PURCHASED
- ---------------------------------------------------------------------------------------------------------------------
CALL OPTIONS PURCHASED--0.0% 38 Receive a fixed rate of 5.09% and pay a floating rate
based on 3-month LIBOR, expiring August 2007,
Broker Deutsche Bank AG............................ 3,610
- ---------------------------------------------------------------------------------------------------------------------
PUT OPTIONS PURCHASED--0.6% 38 Pay a fixed rate of 5.09% and receive a floating rate
based on 3-month LIBOR, expiring August 2007,
Broker Deutsche Bank AG............................ 1,673,786
- ---------------------------------------------------------------------------------------------------------------------
TOTAL OPTIONS PURCHASED
(PREMIUMS PAID--$1,166,600)--0.6%.................... 1,677,396
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST--$589,547,734*)--212.2%........................ 592,642,469
- ---------------------------------------------------------------------------------------------------------------------
</Table>
10
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Government Income V.I. Fund
Schedule of Investments as of June 30, 2007 (continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
FACE INTEREST MATURITY
AMOUNT RATE DATE(S) VALUE
- --------------------------------------------------------------------------------------------------------------------
TBA SALE COMMITMENTS--(5.5%)
- --------------------------------------------------------------------------------------------------------------------
FANNIE MAE GUARANTEED PASS-THROUGH CERTIFICATES $ 16,000,000 5.50% 7/15/2037(c) $ (15,432,128)
- --------------------------------------------------------------------------------------------------------------------
TOTAL TBA SALE COMMITMENTS
(PREMIUMS RECEIVED--$15,377,945*)--(5.5%)... (15,432,128)
- --------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
NUMBER OF
CONTRACTS++ OPTIONS WRITTEN
- ---------------------------------------------------------------------------------------------------------------------
CALL OPTIONS WRITTEN--(0.0%) 38 Pay a fixed rate of 5.08% and receive a floating rate
based on 3-month LIBOR, expiring September 2007
Broker Citibank, N.A............................... (15,162)
- ---------------------------------------------------------------------------------------------------------------------
PUT OPTIONS WRITTEN--(0.6%) 38 Receive a fixed rate of 5.08% and pay a floating rate
based on 3-month LIBOR, expiring September 2007
Broker Citibank, N.A............................... (1,734,244)
- ---------------------------------------------------------------------------------------------------------------------
TOTAL OPTIONS WRITTEN
(PREMIUMS RECEIVED--$1,219,800*)--(0.6%)............. (1,749,406)
- ---------------------------------------------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF OTHER ASSETS--(106.1%)...... (296,283,999)
-------------
NET ASSETS--100.0%................................... $ 279,176,936
=============
- ---------------------------------------------------------------------------------------------------------------------
</Table>
* The cost and unrealized appreciation (depreciation) of investments, net of
options written and TBA Sale Commitments, as of June 30, 2007, as computed for
federal income tax purposes, were as follows:
<Table>
Aggregate cost.............................................. $573,741,694
============
Gross unrealized appreciation............................... $ 6,539,432
Gross unrealized depreciation............................... (4,820,191)
------------
Net unrealized appreciation................................. $ 1,719,241
============
</Table>
+ Asset-Backed and Mortgage-Backed Securities are subject to principal
paydowns. As a result of prepayments or refinancing of the underlying
mortgage instruments, the average life may be substantially less than
the original maturity.
++ One contract represents a notional amount of $1,000,000.
(a) Floating rate security.
(b) Represents the interest-only portion of a mortgage-backed security and has
either a nominal or notional amount of principal.
(c) Represents or includes a "to-be-announced" transaction. The Fund has
committed to purchasing securities for which all specific information is not
available at this time.
(d) All or a portion of security held as collateral in connection with open
financial futures contracts.
(e) Investments in companies considered to be an affiliate of the Fund, for
purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as
follows:
<Table>
<Caption>
- --------------------------------------------------------------------------------------------------------
PURCHASE SALES REALIZED INTEREST
AFFILIATE COST COST GAIN INCOME
- --------------------------------------------------------------------------------------------------------
BlackRock Liquidity Series, LLC Cash Sweep Series -- $25,397* -- $103,120
Merrill Lynch Mortgage Investors Trust Series 2006--A3 Class
3A1, 5.833% due 5/25/2036 $2,643,185 -- -- $ 1,270
- --------------------------------------------------------------------------------------------------------
</Table>
* Represents net sales cost.
- - Financial futures contracts purchased as of June 30, 2007 were as follows:
<Table>
<Caption>
- ---------------------------------------------------------------------------------
NUMBER OF EXPIRATION UNREALIZED
CONTRACTS ISSUE DATE FACE VALUE APPRECIATION
- ---------------------------------------------------------------------------------
278 10-Year U.S. Treasury Bond September 2007 $29,325,524 $59,945
-------
- ---------------------------------------------------------------------------------
</Table>
- - Financial futures contracts sold as of June 30, 2007 were as follows:
<Table>
<Caption>
- ---------------------------------------------------------------------------------
NUMBER OF EXPIRATION UNREALIZED
CONTRACTS ISSUE DATE FACE VALUE DEPRECIATION
- ---------------------------------------------------------------------------------
681 2-Year U.S. Treasury Bond September 2007 $138,740,895 $ (34,136)
1301 5-Year U.S. Treasury Bond September 2007 $134,678,571 (727,071)
- ---------------------------------------------------------------------------------
TOTAL UNREALIZED DEPRECIATION $(761,207)
=========
- ---------------------------------------------------------------------------------
</Table>
11
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Government Income V.I. Fund
Schedule of Investments as of June 30, 2007 (continued)
- --------------------------------------------------------------------------------
- - Swaps outstanding as of June 30, 2007 were as follows:
<Table>
<Caption>
- -------------------------------------------------------------------------------------------
UNREALIZED
NOTIONAL APPRECIATION
AMOUNT (DEPRECIATION)
- -------------------------------------------------------------------------------------------
Receive (pay) a variable return based on the change in the
since inception return of the Lehman Brothers MBS Fixed Rate
Index and pay a floating rate based on 1-month LIBOR minus
0.06%
Broker, UBS Warburg
Expires July 2007........................................... $ 44,100,000 --
Receive (pay) a variable return based on a change in the
spread return of the Lehman Brothers CMBS AAA 8.5+ Index and
receive a floating rate based on the spread plus .20%
Broker, Credit Suisse First Boston International
Expires September 2007...................................... $ 15,000,000 --
Receive (pay) a variable return based on the change in the
spread return of the Lehman Brothers CMBS AAA 8.5+ Index and
receive a floating rate based on the spread plus .40%
Broker, Morgan Stanley Capital Services Inc.
Expires October 2007........................................ $ 1,805,000 --
Receive a fixed rate of 5.2625% and pay a floating rate
based on 3-month LIBOR
Broker, Lehman Brothers Special Finance
Expires October 2010........................................ $130,000,000 $(604,197)
Receive a fixed rate of 5.218% and pay a floating rate based
on 3-month LIBOR
Broker, JPMorgan Chase
Expires January 2011........................................ $ 51,575,000 (343,482)
Receive a fixed rate of 4.17% and pay 3.50% on Treasury
Inflation Protected Securities (TIPS) adjusted principal
Broker, Morgan Stanley Capital Services Inc.
Expires January 2011........................................ $ 4,725,000 (249,813)
Receive a fixed rate of 5.1975% and pay a floating rate
based on 3-month LIBOR
Broker, Citibank, N.A.
Expires May 2011............................................ $ 33,200,000 (278,666)
Pay a fixed rate of 5.03005% and receive a floating rate
based on 3-month LIBOR
Broker, Lehman Brothers Special Finance
Expires November 2011....................................... $ 80,800,000 1,346,517
Pay a fixed rate of 5.168% and receive a floating rate based
on 3-month LIBOR
Broker, Union Bank of Switzerland, A.G.
Expires November 2011....................................... $ 40,400,000 460,300
Receive a fixed rate of 4.95% and pay a floating rate based
on 3-month LIBOR
Broker, Citibank, N.A.
Expires December 2011....................................... $ 20,000,000 (403,664)
Pay a fixed rate of 4.985% and receive a floating rate based
on 3-month LIBOR
Broker, Citibank, N.A.
Expires December 2011....................................... $ 24,500,000 463,319
Receive a fixed rate of 4.9125% and pay a floating rate
based on 3-month LIBOR
Broker, Citibank, N.A.
Expires December 2011....................................... $ 42,000,000 (909,712)
Pay a fixed rate of 4.9618% and receive a floating rate
based on 3-month LIBOR
Broker, Deutsche Bank AG London
Expires December 2011....................................... $ 36,000,000 711,251
Receive a fixed rate of 5.1646% and pay a floating rate
based on 3-month LIBOR
Broker, Morgan Stanley Capital Services Inc.
Expires January 2012........................................ $ 20,400,000 (253,398)
Pay a fixed rate of 5.2225% and receive a floating rate
based on 3-month LIBOR
Broker, JPMorgan Chase
Expires February 2012....................................... $ 15,000,000 150,149
Receive a fixed rate of 4.987% and pay a floating rate based
on 3-month LIBOR
Broker, UBS Warburg
Expires April 2012.......................................... $ 20,900,000 (436,555)
Pay a fixed rate of 5.59% and receive a floating rate based
on 3-month LIBOR
Broker, UBS Warburg
Expires June 2012........................................... $ 18,000,000 (75,911)
</Table>
12
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Government Income V.I. Fund
Schedule of Investments as of June 30, 2007 (concluded)
- --------------------------------------------------------------------------------
<Table>
<Caption>
UNREALIZED
NOTIONAL APPRECIATION
AMOUNT (DEPRECIATION)
- -------------------------------------------------------------------------------------------
Pay a fixed rate of 5.29% and receive a floating rate based
on 3-month LIBOR
Broker, Citibank, N.A.
Expires May 2017............................................ $ 8,200,000 $ 231,875
Pay a fixed rate of 5.679% and receive a floating rate based
on 3-month LIBOR
Broker, Deutsche Bank AG London
Expires June 2017........................................... $ 32,300,000 (34,316)
Pay a fixed rate of 5.684% and receive a floating rate based
on 3-month LIBOR
Broker, JPMorgan Chase
Expires July 2017........................................... $ 32,300,000 (136,791)
Pay a fixed rate of 5.72495% and receive a floating rate
based on 3-month LIBOR
Broker, Deutsche Bank AG London
Expires July 2017........................................... $ 32,200,000 --
- -------------------------------------------------------------------------------------------
TOTAL....................................................... $(363,094)
=========
- -------------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements.
13
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Government Income V.I. Fund
Statement of Assets and Liabilities as of June 30, 2007 (unaudited)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments in unaffiliated securities, at value (identified
cost--$585,737,949)....................................... $588,317,464
Investments in affiliated securities, at value (identified
cost--$2,643,185)......................................... 2,647,609
Options purchased, at value (premiums paid--$1,166,600)..... 1,677,396
Cash........................................................ 3,102,771
Unrealized appreciation on swaps............................ 3,363,411
Receivables:
Securities sold........................................... $173,827,353
Capital shares sold....................................... 38,934,643
Interest.................................................. 3,062,592
Swaps..................................................... 750,732
Paydowns.................................................. 30,539 216,605,859
------------
Prepaid expenses............................................ 2,956
------------
Total assets................................................ 815,717,466
------------
- -------------------------------------------------------------------------------------------
LIABILITIES
Reverse repurchase agreements............................... 7,324,000
Options written, at value (premiums received--$1,219,800)... 1,749,406
Unrealized depreciation on swaps............................ 3,726,505
TBA sale commitments, at value (proceeds
received--$15,377,945).................................... 15,432,128
Payables:
Securities purchased...................................... 505,980,816
Dividends to shareholders................................. 1,035,734
Variation margin.......................................... 565,925
Swaps..................................................... 517,505
Investment adviser........................................ 103,283
Interest on reverse repurchase agreements................. 8,566
Other affiliates.......................................... 4,550
Capital shares redeemed................................... 19 508,216,398
------------
Accrued expenses and other liabilities...................... 92,093
------------
Total liabilities........................................... 536,540,530
------------
- -------------------------------------------------------------------------------------------
NET ASSETS.................................................. $279,176,936
============
- -------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Class I Shares of Common Stock, $.10 par value, 300,000,000
shares authorized......................................... $ 2,775,001
Class II Shares of Common Stock, $.10 par value, 100,000,000
shares authorized......................................... 11
Class III Shares of Common Stock, $.10 par value,
100,000,000 shares authorized............................. 11
Paid-in capital in excess of par............................ 288,458,797
Accumulated distributions in excess of investment
income--net............................................... $ (1,816,736)
Accumulated realized capital losses--net.................... (11,686,738)
Unrealized appreciation--net................................ 1,446,590
------------
Total accumulated losses--net............................... (12,056,884)
------------
NET ASSETS.................................................. $279,176,936
============
- -------------------------------------------------------------------------------------------
NET ASSET VALUE:
Class I--Based on net assets of $279,174,813 and 27,750,015
shares outstanding........................................ $ 10.06
============
Class II--Based on net assets of $1,061.55 and 105.72 shares
outstanding............................................... $ 10.04
============
Class III--Based on net assets of $1,061.24 and 105.60
shares outstanding........................................ $ 10.05
============
- -------------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements.
14
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Government Income V.I. Fund
Statement of Operations for the Six Months Ended June 30, 2007 (unaudited)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Interest (including $104,390 from affiliates)............... $ 7,229,842
- ------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees.................................... $ 710,468
Accounting services......................................... 50,543
Custodian fees.............................................. 30,627
Interest expense............................................ 23,009
Printing and shareholder reports............................ 20,207
Professional fees........................................... 17,747
Pricing services............................................ 11,046
Directors' fees and expenses................................ 7,694
Transfer agent fees--Class I................................ 2,438
Distribution fees--Class III................................ 2
Distribution fees--Class II................................. 1
Other....................................................... 8,841
------------
Total expenses.............................................. 882,623
-----------
Investment income--net...................................... 6,347,219
-----------
- ------------------------------------------------------------------------------------------
REALIZED & UNREALIZED GAIN (LOSS)--NET:
Realized gain (loss) on:
Investments--net.......................................... (11,968,393)
Financial futures contracts and swaps--net................ 5,150,029 (6,818,364)
------------
Change in unrealized appreciation/depreciation on:
Investments--net.......................................... 2,404,648
Financial futures contracts and swaps--net................ (3,636,231)
Options written--net...................................... (529,606) (1,761,189)
------------ -----------
Total realized and unrealized loss--net..................... (8,579,553)
-----------
- ------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $(2,232,334)
===========
- ------------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements.
15
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Government Income V.I. Fund
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<Table>
<Caption>
FOR THE SIX FOR THE
MONTHS ENDED YEAR ENDED
JUNE 30, 2007 DECEMBER 31,
INCREASE (DECREASE) IN NET ASSET VALUE: (UNAUDITED) 2006
- ------------------------------------------------------------------------------------------
OPERATIONS:
Investment income--net...................................... $ 6,347,219 $ 13,210,624
Realized loss--net.......................................... (6,818,364) (2,847,013)
Change in unrealized appreciation/depreciation--net......... (1,761,189) 1,148,006
------------ ------------
Net increase (decrease) in net assets resulting from
operations................................................ (2,232,334) 11,511,617
------------ ------------
- ------------------------------------------------------------------------------------------
DIVIDENDS TO SHAREHOLDERS:
Investment income--net:
Class I................................................... (7,042,595) (13,464,006)
Class II.................................................. (27) (49)
Class III................................................. (26) (49)
------------ ------------
Net decrease in net assets resulting from dividends to
shareholders.............................................. (7,042,648) (13,464,104)
------------ ------------
- ------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Net increase (decrease) in net assets derived from capital
share transactions........................................ (37,410,735) 29,732,777
------------ ------------
- ------------------------------------------------------------------------------------------
NET ASSETS:
Total increase (decrease) in net assets..................... (46,685,717) 27,780,290
Beginning of period......................................... 325,862,653 298,082,363
------------ ------------
End of period*.............................................. $279,176,936 $325,862,653
============ ============
- ------------------------------------------------------------------------------------------
* Accumulated distribution in excess of investment
income--net............................................... $ (1,816,736) $ (1,121,307)
============ ============
- ------------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements.
16
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Government Income V.I. Fund
Financial Highlights
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS I
-------------------------------------------------------------------------
FOR THE
THE FOLLOWING PER SHARE DATA AND RATIOS SIX MONTHS ENDED FOR THE YEAR ENDED DECEMBER 31,
HAVE BEEN DERIVED FROM INFORMATION JUNE 30, 2007 ----------------------------------------------------
PROVIDED IN THE FINANCIAL STATEMENTS. (UNAUDITED) 2006 2005 2004 2003 2002
- -------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.... $ 10.43 $ 10.50 $ 10.65 $ 10.59 $ 11.06 $ 10.67
-------- -------- -------- -------- -------- --------
Investment income--net**................ .22 .46 .39 .30 .37 .48
Realized and unrealized gain
(loss)--net........................... (.34) (.06) (.05) .14 (.15) .50
-------- -------- -------- -------- -------- --------
Total from investment operations........ (.12) .40 .34 .44 .22 .98
-------- -------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net................ (.25) (.47) (.49) (.31) (.39) (.44)
Realized gain--net.................... -- -- --+ (.07) (.30) (.15)
-------- -------- -------- -------- -------- --------
Total dividends and distributions....... (.25) (.47) (.49) (.38) (.69) (.59)
-------- -------- -------- -------- -------- --------
Net asset value, end of period.......... $ 10.06 $ 10.43 $ 10.50 $ 10.65 $ 10.59 $ 11.06
======== ======== ======== ======== ======== ========
- -------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:***
Based on net asset value per share...... (1.12%)@ 3.91% 3.22% 4.13% 2.07% 9.78%
======== ======== ======== ======== ======== ========
- -------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses, excluding interest expense.... .60%* .58% .59% .58% .58% .58%
======== ======== ======== ======== ======== ========
Expenses................................ .62%* .58% .59% .62% .59% .58%
======== ======== ======== ======== ======== ========
Investment income--net.................. 4.47%* 4.43% 3.69% 2.84% 3.39% 4.40%
======== ======== ======== ======== ======== ========
- -------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands)............................ $279,175 $325,861 $298,080 $321,209 $414,567 $585,789
======== ======== ======== ======== ======== ========
Portfolio turnover...................... 585%@@ 448% 61% 145% 213% 208%
======== ======== ======== ======== ======== ========
- -------------------------------------------------------------------------------------------------------------------
</Table>
* Annualized.
** Based on average shares outstanding.
*** Total investment returns exclude insurance-related fees and expenses.
+ Amount is less than $(.01) per share.
@ Aggregate total investment return.
@@ Excludes dollar roll transactions.
See Notes to Financial Statements.
17
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Government Income V.I. Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS II
--------------------------------------------------------------
FOR THE
FOR THE YEAR ENDED
THE FOLLOWING PER SHARE DATA AND RATIOS SIX MONTHS ENDED DECEMBER 31, FOR THE PERIOD
HAVE BEEN DERIVED FROM INFORMATION JUNE 30, 2007 ------------------ SEPTEMBER 30, 2004+
PROVIDED IN THE FINANCIAL STATEMENTS. (UNAUDITED) 2006 2005 TO DECEMBER 31, 2004
- ------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.............. $ 10.42 $10.49 $10.65 $10.73
------- ------ ------ ------
Investment income--net**.......................... .20 .47 .40 .08
Realized and unrealized loss--net................. (.33) (.06) (.05) (.05)
------- ------ ------ ------
Total from investment operations.................. (.13) .41 .35 .03
------- ------ ------ ------
Less dividends and distributions:
Investment income--net.......................... (.25) (.48) (.51) (.07)
Realized gain--net.............................. -- -- -- (.04)
------- ------ ------ ------
Total dividends and distributions................. (.25) (.48) (.51) (.11)
------- ------ ------ ------
Net asset value, end of period.................... $ 10.04 $10.42 $10.49 $10.65
======= ====== ====== ======
- ------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:***
Based on net asset value per share................ (1.18%)@ 4.04% 3.32% .33%@
======= ====== ====== ======
- ------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses, excluding interest expense.............. .75%* .50% .59% .58%*
======= ====== ====== ======
Expenses.......................................... .77%* .50% .59% .58%*
======= ====== ====== ======
Investment income--net............................ 4.32%* 4.53% 3.76% 2.93%*
======= ====== ====== ======
- ------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands).......... $ 1 $ 1 $ 1 $ 1
======= ====== ====== ======
Portfolio turnover................................ 585%@@ 448% 61% 145%
======= ====== ====== ======
- ------------------------------------------------------------------------------------------------------------------
</Table>
* Annualized.
** Based on average shares outstanding.
*** Total investment returns exclude insurance-related fees and expenses.
+ Commencement of operations.
@ Aggregate total investment return.
@@ Excludes dollar roll transactions.
See Notes to Financial Statements.
18
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Government Income V.I. Fund
Financial Highlights (concluded)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS III
---------------------------------------------------------------
FOR THE
FOR THE YEAR ENDED
THE FOLLOWING PER SHARE DATA AND RATIOS SIX MONTHS ENDED DECEMBER 31, FOR THE PERIOD
HAVE BEEN DERIVED FROM INFORMATION JUNE 30, 2007 ------------------ SEPTEMBER 30, 2004+
PROVIDED IN THE FINANCIAL STATEMENTS. (UNAUDITED) 2006 2005 TO DECEMBER 31, 2004
- ------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............. $ 10.42 $10.49 $10.65 $10.73
------- ------ ------ ------
Investment income--net**......................... .25 .47 .40 .08
Realized and unrealized loss--net................ (.38) (.06) (.05) (.05)
------- ------ ------ ------
Total from investment operations................. (.13) .41 .35 .03
------- ------ ------ ------
Less dividends and distributions:
Investment income--net......................... (.24) (.48) (.51) (.07)
Realized gain--net............................. -- -- -- (.04)
------- ------ ------ ------
Total dividends and distributions................ (.24) (.48) (.51) (.11)
------- ------ ------ ------
Net asset value, end of period................... $ 10.05 $10.42 $10.49 $10.65
======= ====== ====== ======
- ------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:***
Based on net asset value per share............... (1.22%)@ 4.04% 3.31% .33%@
======= ====== ====== ======
- ------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses, excluding interest expense............. .85%* .52% .59% .58%*
======= ====== ====== ======
Expenses......................................... .87%* .52% .59% .58%*
======= ====== ====== ======
Investment income--net........................... 4.22%* 4.50% 3.76% 2.93%*
======= ====== ====== ======
- ------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)......... $ 1 $ 1 $ 1 $ 1
======= ====== ====== ======
Portfolio turnover............................... 585%@@ 448% 61% 145%
======= ====== ====== ======
- ------------------------------------------------------------------------------------------------------------------
</Table>
* Annualized.
** Based on average shares outstanding.
*** Total investment returns exclude insurance-related fees and expenses.
+ Commencement of operations.
@ Aggregate total investment return.
@@ Excludes dollar roll transactions.
See Notes to Financial Statements.
19
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Government Income V.I. Fund
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES:
BlackRock Variable Series Funds, Inc. (the "Company") is an open-end management
investment company that is comprised of 16 separate funds. Each fund offers
three 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. ("Merrill Lynch")), and other insurance companies that are not
affiliated with Merrill Lynch, for their separate accounts to fund benefits
under certain variable annuity and variable life insurance contracts. BlackRock
Government Income V.I. Fund (the "Fund") is classified as "diversified," as
defined in the Investment Company Act of 1940, as amended. Class I, Class II and
Class III 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. In addition, Class II and Class III Shares
bear certain expenses related to the distribution of such shares. The Fund's
financial statements are prepared in conformity with U.S. generally accepted
accounting principles, which may require the use of management accruals and
estimates. Actual results may differ from these estimates. These unaudited
financial statements reflect all adjustments, which are, in the opinion of
management, necessary to present a fair statement of the results for the interim
period. All such adjustments are of a normal, recurring nature. Income, expenses
(other than expenses attributable to a specific class) and realized and
unrealized gains and losses are allocated daily to each class based on its
relative net assets. The following is a summary of significant accounting
policies followed by the Fund.
(a) Valuation of investments--Debt securities are traded primarily in the
over-the-counter ("OTC") markets and are valued at the last available bid price
in the OTC market or on the basis of values obtained by a pricing service.
Pricing services use valuation matrixes that incorporate both dealer-supplied
valuations and valuation models. The procedures of the pricing service and its
valuations are reviewed by the officers of the Fund under the general direction
of the Board of Directors. Such valuations and procedures will be reviewed
periodically by the Board of Directors of the Company. Financial futures
contracts and options thereon, which are traded on exchanges, are valued at
their closing prices as of the close of such exchanges. 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 OTC market, valuation is the last
asked price (options written) or the last bid price (options purchased). Swap
agreements are valued based upon quoted fair valuations received daily by the
Fund from a pricing service or counterparty. Valuation of short-term investment
vehicles is generally based on the net asset value of the underlying investment
vehicle or amortized cost. Repurchase agreements are valued at cost plus accrued
interest. Securities and other 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.
Equity securities held by the Fund that are traded on stock exchanges or the
NASDAQ Global Market are valued at the last sale price or official close price
on the exchange, as of the close of business on the day the securities are being
valued or, lacking any sales, at the last available bid price for long
positions, and at the last available asked price for short positions. In cases
where equity securities are traded on more than one exchange, the securities are
valued on the exchange designated as the primary market by or under the
authority of the Board of Directors of the Company. Long positions traded in the
OTC market, NASDAQ Capital Market or Bulletin Board are valued at the last
available bid price obtained from one or more dealers or pricing services
approved by the Board of Directors of the Company. Short positions traded in the
OTC market are valued at the last available asked price. Portfolio securities
that are traded both in the OTC market and on a stock exchange are valued
according to the broadest and most representative market.
Generally, trading in foreign securities, as well as U.S. government
securities and money market instruments, is substantially completed each day at
various times prior to the close of business on the New York Stock Exchange
("NYSE"). The values of such securities used in computing the net asset value of
the Fund's shares are determined as of such times. Foreign currency exchange
rates will generally be determined as of the close of business on the NYSE.
Occasionally, events affecting the values of such securities and such exchange
rates may occur between the times at which they are determined and the close of
business on the NYSE that may not be reflected in the computation of the Fund's
net asset value. If events (for example, a
20
- --------------------------------------------------------------------------------
company announcement, market volatility or a natural disaster) occur during such
periods that are expected to materially affect the value of such securities,
those securities will be valued at their fair value as determined in good faith
by the Company's Board of Directors or by BlackRock Advisors, LLC (the
"Manager"), an indirect, wholly owned subsidiary of BlackRock, Inc., using a
pricing service and/or procedures approved by the Company's Board of Directors.
(b) Derivative financial instruments--The Fund may engage in various portfolio
investment strategies both to increase the return of the Fund and to hedge, or
protect, its exposure to interest rate movements and movements in the securities
markets. Losses may arise due to changes in the value of the contract due to an
unfavorable change in the price of the underlying security or index, or if the
counterparty does not perform under the contract. The counterparty for certain
instruments may pledge cash or securities as collateral.
- - Financial futures contracts--The Fund may purchase or sell financial futures
contracts and options on such financial futures contracts. Financial futures
contracts are contracts for delayed delivery of securities at a specific future
date and at a specific price or yield. Upon entering into a contract, the Fund
deposits and maintains as collateral such initial margin as required by the
exchange on which the transaction is effected. Pursuant to the contract, the
Fund agrees to receive from or pay to the broker an amount of cash equal to the
daily fluctuation in value of the contract. Such receipts or payments are known
as variation margin and are recorded by the Fund as unrealized gains or losses.
When the contract is closed, the Fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed.
- - Options--The Fund may purchase and write call and put options. When the Fund
writes an option, an amount equal to the premium received by the Fund is
reflected as an asset and an equivalent liability. The amount of the liability
is subsequently marked-to-market to reflect the current market value of the
option written. When a security is purchased or sold through an exercise of an
option, the related premium paid (or received) is added to (or deducted from)
the basis of the security acquired or deducted from (or added to) the proceeds
of the security sold. When an option expires (or the Fund enters into a closing
transaction), the Fund realizes a gain or loss on the option to the extent of
the premiums received or paid (or loss or gain to the extent the cost of the
closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
- - Swaps--The Fund may enter into swap agreements, which are OTC contracts in
which the Fund and a counterparty agree to make periodic net payments on a
specified notional amount. The net payments can be made for a set period of time
or may be triggered by a predetermined credit event. The net periodic payments
may be based on a fixed or variable interest rate; the change in market value of
a specified security, basket of securities, or index; or the return generated by
a security. These periodic payments received or made by the Fund are recorded in
the accompanying Statement of Operations as realized gains or losses,
respectively. Gains or losses are also realized upon termination of the swap
agreements. Swaps are marked-to-market daily and changes in value are recorded
as unrealized appreciation (depreciation). Risks include changes in the returns
of the underlying instruments, failure of the counterparties to perform under
the contracts' terms and the possible lack of liquidity with respect to the swap
agreements.
(c) Repurchase agreements--The Fund may invest in U.S. government securities
pursuant to repurchase agreements. Under such agreements, the counterparty
agrees to repurchase the security at a mutually agreed upon time and price. The
Fund takes possession of the underlying securities, marks-to-market such
securities and, if necessary, receives additional securities daily to ensure
that the contract is fully collateralized. If the counterparty defaults and the
fair value of the collateral declines, liquidation of the collateral by the Fund
may be delayed or limited.
(d) Reverse repurchase agreements--The Fund may enter into reverse repurchase
agreements. Under reverse repurchase agreements, the Fund sells securities to
the counterparty and agrees to repurchase them at a mutually agreed upon date
and price, and may exchange their respective commitments to pay or receive
interest. If the counterparty defaults on its obligation, the Fund's ability to
receive interest will be delayed or limited. Furthermore, if the Fund does not
have sufficient income to pay its obligation under the reverse repurchase
agreement, the Fund would be in default and the counterparty would be able to
terminate the repurchase agreement.
(e) Income taxes--It is the Fund's policy to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
21
- --------------------------------------------------------------------------------
Therefore, no federal income tax provision is required.
(f) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Realized gains and losses on security transactions are determined on the
identified cost basis. Interest income is recognized on the accrual basis. The
Fund amortizes all premiums and discounts on debt securities.
(g) Dividends and distributions--Dividends from net investment income are
declared daily and paid monthly. Distributions of capital gains are recorded on
the ex-dividend dates.
(h) Expenses--Certain expenses have been allocated to the individual funds in
the Company on a pro rata basis based upon the respective aggregate net asset
value of each fund included in the Company.
(i) Securities lending--The Fund may lend securities to financial institutions
that provide cash or securities issued or guaranteed by the U.S. government as
collateral, which will be maintained at all times in an amount equal to at least
100% of the current market value of the loaned securities. The market value of
the loaned securities is determined at the close of business of the Fund and any
additional required collateral is delivered to the Fund on the next business
day. Where the Fund receives securities as collateral for the loaned securities,
it collects a fee from the borrower. The Fund typically receives the income on
the loaned securities but does not receive the income on the collateral. Where
the Fund receives cash collateral, it may invest such collateral and retain the
amount earned on such investment, net of any amount rebated to the borrower.
Loans of securities are terminable at any time and the borrower, after notice,
is required to return borrowed securities within five business days. The Fund
may pay reasonable finder's, lending agent, administrative and custodial fees in
connection with its loans. In the event that the borrower defaults on its
obligation to return borrowed securities because of insolvency or for any other
reason, the Fund could experience delays and costs in gaining access to the
collateral. The Fund also could suffer a loss where the value of the collateral
falls below the market value of the borrowed securities, in the event of
borrower default or in the event of losses on investments made with cash
collateral.
(j) Mortgage dollar rolls--The Fund may sell mortgage-backed securities for
delivery in the current month and simultaneously contract to repurchase
substantially similar (same type, coupon and maturity) securities on a specific
future date.
(k) TBA Commitments--The Fund may enter into to be announced ("TBA")
commitments to purchase or sell securities for a fixed price at a future date.
TBA commitments are considered securities in themselves, and involve a risk of
loss if the value of the security to be purchased/sold declines/increases prior
to settlement date, which is in addition to the risk of decline in the value of
a Fund's other assets. Unsettled TBA commitments are valued at the current
market value of the underlying securities, according to the procedures described
under "Valuation of investments."
(l) Recent accounting pronouncements--Effective June 29, 2007, the Fund
implemented Financial Accounting Standards Board ("FASB") Interpretation No. 48,
"Accounting for Uncertainty in Income Taxes--an interpretation of FASB Statement
No. 109" ("FIN 48"). FIN 48 prescribes the minimum recognition threshold a tax
position must meet in connection with accounting for uncertainties in income tax
positions taken or expected to be taken by an entity, including investment
companies, before being measured and recognized in the financial statements.
Management has evaluated the application of FIN 48 to the Fund, and has
determined that the adoption of FIN 48 does not have a material impact on the
Fund's financial statements. The Fund files U.S. and various state tax returns.
No income tax returns are currently under examination. The statute of
limitations on the Fund's tax returns remains open for the years ended December
31, 2003 through December 31, 2006.
In September 2006, Statement of Financial Accounting Standards No. 157, "Fair
Value Measurements" ("FAS 157"), was issued and is effective for fiscal years
beginning after November 15, 2007. FAS 157 defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. At this time, management is evaluating the implications of FAS 157
and its impact on the Fund's financial statements, if any, has not been
determined.
In addition, in February 2007, Statement of Financial Accounting Standards No.
159, "The Fair Value Option for Financial Assets and Financial Liabilities"
("FAS 159"), was issued and is effective for fiscal years beginning after
November 15, 2007. Early adoption is permitted as of the beginning of a fiscal
year that begins on or before November 15, 2007, provided the entity also elects
to apply the provisions of FAS 157. FAS 159 permits entities to choose to
measure many financial instruments and certain
22
- --------------------------------------------------------------------------------
other items at fair value that are not currently required to be measured at fair
value. FAS 159 also establishes presentation and disclosure requirements
designed to facilitate comparisons between entities that choose different
measurement attributes for similar types of assets and liabilities. At this
time, management is evaluating the implications of FAS 159 and its impact on the
Fund's financial statements, if any, has not been determined.
2. INVESTMENT ADVISORY AGREEMENT AND TRANSACTIONS WITH AFFILIATES:
The Fund has entered into an Investment Advisory Agreement with the Manager. The
Fund has also entered into separate Distribution Agreements and Distribution
Plans with FAM Distributors, Inc. ("FAMD") and BlackRock Distributors, Inc. and
its affiliates ("BDI") (collectively, the "Distributor"). FAMD is a wholly owned
subsidiary of Merrill Lynch Group, Inc., and BDI is an affiliate of BlackRock,
Inc. Merrill Lynch and The PNC Financial Services Group, Inc. ("PNC") are the
principal owners of BlackRock, Inc.
The Manager 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 Fund. For such services, the Fund
pays a monthly fee at the annual rate of .50% of the average daily value of the
Fund's net assets. In addition, the Manager has entered into a sub-advisory
agreement with BlackRock Financial Management, Inc., an affiliate of the
Manager, under which the Manager pays the Sub-Adviser for services it provides a
monthly fee at an annual rate that is a percentage of the management fee paid by
the Fund to the Manager.
Pursuant to the Distribution Plans adopted by the Company, in accordance with
Rule 12b-1 under the investment Company Act of 1940, the Fund pays the
Distributor an ongoing distribution fee each month at the annual rate of .15%
and .25% of the average daily value of the Fund's Class II and Class III net
assets, respectively.
The Company has received an exemptive order from the Securities and Exchange
Commission permitting it to lend portfolio securities to Merrill Lynch, Pierce,
Fenner & Smith Incorporated, a wholly owned subsidiary of Merrill Lynch, or its
affiliates. Pursuant to that order, the Company also has retained BlackRock
Investment Management, LLC ("BIM"), an affiliate of the Manager, as the
securities lending agent for a fee based on a share of the returns on investment
of cash collateral. BIM may, on behalf of the Company and the Fund, invest cash
collateral received by the Fund for such loans, among other things, in a private
investment company managed by the Manager or in registered money market funds
advised by the Manager or its affiliates.
For the six months ended June 30, 2007, the Fund reimbursed the Manager $3,314
for certain accounting services.
PFPC Inc., an indirect, wholly owned subsidiary of PNC and an affiliate of the
Manager, is the Fund's transfer agent.
Certain officers and/or directors of the Company are officers and/or directors
of BlackRock, Inc. or its affiliates.
3. INVESTMENTS:
Purchases and sales (including paydowns, payups and excluding dollar roll
transactions) of investments, excluding short-term securities, for the six
months ended June 30, 2007 were $3,888,634,631 and $4,077,685,426, respectively.
Transactions in options written for the six months ended June 30, 2007 were as
follows:
<Table>
<Caption>
- -------------------------------------------------------------------
Number of Premiums
Call Options Written Contracts Received
- -------------------------------------------------------------------
Outstanding call options written, beginning
of period................................... -- --
Options written.............................. 38 $609,900
--- --------
Outstanding call options written, end of
period...................................... 38 $609,900
=== ========
- -------------------------------------------------------------------
</Table>
<Table>
<Caption>
- -------------------------------------------------------------------
Number of Premiums
Put Options Written Contracts Received
- -------------------------------------------------------------------
Outstanding put options written, beginning of
period...................................... -- --
Options written.............................. 38 $609,900
--- --------
Outstanding call options written, end of
period...................................... 38 $609,900
=== ========
- -------------------------------------------------------------------
</Table>
4. CAPITAL SHARE TRANSACTIONS:
Net increase (decrease) in net assets derived from capital share transactions
was $(37,410,735) and $29,732,777 for the six months ended June 30, 2007 and the
year ended December 31, 2006, respectively.
<Table>
<Caption>
- --------------------------------------------------------------------
Class I Shares for the Six Months Ended
June 30, 2007 Shares Dollar Amount
- --------------------------------------------------------------------
Shares sold........................... 3,941,804 $ 39,678,549
Shares issued to shareholders in
reinvestment of dividends............ 700,380 7,277,022
---------- ------------
Total issued.......................... 4,642,184 46,955,571
Shares redeemed....................... (8,131,521) (84,366,359)
---------- ------------
Net decrease.......................... (3,489,337) $(37,410,788)
========== ============
- --------------------------------------------------------------------
</Table>
23
- --------------------------------------------------------------------------------
<Table>
<Caption>
- ------------------------------------------------------------------
Class I Shares for the Year Ended
December 31, 2006 Shares Dollar Amount
- ------------------------------------------------------------------
Shares sold.......................... 8,790,813 $ 91,373,369
Shares issued to shareholders in
reinvestment of dividends and
distributions....................... 1,245,553 12,924,104
---------- ------------
Total issued......................... 10,036,366 104,297,473
Shares redeemed...................... (7,188,596) (74,564,794)
---------- ------------
Net increase......................... 2,847,770 $ 29,732,679
========== ============
- ------------------------------------------------------------------
</Table>
<Table>
<Caption>
- ------------------------------------------------------------------
Class II Shares for the Six Months Ended Dollar
June 30, 2007 Shares Amount
- ------------------------------------------------------------------
Shares issued to shareholders in reinvestment of
dividends...................................... 3 $27
-- ---
Net increase.................................... 3 $27
== ===
- ------------------------------------------------------------------
</Table>
<Table>
<Caption>
- ------------------------------------------------------------------
Class II Shares for the Year Ended Dollar
December 31, 2006 Shares Amount
- ------------------------------------------------------------------
Shares sold..................................... 10 $ 100
Shares issued to shareholders in reinvestment of
dividends...................................... 5 49
--- -----
Total issued.................................... 15 149
Shares redeemed................................. (10) (100)
--- -----
Net increase.................................... 5 $ 49
=== =====
- ------------------------------------------------------------------
</Table>
<Table>
<Caption>
- ------------------------------------------------------------------
Class III Shares for the Six Months Ended Dollar
June 30, 2007 Shares Amount
- ------------------------------------------------------------------
Shares issued to shareholders in reinvestment of
dividends...................................... 2 $26
-- ---
Net increase.................................... 2 $26
== ===
- ------------------------------------------------------------------
</Table>
<Table>
<Caption>
- ------------------------------------------------------------------
Class III Shares for the Year Ended Dollar
December 31, 2006 Shares Amount
- ------------------------------------------------------------------
Shares sold..................................... 10 $ 100
Shares issued to shareholders in reinvestment of
dividends...................................... 5 49
--- -----
Total issued.................................... 15 149
Shares redeemed................................. (10) (100)
--- -----
Net increase.................................... 5 $ 49
=== =====
- ------------------------------------------------------------------
</Table>
5. SHORT-TERM BORROWINGS:
The Company, on behalf of the Fund, along with certain other funds managed by
the Manager, is party to a $500,000,000 credit agreement with a group of
lenders, which expires November 2007. 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 .06% per annum based on the Fund's pro rata share of the
unused portion of the credit agreement. Amounts borrowed under the credit
agreement bear interest at a rate equal to, at each fund's election, the federal
funds rate plus .35% or a base rate as defined in the credit agreement. The Fund
did not borrow under the credit agreement during the six months ended June 30,
2007.
The weighted average annual interest rate was 6.22% and the average borrowing
was approximately $880,000 for the six months ended June 30, 2007.
6. CAPITAL LOSS CARRYFORWARD:
On December 31, 2006, the Fund had a net capital loss carryforward of
$2,860,553, of which $1,381,364 expires in 2013 and $1,479,189 expires in 2014.
This amount will be available to offset like amounts of any future taxable
gains.
24
- --------------------------------------------------------------------------------
BLACKROCK HIGH INCOME V.I. FUND
-------------------------------------------------------------------------
Semi-Annual Report (Unaudited)
June 30, 2007
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock High Income V.I. Fund
A Discussion With Your Fund's Portfolio Managers
- --------------------------------------------------------------------------------
The Fund's performance benefited from its exposure to lower-quality credits as
these securities generally outperformed other segments of the high yield bond
market during the period.
HOW DID THE FUND PERFORM DURING THE PERIOD IN LIGHT OF THE EXISTING MARKET
CONDITIONS?
For the six-month period ended June 30, 2007, BlackRock High Income V.I.
Fund's Class I Shares had a total return of +3.46%. For the same period, the
Fund's benchmark, the Lehman Brothers U.S. Corporate High Yield 2% Issuer Cap
Index, returned +2.96%, and the Lipper High Current Yield Funds (Variable
Products) category had an average return of +2.40%. (Funds in this Lipper
category seek high relative current yield from fixed income securities, have no
quality or maturity restrictions, and tend to invest in lower-grade debt
issues.)
The high yield market posted positive returns for the first five months of
2007 before experiencing a downturn in June. The rally in the high yield market
for most of the first half of the year reflected the continuation of
historically low default rates and relatively low new-issue supply. The market
decline in June resulted primarily from lower demand, especially among retail
investors; tepid investor sentiment; and concerns about rising U.S. Treasury
yields and an increase in new issuance of bonds related to leveraged buyouts
(LBOs). An LBO is the acquisition of--or a controlling interest in--a company
for which a significant amount of borrowed money (bonds or loans) is used to
meet the cost of the acquisition.
High yield securities and the Fund significantly outperformed U.S. Treasury
issues and investment-grade bonds for the six-month period. U.S. Treasuries, as
measured by the Merrill Lynch 10-Year U.S. Treasury Securities Index, returned
- -.43%, and the U.S. investment-grade bond market returned +.98%, as measured by
the Lehman Brothers U.S. Aggregate Bond Index. Accordingly, the higher-quality
sector of the high yield market, which is more closely correlated with Treasury
issues, lagged during the period, while lower-quality issues outperformed.
WHAT FACTORS MOST INFLUENCED FUND PERFORMANCE?
The Fund's performance during the period benefited from its exposure to
lower-quality credits, as well as overweight positions versus the benchmark in
the chemicals, building materials and wireless telecommunications sectors.
Security selection in BB-rated credits also contributed positively to
performance as lower-quality credit sectors outperformed during the period.
Conversely, underweight positions in health care, home construction and
supermarkets detracted from Fund results.
WHAT CHANGES WERE MADE TO THE PORTFOLIO DURING THE PERIOD?
During the semi-annual period, we decreased the Fund's positions in the
automotive and electric utility sectors, resulting in underweights in these
sectors, and increased its overweight position in the retail sector. We
generally favored lower-quality credit tiers, holding overweight positions in
issues rated B and CCC. These overweights enhanced performance as these segments
of the credit market posted strong returns.
HOW WOULD YOU CHARACTERIZE THE FUND'S POSITION AT THE CLOSE OF THE PERIOD?
At June 30, 2007, the Fund had overweight positions relative to the benchmark
in the retail, wireless, media--non-cable and metals sectors, and underweight
exposure to the healthcare, supermarkets, non-captive diversified financials and
natural gas pipeline sectors. The Fund had an average credit rating of B at
period-end.
Going forward, we intend to maintain our focus on increasing the Fund's net
asset value while seeking to generate a competitive total return for
shareholders. The turmoil in the subprime mortgage market in the first half of
2007 has not had a direct effect on Fund performance, but we maintain an
underweight allocation to securities issued by homebuilders.
In our view, the Fund is well positioned to take full advantage of
opportunities in the high yield market throughout the remainder of the year. The
market may face a challenging technical environment primarily because of a large
issuance calendar which is likely to grow, as well as deteriorating liquidity in
the market. However, the sector is still fundamentally solid, and we believe the
disciplined yet flexible style
2
- --------------------------------------------------------------------------------
of the Fund should continue to thrive in this type of environment.
Kevin Booth
Portfolio Manager
James Keenan
Portfolio Manager
Jeffrey Gary
Portfolio Manager
Scott Amero
Portfolio Manager
July 13, 2007
- ---------------------------------------------------------
We are pleased to announce that Kevin Booth, CFA, and James E. Keenan, CFA,
have joined the Fund's portfolio management team and, together with Mr. Amero
and Mr. Gary, are jointly responsible for the day-to-day management of the
Fund's portfolio and the selection of its investments. Mr. Booth is a Managing
Director with BlackRock Financial Management and co-head of the high yield team
within the Fixed Income Portfolio Management Group. Mr. Booth joined BlackRock
following the merger with Merrill Lynch Investment Managers (MLIM) in 2006. He
was a Managing Director (Global Fixed Income) with MLIM in 2006, a Director from
1998 to 2006 and Vice President from 1991 to 1998. Mr. Booth has been a
portfolio manager with BlackRock or MLIM since 1992, and was a member of MLIM's
bank loan group from 2000 to 2006. Mr. Keenan is a Director with BlackRock
Financial Management and co-head of the high yield team within the Fixed Income
Portfolio Management Group. Mr. Keenan has been with the firm since 2004 as a
Portfolio Manager on the high yield team. Prior to that, he was a senior high
yield trader at Columbia Management Group from 2003 to 2004. Mr. Keenan began
his investment career at UBS Global Asset Management, where he held roles as a
trader, research analyst and portfolio analyst from 1998 through 2003.
- ---------------------------------------------------------
3
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock High Income V.I. Fund
Total Return Based on a $10,000 Investment
- --------------------------------------------------------------------------------
[LINE GRAPH]
<Table>
<Caption>
BLACKROCK HIGH INCOME LEHMAN BROTHERS U.S.
V.I. FUND+--CLASS I CREDIT SUISSE HIGH YIELD CORPORATE HIGH YIELD 2%
SHARES* INDEX+++ ISSUER CAP INDEX++
--------------------- ------------------------ -----------------------
6/97 10000 10000 10000
6/98 10787 11098 11143
6/99 10509 11003 11101
6/00 10621 10960 10988
6/01 10618 10925 10909
6/02 10108 11102 10679
6/03 11915 13407 13048
6/04 13495 14982 14393
6/05 14618 16495 15927
6/06 15340 17323 16622
6/07 16857 19422 18487
</Table>
[LINE GRAPH]
<Table>
<Caption>
LEHMAN BROTHERS
BLACKROCK HIGH BLACKROCK HIGH U.S. CORPORATE HIGH
INCOME V.I. FUND+-- INCOME V.I. FUND+-- CREDIT SUISSE HIGH YIELD 2% ISSUER CAP
CLASS II SHARES* CLASS III SHARES* YIELD INDEX+++ INDEX++
------------------- ------------------- ------------------ -------------------
9/30/04** 10000 10000 10000 10000
6/05 10435 10435 10536 10554
6/06 10955 10955 11065 11015
6/07 12023 12012 12406 12251
</Table>
* Assuming transaction costs, if any, and other operating expenses, including
advisory fees. Does not include insurance-related fees and expenses.
Effective September 2, 2003, Class A Shares were redesignated Class I
Shares.
** Commencement of Operations.
+ The Fund invests principally in fixed income securities with lower credit
quality.
++ This unmanaged index is an unmanaged index comprised of issues that meet the
following criteria: at least $150 million par value outstanding; maximum
credit rating of Ba1; at least one year to maturity; and no issuer
represents more than 2% of the index. The Fund now uses this index as its
benchmark because it better reflects the Fund's investment strategies.
+++ This unmanaged market-weighted Index is comprised of 1,637 high-yield debt
securities rated BBB or lower.
Past results shown should not be considered a representation of future
performance.
4
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock High Income V.I. Fund
Average Annual Total Return--Class I Shares*
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERIOD COVERED RETURN
- --------------------------------------------------------------------------
One Year Ended 6/30/07 + 9.89%
- --------------------------------------------------------------------------
Five Years Ended 6/30/07 +10.77
- --------------------------------------------------------------------------
Ten Years Ended 6/30/07 + 5.36
- --------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock High Income V.I. Fund
Average Annual Total Return--Class II Shares*
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERIOD COVERED RETURN
- --------------------------------------------------------------------------
One Year Ended 6/30/07 +9.75%
- --------------------------------------------------------------------------
Inception (9/30/04) through 6/30/07 +6.93
- --------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock High Income V.I. Fund
Average Annual Total Return--Class III Shares*
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERIOD COVERED RETURN
- --------------------------------------------------------------------------
One Year Ended 6/30/07 +9.65%
- --------------------------------------------------------------------------
Inception (9/30/04) through 6/30/07 +6.90
- --------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock High Income V.I. Fund
Recent Performance Results
- --------------------------------------------------------------------------------
<Table>
<Caption>
6-MONTH 12-MONTH STANDARDIZED
AS OF JUNE 30, 2007 TOTAL RETURN TOTAL RETURN 30-DAY YIELD
- --------------------------------------------------------------------------------------------------------
Class I Shares* +3.46% + 9.89% 7.45%
- --------------------------------------------------------------------------------------------------------
Class II Shares* +3.23 + 9.75 --
- --------------------------------------------------------------------------------------------------------
Class III Shares* +3.29 + 9.65 --
- --------------------------------------------------------------------------------------------------------
Lehman Brothers U.S. Corporate High Yield 2% Issuer Cap
Index** +2.96 +11.22 --
- --------------------------------------------------------------------------------------------------------
Credit Suisse High Yield Index*** +3.68 +12.12 --
- --------------------------------------------------------------------------------------------------------
</Table>
* Average annual and cumulative 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 payable
date. Insurance-related fees and expenses are not reflected in these
returns. For a portion of the period, returns do not show the effects of
distribution fees (12b-1 fees) applicable to Class II and Class III Shares.
If such fees were included, returns shown would have been lower.
** This unmanaged Index is comprised of issues that meet the following
criteria: at least $150 million par value outstanding; maximum credit
rating of Ba1; at least one year to maturity; and no issuer represents more
than 2% of the index. The Fund now uses this index as its benchmark because
it better reflects the Fund's investment strategies.
Past results shown should not be considered a representation of future
performance.
*** This unmanaged market-weighted Index is comprised of 1,637 high-yield debt
securities rated BBB or lower.
5
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock High Income V.I. Fund
Disclosure of Expenses
- --------------------------------------------------------------------------------
Shareholders of this Fund may incur the following charges: (a) expenses related
to transactions, including sales charges, redemption fees and exchange fees; and
(b) operating expenses including advisory fees, distribution fees including
12b-1 fees, and other Fund expenses. The following example (which is based on a
hypothetical investment of $1,000 invested on January 1, 2007 and held through
June 30, 2007) is intended to assist shareholders both in calculating expenses
based on an investment in the Fund and in comparing these expenses with similar
costs of investing in other mutual funds.
The first table below provides information about actual account values and
actual expenses. In order to estimate the expenses a shareholder paid during the
period covered by this report, shareholders can divide their account value by
$1,000 and then multiply the result by the number in the first line under the
heading entitled "Expenses Paid During the Period."
The second table below provides information about hypothetical account values
and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses. In order to assist
shareholders in comparing the ongoing expenses of investing in this Fund and
other funds, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in other funds' shareholder reports.
The expenses shown in the table are intended to highlight shareholders'
ongoing costs only and do not reflect any transactional expenses, such as sales
charges, redemption fees or exchange fees. Therefore, the second table is useful
in comparing ongoing expenses only, and will not help shareholders determine the
relative total expenses of owning different funds. If these transactional
expenses were included, shareholder expenses would have been higher.
<Table>
<Caption>
EXPENSES PAID
BEGINNING ENDING DURING THE PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JANUARY 1, 2007 TO
JANUARY 1, 2007 JUNE 30, 2007 JUNE 30, 2007
- ------------------------------------------------------------------------------------------------------------------
ACTUAL
- ------------------------------------------------------------------------------------------------------------------
Class I $1,000 $1,034.60 $3.18
- ------------------------------------------------------------------------------------------------------------------
Class II $1,000 $1,032.30 $4.13
- ------------------------------------------------------------------------------------------------------------------
Class III $1,000 $1,032.90 $4.44
- ------------------------------------------------------------------------------------------------------------------
HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES)**
- ------------------------------------------------------------------------------------------------------------------
Class I $1,000 $1,021.68 $3.16
- ------------------------------------------------------------------------------------------------------------------
Class II $1,000 $1,020.73 $4.11
- ------------------------------------------------------------------------------------------------------------------
Class III $1,000 $1,020.44 $4.41
- ------------------------------------------------------------------------------------------------------------------
</Table>
* For each class of the Fund, expenses are equal to the annualized expense
ratio for the class (.63% for Class I, .82% for Class II and .88% for Class
III), multiplied by the average account value over the period, multiplied by
181/365 (to reflect the one-half year period shown). All of the outstanding
shares of Class II and Class III were owned by an affiliated entity.
** Hypothetical 5% annual return before expenses is calculated by pro-rating
the number of days in the most recent fiscal half year divided by 365.
6
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock High Income V.I. Fund
Portfolio Information as of June 30, 2007
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENT OF
QUALITY RATINGS BY S&P/MOODY'S LONG-TERM INVESTMENTS
- -----------------------------------------------------------------------------------
A/A......................................................... 0.1%
BBB/Baa..................................................... 3.1
BB/Ba....................................................... 22.5
B/B......................................................... 54.1
CCC/Caa..................................................... 17.2
NR (Not Rated).............................................. 2.0
Other*...................................................... 1.0
- -----------------------------------------------------------------------------------
</Table>
* Includes portfolio holdings in common stocks, preferred stocks and warrants.
7
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock High Income V.I. Fund
Schedule of Investments as of June 30, 2007 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
FACE
INDUSTRY AMOUNT CORPORATE BONDS VALUE
- ---------------------------------------------------------------------------------------------------------------------
AEROSPACE & DEFENSE--2.4%
DRS Technologies, Inc.:
$1,000,000 6.875% due 11/01/2013................................ $ 970,000
250,000 6.625% due 2/01/2016................................. 241,250
500,000 K&F Acquisition, Inc., 7.75% due 11/15/2014............ 530,000
L-3 Communications Corp.:
65,000 5.875% due 1/15/2015................................. 60,288
1,025,000 Series B, 6.375% due 10/15/2015...................... 968,625
425,000 Standard Aero Holdings, Inc., 8.25% due 9/01/2014...... 452,625
260,000 TransDigm, Inc., 7.75% due 7/15/2014(e)................ 262,600
1,390,000 Vought Aircraft Industries, Inc., 8% due 7/15/2011..... 1,383,050
------------
4,868,438
- ---------------------------------------------------------------------------------------------------------------------
AIRLINES--0.5%
Continental Airlines, Inc. Class C(i):
23,264 Series 1998-1, 6.541% due 9/15/2009.................. 23,235
904,186 Series 2001-1, 7.033% due 12/15/2012................. 895,709
------------
918,944
- ---------------------------------------------------------------------------------------------------------------------
AUTOMOTIVE--5.7%
ArvinMeritor, Inc.:
540,000 8.125% due 9/15/2015................................. 523,125
220,000 4% due 2/15/2027(a)(e)(k)............................ 233,750
Asbury Automotive Group, Inc.:
1,150,000 8% due 3/15/2014..................................... 1,161,500
240,000 7.625% due 3/15/2017(e).............................. 236,400
250,000 Autonation, Inc., 7.356% due 4/15/2013(f).............. 249,375
205,000 Cooper-Standard Automotive, Inc., 7% due 12/15/2012.... 192,187
700,000 Ford Motor Co., 8.90% due 1/15/2032.................... 609,000
Ford Motor Credit Co.:
950,000 5.80% due 1/12/2009.................................. 929,909
230,000 5.70% due 1/15/2010.................................. 219,730
990,000 8.105% due 1/13/2012(f).............................. 987,488
980,000 General Motors Acceptance Corp., 6.75% due 12/01/2014.. 938,503
The Goodyear Tire & Rubber Co.:
150,000 9.135% due 12/01/2009(e)(f).......................... 150,375
140,000 7.857% due 8/15/2011................................. 142,800
1,003,000 8.625% due 12/01/2011(e)............................. 1,055,657
240,000 4% due 6/15/2034(a).................................. 699,300
300,000 Group 1 Automotive, Inc., 2.25% due 6/15/2036(a)(k).... 258,375
305,000 Keystone Automotive Operations, Inc., 9.75% due
11/01/2013........................................... 265,350
965,000 Lear Corp., 8.75% due 12/01/2016....................... 919,163
315,000 Metaldyne Corp., 10% due 11/01/2013.................... 333,900
310,000 Titan International, Inc., 8% due 1/15/2012............ 318,525
885,000 United Auto Group, Inc., 7.75% due 12/15/2016.......... 880,575
------------
11,304,987
- ---------------------------------------------------------------------------------------------------------------------
BROADCASTING--1.6% 210,000 Bonten Media Acquisition Co., 9% due 6/01/2015(e)(j)... 209,932
750,000 CMP Susquehanna Corp., 9.875% due 5/15/2014(e)......... 750,000
130,000 Local TV Finance LLC, 9.25% due 6/15/2015(e)(j)........ 126,538
750,000 Radio One, Inc., 6.375% due 2/15/2013.................. 705,000
128,000 Sinclair Broadcast Group, Inc., 8% due 3/15/2012....... 131,840
490,000 Umbrella Acquisition, 9.75% due 3/15/2015(e)(j)........ 483,875
860,000 Young Broadcasting, Inc., 10% due 3/01/2011............ 855,700
------------
3,262,885
- ---------------------------------------------------------------------------------------------------------------------
</Table>
8
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock High Income V.I. Fund
Schedule of Investments as of June 30, 2007 (continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
FACE
INDUSTRY AMOUNT CORPORATE BONDS VALUE
- ---------------------------------------------------------------------------------------------------------------------
CABLE--INTERNATIONAL--0.1% $ 250,000 NTL Cable Plc, 9.125% due 8/15/2016.................... $ 261,875
- ---------------------------------------------------------------------------------------------------------------------
CABLE--U.S.--5.0% 1,175,000 CCH I, LLC, 11% due 10/01/2015......................... 1,225,043
1,000,000 CSC Holdings, Inc. Series B, 7.625% due 4/01/2011...... 992,500
430,000 Cablevision Systems Corp. Series B, 9.82% due
4/01/2009(f)......................................... 449,350
2,290,000 Charter Communications Holdings II LLC, 10.25% due
9/15/2010............................................ 2,392,888
250,000 DirecTV Holdings LLC, 8.375% due 3/15/2013............. 261,562
1,350,000 Echostar DBS Corp., 7.125% due 2/01/2016............... 1,319,625
Intelsat Bermuda Ltd.(f):
150,000 11.409% due 6/15/2013................................ 159,000
870,000 8.872% due 1/15/2015................................. 888,488
820,000 Intelsat Corp., 9% due 6/15/2016....................... 858,950
170,000 Intelsat Intermediate Holding Co. Ltd., 9.231% due
2/01/2015(b)......................................... 139,825
1,300,000 Intelsat Subsidiary Holding Co. Ltd., 8.25% due
1/15/2013............................................ 1,319,500
------------
10,006,731
- ---------------------------------------------------------------------------------------------------------------------
CHEMICALS--3.3% 435,000 American Pacific Corp., 9% due 2/01/2015(e)............ 436,631
Hexion U.S. Finance Corp.:
545,000 9.75% due 11/15/2014................................. 564,075
200,000 9.86% due 11/15/2014(f).............................. 206,000
350,000 Huntsman International LLC, 7.875% due 11/15/2014...... 374,937
560,000 Ineos Group Holdings Plc, 8.50% due 2/15/2016(e)....... 547,400
575,000 Innophos, Inc., 8.875% due 8/15/2014................... 595,125
925,000 Lyondell Chemical Co., 8% due 9/15/2014................ 950,437
450,000 MacDermid, Inc., 9.50% due 4/15/2017(e)................ 452,250
Momentive Performance Materials, Inc.(e):
100,000 9.75% due 12/01/2014................................. 101,000
1,385,000 10.125% due 12/01/2014(j)............................ 1,388,462
600,000 Terra Capital, Inc. Series B, 7% due 2/01/2017......... 579,000
300,000 Westlake Chemical Corp., 6.625% due 1/15/2016.......... 284,250
------------
6,479,567
- ---------------------------------------------------------------------------------------------------------------------
CONSUMER--DURABLES--1.1% 2,240,000 TL Acquisitions, Inc., 10.50% due 1/15/2015(e)......... 2,172,800
- ---------------------------------------------------------------------------------------------------------------------
CONSUMER--NON- 125,000 American Greetings Corp., 7.375% due 6/01/2016......... 126,250
DURABLES--2.1% 1,000,000 Chattem, Inc., 7% due 3/01/2014........................ 997,500
825,000 Hines Nurseries, Inc., 10.25% due 10/01/2011........... 643,500
950,000 Levi Strauss & Co., 8.875% due 4/01/2016............... 973,750
300,000 North Atlantic Trading Co., 9.25% due 3/01/2012........ 252,000
1,300,000 Quiksilver, Inc., 6.875% due 4/15/2015................. 1,222,000
------------
4,215,000
- ---------------------------------------------------------------------------------------------------------------------
</Table>
9
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock High Income V.I. Fund
Schedule of Investments as of June 30, 2007 (continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
FACE
INDUSTRY AMOUNT CORPORATE BONDS VALUE
- ---------------------------------------------------------------------------------------------------------------------
DIVERSIFIED MEDIA--5.6%
Affinion Group, Inc.:
$ 190,000 10.125% due 10/15/2013............................... $ 202,825
385,000 11.50% due 10/15/2015................................ 415,800
250,000 CBD Media Holdings LLC, 9.25% due 7/15/2012............ 258,750
440,000 CanWest Media, Inc., 8% due 9/15/2012.................. 436,700
Dex Media East LLC:
65,000 9.875% due 11/15/2009................................ 67,356
334,000 12.125% due 11/15/2012............................... 359,467
1,800,000 Dex Media West LLC, 8.50% due 8/15/2010................ 1,865,250
1,250,000 Idearc, Inc., 8% due 11/15/2016........................ 1,262,500
190,000 Network Communications, Inc., 10.75% due 12/01/2013.... 198,550
Nielsen Finance LLC(e):
1,500,000 10% due 8/01/2014.................................... 1,586,250
755,000 10.492% due 8/01/2016(b)............................. 532,275
1,975,000 Primedia, Inc., 8% due 5/15/2013....................... 2,078,688
525,000 Quebecor World Capital Corp., 8.75% due 3/15/2016(e)... 517,125
360,000 Quebecor World, Inc., 9.75% due 1/15/2015(e)........... 364,500
RH Donnelley Corp.:
400,000 6.875% due 1/15/2013................................. 379,000
725,000 Series A-2, 6.875% due 1/15/2013..................... 686,938
------------
11,211,974
- ---------------------------------------------------------------------------------------------------------------------
ENERGY--EXPLORATION & 525,000 Berry Petroleum Co., 8.25% due 11/01/2016.............. 528,937
PRODUCTION--5.2% 600,000 Chaparral Energy, Inc., 8.50% due 12/01/2015........... 586,500
325,000 Compton Petroleum Finance Corp., 7.625% due
12/01/2013........................................... 320,938
550,000 Corral Finans AB, 6.855% due 4/15/2010(e)(j)........... 538,857
250,000 Denbury Resources, Inc., 7.50% due 12/15/2015.......... 249,375
700,000 Encore Acquisition Co., 6.25% due 4/15/2014............ 624,750
1,175,000 OPTI Canada, Inc., 8.25% due 12/15/2014(e)............. 1,192,625
750,000 Range Resources Corp., 6.375% due 3/15/2015............ 710,625
755,000 Sabine Pass LNG LP, 7.50% due 11/30/2016(e)............ 751,225
Stone Energy Corp.:
740,000 8.106% due 7/15/2010(e)(f)........................... 740,000
600,000 6.75% due 12/15/2014................................. 552,000
500,000 Swift Energy Co., 7.125% due 6/01/2017................. 476,250
2,000,000 Western Oil Sands, Inc., 8.375% due 5/01/2012.......... 2,187,500
1,000,000 Whiting Petroleum Corp., 7.25% due 5/01/2013........... 950,000
------------
10,409,582
- ---------------------------------------------------------------------------------------------------------------------
ENERGY--OTHER--1.8% 1,090,000 Aleris International, Inc., 9% due 12/15/2014(e)(j).... 1,094,981
360,000 Cimarex Energy Co., 7.125% due 5/01/2017............... 351,000
300,000 Copano Energy LLC, 8.125% due 3/01/2016................ 304,500
174,000 KCS Energy, Inc., 7.125% due 4/01/2012................. 171,825
500,000 North American Energy Partners, Inc., 8.75% due
12/01/2011........................................... 505,000
1,215,000 SemGroup LP, 8.75% due 11/15/2015(e)................... 1,221,075
------------
3,648,381
- ---------------------------------------------------------------------------------------------------------------------
FINANCIAL--0.9%
American Real Estate Partners LP:
630,000 7.125% due 2/15/2013................................. 607,950
1,100,000 7.125% due 2/15/2013(e).............................. 1,061,500
220,000 USI Holdings Corp., 9.23% due 11/15/2014(e)(f)......... 218,900
------------
1,888,350
- ---------------------------------------------------------------------------------------------------------------------
FOOD & TOBACCO--0.8% 150,000 Archer-Daniels-Midland Co., 0.875% due
2/15/2014(a)(e)...................................... 142,500
475,000 Del Monte Corp., 8.625% due 12/15/2012................. 490,437
530,000 Smithfield Foods, Inc., 7.75% due 7/01/2017............ 530,000
430,000 Swift & Co., 12.50% due 1/01/2010...................... 455,172
------------
1,618,109
- ---------------------------------------------------------------------------------------------------------------------
</Table>
10
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock High Income V.I. Fund
Schedule of Investments as of June 30, 2007 (continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
FACE
INDUSTRY AMOUNT CORPORATE BONDS VALUE
- ---------------------------------------------------------------------------------------------------------------------
GAMING--3.2% $ 450,000 CCM Merger, Inc., 8% due 8/01/2013(e).................. $ 447,750
205,000 Caesars Entertainment, Inc., 8.125% due 5/15/2011...... 213,969
740,000 Greektown Holdings, LLC, 10.75% due 12/01/2013(e)...... 784,400
1,555,000 Harrah's Operating Co., Inc., 5.75% due 10/01/2017..... 1,244,000
625,000 Penn National Gaming, Inc., 6.75% due 3/01/2015........ 640,625
580,000 Pinnacle Entertainment, Inc., 7.50% due 6/15/2015(e)... 559,700
290,000 Shingle Springs Tribal Gaming Authority, 9.375% due
6/15/2015(e)......................................... 292,538
170,000 Snoqualmie Entertainment Authority, 9.15% due
2/01/2014(e)(f)...................................... 171,700
500,000 Station Casinos, Inc., 6.625% due 3/15/2018............ 430,000
720,000 Tropicana Entertainment, LLC, 9.625% due
12/15/2014(e)........................................ 693,000
1,000,000 Wynn Las Vegas LLC, 6.625% due 12/01/2014.............. 963,750
------------
6,441,432
- ---------------------------------------------------------------------------------------------------------------------
HEALTH CARE--4.0% 600,000 Accellent, Inc., 10.50% due 12/01/2013................. 595,500
1,180,000 Angiotech Pharmaceuticals, Inc., 9.11% due
12/01/2013(f)........................................ 1,215,400
1,640,000 Community Health Systems, Inc., 8.875% due
7/15/2015(e)......................................... 1,662,550
720,000 The Cooper Cos., Inc., 7.125% due 2/15/2015(e)......... 712,800
250,000 Omnicare, Inc. Series OCR, 3.25% due 12/15/2035(a)..... 209,063
300,000 PTS Acquisition Corp., 9.50% due 4/15/2015(e)(j)....... 294,750
Tenet Healthcare Corp.:
1,730,000 6.50% due 6/01/2012.................................. 1,548,350
775,000 9.875% due 7/01/2014................................. 767,250
155,000 9.25% due 2/01/2015.................................. 147,250
500,000 United Surgical Partners International, Inc., 8.875%
due 5/01/2017(e)..................................... 501,250
Universal Hospital Services, Inc.(e):
140,000 8.50% due 6/01/2015(j)............................... 137,588
130,000 8.759% due 6/01/2015(f).............................. 130,000
------------
7,921,751
- ---------------------------------------------------------------------------------------------------------------------
HOUSING--4.7% 955,000 Ashton Woods USA LLC, 9.50% due 10/01/2015............. 883,375
600,000 CPG International I, Inc., 10.50% due 7/01/2013........ 615,000
410,000 Esco Corp., 8.625% due 12/15/2013(e)................... 430,500
1,500,000 Forest City Enterprises, Inc., 7.625% due 6/01/2015.... 1,511,250
Goodman Global Holding Co., Inc.:
479,000 8.36% due 6/15/2012(f)............................... 482,593
1,000,000 7.875% due 12/15/2012................................ 990,000
535,000 Nortek, Inc., 8.50% due 9/01/2014...................... 509,588
170,000 Ply Gem Industries, Inc., 9% due 2/15/2012............. 152,788
Realogy Corp.(e):
760,000 10.50% due 4/15/2014................................. 723,900
1,210,000 11% due 4/15/2014(j)................................. 1,140,425
870,000 12.375% due 4/15/2015................................ 793,875
500,000 Standard-Pacific Corp., 6.50% due 8/15/2010............ 465,000
225,000 Stanley-Martin Communities LLC, 9.75% due 8/15/2015.... 198,000
425,000 Texas Industries, Inc., 7.25% due 7/15/2013............ 426,063
------------
9,322,357
- ---------------------------------------------------------------------------------------------------------------------
</Table>
11
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock High Income V.I. Fund
Schedule of Investments as of June 30, 2007 (continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
FACE
INDUSTRY AMOUNT CORPORATE BONDS VALUE
- ---------------------------------------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY--5.5%
Amkor Technology, Inc.:
$ 235,000 7.75% due 5/15/2013.................................. $ 226,187
1,100,000 9.25% due 6/01/2016.................................. 1,133,000
500,000 BMS Holdings, Inc., 12.40% due 2/15/2012(e)(f)(j)...... 471,233
155,000 Compagnie Generale de Geophysique SA, 7.50% due
5/15/2015............................................ 155,000
805,000 Compagnie Generale de Geophysique-Veritas, 7.75% due
5/15/2017............................................ 815,063
Freescale Semiconductor, Inc.(e):
2,745,000 9.125% due 12/15/2014(j)............................. 2,580,300
145,000 9.235% due 12/15/2014(f)............................. 139,925
350,000 Hynix Semiconductor, Inc., 7.875% due 6/27/2017(e)..... 346,500
1,155,000 Nortel Networks Ltd., 9.606% due 7/15/2011(e)(f)....... 1,228,631
Sanmina-SCI Corp.:
35,000 6.75% due 3/01/2013.................................. 31,850
495,000 8.125% due 3/01/2016................................. 460,350
480,000 Spansion, Inc., 8.485% due 6/01/2013(e)(f)............. 479,400
SunGard Data Systems, Inc.:
1,400,000 9.125% due 8/15/2013................................. 1,433,250
90,000 10.25% due 8/15/2015................................. 95,175
1,295,000 Viasystems, Inc., 10.50% due 1/15/2011................. 1,320,900
------------
10,916,764
- ---------------------------------------------------------------------------------------------------------------------
LEISURE--1.7% 959,000 FelCor Lodging LP, 8.50% due 6/01/2011................. 1,008,149
340,000 Great Canadian Gaming Corp., 7.25% due 2/15/2015(e).... 338,300
750,000 HRP Myrtle Beach Operations LLC, 10.07% due
4/01/2012(e)(f)...................................... 750,000
Travelport LLC:
65,000 9.875% due 9/01/2014................................. 68,900
260,000 9.985% due 9/01/2014(f).............................. 266,500
975,000 True Temper Sports, Inc., 8.375% due 9/15/2011......... 853,125
------------
3,284,974
- ---------------------------------------------------------------------------------------------------------------------
MANUFACTURING--4.3% 260,000 American Railcar Industries, Inc., 7.50% due
3/01/2014............................................ 258,700
130,000 Belden CDT, Inc., 7% due 3/15/2017(e).................. 128,050
750,000 CPI Holdco, Inc., 11.151% due 2/01/2015(f)............. 772,500
640,000 Invensys Plc, 9.875% due 3/15/2011(e).................. 684,800
1,130,000 Jarden Corp., 7.50% due 5/01/2017...................... 1,115,875
1,650,000 NXP BV, 9.50% due 10/15/2015........................... 1,625,250
RBS Global, Inc.:
160,000 9.50% due 8/01/2014.................................. 164,000
950,000 11.75% due 8/01/2016................................. 1,021,250
220,000 8.875% due 9/01/2016................................. 220,550
285,000 Sensata Technologies BV, 8% due 5/01/2014.............. 275,025
1,410,000 Superior Essex Communications LLC, 9% due 4/15/2012.... 1,438,200
851,000 Trimas Corp., 9.875% due 6/15/2012..................... 874,403
------------
8,578,603
- ---------------------------------------------------------------------------------------------------------------------
METAL--OTHER--3.0% 130,000 Blaze Recycling & Metals LLC, 10.875% due
7/15/2012(e)......................................... 132,600
1,400,000 Foundation PA Coal Co., 7.25% due 8/01/2014............ 1,387,750
Freeport-McMoRan Copper & Gold, Inc.:
950,000 8.564% due 4/01/2015(f).............................. 995,125
2,110,000 8.375% due 4/01/2017................................. 2,252,425
1,000,000 Novelis, Inc., 7.25% due 2/15/2015..................... 1,026,250
250,000 Southern Copper Corp., 6.375% due 7/27/2015............ 252,336
------------
6,046,486
- ---------------------------------------------------------------------------------------------------------------------
</Table>
12
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock High Income V.I. Fund
Schedule of Investments as of June 30, 2007 (continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
FACE
INDUSTRY AMOUNT CORPORATE BONDS VALUE
- ---------------------------------------------------------------------------------------------------------------------
PACKAGING--2.2% $1,490,000 Berry Plastics Holding Corp., 8.875% due 9/15/2014..... $ 1,508,625
300,000 Graham Packing Co., Inc., 8.50% due 10/15/2012......... 301,875
1,290,000 Impress Holdings B.V., 8.481% due 9/15/2013(e)(f)...... 1,315,800
395,000 Packaging Dynamics Finance Corp., 10% due
5/01/2016(e)......................................... 396,975
680,000 Pregis Corp., 12.375% due 10/15/2013................... 765,000
------------
4,288,275
- ---------------------------------------------------------------------------------------------------------------------
PAPER--4.3% 545,000 Abitibi-Consolidated, Inc., 6% due 6/20/2013........... 450,987
Ainsworth Lumber Co. Ltd.:
850,000 7.25% due 10/01/2012................................. 654,500
100,000 6.75% due 3/15/2014.................................. 74,000
Boise Cascade LLC:
250,000 8.231% due 10/15/2012(f)............................. 250,000
325,000 7.125% due 10/15/2014................................ 308,750
415,000 Bowater Canada Finance Corp., 7.95% due 11/15/2011..... 390,619
750,000 Cascades, Inc., 7.25% due 2/15/2013.................... 729,375
1,750,000 Domtar, Inc., 7.125% due 8/15/2015..................... 1,695,312
875,000 Graphic Packaging International Corp., 8.50% due
8/15/2011............................................ 894,687
1,520,000 NewPage Corp., 10% due 5/01/2012....................... 1,641,600
305,000 Norske Skog Canada Ltd. Series D, 8.625% due
6/15/2011............................................ 295,087
46,000 Smurfit Kappa Funding Plc, 9.625% due 10/01/2012....... 48,185
560,000 Smurfit-Stone Container Enterprises, Inc., 8% due
3/15/2017............................................ 543,200
475,000 Verso Paper Holdings LLC, 9.125% due 8/01/2014(e)...... 490,438
------------
8,466,740
- ---------------------------------------------------------------------------------------------------------------------
RETAIL--4.2% 425,000 Buffets, Inc., 12.50% due 11/01/2014................... 406,937
230,000 Burlington Coat Factory Warehouse Corp., 11.125% due
4/15/2014............................................ 224,250
Claire's Stores, Inc.(e):
150,000 9.25% due 6/01/2015.................................. 142,500
240,000 9.625% due 6/01/2015(j).............................. 222,895
150,000 10.50% due 6/01/2017................................. 136,875
General Nutrition Centers, Inc.(e):
1,190,000 9.85% due 3/15/2014(j)............................... 1,113,954
960,000 10.75% due 3/15/2015................................. 929,717
Michaels Stores, Inc.(e):
930,000 10% due 11/01/2014................................... 953,250
1,470,000 11.375% due 11/01/2016............................... 1,536,150
1,600,000 Neiman Marcus Group, Inc., 9% due 10/15/2015(j)........ 1,681,143
Rite Aid Corp.:
310,000 9.375% due 12/15/2015(e)............................. 297,600
840,000 7.50% due 3/01/2017.................................. 810,600
------------
8,455,871
- ---------------------------------------------------------------------------------------------------------------------
</Table>
13
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock High Income V.I. Fund
Schedule of Investments as of June 30, 2007 (continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
FACE
INDUSTRY AMOUNT CORPORATE BONDS VALUE
- ---------------------------------------------------------------------------------------------------------------------
SERVICE--6.5% $ 500,000 Ahern Rentals, Inc., 9.25% due 8/15/2013............... $ 506,250
900,000 Allied Waste North America, Inc., 7.875% due
4/15/2013............................................ 910,125
250,000 Ashtead Capital, Inc., 9% due 8/15/2016(e)............. 261,875
Avis Budget Car Rental LLC:
450,000 7.625% due 5/15/2014................................. 454,500
250,000 7.86% due 5/15/2014(f)............................... 253,750
625,000 Buhrmann US, Inc., 8.25% due 7/01/2014................. 628,125
Clarke American Corp.(e):
160,000 9.50% due 5/15/2015.................................. 153,600
140,000 10.105% due 5/15/2015(f)............................. 135,100
Corrections Corp. of America:
725,000 7.50% due 5/01/2011.................................. 734,969
325,000 6.75% due 1/31/2014.................................. 317,688
995,000 DI Finance Series B, 9.50% due 2/15/2013............... 1,058,431
800,000 Dycom Industries, Inc., 8.125% due 10/15/2015.......... 832,000
425,000 FTI Consulting, Inc., 7.625% due 6/15/2013............. 430,312
2,250,000 The Geo Group, Inc., 8.25% due 7/15/2013............... 2,320,312
315,000 Mac-Gray Corp., 7.625% due 8/15/2015................... 316,575
450,000 Mobile Services Group, Inc., 9.75% due 8/01/2014(e).... 479,250
230,000 PNA Intermediate Holding Corp., 12.36% due
2/15/2013(e)(f)...................................... 232,300
800,000 Sally Holdings LLC, 10.50% due 11/15/2016(e)........... 804,000
United Rentals North America, Inc.:
500,000 6.50% due 2/15/2012.................................. 491,250
955,000 7% due 2/15/2014..................................... 931,125
251,000 Viant Holdings, Inc., 10.125% due 7/15/2017(e)......... 252,255
Yankee Acquisition Corp.:
170,000 8.50% due 2/15/2015.................................. 164,900
330,000 9.75% due 2/15/2017.................................. 319,275
------------
12,987,967
- ---------------------------------------------------------------------------------------------------------------------
STEEL--0.5% 280,000 AK Steel Corp., 7.75% due 6/15/2012.................... 280,000
715,000 Ucar Finance, Inc., 10.25% due 2/15/2012............... 748,963
------------
1,028,963
- ---------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS--2.4% 500,000 Cincinnati Bell, Inc., 7.25% due 7/15/2013............. 512,500
180,000 Citizens Communications Co., 6.25% due 1/15/2013....... 172,575
474,000 Inmarsat Finance Plc, 7.625% due 6/30/2012............. 489,997
575,000 Nordic Telephone Co. Holdings ApS, 8.875% due
5/01/2016(e)......................................... 609,500
560,534 ProtoStar I Ltd., 12.50% due 10/15/2012(a)(e)(f)....... 610,982
500,000 Qwest Communications International, Inc., 7.50% due
2/15/2014............................................ 506,250
750,000 Qwest Corp., 8.61% due 6/15/2013(f).................... 813,750
489,000 Tele Norte Leste Participacoes SA Series B, 8% due
12/18/2013........................................... 513,450
500,000 Windstream Corp., 8.125% due 8/01/2013................. 522,500
------------
4,751,504
- ---------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--1.4% 250,000 Britannia Bulk Plc, 11% due 12/01/2011................. 255,000
550,000 Navios Maritime Holdings, Inc., 9.50% due
12/15/2014(e)........................................ 583,000
1,500,000 Overseas Shipholding Group, Inc., 8.25% due 3/15/2013.. 1,537,500
360,000 St. Acquisition Corp., 12.50% due 5/15/2017(e)......... 340,200
------------
2,715,700
- ---------------------------------------------------------------------------------------------------------------------
</Table>
14
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock High Income V.I. Fund
Schedule of Investments as of June 30, 2007 (continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
FACE
INDUSTRY AMOUNT CORPORATE BONDS VALUE
- ---------------------------------------------------------------------------------------------------------------------
UTILITY--5.4% $1,413,493 AES Eastern Energy LP Series 1999-A, 9% due
1/02/2017(i)......................................... $ 1,576,045
500,000 AES Gener SA, 7.50% due 3/25/2014...................... 523,076
400,000 Colorado Interstate Gas Co., 5.95% due 3/15/2015....... 389,506
700,000 Edison Mission Energy, 7.50% due 6/15/2013............. 693,000
438,070 FPL Energy National Wind Portfolio, LLC, 6.125% due
3/25/2019(e)(i)...................................... 426,882
1,600,000 Mirant Americas Generation Inc., 8.30% due 5/01/2011... 1,652,000
NRG Energy, Inc.:
750,000 7.25% due 2/01/2014.................................. 751,875
750,000 7.375% due 2/01/2016................................. 751,875
560,000 NSG Holdings LLC, 7.75% due 12/15/2025(e)(i)........... 565,600
1,150,000 Reliant Energy, Inc., 6.75% due 12/15/2014............. 1,173,000
707,023 Tenaska Alabama Partners LP, 7% due 6/30/2021(e)(i).... 723,446
Transcontinental Gas Pipe Line Corp. Series B:
1,000,000 7% due 8/15/2011..................................... 1,035,000
450,000 8.875% due 7/15/2012................................. 504,000
------------
10,765,305
- ---------------------------------------------------------------------------------------------------------------------
WIRELESS
COMMUNICATIONS--5.0%
Centennial Communications Corp.:
380,000 11.11% due 1/01/2013(f).............................. 397,100
340,000 8.125% due 2/01/2014................................. 347,650
Cricket Communications, Inc.:
730,000 9.375% due 11/01/2014................................ 753,725
1,100,000 9.375% due 11/01/2014(e)............................. 1,135,750
Digicel Group Ltd.(e):
380,000 8.875% due 1/15/2015................................. 372,400
860,000 9.125% due 1/15/2015(j).............................. 848,175
470,000 FiberTower Corp., 9% due 11/15/2012(a)(e).............. 522,288
210,000 iPCS, Inc., 7.48% due 5/01/2013(e)(f).................. 210,263
1,960,000 MetroPCS Wireless, Inc., 9.25% due 11/01/2014(e)....... 2,023,700
Orascom Telecom Finance SCA:
140,000 7.875% due 2/08/2014................................. 134,750
215,000 7.875% due 2/08/2014(e).............................. 207,927
1,150,000 Rural Cellular Corp., 8.25% due 3/15/2012.............. 1,175,875
1,815,000 West Corp., 11% due 10/15/2016......................... 1,896,675
------------
10,026,278
- ---------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(COST--$187,239,580)--94.4%............................ 188,266,593
- ---------------------------------------------------------------------------------------------------------------------
<Caption>
FLOATING RATE LOAN INTERESTS(L)
- ---------------------------------------------------------------------------------------------------------------------
LEISURE--0.8% 1,710,000 Travelport, Inc. Term Loan, 12.36% due 3/22/2012....... 1,692,900
- ---------------------------------------------------------------------------------------------------------------------
TOTAL FLOATING RATE LOAN INTERESTS
(COST--$1,647,457)--0.8%............................... 1,692,900
- ---------------------------------------------------------------------------------------------------------------------
<Caption>
SHARES
HELD COMMON STOCKS
- ---------------------------------------------------------------------------------------------------------------------
MANUFACTURING--0.3% 33,870 Medis Technologies Ltd.(c)............................. 497,550
- ---------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST--$744,580)--0.3%................................. 497,550
- ---------------------------------------------------------------------------------------------------------------------
<Caption>
PREFERRED STOCKS
- ---------------------------------------------------------------------------------------------------------------------
ENERGY--EXPLORATION &
PRODUCTION--0.7%
EXCO Resources, Inc.:
29 7%(a)................................................ 290,000
118 11%.................................................. 1,180,000
------------
1,470,000
- ---------------------------------------------------------------------------------------------------------------------
</Table>
15
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock High Income V.I. Fund
Schedule of Investments as of June 30, 2007 (continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES
INDUSTRY HELD PREFERRED STOCKS VALUE
- ---------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS--0.0% 47 PTV, Inc. Series A, 10%................................ $ 249
- ---------------------------------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS
(COST--$1,473,877)--0.7%............................... 1,470,249
- ---------------------------------------------------------------------------------------------------------------------
<Caption>
WARRANTS(G)
- ---------------------------------------------------------------------------------------------------------------------
DIVERSIFIED MEDIA--0.0% 22,461 Virgin Media, Inc. (expires 1/10/2011)................. 2,246
- ---------------------------------------------------------------------------------------------------------------------
TOTAL WARRANTS
(COST--$22,461)--0.0%.................................. 2,246
- ---------------------------------------------------------------------------------------------------------------------
<Caption>
BENEFICIAL
INTEREST SHORT-TERM SECURITIES
- ---------------------------------------------------------------------------------------------------------------------
$8,502,956 BlackRock Liquidity Series, LLC Cash Sweep Series,
5.33%(d)(h).......................................... 8,502,956
- ---------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM SECURITIES
(COST--$8,502,956)--4.3%............................... 8,502,956
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST--$199,630,911*)--100.5%.......................... 200,432,494
LIABILITIES IN EXCESS OF OTHER ASSETS--(0.5%).......... (1,044,062)
------------
NET ASSETS--100.0%..................................... $199,388,432
============
- ---------------------------------------------------------------------------------------------------------------------
</Table>
* The cost and unrealized appreciation (depreciation) of investments as of
June 30, 2007, as computed for federal income tax purposes, were as follows:
<Table>
Aggregate cost.............................................. $199,653,060
============
Gross unrealized appreciation............................... $ 3,808,308
Gross unrealized depreciation............................... (3,028,874)
------------
Net unrealized appreciation................................. $ 779,434
============
</Table>
(a) Convertible security.
(b) Represents a step bond; the interest rate shown reflects the effective yield
at the time of purchase.
(c) Non-income producing security.
(d) Investments in companies considered to be an affiliate of the Fund, for
purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as
follows:
<Table>
<Caption>
- --------------------------------------------------------------------------------------
NET INTEREST
AFFILIATE ACTIVITY INCOME
- --------------------------------------------------------------------------------------
BlackRock Liquidity Series, LLC Cash Sweep Series........... $(4,022,372) $157,460
- --------------------------------------------------------------------------------------
</Table>
(e) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(f) Floating rate security.
(g) 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.
(h) Represents the current yield as of June 30, 2007.
(i) Subject to principal paydowns.
(j) Represents a pay-in-kind security, which may pay interest/dividends in
additional face/shares.
(k) Represents a step bond.
(l) Floating rate loan interests in which the Fund invests generally pay
interest at rates that are periodically determined by reference to a base
lending rate plus a premium. The base lending rates are generally (i) the
lending rate offered by one or more major European banks, such as London
InterBank Offered Rate ("LIBOR"), (ii) the prime rate offered by one or
more U.S. banks, or (iii) the certificate of deposit rate.
- - For Fund compliance purposes, the Fund's industry classifications refer to
any one or more of the industry sub-classifications used by one or more
widely recognized market indexes or ratings group indexes, and/or as defined
by Fund management. This definition may not apply for purposes of this
report, which may combine industry sub-classifications for reporting ease.
Industries are shown as a percent of net assets.
16
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock High Income V.I. Fund
Schedule of Investments as of June 30, 2007 (concluded)
- --------------------------------------------------------------------------------
- - Swaps outstanding as of June 30, 2007 were as follows:
<Table>
<Caption>
- ----------------------------------------------------------------------------------------
NOTIONAL UNREALIZED
AMOUNT APPRECIATION
- ----------------------------------------------------------------------------------------
Sold credit default protection on Novelis Inc. and receive
1.4%
Broker, JPMorgan Chase
Expires January 2008........................................ $ 550,000 $1,391
Sold credit default protection on Ford Motor Company and
receive 3.8%
Broker, JPMorgan Chase
Expires March 2010.......................................... $1,000,000 5,576
- ----------------------------------------------------------------------------------------
TOTAL....................................................... $6,967
======
- ----------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements.
17
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock High Income V.I. Fund
Statement of Assets and Liabilities as of June 30, 2007 (unaudited)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments in unaffiliated securities, at value (identified
cost--$191,127,955)....................................... $ 191,929,538
Investments in affiliated securities, at value (identified
cost--$8,502,956)......................................... 8,502,956
Cash........................................................ 369,954
Unrealized appreciation on swaps............................ 6,967
Receivables:
Interest.................................................. $ 3,872,068
Securities sold........................................... 581,313
Paydowns.................................................. 6,938
Swaps..................................................... 2,999 4,463,318
-------------
Prepaid expenses.......................................... 2,528
-------------
Total assets.............................................. 205,275,261
-------------
- ---------------------------------------------------------------------------------------------
LIABILITIES:
Payables:
Securities purchased...................................... 4,297,065
Dividends to shareholders................................. 1,299,055
Capital shares redeemed................................... 143,983
Investment adviser........................................ 88,848
Other affiliates.......................................... 3,314 5,832,265
-------------
Accrued expenses and other liabilities...................... 54,564
-------------
Total liabilities........................................... 5,886,829
-------------
- ---------------------------------------------------------------------------------------------
NET ASSETS.................................................. $ 199,388,432
=============
- ---------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Class I Shares of Common Stock, $.10 par value, 200,000,000
shares authorized......................................... $ 2,610,528
Class II Shares of Common Stock, $.10 par value, 100,000,000
shares authorized......................................... 16
Class III Shares of Common Stock, $.10 par value,
100,000,000 shares authorized............................. 16
Paid-in capital in excess of par............................ 396,770,135
Accumulated distributions in excess of investment
income--net............................................... $ (71,801)
Accumulated realized capital losses--net.................... (200,729,012)
Unrealized appreciation--net................................ 808,550
-------------
Total accumulated losses--net............................... (199,992,263)
-------------
NET ASSETS.................................................. $ 199,388,432
=============
- ---------------------------------------------------------------------------------------------
NET ASSET VALUE:
Class I--Based on net assets of $199,386,043 and 26,105,281
shares outstanding........................................ $ 7.64
=============
Class II--Based on net assets of $1,195 and 156.2 shares
outstanding............................................... $ 7.65
=============
Class III--Based on net assets of $1,194 and 156 shares
outstanding............................................... $ 7.65
=============
- ---------------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements.
18
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock High Income V.I. Fund
Statement of Operations for the Six Months Ended June 30, 2007 (unaudited)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Interest (including $157,460 from affiliates)............... $ 8,483,073
Other income................................................ 17,300
-----------
Total income................................................ 8,500,373
-----------
- ----------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees.................................... $ 532,405
Accounting services......................................... 38,365
Professional fees........................................... 21,359
Printing and shareholder reports............................ 20,379
Pricing services............................................ 15,365
Custodian fees.............................................. 10,570
Directors' fees and expenses................................ 5,994
Transfer agent fees--Class I................................ 2,473
Distribution fees--Class III................................ 2
Distribution fees--Class II................................. 1
Other....................................................... 7,248
----------
Total expenses.............................................. 654,161
-----------
Investment income--net...................................... 7,846,212
-----------
- ----------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)--NET:
Realized gain from:
Investments--net.......................................... 1,826,846
Swaps--net................................................ 22,024 1,848,870
----------
Change in unrealized appreciation on:
Investments--net.......................................... (2,504,781)
Swaps--net................................................ 6,967 (2,497,814)
---------- -----------
Total realized and unrealized loss--net..................... (648,944)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ 7,197,268
===========
- ----------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements.
19
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock High Income V.I. Fund
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<Table>
<Caption>
FOR THE SIX
MONTHS ENDED FOR THE
JUNE 30, 2007 YEAR ENDED
INCREASE (DECREASE) IN NET ASSETS: (UNAUDITED) DECEMBER 31, 2006
- -----------------------------------------------------------------------------------------------
OPERATIONS:
Investment income--net...................................... $ 7,846,212 $ 16,898,756
Realized gain (loss)--net................................... 1,848,870 (2,998,128)
Change in unrealized appreciation/depreciation--net......... (2,497,814) 6,592,621
------------ ------------
Net increase in net assets resulting from operations........ 7,197,268 20,493,249
------------ ------------
- -----------------------------------------------------------------------------------------------
DIVIDENDS TO SHAREHOLDERS:
Investment income--net:
Class I................................................... (7,991,445) (16,962,874)
Class II.................................................. (44) (83)
Class III................................................. (43) (83)
------------ ------------
Net decrease in net assets resulting from dividends to
shareholders.............................................. (7,991,532) (16,963,040)
------------ ------------
- -----------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Net decrease in net assets derived from capital share
transactions.............................................. (13,756,584) (36,076,306)
------------ ------------
- -----------------------------------------------------------------------------------------------
NET ASSETS:
Total decrease in net assets................................ (14,550,848) (32,546,097)
Beginning of period......................................... 213,939,280 246,485,377
------------ ------------
End of period*.............................................. $199,388,432 $213,939,280
============ ============
- -----------------------------------------------------------------------------------------------
* Undistributed (accumulated distributions in excess of)
investment income--net.................................... $ (71,801) $ 73,519
============ ============
- -----------------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements.
20
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock High Income V.I. Fund
Financial Highlights
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS I
--------------------------------------------------------------------
FOR THE SIX
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE MONTHS ENDED FOR THE YEAR ENDED DECEMBER 31,
BEEN DERIVED FROM INFORMATION PROVIDED IN THE JUNE 30, 2007 ----------------------------------------------------
FINANCIAL STATEMENTS. (UNAUDITED) 2006 2005 2004 2003 2002
- -------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......... $ 7.67 $ 7.55 $ 8.12 $ 7.86 $ 6.69 $ 7.53
-------- -------- -------- -------- -------- --------
Investment income--net**..................... .29 .56 .61 .62 .60 .68
Realized and unrealized gain (loss)--net..... (.03) .12 (.50) .25 1.20 (.80)
-------- -------- -------- -------- -------- --------
Total from investment operations............. .26 .68 .11 .87 1.80 (.12)
-------- -------- -------- -------- -------- --------
Less dividends from investment income--net... (.29) (.56) (.68) (.61) (.63) (.72)
-------- -------- -------- -------- -------- --------
Net asset value, end of period............... $ 7.64 $ 7.67 $ 7.55 $ 8.12 $ 7.86 $ 6.69
======== ======== ======== ======== ======== ========
- -------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:***
Based on net asset value per share........... 3.46%+ 9.44% 1.51% 11.68% 28.28% (1.39%)
======== ======== ======== ======== ======== ========
- -------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses..................................... .63%* .60% .59% .57% .56% .57%
======== ======== ======== ======== ======== ========
Investment income--net....................... 7.52%* 7.45% 7.78% 7.77% 8.15% 9.75%
======== ======== ======== ======== ======== ========
- -------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)..... $199,386 $213,937 $246,483 $318,363 $335,627 $274,534
======== ======== ======== ======== ======== ========
Portfolio turnover........................... 32% 56% 24% 55% 78% 52%
======== ======== ======== ======== ======== ========
- -------------------------------------------------------------------------------------------------------------------
</Table>
* Annualized.
** Based on average shares outstanding.
*** Total investment returns exclude insurance-related fees and expenses.
+ Aggregate total investment return.
See Notes to Financial Statements.
21
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock High Income V.I. Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS II
-----------------------------------------------------------
FOR THE SIX FOR THE YEAR ENDED
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE MONTHS ENDED DECEMBER 31, FOR THE PERIOD
BEEN DERIVED FROM INFORMATION PROVIDED IN THE JUNE 30, 2007 ------------------ SEPTEMBER 30, 2004+
FINANCIAL STATEMENTS. (UNAUDITED) 2006 2005 TO DECEMBER 31, 2004
- ------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................. $ 7.69 $ 7.57 $ 8.13 $ 7.91
------ ------ ------ ------
Investment income--net**............................. .28 .57 .62 .16
Realized and unrealized gain (loss)--net............. (.03) .11 (.49) .21
------ ------ ------ ------
Total from investment operations..................... .25 .68 .13 .37
------ ------ ------ ------
Less dividends from investment income--net........... (.29) (.56) (.69) (.15)
------ ------ ------ ------
Net asset value, end of period....................... $ 7.65 $ 7.69 $ 7.57 $ 8.13
====== ====== ====== ======
- ------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:***
Based on net asset value per share................... 3.23%@ 9.44% 1.66% 4.70%@
====== ====== ====== ======
- ------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses............................................. .82%* .63% .59% .57%*
====== ====== ====== ======
Investment income--net............................... 7.34%* 7.44% 7.90% 7.75%*
====== ====== ====== ======
- ------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)............. $ 1 $ 1 $ 1 $ 1
====== ====== ====== ======
Portfolio turnover................................... 32% 56% 24% 55%
====== ====== ====== ======
- ------------------------------------------------------------------------------------------------------------------
</Table>
* Annualized.
** Based on average shares outstanding.
*** Total investment returns exclude insurance-related fees and expenses.
+ Commencement of operations.
@ Aggregate total investment return.
See Notes to Financial Statements.
22
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock High Income V.I. Fund
Financial Highlights (concluded)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS III
-----------------------------------------------------------
FOR THE SIX FOR THE YEAR ENDED
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE MONTHS ENDED DECEMBER 31, FOR THE PERIOD
BEEN DERIVED FROM INFORMATION PROVIDED IN THE JUNE 30, 2007 ------------------ SEPTEMBER 30, 2004+
FINANCIAL STATEMENTS. (UNAUDITED) 2006 2005 TO DECEMBER 31, 2004
- ------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................. $ 7.68 $ 7.57 $ 8.13 $ 7.91
------ ------ ------ ------
Investment income--net**............................. .28 .56 .62 .16
Realized and unrealized gain (loss)--net............. (.03) .11 (.49) .21
------ ------ ------ ------
Total from investment operations..................... .25 .67 .13 .37
------ ------ ------ ------
Less dividends from investment income--net........... (.28) (.56) (.69) (.15)
------ ------ ------ ------
Net asset value, end of period....................... $ 7.65 $ 7.68 $ 7.57 $ 8.13
====== ====== ====== ======
- ------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:***
Based on net asset value per share................... 3.29%@ 9.28% 1.66% 4.70%@
====== ====== ====== ======
- ------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses............................................. .88%* .66% .59% .57%*
====== ====== ====== ======
Investment income--net............................... 7.27%* 7.41% 7.90% 7.75%*
====== ====== ====== ======
- ------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)............. $ 1 $ 1 $ 1 $ 1
====== ====== ====== ======
Portfolio turnover................................... 32% 56% 24% 55%
====== ====== ====== ======
- ------------------------------------------------------------------------------------------------------------------
</Table>
* Annualized.
** Based on average shares outstanding.
*** Total investment returns exclude insurance-related fees and expenses.
+ Commencement of operations.
@ Aggregate total investment return.
See Notes to Financial Statements.
23
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock High Income V.I. Fund
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES:
BlackRock Variable Series Funds, Inc. (the "Company") is an open-end management
investment company that is comprised of 16 separate funds. Each fund offers
three 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. ("Merrill Lynch")), and other insurance companies that are not
affiliated with Merrill Lynch, for their separate accounts to fund benefits
under certain variable annuity and variable life insurance contracts. BlackRock
High Income V.I. Fund (the "Fund") is classified as "diversified," as defined in
the Investment Company Act of 1940, as amended. Class I, Class II and Class III
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. In addition, Class II and Class III Shares bear certain
expenses related to the distribution of such shares. The Fund's financial
statements are prepared in conformity with U.S. generally accepted accounting
principles, which may require the use of management accruals and estimates.
Actual results may differ from these estimates. These unaudited financial
statements reflect all adjustments, which are, in the opinion of management,
necessary to present a fair statement of the results for the interim period. All
such adjustments are of a normal, recurring nature. Income, expenses (other than
expenses attributable to a specific class) and realized and unrealized gains and
losses are allocated daily to each class based on its relative net assets. The
following is a summary of significant accounting policies followed by the Fund.
(a) Valuation of investments--Debt securities are traded primarily in the
over-the-counter ("OTC") markets and are valued at the last available bid price
in the OTC market or on the basis of values obtained by a pricing service.
Pricing services use valuation matrixes that incorporate both dealer-supplied
valuations and valuation models. The procedures of the pricing service and its
valuations are reviewed by the officers of the Fund under the general direction
of the Board of Directors. Such valuations and procedures will be reviewed
periodically by the Board of Directors of the Company. Financial futures
contracts and options thereon, which are traded on exchanges, are valued at
their closing prices as of the close of such exchanges. Options written or
purchased are valued at the last sales price in the case of exchange-traded
options. In the case of options traded in the OTC market, valuation is the last
asked price (options written) or the last bid price (options purchased). Swap
agreements are valued based upon quoted fair valuations received daily by the
Fund from a pricing service or counterparty. Valuation of short-term investment
vehicles is generally based on the net asset value of the underlying investment
vehicle or amortized cost. Repurchase agreements are valued at cost plus accrued
interest. Investments in open-end investment companies are valued at their net
asset value each business day. Securities and other 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.
Equity securities held by the Fund that are traded on stock exchanges or the
NASDAQ Global Market are valued at the last sale price or official close price
on the exchange, as of the close of business on the day the securities are being
valued or, lacking any sales, at the last available bid price for long
positions, and at the last available asked price for short positions. In cases
where equity securities are traded on more than one exchange, the securities are
valued on the exchange designated as the primary market by or under the
authority of the Board of Directors of the Company. Long positions traded in the
OTC market, NASDAQ Capital Market or Bulletin Board are valued at the last
available bid price obtained from one or more dealers or pricing services
approved by the Board of Directors of the Company. Short positions traded in the
OTC market are valued at the last available asked price. Portfolio securities
that are traded both in the OTC market and on a stock exchange are valued
according to the broadest and most representative market.
Generally, trading in foreign securities, as well as U.S. government
securities, money market instruments and certain fixed income securities, is
substantially completed each day at various times prior to the close of business
on the New York Stock Exchange ("NYSE"). The values of such securities used in
computing the net asset value of the Fund's shares are determined as of such
times. Foreign currency exchange rates will generally be determined as of the
close of business on the NYSE. Occasionally, events affecting the values of such
securities and such exchange rates may occur between the times at which they are
determined and the close of business on the NYSE that may not be reflected
24
- --------------------------------------------------------------------------------
in the computation of the Fund's net asset value. If events (for example, a
company announcement, market volatility or a natural disaster) occur during such
periods that are expected to materially affect the value of such securities,
those securities will be valued at their fair value as determined in good faith
by the Company's Board of Directors or by BlackRock Advisors, LLC (the
"Manager"), an indirect, wholly owned subsidiary of BlackRock, Inc., using a
pricing service and/or procedures approved by the Company's Board of Directors.
(b) Derivative financial instruments--The Fund may engage in various portfolio
investment strategies both to increase the return of the Fund and to hedge, or
protect, its exposure to interest rate movements and movements in the securities
markets. Losses may arise due to changes in the value of the contract due to an
unfavorable change in price of the underlying security or if the counterparty
does not perform under the contract. The counterparty for certain instruments
may pledge cash or securities as collateral.
- - Financial futures contracts--The Fund may purchase or sell financial futures
contracts and options on such financial futures contracts. Financial 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.
- - Swaps--The Fund may enter into swap agreements, which are OTC contracts in
which the Fund and a counterparty agree to make periodic net payments on a
specified notional amount. The net payments can be made for a set period of time
or may be triggered by a predetermined credit event. The net periodic payments
may be based on a fixed or variable interest rate; the change in market value of
a specified security, basket of securities, or index; or the return generated by
a security. These periodic payments received or made by the Fund are recorded in
the accompanying Statement of Operations as realized gains or losses,
respectively. Gains or losses are also realized upon termination of the swap
agreements. Swaps are marked-to-market daily and changes in value are recorded
as unrealized appreciation (depreciation). Risks include changes in the returns
of the underlying instruments, failure of the counterparties to perform under
the contracts' terms and the possible lack of liquidity with respect to the swap
agreements.
(c) 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.
(d) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Realized gains and losses on security transactions are determined on the
identified cost basis. Dividend income is recorded on the ex-dividend dates.
Interest income is recognized on the accrual basis. The Fund amortizes all
premiums and discounts on debt securities.
(e) Dividends and distributions--Dividends from net investment income are
declared daily and paid monthly. Distributions from capital gains are recorded
on the ex-dividend dates.
(f) Expenses--Certain expenses have been allocated to the individual funds in
the Company on a pro rata basis based upon the respective aggregate net asset
value of each fund included in the Company.
(g) Securities lending--The Fund may lend securities to financial institutions
that provide cash or securities issued or guaranteed by the U.S. government as
collateral, which will be maintained at all times in an amount equal to at least
100% of the current market value of the loaned securities. The market value of
the loaned securities is determined at the close of business of the Fund and any
additional required collateral is delivered to the Fund on the next business
day. Where the Fund receives securities as collateral for the loaned securities,
it collects a fee from the borrower. The Fund typically receives the income on
the loaned securities but does not receive the income on the collateral. Where
the Fund receives cash collateral, it may invest such collateral and retain the
amount earned on such investment, net of any amount rebated to the borrower.
Loans of securities are terminable at any time and the borrower, after notice,
is required to return borrowed securities within five business days. The Fund
may pay reasonable finder's, lending agent, administrative and custodial fees in
connection with its loans. In the event that the
25
- --------------------------------------------------------------------------------
borrower defaults on its obligation to return borrowed securities because of
insolvency or for any other reason, the Fund could experience delays and costs
in gaining access to the collateral. The Fund also could suffer a loss where the
value of the collateral falls below the market value of the borrowed securities,
in the event of borrower default or in the event of losses on investments made
with cash collateral.
(h) Recent accounting pronouncements--Effective June 29, 2007, the Fund
implemented Financial Accounting Standards Board ("FASB") Interpretation No. 48,
"Accounting for Uncertainty in Income Taxes--an interpretation of FASB Statement
No. 109" ("FIN 48"). FIN 48 prescribes the minimum recognition threshold a tax
position must meet in connection with accounting for uncertainties in income tax
positions taken or expected to be taken by an entity, including investment
companies, before being measured and recognized in the financial statements.
Management has evaluated the application of FIN 48 to the Fund, and has
determined that the adoption of FIN 48 does not have a material impact on the
Fund's financial statements. The Fund files U.S. and various state tax returns.
No income tax returns are currently under examination. The statute of
limitations on the Fund's tax returns remains open for the years ended December
31, 2003 through December 31, 2006.
In September 2006, Statement of Financial Accounting Standards No. 157, "Fair
Value Measurements" ("FAS 157"), was issued and is effective for fiscal years
beginning after November 15, 2007. FAS 157 defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. At this time, management is evaluating the implications of FAS 157
and its impact on the Fund's financial statements, if any, has not been
determined.
In addition, in February 2007, Statement of Financial Accounting Standards No.
159, "The Fair Value Option for Financial Assets and Financial Liabilities"
("FAS 159"), was issued and is effective for fiscal years beginning after
November 15, 2007. Early adoption is permitted as of the beginning of a fiscal
year that begins on or before November 15, 2007, provided the entity also elects
to apply the provisions of FAS 157. FAS 159 permits entities to choose to
measure many financial instruments and certain other items at fair value that
are not currently required to be measured at fair value. FAS 159 also
establishes presentation and disclosure requirements designed to facilitate
comparisons between entities that choose different measurement attributes for
similar types of assets and liabilities. At this time, management is evaluating
the implications of FAS 159 and its impact on the Fund's financial statements,
if any, has not been determined.
2. INVESTMENT ADVISORY AGREEMENT AND TRANSACTIONS WITH AFFILIATES:
The Fund has entered into an Investment Advisory Agreement with the Manager. The
Fund has also entered into separate Distribution Agreements and Distribution
Plans with FAM Distributors, Inc. ("FAMD") and BlackRock Distributors, Inc. and
its affiliates ("BDI") (collectively, the "Distributor"). FAMD is a wholly owned
subsidiary of Merrill Lynch Group, Inc., and BDI is an affiliate of BlackRock,
Inc. Merrill Lynch and The PNC Financial Services Group, Inc. ("PNC") are the
principal owners of BlackRock, Inc.
The Manager 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 Fund. For such services, the Fund
pays a monthly fee based upon the aggregate daily value of net assets of the
Fund and the Company's BlackRock Bond V.I. Fund at the following annual rates:
..55% of such average daily net assets not exceeding $250 million; .50% of such
average daily net assets in excess of $250 million but not more than $500
million; .45% of such average daily net assets in excess of $500 million but not
more than $750 million; and .40% of such average daily net assets in excess of
$750 million. For the six months ended June 30, 2007, the aggregate average
daily net assets of the Fund and the Company's BlackRock Bond V.I. Fund was
approximately $621,540,000. In addition, the Manager has entered into a
sub-advisory agreement with BlackRock Financial Management, Inc., an affiliate
of the Manager, under which the Manager pays the Sub-Adviser for services it
provides a monthly fee that is a percentage of the management fee paid by the
Fund to the Manager.
Pursuant to the Distribution Plans adopted by the Company, in accordance with
Rule 12b-1 under the investment Company Act of 1940, the Fund pays the
Distributor an ongoing distribution fee each month at the annual rate of .15%
and .25% of the average daily value of the Fund's Class II and Class III net
assets, respectively.
The Company has received an exemptive order from the Securities and Exchange
Commission permitting it to lend portfolio securities to Merrill Lynch, Pierce,
Fenner & Smith Incorporated, a wholly owned subsidiary of Merrill Lynch, or its
affiliates. Pursuant to that order,
26
- --------------------------------------------------------------------------------
the Company also has retained BlackRock Investment Management, LLC ("BIM"), an
affiliate of the Manager, as the securities lending agent for a fee based on a
share of the returns on investment of cash collateral. BIM may, on behalf of the
Company and the Fund, invest cash collateral received by the Fund for such
loans, among other things, in a private investment company managed by the
Manager or in registered money market funds advised by the Manager or its
affiliates.
For the six months ended June 30, 2007, the Fund reimbursed the Manager $2,053
for certain accounting services.
PFPC Inc., an indirect, wholly owned subsidiary of PNC and an affiliate of the
Manager, is the Fund's transfer agent.
Certain officers and/or directors of the Company are officers and/or directors
of BlackRock, Inc. or its affiliates.
3. INVESTMENTS:
Purchases and sales (including paydowns) of investments, excluding short-term
securities, for the six months ended June 30, 2007 were $64,173,099 and
$70,150,260, respectively.
4. CAPITAL SHARE TRANSACTIONS:
Net decrease in net assets derived from capital share transactions was
$13,756,584 and $36,076,306 for the six months ended June 30, 2007 and the year
ended December 31, 2006, respectively.
Transactions in capital shares for each class were as follows:
<Table>
<Caption>
- -------------------------------------------------------------------
Class I Shares for the Six Months Ended
June 30, 2007 Shares Dollar Amount
- -------------------------------------------------------------------
Shares sold............................ 132,827 $ 1,030,929
Shares issued to shareholders in
reinvestment of dividends............. 1,039,981 8,067,505
---------- ------------
Total issued........................... 1,172,808 9,098,434
Shares redeemed........................ (2,944,009) (22,855,105)
---------- ------------
Net decrease........................... (1,771,201) $(13,756,671)
========== ============
- -------------------------------------------------------------------
</Table>
<Table>
<Caption>
- -------------------------------------------------------------------
Class I Shares for the Year Ended
December 31, 2006 Shares Dollar Amount
- -------------------------------------------------------------------
Shares sold............................ 210,493 $ 1,597,498
Shares issued to shareholders in
reinvestment of dividends............. 2,253,509 17,098,627
---------- ------------
Total issued........................... 2,464,002 18,696,125
Shares redeemed........................ (7,213,353) (54,772,597)
---------- ------------
Net decrease........................... (4,749,351) $(36,076,472)
========== ============
- -------------------------------------------------------------------
</Table>
<Table>
<Caption>
- -----------------------------------------------------------------------
Dollar
Class II Shares for the Six Months Ended June 30, 2007 Shares Amount
- -----------------------------------------------------------------------
Shares issued to shareholders in reinvestment of
dividends.......................................... 6 $44
-- ---
Net increase........................................ 6 $44
== ===
- -----------------------------------------------------------------------
</Table>
<Table>
<Caption>
- ---------------------------------------------------------------------
Dollar
Class II Shares for the Year Ended December 31, 2006 Shares Amount
- ---------------------------------------------------------------------
Shares issued to shareholders in reinvestment of
dividends......................................... 11 $83
-- ---
Net increase....................................... 11 $83
== ===
- ---------------------------------------------------------------------
</Table>
<Table>
<Caption>
- ------------------------------------------------------------------------
Dollar
Class III Shares for the Six Months Ended June 30, 2007 Shares Amount
- ------------------------------------------------------------------------
Shares issued to shareholders in reinvestment of
dividends.......................................... 6 $43
-- ---
Net increase........................................ 6 $43
== ===
- ------------------------------------------------------------------------
</Table>
<Table>
<Caption>
- ----------------------------------------------------------------------
Dollar
Class III Shares for the Year Ended December 31, 2006 Shares Amount
- ----------------------------------------------------------------------
Shares issued to shareholders in reinvestment of
dividends......................................... 11 $83
-- ---
Net increase....................................... 11 $83
== ===
- ----------------------------------------------------------------------
</Table>
5. SHORT-TERM BORROWINGS:
The Company, on behalf of the Fund, along with certain other funds managed by
the Manager and its affiliates, is party to a $500,000,000 credit agreement with
a group of lenders, which expires November 2007. 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 .06% per annum based on the Fund's pro rata share of the
unused portion of the credit agreement. Amounts borrowed under the credit
agreement bear interest at a rate equal to, at each fund's election, the federal
funds rate plus .35% or a base rate as defined in the credit agreement. The Fund
did not borrow under the credit agreement during the six months ended June 30,
2007.
6. CAPITAL LOSS CARRYFORWARD:
On December 31, 2006, the Fund had a net capital loss carryforward of
$202,565,459, of which $9,712,654 expires in 2007, $23,145,308 expires in 2008,
$35,064,410 expires in 2009, $63,839,053 expires in 2010, $44,871,728 expires in
2011, $8,918,857 expires in 2012, $12,665,469 expires in 2013 and $4,347,980
expires in 2014. This amount will be available to offset like amounts of any
future taxable gains.
27
- --------------------------------------------------------------------------------
BLACKROCK INTERNATIONAL VALUE V.I. FUND
-------------------------------------------------------------------------
Semi-Annual Report (Unaudited)
June 30, 2007
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS
BlackRock International Value V.I. Fund
A Discussion With Your Fund's Portfolio Managers
- --------------------------------------------------------------------------------
The Fund provided competitive returns for the period, benefiting primarily
from favorable security selection, particularly among cyclical stocks.
HOW DID THE FUND PERFORM DURING THE PERIOD IN LIGHT OF THE EXISTING MARKET
CONDITIONS?
For the six-month period ended June 30, 2007, BlackRock International Value
V.I. Fund's Class I Shares had a total return of +10.77%. Fund results closely
aligned with the +10.74% return of the benchmark Morgan Stanley Capital
International Europe, Australasia, Far East (MSCI EAFE) Index and outpaced the
+10.23% average return of the Lipper International Value Funds (Variable
Products) category for the same period. (Funds in this Lipper category invest at
least 75% of their equity assets in companies strictly outside the United
States. Value funds typically have a below-average price-to-cash flow ratio,
price-to-book ratio and three-year sales-per-share growth value compared to the
S&P Citigroup World ex.-U.S. Broad Market Index.)
International equity markets delivered healthy returns for the majority of the
period, notwithstanding an abrupt correction at the end of February that
resulted in a broad-based global equity decline. However, markets quickly
recovered to surpass their previous highs and ended the period firmly in
positive territory.
Despite concerns of an economic slowdown in the United States, and more recent
fears that a crisis in the U.S. subprime mortgage market could further impede
growth, the global economy has remained on track. Generally speaking, European
and Asian companies have continued to deliver stronger-than-expected earnings
growth and record profits, driven by a combination of robust export demand,
especially from the faster-growing Asian economies such as China, and strong
domestic economies.
In an environment of positive earnings momentum, central banks have remained
on the front foot, with short-term interest rates moving higher in most regions.
However, global monetary policy still remains accommodative with abundant levels
of global liquidity. This in turn has propelled merger-and-acquisition (M&A)
activity to record levels, especially in Europe and Asia (ex-Japan), where it
has been a primary driver of returns.
WHAT FACTORS MOST INFLUENCED FUND PERFORMANCE?
During the six-month reporting period, the Fund benefited from strong stock
selection. This was especially true in the cyclical areas of the portfolio, such
as materials and capital goods, which benefited from a benign global economic
backdrop, strong commodity prices and robust global demand, especially in Asia
and emerging markets. Within the materials sector, the Fund's holdings in South
Korean specialty steel maker POSCO and Dutch steel giant Arcelor Mittal, along
with German chemical company Bayer AG, had a positive impact on performance.
Within capital goods, the Fund's holdings in German construction company
Hochtief AG rose 54% over the period on strong performance from its Australian
subsidiary Leighton, which is a huge beneficiary of contract mining. Japanese
trading company Sojitz also made a positive contribution. The Fund's overweight
position in the energy sector further boosted returns, as oil prices rose from a
low of $51 per barrel in January to finish the period at over $70 per barrel.
Other top performers in the portfolio included U.K. mobile operator Vodafone
Group Plc, which posted strong results showing growth in both Europe and
emerging markets, and French power utility Electricite de France SA, which
appreciated after good news on tariffs and improved European Union sentiment
toward nuclear production.
In terms of regional allocations, the Fund benefited from its underweight
exposure to Japan, which continued to lag other Asian as well as European
markets. Within Europe, the Fund's overweight position and successful stock
selection in Germany and France benefited results.
Detracting from performance during the period was the Fund's exposure to the
financials sector, especially retail banks, but also insurance companies and
investment banks. The sector underperformed the wider market due to concerns
about the sustainability of capital markets-related revenue amid slowing U.S.
economic growth and subprime mortgage fears. In Europe, an environment of rising
interest rates sparked concerns that retail loan growth could slow and
subsequently impact profits, whereas in Japan, interest rates did not rise as
much as expected and banks failed to pass on higher borrowing costs to their
customers. In addition, M&A activity has been an important driver of
2
- --------------------------------------------------------------------------------
returns in Europe, which has generated speculation in the financials sector.
This has tended to hold back potential acquirers (typically large cap banks to
which the Fund is exposed) while pushing up potential targets (mid caps in which
the Fund is underweight). The Fund's holdings in Japanese financials Sumitomo
Mitsui Financial Group and Sompo Japan Insurance Inc., along with U.K. and
Continental European banks HBOS Plc, Danske Bank A/S and Allied Irish Banks Plc,
detracted from performance, as did an underweight position in ABN-Amro.
Elsewhere, the Fund suffered from disappointing stock selection within the
automobiles sector, which rose sharply on M&A activity.
WHAT CHANGES WERE MADE TO THE PORTFOLIO DURING THE YEAR?
Our main transactions during the period resulted from "bottom-up" stock
picking, based on our evaluation of companies' individual share price
appreciation prospects. As such, the portfolio increased its exposure to more
defensive sectors, such as food, beverage & tobacco and pharmaceuticals with the
purchase of Unilever, Nestle, Novartis and British American Tobacco Plc. Within
the telecommunications sector, the Fund exited its position in Telecom Italia
Spa in favor of Deutsche Telekom AG, which is in the midst of restructuring and
is starting to see an improved environment for mobile. The company also offers
one of the highest dividend yields in the sector. These purchases were funded by
taking profits after strong performance in German construction company Hochtief
and German chemical company BASF. In response to a more challenging outlook for
the financials sector, we reduced the Fund's weighting in banks and insurance
through the sale of French banks BNP Paribas SA and Credit Agricole SA, and
German re-insurance company Munich Re AG.
HOW WOULD YOU CHARACTERIZE THE FUND'S POSITION AT THE CLOSE OF THE PERIOD?
At the end of the period, the Fund was overweight relative to the MSCI EAFE
Index in automobiles & components, insurance, energy and food, beverage &
tobacco. The most significant underweights were in consumer durables and
apparel, food & staples retailing, media and real estate.
In terms of regional and country allocations, the Fund ended the period with
underweight positions in Japan and the U.K., as we are finding more attractive
opportunities in Asia and Continental Europe. The Fund continues to maintain a
significant large cap bias in Japan as well as in Europe's largest economies,
such as Germany, France and Italy, where valuations offer a significant discount
to the market and we see many opportunities to deliver above-average earnings
growth.
Within the Asian segment of the portfolio, the Fund ended the period with
positions in Singapore, South Korea, Taiwan and Hong Kong, where key exposures
include technology, banks, real estate and steel. We have exposure to Australia
predominately through construction and resources stocks.
We are positive on the prospects for European and Asian equities for the
remainder of 2007, given what we view as attractive valuations, robust earnings
growth and strong underlying domestic economies. We intend to continue our
strategy of investing in low valuation shares, and believe BlackRock
International Value V.I. Fund is well positioned to maximize investor returns
against what could be a more volatile backdrop for international equity markets.
James A. Macmillan
Senior Portfolio Manager
Rob Weatherston
Portfolio Manager
July 13, 2007
3
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock International Value V.I. Fund
Total Return Based on a $10,000 Investment
- --------------------------------------------------------------------------------
[LINE GRAPH]
<Table>
<Caption>
BLACKROCK INTERNATIONAL VALUE MORGAN STANLEY CAPITAL
V.I. FUND+--CLASS I SHARES* INTERNATIONAL EAFE INDEX++
----------------------------- --------------------------
6/10/98* 10000 10000
6/98 9991 10000
6/99 10737 10762
6/00 12028 12608
6/01 11271 9632
6/02 11133 8718
6/03 10258 8154
6/04 13841 10794
6/05 15954 12268
6/06 20460 15525
6/07 25455 19718
</Table>
[LINE GRAPH]
<Table>
<Caption>
BLACKROCK INTERNATIONAL BLACKROCK INTERNATIONAL
VALUE V.I. FUND+--CLASS II VALUE V.I. FUND+--CLASS III MORGAN STANLEY CAPITAL
SHARES* SHARES* INTERNATIONAL EAFE INDEX++
-------------------------- --------------------------- --------------------------
9/30/04 10000 10000 10000
6/05 11583 11583 11397
6/06 14861 14861 14423
6/07 18474 18464 18318
</Table>
* Assuming transaction costs, if any, and other operating expenses, including
advisory fees. Does not include insurance-related fees and expenses.
Effective November 24, 2003, shares of the Fund were designated Class I
Shares.
** Commencement of operations.
+ The Fund seeks current income and long-term growth of income, accompanied by
growth of capital through investments in international stocks.
++ This unmanaged Index measures the total returns of developed foreign stock
markets in Europe, Australasia and the Far East (in U.S. dollars). The
starting date for the Index in the graph for Class I Shares is from 6/30/98.
Past results shown should not be considered a representation of future
performance.
4
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock International Value V.I. Fund
Average Annual Total Return--Class I Shares*+
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERIOD COVERED RETURN
- --------------------------------------------------------------------------
One Year Ended 6/30/07 +24.41%
- --------------------------------------------------------------------------
Five Years Ended 6/30/07 +17.99
- --------------------------------------------------------------------------
Inception (6/10/98) through 6/30/07 +10.87
- --------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock International Value V.I. Fund
Average Annual Total Return--Class II Shares*+
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERIOD COVERED RETURN
- --------------------------------------------------------------------------
One Year Ended 6/30/07 +24.32%
- --------------------------------------------------------------------------
Inception (9/30/04) through 6/30/07 +25.03
- --------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock International Value V.I. Fund
Average Annual Total Return--Class III Shares*+
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERIOD COVERED RETURN
- --------------------------------------------------------------------------
One Year Ended 6/30/07 +24.25%
- --------------------------------------------------------------------------
Inception (9/30/04) through 6/30/07 +25.00
- --------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock International Value V.I. Fund
Recent Performance Results
- --------------------------------------------------------------------------------
<Table>
<Caption>
6-MONTH 12-MONTH
AS OF JUNE 30, 2007 TOTAL RETURN TOTAL RETURN
- -----------------------------------------------------------------------------------------
Class I Shares* +10.77% +24.41%
- -----------------------------------------------------------------------------------------
Class II Shares* +10.70 +24.32
- -----------------------------------------------------------------------------------------
Class III Shares* +10.64 +24.25
- -----------------------------------------------------------------------------------------
MSCI EAFE Index** +10.74 +27.00
- -----------------------------------------------------------------------------------------
</Table>
* Average annual and cumulative 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. For a portion of the period, returns do not show the effects
of distribution fees (12b-1 fees) applicable to Class II and Class III
Shares. If such fees were included, returns shown would have been lower.
+ The Fund's Manager waived a portion of its fee. Without such waiver the
Fund's performance would have been lower.
** The unmanaged Index measures the total returns of developed foreign stock
markets in Europe, Australasia and the Far East (in U.S. dollars).
Past results shown should not be considered a representation of future
performance.
5
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock International Value V.I. Fund
Disclosure of Expenses
- --------------------------------------------------------------------------------
Shareholders of this Fund may incur the following charges: (a) expenses related
to transactions, including sales charges, redemption fees and exchange fees; and
(b) operating expenses including advisory fees, distribution fees including
12b-1 fees, and other Fund expenses. The following example (which is based on a
hypothetical investment of $1,000 invested on January 1, 2007 and held through
June 30, 2007) is intended to assist shareholders both in calculating expenses
based on an investment in the Fund and in comparing these expenses with similar
costs of investing in other mutual funds.
The first table below provides information about actual account values and
actual expenses. In order to estimate the expenses a shareholder paid during the
period covered by this report, shareholders can divide their account value by
$1,000 and then multiply the result by the number in the first line under the
heading entitled "Expenses Paid During the Period."
The second table below provides information about hypothetical account values
and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses. In order to assist
shareholders in comparing the ongoing expenses of investing in this Fund and
other funds, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in other funds' shareholder reports.
The expenses shown in the table are intended to highlight shareholders'
ongoing costs only and do not reflect any transactional expenses, such as sales
charges, redemption fees or exchange fees. Therefore, the second table is useful
in comparing ongoing expenses only, and will not help shareholders determine the
relative total expenses of owning different funds. If these transactional
expenses were included, shareholder expenses would have been higher.
<Table>
<Caption>
EXPENSES PAID
BEGINNING ENDING DURING THE PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JANUARY 1, 2007 TO
JANUARY 1, 2007 JUNE 30, 2007 JUNE 30, 2007
- ------------------------------------------------------------------------------------------------------------------
ACTUAL
- ------------------------------------------------------------------------------------------------------------------
Class I $1,000 $1,107.70 $4.52
- ------------------------------------------------------------------------------------------------------------------
Class II $1,000 $1,107.00 $5.31
- ------------------------------------------------------------------------------------------------------------------
Class III $1,000 $1,106.40 $5.83
- ------------------------------------------------------------------------------------------------------------------
HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES)**
- ------------------------------------------------------------------------------------------------------------------
Class I $1,000 $1,020.79 $4.36
- ------------------------------------------------------------------------------------------------------------------
Class II $1,000 $1,020.04 $5.11
- ------------------------------------------------------------------------------------------------------------------
Class III $1,000 $1,019.53 $5.62
- ------------------------------------------------------------------------------------------------------------------
</Table>
* For each class of the Fund, expenses are equal to the annualized expense
ratio for the class (.86% for Class I, 1.01% for Class II and 1.11% for Class
III), multiplied by the average account value over the period, multiplied by
182/365 (to reflect the one-half year period shown).
** Hypothetical 5% annual return before expenses is calculated by pro-rating the
number of days in the most recent fiscal half year divided by 365.
6
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock International Value V.I. Fund
Portfolio Information as of June 30, 2007
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENT OF
GEOGRAPHIC ALLOCATION LONG-TERM INVESTMENTS
- -----------------------------------------------------------------------------------
Japan....................................................... 18.7%
United Kingdom.............................................. 18.0
Germany..................................................... 15.6
France...................................................... 11.6
Switzerland................................................. 7.3
Italy....................................................... 6.0
Australia................................................... 4.8
Spain....................................................... 3.4
Ireland..................................................... 2.6
Norway...................................................... 2.3
Sweden...................................................... 1.4
Netherlands................................................. 1.4
Finland..................................................... 1.3
Denmark..................................................... 1.1
South Korea................................................. 1.1
Hong Kong................................................... 1.0
China....................................................... 0.8
Singapore................................................... 0.8
Belgium..................................................... 0.8
- -----------------------------------------------------------------------------------
</Table>
7
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock International Value V.I. Fund
Schedule of Investments as of June 30, 2007 (unaudited) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES
COUNTRY INDUSTRY HELD COMMON STOCKS VALUE
- ----------------------------------------------------------------------------------------------------------------
AUSTRALIA--4.7% COMMERCIAL BANKS--1.0% 174,000 Australia & New Zealand Banking
Group Ltd. ..................... $ 4,273,647
---------------------------------------------------------------------------------------------
INDUSTRIAL 993,279 CSR Ltd. ......................... 2,923,416
CONGLOMERATES--0.7%
---------------------------------------------------------------------------------------------
METALS & MINING--2.5% 147,280 BHP Billiton Ltd. ................ 4,400,834
498,245 Iluka Resources Ltd. ............. 2,596,937
36,886 Rio Tinto Ltd. ................... 3,076,946
------------
10,074,717
---------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT 506,171 Multiplex Group................... 2,107,170
TRUSTS
(REITS)--0.5%
---------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN AUSTRALIA.. 19,378,950
- ----------------------------------------------------------------------------------------------------------------
BELGIUM--0.7% HEALTH CARE TECHNOLOGY--0.7% 116,571 AGFA-Gevaert NV................... 3,006,987
---------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN BELGIUM.... 3,006,987
- ----------------------------------------------------------------------------------------------------------------
CHINA--0.8% OIL, GAS & CONSUMABLE 2,198,000 PetroChina Co. Ltd. .............. 3,264,787
FUELS--0.8%
---------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN CHINA...... 3,264,787
- ----------------------------------------------------------------------------------------------------------------
DENMARK--1.1% COMMERCIAL BANKS--1.1% 111,878 Danske Bank A/S................... 4,574,936
---------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN DENMARK.... 4,574,936
- ----------------------------------------------------------------------------------------------------------------
FINLAND--1.3% ELECTRIC UTILITIES--1.3% 172,430 Fortum Oyj........................ 5,388,004
---------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN FINLAND.... 5,388,004
- ----------------------------------------------------------------------------------------------------------------
FRANCE--11.3% AUTOMOBILES--2.0% 50,721 Renault SA........................ 8,135,096
---------------------------------------------------------------------------------------------
COMMERCIAL BANKS--1.7% 38,349 Societe Generale SA............... 7,105,242
---------------------------------------------------------------------------------------------
ELECTRIC UTILITIES--1.6% 61,114 Electricite de France SA.......... 6,605,392
---------------------------------------------------------------------------------------------
INSURANCE--1.4% 138,462 AXA SA............................ 5,951,881
---------------------------------------------------------------------------------------------
MACHINERY--1.4% 17,835 Vallourec SA(a)................... 5,702,312
---------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE 131,966 Total SA.......................... 10,699,569
FUELS--2.6%
---------------------------------------------------------------------------------------------
PHARMACEUTICALS--0.6% 31,758 Sanofi-Aventis.................... 2,565,643
---------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN FRANCE..... 46,765,135
- ----------------------------------------------------------------------------------------------------------------
GERMANY--15.2% AIR FREIGHT & 182,426 Deutsche Post AG.................. 5,927,517
LOGISTICS--1.4%
---------------------------------------------------------------------------------------------
AUTOMOBILES--2.8% 82,277 Bayerische Motoren Werke AG....... 5,334,066
66,432 DaimlerChrysler AG................ 6,145,757
------------
11,479,823
---------------------------------------------------------------------------------------------
CHEMICALS--2.0% 109,604 Bayer AG.......................... 8,298,963
---------------------------------------------------------------------------------------------
DIVERSIFIED 318,273 Deutsche Telekom AG............... 5,883,282
TELECOMMUNICATION
SERVICES--1.4%
---------------------------------------------------------------------------------------------
ELECTRIC UTILITIES--1.6% 37,856 E.ON AG........................... 6,356,337
---------------------------------------------------------------------------------------------
INDUSTRIAL 67,874 Siemens AG........................ 9,767,330
CONGLOMERATES--2.4%
---------------------------------------------------------------------------------------------
INSURANCE--2.0% 35,711 Allianz AG Registered Shares...... 8,375,478
---------------------------------------------------------------------------------------------
MULTI-UTILITIES--1.6% 62,943 RWE AG............................ 6,717,829
---------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN GERMANY.... 62,806,559
- ----------------------------------------------------------------------------------------------------------------
HONG KONG--1.0% REAL ESTATE MANAGEMENT & 1,660,000 New World Development Ltd. ....... 4,154,272
DEVELOPMENT--1.0%
---------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN
HONG KONG......................... 4,154,272
- ----------------------------------------------------------------------------------------------------------------
</Table>
8
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock International Value V.I. Fund
Schedule of Investments as of June 30, 2007 (continued) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES
COUNTRY INDUSTRY HELD COMMON STOCKS VALUE
- ----------------------------------------------------------------------------------------------------------------
IRELAND--2.5% COMMERCIAL BANKS--1.0% 152,757 Allied Irish Banks Plc............ $ 4,172,852
---------------------------------------------------------------------------------------------
CONSTRUCTION MATERIALS--1.5% 127,846 CRH Plc........................... 6,318,047
---------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN IRELAND.... 10,490,899
- ----------------------------------------------------------------------------------------------------------------
ITALY--5.9% COMMERCIAL BANKS--2.9% 782,337 Banca Intesa SpA.................. 5,832,900
671,656 UniCredito Italiano SpA........... 5,998,061
------------
11,830,961
---------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE 340,753 Eni SpA(f)........................ 12,354,821
FUELS--3.0%
---------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN ITALY...... 24,185,782
- ----------------------------------------------------------------------------------------------------------------
JAPAN--18.3% AUTO COMPONENTS--0.8% 158,000 NOK Corp. ........................ 3,334,829
---------------------------------------------------------------------------------------------
AUTOMOBILES--3.9% 115,000 Honda Motor Co., Ltd. ............ 4,175,908
307,000 Nissan Motor Co., Ltd. ........... 3,286,710
138,000 Toyota Motor Corp. ............... 8,703,162
------------
16,165,780
---------------------------------------------------------------------------------------------
BEVERAGES--1.1% 281,000 Asahi Breweries Ltd. ............. 4,357,822
---------------------------------------------------------------------------------------------
CAPITAL MARKETS--0.7% 256,000 Mitsubishi UFJ Securities
Co.(a).......................... 2,868,432
---------------------------------------------------------------------------------------------
COMMERCIAL BANKS--2.4% 277 Mitsubishi UFJ Financial Group,
Inc. ........................... 3,052,731
720 Sumitomo Mitsui Financial Group,
Inc. ........................... 6,712,133
------------
9,764,864
---------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES--0.2% 76,000 Sekisui House Ltd. ............... 1,013,045
---------------------------------------------------------------------------------------------
INSURANCE--1.4% 484,000 Sompo Japan Insurance, Inc. ...... 5,919,670
---------------------------------------------------------------------------------------------
LEISURE EQUIPMENT & 101,000 Namco Bandai Holdings, Inc. ...... 1,595,421
PRODUCTS--0.4%
---------------------------------------------------------------------------------------------
METALS & MINING--0.8% 580,000 Sumitomo Metal Industries Ltd. ... 3,409,915
---------------------------------------------------------------------------------------------
OFFICE ELECTRONICS--2.5% 110,000 Canon, Inc. ...................... 6,450,733
166,000 Ricoh Co., Ltd. .................. 3,840,637
------------
10,291,370
---------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE 452,000 Nippon Mining Holdings, Inc. ..... 4,324,156
FUELS--1.1%
---------------------------------------------------------------------------------------------
PHARMACEUTICALS--1.2% 76,000 Takeda Pharmaceutical Co.,
Ltd. ........................... 4,909,710
---------------------------------------------------------------------------------------------
TRADING COMPANIES & 354,000 Itochu Corp. ..................... 4,099,113
DISTRIBUTORS--1.8% 738,000 Sojitz Corp.(a)................... 3,298,586
------------
7,397,699
---------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN JAPAN...... 75,352,713
- ----------------------------------------------------------------------------------------------------------------
NETHERLANDS--1.4% METALS & MINING--1.4% 89,112 Arcelor Mittal.................... 5,565,285
---------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN THE
NETHERLANDS....................... 5,565,285
- ----------------------------------------------------------------------------------------------------------------
NORWAY--2.3% INDUSTRIAL 154,587 Orkla ASA......................... 2,914,720
CONGLOMERATES--0.7%
---------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE 210,419 Statoil ASA....................... 6,528,416
FUELS--1.6%
---------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN NORWAY..... 9,443,136
- ----------------------------------------------------------------------------------------------------------------
SINGAPORE--0.7% COMMERCIAL BANKS--0.7% 212,000 United Overseas Bank Ltd. ........ 3,047,615
---------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN
SINGAPORE......................... 3,047,615
- ----------------------------------------------------------------------------------------------------------------
SOUTH KOREA--1.1% METALS & MINING--1.1% 9,225 POSCO............................. 4,428,774
---------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN
SOUTH KOREA....................... 4,428,774
- ----------------------------------------------------------------------------------------------------------------
</Table>
9
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock International Value V.I. Fund
Schedule of Investments as of June 30, 2007 (continued) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES
COUNTRY INDUSTRY HELD COMMON STOCKS VALUE
- ----------------------------------------------------------------------------------------------------------------
SPAIN--3.4% COMMERCIAL BANKS--3.4% 260,426 Banco Bilbao Vizcaya Argentaria
SA.............................. $ 6,368,693
409,431 Banco Santander Central Hispano
SA.............................. 7,526,155
---------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN SPAIN...... 13,894,848
- ----------------------------------------------------------------------------------------------------------------
SWEDEN--1.3% DIVERSIFIED FINANCIAL 213,595 Investor AB....................... 5,513,566
SERVICES--1.3%
---------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN SWEDEN..... 5,513,566
- ----------------------------------------------------------------------------------------------------------------
SWITZERLAND--7.2% CAPITAL MARKETS--3.1% 93,311 Credit Suisse Group............... 6,624,248
106,243 UBS AG............................ 6,353,790
------------
12,978,038
---------------------------------------------------------------------------------------------
FOOD PRODUCTS--1.4% 14,636 Nestle SA Registered Shares....... 5,561,293
---------------------------------------------------------------------------------------------
INSURANCE--1.0% 43,259 Swiss Reinsurance Registered
Shares.......................... 3,945,226
---------------------------------------------------------------------------------------------
PHARMACEUTICALS--1.7% 125,788 Novartis AG Registered Shares..... 7,061,812
---------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN
SWITZERLAND....................... 29,546,369
- ----------------------------------------------------------------------------------------------------------------
UNITED AEROSPACE & DEFENSE--1.5% 766,310 BAE Systems Plc................... 6,183,732
KINGDOM--17.5%
---------------------------------------------------------------------------------------------
COMMERCIAL BANKS--2.5% 312,058 Barclays Plc...................... 4,341,635
301,412 HBOS Plc.......................... 5,928,568
------------
10,270,203
---------------------------------------------------------------------------------------------
FOOD PRODUCTS--2.0% 258,696 Unilever Plc...................... 8,353,257
---------------------------------------------------------------------------------------------
INSURANCE--2.4% 283,942 Aviva Plc......................... 4,215,041
395,589 Prudential Plc.................... 5,630,932
------------
9,845,973
---------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE 316,707 Royal Dutch Shell Plc Class B..... 13,202,251
FUELS--3.2%
---------------------------------------------------------------------------------------------
PHARMACEUTICALS--1.6% 259,924 GlaxoSmithKline Plc............... 6,771,020
---------------------------------------------------------------------------------------------
TOBACCO--1.6% 189,411 British American Tobacco Plc...... 6,459,952
---------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION 3,373,185 Vodafone Group Plc................ 11,302,907
SERVICES--2.7%
---------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN THE
UNITED KINGDOM.................... 72,389,295
- ----------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST--$299,420,585)--97.7%....... 403,197,912
- ----------------------------------------------------------------------------------------------------------------
<Caption>
RIGHTS
- ----------------------------------------------------------------------------------------------------------------
HONG KONG--0.0% REAL ESTATE MANAGEMENT & 9,120 New World Development Ltd.(g)..... 0
DEVELOPMENT--0.0%
---------------------------------------------------------------------------------------------
TOTAL RIGHTS--(COST--$0)--0.0%.... 0
---------------------------------------------------------------------------------------------
BENEFICIAL
INTEREST OTHER INTERESTS
- ----------------------------------------------------------------------------------------------------------------
UNITED ELECTRIC UTILITIES--0.0% $ 54,000 British Energy Plc Deferred
KINGDOM--0.0% Shares(c)....................... 0
---------------------------------------------------------------------------------------------
TOTAL OTHER INTERESTS
(COST--0)--0.0%................... 0
- ----------------------------------------------------------------------------------------------------------------
</Table>
10
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock International Value V.I. Fund
Schedule of Investments as of June 30, 2007 (concluded) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
BENEFICIAL
INTEREST SHORT-TERM SECURITIES VALUE
- ----------------------------------------------------------------------------------------------------------------
$ 5,096,645 BlackRock Liquidity Series, LLC
Cash Sweep Series, 5.33%
(b)(d).......................... $ 5,096,645
12,203,750 BlackRock Liquidity Series, LLC
Money Market Series, 5.33%
(b)(d)(e)....................... 12,203,750
- ----------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM SECURITIES
(COST--$17,300,395)--4.2%......... 17,300,395
- ----------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST--$316,720,980*)--101.9%..... 420,498,307
LIABILITIES IN EXCESS OF OTHER
ASSETS--(1.9%).................... (7,931,413)
------------
NET ASSETS--100.0%................ $412,566,894
============
- ----------------------------------------------------------------------------------------------------------------
</Table>
* The cost and unrealized appreciation (depreciation) of investments as of
June 30, 2007, as computed for federal income tax purposes, were as follows:
<Table>
Aggregate cost.............................................. $322,263,583
============
Gross unrealized appreciation............................... $100,593,836
Gross unrealized depreciation............................... (2,359,112)
------------
Net unrealized appreciation................................. $ 98,234,724
============
</Table>
(a) Non-income producing security.
(b) Investments in companies considered to be an affiliate of the Fund, for
purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as
follows:
<Table>
<Caption>
- -------------------------------------------------------------------------------------
NET INTEREST
AFFILIATE ACTIVITY INCOME
- -------------------------------------------------------------------------------------
BlackRock Liquidity Series, LLC Cash Sweep Series........... $ 2,200,134 $ 88,049
BlackRock Liquidity Series, LLC Money Market Series......... $12,203,750 $125,853
- -------------------------------------------------------------------------------------
</Table>
(c) Other interests represent beneficial interest in liquidation trusts and
other reorganization entities and are non-income producing.
(d) Represents the current yield as of June 30, 2007.
(e) Security was purchased with the cash proceeds from securities loans.
(f) Security, or a portion of security, is on loan.
(g) The rights may be exercised until July 4, 2007.
- - For Fund compliance purposes, the Fund's industry classifications refer to
any one or more of the industry sub-classifications used by one or more
widely recognized market indexes or ratings group indexes, and/or as defined
by Fund management. This definition may not apply for purposes of this
report, which may combine such industry sub-classifications for reporting
ease. Industries are shown as a percentage of net assets.
11
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock International Value V.I. Fund
Statement of Assets and Liabilities as of June 30, 2007 (unaudited)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments in unaffiliated securities, at value (including
securities loaned of $11,783,655) (identified
cost--$299,420,585)....................................... $403,197,912
Investments in affiliated securities, at value (identified
cost--$17,300,395)........................................ 17,300,395
Cash........................................................ 20
Foreign cash (cost--$562,807)............................... 565,969
Receivables:
Securities sold........................................... $ 7,683,922
Dividends................................................. 2,554,445
Securities lending........................................ 16,798
Capital shares sold....................................... 18 10,255,183
------------
Prepaid expenses............................................ 3,893
------------
Total assets................................................ 431,323,372
------------
- -------------------------------------------------------------------------------------------
LIABILITIES:
Collateral on securities loaned, at value................... 12,203,750
Payables:
Securities purchased...................................... 5,571,846
Capital shares redeemed................................... 614,739
Investment adviser........................................ 246,624
Other affiliates.......................................... 5,033 6,438,242
------------
Accrued expenses and other liabilities...................... 114,486
------------
Total liabilities........................................... 18,756,478
------------
- -------------------------------------------------------------------------------------------
NET ASSETS.................................................. $412,566,894
============
- -------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Class I Shares of Common Stock, $.10 par value, 100,000,000
shares authorized......................................... $ 2,216,439
Class II Shares of Common Stock, $.10 par value, 100,000,000
shares authorized......................................... 10
Class III Shares of Common Stock, $.10 par value,
100,000,000 shares authorized............................. 10
Paid-in capital in excess of par............................ 255,134,105
Undistributed investment income--net........................ $ 3,049,460
Undistributed realized capital gains--net................... 48,346,328
Unrealized appreciation--net................................ 103,820,542
------------
Total accumulated earnings--net............................. 155,216,330
------------
NET ASSETS.................................................. $412,566,894
============
- -------------------------------------------------------------------------------------------
NET ASSET VALUE:
Class I--Based on net assets of $412,563,200 and 22,164,394
shares outstanding........................................ $ 18.61
============
Class II--Based on net assets of $1,847.88 and 99.22 shares
outstanding............................................... $ 18.62
============
Class III--Based on net assets of $1,846.88 and 99.22 shares
outstanding............................................... $ 18.61
============
- -------------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements.
12
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock International Value V.I. Fund
Statement of Operations for the Six Months Ended June 30, 2007 (unaudited)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividends (net of $928,653 foreign withholding tax)......... $ 8,145,957
Securities lending--net..................................... 125,853
Interest (including $88,049 from affiliates)................ 89,297
------------
Total income................................................ 8,361,107
------------
- -------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees.................................... $ 1,519,339
Custodian fees.............................................. 75,585
Accounting services......................................... 63,706
Printing and shareholder reports............................ 32,935
Professional fees........................................... 18,345
Directors' fees and expenses................................ 10,144
Pricing fees................................................ 3,726
Transfer agent fees--Class I................................ 2,229
Distribution fees--Class III................................ 2
Distribution fees--Class II................................. 1
Other....................................................... 8,617
------------
Total expenses.............................................. 1,734,629
------------
Investment income--net...................................... 6,626,478
------------
- -------------------------------------------------------------------------------------------
REALIZED & UNREALIZED GAIN (LOSS)--NET:
Realized gain (loss) on:
Investments--net.......................................... 47,370,884
Foreign currency transactions--net........................ (59,249) 47,311,635
------------
Change in unrealized appreciation/depreciation on:
Investments--net.......................................... (12,213,634)
Foreign currency transactions--net........................ (4,888) (12,218,522)
------------ ------------
Total realized and unrealized gain--net..................... 35,093,113
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ 41,719,591
============
- -------------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements.
13
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock International Value V.I. Fund
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<Table>
<Caption>
FOR THE SIX
MONTHS ENDED FOR THE
JUNE 30, 2007 YEAR ENDED
INCREASE (DECREASE) IN NET ASSETS: (UNAUDITED) DECEMBER 31, 2006
- -----------------------------------------------------------------------------------------------
OPERATIONS:
Investment income--net...................................... $ 6,626,478 $ 9,511,072
Realized gain--net.......................................... 47,311,635 43,134,195
Change in unrealized appreciation/depreciation--net......... (12,218,522) 41,248,419
------------ ------------
Net increase in net assets resulting from operations........ 41,719,591 93,893,686
------------ ------------
- -----------------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Investment income--net:
Class I................................................... -- (12,796,099)
Class II.................................................. -- (52)
Class III................................................. -- (52)
Realized gain--net:
Class I................................................... -- (34,333,035)
Class II.................................................. -- (141)
Class III................................................. -- (141)
------------ ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders............................. -- (47,129,520)
------------ ------------
- -----------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Net increase (decrease) in net assets derived from capital
share transactions........................................ (34,641,734) 2,445,198
------------ ------------
- -----------------------------------------------------------------------------------------------
NET ASSETS:
Total increase in net assets................................ 7,077,857 49,209,364
Beginning of period......................................... 405,489,037 356,279,673
------------ ------------
End of period*.............................................. $412,566,894 $405,489,037
============ ============
- -----------------------------------------------------------------------------------------------
* Undistributed (accumulated distributions in excess of)
investment income--net.................................... $ 3,049,460 $ (3,577,018)
============ ============
- -----------------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements.
14
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock International Value V.I. Fund
Financial Highlights
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS I
------------------------------------------------------------------------
FOR THE SIX
THE FOLLOWING PER SHARE DATA AND RATIOS MONTHS ENDED FOR THE YEAR ENDED DECEMBER 31,
HAVE BEEN DERIVED FROM INFORMATION JUNE 30, 2007 -----------------------------------------------------
PROVIDED IN THE FINANCIAL STATEMENTS. (UNAUDITED) 2006 2005 2004 2003 2002
- --------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period...... $ 16.80 $ 14.86 $ 13.67 $ 11.41 $ 8.26 $ 9.69
-------- -------- -------- -------- -------- --------
Investment income--net***................. .28 .42 .35 .20 .19 .13
Realized and unrealized gain
(loss)--net............................. 1.53 3.73 1.24 2.37 3.29 (1.21)
-------- -------- -------- -------- -------- --------
Total from investment operations.......... 1.81 4.15 1.59 2.57 3.48 (1.08)
-------- -------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net.................. -- (.60) (.40) (.31) (.33) (.35)
Realized gain--net...................... -- (1.61) -- -- -- --
-------- -------- -------- -------- -------- --------
Total dividends and distributions......... -- (2.21) (.40) (.31) (.33) (.35)
-------- -------- -------- -------- -------- --------
Net asset value, end of period............ $ 18.61 $ 16.80 $ 14.86 $ 13.67 $ 11.41 $ 8.26
======== ======== ======== ======== ======== ========
- --------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:**
Based on net asset value per share........ 10.77%@ 27.91%+ 11.68%++ 22.54% 42.24%+++ (11.54%)
======== ======== ======== ======== ======== ========
- --------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses, net of waiver and excluding
reorganization expenses................. .86%* .87% .70% .86% .87% .91%
======== ======== ======== ======== ======== ========
Expenses, net of waiver................... .86%* .87% .70% .86% .89% .91%
======== ======== ======== ======== ======== ========
Expenses.................................. .86%* .87% .88% .86% .89% .91%
======== ======== ======== ======== ======== ========
Investment income--net.................... 3.27%* 2.49% 2.30% 1.69% 2.08% 1.38%
======== ======== ======== ======== ======== ========
- --------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands).............................. $412,563 $405,486 $356,277 $373,950 $319,892 $240,002
======== ======== ======== ======== ======== ========
Portfolio turnover........................ 37% 62% 78% 62% 54% 55%
======== ======== ======== ======== ======== ========
- --------------------------------------------------------------------------------------------------------------------
</Table>
* Annualized.
** Total investment returns exclude insurance-related fees and expenses.
*** Based on average shares outstanding.
+ In 2006, approximately .13% of the Fund's total investment return consisted
of a payment by Merrill Lynch Investment Managers, L.P. in order to resolve
a regulatory issue relating to an investment.
++ In 2005, Merrill Lynch Investment Managers, L.P. fully reimbursed the Fund
for a loss on a security transaction related to a revised capital share
transaction, which had a minimal impact on total investment return.
+++ In 2003, .12% of the Fund's total return consisted of voluntary
reimbursements by Merrill Lynch Investment Managers, L.P. for the realized
losses on foreign currency transactions.
@ Aggregate total investment return.
See Notes to Financial Statements.
15
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock International Value V.I. Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS II
---------------------------------------------------------------
FOR THE
FOR THE SIX YEAR ENDED
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE MONTHS ENDED DECEMBER 31, FOR THE PERIOD
BEEN DERIVED FROM INFORMATION PROVIDED IN THE JUNE 30, 2007 ------------------ SEPTEMBER 30, 2004+++
FINANCIAL STATEMENTS. (UNAUDITED) 2006 2005 TO DECEMBER 31, 2004
- ------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............. $ 16.82 $ 14.88 $ 13.68 $ 11.98
------- ------- ------- -------
Investment income--net***........................ .27 .41 .33 .02
Realized and unrealized gain--net................ 1.53 3.74 1.27 1.99
------- ------- ------- -------
Total from investment operations................. 1.80 4.15 1.60 2.01
------- ------- ------- -------
Less dividends and distributions:
Investment income--net......................... -- (.60) (.40) --
In excess of investment income--net............ -- -- -- (.31)
Realized gain--net............................. -- (1.61) -- --
------- ------- ------- -------
Total dividends and distributions................ -- (2.21) (.40) (.31)
------- ------- ------- -------
Net asset value, end of period................... $ 18.62 $ 16.82 $ 14.88 $ 13.68
======= ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:**
Based on net asset value per share............... 10.70%@ 27.87%+ 11.75%++ 16.79%@
======= ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses, net of waiver.......................... 1.01%* .90% .70% .86%*
======= ======= ======= =======
Expenses......................................... 1.01%* .90% .88% .86%*
======= ======= ======= =======
Investment income--net........................... 3.15%* 2.44% 2.33% .55%*
======= ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)......... $ 2 $ 2 $ 1 $ 1
======= ======= ======= =======
Portfolio turnover............................... 37% 62% 78% 62%
======= ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------
</Table>
* Annualized.
** Total investment returns exclude insurance-related fees and expenses.
*** Based on average shares outstanding.
+ In 2006, approximately .13% of the Fund's total investment return consisted
of a payment by Merrill Lynch Investment Managers, L.P. in order to resolve
a regulatory issue relating to an investment.
++ In 2005, Merrill Lynch Investment Managers, L.P. fully reimbursed the Fund
for a loss on a security transaction related to a revised capital share
transaction, which had a minimal impact on total investment return.
+++ Commencement of operations.
@ Aggregate total investment return.
See Notes to Financial Statements.
16
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock International Value V.I. Fund
Financial Highlights (concluded)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS III
---------------------------------------------------------------
FOR THE
FOR THE SIX YEAR ENDED
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE MONTHS ENDED DECEMBER 31, FOR THE PERIOD
BEEN DERIVED FROM INFORMATION PROVIDED IN THE JUNE 30, 2007 ------------------ SEPTEMBER 30, 2004+++
FINANCIAL STATEMENTS. (UNAUDITED) 2006 2005 TO DECEMBER 31, 2004
- ------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............. $ 16.82 $ 14.88 $ 13.68 $ 11.98
------- ------- ------- -------
Investment income--net***........................ .27 .41 .33 .02
Realized and unrealized gain--net................ 1.52 3.74 1.27 1.99
------- ------- ------- -------
Total from investment operations................. 1.79 4.15 1.60 2.01
------- ------- ------- -------
Less dividends and distributions:
Investment income--net......................... -- (.60) (.40) --
In excess of investment income--net............ -- -- -- (.31)
Realized gain--net............................. -- (1.61) -- --
------- ------- ------- -------
Total dividends and distributions................ -- (2.21) (.40) (.31)
------- ------- ------- -------
Net asset value, end of period................... $ 18.61 $ 16.82 $ 14.88 $ 13.68
======= ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:**
Based on net asset value per share............... 10.64%@ 27.87%+ 11.75%++ 16.79%@
======= ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses, net of waiver.......................... 1.11%* .92% .70% .86%*
======= ======= ======= =======
Expenses......................................... 1.11%* .92% .88% .86%*
======= ======= ======= =======
Investment income--net........................... 3.05%* 2.43% 2.33% .55%*
======= ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)......... $ 2 $ 2 $ 1 $ 1
======= ======= ======= =======
Portfolio turnover............................... 37% 62% 78% 62%
======= ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------
</Table>
* Annualized.
** Total investment returns exclude insurance-related fees and expenses.
*** Based on average shares outstanding.
+ In 2006, approximately .13% of the Fund's total investment return consisted
of a payment by Merrill Lynch Investment Managers, L.P. in order to resolve
a regulatory issue relating to an investment.
++ In 2005, Merrill Lynch Investment Managers, L.P. fully reimbursed the Fund
for a loss on a security transaction related to a revised capital share
transaction, which had a minimal impact on total investment return.
+++ Commencement of operations.
@ Aggregate total investment return.
See Notes to Financial Statements.
17
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock International Value V.I. Fund
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES:
BlackRock Variable Series Funds, Inc. (the "Company") is an open-end management
investment company that is comprised of 16 separate funds. Each fund offers
three 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. ("Merrill Lynch")), and other insurance companies that are not
affiliated with Merrill Lynch, for their separate accounts to fund benefits
under certain variable annuity and variable life insurance contracts. BlackRock
International Value V.I. Fund (the "Fund") is classified as "diversified," as
defined in the Investment Company Act of 1940, as amended. Class I, Class II and
Class III 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. In addition, Class II and Class III Shares
bear certain expenses related to the distribution of such shares. The Fund's
financial statements are prepared in conformity with U.S. generally accepted
accounting principles, which may require the use of management accruals and
estimates. Actual results may differ from these estimates. These unaudited
financial statements reflect all adjustments, which are, in the opinion of
management, necessary to present a fair statement of the results for the interim
period. All such adjustments are of a normal, recurring nature. Income, expenses
(other than expenses attributable to a specific class) and realized and
unrealized gains and losses are allocated daily to each class based on its
relative net assets. The following is a summary of significant accounting
policies followed by the Fund.
(a) Valuation of investments--Equity securities held by the Fund that are
traded on stock exchanges or the NASDAQ Global Market are valued at the last
sale price or official close price on the exchange, as of the close of business
on the day the securities are being valued or, lacking any sales, at the last
available bid price for long positions, and at the last available asked price
for short positions. In cases where equity securities are traded on more than
one exchange, the securities are valued on the exchange designated as the
primary market by or under the authority of the Board of Directors of the
Company. Long positions traded in the over-the-counter ("OTC") market, NASDAQ
Capital Market or Bulletin Board are valued at the last available bid price or
yield equivalent obtained from one or more dealers or pricing services approved
by the Board of Directors of the Company. Short positions traded in the OTC
market are valued at the last available asked price. Portfolio securities that
are traded both in the OTC market and on a stock exchange are valued according
to the broadest and most representative market.
Options written or purchased are valued at the last sale price in the case of
exchange-traded options. Options traded in the OTC market are valued at the last
asked price (options written) or the last bid price (options purchased). Swap
agreements are valued based upon quoted fair valuations received daily by the
Fund from a pricing service or counterparty. Financial futures contracts and
options thereon, which are traded on exchanges, are valued at their last sale
price as of the close of such exchanges. Valuation of short-term investment
vehicles is generally based on the net asset value of the underlying investment
vehicle or amortized cost.
Repurchase agreements are valued at cost plus accrued interest. The Fund
employs pricing services to provide certain securities prices for the Fund.
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, including valuations furnished by the
pricing services retained by the Fund, which may use a matrix system for
valuations. The procedures of a pricing service and its valuations are reviewed
by the officers of the Fund under the general supervision of the Company's Board
of Directors. Such valuations and procedures will be reviewed periodically by
the Board of Directors of the Company.
Generally, trading in foreign securities, as well as U.S. government
securities, money market instruments and certain fixed income securities, is
substantially completed each day at various times prior to the close of business
on the New York Stock Exchange ("NYSE"). The values of such securities used in
computing the net asset value of the Fund's shares are determined as of such
times. Foreign currency exchange rates will generally be determined as of the
close of business on the NYSE. Occasionally, events affecting the values of such
securities and such exchange rates may occur between the times at which they are
determined and the close of business on the NYSE that may not be reflected in
the computation of the Fund's net asset
18
- --------------------------------------------------------------------------------
value. If events (for example, a company announcement, market volatility or a
natural disaster) occur during such periods that are expected to materially
affect the value of such securities, those securities will be valued at their
fair value as determined in good faith by the Company's Board of Directors or by
BlackRock Advisors, LLC (the "Manager"), an indirect, wholly owned subsidiary of
BlackRock, Inc., using a pricing service and/or procedures approved by the
Company's Board of Directors.
(b) Derivative financial instruments--The Fund may engage in various portfolio
investment strategies both to increase the return of the Fund and to hedge, or
protect, its exposure to interest rate movements and movements in the securities
markets. Losses may arise due to changes in the value of the contract due to an
unfavorable change in the price of the underlying security or index, or if the
counterparty does not perform under the contract. The counterparty for certain
instruments may pledge cash or securities as collateral.
- - Forward foreign exchange contracts--The Fund may enter into forward foreign
exchange contracts as a hedge against either specific transactions or portfolio
positions. The contract is marked-to-market daily and the change in market value
is recorded by the Fund as an unrealized gain or loss. When the contract is
closed, the Fund records a realized gain or loss equal to the difference between
the value at the time it was opened and the value at the time it was closed.
- - Options--The Fund may purchase and write call and put options. When the Fund
writes an option, an amount equal to the premium received by the Fund is
reflected as an asset and an equivalent liability. The amount of the liability
is subsequently marked-to-market to reflect the current market value of the
option written. When a security is purchased or sold through an exercise of an
option, the related premium paid (or received) is added to (or deducted from)
the basis of the security acquired or deducted from (or added to) the proceeds
of the security sold. When an option expires (or the Fund enters into a closing
transaction), the Fund realizes a gain or loss on the option to the extent of
the premiums received or paid (or loss or gain 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 financial futures contracts. Financial 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 OTC foreign currency options, foreign currency futures and related
options on foreign currency futures as a short or long hedge against possible
variations in foreign exchange rates. Such transactions may be effected with
respect to hedges on non-U.S. dollar-denominated securities owned by the Fund,
sold by the Fund but not yet delivered, or committed or anticipated to be
purchased by the Fund.
(c) Foreign currency transactions--Transactions denominated in foreign
currencies are recorded at the exchange rate prevailing when recognized. Assets
and liabilities denominated in foreign currencies are valued at the exchange
rate at the end of the period. Foreign currency transactions are the result of
settling (realized) or valuing (unrealized) assets or liabilities expressed in
foreign currencies into U.S. dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates on investments.
The Fund invests in foreign securities, which may involve a number of risk
factors and special considerations not present with investments in securities of
U.S. corporations.
(d) Income taxes--It is the Fund's policy to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no federal income tax provision is required. Under the applicable
foreign tax law, withholding taxes may be imposed on interest, dividends and
capital gains at various rates.
(e) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Realized gains and losses on security transactions are determined on the
identified cost basis. Dividend income is recorded on the ex-dividend dates.
Dividends
19
- --------------------------------------------------------------------------------
from foreign securities where the ex-dividend date may have passed are
subsequently recorded when the Fund has determined the ex-dividend date.
Interest income is recognized on the accrual basis.
(f) Dividends and distributions--Dividends and distributions paid by the Fund
are recorded on the ex-dividend dates.
(g) Expenses--Certain expenses have been allocated to the individual funds in
the Company on a pro rata basis based upon the respective aggregate net asset
value of each fund included in the Company.
(h) Securities lending--The Fund may lend securities to financial institutions
that provide cash or securities issued or guaranteed by the U.S. government as
collateral, which will be maintained at all times in an amount equal to at least
100% of the current market value of the loaned securities. The market value of
the loaned securities is determined at the close of business of the Fund and any
additional required collateral is delivered to the Fund on the next business
day. Where the Fund receives securities as collateral for the loaned securities,
it collects a fee from the borrower. The Fund typically receives the income on
the loaned securities, but does not receive the income on the collateral. Where
the Fund receives cash collateral, it may invest such collateral and retain the
amount earned on such investment, net of any amount rebated to the borrower.
Loans of securities are terminable at any time and the borrower, after notice,
is required to return borrowed securities within five business days. The Fund
may pay reasonable finder's, lending agent, administrative and custodial fees in
connection with its loans. In the event that the borrower defaults on its
obligation to return borrowed securities because of insolvency or for any other
reason, the Fund could experience delays and costs in gaining access to the
collateral. The Fund also could suffer a loss where the value of the collateral
falls below the market value of the borrowed securities, in the event of
borrower default or in the event of losses on investments made with cash
collateral.
(i) Recent accounting pronouncements--Effective June 29, 2007, the Fund
implemented Financial Accounting Standards Board ("FASB") Interpretation No. 48,
"Accounting for Uncertainty in Income Taxes -- an interpretation of FASB
Statement No. 109" ("FIN 48"). FIN 48 prescribes the minimum recognition
threshold a tax position must meet in connection with accounting for
uncertainties in income tax positions taken or expected to be taken by an
entity, including investment companies, before being measured and recognized in
the financial statements. Management has evaluated the application of FIN 48 to
the Fund, and has determined that the adoption of FIN 48 does not have a
material impact on the Fund's financial statements. The Fund files U.S. and
various state tax returns. No income tax returns are currently under
examination. The statute of limitations on the Fund's tax returns remains open
for the years ended December 31, 2003 through December 31, 2006.
In September 2006, Statement of Financial Accounting Standards No. 157, "Fair
Value Measurements" ("FAS 157"), was issued and is effective for fiscal years
beginning after November 15, 2007. FAS 157 defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. At this time, management is evaluating the implications of FAS 157
and its impact on the Fund's financial statements, if any, has not been
determined.
In addition, in February 2007, Statement of Financial Accounting Standards No.
159, "The Fair Value Option for Financial Assets and Financial Liabilities"
("FAS 159"), was issued and is effective for fiscal years beginning after
November 15, 2007. Early adoption is permitted as of the beginning of a fiscal
year that begins on or before November 15, 2007, provided the entity also elects
to apply the provisions of FAS 157. FAS 159 permits entities to choose to
measure many financial instruments and certain other items at fair value that
are not currently required to be measured at fair value. FAS 159 also
establishes presentation and disclosure requirements designed to facilitate
comparisons between entities that choose different measurement attributes for
similar types of assets and liabilities. At this time, management is evaluating
the implications of FAS 159 and its impact on the Fund's financial statements,
if any, has not been determined.
2. INVESTMENT ADVISORY AGREEMENT AND TRANSACTIONS WITH AFFILIATES:
The Fund has entered into an Investment Advisory Agreement with the Manager.
The Fund has also entered into separate Distribution Agreements and Distribution
Plans with FAM Distributors, Inc. ("FAMD") and BlackRock Distributors, Inc., and
its affiliates ("BDI"), (collectively, the "Distributor"). FAMD is a wholly
owned subsidiary of Merrill Lynch Group, Inc., and BDI is an affiliate of
BlackRock, Inc. Merrill Lynch and The PNC Financial Services Group, Inc. ("PNC")
are the principal owners of BlackRock, Inc.
20
- --------------------------------------------------------------------------------
The Manager 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 Fund. 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. In addition, the Manager has entered into a sub-advisory
agreement with BlackRock Investment Management International Limited, an
affiliate of the Manager, under which the Manager pays the Sub-Adviser for
services it provides a monthly fee at an annual rate that is a percentage of the
management fee paid by the Fund to the Manager.
Pursuant to the Distribution Plans adopted by the Company, in accordance with
Rule 12b-1 under the Investment Company Act of 1940, the Fund pays the
Distributor an ongoing distribution fees each month at the annual rate of .15%
and .25% of the average daily value of the Fund's Class II and Class III net
assets, respectively.
The Company has received an exemptive order from the Securities and Exchange
Commission permitting it to lend portfolio securities to Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S"), a wholly owned subsidiary of Merrill
Lynch, or its affiliates. Pursuant to that order, the Company also has retained
BlackRock Investment Management, LLC ("BIM"), an affiliate of the Manager, as
the securities lending agent for a fee based on a share of the returns on
investment of cash collateral. BIM may, on behalf of the Company and the Fund,
invest cash collateral received by the Fund for such loans, among other things,
in a private investment company managed by the Manager or in registered money
market funds advised by the Manager or its affiliates. For the six months ended
June 30, 2007, BIM received $51,488 in securities lending agent fees from the
Fund.
For the six months ended June 30, 2007, the Fund reimbursed the Manager $3,356
for certain accounting services.
PFPC Inc., an indirect, wholly owned subsidiary of PNC and an affiliate of the
Manager, is the Fund's transfer agent.
Certain officers and/or directors of the Company are officers and/or directors
of BlackRock, Inc. or its affiliates.
3. INVESTMENTS:
Purchases and sales of investments, excluding short-term securities, for the six
months ended June 30, 2007 were $149,875,652 and $185,026,593, respectively.
4. CAPITAL SHARE TRANSACTIONS:
Net increase (decrease) in net assets derived from capital share transactions
was $(34,641,734) and $2,445,198 for the six months ended June 30, 2007 and the
year ended December 31, 2006, respectively.
Transactions in capital shares for each class were as follows:
<Table>
<Caption>
- --------------------------------------------------------------------
Class I Shares for the Six Months Ended
June 30, 2007 Shares Dollar Amount
- --------------------------------------------------------------------
Shares sold........................... 106,967 $ 1,834,923
Shares redeemed....................... (2,081,197) (36,476,657)
---------- ------------
Net decrease.......................... (1,974,230) $(34,641,734)
========== ============
- --------------------------------------------------------------------
</Table>
<Table>
<Caption>
- ------------------------------------------------------------------
Class I Shares for the Year Ended
December 31, 2006 Shares Dollar Amount
- ------------------------------------------------------------------
Shares sold.......................... 1,550,115 $ 26,152,368
Shares issued to shareholders in
reinvestment of dividends........... 2,804,156 47,129,134
---------- ------------
Total issued......................... 4,354,271 73,281,502
Shares redeemed...................... (4,199,144) (70,836,690)
---------- ------------
Net increase......................... 155,127 $ 2,444,812
========== ============
- ------------------------------------------------------------------
</Table>
<Table>
<Caption>
- -------------------------------------------------------------------
Class II Shares for the Six Months Ended Dollar
June 30, 2007 Shares Amount
- -------------------------------------------------------------------
Shares issued to shareholders in reinvestment of
dividends........................................ -- --
-- ----
Net increase...................................... -- --
== ====
- -------------------------------------------------------------------
</Table>
<Table>
<Caption>
- -------------------------------------------------------------------
Class II Shares for the Year Ended Dollar
December 31, 2006 Shares Amount
- -------------------------------------------------------------------
Shares issued to shareholders in reinvestment of
dividends........................................ 11 $193
-- ----
Net increase...................................... 11 $193
== ====
- -------------------------------------------------------------------
</Table>
<Table>
<Caption>
- -------------------------------------------------------------------
Class III Shares for the Six Months Ended Dollar
June 30, 2007 Shares Amount
- -------------------------------------------------------------------
Shares issued to shareholders in reinvestment of
dividends........................................ -- --
-- ----
Net increase...................................... -- --
== ====
- -------------------------------------------------------------------
</Table>
<Table>
<Caption>
- -------------------------------------------------------------------
Class III Shares for the Year Ended Dollar
December 31, 2006 Shares Amount
- -------------------------------------------------------------------
Shares issued to shareholders in reinvestment of
dividends........................................ 11 $193
-- ----
Net increase...................................... 11 $193
== ====
- -------------------------------------------------------------------
</Table>
5. SHORT-TERM BORROWINGS:
The Company, on behalf of the Fund, along with certain other funds managed by
the Manager and its affiliates, is party to a $500,000,000 credit agreement with
a group of lenders, which expires November 2007. 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
21
- --------------------------------------------------------------------------------
pays a commitment fee of .06% per annum based on the Fund's pro rata share of
the unused portion of the credit agreement. Amounts borrowed under the credit
agreement bear interest at a rate equal to, at each Fund's election, the federal
funds rate plus .35% or a base rate as defined in the credit agreement. The Fund
did not borrow under the credit agreement during the six months ended June 30,
2007.
6. COMMITMENTS:
At June 30, 2007, the Fund had entered into foreign exchange contracts, under
which it had agreed to purchase and sell various foreign currencies with
approximate values of 4,936,000 and 7,058,000, respectively.
22
- --------------------------------------------------------------------------------
BLACKROCK LARGE CAP CORE V.I. FUND
-------------------------------------------------------------------------
Semi-Annual Report (Unaudited)
June 30, 2007
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Large Cap Core V.I. Fund
A Discussion With Your Fund's Portfolio Manager
- --------------------------------------------------------------------------------
We made strides in creating a two-pronged portfolio focused on both cyclical
stocks with a global emphasis and higher-quality companies with predictable
earnings.
HOW DID THE FUND PERFORM DURING THE PERIOD IN LIGHT OF THE EXISTING MARKET
CONDITIONS?
For the six-month period ended June 30, 2007, BlackRock Large Cap Core V.I.
Fund's Class I and Class II Shares had total returns of +6.50% and +6.40%,
respectively, trailing the +7.18% return of the benchmark Russell 1000 Index.
For the same period, the Lipper Multi-Cap Core Funds (Variable Products)
category posted an average return of +8.24%. (Funds in this Lipper category
invest in a variety of market capitalization ranges without concentrating 75% of
their equity assets in any one market capitalization range over an extended
period of time. Multi-Cap Core funds typically have an average price-to-earnings
ratio, price-to-book ratio and three-year sales-per-share growth value compared
to the S&P SuperComposite 1500 Index.)
The Fund invests primarily in a diversified portfolio of large cap companies
selected from securities found in the Russell 1000 Index. As such, the Fund was
influenced by the same economic and market events that affected the broader
stock market during the past six months.
Economic conditions changed over the course of the period, ending on a more
positive note. Markets began 2007 in a rally that was halted in late February,
sending the Dow Jones Industrial Average--the index of 30 U.S. stocks listed on
the New York Stock Exchange--more than 416 points lower. This represented the
largest one-week decline in U.S. equity markets since September 2001. The
sell-off came on the heels of a substantial market correction in Asia,
particularly in China.
The markets rebounded shortly after, but remained volatile amid an increase in
subprime mortgage delinquencies and the high-profile bankruptcy of a leading
subprime mortgage company. However, there was ongoing investor debate as to
whether the subprime meltdown would spread through other parts of the economy.
First-quarter 2007 gross domestic product came in at 0.7%, the slowest rate of
growth in almost five years. Meanwhile, first-quarter corporate earnings growth
in the United States fell below the 10% mark for the first time in several
years, but continued to exhibit resilience. In the second quarter of 2007, U.S.
stock indexes rebounded, posting impressive gains and setting records along the
way as corporate earnings outperformed investor expectations. The advance slowed
toward the end of the period, but equities finished firmly in positive
territory.
Ample inventories from non-OPEC countries and unseasonably warm weather helped
stabilize crude oil prices during the winter, but the onset of the summer
driving season pushed prices above $71 per barrel. The Federal Reserve Board
(the Fed) kept monetary policy at a pause, leaving its target interest rate
steady at 5.25%. The slowdown in the U.S. housing market remained a concern for
investors, although consumer spending continued to fuel the economy.
WHAT FACTORS MOST INFLUENCED FUND PERFORMANCE?
The Fund's underperformance of the benchmark is attributed to a few factors.
Positive results from overweighting the information technology sector were
offset by poor stock selection as semiconductor company NVIDIA Corp. and server
computing vendor Sun Microsystems Inc. did not perform as anticipated. Stock
selection and overweighting the consumer discretionary sector also had a
negative impact on performance. Concerns about consumer spending caused
retailers to weaken during the period. Specialty retailers such as American
Eagle Outfitters, Inc. and Harley-Davidson, Inc. detracted from Fund
performance, as did cable television provider DIRECTV Group, Inc. Underweighting
the industrials and telecommunication services sectors also hindered results.
Individual stocks that detracted from performance during the six-month period
included education loan company The First Marblehead Corp., brokerage house The
Bear Stearns Cos. Inc., cosmetics company Estee Lauder Cos. Inc. and airlines
AMR Corp. and Continental Airlines, inc.
Contributing to the portfolio's results for the period was successful stock
selection and an overweight position in the energy sector, led by shares of oil
refiners Tesoro Corp., Frontier Oil Corp., Marathon Oil Corp. and Valero Energy
Corp., as well as oil-rig service provider Tidewater Inc.. Within the health
care sector, stock selection contributed positively to performance, as our
holdings within the provider & services industry, along with pharmaceutical
giant Schering-Plough Corp., posted strong gains. Stock
2
- --------------------------------------------------------------------------------
selection and overweighting the metals and mining industry within the materials
sector further enhanced performance, with United States Steel Corp. and Southern
Copper Corp. performing particularly well. The Fund was significantly
underweight in the financials sector, particularly commercial banks, which
lagged during the latter half of the period. Performance was helped by good
stock selection among capital markets players. We believe that the global
mergers-and-acquisitions (M&A) boom will continue, and that those companies with
a global presence will do well. The Fund also benefited from underweighting real
estate investment trusts and the thrifts & mortgages industry. Within other
sectors, heavy-machinery manufacturer Terex Corp. and software company McAfee
Inc. were significant contributors to performance.
WHAT CHANGES WERE MADE TO THE PORTFOLIO DURING THE PERIOD?
Overall, we continued our efforts to identify companies with favorable growth
characteristics and earnings developments, selling at attractive relative
valuations. As a result of our bottom-up stock-selection process, we increased
the Fund's positions in the consumer discretionary, health care and industrials
sectors and reduced exposure to the energy and consumer staples sectors. These
changes are in line with our efforts to create a two-pronged portfolio: one
prong invested in cyclical stocks with a global emphasis, and the other in
higher-quality companies with predictable earnings. We believe this is a prudent
approach for navigating the current investment climate.
The largest purchases during the period, based on capital expended, included
American International Group, Inc., United Health Group, Inc., Dell, Inc., Eli
Lilly & Co. and Schering-Plough. The largest sales, based on capital raised,
included Citigroup Inc., Johnson & Johnson, General Motors Corp., Avaya Inc. and
Occidental Petroleum Corp. These transactions reflect our ongoing refinement of
the portfolio, as we continue to look for stocks that best meet our investment
criteria while pruning those that have deteriorated versus our original
assessment.
HOW WOULD YOU CHARACTERIZE THE FUND'S POSITION AT THE CLOSE OF THE PERIOD?
Relative to its benchmark, the Fund's largest overweights at period-end were
in information technology, health care, consumer discretionary, energy and
materials, and the largest underweights were in financials, utilities,
telecommunication services and industrials.
Based on the equity market run-up seen since the February correction, there
has been some concern that equities may be overbought, potentially setting the
stage for some near-term consolidation. We acknowledge that the markets do face
headwinds in the form of slowing economic growth, worsening corporate earnings
growth and a Fed that is not presently accommodative. In our opinion, however,
the backdrop for an equity bear market simply does not exist. Monetary policy is
by no means overly tight, inflation (while higher than the Fed would like) is
still low and seems to be easing, and earnings growth is slowing, not
collapsing. From our perspective, the tailwinds of good valuations, strong
global economic growth, ongoing corporate M&A activity and the relative
attractiveness of stocks compared to other investments (chiefly bonds) should
help the bull market to continue.
In summary, we believe that a soft landing is achievable in the United States.
While the equity market may struggle if credit problems worsen, we do not
believe a bear market is a likely outcome. Over the years, our investment
process--which combines the art of fundamental research with the science of
quantitative analysis, subject to specific risk-management parameters--has
delivered strong, consistent long-term results for shareholders. Given our
outlook for the remainder of the year, we are confident that our disciplined
investment process and two-pronged portfolio positioning will serve shareholders
well in the second half of 2007.
Robert C. Doll, Jr.
Portfolio Manager
July 13, 2007
3
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Large Cap Core V.I. Fund
Total Return Based on a $10,000 Investment
- --------------------------------------------------------------------------------
[LINE GRAPH]
<Table>
<Caption>
BLACKROCK LARGE CAP CORE V.I.
FUND+-CLASS I SHARES* RUSSELL 1000 INDEX++
----------------------------- --------------------
6/97 10000 10000
6/98 12240 13015
6/99 13943 15869
6/00 16767 17336
6/01 13968 14744
6/02 13015 12107
6/03 12670 12222
6/04 15624 14604
6/05 17938 15761
6/06 20171 17192
6/07 23839 20704
</Table>
[LINE GRAPH]
<Table>
<Caption>
BLACKROCK LARGE CAP BLACKROCK LARGE CAP
CORE V.I. FUND+-CLASS II CORE V.I. FUND+-CLASS III
SHARES* SHARES* RUSSELL 1000 INDEX++
------------------------ ------------------------- --------------------
9/30/04** 10000 10000 10000
6/05 11829 11833 10992
6/06 13281 13324 11990
6/07 15674 15727 14439
</Table>
* Assuming transaction costs, if any, and other operating expenses, including
advisory fees. Does not include insurance-related fees and expenses.
Effective September 2, 2003, Class A Shares were redesignated Class I Shares.
** Commencement of operations.
+ The Fund, under normal circumstances, invests at least 80% of its net assets
in a diversified portfolio of equity securities, primarily common stocks, of
large cap companies included at the time of purchase in the Russell 1000
Index.
++ This unmanaged Index measures the performance of the 1,000 largest companies
in the Russell 3000 Index, which represents approximately 92% of the total
market capitalization of the Russell 3000 Index.
4
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Large Cap Core V.I. Fund
Average Annual Total Return--Class I Shares*
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERIOD COVERED RETURN
- --------------------------------------------------------------------------
One Year Ended 6/30/07 +18.19%
- --------------------------------------------------------------------------
Five Years Ended 6/30/07 +12.87
- --------------------------------------------------------------------------
Ten Years Ended 6/30/07 + 9.08
- --------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Large Cap Core V.I. Fund
Average Annual Total Return--Class II Shares*
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERIOD COVERED RETURN
- --------------------------------------------------------------------------
One Year Ended 6/30/07 +18.02%
- --------------------------------------------------------------------------
Inception (9/30/04) through 6/30/07 +17.77
- --------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Large Cap Core V.I. Fund
Average Annual Total Return--Class III Shares*
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERIOD COVERED RETURN
- --------------------------------------------------------------------------
One Year Ended 6/30/07 +18.04%
- --------------------------------------------------------------------------
Inception (9/30/04) through 6/30/07 +17.91
- --------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Large Cap Core V.I. Fund
Recent Performance Results
- --------------------------------------------------------------------------------
<Table>
<Caption>
6-MONTH 12-MONTH
AS OF JUNE 30, 2007 TOTAL RETURN TOTAL RETURN
- -----------------------------------------------------------------------------------------
Class I Shares* +6.50% +18.19%
- -----------------------------------------------------------------------------------------
Class II Shares* +6.40 +18.02
- -----------------------------------------------------------------------------------------
Class III Shares* +6.42 +18.04
- -----------------------------------------------------------------------------------------
Russell 1000(R) Index** +7.18 +20.43
- -----------------------------------------------------------------------------------------
</Table>
* Average annual and cumulative 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. For a portion of the period, returns do not show the effects
of distribution fees (12b-1 fees) applicable to Class III Shares. If such
fees were included, returns shown would have been lower.
** This unmanaged Index measures the performance of the 1,000 largest companies
in the Russell 3000 Index, which represents approximately 92% of the total
market capitalization of the Russell 3000 Index.
Past results shown should not be considered a representation of future
performance.
Russell 1000 is a registered trademark of the Frank Russell Company.
5
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Large Cap Core V.I. Fund
Disclosure of Expenses
- --------------------------------------------------------------------------------
Shareholders of this Fund may incur the following charges: (a) expenses related
to transactions, including sales charges, redemption fees and exchange fees; and
(b) operating expenses including advisory fees, distribution fees including
12b-1 fees, and other Fund expenses. The following example (which is based on a
hypothetical investment of $1,000 invested on January 1, 2007 and held through
June 30, 2007) is intended to assist shareholders both in calculating expenses
based on an investment in the Fund and in comparing these expenses with similar
costs of investing in other mutual funds.
The first table below provides information about actual account values and
actual expenses. In order to estimate the expenses a shareholder paid during the
period covered by this report, shareholders can divide their account value by
$1,000 and then multiply the result by the number in the first line under the
heading entitled "Expenses Paid During the Period."
The second table below provides information about hypothetical account values
and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses. In order to assist
shareholders in comparing the ongoing expenses of investing in this Fund and
other funds, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in other funds' shareholder reports.
The expenses shown in the table are intended to highlight shareholders'
ongoing costs only and do not reflect any transactional expenses, such as sales
charges, redemption fees or exchange fees. Therefore, the second table is useful
in comparing ongoing expenses only, and will not help shareholders determine the
relative total expenses of owning different funds. If these transactional
expenses were included, shareholder expenses would have been higher.
<Table>
<Caption>
EXPENSES PAID
BEGINNING ENDING DURING THE PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JANUARY 1, 2007 TO
JANUARY 1, 2007 JUNE 30, 2007 JUNE 30, 2007
- ------------------------------------------------------------------------------------------------------------------
ACTUAL
- ------------------------------------------------------------------------------------------------------------------
Class I $1,000 $1,065.00 $2.73
- ------------------------------------------------------------------------------------------------------------------
Class II $1,000 $1,064.00 $3.50
- ------------------------------------------------------------------------------------------------------------------
Class III $1,000 $1,064.20 $3.86
- ------------------------------------------------------------------------------------------------------------------
HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES)**
- ------------------------------------------------------------------------------------------------------------------
Class I $1,000 $1,022.26 $2.67
- ------------------------------------------------------------------------------------------------------------------
Class II $1,000 $1,021.51 $3.43
- ------------------------------------------------------------------------------------------------------------------
Class III $1,000 $1,021.16 $3.78
- ------------------------------------------------------------------------------------------------------------------
</Table>
* For each class of the Fund, expenses are equal to the annualized expense
ratio for the class (.53% for Class I, .68% for Class II and .75% for Class
III), multiplied by the average account value over the period, multiplied by
182/365 (to reflect the one-half year period shown).
** Hypothetical 5% annual return before expenses is calculated by pro-rating
the number of days in the most recent fiscal half year divided by 365.
6
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Large Cap Core V.I. Fund
Portfolio Information as of June 30, 2007
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENT OF
LONG-TERM
SECTOR REPRESENTATION INVESTMENTS
- -------------------------------------------------------------------------
Information Technology...................................... 24.0%
Health Care................................................. 17.8
Financials.................................................. 14.4
Consumer Discretionary...................................... 14.1
Energy...................................................... 13.0
Industrials................................................. 8.9
Materials................................................... 5.2
Consumer Staples............................................ 2.0
Telecommunication Services.................................. 0.6
- -------------------------------------------------------------------------
</Table>
For Fund compliance purposes, the Fund's industry classifications refer to any
one or more of the industry sub-classifications used by one or more widely
recognized market indexes or ratings group indexes, and/or as defined by Fund
management. This definition may not apply for purposes of this report, which may
combine industry sub-classifications for reporting ease.
7
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Large Cap Core V.I. Fund
Schedule of Investments as of June 30, 2007 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES
INDUSTRY HELD COMMON STOCKS VALUE
- --------------------------------------------------------------------------------------------------------------------
AEROSPACE & DEFENSE--2.6% 124,000 Honeywell International, Inc. .............. $ 6,978,720
69,000 Lockheed Martin Corp. ...................... 6,494,970
------------
13,473,690
- --------------------------------------------------------------------------------------------------------------------
AIRLINES--2.1% 214,000 AMR Corp.(a)................................ 5,638,900
153,000 Continental Airlines, Inc. Class B(a)(d).... 5,182,110
------------
10,821,010
- --------------------------------------------------------------------------------------------------------------------
AUTOMOBILES--1.0% 86,000 Harley-Davidson, Inc.(d).................... 5,126,460
- --------------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS--5.4% 39,000 The Bear Stearns Cos., Inc. ................ 5,460,000
38,000 The Goldman Sachs Group, Inc. .............. 8,236,500
88,000 Lehman Brothers Holdings, Inc. ............. 6,557,760
99,000 Morgan Stanley.............................. 8,304,120
------------
28,558,380
- --------------------------------------------------------------------------------------------------------------------
CHEMICALS--1.3% 134,000 E.I. du Pont de Nemours & Co.(d)............ 6,812,560
- --------------------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES--0.7% 89,000 RR Donnelley & Sons Co.(d).................. 3,872,390
- --------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT--2.3% 31,000 ADC Telecommunications, Inc.(a)............. 568,230
407,000 Cisco Systems, Inc.(a)...................... 11,334,950
------------
11,903,180
- --------------------------------------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS--8.0% 278,000 Dell, Inc.(a)............................... 7,936,900
369,000 EMC Corp.(a)................................ 6,678,900
210,000 Hewlett-Packard Co. ........................ 9,370,200
102,000 International Business Machines Corp. ...... 10,735,500
27,000 Lexmark International, Inc. Class A(a)...... 1,331,370
111,000 NCR Corp.(a)................................ 5,831,940
------------
41,884,810
- --------------------------------------------------------------------------------------------------------------------
CONTAINERS & PACKAGING--0.7% 153,000 Packaging Corp. of America.................. 3,872,430
- --------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES--3.3% 44,000 Bank of America Corp. ...................... 2,151,160
80,000 Citigroup, Inc. ............................ 4,103,200
227,000 JPMorgan Chase & Co. ....................... 10,998,150
------------
17,252,510
- --------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION 76,000 AT&T Inc. .................................. 3,154,000
SERVICES--0.6%
- --------------------------------------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & 156,000 Agilent Technologies, Inc.(a)............... 5,996,640
INSTRUMENTS--1.1%
- --------------------------------------------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES--1.2% 38,000 ENSCO International, Inc. .................. 2,318,380
58,000 Tidewater, Inc. ............................ 4,111,040
------------
6,429,420
- --------------------------------------------------------------------------------------------------------------------
FOOD & STAPLES RETAILING--0.2% 42,000 The Kroger Co. ............................. 1,181,460
- --------------------------------------------------------------------------------------------------------------------
FOOD PRODUCTS--0.6% 75,000 Campbell Soup Co.(d)........................ 2,910,750
- --------------------------------------------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES--0.6% 39,000 Zimmer Holdings, Inc.(a).................... 3,310,710
- --------------------------------------------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES--9.6% 123,000 Aetna, Inc. ................................ 6,076,200
105,000 AmerisourceBergen Corp. .................... 5,194,350
23,000 Coventry Health Care, Inc.(a)............... 1,325,950
124,000 Express Scripts, Inc.(a).................... 6,201,240
82,000 Humana, Inc.(a)............................. 4,994,620
100,000 McKesson Corp. ............................. 5,964,000
78,000 Medco Health Solutions, Inc.(a)............. 6,083,220
151,000 UnitedHealth Group, Inc. ................... 7,722,140
90,000 WellPoint, Inc.(a).......................... 7,184,700
------------
50,746,420
- --------------------------------------------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE--0.8% 151,000 Brinker International, Inc. ................ 4,419,770
- --------------------------------------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS--0.3% 21,000 The Procter & Gamble Co. ................... 1,284,990
- --------------------------------------------------------------------------------------------------------------------
IT SERVICES--0.6% 108,000 Electronic Data Systems Corp. .............. 2,994,840
- --------------------------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES--1.6% 216,000 General Electric Co. ....................... 8,268,480
- --------------------------------------------------------------------------------------------------------------------
</Table>
8
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Large Cap Core V.I. Fund
Schedule of Investments as of June 30, 2007 (continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES
INDUSTRY HELD COMMON STOCKS VALUE
- --------------------------------------------------------------------------------------------------------------------
INSURANCE--4.8% 152,000 American International Group, Inc. ......... $ 10,644,560
70,000 Prudential Financial, Inc. ................. 6,806,100
21,000 Safeco Corp. ............................... 1,307,460
121,000 The Travelers Cos., Inc. ................... 6,473,500
------------
25,231,620
- --------------------------------------------------------------------------------------------------------------------
LEISURE EQUIPMENT & PRODUCTS--0.3% 55,000 Hasbro, Inc. ............................... 1,727,550
- --------------------------------------------------------------------------------------------------------------------
LIFE SCIENCES TOOLS & SERVICES--0.4% 31,000 Waters Corp.(a)............................. 1,840,160
- --------------------------------------------------------------------------------------------------------------------
MACHINERY--2.0% 122,000 AGCO Corp.(a)............................... 5,296,020
67,000 Terex Corp.(a).............................. 5,447,100
------------
10,743,120
- --------------------------------------------------------------------------------------------------------------------
MEDIA--4.0% 248,000 The DIRECTV Group, Inc.(a)(d)............... 5,731,280
89,000 The McGraw-Hill Cos., Inc. ................. 6,059,120
21,000 Meredith Corp. ............................. 1,293,600
236,000 Walt Disney Co.(d).......................... 8,057,040
------------
21,141,040
- --------------------------------------------------------------------------------------------------------------------
METALS & MINING--3.1% 91,000 Nucor Corp. ................................ 5,337,150
59,000 Southern Copper Corp.(d).................... 5,561,340
51,000 United States Steel Corp.(d)................ 5,546,250
------------
16,444,740
- --------------------------------------------------------------------------------------------------------------------
MULTILINE RETAIL--3.4% 72,000 JC Penney Co., Inc. ........................ 5,211,360
86,000 Kohl's Corp.(a)............................. 6,108,580
108,000 Nordstrom, Inc.(d).......................... 5,520,960
17,000 Target Corp. ............................... 1,081,200
------------
17,922,100
- --------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS--11.9% 139,000 Chevron Corp. .............................. 11,709,360
259,000 Exxon Mobil Corp. .......................... 21,724,920
111,000 Frontier Oil Corp.(d)....................... 4,858,470
109,000 Marathon Oil Corp. ......................... 6,535,640
72,000 Sunoco, Inc. ............................... 5,736,960
98,000 Tesoro Corp. ............................... 5,600,700
88,000 Valero Energy Corp. ........................ 6,499,680
------------
62,665,730
- --------------------------------------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS--0.1% 14,000 International Paper Co. .................... 546,700
- --------------------------------------------------------------------------------------------------------------------
PERSONAL PRODUCTS--1.0% 114,000 The Estee Lauder Cos., Inc. Class A......... 5,188,140
- --------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS--7.3% 127,000 Eli Lilly & Co. ............................ 7,096,760
18,000 Johnson & Johnson........................... 1,109,160
162,000 Merck & Co., Inc. .......................... 8,067,600
462,000 Pfizer, Inc. ............................... 11,813,340
232,000 Schering-Plough Corp.(d).................... 7,062,080
79,000 Sepracor, Inc.(a)........................... 3,240,580
------------
38,389,520
- --------------------------------------------------------------------------------------------------------------------
REAL ESTATE MANAGEMENT & 146,000 CB Richard Ellis Group, Inc.(a)(d).......... 5,329,000
DEVELOPMENT--1.0%
- --------------------------------------------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR 250,000 Altera Corp.(d)............................. 5,532,500
EQUIPMENT--6.4%
78,000 Analog Devices, Inc. ....................... 2,935,920
310,000 Applied Materials, Inc. .................... 6,159,700
327,000 Integrated Device Technology, Inc.(a)....... 4,993,290
60,000 Intersil Corp. Class A...................... 1,887,600
109,000 KLA-Tencor Corp.(d)......................... 5,989,550
21,000 Novellus Systems, Inc.(a)................... 595,770
328,000 Teradyne, Inc.(a)(d)........................ 5,766,240
------------
33,860,570
- --------------------------------------------------------------------------------------------------------------------
SOFTWARE--5.8% 161,000 McAfee, Inc.(a)............................. 5,667,200
481,000 Microsoft Corp. ............................ 14,175,070
320,000 Novell, Inc.(a)............................. 2,492,800
424,000 Oracle Corp.(a)............................. 8,357,040
------------
30,692,110
- --------------------------------------------------------------------------------------------------------------------
</Table>
9
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Large Cap Core V.I. Fund
Schedule of Investments as of June 30, 2007 (concluded)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES
INDUSTRY HELD COMMON STOCKS VALUE
- --------------------------------------------------------------------------------------------------------------------
SPECIALTY RETAIL--2.1% 175,500 American Eagle Outfitters, Inc. ............ $ 4,503,330
39,000 AutoZone, Inc.(a)........................... 5,328,180
31,000 GameStop Corp. Class A(a)................... 1,212,100
------------
11,043,610
- --------------------------------------------------------------------------------------------------------------------
TEXTILES, APPAREL & LUXURY GOODS--2.3% 120,000 Coach, Inc.(a).............................. 5,686,800
111,000 Nike, Inc. Class B.......................... 6,470,190
------------
12,156,990
- --------------------------------------------------------------------------------------------------------------------
TOBACCO--0.2% 19,000 UST, Inc. .................................. 1,020,490
- --------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST--$442,734,973)--100.7%................ 530,218,090
- --------------------------------------------------------------------------------------------------------------------
<Caption>
BENEFICIAL
INTEREST SHORT-TERM SECURITIES
- --------------------------------------------------------------------------------------------------------------------
$71,109,900 BlackRock Liquidity Series, LLC Money Market
Series, 5.33%(b)(c)(e).................... 71,109,900
- --------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM SECURITIES
(COST--$71,109,900)--13.5%.................. 71,109,900
- --------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST--$513,844,873*)--114.2%............... 601,327,990
LIABILITIES IN EXCESS OF OTHER
ASSETS--(14.2%)............................. (74,609,223)
------------
NET ASSETS--100.0%.......................... $526,718,767
============
- --------------------------------------------------------------------------------------------------------------------
</Table>
* The cost and unrealized appreciation (depreciation) of investments as of
June 30, 2007, as computed for federal income tax purposes, were as follows:
<Table>
Aggregate cost.............................................. $516,779,862
============
Gross unrealized appreciation............................... $ 94,839,569
Gross unrealized depreciation............................... (10,291,441)
------------
Net unrealized appreciation................................. $ 84,548,128
============
</Table>
(a) Non-income producing security.
(b) Investments in companies considered to be an affiliate of the Fund, for
purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as
follows:
<Table>
<Caption>
- --------------------------------------------------------------------------------------
NET INTEREST
AFFILIATE ACTIVITY INCOME
- --------------------------------------------------------------------------------------
BlackRock Liquidity Series, LLC Cash Sweep Series........... $ (363,321) $ 5,933
BlackRock Liquidity Series, LLC Money Market Series......... $18,705,300 $68,133
- --------------------------------------------------------------------------------------
</Table>
(c) Security was purchased with the cash proceeds from securities loans.
(d) Security, or a portion of security, is on loan.
(e) Represents the current yield as of June 30, 2007.
- - For Fund compliance purposes, the Fund's industry classifications refer to
any one or more of the industry sub-classifications used by one or more
widely recognized market indexes or ratings group indexes, and/or as defined
by Fund management. This definition may not apply for purposes of this
report, which may combine industry sub-classifications for reporting ease.
Industries are shown as a percent of net assets.
See Notes to Financial Statements.
10
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Large Cap Core V.I. Fund
Statement of Assets and Liabilities as of June 30, 2007 (unaudited)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments in unaffiliated securities, at value (including
securities loaned of $69,153,491) (identified
cost--$442,734,973)....................................... $530,218,090
Investments in affiliated securities, at value (identified
cost--$71,109,900)........................................ 71,109,900
Foreign cash (cost--$370)................................... 364
Receivables:
Dividends................................................. $ 264,145
Securities lending........................................ 24,099
Capital shares sold....................................... 1,139
Interest from affiliates.................................. 7 289,390
-----------
Prepaid expenses and other assets........................... 10,457
------------
Total assets................................................ 601,628,201
------------
- ------------------------------------------------------------------------------------------
LIABILITIES:
Collateral on securities loaned, at value................... 71,109,900
Bank overdraft.............................................. 2,654,478
Payables:
Capital shares redeemed................................... 850,639
Investment adviser........................................ 195,060
Other affiliates.......................................... 6,212
Distributor............................................... 355 1,052,266
-----------
Accrued expenses............................................ 92,790
------------
Total liabilities........................................... 74,909,434
------------
- ------------------------------------------------------------------------------------------
NET ASSETS.................................................. $526,718,767
============
- ------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Class I Shares of Common Stock, $.10 par value, 200,000,000
shares authorized......................................... $ 1,528,945
Class II Shares of Common Stock, $.10 par value, 100,000,000
shares authorized......................................... 8,339
Class III Shares of Common Stock, $.10 par value,
100,000,000 shares authorized............................. 5
Paid-in capital in excess of par............................ 394,994,908
Undistributed investment income--net........................ $ 2,882,602
Undistributed realized capital gains--net................... 39,820,857
Unrealized appreciation--net................................ 87,483,111
-----------
Total accumulated earnings--net............................. 130,186,570
------------
NET ASSETS.................................................. $526,718,767
============
- ------------------------------------------------------------------------------------------
NET ASSET VALUE:
Class I--Based on net assets of $523,861,651 and 15,289,451
shares outstanding........................................ $ 34.26
============
Class II--Based on net assets of $2,855,543 and 83,393
shares outstanding........................................ $ 34.24
============
Class III--Based on net assets of $1,572.55 and 45.85 shares
outstanding............................................... $ 34.30
============
- ------------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements.
11
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Large Cap Core V.I. Fund
Statement of Operations for the Six Months Ended June 30, 2007 (unaudited)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividends................................................... $ 4,223,120
Securities lending--net..................................... 68,133
Interest from affiliates.................................... 5,933
-----------
Total income................................................ 4,297,186
-----------
- -----------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees.................................... $ 1,221,667
Custodian fees.............................................. 30,119
Accounting services......................................... 86,866
Printing and shareholder reports............................ 27,150
Professional fees........................................... 20,845
Directors' fees and expenses................................ 13,930
Transfer agent fees--Class I................................ 2,326
Distribution fees--Class II................................. 1,644
Pricing services............................................ 485
Transfer agent fees--Class II............................... 9
Distribution fees--Class III................................ 2
Other....................................................... 9,541
-----------
Total expenses.............................................. 1,414,584
-----------
Investment income--net...................................... 2,882,602
-----------
- -----------------------------------------------------------------------------------------
REALIZED & UNREALIZED GAIN (LOSS)--NET:
Realized gain on investments--net........................... 32,564,050
Change in unrealized appreciation/depreciation on:
Investments--net.......................................... (1,590,960)
Foreign currency transactions--net........................ (3) (1,590,963)
----------- -----------
Total realized and unrealized gain--net..................... 30,973,087
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $33,855,689
===========
- -----------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements.
12
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Large Cap Core V.I. Fund
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<Table>
<Caption>
FOR THE SIX
MONTHS ENDED FOR THE
JUNE 30, 2007 YEAR ENDED
INCREASE (DECREASE) IN NET ASSETS: (UNAUDITED) DECEMBER 31, 2006
- -----------------------------------------------------------------------------------------------
OPERATIONS:
Investment income--net...................................... $ 2,882,602 $ 4,807,921
Realized gain--net.......................................... 32,564,050 62,521,847
Change in unrealized appreciation/depreciation--net......... (1,590,963) 5,183,066
------------ ------------
Net increase in net assets resulting from operations........ 33,855,689 72,512,834
------------ ------------
- -----------------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Investment income--net:
Class I................................................... -- (4,793,088)
Class II.................................................. -- (14,820)
Class III................................................. -- (13)
Realized gain--net:
Class I................................................... -- (58,124,010)
Class II.................................................. -- (213,838)
Class III................................................. -- (158)
------------ ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders............................. -- (63,145,927)
------------ ------------
- -----------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Net decrease in net assets derived from capital share
transactions.............................................. (46,636,524) (10,687,817)
------------ ------------
- -----------------------------------------------------------------------------------------------
NET ASSETS:
Total decrease in net assets................................ (12,780,835) (1,320,910)
Beginning of period......................................... 539,499,602 540,820,512
------------ ------------
End of period*.............................................. $526,718,767 $539,499,602
============ ============
- -----------------------------------------------------------------------------------------------
* Undistributed investment income--net...................... $ 2,882,602 --
============ ============
- -----------------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements.
13
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Large Cap Core V.I. Fund
Financial Highlights
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS I
--------------------------------------------------------------------
FOR THE SIX
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE MONTHS ENDED FOR THE YEAR ENDED DECEMBER 31,
BEEN DERIVED FROM INFORMATION PROVIDED IN THE JUNE 30, 2007 ----------------------------------------------------
FINANCIAL STATEMENTS. (UNAUDITED) 2006 2005 2004 2003 2002
- -------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............... $ 32.17 $ 31.69 $ 29.38 $ 25.36 $ 19.35 $ 23.52
-------- -------- -------- -------- -------- --------
Investment income--net**........................... .18 .30 .19 .22 .08 .16
Realized and unrealized gain (loss)--net........... 1.91 4.34 3.68 4.04 6.02 (4.15)
-------- -------- -------- -------- -------- --------
Total from investment operations................... 2.09 4.64 3.87 4.26 6.10 (3.99)
-------- -------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net........................... -- (.32) (.20) (.24) (.09) (.18)
Realized gain--net............................... -- (3.84) (1.36) -- -- --
-------- -------- -------- -------- -------- --------
Total dividends and distributions.................. -- (4.16) (1.56) (.24) (.09) (.18)
-------- -------- -------- -------- -------- --------
Net asset value, end of period..................... $ 34.26 $ 32.17 $ 31.69 $ 29.38 $ 25.36 $ 19.35
======== ======== ======== ======== ======== ========
- -------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:***
Based on net asset value per share................. 6.50%+ 14.74% 13.20% 16.79% 31.52% (16.98%)
======== ======== ======== ======== ======== ========
- -------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses........................................... .53%* .53% .54% .53% .54% .56%
======== ======== ======== ======== ======== ========
Investment income--net............................. 1.08%* .91% .62% .84% .39% .74%
======== ======== ======== ======== ======== ========
- -------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)........... $523,862 $537,525 $538,794 $543,352 $517,720 $434,926
======== ======== ======== ======== ======== ========
Portfolio turnover................................. 35% 72% 75% 131% 125% 115%
======== ======== ======== ======== ======== ========
- -------------------------------------------------------------------------------------------------------------------------
</Table>
* Annualized.
** Based on average shares outstanding.
*** Total investment returns exclude insurance-related fees and expenses.
+ Aggregate total investment return.
See Notes to Financial Statements.
14
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Large Cap Core V.I. Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS II
-----------------------------------------------------------
FOR THE SIX FOR THE YEAR ENDED
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE MONTHS ENDED DECEMBER 31, FOR THE PERIOD
BEEN DERIVED FROM INFORMATION PROVIDED IN THE JUNE 30, 2007 ------------------ SEPTEMBER 30, 2004+
FINANCIAL STATEMENTS. (UNAUDITED) 2006 2005 TO DECEMBER 31, 2004
- ------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................. $32.18 $ 31.69 $ 29.38 $ 26.07
------ ------- ------- -------
Investment income--net**............................. .15 .25 .16 .12
Realized and unrealized gain--net.................... 1.91 4.35 3.69 3.43
------ ------- ------- -------
Total from investment operations..................... 2.06 4.60 3.85 3.55
------ ------- ------- -------
Less dividends and distributions:
Investment income--net............................. -- (.27) (.18) (.24)
Realized gain--net................................. -- (3.84) (1.36) --
------ ------- ------- -------
Total dividends and distributions.................... -- (4.11) (1.54) (.24)
------ ------- ------- -------
Net asset value, end of period....................... $34.24 $ 32.18 $ 31.69 $ 29.38
====== ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:***
Based on net asset value per share................... 6.40%@ 14.61% 13.13% 13.61%@
====== ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses............................................. .68%* .68% .69% .53%*
====== ======= ======= =======
Investment income--net............................... .91%* .75% .53% 1.70%*
====== ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)............. $2,856 $ 1,973 $ 2,025 $ 1
====== ======= ======= =======
Portfolio turnover................................... 35% 72% 75% 131%
====== ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------
</Table>
* Annualized.
** Based on average shares outstanding.
*** Total investment returns exclude insurance-related fees and expenses.
+ Commencement of operations.
@ Aggregate total investment return.
See Notes to Financial Statements.
15
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Large Cap Core V.I. Fund
Financial Highlights (concluded)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS III
----------------------------------------------------------
FOR THE SIX FOR THE YEAR ENDED
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE MONTHS ENDED DECEMBER 31, FOR THE PERIOD
BEEN DERIVED FROM INFORMATION PROVIDED IN THE JUNE 30, 2007 ------------------- SEPTEMBER 30, 2004+
FINANCIAL STATEMENTS. (UNAUDITED) 2006 2005 TO DECEMBER 31, 2004
- --------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................... $32.23 $ 31.76 $ 29.38 $ 26.07
------ ------- ------- -------
Investment income--net**................................ .14 .28 .20 .12
Realized and unrealized gain--net....................... 1.93 4.35 3.74 3.43
------ ------- ------- -------
Total from investment operations........................ 2.07 4.63 3.94 3.55
------ ------- ------- -------
Less dividends and distributions:
Investment income--net................................ -- (.32) (.20) (.24)
Realized gain--net.................................... -- (3.84) (1.36) --
------ ------- ------- -------
Total dividends and distributions....................... -- (4.16) (1.56) (.24)
------ ------- ------- -------
Net asset value, end of period.......................... $34.30 $ 32.23 $ 31.76 $ 29.38
====== ======= ======= =======
- --------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:***
Based on net asset value per share...................... 6.42%@ 14.68% 13.43% 13.61%@
====== ======= ======= =======
- --------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses................................................ .75%* .60% .54% .53%*
====== ======= ======= =======
Investment income--net.................................. .85%* .85% .67% 1.70%*
====== ======= ======= =======
- --------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)................ $ 2 $ 1 $ 1 $ 1
====== ======= ======= =======
Portfolio turnover...................................... 35% 72% 75% 131%
====== ======= ======= =======
- --------------------------------------------------------------------------------------------------------------------
</Table>
* Annualized.
** Based on average shares outstanding.
*** Total investment returns exclude insurance-related fees and expenses.
+ Commencement of operations.
@ Aggregate total investment return.
See Notes to Financial Statements.
16
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Large Cap Core V.I. Fund
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES:
BlackRock Variable Series Funds, Inc. (the "Company") is an open-end management
investment company that is comprised of 16 separate funds. Each fund offers
three 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. ("Merrill Lynch")), and other insurance companies that are not
affiliated with Merrill Lynch, for their separate accounts to fund benefits
under certain variable annuity and variable life insurance contracts. BlackRock
Large Cap Core V.I. Fund (the "Fund") is classified as "diversified," as defined
in the Investment Company Act of 1940, as amended. Class I, Class II and Class
III 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. In addition, Class II and Class III Shares bear
certain expenses related to the distribution of such shares. The Fund's
financial statements are prepared in conformity with U.S. generally accepted
accounting principles, which may require the use of management accruals and
estimates. Actual results may differ from these estimates. These unaudited
financial statements reflect all adjustments, which are, in the opinion of
management, necessary to present a fair statement of the results for the interim
period. All such adjustments are of a normal, recurring nature. Income, expenses
(other than expenses attributable to a specific class) and realized and
unrealized gains and losses are allocated daily to each class based on its
relative net assets. The following is a summary of significant accounting
policies followed by the Fund.
(a) Valuation of investments--Equity securities held by the Fund that are
traded on stock exchanges or the NASDAQ Global Market are valued at the last
sale price or official close price on the exchange, as of the close of business
on the day the securities are being valued or, lacking any sales, at the last
available bid price for long positions, and at the last available asked price
for short positions. In cases where equity securities are traded on more than
one exchange, the securities are valued on the exchange designated as the
primary market by or under the authority of the Board of Directors of the
Company. Long positions traded in the over-the-counter ("OTC") market, NASDAQ
Capital Market or Bulletin Board are valued at the last available bid price or
yield equivalent obtained from one or more dealers or pricing services approved
by the Board of Directors of the Company. Short positions traded in the OTC
market are valued at the last available asked price. Portfolio securities that
are traded both in the OTC market and on a stock exchange are valued according
to the broadest and most representative market.
Options written are valued at the last sale price in the case of
exchange-traded options or, in the case of options traded in the OTC market, the
last asked price. Options purchased are valued at their last sale price in the
case of exchange-traded options or, in the case of options traded in the OTC
market, the last bid price. Swap agreements are valued based upon quoted fair
valuations received daily by the Fund from a pricing service or counterparty.
Financial futures contracts and options thereon, which are traded on exchanges,
are valued at their last sale price as of the close of such exchanges. Valuation
of short-term investment vehicles is generally based on the net asset value of
the underlying investment vehicle or amortized cost.
Repurchase agreements are valued at cost plus accrued interest. The Fund
employs pricing services to provide certain securities prices for the Fund.
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, including valuations furnished by the
pricing services retained by the Fund, which may use a matrix system for
valuations. The procedures of a pricing service and its valuations are reviewed
by the officers of the Fund under the general supervision of the Company's Board
of Directors. Such valuations and procedures will be reviewed periodically by
the Board of Directors of the Company.
Generally, trading in foreign securities, as well as U.S. government
securities, money market instruments and certain fixed income securities, is
substantially completed each day at various times prior to the close of business
on the New York Stock Exchange ("NYSE"). The values of such securities used in
computing the net asset value of the Fund's shares are determined as of such
times. Foreign currency exchange rates will generally be determined as of the
close of business on the NYSE. Occasionally, events affecting the values of such
securities and such exchange rates may occur between the times at which they are
determined and the close of business on the NYSE that may not be reflected
17
- --------------------------------------------------------------------------------
in the computation of the Fund's net asset value. If events (for example, a
company announcement, market volatility or a natural disaster) occur during such
periods that are expected to materially affect the value of such securities,
those securities will be valued at their fair value as determined in good faith
by the Company's Board of Directors or by BlackRock Advisers, LLC (the
"Manager"), an indirect, wholly owned subsidiary of BlackRock, Inc., using a
pricing service and/or procedures approved by the Company's Board of Directors.
(b) Derivative financial instruments--The Fund may engage in various portfolio
investment strategies both to increase the return of the Fund and to hedge, or
protect, its exposure to interest rate movements and movements in the securities
markets. Losses may arise due to changes in the value of the contract, due to an
unfavorable change in the price of an underlying security or index, or if the
counterparty does not perform under the contract. The counterparty for certain
instruments may pledge cash or securities as collateral.
- - 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 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.
- - Forward foreign exchange contracts--The Fund may enter into forward foreign
exchange contracts as a hedge against either specific transactions or
portfolio positions. The contract is marked-to-market daily and the change in
market value is recorded by the Fund as an unrealized gain or loss. When the
contract is closed, the Fund records a realized gain or loss equal to the
difference between the value at the time it was opened and the value at the
time it was closed.
(c) Foreign currency transactions--Transactions denominated in foreign
currencies are recorded at the exchange rate prevailing when recognized. Assets
and liabilities denominated in foreign currencies are valued at the exchange
rate at the end of the period. Foreign currency transactions are the result of
settling (realized) or valuing (unrealized) assets and liabilities expressed in
foreign currencies into U.S. dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates on investments.
The Fund invests in foreign securities, which may involve a number of risk
factors and special considerations not present with investments in securities of
U.S. corporations.
(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).
Realized gains and losses on security transactions are determined on the
identified cost basis. Dividend income is recorded on the ex-dividend dates.
Dividends from foreign securities where the ex-dividend date may have passed are
subsequently recorded when the Fund has determined the ex-dividend date.
Interest income is recognized on the accrual basis.
(f) Dividends and distributions--Dividends and distributions paid by the Fund
are recorded on the ex-dividend dates.
(g) Expenses--Certain expenses have been allocated to the individual funds in
the Company on a pro rata basis based upon the respective aggregate net asset
value of each fund included in the Company.
(h) Securities lending--The Fund may lend securities to financial institutions
that provide cash or securities issued or guaranteed by the U.S. government as
collateral, which will be maintained at all times in an amount equal to at least
100% of the current market value of the loaned securities. The market value of
the loaned securities is determined at the close of business of the Fund and any
additional required collateral is delivered to the Fund on the next business
day. Where the Fund receives securities as collateral for the loaned securities,
it receives a fee from the borrower. The Fund typically receives the income on
the loaned securities, but does not receive the income on the collateral. Where
the Fund receives cash collateral, it may invest such collateral and retain the
amount
18
- --------------------------------------------------------------------------------
earned on such investment, net of any amount rebated to the borrower. Loans of
securities are terminable at any time and the borrower, after notice, is
required to return borrowed securities within five business days. The Fund may
pay reasonable finder's, lending agent, administrative and custodial fees in
connection with its loans. In the event that the borrower defaults on its
obligation to return borrowed securities because of insolvency or for any other
reason, the Fund could experience delays and costs in gaining access to the
collateral. The Fund also could suffer a loss where the value of the collateral
falls below the market value of the borrowed securities, in the event of
borrower default or in the event of losses on investments made with cash
collateral.
(i) Bank overdraft--The Fund recorded a bank overdraft, which resulted from
management estimates of available cash.
(j) Recent accounting pronouncements--Effective June 29, 2007, the Fund
implemented Financial Accounting Standards Board ("FASB") Interpretation No. 48,
"Accounting for Uncertainty in Income Taxes -- an interpretation of FASB
Statement No. 109" ("FIN 48"). FIN 48 prescribes the minimum recognition
threshold a tax position must meet in connection with accounting for
uncertainties in income tax positions taken or expected to be taken by an
entity, including investment companies, before being measured and recognized in
the financial statements. Management has evaluated the application of FIN 48 to
the Fund, and has determined that the adoption of FIN 48 does not have a
material impact on the Fund's financial statements. The Fund files U.S. and
various state tax returns. No income tax returns are currently under
examination. The statute of limitations on the Fund's tax returns remains open
for the years ended December 31, 2003 through December 31, 2006.
In September 2006, "Statement of Financial Accounting Standards No. 157, Fair
Value Measurements" ("FAS 157"), was issued and is effective for fiscal years
beginning after November 15, 2007. FAS 157 defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. At this time, management is evaluating the implications of FAS 157
and its impact on the Fund's financial statements, if any, has not been
determined.
In addition, in February 2007, Statement of Financial Accounting Standards No.
159, The Fair Value Option for Financial Assets and Financial Liabilities" ("FAS
159"), was issued and is effective for fiscal years beginning after November 15,
2007. Early adoption is permitted as of the beginning of a fiscal year that
begins on or before November 15, 2007, provided the entity also elects to apply
the provisions of FAS 157. FAS 159 permits entities to choose to measure many
financial instruments and certain other items at fair value that are not
currently required to be measured at fair value. FAS 159 also establishes
presentation and disclosure requirements designed to facilitate comparisons
between entities that choose different measurement attributes for similar types
of assets and liabilities. At this time, management is evaluating the
implications of FAS 159 and its impact on the Fund's financial statements, if
any, has not been determined.
2. INVESTMENT ADVISORY AGREEMENT AND TRANSACTIONS WITH AFFILIATES:
The Fund has entered into an Investment Advisory Agreement with the Manager. The
Fund has also entered into separate Distribution Agreements and Distribution
Plans with FAM Distributors, Inc. ("FAMD")and BlackRock Distributors, Inc. and
its affiliates ("BDI") (collectively, the "Distributor"). FAMD is a wholly owned
subsidiary of Merrill Lynch Group, Inc., and BDI is an affiliate of BlackRock,
Inc. Merrill Lynch and The PNC Financial Services Group, Inc. ("PNC") are the
principal owners of BlackRock, Inc.
The Manager 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 Fund. For such services, the Fund
pays a monthly fee at the following annual rates: .500% of the Fund's average
daily net assets not exceeding $250 million; .450% of average daily net assets
in excess of $250 million but not exceeding $300 million; .425% of average daily
net assets in excess of $300 million but not exceeding $400 million; and .400%
of average daily net assets in excess of $400 million. In addition, the Manager
has entered into a sub-advisory agreement with BlackRock Investment Management,
LLC ("BIM"), an affiliate of the Manager, under which the Manager pays BIM for
services it provides a monthly fee at an annual rate that is a percentage of the
management fee paid by the Fund to the Manager.
Pursuant to the Distribution Plans adopted by the Company, in accordance with
Rule 12b-1 under the Investment Company Act of 1940, the Fund pays the
Distributor an ongoing distribution fee each month at the annual rate of .15%
and .25% of the average daily value of the Fund's Class II and Class III net
assets, respectively.
The Company has received an exemptive order from the Securities and Exchange
Com-
19
- --------------------------------------------------------------------------------
mission permitting it to lend portfolio securities to Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S") a wholly owned subsidiary of Merrill
Lynch, or its affiliates. As of June 30, 2007, the Fund lent securities with a
value of $33,777,278 to MLPF&S or its affiliates. Pursuant to that order, the
Company also has retained BIM as the securities lending agent for a fee based on
a share of the returns on investment of cash collateral. BIM may, on behalf of
the Company and the Fund, invest cash collateral received by the Fund for such
loans, among other things, in a private investment company managed by the
Manager or in registered money market funds advised by the Manager or its
affiliates. For the six months ended June 30, 2007, BIM received $22,218 in
securities lending agent fees from the Fund.
For the six months ended June 30, 2007, the Fund reimbursed the Manager $4,632
for certain accounting services.
PFPC Inc., an indirect, wholly owned subsidiary of PNC and an affiliate of the
Manager, is the Fund's transfer agent.
Certain officers and/or directors of the Company are officers and/or directors
of BlackRock, Inc. or its affiliates.
3. INVESTMENTS:
Purchases and sales of investments, excluding short-term securities, for the
six months ended June 30, 2007 were $186,694,931 and $226,443,918, respectively.
4. CAPITAL SHARE TRANSACTIONS:
Net decrease in net assets derived from capital share transactions was
$46,636,524 and $10,687,817 for the six months ended June 30, 2007 and the year
ended December 31, 2006, respectively.
Transactions in capital shares for each class were as follows:
<Table>
<Caption>
- ------------------------------------------------------------------
Class I Shares for Six Months Ended
June 30, 2007 Shares Dollar Amount
- ------------------------------------------------------------------
Shares sold........................... 49,962 $ 1,655,456
Shares redeemed....................... (1,467,984) (49,051,480)
---------- ------------
Net decrease.......................... (1,418,022) $(47,396,024)
========== ============
- ------------------------------------------------------------------
</Table>
<Table>
<Caption>
- ------------------------------------------------------------------
Class I Shares for the Year Ended
December 31, 2006 Shares Dollar Amount
- ------------------------------------------------------------------
Shares sold........................... 737,759 $ 25,473,386
Shares issued to shareholders in
reinvestment of dividends and
distributions........................ 1,945,666 62,917,098
---------- ------------
Total issued.......................... 2,683,425 88,390,484
Shares redeemed....................... (2,980,333) (98,969,388)
---------- ------------
Net decrease.......................... (296,908) $(10,578,904)
========== ============
- ------------------------------------------------------------------
</Table>
<Table>
<Caption>
- -----------------------------------------------------------------
Class II Shares for the Six Months Ended Dollar
June 30, 2007 Shares Amount
- -----------------------------------------------------------------
Shares sold.................................. 25,572 $ 875,653
Share redeemed............................... (3,509) (116,153)
------ ---------
Net increase................................. 22,063 $ 759,500
====== =========
- -----------------------------------------------------------------
</Table>
<Table>
<Caption>
- -----------------------------------------------------------------
Class II Shares for the Year Ended Dollar
December 31, 2006 Shares Amount
- -----------------------------------------------------------------
Shares sold............................... 21,026 $ 700,232
Shares issued to shareholders in
reinvestment of dividends and
distributions............................ 7,068 228,658
------- -----------
Total Issued.............................. 28,094 928,890
Share redeemed............................ (30,653) (1,037,974)
------- -----------
Net decrease.............................. (2,559) $ (109,084)
======= ===========
- -----------------------------------------------------------------
</Table>
<Table>
<Caption>
- ------------------------------------------------------------------
Class III Shares for the Six Months Ended Dollar
June 30, 2007 Shares Amount
- ------------------------------------------------------------------
Shares sold...................................... -- --
---- -----
Net increase..................................... -- --
==== =====
</Table>
<Table>
<Caption>
- ------------------------------------------------------------------
Class III Shares for the Year Ended Dollar
December 31, 2006 Shares Amount
- ------------------------------------------------------------------
Shares issued to shareholders in reinvestment of
dividends and distributions..................... 5 $171
-- ----
Net increase..................................... 5 $171
== ====
- ------------------------------------------------------------------
</Table>
5. SHORT-TERM BORROWINGS:
The Company, on behalf of the Fund, along with certain other funds managed by
the Manager and its affiliates, is party to a $500,000,000 credit agreement with
a group of lenders, which expires November 2007. 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 .06% per annum based on the Fund's pro rata share of the
unused portion of the credit agreement. Amounts borrowed under the credit
agreement bear interest at a rate equal to, at each fund's election, the federal
funds rate plus .35% or a base rate as defined in the credit agreement. The Fund
did not borrow under the credit agreement during the six months ended June 30,
2007.
20
- --------------------------------------------------------------------------------
BLACKROCK LARGE CAP GROWTH V.I. FUND
-------------------------------------------------------------------------
Semi-Annual Report (Unaudited)
June 30, 2007
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Large Cap Growth V.I. Fund
A Discussion With Your Fund's Portfolio Manager
- --------------------------------------------------------------------------------
We made strides in creating a two-pronged portfolio focused on both cyclical
stocks with a global emphasis and higher-quality companies with predictable
earnings.
HOW DID THE FUND PERFORM DURING THE PERIOD IN LIGHT OF THE EXISTING MARKET
CONDITIONS?
For the six-month period ended June 30, 2007, BlackRock Large Cap Growth V.I.
Fund's Class I and Class III Shares had total returns of +7.23% and +7.07%,
respectively, trailing the +8.13% return of the benchmark Russell 1000 Growth
Index. For the same period, the Lipper Multi-Cap Growth Funds (Variable
Products) category posted an average return of +8.88%. (Funds in this Lipper
category invest in a variety of market capitalization ranges without
concentrating 75% of their equity assets in any one market capitalization range
over an extended period of time. Multi-Cap Growth funds typically have an
average price-to-earnings ratio, price-to-book ratio and three-year sales-per-
share growth value compared to the Standard & Poor's SuperComposite 1500 Index.)
The Fund invests primarily in a diversified portfolio of large cap companies
selected from securities found in the Russell 1000 Growth Index. As such, the
Fund was influenced by the same economic and market events that affected the
broader stock market during the past six months.
Economic conditions changed over the course of the period, ending on a more
positive note. Markets began 2007 in a rally that was halted in late February,
sending the Dow Jones Industrial Average--the index of 30 U.S. stocks listed on
the New York Stock Exchange--more than 416 points lower. This represented the
largest one-week decline in U.S. equity markets since September 2001. The
sell-off came on the heels of a substantial market correction in Asia,
particularly in China.
The markets rebounded shortly after, but remained volatile amid an increase in
subprime mortgage delinquencies and the high-profile bankruptcy of a leading
subprime mortgage company. However, there was ongoing investor debate as to
whether the subprime meltdown would spread through other parts of the economy.
First-quarter 2007 gross domestic product came in at 0.7%, the slowest rate of
growth in almost five years. Meanwhile, first-quarter corporate earnings growth
in the United States fell below the 10% mark for the first time in several
years, but continued to exhibit resilience. In the second quarter of 2007, U.S.
stock indexes rebounded, posting impressive gains and setting records along the
way as corporate earnings outperformed investor expectations. The advance slowed
toward the end of the period, but equities finished firmly in positive
territory.
Ample inventories from non-OPEC countries and unseasonably warm weather helped
stabilize crude oil prices during the winter, but the onset of the summer
driving season pushed prices above $71 per barrel. The Federal Reserve Board
(the Fed) kept monetary policy at a pause, leaving its target interest rate
steady at 5.25%. The slowdown in the U.S. housing market remained a concern for
investors, although consumer spending continued to fuel the economy.
WHAT FACTORS MOST INFLUENCED FUND PERFORMANCE?
The Fund's underperformance of the benchmark is attributed to a few factors,
including stock selection in the financials sector, led by education loan
company The First Marblehead Corp. Positive results from overweighting
information technology (particularly software) and materials (particularly
metals and mining) were offset by poor stock selection, as shares of computer
printer manufacturer Lexmark International, Inc., server computing vendor Sun
Microsystems Inc., semiconductor company NVIDIA Corp. and packaging company
Pactiv Corp. did not perform as anticipated. Underweighting the industrials and
telecommunication services sectors also had a negative impact on performance.
Individual stocks that detracted from performance during the period included
airlines AMR Corp. and Continental Airlines, Inc., specialty retailers American
Eagle Outfitters, Inc. and Harley-Davidson, Inc., and cable television provider
DIRECTV Group, Inc.
Successful stock selection within the energy and consumer discretionary
sectors contributed positively to returns, led by shares of oil refiners Tesoro
Corp. and Frontier Oil Corp. and adult education school ITT Educational Service,
Inc. In energy, we prefer the integrated firms and refiners over the exploration
and production companies. Within the health care sector, stock selection
contributed positively to performance, as our holdings within the provider &
services industry, along with pharmaceutical giant Schering-Plough Corp., posted
strong gains.
2
- --------------------------------------------------------------------------------
WHAT CHANGES WERE MADE TO THE PORTFOLIO DURING THE PERIOD?
Overall, we continued our efforts to identify companies with favorable growth
characteristics and earnings developments, selling at attractive relative
valuations. As a result of our bottom-up stock-selection process, we increased
the Fund's positions in the health care and energy sectors and reduced exposure
to the industrials, consumer discretionary and financials sectors. In
information technology, we added to some positions on weakness, and at the same
time increased the quality of our technology holdings. We have increased the
average size of our technology positions, especially among those with global
exposure where we believe there is significant upside potential.
Recent efforts have been focused on creating a two-pronged portfolio: one
prong invested in cyclical stocks with a global emphasis, and the other in
higher-quality companies with predictable earnings. We believe this is a prudent
approach for navigating the current investment climate.
The largest purchases during the period, based on capital expended, included
UnitedHealth Group, Inc., Dell, Inc., Eli Lilly & Co., EMC Corp. and Honeywell
International Inc. The largest sales, based on capital raised, included Johnson
& Johnson, Cummins, Inc., Automatic Data Processing, Inc., Cardinal Health Inc.
and Motorola, Inc.. These transactions reflect our ongoing refinement of the
portfolio, as we continue to look for stocks that best meet our investment
criteria while pruning those that have deteriorated versus our original
assessment.
HOW WOULD YOU CHARACTERIZE THE FUND'S POSITION AT THE CLOSE OF THE PERIOD?
Relative to its benchmark, the Fund's largest overweights at period-end were
in information technology, health care and materials, and the largest
underweights were in consumer staples, industrials, consumer discretionary and
utilities.
Based on the equity market run-up seen since the February correction, there
has been some concern that equities may be overbought, potentially setting the
stage for some near-term consolidation. We acknowledge that the markets do face
headwinds in the form of slowing economic growth, worsening corporate earnings
growth and a Fed that is not presently accommodative. In our opinion, however,
the backdrop for an equity bear market simply does not exist. Monetary policy is
by no means overly tight, inflation (while higher than the Fed would like) is
still low and seems to be easing, and earnings growth is slowing, not
collapsing. From our perspective, the tailwinds of good valuations, strong
global economic growth, ongoing corporate M&A activity and the relative
attractiveness of stocks compared to other investments (chiefly bonds) should
help the bull market to continue.
In summary, we believe that a soft landing is achievable in the United States.
While the equity market may struggle if credit problems worsen, we do not
believe a bear market is a likely outcome. Over the years, our investment
process--which combines the art of fundamental research with the science of
quantitative analysis, subject to specific risk management parameters--has
delivered strong, consistent long-term results for shareholders. Given our
outlook for the remainder of the year, we remain confident that our disciplined
investment process and two-pronged portfolio positioning will serve shareholders
well in the second half of 2007.
Robert C. Doll, Jr.
Portfolio Manager
July 13, 2007
3
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Large Cap Growth V.I. Fund
Total Return Based on a $10,000 Investment
- --------------------------------------------------------------------------------
[LINE GRAPH]
<Table>
<Caption>
BLACKROCK LARGE CAP GROWTH
V.I. FUND+--CLASS I SHARES* RUSSELL 1000 GROWTH INDEX++
--------------------------- ---------------------------
4/30/99** 10000 10000
6/99 10530 10372
6/00 11622 13033
6/01 9790 8319
6/02 8063 6115
6/03 7920 6295
6/04 9688 7420
6/05 10386 7545
6/06 11215 8007
6/07 12976 9531
</Table>
[LINE GRAPH]
<Table>
<Caption>
BLACKROCK LARGE CAP GROWTH
V.I. FUND+--CLASS II SHARES* RUSSELL 1000 GROWTH INDEX++
---------------------------- ---------------------------
9/30/04** 10000 10000
6/05 11497 10729
6/06 12437 11385
6/07 14386 13553
</Table>
[LINE GRAPH]
<Table>
<Caption>
BLACKROCK LARGE CAP GROWTH
V.I. FUND+--CLASS III SHARES* RUSSELL 1000 GROWTH INDEX++
----------------------------- ---------------------------
5/19/04** 10000 10000
6/04 10617 10437
6/05 11359 10612
6/06 12236 11261
6/07 14118 13406
</Table>
* Assuming transaction costs, if any, and other operating expenses, including
advisory fees. Does not include insurance-related fees and expenses.
Effective November 24, 2003, the Fund's Class A Shares were redesignated
Class I Shares.
** Commencement of operations.
+ The Fund invests in a diversified portfolio of equity securities of large cap
companies located in the United States that Fund management believes are
undervalued or have good prospects for earnings growth.
++ This unmanaged broad-based Index is a subset of the Russell 3000 Index
consisting of those 1000 companies with higher price-to-book ratios and
higher forecasted growth values.
Past results shown should not be considered a representation of future
performance.
4
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Large Cap Growth V.I. Fund
Average Annual Total Return--Class I Shares*+
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERIOD COVERED RETURN
- --------------------------------------------------------------------------
One Year Ended 6/30/07 +15.70%
- --------------------------------------------------------------------------
Five Years Ended 6/30/07 + 9.98
- --------------------------------------------------------------------------
Inception (4/30/99) through 6/30/07 + 3.24
- --------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Large Cap Growth V.I. Fund
Average Annual Total Return--Class II Shares*+
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERIOD COVERED RETURN
- --------------------------------------------------------------------------
One Year Ended 6/30/07 +15.67%
- --------------------------------------------------------------------------
Inception (9/30/04) through 6/30/07 +14.15
- --------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Large Cap Growth V.I. Fund
Average Annual Total Return--Class III Shares*+
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERIOD COVERED RETURN
- --------------------------------------------------------------------------
One Year Ended 6/30/07 +15.38%
- --------------------------------------------------------------------------
Inception (5/19/04) through 6/30/07 +11.71
- --------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Large Cap Growth V.I. Fund
Recent Performance Results
- --------------------------------------------------------------------------------
<Table>
<Caption>
6-MONTH 12-MONTH
AS OF JUNE 30, 2007 TOTAL RETURN TOTAL RETURN
- -----------------------------------------------------------------------------------------
Class I Shares* +7.23% +15.70%
- -----------------------------------------------------------------------------------------
Class II Shares* +7.22 +15.67
- -----------------------------------------------------------------------------------------
Class III Shares* +7.07 +15.38
- -----------------------------------------------------------------------------------------
Russell 1000(R) Growth Index** +8.13 +19.04
- -----------------------------------------------------------------------------------------
</Table>
* Average annual and cumulative 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. For a portion of the period, returns do not show the effects
of distribution fees (12b-1 fees) applicable to Class II Shares. If such
fees were included, returns shown would have been lower.
+ The Fund's Manager waived a portion of its fee. Without such waiver, the
Fund's performance would have been lower.
** This unmanaged broad-based Index is a subset of the Russell 3000 Index
consisting of those 1000 companies with higher price-to-book ratios and
higher forecasted growth values.
Past results shown should not be considered a representation of future
performance.
Russell 1000 is a registered trademark of the Frank Russell Company.
5
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Large Cap Growth V.I. Fund
Disclosure of Expenses
- --------------------------------------------------------------------------------
Shareholders of this Fund may incur the following charges: (a) expenses related
to transactions, including sales charges, redemption fees and exchange fees; and
(b) operating expenses including advisory fees, distribution fees including
12b-1 fees, and other Fund expenses. The following example (which is based on a
hypothetical investment of $1,000 invested on January 1, 2007 and held through
June 30, 2007) is intended to assist shareholders both in calculating expenses
based on an investment in the Fund and in comparing these expenses with similar
costs of investing in other mutual funds.
The first table below provides information about actual account values and
actual expenses. In order to estimate the expenses a shareholder paid during the
period covered by this report, shareholders can divide their account value by
$1,000 and then multiply the result by the number in the first line under the
heading entitled "Expenses Paid During the Period."
The second table below provides information about hypothetical account values
and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses. In order to assist
shareholders in comparing the ongoing expenses of investing in this Fund and
other funds, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in other funds' shareholder reports.
The expenses shown in the table are intended to highlight shareholders'
ongoing costs only and do not reflect any transactional expenses, such as sales
charges, redemption fees or exchange fees. Therefore, the second table is useful
in comparing ongoing expenses only, and will not help shareholders determine the
relative total expenses of owning different funds. If these transactional
expenses were included, shareholder expenses would have been higher.
<Table>
<Caption>
EXPENSES PAID
BEGINNING ENDING DURING THE PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JANUARY 1, 2007 TO
JANUARY 1, 2007 JUNE 30, 2007 JUNE 30, 2007
- -------------------------------------------------------------------------------------------------------------------
ACTUAL
- -------------------------------------------------------------------------------------------------------------------
Class I $1,000 $1,072.30 $3.82
- -------------------------------------------------------------------------------------------------------------------
Class II $1,000 $1,072.20 $4.60
- -------------------------------------------------------------------------------------------------------------------
Class III $1,000 $1,070.70 $5.11
- -------------------------------------------------------------------------------------------------------------------
HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES)**
- -------------------------------------------------------------------------------------------------------------------
Class I $1,000 $1,021.21 $3.73
- -------------------------------------------------------------------------------------------------------------------
Class II $1,000 $1,020.46 $4.48
- -------------------------------------------------------------------------------------------------------------------
Class III $1,000 $1,019.96 $4.99
- -------------------------------------------------------------------------------------------------------------------
</Table>
* For each class of the Fund, expenses are equal to the annualized expense
ratio for the class (.74% for Class I, .89% for Class II and .99% for Class
III), multiplied by the average account value over the period, multiplied by
182/365 (to reflect the one-half year period shown).
** Hypothetical 5% annual return before expenses is calculated by pro-rating the
number of days in the most recent fiscal half year divided by 365.
6
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Large Cap Growth V.I. Fund
Portfolio Information as of June 30, 2007
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENT OF
SECTOR REPRESENTATION LONG-TERM INVESTMENTS
- -----------------------------------------------------------------------------------
Information Technology...................................... 34.6%
Health Care................................................. 20.1
Consumer Discretionary...................................... 12.0
Energy...................................................... 8.1
Industrials................................................. 8.0
Financials.................................................. 6.9
Materials................................................... 6.2
Consumer Staples............................................ 4.1
- -----------------------------------------------------------------------------------
</Table>
For Fund compliance purposes, the Fund's sector classifications refer to any one
or more of the sector sub-classifications used by one or more widely recognized
market indexes or ratings group indexes, and/or as defined by Fund management.
This definition may not apply for purposes of this report, which may combine
such sector sub-classifications for reporting ease.
7
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Large Cap Growth V.I. Fund
Schedule of Investments as of June 30, 2007 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES
INDUSTRY HELD COMMON STOCKS VALUE
- --------------------------------------------------------------------------------------------------------------------
AEROSPACE & DEFENSE--3.4% 59,000 Honeywell International, Inc. .............. $ 3,320,520
34,000 Lockheed Martin Corp. ...................... 3,200,420
13,000 Northrop Grumman Corp. ..................... 1,012,310
------------
7,533,250
- --------------------------------------------------------------------------------------------------------------------
AIRLINES--2.1% 91,000 AMR Corp.(a)................................ 2,397,850
68,000 Continental Airlines, Inc. Class B(a)....... 2,303,160
------------
4,701,010
- --------------------------------------------------------------------------------------------------------------------
AUTOMOBILES--1.1% 39,000 Harley-Davidson, Inc. ...................... 2,324,790
- --------------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS--3.6% 15,000 Goldman Sachs Group, Inc. .................. 3,251,250
31,000 Lehman Brothers Holdings, Inc. ............. 2,310,120
28,000 Morgan Stanley.............................. 2,348,640
------------
7,910,010
- --------------------------------------------------------------------------------------------------------------------
CHEMICALS--1.1% 47,000 E.I. du Pont de Nemours & Co. .............. 2,389,480
- --------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT--3.3% 257,000 Cisco Systems, Inc.(a)...................... 7,157,450
- --------------------------------------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS--10.7% 150,000 Dell, Inc.(a)............................... 4,282,500
191,000 EMC Corp.(a)................................ 3,457,100
126,000 Hewlett-Packard Co. ........................ 5,622,120
55,000 International Business Machines Corp. ...... 5,788,750
39,000 Lexmark International, Inc. Class A(a)...... 1,923,090
45,000 NCR Corp.(a)................................ 2,364,300
------------
23,437,860
- --------------------------------------------------------------------------------------------------------------------
CONSTRUCTION & ENGINEERING--0.4% 32,000 Quanta Services, Inc.(a).................... 981,440
- --------------------------------------------------------------------------------------------------------------------
CONTAINERS & PACKAGING--3.1% 45,000 Ball Corp. ................................. 2,392,650
48,000 Crown Holdings, Inc.(a)..................... 1,198,560
45,000 Packaging Corp. of America.................. 1,138,950
65,000 Pactiv Corp.(a)............................. 2,072,850
------------
6,803,010
- --------------------------------------------------------------------------------------------------------------------
DIVERSIFIED CONSUMER SERVICES--1.1% 21,000 ITT Educational Services, Inc.(a)........... 2,464,980
- --------------------------------------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT &
INSTRUMENTS--2.1% 69,000 Agilent Technologies, Inc.(a)(d)............ 2,652,360
128,000 Vishay Intertechnology, Inc.(a)............. 2,024,960
------------
4,677,320
- --------------------------------------------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES--0.3% 11,000 ENSCO International, Inc. .................. 671,110
- --------------------------------------------------------------------------------------------------------------------
FOOD & STAPLES RETAILING--1.0% 76,000 The Kroger Co. ............................. 2,137,880
- --------------------------------------------------------------------------------------------------------------------
FOOD PRODUCTS--1.1% 53,000 H.J. Heinz Co. ............................. 2,515,910
- --------------------------------------------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES--1.3% 33,000 Zimmer Holdings, Inc.(a).................... 2,801,370
- --------------------------------------------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES--12.3% 51,000 Aetna, Inc. ................................ 2,519,400
45,000 AmerisourceBergen Corp. .................... 2,226,150
42,000 Coventry Health Care, Inc.(a)............... 2,421,300
54,000 Express Scripts, Inc.(a).................... 2,700,540
38,000 Humana, Inc.(a)............................. 2,314,580
29,000 Laboratory Corp. of America Holdings(a)..... 2,269,540
41,000 McKesson Corp. ............................. 2,445,240
37,000 Medco Health Solutions, Inc.(a)............. 2,885,630
83,000 UnitedHealth Group, Inc. ................... 4,244,620
37,000 WellPoint, Inc.(a).......................... 2,953,710
------------
26,980,710
- --------------------------------------------------------------------------------------------------------------------
IT SERVICES--1.1% 87,000 Electronic Data Systems Corp. .............. 2,412,510
- --------------------------------------------------------------------------------------------------------------------
INSURANCE--2.3% 36,000 American International Group, Inc. ......... 2,521,080
25,000 Prudential Financial, Inc. ................. 2,430,750
------------
4,951,830
- --------------------------------------------------------------------------------------------------------------------
</Table>
8
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Large Cap Growth V.I. Fund
Schedule of Investments as of June 30, 2007 (continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES
INDUSTRY HELD COMMON STOCKS VALUE
- --------------------------------------------------------------------------------------------------------------------
LIFE SCIENCES TOOLS & SERVICES--1.1% 40,000 Waters Corp.(a)............................. $ 2,374,400
- --------------------------------------------------------------------------------------------------------------------
MACHINERY--2.1% 28,000 Manitowoc Co. .............................. 2,250,640
28,000 Terex Corp.(a).............................. 2,276,400
------------
4,527,040
- --------------------------------------------------------------------------------------------------------------------
MEDIA--3.0% 114,000 The DIRECTV Group, Inc.(a).................. 2,634,540
13,000 The McGraw-Hill Cos., Inc. ................. 885,040
91,000 Walt Disney Co. ............................ 3,106,740
------------
6,626,320
- --------------------------------------------------------------------------------------------------------------------
METALS & MINING--2.0% 33,000 Nucor Corp. ................................ 1,935,450
27,000 Southern Copper Corp.(d).................... 2,545,020
------------
4,480,470
- --------------------------------------------------------------------------------------------------------------------
MULTILINE RETAIL--3.6% 34,000 JC Penney Co., Inc. ........................ 2,460,920
41,000 Kohl's Corp.(a)............................. 2,912,230
50,000 Nordstrom, Inc. ............................ 2,556,000
------------
7,929,150
- --------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS--7.8% 60,000 Exxon Mobil Corp. .......................... 5,032,800
50,000 Frontier Oil Corp. ......................... 2,188,500
30,000 Holly Corp. ................................ 2,225,700
30,000 Sunoco, Inc. ............................... 2,390,400
40,000 Tesoro Corp. ............................... 2,286,000
41,000 Valero Energy Corp. ........................ 3,028,260
------------
17,151,660
- --------------------------------------------------------------------------------------------------------------------
PERSONAL PRODUCTS--1.0% 49,000 The Estee Lauder Cos., Inc. Class A......... 2,229,990
- --------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS--5.6% 54,000 Eli Lilly & Co. ............................ 3,017,520
54,000 Merck & Co., Inc. .......................... 2,689,200
67,000 Pfizer, Inc. ............................... 1,713,190
118,000 Schering-Plough Corp. ...................... 3,591,920
33,000 Sepracor, Inc.(a)........................... 1,353,660
------------
12,365,490
- --------------------------------------------------------------------------------------------------------------------
REAL ESTATE MANAGEMENT &
DEVELOPMENT--1.1% 64,000 CB Richard Ellis Group, Inc.(a)............. 2,336,000
- --------------------------------------------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT--6.9% 107,000 Altera Corp.(d)............................. 2,367,910
66,000 Analog Devices, Inc. ....................... 2,484,240
155,000 Applied Materials, Inc.(d).................. 3,079,850
156,000 Integrated Device Technology, Inc.(a)....... 2,382,120
47,000 KLA-Tencor Corp. ........................... 2,582,650
2,000 Novellus Systems, Inc.(a)................... 56,740
127,000 Teradyne, Inc.(a)........................... 2,232,660
------------
15,186,170
- --------------------------------------------------------------------------------------------------------------------
SOFTWARE--10.7% 85,000 CA, Inc. ................................... 2,195,550
29,000 Cadence Design Systems, Inc.(a)............. 636,840
201,000 Compuware Corp.(a).......................... 2,383,860
71,000 McAfee, Inc.(a)(d).......................... 2,499,200
311,000 Microsoft Corp. ............................ 9,165,170
225,000 Oracle Corp.(a)(d).......................... 4,434,750
88,000 Synopsys, Inc.(a)........................... 2,325,840
------------
23,641,210
- --------------------------------------------------------------------------------------------------------------------
SPECIALTY RETAIL--2.1% 75,000 American Eagle Outfitters, Inc. ............ 1,924,500
19,000 AutoZone, Inc.(a)........................... 2,595,780
------------
4,520,280
- --------------------------------------------------------------------------------------------------------------------
TEXTILES, APPAREL & LUXURY GOODS--1.2% 57,000 Coach, Inc.(a).............................. 2,701,230
- --------------------------------------------------------------------------------------------------------------------
</Table>
9
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Large Cap Growth V.I. Fund
Schedule of Investments as of June 30, 2007 (concluded)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES
INDUSTRY HELD COMMON STOCKS VALUE
- --------------------------------------------------------------------------------------------------------------------
TOBACCO--0.9% 38,000 UST, Inc.(d)................................ $ 2,040,980
- --------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST--$189,365,677)--100.5%................ 220,962,310
- --------------------------------------------------------------------------------------------------------------------
<Caption>
BENEFICIAL
INTEREST SHORT-TERM SECURITIES
- --------------------------------------------------------------------------------------------------------------------
$ 20,151 BlackRock Liquidity Series, LLC Cash Sweep
Series, 5.33%(b)(e)....................... 20,151
14,587,650 BlackRock Liquidity Series, LLC Cash Money
Market, 5.33%(b)(c)(e).................... 14,587,650
- --------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM SECURITIES
(COST--$14,607,801)--6.6%................... 14,607,801
- --------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST--$203,973,478*)--107.1%............... 235,570,111
LIABILITIES IN EXCESS OF OTHER
ASSETS--(7.1%).............................. (15,670,307)
------------
NET ASSETS--100.0%.......................... $219,899,804
============
- --------------------------------------------------------------------------------------------------------------------
</Table>
* The cost and unrealized appreciation (depreciation) of investments as of
June 30, 2007, as computed for federal income tax purposes, are as follows:
<Table>
Aggregate cost.............................................. $204,187,806
============
Gross unrealized appreciation............................... $ 34,566,814
Gross unrealized depreciation............................... (3,184,509)
------------
Net unrealized appreciation................................. $ 31,382,305
============
</Table>
(a) Non-income producing security.
(b) Investments in companies considered to be an affiliate of the Fund, for
purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as
follows:
<Table>
<Caption>
- ------------------------------------------------------------------------------------
NET INTEREST
AFFILIATE ACTIVITY INCOME
- ------------------------------------------------------------------------------------
BlackRock Liquidity Series, LLC Cash Sweep Series........... $ 20,151 $10,677
BlackRock Liquidity Series, LLC Money Market Series......... $3,037,100 $21,117
- ------------------------------------------------------------------------------------
</Table>
(c) Security was purchased with the cash proceeds from securities loans.
(d) Security, or a portion of security, is on loan.
(e) Represents the current yield as of June 30, 2007.
- - For Fund compliance purposes, the Fund's industry classifications refer to
any one or more of the industry sub-classifications used by one or more
widely recognized market indexes or ratings group indexes, and/or as
defined by Fund management. This definition may not apply for purposes of
this report which may combine industry sub-classifications for reporting
ease. Industries are shown as a percent of net assets.
See Notes to Financial Statements.
10
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Large Cap Growth V.I. Fund
Statement of Assets and Liabilities as of June 30, 2007 (unaudited)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments in unaffiliated securities, at value (including
securities loaned of $14,160,034) (identified
cost--$189,365,677)....................................... $220,962,310
Investments in affiliated securities, at value (identified
cost--$14,670,801)........................................ 14,607,801
Receivables:
Dividends................................................. $ 108,240
Capital shares sold....................................... 19,075
Securities lending........................................ 8,799 136,114
------------
Prepaid expenses and other assets........................... 1,984
------------
Total assets.............................................. 235,708,209
------------
- -------------------------------------------------------------------------------------------
LIABILITIES:
Collateral on securities loaned, at value................... 14,587,650
Payables:
Capital shares redeemed................................... 1,061,221
Investment adviser........................................ 116,005
Other affiliates.......................................... 2,246
Distributor............................................... 655 1,180,127
------------
Accrued expenses............................................ 40,628
------------
Total liabilities........................................... 15,808,405
------------
- -------------------------------------------------------------------------------------------
NET ASSETS.................................................. $219,899,804
============
- -------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Class I Shares of Common Stock, $.10 par value, 100,000,000
shares authorized......................................... $ 1,716,459
Class II Shares of Common Stock, $.10 par value, 100,000,000
shares authorized......................................... 11
Class III Shares of Common Stock, $.10 par value,
100,000,000 shares authorized............................. 27,133
Paid-in capital in excess of par............................ 227,765,768
Undistributed investment income--net........................ $ 511,825
Accumulated realized capital losses--net.................... (41,718,025)
Unrealized appreciation--net................................ 31,596,633
------------
Total accumulated losses--net............................... (9,609,567)
------------
NET ASSETS.................................................. $219,899,804
============
- -------------------------------------------------------------------------------------------
NET ASSET VALUE:
Class I--Based on net assets of $216,487,695 and 17,164,588
shares outstanding........................................ $ 12.61
============
Class II--Based on net assets of $1,439 and 113.9 shares
outstanding............................................... $ 12.63
============
Class III--Based on net assets of $3,410,670 and 271,331
shares outstanding........................................ $ 12.57
============
- -------------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements.
11
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Large Cap Growth V.I. Fund
Statement of Operations for the Six Months Ended June 30, 2007 (unaudited)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividends................................................... $ 1,308,844
Securities lending--net..................................... 21,117
Interest from affiliates.................................... 10,677
-----------
Total income................................................ 1,340,638
-----------
- --------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees.................................... $722,925
Accounting services......................................... 38,475
Printing and shareholder reports............................ 16,635
Custodian fees.............................................. 16,193
Professional fees........................................... 15,537
Directors' fees and expenses................................ 5,984
Distribution fees--Class III................................ 3,795
Transfer agent fees--Class I................................ 2,269
Pricing services............................................ 517
Transfer agent fees--Class III.............................. 31
Distribution fees--Class II................................. 1
Other....................................................... 6,451
--------
Total expenses.............................................. 828,813
-----------
Investment income--net...................................... 511,825
-----------
- --------------------------------------------------------------------------------------
REALIZED & UNREALIZED GAIN--NET:
Realized gain on investments--net........................... 12,021,909
Change in unrealized appreciation on investments--net....... 3,096,590
-----------
Total realized and unrealized gain--net..................... 15,118,499
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $15,630,324
===========
- --------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements.
12
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Large Cap Growth V.I. Fund
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<Table>
<Caption>
FOR THE SIX
MONTHS ENDED FOR THE
JUNE 30, 2007 YEAR ENDED
INCREASE (DECREASE) IN NET ASSETS: (UNAUDITED) DECEMBER 31, 2006
- -----------------------------------------------------------------------------------------------
OPERATIONS:
Investment income--net...................................... $ 511,825 $ 608,966
Realized gain--net.......................................... 12,021,909 14,819,478
Change in unrealized appreciation--net...................... 3,096,590 (1,871,581)
------------ ------------
Net increase in net assets resulting from operations........ 15,630,324 13,556,863
------------ ------------
- -----------------------------------------------------------------------------------------------
DIVIDENDS TO SHAREHOLDERS:
Investment income--net:
Class I................................................... -- (608,359)
Class II.................................................. -- (4)
Class III................................................. -- (1,647)
------------ ------------
Net decrease in net assets resulting from dividends to
shareholders.............................................. -- (610,010)
------------ ------------
- -----------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Net decrease in net assets derived from capital share
transactions.............................................. (14,648,893) (823,177)
------------ ------------
- -----------------------------------------------------------------------------------------------
NET ASSETS:
Total increase in net assets................................ 981,431 12,123,676
Beginning of period......................................... 218,918,373 206,794,697
------------ ------------
End of period*.............................................. $219,899,804 $218,918,373
============ ============
- -----------------------------------------------------------------------------------------------
* Undistributed investment income--net...................... $ 511,825 --
============ ============
- -----------------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements.
13
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Large Cap Growth V.I. Fund
Financial Highlights
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS I
--------------------------------------------------------------------
FOR THE SIX
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE MONTHS ENDED FOR THE YEAR ENDED DECEMBER 31,
BEEN DERIVED FROM INFORMATION PROVIDED IN JUNE 30, 2007 ----------------------------------------------------
THE FINANCIAL STATEMENTS. (UNAUDITED) 2006 2005 2004 2003 2002
- ---------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........... $ 11.76 $ 11.00 $ 9.96 $ 9.26 $ 6.91 $ 9.02
-------- -------- -------- -------- -------- --------
Investment income (loss)--net*................. .03 .03 .02 .02 (.03) (.04)
Realized and unrealized gain (loss)--net....... .82 .76 1.04 .70 2.38 (2.07)
-------- -------- -------- -------- -------- --------
Total from investment operations............... .85 .79 1.06 .72 2.35 (2.11)
-------- -------- -------- -------- -------- --------
Less dividends from investment income--net..... -- (.03) (.02) (.02) -- --
-------- -------- -------- -------- -------- --------
Net asset value, end of period................. $ 12.61 $ 11.76 $ 11.00 $ 9.96 $ 9.26 $ 6.91
======== ======== ======== ======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:**
Based on net asset value per share............. 7.23%+ 7.21% 10.64% 7.80% 34.01% (23.39%)
======== ======== ======== ======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses, net waiver and/or reimbursement and
excluding reorganization fees................ .74%*** .76% .60% .79% 1.02% 1.18%
======== ======== ======== ======== ======== ========
Expenses, net of waiver and/or reimbursement... .74%*** .76% .60% .79% 1.03% 1.18%
======== ======== ======== ======== ======== ========
Expenses....................................... .74%*** .76% .77% .79% 1.03% 1.18%
======== ======== ======== ======== ======== ========
Investment income (loss)--net.................. .46%*** .30% .20% .23% (.39%) (.55%)
======== ======== ======== ======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)....... $216,488 $215,808 $205,406 $181,406 $ 86,697 $ 45,100
======== ======== ======== ======== ======== ========
Portfolio turnover............................. 40% 116% 105% 155% 141% 134%
======== ======== ======== ======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------
</Table>
* Based on average shares outstanding.
** Total investment returns exclude insurance-related fees and expenses.
*** Annualized.
+ Aggregate total investment return.
See Notes to Financial Statements.
14
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Large Cap Growth V.I. Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS II
--------------------------------------------------------
FOR THE YEAR
FOR THE SIX ENDED
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE MONTHS ENDED DECEMBER 31, FOR THE PERIOD
BEEN DERIVED FROM INFORMATION PROVIDED IN JUNE 30, 2007 ----------------- SEPTEMBER 30, 2004@
THE FINANCIAL STATEMENTS. (UNAUDITED) 2006 2005 TO DECEMBER 31, 2004
- ------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................... $11.78 $11.02 $ 9.96 $ 8.84
------ ------ ------- -------
Investment income--net*................................. .02 .04 .03 .03
Realized and unrealized gain--net....................... .83 .75 1.05 1.11
------ ------ ------- -------
Total from investment operations........................ .85 .79 1.08 1.14
------ ------ ------- -------
Less dividends from investment income--net.............. -- (.03) (.02) (.02)
------ ------ ------- -------
Net asset value, end of period.......................... $12.63 $11.78 $ 11.02 $ 9.96
====== ====== ======= =======
- ------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:**
Based on net asset value per share...................... 7.22%+ 7.20% 10.84% 12.92%+
====== ====== ======= =======
- ------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses, net of waiver................................. .89%*** .81% .60% .79%***
====== ====== ======= =======
Expenses................................................ .89%*** .81% .77% .79%***
====== ====== ======= =======
Investment income--net.................................. .31%*** .36% .29% 1.04%***
====== ====== ======= =======
- ------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)................ $ 1 $ 1 $ 1 $ 1
====== ====== ======= =======
Portfolio turnover...................................... 40% 116% 105% 155%
====== ====== ======= =======
- ------------------------------------------------------------------------------------------------------------------
</Table>
* Based on average shares outstanding.
** Total investment returns exclude insurance-related fees and expenses.
*** Annualized.
+ Aggregate total investment return.
@ Commencement of operations.
See Notes to Financial Statements.
15
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Large Cap Growth V.I. Fund
Financial Highlights (concluded)
- --------------------------------------------------------------------------------
[LINE GRAPH]
<Table>
<Caption>
CLASS III
--------------------------------------------------------
FOR THE YEAR
FOR THE SIX ENDED
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE MONTHS ENDED DECEMBER 31, FOR THE PERIOD
BEEN DERIVED FROM INFORMATION PROVIDED IN JUNE 30, 2007 ----------------- MAY 19, 2004@ TO
THE FINANCIAL STATEMENTS. (UNAUDITED) 2006 2005 DECEMBER 31, 2004
- ------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................... $11.74 $10.99 $ 9.95 $ 8.92
------ ------ ------- -------
Investment income (loss)--net*.......................... .01 --+++ --++ .02
Realized and unrealized gain--net....................... .82 .76 1.04 1.02
------ ------ ------- -------
Total from investment operations........................ .83 .76 1.04 1.04
------ ------ ------- -------
Less dividends from investment income--net.............. -- (.01) --++ (.01)
------ ------ ------- -------
Net asset value, end of period.......................... $12.57 $11.74 $ 10.99 $ 9.95
====== ====== ======= =======
- ------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:**
Based on net asset value per share...................... 7.07%+ 6.88% 10.47% 11.68%+
====== ====== ======= =======
- ------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses, net of waiver................................. .99%*** 1.01% .84% 1.05%***
====== ====== ======= =======
Expenses................................................ .99%*** 1.01% 1.02% 1.05%***
====== ====== ======= =======
Investment income (loss)--net........................... .18%*** .02% (.01%) .28%***
====== ====== ======= =======
- ------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)................ $3,411 $3,109 $ 1,387 $ 431
====== ====== ======= =======
Portfolio turnover...................................... 40% 116% 105% 155%
====== ====== ======= =======
- ------------------------------------------------------------------------------------------------------------------
</Table>
* Based on average shares outstanding.
** Total investment returns exclude insurance-related fees and expenses.
*** Annualized.
+ Aggregate total investment return.
++ Amount is less than $(.01) per share.
+++ Amount is less than $.01 per share.
@ Commencement of operations.
See Notes to Financial Statements.
16
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Large Cap Growth V.I. Fund
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES:
BlackRock Variable Series Funds, Inc. (the "Company") is an open-end management
investment company that is comprised of 16 separate funds. Each fund offers
three 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. ("Merrill Lynch")), and other insurance companies that are not
affiliated with Merrill Lynch, for their separate accounts to fund benefits
under certain variable annuity and variable life insurance contracts. BlackRock
Large Cap Growth V.I. Fund (the "Fund") is classified as "diversified," as
defined in the Investment Company Act of 1940, as amended. Class I, Class II and
Class III 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. In addition, Class II and Class III Shares
bear certain expenses related to the distribution of such shares. The Fund's
financial statements are prepared in conformity with U.S. generally accepted
accounting principles, which may require the use of management accruals and
estimates. Actual results may differ from these estimates. These unaudited
financial statements reflect all adjustments, which are, in the opinion of
management, necessary to present a fair statement of the results for the interim
period. All such adjustments are of a normal, recurring nature. Income, expenses
(other than expenses attributable to a specific class) and realized and
unrealized gains and losses are allocated daily to each class based on its
relative net assets. The following is a summary of significant accounting
policies followed by the Fund.
(a) Valuation of investments--Equity securities held by the Fund that are
traded on stock exchanges or the NASDAQ Global Market are valued at the last
sale price or official close price on the exchange, as of the close of business
on the day the securities are being valued or, lacking any sales, at the last
available bid price for long positions, and at the last available asked price
for short positions. In cases where equity securities are traded on more than
one exchange, the securities are valued on the exchange designated as the
primary market by or under the authority of the Board of Directors of the
Company. Long positions traded in the over-the-counter ("OTC") market, NASDAQ
Capital Market or Bulletin Board are valued at the last available bid price or
yield equivalent obtained from one or more dealers or pricing services approved
by the Board of Directors of the Company. Short positions traded in the OTC
market are valued at the last available asked price. Portfolio securities that
are traded both in the OTC market and on a stock exchange are valued according
to the broadest and most representative market.
Options written or purchased are valued at the last sale price in the case of
exchange-traded options. Options traded in the OTC market are valued at the last
asked price (options written) or the last bid price (options purchased). Swap
agreements are valued based upon quoted fair valuations received daily by the
Fund from a pricing service or counterparty. Financial futures contracts and
options thereon, which are traded on exchanges, are valued at their last sale
price as of the close of such exchanges. Valuation of short-term investment
vehicles is generally based on the net asset value of the underlying investment
vehicle or amortized cost.
Repurchase agreements are valued at cost plus accrued interest. The Fund
employs pricing services to provide certain securities prices for the Fund.
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, including valuations furnished by the
pricing services retained by the Fund, which may use a matrix system for
valuations. The procedures of a pricing service and its valuations are reviewed
by the officers of the Fund under the general supervision of the Company's Board
of Directors. Such valuations and procedures will be reviewed periodically by
the Board of Directors of the Company.
Generally, trading in foreign securities, as well as U.S. government
securities, money market instruments and certain fixed income securities, is
substantially completed each day at various times prior to the close of business
on the New York Stock Exchange ("NYSE"). The values of such securities used in
computing the net asset value of the Fund's shares are determined as of such
times. Foreign currency exchange rates will generally be determined as of the
close of business on the NYSE. Occasionally, events affecting the values of such
securities and such exchange rates may occur between the times at which they are
determined and the close of business on the NYSE that may not be reflected in
the computation of the Fund's net asset value. If events (for example, a company
17
- --------------------------------------------------------------------------------
announcement, market volatility or a natural disaster) occur during such periods
that are expected to materially affect the value of such securities, those
securities will be valued at their fair value as determined in good faith by the
Company's Board of Directors or by BlackRock Advisors, LLC (the "Manager"), an
indirect, wholly owned subsidiary of BlackRock, Inc., using a pricing service
and/or procedures approved by the Company's Board of Directors.
(b) Derivative financial instruments--The Fund may engage in various portfolio
investment strategies both to increase the return of the Fund and to hedge, or
protect, its exposure to interest rate movements and movements in the securities
markets. Losses may arise due to changes in the value of the contract or if the
counterparty does not perform under the contract. The counterparty for certain
instruments may pledge cash or securities as collateral.
- - 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 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 financial futures contracts. Financial 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.
- - Forward foreign exchange contracts--The Fund may enter into forward foreign
exchange contracts as a hedge against either specific transactions or portfolio
positions. The contract is marked-to-market daily and the change in market value
is recorded by the Fund as an unrealized gain or loss. When the contract is
closed, the Fund records a realized gain or loss equal to the difference between
the value at the time it was opened and the value at the time it was closed.
(c) Foreign currency transactions--Transactions denominated in foreign
currencies are recorded at the exchange rate prevailing when recognized. Assets
and liabilities denominated in foreign currencies are valued at the exchange
rate at the end of the period. Foreign currency transactions are the result of
settling (realized) or valuing (unrealized) assets and liabilities expressed in
foreign currencies into U.S. dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates on investments.
The Fund invests in foreign securities, which may involve a number of risk
factors and special considerations not present with investments in securities of
U.S. corporations.
(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).
Realized gains and losses on security transactions are determined on the
identified cost basis. Dividend income is recorded on the ex-dividend dates.
Dividends from foreign securities where the ex-dividend date may have passed are
subsequently recorded when the Fund has determined the ex-dividend date.
Interest income is recognized on the accrual basis.
(f) Expenses--Certain expenses have been allocated to the individual funds in
the Company on a pro rata basis based upon the respective aggregate net asset
value of each fund included in the Company.
(g) Securities lending--The Fund may lend securities to financial institutions
that provide cash or securities issued or guaranteed by the U.S. government as
collateral, which will be
18
- --------------------------------------------------------------------------------
maintained at all times in an amount equal to at least 100% of the current
market value of the loaned securities. The market value of the loaned securities
is determined at the close of business of the Fund and any additional required
collateral is delivered to the Fund on the next business day. Where the Fund
receives securities as collateral for the loaned securities, it receives a fee
from the borrower. The Fund typically receives the income on the loaned
securities, but does not receive the income on the collateral. Where the Fund
receives cash collateral, it may invest such collateral and retain the amount
earned on such investment, net of any amount rebated to the borrower. Loans of
securities are terminable at any time and the borrower, after notice, is
required to return borrowed securities within five business days. The Fund may
pay reasonable finder's, lending agent, administrative and custodial fees in
connection with its loans. In the event that the borrower defaults on its
obligation to return borrowed securities because of insolvency or for any other
reason, the Fund could experience delays and costs in gaining access to the
collateral. The Fund also could suffer a loss where the value of the collateral
falls below the market value of the borrowed securities, in the event of
borrower default or in the event of losses on investments made with cash
collateral.
(h) Recent accounting pronouncements--Effective June 29, 2007, the Fund
implemented Financial Accounting Standards Board ("FASB") Interpretation No. 48,
"Accounting for Uncertainty in Income Taxes -- an interpretation of FASB
Statement No. 109" ("FIN 48"). FIN 48 prescribes the minimum recognition
threshold a tax position must meet in connection with accounting for
uncertainties in income tax positions taken or expected to be taken by an
entity, including investment companies, before being measured and recognized in
the financial statements. Management has evaluated the application of FIN 48 to
the Fund, and has determined that the adoption of FIN 48 does not have a
material impact on the Fund's financial statements. The Fund files U.S. and
various state tax returns. No income tax returns are currently under
examination. The statute of limitations on the Fund's tax returns remains open
for the years ended December 31, 2003 through December 31, 2006.
In September 2006, Statement of Financial Accounting Standards No. 157, "Fair
Value Measurements" ("FAS 157"), was issued and is effective for fiscal years
beginning after November 15, 2007. FAS 157 defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. At this time, management is evaluating the implications of FAS 157
and its impact on the Fund's financial statements, if any, has not been
determined.
In addition, in February 2007, Statement of Financial Accounting Standards No.
159, "The Fair Value Option for Financial Assets and Financial Liabilities"
("FAS 159"), was issued and is effective for fiscal years beginning after
November 15, 2007. Early adoption is permitted as of the beginning of a fiscal
year that begins on or before November 15, 2007, provided the entity also elects
to apply the provisions of FAS 157. FAS 159 permits entities to choose to
measure many financial instruments and certain other items at fair value that
are not currently required to be measured at fair value. FAS 159 also
establishes presentation and disclosure requirements designed to facilitate
comparisons between entities that choose different measurement attributes for
similar types of assets and liabilities. At this time, management is evaluating
the implications of FAS 159 and its impact on the Fund's financial statements,
if any, has not been determined.
2. INVESTMENT ADVISORY AGREEMENT AND TRANSACTIONS WITH AFFILIATES:
The Fund has entered into an Investment Advisory Agreement with the Manager. The
Fund has also entered into separate Distribution Agreements and Distribution
Plans with FAM Distributors, Inc. ("FAMD") and BlackRock Distributors, Inc. and
its affiliates ("BDI") (collectively, the "Distributor"). FAMD is a wholly owned
subsidiary of Merrill Lynch Group, Inc., and BDI is an affiliate of BlackRock,
Inc. Merrill Lynch and The PNC Financial Services Group, Inc. ("PNC") are the
principal owners of BlackRock, Inc.
The Manager 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 Fund. For such services, the Fund
pays a monthly fee at the annual rate of .65% of the average daily value of the
Fund's net assets. In addition, the Manager has entered into a sub-advisory
agreement with BlackRock Investment Management, LLC ("BIM"), an affiliate of the
Manager, under which the Manager pays BIM for services it provides a monthly fee
at an annual rate that is a percentage of the management fee paid by the Fund to
the Manager.
Pursuant to the Distribution Plans adopted by the Company, in accordance with
Rule 12b-1
19
- --------------------------------------------------------------------------------
under the Investment Company Act of 1940, the Fund pays the Distributor ongoing
distribution fees each month at an annual rate of .15% and .25% of the average
daily value of the Fund's Class II and Class III net assets, respectively.
The Company has received an exemptive order from the Securities and Exchange
Commission permitting it to lend portfolio securities to Merrill Lynch, Pierce,
Fenner & Smith Inc. ("MLPF&S"), a wholly owned subsidiary of Merrill Lynch, or
its affiliates. As of June 30, 2007, the Fund lent securities with a value of
$5,839,989 to MLPF&S or its affiliates. Pursuant to that order, the Company also
has retained BIM as the securities lending agent for a fee based on a share of
the returns on investment of cash collateral. BIM may, on behalf of the Company
and the Fund, invest cash collateral received by the Fund for such loans, among
other things, in a private investment company managed by the Manager or in
registered money market funds advised by the Manager or its affiliates. For the
six months ended June 30, 2007, BIM received $6,476 in securities lending agent
fees from the Fund.
For the six months ended June 30, 2007, the Fund reimbursed the Manager $1,928
for certain accounting services.
PFPC Inc., an indirect, wholly owned subsidiary of PNC and an affiliate of the
Manager, is the Fund's transfer agent.
Certain officers and/or directors of the Company are officers and/or directors
of BlackRock, Inc. or its affiliates.
3. INVESTMENTS:
Purchases and sales of investments, excluding short-term securities, for the six
months ended June 30, 2007 were $88,237,632 and $101,416,442, respectively.
4. CAPITAL SHARE TRANSACTIONS:
Net decrease in net assets derived from capital share transactions were
$14,648,893 and $823,177 for the six months ended June 30, 2007 and the year
ended December 31, 2006, respectively.
Transactions in capital shares for each class were as follows:
<Table>
<Caption>
- ------------------------------------------------------------------
Class I Shares for Six Months Ended
June 30, 2007 Shares Dollar Amount
- ------------------------------------------------------------------
Shares sold.......................... 331,592 $ 4,079,116
Shares redeemed...................... (1,517,717) (18,819,075)
---------- ------------
Net decrease......................... (1,186,125) $(14,739,959)
========== ============
- ------------------------------------------------------------------
</Table>
<Table>
<Caption>
- ------------------------------------------------------------------
Class I Shares for the Year Ended
December 31, 2006 Shares Dollar Amount
- ------------------------------------------------------------------
Shares sold.......................... 2,748,794 $ 31,787,071
Shares issued to shareholders in
reinvestment of dividends........... 51,731 608,359
---------- ------------
Total issued......................... 2,800,525 32,395,430
Shares redeemed...................... (3,115,106) (34,936,204)
---------- ------------
Net decrease......................... (314,581) $ (2,540,774)
========== ============
- ------------------------------------------------------------------
</Table>
<Table>
<Caption>
- ------------------------------------------------------------------
Class II Shares for the Six Months Ended Dollar
June 30, 2007 Shares Amount
- ------------------------------------------------------------------
Shares issued to shareholders in reinvestment of
dividends...................................... -- --
-- --
Net increase.................................... -- --
== ==
- ------------------------------------------------------------------
</Table>
<Table>
<Caption>
- ------------------------------------------------------------------
Class II Shares for the Year Ended Dollar
December 31, 2006 Shares Amount
- ------------------------------------------------------------------
Shares issued to shareholders in reinvestment of
dividends...................................... --* $4
-- --
Net increase.................................... --* $4
== ==
- ------------------------------------------------------------------
</Table>
* Amount is less than 1 share.
<Table>
<Caption>
- ------------------------------------------------------------------
Class III Shares for the Six Months Ended Dollar
June 30, 2007 Shares Amount
- ------------------------------------------------------------------
Shares sold............................. 106,775 $ 1,305,459
Shares redeemed......................... (100,390) (1,214,393)
-------- -----------
Net increase............................ 6,385 $ 91,066
======== ===========
- ------------------------------------------------------------------
</Table>
<Table>
<Caption>
- -----------------------------------------------------------------
Class III Shares for the Year Ended Dollar
December 31, 2006 Shares Amount
- -----------------------------------------------------------------
Shares sold............................. 505,587 $ 5,575,868
Shares issued to shareholders in
reinvestment of dividends.............. 140 1,647
-------- -----------
Total issued............................ 505,727 5,577,515
Shares redeemed......................... (367,019) (3,859,922)
-------- -----------
Net increase............................ 138,708 $ 1,717,593
======== ===========
- -----------------------------------------------------------------
</Table>
5. SHORT-TERM BORROWINGS:
The Company, on behalf of the Fund, along with certain other funds managed by
the Manager and its affiliates, is party to a $500,000,000 credit agreement with
a group of lenders, which expires November 2007. 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 .06% per annum based on the Fund's pro rata share of the
unused portion of the credit agreement. Amounts borrowed under the credit
agreement bear interest at a rate equal to, at each fund's election, the federal
funds rate plus .35% or a base rate as defined in the credit agreement. The Fund
did not borrow under the credit agreement during the six months ended June 30,
2007.
20
- --------------------------------------------------------------------------------
6. CAPITAL LOSS CARRYFORWARD:
On December 31, 2006, the Fund had a net capital loss carry forward of
$53,525,606, of which $33,269,220 expires in 2008, $19,237,460 expires in 2009
and $1,018,926 expires in 2012. This amount will be available to offset like
amounts of any future taxable gains.
21
- --------------------------------------------------------------------------------
BLACKROCK LARGE CAP VALUE V.I. FUND
-------------------------------------------------------------------------
Semi-Annual Report (Unaudited)
June 30, 2007
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Large Cap Value V.I. Fund
A Discussion With Your Fund's Portfolio Manager
- --------------------------------------------------------------------------------
The Fund weathered a volatile market environment to post strong absolute and
relative returns for the semi-annual reporting period.
HOW DID THE FUND PERFORM DURING THE PERIOD IN LIGHT OF THE EXISTING MARKET
CONDITIONS?
For the six-month period ended June 30, 2007, BlackRock Large Cap Value V.I.
Fund's Class I Shares had a total return of +9.28%, exceeding the +6.23% return
of the benchmark Russell 1000 Value Index. Fund results also outpaced the +6.98%
average return of the Lipper Multi-Cap Value Funds (Variable Products) category
for the same period. (Funds in this Lipper category invest in a variety of
market capitalization ranges without concentrating 75% of their equity assets in
any one market capitalization range over an extended period of time. Multi-Cap
Value funds typically have an average price-to-earnings ratio, price-to-book
ratio and three-year sales-per-share growth value compared to the Standard &
Poor's SuperComposite 1500 Index.)
The Fund invests primarily in a diversified portfolio of large cap companies
selected from securities found in the Russell 1000 Value Index. As such, the
Fund was influenced by the same economic and market events that affected the
broader stock market during the past six months.
Economic conditions changed over the course of the period, ending on a more
positive note. Markets began 2007 in a rally that was halted in late February,
sending the Dow Jones Industrial Average--the index of 30 U.S. stocks listed on
the New York Stock Exchange--more than 416 points lower. This represented the
largest one-week decline in U.S. equity markets since September 2001. The
sell-off came on the heels of a substantial market correction in Asia,
particularly in China.
The markets rebounded shortly after, but remained volatile amid an increase in
subprime mortgage delinquencies and the high-profile bankruptcy of a leading
subprime mortgage company. However, there was ongoing investor debate as to
whether the subprime meltdown would spread through other parts of the economy.
First-quarter 2007 gross domestic product came in at 0.7%, the slowest rate of
growth in almost five years. Meanwhile, first-quarter corporate earnings growth
in the United States fell below the 10% mark for the first time in several
years, but continued to exhibit resilience. In the second quarter of 2007, U.S.
stock indexes rebounded, posting impressive gains and setting records along the
way as corporate earnings outperformed investor expectations. The advance slowed
toward the end of the period, but equities finished firmly in positive
territory.
Ample inventories from non-OPEC countries and unseasonably warm weather helped
stabilize crude oil prices during the winter, but the onset of the summer
driving season pushed prices above $71 per barrel. The Federal Reserve Board
(the Fed) kept monetary policy at a pause, leaving its target interest rate
steady at 5.25%. The slowdown in the U.S. housing market remained a concern for
investors, although consumer spending continued to fuel the economy.
WHAT FACTORS MOST INFLUENCED FUND PERFORMANCE?
Several factors contributed to the Fund's outperformance of its benchmark. We
significantly underweighted the financials sector, particularly commercial
banks, which lagged during the period. Performance was helped by good stock
selection among capital markets players. We believe that the global
mergers-and-acquisitions (M&A) boom will continue, and that those companies with
a global presence will do well. Stock selection within the energy and consumer
discretionary sectors further enhanced performance, led by shares of Goodyear
Tire & Rubber Co., oil refiners Tesoro Corp. and Marathon Oil Corp., and oil-rig
service provider Tidewater Inc. In energy, we prefer the integrated firms and
refiners over the exploration and production companies. Stock selection and an
overweight position in materials (particularly the metals and mining industry)
and industrials (particularly machinery and the aerospace industry) contributed
positively to the Fund's results, with United States Steel Corp., Lyondell
Chemical Co., engine manufacturer Cummins, Inc. and equipment manufacturer SPX
Corp. performing particularly well. Finally, the Fund's allocation within the
information technology sector, particularly our overweighting of software and
semiconductors, positively impacted returns, as did the individual performance
generated by Compuware Corp.
Detracting from the Fund's relative results was stock selection in the
consumer staples sector, particularly our positions in Kraft Foods Inc. and
ConAgra Foods, Inc. While overweighting the health care sector was the right
alloca-
2
- --------------------------------------------------------------------------------
tion decision, the benefit from this overweight was negated by poor stock
selection within the sector. Underweighting the utilities and telecommunication
services sectors also detracted from performance. Individual stocks from other
sectors that had a negative impact on performance for the period included server
computing vendor Sun Microsystems Inc., telecommunications giant AT&T Inc.,
brokerage firm The Bear Stearns Cos. Inc., airline AMR Corp., retailer JC Penney
Co., Inc. and oil refiners Occidental Petroleum Corp. and Devon Energy Corp.
WHAT CHANGES WERE MADE TO THE PORTFOLIO DURING THE PERIOD?
Overall, we continued our efforts to identify companies with favorable growth
characteristics and earnings developments, selling at attractive relative
valuations. As a result of our bottom-up stock-selection process, we increased
the Fund's positions in the telecommunication services and consumer staples
sectors, and modestly reduced exposure to the financials, consumer
discretionary, health care, information technology, materials and industrials
sectors. Recent efforts have been focused on creating a two-pronged portfolio:
one prong invested in cyclical stocks with a global emphasis, and the other in
higher-quality companies with predictable earnings. We believe this is a prudent
approach for navigating the current investment climate.
The largest purchases during the period, based on capital expended, included
American International Group, Inc., General Electric Co., Valero Energy Corp.,
AT&T Inc. and Sun Microsystems Inc. The largest sales, based on capital raised,
included Exxon Mobil, Lyondell Chemical, Occidental Petroleum Corp., General
Motors Corp. and Cummins. These transactions reflect our ongoing refinement of
the portfolio, as we continue to look for stocks that best meet our investment
criteria while pruning those that have deteriorated versus our original
assessment.
HOW WOULD YOU CHARACTERIZE THE FUND'S POSITION AT THE CLOSE OF THE PERIOD?
Relative to its benchmark, the Fund's largest overweights at period-end were
in information technology, health care, energy, materials and industrials, and
the largest underweights were in financials, utilities, consumer discretionary,
telecommunication services and consumer staples.
Based on the equity market run-up seen since the February correction, there
has been some concern that equities may be overbought, potentially setting the
stage for some near-term consolidation. We acknowledge that the markets do face
headwinds in the form of slowing economic growth, worsening corporate earnings
growth and a Fed that is not presently accommodative. In our opinion, however,
the backdrop for an equity bear market simply does not exist. Monetary policy is
by no means overly tight, inflation (while higher than the Fed would like) is
still low and seems to be easing, and earnings growth is slowing, not
collapsing. From our perspective, the tailwinds of good valuations, strong
global economic growth, ongoing corporate M&A activity and the relative
attractiveness of stocks compared to other investments (chiefly bonds) should
help the bull market to continue.
In summary, we believe that a soft landing is achievable in the United States.
While the equity market may struggle if credit problems worsen, we do not
believe a bear market is a likely outcome. Over the years, our investment
process--which combines the art of fundamental research with the science of
quantitative analysis, subject to specific risk-management parameters--has
delivered strong, consistent long-term results for shareholders. Given our
outlook for the remainder of the year, we are confident that our disciplined
investment process and two-pronged portfolio positioning will serve shareholders
well in the second half of 2007.
Robert C. Doll, Jr.
Portfolio Manager
July 13, 2007
3
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Large Cap Value V.I. Fund
Total Return Based on a $10,000 Investment
- --------------------------------------------------------------------------------
[LINE GRAPH]
<Table>
<Caption>
BLACKROCK LARGE CAP VALUE V.I.
FUND+--CLASS I SHARES* RUSSELL 1000 VALUE INDEX++
------------------------------ --------------------------
4/23/01** 10000 10000
6/01 10460 10225
6/02 10570 9309
6/03 10059 9214
6/04 12949 11162
6/05 15539 12731
6/06 17917 14271
6/07 21601 17391
</Table>
[LINE GRAPH]
<Table>
<Caption>
BLACKROCK LARGE CAP BLACKROCK LARGE CAP
VALUE V.I. FUND+--CLASS II VALUE V.I. FUND+--CLASS III
SHARES* SHARES* RUSSELL 1000 VALUE INDEX++
-------------------------- --------------------------- --------------------------
9/30/04** 10000 10000 10000
6/05 12085 12085 11233
6/06 13933 13933 12592
6/07 16756 16768 15345
</Table>
* Assuming transaction costs, if any, and other operating expenses, including
advisory fees. Does not include insurance-related fees and expenses.
Effective September 2, 2003, Class A Shares were redesignated Class I Shares.
** Commencement of operations.
+ The Fund invests primarily in equity securities of large cap companies that
Fund management selects from among those included in the unmanaged Russell
1000 Value Index.
++ This unmanaged broad-based Index is a subset of the Russell 3000 Index
consisting of those 1000 securities with lower price-to-book ratios and lower
forecasted growth values.
Past results shown should not be considered a representation of future
performance.
4
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Large Cap Value V.I. Fund
Average Annual Total Return--Class I Shares*
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERIOD COVERED RETURN
- --------------------------------------------------------------------------
One Year Ended 6/30/07 +20.56%
- --------------------------------------------------------------------------
Five Years Ended 6/30/07 +15.37
- --------------------------------------------------------------------------
Inception (4/23/01) through 6/30/07 +13.26
- --------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Large Cap Value V.I. Fund
Average Annual Total Return--Class II Shares*
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERIOD COVERED RETURN
- --------------------------------------------------------------------------
One Year Ended 6/30/07 +20.26%
- --------------------------------------------------------------------------
Inception (9/30/04) through 6/30/07 +20.67
- --------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Large Cap Value V.I. Fund
Average Annual Total Return--Class III Shares*
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERIOD COVERED RETURN
- --------------------------------------------------------------------------
One Year Ended 6/30/07 +20.34%
- --------------------------------------------------------------------------
Inception (9/30/04) through 6/30/07 +20.69
- --------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Large Cap Value V.I. Fund
Recent Performance Results
- --------------------------------------------------------------------------------
<Table>
<Caption>
6-MONTH 12-MONTH
AS OF JUNE 30, 2007 TOTAL RETURN TOTAL RETURN
- -----------------------------------------------------------------------------------------
Class I Shares* +9.28% +20.56%
- -----------------------------------------------------------------------------------------
Class II Shares* +9.08 +20.26
- -----------------------------------------------------------------------------------------
Class III Shares* +9.22 +20.34
- -----------------------------------------------------------------------------------------
Russell 1000(R) Value Index** +6.23 +21.87
- -----------------------------------------------------------------------------------------
</Table>
* Average annual and cumulative total investment returns are based on changes
in net asset value for the period 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. For a portion of the period, returns do not show the effects
of distribution fees (12b-1 fees) applicable to Class II and Class III
Shares. If such fees were included, returns shown would have been lower.
** This unmanaged broad-based Index is a subset of the Russell 3000 Index
consisting of those 1000 securities with lower price-to-book ratios and have
lower forecasted growth values.
Past results shown should not be considered a representation of future
performance.
Russell 1000 is a registered trademark of the Frank Russell Company.
5
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Large Cap Value V.I. Fund
Disclosure of Expenses
- --------------------------------------------------------------------------------
Shareholders of this Fund may incur the following charges: (a) expenses related
to transactions, including sales charges, redemption fees and exchange fees; and
(b) operating expenses including advisory fees, distribution fees including
12b-1 fees, and other Fund expenses. The following example (which is based on a
hypothetical investment of $1,000 invested on January 1, 2007 and held through
June 30, 2007) is intended to assist shareholders both in calculating expenses
based on an investment in the Fund and in comparing these expenses with similar
costs of investing in other mutual funds.
The first table below provides information about actual account values and
actual expenses. In order to estimate the expenses a shareholder paid during the
period covered by this report, shareholders can divide their account value by
$1,000 and then multiply the result by the number in the first line under the
heading entitled "Expenses Paid During the Period."
The second table below provides information about hypothetical account values
and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses. In order to assist
shareholders in comparing the ongoing expenses of investing in this Fund and
other funds, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in other funds' shareholder reports.
The expenses shown in the table are intended to highlight shareholders'
ongoing costs only and do not reflect any transactional expenses, such as sales
charges, redemption fees or exchange fees. Therefore, the second table is useful
in comparing ongoing expenses only, and will not help shareholders determine the
relative total expenses of owning different funds. If these transactional
expenses were included, shareholder expenses would have been higher.
<Table>
<Caption>
EXPENSES PAID
BEGINNING ENDING DURING THE PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JANUARY 1, 2007 TO
JANUARY 1, 2007 JUNE 30, 2007 JUNE 30, 2007
- ------------------------------------------------------------------------------------------------------------------
ACTUAL
- ------------------------------------------------------------------------------------------------------------------
Class I $1,000 $1,092.80 $4.38
- ------------------------------------------------------------------------------------------------------------------
Class II $1,000 $1,090.80 $5.06
- ------------------------------------------------------------------------------------------------------------------
Class III $1,000 $1,092.20 $5.69
- ------------------------------------------------------------------------------------------------------------------
HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES)**
- ------------------------------------------------------------------------------------------------------------------
Class I $1,000 $1,020.71 $4.23
- ------------------------------------------------------------------------------------------------------------------
Class II $1,000 $1,020.06 $4.89
- ------------------------------------------------------------------------------------------------------------------
Class III $1,000 $1,019.46 $5.49
- ------------------------------------------------------------------------------------------------------------------
</Table>
* For each class of the Fund, expenses are equal to the annualized expense
ratio for the class (.84% for Class I, .97% for Class II and 1.09% for Class
III), multiplied by the average account value over the period, multiplied by
182/365 (to reflect the one-half year period shown).
** Hypothetical 5% annual return before expenses is calculated by pro-rating the
number of days in the most recent fiscal half year divided by 365.
6
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Large Cap Value V.I. Fund
Portfolio Information as of June 30, 2007
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENT OF
SECTOR REPRESENTATION LONG-TERM INVESTMENTS
- -----------------------------------------------------------------------------------
Financials.................................................. 23.9%
Energy...................................................... 18.0
Health Care................................................. 12.7
Information Technology...................................... 12.5
Industrials................................................. 12.5
Materials & Processing...................................... 6.2
Consumer Staples............................................ 5.6
Consumer Discretionary...................................... 5.1
Telecommunication Services.................................. 3.5
- -----------------------------------------------------------------------------------
</Table>
For Fund compliance purposes, the Fund's sector classifications refer to any one
or more of the sector sub-classifications used by one or more widely recognized
market indexes or ratings group indexes, and/or as defined by Fund management.
This definition may not apply for purposes of this report, which may combine
sector sub-classifications for reporting ease.
7
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Large Cap Value V.I. Fund
Schedule of Investments as of June 30, 2007 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES
INDUSTRY HELD COMMON STOCKS VALUE
- --------------------------------------------------------------------------------------------------------------------
AEROSPACE & DEFENSE--5.7% 47,000 Honeywell International, Inc. ............... $ 2,645,160
27,000 L-3 Communications Holdings, Inc. ........... 2,629,530
24,000 Lockheed Martin Corp. ....................... 2,259,120
43,000 Northrop Grumman Corp. ...................... 3,348,410
51,000 Raytheon Co. ................................ 2,748,390
------------
13,630,610
- --------------------------------------------------------------------------------------------------------------------
AIRLINES--1.1% 97,000 AMR Corp.(a)................................. 2,555,950
- --------------------------------------------------------------------------------------------------------------------
AUTO COMPONENTS--1.0% 69,000 The Goodyear Tire & Rubber Co.(a)............ 2,398,440
- --------------------------------------------------------------------------------------------------------------------
BIOTECHNOLOGY--1.2% 55,000 Biogen Idec, Inc.(a)......................... 2,942,500
- --------------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS--6.3% 19,000 The Bear Stearns Cos., Inc. ................. 2,660,000
18,000 The Goldman Sachs Group, Inc. ............... 3,901,500
48,000 Lehman Brothers Holdings, Inc. .............. 3,576,960
59,000 Morgan Stanley............................... 4,948,920
------------
15,087,380
- --------------------------------------------------------------------------------------------------------------------
CHEMICALS--1.7% 81,000 The Dow Chemical Co. ........................ 3,581,820
9,000 E.I. du Pont de Nemours & Co. ............... 457,560
------------
4,039,380
- --------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT--1.0% 133,000 ADC Telecommunications, Inc.(a).............. 2,437,890
- --------------------------------------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS--4.5% 134,000 EMC Corp.(a)................................. 2,425,400
53,000 Hewlett-Packard Co. ......................... 2,364,860
32,000 International Business Machines Corp. ....... 3,368,000
48,000 NCR Corp.(a)................................. 2,521,920
------------
10,680,180
- --------------------------------------------------------------------------------------------------------------------
CONTAINERS & PACKAGING--0.9% 71,000 Sealed Air Corp. ............................ 2,202,420
- --------------------------------------------------------------------------------------------------------------------
DIVERSIFIED CONSUMER SERVICES--0.0% 3,000 Service Corp. International ................. 38,340
- --------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES--7.5% 40,000 Bank of America Corp. ....................... 1,955,600
162,000 Citigroup, Inc. ............................. 8,308,980
155,000 JPMorgan Chase & Co. ........................ 7,509,750
------------
17,774,330
- --------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION 68,000 AT&T Inc. ................................... 2,822,000
SERVICES--3.5%
55,000 CenturyTel, Inc.(b).......................... 2,697,750
302,000 Qwest Communications International Inc.(a)... 2,929,400
------------
8,449,150
- --------------------------------------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & 64,000 Agilent Technologies, Inc.(a)................ 2,460,160
INSTRUMENTS--1.0%
- --------------------------------------------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES--2.0% 38,000 ENSCO International, Inc. ................... 2,318,380
36,000 Tidewater, Inc. ............................. 2,551,680
------------
4,870,060
- --------------------------------------------------------------------------------------------------------------------
FOOD & STAPLES RETAILING--2.3% 90,000 The Kroger Co. .............................. 2,531,700
87,000 Safeway, Inc. ............................... 2,960,610
------------
5,492,310
- --------------------------------------------------------------------------------------------------------------------
FOOD PRODUCTS--2.7% 57,000 Campbell Soup Co. ........................... 2,212,170
55,000 H.J. Heinz Co. .............................. 2,610,850
20,000 The J.M. Smucker Co. ........................ 1,273,200
16,000 Tyson Foods, Inc. Class A.................... 368,640
------------
6,464,860
- --------------------------------------------------------------------------------------------------------------------
</Table>
8
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Large Cap Value V.I. Fund
Schedule of Investments as of June 30, 2007 (continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES
INDUSTRY HELD COMMON STOCKS VALUE
- --------------------------------------------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES--5.5% 51,000 AmerisourceBergen Corp. ..................... $ 2,522,970
36,000 Humana, Inc.(a).............................. 2,192,760
45,000 McKesson Corp. .............................. 2,683,800
31,000 Medco Health Solutions, Inc.(a).............. 2,417,690
42,000 WellPoint, Inc.(a)........................... 3,352,860
------------
13,170,080
- --------------------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES--0.4% 10,000 Mohawk Industries, Inc.(a)................... 1,007,900
- --------------------------------------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS--0.2% 8,000 The Procter & Gamble Co. .................... 489,520
- --------------------------------------------------------------------------------------------------------------------
IT SERVICES--1.1% 95,000 Electronic Data Systems Corp. ............... 2,634,350
- --------------------------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES--2.6% 159,000 General Electric Co. ........................ 6,086,520
- --------------------------------------------------------------------------------------------------------------------
INSURANCE--10.2% 31,000 AMBAC Financial Group, Inc. ................. 2,702,890
98,000 American International Group, Inc. .......... 6,862,940
57,000 Chubb Corp. ................................. 3,085,980
12,000 Loews Corp. ................................. 611,760
19,000 MetLife, Inc. ............................... 1,225,120
17,000 Nationwide Financial Services, Inc. Class
A.......................................... 1,074,740
36,000 Prudential Financial, Inc. .................. 3,500,280
68,000 The Travelers Cos., Inc. .................... 3,638,000
48,000 W.R. Berkley Corp. .......................... 1,561,920
------------
24,263,630
- --------------------------------------------------------------------------------------------------------------------
LIFE SCIENCES TOOLS & SERVICES--0.2% 7,000 Charles River Laboratories International,
Inc.(a).................................... 361,340
- --------------------------------------------------------------------------------------------------------------------
MACHINERY--3.1% 55,000 AGCO Corp.(a)................................ 2,387,550
3,000 Cummins, Inc. ............................... 303,630
30,000 SPX Corp. ................................... 2,634,300
27,000 Terex Corp.(a)............................... 2,195,100
------------
7,520,580
- --------------------------------------------------------------------------------------------------------------------
MEDIA--1.5% 105,000 Walt Disney Co. ............................. 3,584,700
- --------------------------------------------------------------------------------------------------------------------
METALS & MINING--2.3% 46,000 Nucor Corp. ................................. 2,697,900
25,000 United States Steel Corp. ................... 2,718,750
------------
5,416,650
- --------------------------------------------------------------------------------------------------------------------
MULTILINE RETAIL--2.2% 22,000 Dollar Tree Stores, Inc.(a).................. 958,100
29,000 JC Penney Co., Inc. ......................... 2,099,020
42,000 Nordstrom, Inc. ............................. 2,147,040
------------
5,204,160
- --------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS--16.0% 96,000 Chevron Corp. ............................... 8,087,040
169,000 Exxon Mobil Corp. ........................... 14,175,720
54,000 Frontier Oil Corp. .......................... 2,363,580
62,000 Marathon Oil Corp. .......................... 3,717,520
43,000 Noble Energy, Inc. .......................... 2,682,770
29,000 Sunoco, Inc. ................................ 2,310,720
39,000 Tesoro Corp. ................................ 2,228,850
35,000 Valero Energy Corp. ......................... 2,585,100
------------
38,151,300
- --------------------------------------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS--1.3% 79,000 International Paper Co. ..................... 3,084,950
- --------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS--5.8% 50,000 Eli Lilly & Co. ............................. 2,794,000
61,000 Merck & Co., Inc. ........................... 3,037,800
313,000 Pfizer, Inc. ................................ 8,003,410
------------
13,835,210
- --------------------------------------------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR 43,000 KLA-Tencor Corp. ............................ 2,362,850
EQUIPMENT--2.1%
147,000 Teradyne, Inc.(a)............................ 2,584,260
------------
4,947,110
- --------------------------------------------------------------------------------------------------------------------
</Table>
9
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Large Cap Value V.I. Fund
Schedule of Investments as of June 30, 2007 (concluded)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES
INDUSTRY HELD COMMON STOCKS VALUE
- --------------------------------------------------------------------------------------------------------------------
SOFTWARE--2.9% 67,000 BMC Software, Inc.(a)........................ $ 2,030,100
48,000 Cadence Design Systems, Inc.(a).............. 1,054,080
219,000 Compuware Corp.(a)........................... 2,597,340
79,000 Novell, Inc.(a).............................. 615,410
20,000 Synopsys, Inc.(a)............................ 528,600
------------
6,825,530
- --------------------------------------------------------------------------------------------------------------------
TOBACCO--0.4% 16,000 UST, Inc. ................................... 859,360
- --------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST--$185,602,019)--100.2%................. 238,966,850
- --------------------------------------------------------------------------------------------------------------------
<Caption>
BENEFICIAL
INTEREST SHORT-TERM SECURITIES
- --------------------------------------------------------------------------------------------------------------------
$2,525,000 BlackRock Liquidity Series, LLC Money Market
Series, 5.33% (c)(d)(e).................... 2,525,000
- --------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM SECURITIES
(COST--$2,525,000)--1.1%..................... 2,525,000
- --------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST--$188,127,019*)--101.3%................ 241,491,850
LIABILITIES IN EXCESS OF OTHER
ASSETS--(1.3%)............................. (3,109,574)
------------
NET ASSETS--100.0%........................... $238,382,276
============
- --------------------------------------------------------------------------------------------------------------------
</Table>
* The cost and unrealized appreciation (depreciation) of investments as of
June 30, 2007, as computed for federal income tax purposes, were as follows:
<Table>
Aggregate cost.............................................. $188,396,107
============
Gross unrealized appreciation............................... $ 54,054,794
Gross unrealized depreciation............................... (959,051)
------------
Net unrealized appreciation................................. $ 53,095,743
============
</Table>
(a) Non-income producing security.
(b) Security, or a portion of security, is on loan.
(c) Investments in companies considered to be an affiliate of the Fund, for
purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as
follows:
<Table>
<Caption>
- --------------------------------------------------------------------------------------
NET INTEREST
AFFILIATE ACTIVITY INCOME
- --------------------------------------------------------------------------------------
BlackRock Liquidity Series, LLC Cash Sweep Series........... $ (238,957) $ 992
BlackRock Liquidity Series, LLC Money Market Series......... $(5,808,355) $7,389
- --------------------------------------------------------------------------------------
</Table>
(d) Represents the current yield as of June 30, 2007.
(e) Security was purchased with the cash proceeds from securities loans.
- For Fund compliance purposes, the Fund's industry classifications refer to
any one or more of the industry sub-classifications used by one or more
widely recognized market indexes or ratings group indexes, and/or as
defined by Fund management. This definition may not apply for purposes of
this report, which may combine industry sub-classifications for reporting
ease. Industries are shown as a percent of net assets.
See Notes to Financial Statements.
10
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Large Cap Value V.I. Fund
Statement of Assets and Liabilities as of June 30, 2007 (unaudited)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments in unaffiliated securities, at value (including
securities loaned of $2,452,500) (identified
cost--$185,602,019)....................................... $238,966,850
Investments in affiliated securities, at value (identified
cost--$2,525,000)......................................... 2,525,000
Receivables:
Dividends................................................. $ 200,418
Capital shares sold....................................... 126,293
Securities lending........................................ 2,243
Interest from affiliates.................................. 27 328,981
-----------
Prepaid expenses and other assets........................... 2,870
------------
Total assets................................................ 241,823,701
------------
- ------------------------------------------------------------------------------------------
LIABILITIES:
Collateral on securities loaned, at value................... 2,525,000
Bank overdraft.............................................. 610,351
Payables:
Investment adviser........................................ 145,234
Capital shares redeemed................................... 119,469
Other affiliates.......................................... 3,419 268,122
-----------
Accrued expenses and other liabilities...................... 37,952
------------
Total liabilities........................................... 3,441,425
------------
- ------------------------------------------------------------------------------------------
NET ASSETS.................................................. $238,382,276
============
- ------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Class I Shares of Common Stock, $.10 par value, 100,000,000
shares authorized......................................... $ 1,456,212
Class II Shares of Common Stock, $.10 par value, 100,000,000
shares authorized......................................... 16
Class III Shares of Common Stock, $.10 par value,
100,000,000 shares authorized............................. 10
Paid-in capital in excess of par............................ 162,358,402
Undistributed investment income--net........................ $ 1,190,985
Undistributed realized capital gains--net................... 20,011,820
Unrealized appreciation--net................................ 53,364,831
-----------
Total accumulated earnings--net............................. 74,567,636
------------
NET ASSETS.................................................. $238,382,276
============
- ------------------------------------------------------------------------------------------
NET ASSET VALUE:
Class I--Based on net assets of $238,377,979 and 14,562,115
shares outstanding........................................ $ 16.37
============
Class II--Based on net assets of $2,620 and 160.3 shares
outstanding............................................... $ 16.34
============
Class III--Based on net assets of $1,677 and 102.6 shares
outstanding............................................... $ 16.35
============
- ------------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements.
11
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Large Cap Value V.I. Fund
Statement of Operations for the Six Months Ended June 30, 2007 (unaudited)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividends................................................... $ 2,175,674
Securities lending--net..................................... 7,389
Interest from affiliates.................................... 992
-----------
Total income................................................ 2,184,055
-----------
- --------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees.................................... $887,210
Accounting services......................................... 37,412
Custodian fees.............................................. 20,526
Professional fees........................................... 15,910
Printing and shareholder reports............................ 15,756
Directors' fees and expenses................................ 6,693
Transfer agent fees--Class I................................ 2,374
Pricing services............................................ 533
Distribution fees--Class II................................. 4
Distribution fees--Class III................................ 2
Other....................................................... 6,650
--------
Total expenses.............................................. 993,070
-----------
Investment income--net...................................... 1,190,985
-----------
- --------------------------------------------------------------------------------------
REALIZED & UNREALIZED GAIN--NET:
Realized gain on investments--net........................... 18,409,549
Change in unrealized appreciation on investments--net....... 1,463,928
-----------
Total realized and unrealized gain--net..................... 19,873,477
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $21,064,462
===========
- --------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements.
12
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Large Cap Value V.I. Fund
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<Table>
<Caption>
FOR THE SIX
MONTHS ENDED FOR THE
JUNE 30, 2007 YEAR ENDED
INCREASE (DECREASE) IN NET ASSETS: (UNAUDITED) DECEMBER 31, 2006
- -----------------------------------------------------------------------------------------------
OPERATIONS:
Investment income--net...................................... $ 1,190,985 $ 1,853,540
Realized gain--net.......................................... 18,409,549 21,821,403
Change in unrealized appreciation--net...................... 1,463,928 10,177,798
------------ ------------
Net increase in net assets resulting from operations........ 21,064,462 33,852,741
------------ ------------
- -----------------------------------------------------------------------------------------------
DIVIDENDS & DISTRIBUTIONS TO SHAREHOLDERS:
Investment income--net:
Class I................................................... -- (1,853,606)
Class II.................................................. -- (12)
Class III................................................. -- (12)
Realized gain--net:
Class I................................................... -- (20,848,752)
Class II.................................................. -- (138)
Class III................................................. -- (138)
------------ ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders............................. -- (22,702,658)
------------ ------------
- -----------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Net increase (decrease) in net assets derived from capital
share transactions........................................ (14,232,156) 6,364,425
------------ ------------
- -----------------------------------------------------------------------------------------------
NET ASSETS:
Total increase in net assets................................ 6,832,306 17,514,508
Beginning of period......................................... 231,549,970 214,035,462
------------ ------------
End of period*.............................................. $238,382,276 $231,549,970
============ ============
- -----------------------------------------------------------------------------------------------
* Undistributed investment income--net...................... $ 1,190,985 --
============ ============
- -----------------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements.
13
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Large Cap Value V.I. Fund
Financial Highlights
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS I
--------------------------------------------------------------------
FOR THE SIX
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE MONTHS ENDED FOR THE YEAR ENDED DECEMBER 31,
BEEN DERIVED FROM INFORMATION PROVIDED IN THE JUNE 30, 2007 ----------------------------------------------------
FINANCIAL STATEMENTS. (UNAUDITED) 2006 2005 2004 2003 2002
- --------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................ $ 14.98 $ 14.31 $ 13.36 $ 11.90 $ 8.92 $ 10.26
-------- -------- -------- -------- -------- --------
Investment income--net***........................... .08 .12 .09 .12 .06 .08
Realized and unrealized gain (loss)--net............ 1.31 2.16 2.19 2.31 2.97 (1.37)
-------- -------- -------- -------- -------- --------
Total from investment operations.................... 1.39 2.28 2.28 2.43 3.03 (1.29)
-------- -------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net............................ -- (.13) (.08) (.11) (.05) (.05)
Realized gain--net................................ -- (1.48) (1.25) (.86) -- --
-------- -------- -------- -------- -------- --------
Total dividends and distributions................... -- (1.61) (1.33) (.97) (.05) (.05)
-------- -------- -------- -------- -------- --------
Net asset value, end of period...................... $ 16.37 $ 14.98 $ 14.31 $ 13.36 $ 11.90 $ 8.92
======== ======== ======== ======== ======== ========
- --------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:**
Based on net asset value per share.................. 9.28%+ 16.01% 17.39% 20.38% 33.98% (12.62%)
======== ======== ======== ======== ======== ========
- --------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses............................................ .84%* .83% .85% .85% .85% .95%
======== ======== ======== ======== ======== ========
Investment income--net.............................. 1.01%* .81% .64% .91% .56% .81%
======== ======== ======== ======== ======== ========
- --------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)............ $238,378 $231,547 $214,033 $148,484 $106,439 $ 68,775
======== ======== ======== ======== ======== ========
Portfolio turnover.................................. 40% 68% 74% 116% 127% 102%
======== ======== ======== ======== ======== ========
- --------------------------------------------------------------------------------------------------------------------------
</Table>
* Annualized.
** Total investment returns exclude insurance-related fees and expenses.
*** Based on average shares outstanding.
+ Aggregate total investment return.
See Notes to Financial Statements.
14
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Large Cap Value V.I. Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS II
----------------------------------------------------------
FOR THE SIX FOR THE YEAR ENDED
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE MONTHS ENDED DECEMBER 31, FOR THE PERIOD
BEEN DERIVED FROM INFORMATION PROVIDED IN THE JUNE 30, 2007 ------------------ SEPTEMBER 30, 2004+
FINANCIAL STATEMENTS. (UNAUDITED) 2006 2005 TO DECEMBER 31, 2004
- -------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................... $14.98 $ 14.31 $ 13.36 $ 12.70
------ ------- ------- -------
Investment income--net***.............................. .05 .12 .09 .04
Realized and unrealized gain--net...................... 1.31 2.16 2.19 1.59
------ ------- ------- -------
Total from investment operations....................... 1.36 2.28 2.28 1.63
------ ------- ------- -------
Less dividends and distributions:
Investment income--net............................... -- (.13) (.08) (.11)
Realized gain--net................................... -- (1.48) (1.25) (.86)
------ ------- ------- -------
Total dividends and distributions...................... -- (1.61) (1.33) (.97)
------ ------- ------- -------
Net asset value, end of period......................... $16.34 $ 14.98 $ 14.31 $ 13.36
====== ======= ======= =======
- -------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:**
Based on net asset value per share..................... 9.08%@ 16.01% 17.39% 12.80%@
====== ======= ======= =======
- -------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses............................................... .97%* .86% .85% .85%*
====== ======= ======= =======
Investment income--net................................. .51%* .80% .67% 1.31%*
====== ======= ======= =======
- -------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)............... $ 3 $ 2 $ 1 $ 1
====== ======= ======= =======
Portfolio turnover..................................... 40% 68% 74% 116%
====== ======= ======= =======
- -------------------------------------------------------------------------------------------------------------------
</Table>
* Annualized.
** Total investment returns exclude insurance-related fees and expenses.
*** Based on average shares outstanding.
+ Commencement of operations.
@ Aggregate total investment return.
See Notes to Financial Statements.
15
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Large Cap Value V.I. Fund
Financial Highlights (concluded)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS III
-----------------------------------------------------------
FOR THE SIX FOR THE YEAR ENDED
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE MONTHS ENDED DECEMBER 31, FOR THE PERIOD
BEEN DERIVED FROM INFORMATION PROVIDED IN THE JUNE 30, 2007 ------------------ SEPTEMBER 30, 2004+
FINANCIAL STATEMENTS. (UNAUDITED) 2006 2005 TO DECEMBER 31, 2004
- ------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................. $14.97 $ 14.31 $ 13.36 $ 12.70
------ ------- ------- -------
Investment income--net***............................ .07 .12 .09 .04
Realized and unrealized gain--net.................... 1.31 2.15 2.19 1.59
------ ------- ------- -------
Total from investment operations..................... 1.38 2.27 2.28 1.63
------ ------- ------- -------
Less dividends and distributions:
Investment income--net............................. -- (.13) (.08) (.11)
Realized gain--net................................. -- (1.48) (1.25) (.86)
------ ------- ------- -------
Total dividends and distributions.................... -- (1.61) (1.33) (.97)
------ ------- ------- -------
Net asset value, end of period....................... $16.35 $ 14.97 $ 14.31 $ 13.36
====== ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:**
Based on net asset value per share................... 9.22%@ 15.94% 17.39% 12.80%@
====== ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses............................................. 1.09%* .88% .85% .85%*
====== ======= ======= =======
Investment income--net............................... .76%* .78% .67% 1.31%*
====== ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)............. $ 2 $ 2 $ 1 $ 1
====== ======= ======= =======
Portfolio turnover................................... 40% 68% 74% 116%
====== ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------
</Table>
* Annualized.
** Total investment returns exclude insurance-related fees and expenses.
*** Based on average shares outstanding.
+ Commencement of operations.
@ Aggregate total investment return.
See Notes to Financial Statements.
16
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Large Cap Value V.I. Fund
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES:
BlackRock Variable Series Funds, Inc. (the "Company") is an open-end management
investment company that is comprised of 16 separate funds. Each fund offers
three 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. ("Merrill Lynch"), and other insurance companies that are not
affiliated with Merrill Lynch, for their separate accounts to fund benefits
under certain variable annuity and variable life insurance contracts. BlackRock
Large Cap Value V.I. Fund (the "Fund") is classified as "diversified," as
defined in the Investment Company Act of 1940, as amended. Class I, Class II and
Class III 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. In addition, Class II and Class III Shares
bear certain expenses related to the distribution of such shares. The Fund's
financial statements are prepared in conformity with U.S. generally accepted
accounting principles, which may require the use of management accruals and
estimates. Actual results may differ from these estimates. These unaudited
financial statements reflect all adjustments, which are, in the opinion of
management, necessary to present a fair statement of the results for the interim
period. All such adjustments are of a normal, recurring nature. Income, expenses
(other than expenses attributable to a specific class) and realized and
unrealized gains and losses are allocated daily to each class based on its
relative net assets. The following is a summary of significant accounting
policies followed by the Fund.
(a) Valuation of investments--Equity securities held by the Fund that are
traded on stock exchanges or the NASDAQ Global Market are valued at the last
sale price or official close price on the exchange, as of the close of business
on the day the securities are being valued or, lacking any sales, at the last
available bid price for long positions, and at the last available asked price
for short positions. In cases where equity securities are traded on more than
one exchange, the securities are valued on the exchange designated as the
primary market by or under the authority of the Board of Directors of the
Company. Long positions traded in the over-the-counter ("OTC") market, NASDAQ
Capital Market or Bulletin Board are valued at the last available bid price or
yield equivalent obtained from one or more dealers or pricing services approved
by the Board of Directors of the Company. Short positions traded in the OTC
market are valued at the last available asked price. Portfolio securities that
are traded both in the OTC market and on a stock exchange are valued according
to the broadest and most representative market.
Options written or purchased are valued at the last sale price in the case of
exchange-traded options. Options traded in the OTC market are valued at the last
asked price (options written) or the last bid price (options purchased). Swap
agreements are valued based upon quoted fair valuations received daily by the
Fund from a pricing service or counterparty. Financial futures contracts and
options thereon, which are traded on exchanges, are valued at their last sale
price as of the close of such exchanges. Valuation of short-term investment
vehicles is generally based on the net asset value of the underlying investment
vehicle or amortized cost.
Repurchase agreements are valued at cost plus accrued interest. The Fund
employs pricing services to provide certain securities prices for the Fund.
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, including valuations furnished by the
pricing services retained by the Fund, which may use a matrix system for
valuations. The procedures of a pricing service and its valuations are reviewed
by the officers of the Fund under the general supervision of the Company's Board
of Directors. Such valuations and procedures will be reviewed periodically by
the Board of Directors of the Company.
Generally, trading in foreign securities, as well as U.S. government
securities, money market instruments and certain fixed income securities, is
substantially completed each day at various times prior to the close of business
on the New York Stock Exchange ("NYSE"). The values of such securities used in
computing the net asset value of the Fund's shares are determined as of such
times. Foreign currency exchange rates will generally be determined as of the
close of business on the NYSE. Occasionally, events affecting the values of such
securities and such exchange rates may occur between the times at which they are
determined and the close of business on the NYSE that may not be reflected in
the computation of the Fund's net asset
17
- --------------------------------------------------------------------------------
value. If events (for example, a company announcement, market volatility or a
natural disaster) occur during such periods that are expected to materially
affect the value of such securities, those securities will be valued at their
fair value as determined in good faith by the Company's Board of Directors or by
BlackRock Advisors, LLC (the "Manager"), an indirect, wholly owned subsidiary of
BlackRock, Inc., using a pricing service and/or procedures approved by the
Company's Board of Directors.
(b) Derivative financial instruments--The Fund may engage in various portfolio
investment strategies both to increase the return of the Fund and to hedge, or
protect, its exposure to interest rate movements and movements in the securities
markets. Losses may arise due to changes in the value of the contract or if the
counterparty does not perform under the contract. The counterparty for certain
instruments may pledge cash or securities as collateral.
- - 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 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 financial futures contracts. Financial 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.
(c) 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.
(d) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Realized gains and losses on security transactions are determined on the
identified cost basis. Dividend income is recorded on the ex-dividend dates.
Dividends from foreign securities where the ex-dividend date may have passed are
subsequently recorded when the Fund has determined the ex-dividend date.
Interest income is recognized on the accrual basis.
(e) Dividends and distributions--Dividends and distributions paid by the Fund
are recorded on the ex-dividend dates.
(f) Expenses--Certain expenses have been allocated to the individual funds in
the Company on a pro rata basis based upon the respective aggregate net asset
value of each fund included in the Company.
(g) Securities lending--The Fund may lend securities to financial institutions
that provide cash or securities issued or guaranteed by the U.S. government as
collateral, which will be maintained at all times in an amount equal to at least
100% of the current market value of the loaned securities. The market value of
the loaned securities is determined at the close of business of the Fund and any
additional required collateral is delivered to the Fund on the next business
day. Where the Fund receives securities as collateral for the loaned securities,
it receives a fee from the borrower. The Fund typically receives the income on
the loaned securities, but does not receive the income on the collateral. Where
the Fund receives cash collateral, it may invest such collateral and retain the
amount earned on such investment, net of any amount rebated to the borrower.
Loans of securities are terminable at any time and the borrower, after notice,
is required to return borrowed securities within five business days. The Fund
may pay reasonable finder's, lending agent, administrative and custodial fees in
connection with its loans. In the event that the borrower defaults on its
obligation to return borrowed securities because of insolvency or for
18
- --------------------------------------------------------------------------------
any other reason, the Fund could experience delays and costs in gaining access
to the collateral. The Fund also could suffer a loss where the value of the
collateral falls below the market value of the borrowed securities, in the event
of borrower default or in the event of losses on investments made with cash
collateral.
(h) Recent accounting pronouncements--Effective June 29, 2007, the Fund
implemented Financial Accounting Standards Board ("FASB") Interpretation No. 48,
"Accounting for Uncertainty in Income Taxes -- an interpretation of FASB
Statement No. 109" ("FIN 48"). FIN 48 prescribes the minimum recognition
threshold a tax position must meet in connection with accounting for
uncertainties in income tax positions taken or expected to be taken by an
entity, including investment companies, before being measured and recognized in
the financial statements. Management has evaluated the application of FIN 48 to
the Fund, and has determined that the adoption of FIN 48 does not have a
material impact on the Fund's financial statements. The Fund files U.S. and
various state tax returns. No income tax returns are currently under
examination. The statute of limitations on the Fund's tax returns remains open
for the years ended December 31, 2003 through December 31, 2006.
In September 2006, Statement of Financial Accounting Standards No. 157, "Fair
Value Measurements" ("FAS 157"), was issued and is effective for fiscal years
beginning after November 15, 2007. FAS 157 defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. At this time, management is evaluating the implications of FAS 157
and its impact on the Fund's financial statements, if any, has not been
determined.
In addition, in February 2007, Statement of Financial Accounting Standards No.
159, "The Fair Value Option for Financial Assets and Financial Liabilities"
("FAS 159") was issued and is effective for fiscal years beginning after
November 15, 2007. Early adoption is permitted as of the beginning of a fiscal
year that begins on or before November 15, 2007, provided the entity also elects
to apply the provisions of FAS 157. FAS 159 permits entities to choose to
measure many financial instruments and certain other items at fair value that
are not currently required to be measured at fair value. FAS 159 also
establishes presentation and disclosure requirements designed to facilitate
comparisons between entities that choose different measurement attributes for
similar types of assets and liabilities. At this time, management is evaluating
the implications of FAS 159 and its impact on the Fund's financial statements,
if any, has not been determined.
(i) Bank overdraft--The Fund recorded a bank overdraft, which resulted from
management estimates of available cash.
2. INVESTMENT ADVISORY AGREEMENT AND TRANSACTIONS WITH AFFILIATES:
The Fund has entered into an Investment Advisory Agreement with the Manager. The
Fund has also entered into separate Distribution Agreements and Distribution
Plans with FAM Distributors, Inc. ("FAMD") and BlackRock Distributors, Inc. and
its affiliates ("BDI") (collectively, the "Distributor"). FAMD is a wholly owned
subsidiary of Merrill Lynch Group, Inc., and BDI is an affiliate of BlackRock,
Inc. Merrill Lynch and The PNC Financial Services Group, Inc. ("PNC") are the
principal owners of BlackRock, Inc.
The Manager 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 Fund. For such services, the Fund
pays a monthly fee generally at the annual rate of .75% of the average daily
value of the Fund's net assets. In addition, the Manager has entered into a
sub-advisory agreement with BlackRock Investment Management, LLC ("BIM"), an
affiliate of the Manager, under which the Manager pays BIM for services it
provides a monthly fee at an annual rate that is a percentage of the management
fee paid by the Fund to the Manager.
Pursuant to the Distribution Plans adopted by the Company, in accordance with
Rule 12b-1 under the investment Company Act of 1940, the Fund pays the
Distributor an ongoing distribution fee each month at the annual rate of .15%
and .25% of the average daily value of the Fund's Class II and Class III net
assets, respectively.
The Company has received an exemptive order from the Securities and Exchange
Commission permitting it to lend portfolio securities to Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S"), a wholly owned subsidiary of Merrill
Lynch, or its affiliates. As of June 30, 2007, the Fund lent securities with a
value of $2,452,500 to MLPF&S or its affiliates. Pursuant to that order, the
Company also has retained BIM as the securities lending agent for a fee based on
a share of the returns on investment of cash collateral. BIM may, on behalf of
the Company and the Fund, invest cash collateral received by the Fund for such
loans, among other things, in a private invest-
19
- --------------------------------------------------------------------------------
ment company managed by the Manager or in registered money market funds advised
by the Manager or its affiliates. For the six months ended June 30, 2007, BIM
received $2,431 in securities lending agent fees from the Fund.
For the six months ended June 30, 2007, the Fund reimbursed the Manager $2,018
for certain accounting services.
PFPC Inc., an indirect, wholly owned subsidiary of PNC and an affiliate of the
Manager, is the Fund's transfer agent.
Certain officers and/or directors of the Company are officers and/or directors
of BlackRock, Inc. or its affiliates.
3. INVESTMENTS:
Purchases and sales of investments, excluding short-term securities, for the six
months ended June 30, 2007 were $94,115,671 and $106,218,534, respectively.
4. CAPITAL SHARE TRANSACTIONS:
Net increase (decrease) in net assets derived from capital share transactions
was $(14,232,156) and $6,364,425 for the six months ended June 30, 2007 and the
year ended December 31, 2006, respectively.
Transactions in capital shares for each class were as follows:
<Table>
<Caption>
- -------------------------------------------------------------------
Class I Shares for the Six Months Ended
June 30, 2007 Shares Dollar Amount
- -------------------------------------------------------------------
Shares sold............................ 282,500 $ 4,476,605
Shares redeemed........................ (1,181,757) (18,709,921)
---------- ------------
Net decrease........................... (899,257) $(14,233,316)
========== ============
- -------------------------------------------------------------------
</Table>
<Table>
<Caption>
- -------------------------------------------------------------------
Class I Shares for the Year Ended
December 31, 2006 Shares Dollar Amount
- -------------------------------------------------------------------
Shares sold............................ 3,591,742 $ 53,966,399
Shares issued to shareholders in
reinvestment of dividends and
distributions......................... 1,514,009 22,702,358
---------- ------------
Total issued........................... 5,105,751 76,668,757
Shares redeemed........................ (4,603,081) (70,304,632)
---------- ------------
Net increase........................... 502,670 $ 6,364,125
========== ============
- -------------------------------------------------------------------
</Table>
<Table>
<Caption>
- -----------------------------------------------------------------
Class II Shares for the Six Months Ended Dollar
June 30, 2007 Shares Amount
- -----------------------------------------------------------------
Shares sold................................ 1,280 $ 21,153
Shares redeemed............................ (1,222) (19,993)
------ --------
Net increase............................... 58 $ 1,160
====== ========
- -----------------------------------------------------------------
</Table>
<Table>
<Caption>
- ------------------------------------------------------------------
Class II Shares for the Year Ended Dollar
December 31, 2006 Shares Amount
- ------------------------------------------------------------------
Shares issued to shareholders in reinvestment of
dividends and distributions.................... 10 $150
-- ----
Net increase.................................... 10 $150
== ====
- ------------------------------------------------------------------
</Table>
<Table>
<Caption>
- ------------------------------------------------------------------
Class III Shares for the Six Months Ended Dollar
June 30, 2007 Shares Amount
- ------------------------------------------------------------------
Shares sold..................................... -- --
----- -----
Net increase.................................... -- --
===== =====
- ------------------------------------------------------------------
</Table>
<Table>
<Caption>
- ------------------------------------------------------------------
Class III Shares for the Year Ended Dollar
December 31, 2006 Shares Amount
- ------------------------------------------------------------------
Shares issued to shareholders in reinvestment of
dividends and distributions.................... 10 $150
-- ----
Net increase.................................... 10 $150
== ====
- ------------------------------------------------------------------
</Table>
5. SHORT-TERM BORROWINGS:
The Company, on behalf of the Fund, along with certain other funds managed by
the Manager and its affiliates, is party to a $500,000,000 credit agreement with
a group of lenders, which expires November 2007. 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 .06% per annum based on the Fund's pro rata share of the
unused portion of the credit agreement. Amounts borrowed under the credit
agreement bear interest at a rate equal to, at each fund's election, the federal
funds rate plus .35% or a base rate as defined in the credit agreement. The Fund
did not borrow under the credit agreement during the six months ended June 30,
2007.
20
- --------------------------------------------------------------------------------
BLACKROCK MONEY MARKET V.I. FUND
-------------------------------------------------------------------------
Semi-Annual Report (Unaudited)
June 30, 2007
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Money Market V.I. Fund
Disclosure of Expenses
- --------------------------------------------------------------------------------
Shareholders of this Fund may incur the following charges: (a) expenses related
to transactions, including sales charges, redemption fees and exchange fees; and
(b) operating expenses including advisory fees, distribution fees including
12b-1 fees, and other Fund expenses. The following example (which is based on a
hypothetical investment of $1,000 invested on January 1, 2007 and held through
June 30, 2007) is intended to assist shareholders both in calculating expenses
based on an investment in the Fund and in comparing these expenses with similar
costs of investing in other mutual funds.
The first table below provides information about actual account values and
actual expenses. In order to estimate the expenses a shareholder paid during the
period covered by this report, shareholders can divide their account value by
$1,000 and then multiply the result by the number in the first line under the
heading entitled "Expenses Paid During the Period."
The second table below provides information about hypothetical account values
and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses. In order to assist
shareholders in comparing the ongoing expenses of investing in this Fund and
other funds, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in other funds' shareholder reports.
The expenses shown in the table are intended to highlight shareholders'
ongoing costs only and do not reflect any transactional expenses, such as sales
charges, redemption fees or exchange fees. Therefore, the second table is useful
in comparing ongoing expenses only, and will not help shareholders determine the
relative total expenses of owning different funds. If these transactional
expenses were included, shareholder expenses would have been higher.
<Table>
<Caption>
EXPENSES PAID
BEGINNING ENDING DURING THE PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JANUARY 1, 2007 TO
JANUARY 1, 2007 JUNE 30, 2007 JUNE 30, 2007
- ------------------------------------------------------------------------------------------------------------------
ACTUAL
- ------------------------------------------------------------------------------------------------------------------
Class I $1,000 $1,023.30 $2.96
- ------------------------------------------------------------------------------------------------------------------
Class II $1,000 $1,024.40 $2.96
- ------------------------------------------------------------------------------------------------------------------
Class III $1,000 $1,022.10 $4.26
- ------------------------------------------------------------------------------------------------------------------
HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES)**
- ------------------------------------------------------------------------------------------------------------------
Class I $1,000 $1,021.87 $2.96
- ------------------------------------------------------------------------------------------------------------------
Class II $1,000 $1,021.87 $2.96
- ------------------------------------------------------------------------------------------------------------------
Class III $1,000 $1,020.58 $4.26
- ------------------------------------------------------------------------------------------------------------------
</Table>
* For each class of the Fund, expenses are equal to the annualized expense
ratio for the class (.59% for Class I, .59% for Class II and .85% for Class
III), multiplied by the average account value over the period, multiplied by
181/365 (to reflect the one-half year period shown). Currently, Class II has
money from an affiliated entity and is not accruing its distribution fees
(12b-1 fees). If, during the period, the distribution fees were accrued, the
actual expense ratio would have been approximately .74% and the actual and
hypothetical expenses paid would have been approximately $3.71.
** Hypothetical 5% annual return before expenses is calculated by pro-rating the
number of days in the most recent fiscal half year divided by 365.
2
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Money Market V.I. Fund
Portfolio Information
- --------------------------------------------------------------------------------
<Table>
<Caption>
AS OF AS OF
PORTFOLIO COMPOSITION AS A PERCENT OF NET ASSETS 6/30/2007 12/31/2006
- -------------------------------------------------------------------------------------
Bank Notes.................................................. -- 4.4%
Certificates of Deposit..................................... 4.4% 11.1
Commercial Paper............................................ 75.8 59.6
Funding Agreements.......................................... 4.8 7.4
Medium-Term Notes........................................... 7.7 6.4
Repurchase Agreements....................................... 2.0 2.9
U.S. Government, Agency and Instrumentality
Obligations--Non-Discount................................... 5.0 6.5
Other Assets Less Liabilities............................... 0.3 1.7
----- -----
TOTAL....................................................... 100.0% 100.0%
===== =====
- -------------------------------------------------------------------------------------
</Table>
<Table>
- -----------------------------------------------------------------------
AS OF
SEVEN-DAY YIELD 6/30/2007
- -----------------------------------------------------------------------
Class I..................................................... 4.76%
Class II.................................................... 4.95
Class III................................................... 4.31
- -----------------------------------------------------------------------
</Table>
3
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Money Market V.I. Fund
Schedule of Investments as of June, 30 2007 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
FACE INTEREST MATURITY
AMOUNT ISSUE RATE* DATE VALUE
- ------------------------------------------------------------------------------------------------------------------------
CERTIFICATES OF $ 6,000,000 Citibank, NA......................... 5.30 % 8/16/2007 $ 6,000,000
DEPOSIT--4.4%
2,000,000 Citibank, NA......................... 5.305 8/27/2007 2,000,000
3,000,000 Harris Bank, NA...................... 5.30 11/13/2007 3,000,000
- ------------------------------------------------------------------------------------------------------------------------
TOTAL CERTIFICATES OF DEPOSIT
(COST--$11,000,000).......................................... 11,000,000
- ------------------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER--75.8% 2,500,000 Aquinas Funding LLC.................. 5.30 8/28/2007 2,479,021
1,600,000 Aspen Funding Corp. ................. 5.24 7/16/2007 1,596,740
4,000,000 Aspen Funding Corp. ................. 5.23 8/02/2007 3,981,986
6,010,000 Asscher Finance Corp. ............... 5.30 7/23/2007 5,991,419
3,000,000 Bank of America Corp. ............... 5.203 7/25/2007 2,990,028
2,500,000 Bank of America Corp. ............... 5.23 8/13/2007 2,484,746
7,000,000 Bank of America Corp. ............... 5.17 9/05/2007 6,934,657
1,000,000 The Bear Stearns Cos., Inc. ......... 5.18 8/10/2007 994,388
5,000,000 Beethoven Funding Corp. ............. 5.27 9/18/2007 4,942,908
9,000,000 Beta Finance Inc. ................... 5.26 9/13/2007 8,904,005
2,000,000 Brahms Funding Corp. ................ 5.32 7/25/2007 1,993,202
7,000,000 Brahms Funding Corp. ................ 5.295 7/31/2007 6,970,142
3,000,000 Brahms Funding Corp. ................ 5.30 8/14/2007 2,981,008
5,000,000 Cancara Asset Securitization Ltd. ... 5.28 7/18/2007 4,988,267
3,000,000 Concord Minutemen Capital Co., LLC... 5.31 7/18/2007 2,992,920
2,500,000 Edison Asset Securitization, LLC..... 5.17 11/05/2007 2,454,763
8,200,000 Emerald Notes (BA Credit Card
Trust)............................. 5.24 8/01/2007 8,164,193
1,000,000 Five Finance Inc. ................... 5.26 9/27/2007 987,288
2,700,000 General Electric Capital Corp. ...... 5.17 3/07/2008 2,603,450
4,000,000 Goldman Sachs Group, Inc. ........... 5.19 11/14/2007 3,922,150
2,400,000 Govco LLC ........................... 5.30 7/11/2007 2,396,820
5,500,000 Grampian Funding LLC ................ 5.145 8/03/2007 5,474,847
2,000,000 Grampian Funding LLC ................ 5.205 8/07/2007 1,989,590
4,500,000 Grampian Funding LLC ................ 5.17 8/31/2007 4,461,225
3,000,000 Greenwich Capital Holdings, Inc. .... 5.20 8/14/2007 2,981,367
2,400,000 Greyhawk Funding LLC................. 5.28 10/02/2007 2,367,616
10,292,000 Hudson-Thames LLC.................... 5.259 9/12/2007 10,183,750
5,000,000 K2 (USA) LLC......................... 5.26 9/17/2007 4,943,747
5,000,000 Lake Constance Funding LLC........... 5.32 7/23/2007 4,984,483
5,000,000 Lexington Parker Capital Co., LLC.... 5.14 8/10/2007 4,972,158
3,750,000 Mont Blanc Capital Corp. ............ 5.24 8/15/2007 3,725,983
6,000,000 Newport Funding Corp. ............... 5.28 7/17/2007 5,986,800
3,000,000 Newport Funding Corp. ............... 5.24 8/13/2007 2,981,660
2,800,000 Newport Funding Corp. ............... 5.25 8/27/2007 2,777,133
2,000,000 Nightingale Finance LLC.............. 5.26 9/10/2007 1,979,544
5,000,000 Nyala Funding LLC.................... 5.26 7/16/2007 4,989,772
3,800,000 Park Avenue Receivables Co. LLC...... 5.245 7/06/2007 3,797,785
2,000,000 Prudential Funding LLC............... 5.25 8/06/2007 1,989,792
2,768,000 Scaldis Capital LLC.................. 5.31 7/16/2007 2,762,284
3,500,000 Sedna Finance Inc. .................. 5.20 7/30/2007 3,485,844
4,000,000 Silver Tower US Funding LLC.......... 5.24 8/07/2007 3,979,040
5,750,000 Solitaire Funding LLC................ 5.23 8/06/2007 5,720,763
4,400,000 Tango Finance Corp. ................. 5.24 7/31/2007 4,381,427
5,151,000 Three Pillars Funding LLC............ 5.29 7/16/2007 5,140,404
1,000,000 Ticonderoga Funding LLC.............. 5.27 7/11/2007 998,683
2,200,000 Ticonderoga Funding LLC.............. 5.30 7/30/2007 2,190,932
9,000,000 Ticonderoga Funding LLC.............. 5.30 8/29/2007 8,923,150
- ------------------------------------------------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER
(COST--$189,923,880)......................................... 189,923,880
- ------------------------------------------------------------------------------------------------------------------------
</Table>
4
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Money Market V.I. Fund
Schedule of Investments as of June, 30 2007 (concluded)
- --------------------------------------------------------------------------------
<Table>
<Caption>
FACE INTEREST MATURITY
AMOUNT ISSUE RATE* DATE VALUE
- ------------------------------------------------------------------------------------------------------------------------
FUNDING AGREEMENTS--4.8% $ 5,000,000 Metropolitan Life Insurance
Co.(a)(b).......................... 5.39 % 4/01/2008 $ 5,000,000
7,000,000 New York Life Insurance Co.(a)(b).... 5.43 4/14/2008 7,000,000
- ------------------------------------------------------------------------------------------------------------------------
TOTAL FUNDING AGREEMENTS
(COST--$12,000,000).......................................... 12,000,000
- ------------------------------------------------------------------------------------------------------------------------
MEDIUM-TERM NOTES--7.7% 1,595,000 Cullinan Finance Corp.(a)............ 5.30 6/25/2008 1,594,844
8,695,000 General Electric Capital Corp.(a).... 5.445 10/17/2007 8,695,000
4,100,000 Goldman Sachs Group, Inc.(a)......... 5.37 7/14/2008 4,100,000
1,500,000 MetLife Global Funding I(a).......... 5.35 7/03/2008 1,500,000
1,750,000 MetLife Global Funding I(a).......... 5.41 7/14/2008 1,750,000
1,700,000 Principal Life Income Funding
Trusts(a).......................... 5.39 12/07/2007 1,700,438
- ------------------------------------------------------------------------------------------------------------------------
TOTAL MEDIUM-TERM NOTES
(COST--$19,340,282).......................................... 19,340,282
- ------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT, AGENCY, & 1,800,000 Fannie Mae........................... 4.15 7/13/2007 1,799,688
INSTRUMENTALITY 2,350,000 Fannie Mae........................... 4.875 1/11/2008 2,349,881
OBLIGATIONS--
NON-DISCOUNT--5.0% 800,000 Fannie Mae........................... 4.96 2/08/2008 800,000
800,000 Federal Home Loan Bank System........ 4.21 9/14/2007 800,000
1,300,000 Freddie Mac.......................... 4.45 9/28/2007 1,300,000
600,000 Freddie Mac.......................... 4.595 10/05/2007 600,000
1,000,000 Freddie Mac.......................... 4.625 10/05/2007 1,000,000
900,000 Freddie Mac.......................... 4.655 10/11/2007 900,000
1,000,000 Freddie Mac.......................... 4.705 10/11/2007 999,984
1,000,000 Freddie Mac.......................... 4.75 10/24/2007 999,986
900,000 U.S. Treasury Notes.................. 4.375 1/31/2008 899,590
- ------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT, AGENCY, & INSTRUMENTALITY
OBLIGATIONS--NON-DISCOUNT
(COST--$12,449,129).......................................... 12,449,129
- ------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS--2.0% 5,080,000 Deutsche Bank Securities Inc., purchased on 6/29/2007 to
yield 5.30% to 7/02/2007 repurchase price $5,082,244,
collateralized by FHLMC, 5.25% to 5.40% due 10/30/2008 to
1/16/2009.................................................. 5,080,000
- ------------------------------------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS
(COST--$5,080,000)........................................... 5,080,000
- ------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST--$249,793,291**)--99.7%................................ 249,793,291
OTHER ASSETS LESS LIABILITIES--0.3%.......................... 779,680
------------
NET ASSETS--100.0%........................................... $250,572,971
============
- ------------------------------------------------------------------------------------------------------------------------
</Table>
* Commercial Paper and certain U.S. Government, Agency & Instrumentality
Obligations are traded on a discount basis; the interest rates shown reflect
the discount rates paid at the time of purchase. Other securities bear
interest at the rates shown, payable at fixed dates or upon maturity. Interest
rates on variable rates securities are adjustable periodically based upon
appropriate indexes. The interest rates shown are the rates in effect at June
30, 2007.
** Cost for federal income tax purposes.
(a) Floating rate security.
(b) Restricted securities as to resale, representing approximately 4.8% of net
assets were as follows:
<Table>
<Caption>
- -------------------------------------------------------------------------------------------------------
ACQUISITION
ISSUE DATE COST VALUE
- -------------------------------------------------------------------------------------------------------
Metropolitan Life Insurance Co., 5.39% due 4/01/2008........ 4/02/2007 $ 5,000,000 $ 5,000,000
New York Life Insurance Co., 5.43% due 4/14/2008............ 5/22/2007 7,000,000 7,000,000
- -------------------------------------------------------------------------------------------------------
TOTAL....................................................... $12,000,000 $12,000,000
=========== ===========
- -------------------------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements.
5
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Money Market V.I. Fund
Statement of Assets and Liabilities as of June 30, 2007 (unaudited)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments in unaffiliated securities, at value (identified
cost--$249,793,291)....................................... $249,793,291
Receivables:
Securities sold........................................... $ 7,353,738
Capital shares sold....................................... 1,649,043
Interest.................................................. 359,466 9,362,247
------------
Prepaid expenses............................................ 3,188
------------
Total assets................................................ 259,158,726
------------
- -------------------------------------------------------------------------------------------
LIABILITIES:
Bank overdraft.............................................. 22,331
Payables:
Securities purchased...................................... 7,353,738
Dividends to shareholders................................. 956,814
Investment adviser........................................ 105,293
Capital shares redeemed................................... 70,836
Other affiliates.......................................... 3,848
Distributor............................................... 2 8,490,531
------------
Accrued expenses............................................ 72,893
------------
Total liabilities........................................... 8,585,755
------------
- -------------------------------------------------------------------------------------------
NET ASSETS.................................................. $250,572,971
============
- -------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Class I Shares of Common Stock, $.10 par value,
3,300,000,000 shares authorized........................... $ 25,057,488
Class II Shares of Common Stock, $.10 par value,
1,300,000,000 shares authorized........................... 100
Class III Shares of Common Stock, $.10 par value,
1,300,000,000 shares authorized........................... 110
Paid-in capital in excess of par............................ 225,515,357
Undistributed investment income--net........................ $ 1,841
Accumulated realized capital losses--net.................... (1,925)
------------
Total accumulated losses--net............................... (84)
------------
NET ASSETS.................................................. $250,572,971
============
- -------------------------------------------------------------------------------------------
NET ASSET VALUE:
Class I--Based on net assets of $250,570,867 and 250,574,883
shares outstanding........................................ $ 1.00
============
Class II--Based on net assets of $1,000 and 1,000 shares
outstanding............................................... $ 1.00
============
Class III--Based on net assets of $1,104 and 1,104 shares
outstanding............................................... $ 1.00
============
- -------------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements.
6
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Money Market V.I. Fund
Statement of Operations for the Six Months Ended June 30, 2007 (unaudited)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Interest and discount earned................................ $6,805,166
----------
- -------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees.................................... $637,905
Accounting services......................................... 50,737
Printing and shareholder reports............................ 27,390
Professional fees........................................... 17,589
Directors' fees and expenses................................ 7,261
Custodian fees.............................................. 4,372
Transfer agent fees--Class I................................ 2,549
Pricing services............................................ 435
Distribution fees--Class III................................ 2
Other....................................................... 6,755
--------
Total expenses.............................................. 754,995
----------
Investment income--net...................................... 6,050,171
----------
- -------------------------------------------------------------------------------------
REALIZED & UNREALIZED GAIN (LOSS)--NET:
Realized loss on investments--net........................... (36)
Change in unrealized appreciation/depreciation on
investments--net.......................................... 62,500
----------
Total realized and unrealized gain--net..................... 62,464
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $6,112,635
==========
- -------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements.
7
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Money Market V.I. Fund
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<Table>
<Caption>
FOR THE SIX
MONTHS ENDED FOR THE
JUNE 30, 2007 YEAR ENDED
INCREASE (DECREASE) IN NET ASSETS: (UNAUDITED) DECEMBER 31, 2006
- -----------------------------------------------------------------------------------------------
OPERATIONS:
Investment income--net...................................... $ 6,050,171 $ 12,067,924
Realized loss--net.......................................... (36) (106)
Change in unrealized appreciation/depreciation--net......... 62,500 91,607
------------ ------------
Net increase in net assets resulting from operations........ 6,112,635 12,159,425
------------ ------------
- -----------------------------------------------------------------------------------------------
DIVIDENDS TO SHAREHOLDERS:
Investment income--net:
Class I................................................... (6,050,122) (12,018,615)
Class II.................................................. (25) (49,203)
Class III................................................. (24) (48)
------------ ------------
Net decrease in net assets resulting from dividends to
shareholders.............................................. (6,050,171) (12,067,866)
------------ ------------
- -----------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Net increase (decrease) in net assets derived from capital
share transactions........................................ (25,052,876) 8,419,482
------------ ------------
- -----------------------------------------------------------------------------------------------
NET ASSETS:
Total increase (decrease) in net assets..................... (24,990,412) 8,511,041
Beginning of period......................................... 275,563,383 267,052,342
------------ ------------
End of period*.............................................. $250,572,971 $275,563,383
------------ ------------
- -----------------------------------------------------------------------------------------------
* Undistributed investment income--net...................... $ 1,841 $ 1,841
============ ============
- -----------------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements.
8
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Money Market V.I. Fund
Financial Highlights
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS I
--------------------------------------------------------------------
FOR THE SIX
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE MONTHS ENDED FOR THE YEAR ENDED DECEMBER 31,
BEEN DERIVED FROM INFORMATION PROVIDED IN THE JUNE 30, 2007 ----------------------------------------------------
FINANCIAL STATEMENTS. (UNAUDITED) 2006 2005 2004 2003 2002
- -------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- --------
Investment income--net....................... .0235 .0443 .0266 .0092 .0072 .0147
Realized and unrealized gain (loss)--net..... --++ .0003 .0001 (.0009) (.0004) (.0007)
-------- -------- -------- -------- -------- --------
Total from investment operations............. .0235 .0446 .0267 .0083 .0068 .0140
-------- -------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net..................... (.0235) (.0443) (.0266) (.0092) (.0072) (.0147)
Realized gain--net......................... -- -- -- -- --+ --+
-------- -------- -------- -------- -------- --------
Total dividends and distributions............ (.0235) (.0443) (.0266) (.0092) (.0072) (.0147)
-------- -------- -------- -------- -------- --------
Net asset value, end of period............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ========
- -------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:*
Based on net asset value per share........... 2.36%@ 4.48% 2.66% .92% .73% 1.49%
======== ======== ======== ======== ======== ========
- -------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses..................................... .59%** .58% .59% .57% .57% .57%
======== ======== ======== ======== ======== ========
Investment income and realized gain
(loss)--net................................ 4.74%** 4.45% 2.63% .89% .73% 1.47%
======== ======== ======== ======== ======== ========
- -------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)..... $250,571 $275,561 $267,028 $314,351 $428,938 $545,630
======== ======== ======== ======== ======== ========
- -------------------------------------------------------------------------------------------------------------------
</Table>
* Total investment returns exclude insurance-related fees and expenses.
** Annualized.
+ Amount is less than $(.0001) per share.
++ Amount is less than $.0001 per share.
@ Aggregate total investment return.
See Notes to Financial Statements.
9
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Money Market V.I. Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS II
------------------------------------------------------------
FOR THE SIX FOR THE YEAR ENDED
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE MONTHS ENDED DECEMBER 31, FOR THE PERIOD
BEEN DERIVED FROM INFORMATION PROVIDED IN THE JUNE 30, 2007 ------------------- FEBRUARY 13, 2004+++
FINANCIAL STATEMENTS. (UNAUDITED) 2006 2005 TO DECEMBER 31, 2004
- -------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- -------
Investment income--net............................... .0245 .0424 .0251 .0071
Realized and unrealized gain(loss)--net.............. --+ --+ (.0003) --+
------- ------- ------- -------
Total from investment operations..................... .0245 .0424 .0248 .0071
------- ------- ------- -------
Less dividends from investment income--net........... (.0245) (.0424) (.0251) (.0071)
------- ------- ------- -------
Net asset value, end of period....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= =======
- -------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:*
Based on net asset value per share................... 2.46%++ 4.44% 2.51% .72%++
======= ======= ======= =======
- -------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses............................................. .59%** .74% .73% .72%**
======= ======= ======= =======
Investment income and realized gain (loss)--net...... 4.74%** 4.44% 2.21% .98%**
======= ======= ======= =======
- -------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)............. $ 1 $ 1 $ 23 $ 53
======= ======= ======= =======
- -------------------------------------------------------------------------------------------------------------------
</Table>
* Total investment returns exclude insurance-related fees and expenses.
** Annualized.
+ Amount is less than $.0001 per share.
++ Aggregate total investment return.
+++ Commencement of operations.
See Notes to Financial Statements.
10
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Money Market V.I. Fund
Financial Highlights (concluded)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS III
-------------------------------------------------------------
FOR THE SIX FOR THE YEAR ENDED
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE MONTHS ENDED DECEMBER 31, FOR THE PERIOD
BEEN DERIVED FROM INFORMATION PROVIDED IN THE JUNE 30, 2007 ------------------- SEPTEMBER 30, 2004+++
FINANCIAL STATEMENTS. (UNAUDITED) 2006 2005 TO DECEMBER 31, 2004
- -------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................ $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- -------
Investment income--net.............................. .0223 .0454 .0278 .0040
Realized and unrealized gain--net................... --+ .0004 .0001 --+
------- ------- ------- -------
Total from investment operations.................... .0223 .0458 .0279 .0040
------- ------- ------- -------
Less dividends from investment income--net.......... (.0223) (.0454) (.0278) (.0040)
------- ------- ------- -------
Net asset value, end of period...................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= =======
- -------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:*
Based on net asset value per share.................. 2.24%++ 4.59% 2.80% .40%++
======= ======= ======= =======
- -------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses............................................ .85%** .52% .59% .57%**
======= ======= ======= =======
Investment income and realized gain (loss)--net..... 4.50%** 4.51% 3.25% 1.44%**
======= ======= ======= =======
- -------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)............ $ 1 $ 1 $ 1 $ 1
======= ======= ======= =======
- -------------------------------------------------------------------------------------------------------------------
</Table>
* Total investment returns exclude insurance-related fees and expenses.
** Annualized.
+ Amount is less than $.0001 per share.
++ Aggregate total investment return.
+++ Commencement of operations.
See Notes to Financial Statements.
11
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
Blackrock Money Market V.I. Fund
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES:
BlackRock Variable Series Funds, Inc. (the "Company") is an open-end management
investment company that is comprised of 16 separate funds. Each fund offers
three 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. ("Merrill Lynch")), and other insurance companies that are not
affiliated with Merrill Lynch, for their separate accounts to fund benefits
under certain variable annuity and variable life insurance contracts. BlackRock
Money Market V.I. Fund (the "Fund") is classified as "diversified," as defined
in the Investment Company Act of 1940, as amended. Class I, Class II and Class
III 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. In addition, Class II and Class III Shares bear
certain expenses related to the distribution of such shares. The Fund's
financial statements are prepared in conformity with U.S. generally accepted
accounting principles, which may require the use of management accruals and
estimates. Actual results may differ from these estimates. These unaudited
financial statements reflect all adjustments, which are, in the opinion of
management, necessary to present a fair statement of the results for the interim
period. All such adjustments are of a normal, recurring nature. Income, expenses
(other than expenses attributable to a specific class) and realized and
unrealized gains and losses are allocated daily to each class based on its
relative net assets. The following is a summary of significant accounting
policies followed by the Fund.
(a) Valuation of investments--Effective April 2, 2007, short-term investments
are valued at amortized cost, which approximates market value. Prior to April 2,
2007, portfolio securities with remaining maturities of greater than sixty days,
for which market quotations were readily available, were valued at market value.
As securities transitioned from sixty-one to sixty days to maturity, the
difference between the valuation existing on the sixty-first day before maturity
and maturity value was amortized on a straight-line basis to maturity.
(b) Repurchase agreements--The Fund may invest in U.S. government securities
pursuant to repurchase agreements. Under such agreements, the counterparty
agrees to repurchase the security at a mutually agreed upon time and price. The
Fund takes possession of the underlying securities, marks-to-market such
securities and, if necessary, receives additional securities daily to ensure
that the contract is fully collateralized. If the seller defaults and the fair
value of the collateral declines, liquidation of the collateral by the Fund may
be delayed or limited.
(c) 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.
(d) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Realized gains and losses on security transactions are determined on the
identified cost basis. Interest income is recognized on the accrual basis.
(e) Dividends and distributions to shareholders--The Fund declares dividends
daily and reinvests monthly such dividends (net of non-resident alien tax and
backup withholding tax withheld) in additional Fund shares at net asset value.
Dividends are declared from the total of net investment income. Distribution of
net realized gain, if any, on investments are paid at least annually.
(f) Expenses--Certain expenses have been allocated to the individual funds in
the Company on a pro rata basis based upon the respective aggregate net asset
value of each fund included in the Company.
(g) Securities lending--The Fund may lend securities to financial institutions
that provide cash or securities issued or guaranteed by the U.S. government as
collateral, which will be maintained at all times in an amount equal to at least
100% of the current market value of the loaned securities. The market value of
the loaned securities is determined at the close of business of the Fund and any
additional required collateral is delivered to the Fund on the next business
day. Where the Fund receives securities as collateral for the loaned securities,
it receives a fee from the borrower. The Fund typically receives the income on
the loaned securities but does not receive the income on the collateral. Where
the Fund receives cash collateral, it may invest such collateral and retain the
amount earned on such investment, net of
12
- --------------------------------------------------------------------------------
any amount rebated to the borrower. Loans of securities are terminable at any
time and the borrower, after notice, is required to return borrowed securities
within five business days. The Fund may pay reasonable finder's, lending agent,
administrative and custodial fees in connection with its loans. In the event
that the borrower defaults on its obligation to return borrowed securities
because of insolvency or for any other reason, the Fund could experience delays
and costs in gaining access to the collateral. The Fund also could suffer a loss
where the value of the collateral falls below the market value of the borrowed
securities, in the event of borrower default or in the event of losses on
investments made with cash collateral.
(h) Bank overdraft--The Fund recorded a bank overdraft which resulted from
management estimates of available cash.
(i) Recent accounting pronouncements--Effective June 29, 2007, the Fund
implemented Financial Accounting Standards Board ("FASB") Interpretation No. 48,
"Accounting for Uncertainty in Income Taxes--an interpretation of FASB Statement
No. 109" ("FIN 48"). FIN 48 prescribes the minimum recognition threshold a tax
position must meet in connection with accounting for uncertainties in income tax
positions taken or expected to be taken by an entity, including investment
companies, before being measured and recognized in the financial statements.
Management has evaluated the application of FIN 48 to the Fund, and has
determined that the adoption of FIN 48 does not have a material impact on the
Fund's financial statements. The Fund files U.S. and various state tax returns.
No income tax returns are currently under examination. The statute of
limitations on the Fund's tax returns remains open for the years ended December
31, 2003 through December 31, 2006.
In September 2006, Statement of Financial Accounting Standards No. 157, "Fair
Value Measurements" ("FAS 157"), was issued and is effective for fiscal years
beginning after November 15, 2007. FAS 157 defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. At this time, management is evaluating the implications of FAS 157
and its impact on the Fund's financial statements, if any, has not been
determined.
In addition, in February 2007, Statement of Financial Accounting Standards No.
159, "The Fair Value Option for Financial Assets and Financial Liabilities"
("FAS 159"), was issued and is effective for fiscal years beginning after
November 15, 2007. Early adoption is permitted as of the beginning of a fiscal
year that begins on or before November 15, 2007, provided the entity also elects
to apply the provisions of FAS 157. FAS 159 permits entities to choose to
measure many financial instruments and certain other items at fair value that
are not currently required to be measured at fair value. FAS 159 also
establishes presentation and disclosure requirements designed to facilitate
comparisons between entities that choose different measurement attributes for
similar types of assets and liabilities. At this time, management is evaluating
the implications of FAS 159 and its impact on the Fund's financial statements,
if any, has not been determined.
2. INVESTMENT ADVISORY AGREEMENT AND TRANSACTIONS WITH AFFILIATES:
The Fund has entered into an Investment Advisory Agreement with the Manager. The
Fund has also entered into separate Distribution Agreements and Distribution
Plans with FAM Distributors, Inc. ("FAMD") and BlackRock Distributors, Inc. and
its affiliates ("BDI") (collectively, the "Distributor"). FAMD is a wholly owned
subsidiary of Merrill Lynch Group, Inc., and BDI is an affiliate of BlackRock,
Inc. Merrill Lynch and The PNC Financial Services Group, Inc. ("PNC") are the
principal owners of BlackRock, Inc.
The Manager 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 Fund. For such services, the Fund
pays a monthly fee at the annual rate of .50% of the average daily value of the
Fund's net assets. In addition, the Manager has entered into a sub-advisory
agreement with BlackRock Institutional Management Corporation, an affiliate of
the Manager, under which the Manager pays the Sub-Adviser for services it
provides a monthly fee at an annual rate that is a percentage of the management
fee paid by the Fund to the Manager.
Pursuant to the Distribution Plans adopted by the Company, in accordance with
Rule 12b-1 under the Investment Company Act of 1940, the Fund pays the
Distributor ongoing distribution fee each month at the annual rate of .15% and
..25% of the average daily value of the Fund's Class II and Class III net assets,
respectively. For the six months ended June 30, 2007 the distribution fees were
not accrued for Class II.
The Company has received an exemptive order from the Securities and Exchange
Commission permitting it to lend portfolio securities to Merrill Lynch, Pierce,
Fenner & Smith Incorporated, a wholly owned subsidiary of Merrill
13
- --------------------------------------------------------------------------------
Lynch, or its affiliates. Pursuant to that order, the Company also has retained
BlackRock Investment Management, LLC ("BIM"), an affiliate of the Manager, as
the securities lending agent for a fee based on a share of the returns on
investment of cash collateral. BIM may, on behalf of the Company and the Fund,
invest cash collateral received by the Fund for such loans, among other things,
in a private investment company managed by the Manager or in registered money
market funds advised by the Manager or its affiliates.
For the six months ended June 30, 2007, the Fund reimbursed the Manager $2,619
for certain accounting services.
PFPC Inc., an indirect, wholly owned subsidiary of PNC and an affiliate of the
Manager, is the Fund's transfer agent.
Certain officers and/or directors of the Company are officers and/or directors
of BlackRock, Inc. or its affiliates.
3. CAPITAL SHARE TRANSACTIONS:
Net increase (decrease) in net assets derived from capital share transactions
was $(25,052,876) and $8,419,482 for the six months ended June 30, 2007 and the
year ended December 31, 2006, respectively.
Transactions in capital shares for each class were as follows:
<Table>
<Caption>
- ---------------------------------------------------------------------
Class I Shares for the Six Months Ended
June 30, 2007 Shares Dollar Amount
- ---------------------------------------------------------------------
Shares sold.......................... 44,501,463 $ 44,501,463
Shares issued to shareholders in
reinvestment of dividends........... 6,020,250 6,020,250
----------- ------------
Total issued......................... 50,521,713 50,521,713
Shares redeemed...................... (75,574,614) (75,574,614)
----------- ------------
Net decrease......................... (25,052,901) $(25,052,901)
=========== ============
- ---------------------------------------------------------------------
</Table>
<Table>
<Caption>
- -----------------------------------------------------------------
Class I Shares for the Year Ended
December 31, 2006 Shares Dollar Amount
- -----------------------------------------------------------------
Shares sold....................... 189,936,136 $ 189,936,136
Shares issued to shareholders in
reinvestment of dividends........ 12,055,269 12,055,269
------------ -------------
Total issued...................... 201,991,405 201,991,405
Shares redeemed................... (193,549,805) (193,549,805)
------------ -------------
Net increase...................... 8,441,600 $ 8,441,600
============ =============
- -----------------------------------------------------------------
</Table>
<Table>
<Caption>
- ------------------------------------------------------------------
Class II Shares for the Six Months Ended Dollar
June 30, 2007 Shares Amount
- ------------------------------------------------------------------
Shares sold..................................... -- --
Shares redeemed................................. -- --
-- --
Net increase.................................... -- --
== ==
- ------------------------------------------------------------------
</Table>
<Table>
<Caption>
- -----------------------------------------------------------------
Class II Shares for the Year Ended Dollar
December 31, 2006 Shares Amount
- -----------------------------------------------------------------
Shares sold........................... 5,001,489 $ 5,001,489
Shares issued to shareholders in
reinvestment of dividends............ 49,179 49,179
---------- -----------
Total issued.......................... 5,050,668 5,050,668
Shares redeemed....................... (5,072,865) (5,072,865)
---------- -----------
Net decrease.......................... (22,197) $ (22,197)
========== ===========
- -----------------------------------------------------------------
</Table>
<Table>
<Caption>
- ------------------------------------------------------------------
Class III Shares for the Six Months Dollar
Ended June 30, 2007 Shares Amount
- ------------------------------------------------------------------
Shares issued to shareholders in reinvestment of
dividends...................................... 25 $25
-- ---
Net increase.................................... 25 $25
== ===
- ------------------------------------------------------------------
</Table>
<Table>
<Caption>
- ------------------------------------------------------------------
Class III Shares for the Year Ended Dollar
December 31, 2006 Shares Amount
- ------------------------------------------------------------------
Shares issued to shareholders in reinvestment of
dividends...................................... 79 $79
-- ---
Net increase.................................... 79 $79
== ===
- ------------------------------------------------------------------
</Table>
4. CAPITAL LOSS CARRYFORWARD:
On December 31, 2006, the Fund had a net capital loss carryforward of $1,842, of
which $1,783 expires in 2013 and $59 expires in 2014. This amount will be
available to offset like amounts of any future taxable gains.
14
- --------------------------------------------------------------------------------
BLACKROCK S&P 500 INDEX V.I. FUND
-------------------------------------------------------------------------
Semi-Annual Report (Unaudited)
June 30, 2007
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock S&P 500 Index V.I. Fund
A Discussion With Your Fund's Portfolio Managers
- --------------------------------------------------------------------------------
Amid a slowing economy and higher levels of market volatility, the Fund met
its objective of closely replicating the returns of the benchmark S&P 500 Index
during the six-month period.
HOW DID THE FUND PERFORM DURING THE PERIOD IN LIGHT OF THE EXISTING MARKET
CONDITIONS?
For the six-month period ended June 30, 2007, BlackRock S&P 500 Index V.I.
Fund's Class I Shares had a total return of +6.73%. For the same period, the
benchmark Standard & Poor's 500 (S&P 500) Index returned +6.96%.
As the returns indicate, the Fund met its objective of closely tracking the
performance of the S&P 500, a market-weighted index composed of 500 common
stocks issued by large-capitalization companies in a wide range of businesses.
The stocks included in the index collectively represent a substantial portion of
all common stocks publicly traded in the United States. As the value of the S&P
500 fluctuated during the past six months, the Fund's performance generally
tracked that of the index.
The S&P 500 Index increased nearly 7% during the six-month period despite
weakening economic growth, moderating corporate profits and a return to higher
levels of market volatility.
In spite of some ominous headlines and talk of recession, the U.S. economy
remained in fairly good shape. Economic activity did noticeably decelerate, as
evidenced by the .7% gross domestic product growth rate in the first quarter
(the slowest rate of growth since 2002), but is expected to rebound in the
second quarter and to be slightly below trend at around 2% to 2.5% for full-year
2007. Corporate earnings growth remained strong (although weaker than last
year). The labor market stayed firm, with the unemployment rate at the low end
of its historical range, although the second quarter saw some slowing. This has
helped consumer spending, which has remained resilient despite higher gasoline
prices and a sagging U.S. housing market. Outside the United States,
particularly in emerging markets such as China and India, as well as in Europe,
economic growth levels remained robust. Economic growth outside the United
States has been instrumental in supporting both the boom in U.S. exports and the
resilience in profit growth, and has provided stimulus for improved levels of
business investment.
For its part, the Federal Reserve Board (the Fed) left the target federal
funds interest rate unchanged at 5.25% throughout the semi-annual period as
economic growth moderated and core inflation figures improved slightly. The
decision at its latest meeting, held on June 28, marked the eighth consecutive
pause since August 2006.
Turning to the equity markets, 2007 began much as 2006 ended, with economic
statistics continuing to paint a mixed picture and with stock prices continuing
the rally that started in the summer of 2006. Volatility prevailed in the first
quarter as analyst predictions of slowing corporate profit growth, rising oil
prices, inflationary pressures and a deteriorating housing market dampened
investor enthusiasm. Fears of a possible recession and fallout in the subprime
mortgage industry intensified the negative sentiment. Then, at the end of
February, a 10% correction in the Chinese stock market sparked a global sell-off
that unwound earlier gains and marked the end of a significant, and seemingly
unstoppable, multi-month advance. The Dow Jones Industrial Average plunged 416
points on February 27, and in the week that followed, U.S. stocks registered
their most significant one-week decline in four years.
U.S. equity markets rebounded shortly after. Surging corporate deal activity
($1 trillion to date, largely in the form of mergers and acquisitions, leveraged
buyouts and share buybacks), solid global growth and an easing of inflation
pressures were the primary forces behind an uninterrupted, multi-week market
rally. Notably, the S&P 500 Index reached a new record high in late May.
However, June proved to be more difficult, with stocks recording their worst
monthly performance since the February retrenchment. Renewed concerns over
problems in the subprime mortgage market and the risk born of complexities
inherent in collateralized debt and loan obligations were the primary catalysts
for the weakness. The fear was that these credit-related issues would prolong
the slump in U.S. housing, stalling any robust consumer recovery. At the same
time, investors struggled to digest rising long-term bond yields (which reached
their highest level in five years), inflationary pressures and changing
expectations with respect to Fed monetary policy.
Ultimately, equities did experience some consolidation at the end of the
second quarter, but quarterly and year-to-date gains were still quite
respectable. The Dow Jones Industrial Average climbed more than 1,000 points
during the second quarter to 13,408, advancing 9.11% in its best quarter in
three and a half years. On a
2
- --------------------------------------------------------------------------------
year-to-date basis, the Dow was up 8.76%. The broader market S&P 500 Index ended
the quarter at 1,503, gaining 6.28% for the quarter and 6.96% year-to-date.
Large-cap stocks led their mid- and small-cap counterparts during the second
quarter, although that outperformance was not enough to gain back the ground
lost earlier in the year. For the six-month period, the large-cap S&P 500 Index
lagged the S&P SmallCap 600 Index and the S&P MidCap 400 Index, which returned
+8.56% and +11.98%, respectively. Within the S&P 500, the value style of
investing again topped the growth style for the period, with the S&P 500
Citigroup Value Index returning +7.37% versus the +6.53% return of the S&P 500
Citigroup Growth Index.
Sector performance for nine of the 10 S&P 500 sectors posted positive returns
for the semi-annual period; the notable exception was financials. The top
performer was energy, which was up 17.22%, followed by materials and
telecommunication services, with respective returns of +16.72% and +15.47%.
Besides financials (.79%), consumer discretionary and consumer staples were the
weakest performers, with respective returns of +2.89% and +4.92%.
WHAT CHANGES WERE MADE TO THE PORTFOLIO DURING THE PERIOD?
Throughout the period, as changes were made to the composition of the S&P 500
Index, the Fund purchased and sold securities to maintain its objective of
tracking the risks and return of the benchmark.
HOW WOULD YOU CHARACTERIZE THE FUND'S POSITION AT THE CLOSE OF THE PERIOD?
In keeping with its investment objective, the portfolio remains positioned to
match the risk characteristics of its benchmark, irrespective of the market's
future direction.
Debra L. Jelilian
Co-Portfolio Manager
Jeffrey L. Russo, CFA
Co-Portfolio Manager
July 13, 2007
3
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock S&P 500 Index V.I. Fund
Total Return Based on a $10,000 Investment
- --------------------------------------------------------------------------------
[LINE GRAPH]
<Table>
<Caption>
BLACKROCK S&P 500 INDEX V.I.
FUND+--CLASS I SHARES* STANDARD & POOR'S 500 INDEX++
---------------------------- -----------------------------
6/97 10000 10000
6/98 12976 13016
6/99 15874 15978
6/00 16967 17137
6/01 14399 14595
6/02 11752 11970
6/03 11748 12000
6/04 13941 14293
6/05 14755 15197
6/06 15984 16508
6/07 19205 19907
</Table>
[LINE GRAPH]
<Table>
<Caption>
BLACKROCK S&P 500 BLACKROCK S&P 500
INDEX V.I. FUND+--CLASS II INDEX V.I. FUND+--CLASS III STANDARD & POOR'S 500
SHARES* SHARES* INDEX++
-------------------------- --------------------------- ---------------------
9/30/04** 10000 10000 10000
6/05 10806 10806 10835
6/06 11706 11706 11770
6/07 13970 14050 14193
</Table>
* Assuming transaction costs, if any, and other operating expenses, including
advisory fees. Does not include insurance-related fees and expenses.
Effective September 2, 2003, Class A Shares were redesignated Class I Shares.
** Commencement of operations.
+ The Fund is required to invest at least 80% of its net assets in the common
stocks of the S&P 500 Index and in derivative instruments linked to the S&P
500.
++ This unmanaged Index covers 500 industrial, utility, transportation and
financial companies of the U.S. markets (mostly NYSE issues), representing
about 75% of NYSE market capitalization and 30% of NYSE issues.
Past results shown should not be considered a representation of future
performance.
4
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock S&P 500 Index V.I. Fund
Average Annual Total Return--Class I Shares*
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERIOD COVERED RETURN
- --------------------------------------------------------------------
One Year Ended 6/30/07 +20.15%
- --------------------------------------------------------------------
Five Years Ended 6/30/07 +10.32
- --------------------------------------------------------------------
Ten Years Ended 6/30/07 + 6.74
- --------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock S&P 500 Index V.I. Fund
Average Annual Total Return--Class II Shares*
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERIOD COVERED RETURN
- --------------------------------------------------------------------
One Year Ended 6/30/07 +19.33%
- --------------------------------------------------------------------
Inception (9/30/04) through 6/30/07 +12.94
- --------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock S&P 500 Index V.I. Fund
Average Annual Total Return--Class III Shares*
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERIOD COVERED RETURN
- --------------------------------------------------------------------
One Year Ended 6/30/07 +20.02%
- --------------------------------------------------------------------
Inception (9/30/04) through 6/30/07 +13.17
- --------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock S&P 500 Index V.I. Fund
Recent Performance Results
- --------------------------------------------------------------------------------
<Table>
<Caption>
6-MONTH 12-MONTH
AS OF JUNE 30, 2007 TOTAL RETURN TOTAL RETURN
- -----------------------------------------------------------------------------------------
Class I Shares* +6.73% +20.15%
- -----------------------------------------------------------------------------------------
Class II Shares* +6.01 +19.33
- -----------------------------------------------------------------------------------------
Class III Shares* +6.68 +20.02
- -----------------------------------------------------------------------------------------
S&P 500(R) Index** +6.96 +20.59
- -----------------------------------------------------------------------------------------
</Table>
* Average annual and cumulative 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. For a portion of the period, returns do not show the effects
of distribution fees (12b-1 fees) applicable to Class II and Class III
Shares. If such fees were included, returns shown would have been lower.
** This unmanaged Index covers 500 industrial, utility, transportation and
financial companies of the U.S. markets (mostly NYSE issues), representing
about 75% of NYSE market capitalization and 30% of NYSE issues.
Past results shown should not be considered a representation of future
performance.
S&P 500 is a registered trademark of the McGraw-Hill Companies.
5
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock S&P 500 Index V.I. Fund
Disclosure of Expenses
- --------------------------------------------------------------------------------
Shareholders of this Fund may incur the following charges: (a) expenses related
to transactions, including sales charges, redemption fees and exchange fees; and
(b) operating expenses including advisory fees, distribution fees including
12b-1 fees, and other Fund expenses. The following example (which is based on a
hypothetical investment of $1,000 invested on January 1, 2007 and held through
June 30, 2007) is intended to assist shareholders both in calculating expenses
based on an investment in the Fund and in comparing these expenses with similar
costs of investing in other mutual funds.
The first table below provides information about actual account values and
actual expenses. In order to estimate the expenses a shareholder paid during the
period covered by this report, shareholders can divide their account value by
$1,000 and then multiply the result by the number in the first line under the
heading entitled "Expenses Paid During the Period."
The second table below provides information about hypothetical account values
and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses. In order to assist
shareholders in comparing the ongoing expenses of investing in this Fund and
other funds, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in other funds' shareholder reports.
The expenses shown in the table are intended to highlight shareholders'
ongoing costs only and do not reflect any transactional expenses, such as sales
charges, redemption fees or exchange fees. Therefore, the second table is useful
in comparing ongoing expenses only, and will not help shareholders determine the
relative total expenses of owning different funds. If these transactional
expenses were included, shareholder expenses would have been higher.
<Table>
<Caption>
EXPENSES PAID
BEGINNING ENDING DURING THE PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JANUARY 1, 2007 TO
JANUARY 1, 2007 JUNE 30, 2007 JUNE 30, 2007
- ------------------------------------------------------------------------------------------------------------------
ACTUAL
- ------------------------------------------------------------------------------------------------------------------
Class I $1,000 $1,067.30 $2.01
- ------------------------------------------------------------------------------------------------------------------
Class II $1,000 $1,060.10 $2.67
- ------------------------------------------------------------------------------------------------------------------
Class III $1,000 $1,066.80 $3.30
- ------------------------------------------------------------------------------------------------------------------
HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES)**
- ------------------------------------------------------------------------------------------------------------------
Class I $1,000 $1,022.96 $1.97
- ------------------------------------------------------------------------------------------------------------------
Class II $1,000 $1,022.31 $2.62
- ------------------------------------------------------------------------------------------------------------------
Class III $1,000 $1,021.71 $3.23
- ------------------------------------------------------------------------------------------------------------------
</Table>
* For each class of the Fund, expenses are equal to the annualized expense
ratio for the class (.39% for Class I, .52% for Class II and .56% for Class
III), multiplied by the average account value over the period, multiplied by
182/365 (to reflect the one-half year period shown).
** Hypothetical 5% annual return before expenses is calculated by pro-rating
the number of days in the most recent fiscal half year divided by 365.
6
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock S&P 500 Index V.I. Fund
Portfolio Information as of June 30, 2007
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENT OF
SECTOR REPRESENTATION LONG-TERM INVESTMENTS
- -----------------------------------------------------------------------------------
Financials.................................................. 20.9%
Information Technology...................................... 15.5
Health Care................................................. 11.7
Industrials................................................. 11.4
Energy...................................................... 10.7
Consumer Discretionary...................................... 10.1
Consumer Staples............................................ 9.3
Telecommunication Services.................................. 3.7
Utilities................................................... 3.6
Materials................................................... 3.1
- -----------------------------------------------------------------------------------
</Table>
For Fund compliance purposes, the Fund's sector classifications refer to any one
or more of the sector sub-classifications used by one or more widely recognized
market indexes or ratings group indexes, and/or as defined by Fund management.
This definition may not apply for purposes of this report, which may combine
industry sub-classifications for reporting ease.
7
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock S&P 500 Index V.I. Fund
Schedule of Investments as of June 30, 2007 (unaudited)
- --------------------------------------------------------------------------------
This summary schedule of investments is presented to help investors focus on
the Fund's principal holdings. It includes the Fund's 50 largest holdings and
each investment of any issuer that exceeds 1% of the Fund's net assets. "Other
Securities" represents all issues not required to be disclosed under the rules
adopted by the Securities and Exchange Commission. A complete schedule of
investments is available without charge, upon request, by calling 800-441-7762
or on the Securities and Exchange Commission's Web site at http://www.sec.gov.
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES PERCENT OF
INDUSTRY HELD COMMON STOCKS VALUE NET ASSETS
- ---------------------------------------------------------------------------------------------------------------------
AEROSPACE & DEFENSE 19,228 Boeing Co. ............................... $ 1,848,964 0.6%
23,764 United Technologies Corp. ................ 1,685,581 0.5
Other Securities.......................... 4,899,456 1.5
------------ -----
8,434,001 2.6
- ---------------------------------------------------------------------------------------------------------------------
AIR FREIGHT & LOGISTICS 25,300 United Parcel Service, Inc. Class B(d).... 1,846,900 0.6
Other Securities.......................... 1,064,807 0.3
------------ -----
2,911,707 0.9
- ---------------------------------------------------------------------------------------------------------------------
AIRLINES Other Securities.......................... 245,642 0.1
- ---------------------------------------------------------------------------------------------------------------------
AUTO COMPONENTS Other Securities.......................... 700,123 0.2
- ---------------------------------------------------------------------------------------------------------------------
AUTOMOBILES Other Securities.......................... 1,307,940 0.4
- ---------------------------------------------------------------------------------------------------------------------
BEVERAGES 48,696 The Coca-Cola Co.......................... 2,547,288 0.8
38,939 PepsiCo, Inc. ............................ 2,525,194 0.8
Other Securities.......................... 1,684,176 0.5
------------ -----
6,756,658 2.1
- ---------------------------------------------------------------------------------------------------------------------
BIOTECHNOLOGY 27,723 Amgen, Inc.(a)............................ 1,532,805 0.4
Other Securities.......................... 2,204,510 0.7
------------ -----
3,737,315 1.1
- ---------------------------------------------------------------------------------------------------------------------
BUILDING PRODUCTS Other Securities.......................... 489,939 0.2
- ---------------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS 9,800 The Goldman Sachs Group, Inc. ............ 2,124,150 0.7
20,779 Merrill Lynch & Co., Inc.(b).............. 1,736,709 0.5
25,163 Morgan Stanley............................ 2,110,672 0.6
Other Securities.......................... 5,822,533 1.8
------------ -----
11,794,064 3.6
- ---------------------------------------------------------------------------------------------------------------------
CHEMICALS Other Securities.......................... 5,025,079 1.5
- ---------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS 8,264 The PNC Financial Services Group,
Inc.(b)................................. 591,537 0.2
46,384 Wachovia Corp. ........................... 2,377,180 0.7
79,906 Wells Fargo & Co. ........................ 2,810,294 0.9
Other Securities.......................... 6,308,806 1.9
------------ -----
12,087,817 3.7
- ---------------------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES & Other Securities.......................... 1,812,945 0.6
SUPPLIES
- ---------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT 145,215 Cisco Systems, Inc.(a).................... 4,044,238 1.3
39,868 QUALCOMM, Inc. ........................... 1,729,873 0.5
Other Securities.......................... 2,680,284 0.8
------------ -----
8,454,395 2.6
- ---------------------------------------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS 20,690 Apple Computer, Inc.(a)................... 2,525,008 0.8
54,376 Dell, Inc.(a)............................. 1,552,435 0.5
62,643 Hewlett-Packard Co. ...................... 2,795,131 0.9
32,634 International Business Machines Corp. .... 3,434,729 1.0
Other Securities.......................... 2,325,321 0.7
------------ -----
12,632,624 3.9
- ---------------------------------------------------------------------------------------------------------------------
CONSTRUCTION & ENGINEERING Other Securities.......................... 208,707 0.1
- ---------------------------------------------------------------------------------------------------------------------
CONSTRUCTION MATERIALS Other Securities.......................... 280,623 0.1
- ---------------------------------------------------------------------------------------------------------------------
</Table>
8
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock S&P 500 Index V.I. Fund
Schedule of Investments as of June 30, 2007 (continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES PERCENT OF
INDUSTRY HELD COMMON STOCKS VALUE NET ASSETS
- ---------------------------------------------------------------------------------------------------------------------
CONSUMER FINANCE 28,378 American Express Co. ..................... $ 1,736,166 0.5%
Other Securities.......................... 1,290,266 0.4
------------ -----
3,026,432 0.9
- ---------------------------------------------------------------------------------------------------------------------
CONTAINERS & PACKAGING Other Securities.......................... 646,301 0.2
- ---------------------------------------------------------------------------------------------------------------------
DISTRIBUTORS Other Securities.......................... 215,165 0.1
- ---------------------------------------------------------------------------------------------------------------------
DIVERSIFIED CONSUMER Other Securities.......................... 373,051 0.1
SERVICES
- ---------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL 106,069 Bank of America Corp. .................... 5,185,713 1.6
SERVICES
118,251 Citigroup, Inc. .......................... 6,065,094 1.9
81,668 JPMorgan Chase & Co.(d)................... 3,956,815 1.2
Other Securities.......................... 1,064,728 0.3
------------ -----
16,272,350 5.0
- ---------------------------------------------------------------------------------------------------------------------
DIVERSIFIED 147,402 AT&T Inc.(d).............................. 6,117,183 1.9
TELECOMMUNICATION SERVICES 69,418 Verizon Communications, Inc. ............. 2,857,939 0.9
Other Securities.......................... 1,009,852 0.3
------------ -----
9,984,974 3.1
- ---------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES Other Securities.......................... 5,809,987 1.8
- ---------------------------------------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT Other Securities.......................... 1,397,477 0.4
- ---------------------------------------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & Other Securities.......................... 710,865 0.2
INSTRUMENTS
- ---------------------------------------------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES 28,190 Schlumberger Ltd. ........................ 2,394,459 0.7
Other Securities.......................... 4,427,371 1.4
------------ -----
6,821,830 2.1
- ---------------------------------------------------------------------------------------------------------------------
FOOD & STAPLES RETAILING 57,916 Wal-Mart Stores, Inc. .................... 2,786,339 0.9
Other Securities.......................... 4,667,550 1.4
------------ -----
7,453,889 2.3
- ---------------------------------------------------------------------------------------------------------------------
FOOD PRODUCTS Other Securities.......................... 4,686,323 1.4
- ---------------------------------------------------------------------------------------------------------------------
GAS UTILITIES Other Securities.......................... 578,992 0.2
- ---------------------------------------------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & 28,162 Medtronic, Inc. .......................... 1,460,481 0.5
SUPPLIES Other Securities.......................... 3,726,324 1.1
------------ -----
5,186,805 1.6
- ---------------------------------------------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & 32,058 UnitedHealth Group, Inc. ................. 1,639,446 0.5
SERVICES Other Securities.......................... 5,412,090 1.7
------------ -----
7,051,536 2.2
- ---------------------------------------------------------------------------------------------------------------------
HEALTH CARE TECHNOLOGY Other Securities.......................... 167,526 0.1
- ---------------------------------------------------------------------------------------------------------------------
HOTELS, RESTAURANTS & Other Securities.......................... 4,846,098 1.5
LEISURE
- ---------------------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES Other Securities.......................... 1,789,870 0.5
- ---------------------------------------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS 75,284 The Procter & Gamble Co.(a)............... 4,606,628 1.4
Other Securities.......................... 1,716,691 0.5
------------ -----
6,323,319 1.9
- ---------------------------------------------------------------------------------------------------------------------
IT SERVICES Other Securities.......................... 3,576,006 1.1
- ---------------------------------------------------------------------------------------------------------------------
INDEPENDENT POWER PRODUCERS Other Securities.......................... 1,554,192 0.5
& ENERGY TRADERS
- ---------------------------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES 17,246 3M Co. ................................... 1,496,780 0.4
246,065 General Electric Co.(d)................... 9,419,368 2.9
48,363 Tyco International Ltd.(a)................ 1,634,186 0.5
Other Securities.......................... 306,106 0.1
------------ -----
12,856,440 3.9
- ---------------------------------------------------------------------------------------------------------------------
</Table>
9
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock S&P 500 Index V.I. Fund
Schedule of Investments as of June 30, 2007 (continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES PERCENT OF
INDUSTRY HELD COMMON STOCKS VALUE NET ASSETS
- ---------------------------------------------------------------------------------------------------------------------
INSURANCE 62,007 American International Group, Inc.(c)..... $ 4,342,350 1.3%
Other Securities.......................... 10,685,771 3.3
------------ -----
15,028,121 4.6
- ---------------------------------------------------------------------------------------------------------------------
INTERNET & CATALOG RETAIL Other Securities.......................... 662,141 0.2
- ---------------------------------------------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES 5,230 Google, Inc. Class A(a)................... 2,737,277 0.8
Other Securities.......................... 1,810,764 0.6
------------ -----
4,548,041 1.4
- ---------------------------------------------------------------------------------------------------------------------
LEISURE EQUIPMENT & PRODUCTS Other Securities.......................... 616,957 0.2
- ---------------------------------------------------------------------------------------------------------------------
LIFE SCIENCES TOOLS & Other Securities.......................... 1,012,487 0.3
SERVICES
- ---------------------------------------------------------------------------------------------------------------------
MACHINERY Other Securities.......................... 5,462,205 1.7
- ---------------------------------------------------------------------------------------------------------------------
MEDIA 65,686 Comcast Corp. Class A(a).................. 1,847,090 0.6
92,048 Time Warner, Inc. ........................ 1,936,690 0.6
47,782 Walt Disney Co. .......................... 1,631,277 0.5
Other Securities.......................... 5,134,500 1.5
------------ -----
10,549,557 3.2
- ---------------------------------------------------------------------------------------------------------------------
METALS & MINING Other Securities.......................... 3,006,097 0.9
- ---------------------------------------------------------------------------------------------------------------------
MULTI-UTILITIES Other Securities.......................... 3,625,424 1.1
- ---------------------------------------------------------------------------------------------------------------------
MULTILINE RETAIL Other Securities.......................... 3,775,980 1.1
- ---------------------------------------------------------------------------------------------------------------------
OFFICE ELECTRONICS Other Securities.......................... 406,985 0.1
- ---------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS 51,407 Chevron Corp. ............................ 4,330,526 1.3
39,124 ConocoPhillips............................ 3,071,234 0.9
134,746 Exxon Mobil Corp. ........................ 11,302,494 3.5
Other Securities.......................... 8,640,934 2.7
------------ -----
27,345,188 8.4
- ---------------------------------------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS Other Securities.......................... 986,274 0.3
- ---------------------------------------------------------------------------------------------------------------------
PERSONAL PRODUCTS Other Securities.......................... 510,112 0.1
- ---------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS 37,420 Abbott Laboratories....................... 2,003,841 0.6
47,963 Bristol-Myers Squibb Co. ................. 1,513,712 0.4
69,253 Johnson & Johnson......................... 4,267,370 1.3
51,879 Merck & Co., Inc. ........................ 2,583,574 0.8
167,860 Pfizer, Inc. ............................. 4,292,180 1.3
32,651 Wyeth..................................... 1,872,208 0.6
Other Securities.......................... 3,518,703 1.1
------------ -----
20,051,588 6.1
- ---------------------------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT Other Securities.......................... 3,802,218 1.2
TRUSTS (REITS)
- ---------------------------------------------------------------------------------------------------------------------
REAL ESTATE MANAGEMENT & Other Securities.......................... 149,650 0.0
DEVELOPMENT
- ---------------------------------------------------------------------------------------------------------------------
ROAD & RAIL Other Securities.......................... 2,453,817 0.7
- ---------------------------------------------------------------------------------------------------------------------
SEMICONDUCTORS & 138,988 Intel Corp. .............................. 3,302,355 1.0
SEMICONDUCTOR EQUIPMENT Other Securities.......................... 5,331,297 1.6
------------ -----
8,633,652 2.6
- ---------------------------------------------------------------------------------------------------------------------
SOFTWARE 201,286 Microsoft Corp. .......................... 5,931,898 1.8
94,685 Oracle Corp.(a)........................... 1,866,241 0.6
Other Securities.......................... 2,640,810 0.8
------------ -----
10,438,949 3.2
- ---------------------------------------------------------------------------------------------------------------------
</Table>
10
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock S&P 500 Index V.I. Fund
Schedule of Investments as of June 30, 2007 (continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES PERCENT OF
INDUSTRY HELD COMMON STOCKS VALUE NET ASSETS
- ---------------------------------------------------------------------------------------------------------------------
SPECIALTY RETAIL 47,159 Home Depot, Inc. ......................... $ 1,855,707 0.6%
Other Securities.......................... 4,214,986 1.3
------------ -----
6,070,693 1.9
- ---------------------------------------------------------------------------------------------------------------------
TEXTILES, APPAREL & LUXURY Other Securities.......................... 1,516,235 0.5
GOODS
- ---------------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE 23,234 Fannie Mae................................ 1,517,877 0.4
Other Securities.......................... 2,912,261 0.9
------------ -----
4,430,138 1.3
- ---------------------------------------------------------------------------------------------------------------------
TOBACCO 50,689 Altria Group, Inc. ....................... 3,555,326 1.1
Other Securities.......................... 411,909 0.1
------------ -----
3,967,235 1.2
- ---------------------------------------------------------------------------------------------------------------------
TRADING COMPANIES & Other Securities.......................... 188,054 0.1
DISTRIBUTORS
- ---------------------------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION Other Securities.......................... 1,958,513 0.6
SERVICES
- ---------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST--$172,651,950)...................... 319,405,318 97.8
- ---------------------------------------------------------------------------------------------------------------------
<Caption>
BENEFICIAL
INTEREST SHORT-TERM SECURITIES
- ---------------------------------------------------------------------------------------------------------------------
$ 7,694,417 BlackRock Liquidity Series, LLC Cash Sweep
Series, 5.33%(b)(e)..................... 7,694,417 2.4
13,365,100 BlackRock Liquidity Series, LLC Money
Market Series, 5.33%(b)(e)(f)........... 13,365,100 4.1
- ---------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM SECURITIES
(COST--$21,059,517)....................... 21,059,517 6.5
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST--$193,711,467*)..................... 340,464,835 104.3
LIABILITIES IN EXCESS OF OTHER ASSETS..... (14,029,006) (4.3)
------------ -----
NET ASSETS................................ $326,435,829 100.0%
============ =====
- ---------------------------------------------------------------------------------------------------------------------
</Table>
* The cost and unrealized appreciation (depreciation) of investments as of
June 30, 2007, as computed for federal income tax purposes, were as
follows:
<Table>
Aggregate cost.............................................. $201,466,552
============
Gross unrealized appreciation............................... $143,519,829
Gross unrealized depreciation............................... (4,521,546)
------------
Net unrealized appreciation................................. $138,998,283
============
</Table>
(a) Non-income producing security.
(b) Investments in companies considered to be an affiliate of the Fund, for
purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as
follows:
<Table>
<Caption>
- --------------------------------------------------------------------------------------------------------------
INTEREST/
PURCHASE SALE REALIZED DIVIDEND
AFFILIATE COST COST GAIN (LOSS) INCOME
- --------------------------------------------------------------------------------------------------------------
BlackRock Liquidity Series, LLC Cash Sweep Series........... -- $2,299,081* -- $501,875
BlackRock Liquidity Series, LLC Money Market Series......... -- $ 504,600* -- $ 5,950
Merrill Lynch & Co., Inc. .................................. $91,944 $ 64,519 $82,487 $ 14,405
The PNC Financial Services Group, Inc. ..................... $159,652 $ 51,275 $ (896) $ 8,360
- --------------------------------------------------------------------------------------------------------------
</Table>
* Represents net sale cost.
(c) All or a portion of security held as collateral in connection with open
financial futures contracts.
(d) Security, or a portion of security, is on loan.
(e) Represents the current yield as of June 30, 2007.
(f) Security was purchased with the cash proceeds from securities loans.
- - "Other Securities" represents issues that are not identified as the 50
largest holdings of the Fund and issues not exceeding 1% of net assets.
Some securities or a portion of, in this category are either held as
collateral in connection with open financial futures contracts or is out on
loan.
11
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock S&P 500 Index V.I. Fund
Schedule of Investments as of June 30, 2007 (concluded)
- --------------------------------------------------------------------------------
- - For Fund compliance purposes, the Fund's industry classifications refer to
any one or more of the industry sub-classifications used by one or more
widely recognized market indexes or ratings group indexes, and/or as
defined by Fund management. This definition may not apply for purposes of
this report, which may combine industry sub-classifications for reporting
ease.
Industries are shown as a percent of net assets.
- - Financial futures contracts purchased as of June 30, 2007 were as follows:
<Table>
<Caption>
- -------------------------------------------------------------------------------------
NUMBER OF EXPIRATION FACE UNREALIZED
CONTRACTS ISSUE DATE VALUE DEPRECIATION
- -------------------------------------------------------------------------------------
20 S&P 500 Financial Futures
Index.......................... September 2007 $7,626,583 $(49,422)
- -------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements.
12
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock S&P 500 Index V.I. Fund
Statement of Assets and Liabilities as of June 30, 2007 (unaudited)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments in unaffiliated securities, at value (including
securities loaned of $13,066,377) (identified
cost--$171,568,969)....................................... $317,077,072
Investments in affiliated securities, at value (identified
cost--$22,142,498)........................................ 23,387,763
Cash........................................................ 2
Receivables:
Capital shares sold....................................... $ 19,034,233
Dividends................................................. 330,954
Securities sold........................................... 158,030
Securities lending........................................ 1,651 19,524,868
------------
Prepaid expenses and other assets........................... 3,697
------------
Total assets................................................ 359,993,402
------------
- -------------------------------------------------------------------------------------------
LIABILITIES:
Collateral on securities loaned, at value................... 13,365,100
Payables:
Securities purchased...................................... 19,824,913
Capital shares redeemed................................... 176,383
Investment adviser........................................ 74,554
Variation margin.......................................... 5,958
Other affiliates.......................................... 4,338
Distribution fees......................................... 22 20,086,168
------------
Accrued expenses and other liabilities...................... 106,305
------------
Total liabilities........................................... 33,557,573
------------
- -------------------------------------------------------------------------------------------
NET ASSETS.................................................. $326,435,829
============
- -------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Class I Shares of Common Stock, $.10 par value, 100,000,000
shares authorized......................................... $ 1,702,042
Class II Shares of Common Stock, $.10 par value, 100,000,000
shares authorized......................................... 17
Class III Shares of Common Stock, $.10 par value,
100,000,000 shares authorized............................. 7
Paid-in capital in excess of par............................ 192,194,813
Undistributed investment income--net........................ $ 2,702,248
Accumulated realized capital losses--net.................... (16,867,244)
Unrealized appreciation--net................................ 146,703,946
------------
Total accumulated earnings--net............................. 132,538,950
------------
NET ASSETS.................................................. $326,435,829
============
- -------------------------------------------------------------------------------------------
NET ASSET VALUE:
Class I--Based on net assets of $326,431,151 and 17,020,422
shares outstanding........................................ $ 19.18
============
Class II--Based on net assets of $3,273 and 171.8 shares
outstanding............................................... $ 19.05
============
Class III--Based on net assets of $1,405 and 73.33 shares
outstanding............................................... $ 19.16
============
- -------------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements.
13
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock S&P 500 Index V.I. Fund
Statement of Operations for the Six Months Ended June 30, 2007 (unaudited)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividends (including $22,765 from affiliates)............... $ 2,832,483
Interest from affiliates.................................... 501,875
Securities lending--net..................................... 5,950
-----------
Total income................................................ 3,340,308
-----------
- -----------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees.................................... $ 487,167
Accounting services......................................... 53,719
Printing and shareholder reports............................ 25,847
Professional fees........................................... 20,124
Licensing fees.............................................. 18,761
Custodian fees.............................................. 14,356
Directors' fees and expenses................................ 8,896
Transfer agent fees--Class I................................ 2,424
Pricing services............................................ 522
Distribution fees--Class II................................. 23
Distribution fees--Class III................................ 2
Other....................................................... 8,027
-----------
Total expenses.............................................. 639,868
-----------
Investment income--net...................................... 2,700,440
-----------
- -----------------------------------------------------------------------------------------
REALIZED & UNREALIZED GAIN (LOSS)--NET:
Realized gain on:
Investments--net (including $81,591 from affiliates)...... 10,567,712
Financial futures contracts--net.......................... 941,870 11,509,582
-----------
Change in unrealized appreciation/depreciation on:
Investments--net.......................................... 6,449,179
Financial futures contracts--net.......................... (79,617) 6,369,562
----------- -----------
Total realized and unrealized gain--net..................... 17,879,144
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $20,579,584
===========
- -----------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements.
14
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock S&P 500 Index V.I. Fund
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<Table>
<Caption>
FOR THE SIX
MONTHS ENDED FOR THE
JUNE 30, 2007 YEAR ENDED
INCREASE (DECREASE) IN NET ASSETS: (UNAUDITED) DECEMBER 31, 2006
- ------------------------------------------------------------------------------------------------
OPERATIONS:
Investment income--net...................................... $ 2,700,440 $ 5,060,364
Realized gain--net.......................................... 11,509,582 24,266,530
Change in unrealized appreciation/depreciation--net......... 6,369,562 16,360,665
------------ ------------
Net increase in net assets resulting from operations........ 20,579,584 45,687,559
------------ ------------
- ------------------------------------------------------------------------------------------------
DIVIDENDS TO SHAREHOLDERS:
Investment income--net:
Class I................................................... -- (5,060,105)
Class II.................................................. -- (21)
Class III................................................. -- (21)
------------ ------------
Net decrease in net assets resulting from dividends to
shareholders.............................................. -- (5,060,147)
------------ ------------
- ------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Net decrease in net assets derived from capital share
transactions.............................................. (35,346,267) (41,281,695)
------------ ------------
- ------------------------------------------------------------------------------------------------
NET ASSETS:
Total decrease in net assets................................ (14,766,683) (654,283)
Beginning of period......................................... 341,202,512 341,856,795
------------ ------------
End of period*.............................................. $326,435,829 $341,202,512
============ ============
- ------------------------------------------------------------------------------------------------
* Undistributed investment income--net...................... $ 2,702,248 $ 1,808
============ ============
- ------------------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements.
15
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock S&P 500 Index V.I. Fund
Financial Highlights
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS I
--------------------------------------------------------------------
FOR THE SIX
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE MONTHS ENDED FOR THE YEAR ENDED DECEMBER 31,
BEEN DERIVED FROM INFORMATION PROVIDED IN THE JUNE 30, 2007 ----------------------------------------------------
FINANCIAL STATEMENTS. (UNAUDITED) 2006 2005 2004 2003 2002
- ------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.............. $ 17.97 $ 15.81 $ 15.35 $ 14.12 $ 11.15 $ 14.58
-------- -------- -------- -------- -------- --------
Investment income--net**.......................... .15 .26 .24 .23 .18 .15
Realized and unrealized gain (loss)--net.......... 1.06 2.19 .45 1.25 2.96 (3.41)
-------- -------- -------- -------- -------- --------
Total from investment operations.................. 1.21 2.45 .69 1.48 3.14 (3.26)
-------- -------- -------- -------- -------- --------
Less dividends from investment income--net........ -- (.29) (.23) (.25) (.17) (.17)
-------- -------- -------- -------- -------- --------
Net asset value, end of period.................... $ 19.18 $ 17.97 $ 15.81 $ 15.35 $ 14.12 $ 11.15
======== ======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:*
Based on net asset value per share................ 6.73%+ 15.49% 4.49% 10.51% 28.14% (22.40%)
======== ======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses.......................................... .39%*** .40% .39% .39% .38% .40%
======== ======== ======== ======== ======== ========
Investment income--net............................ 1.66%*** 1.58% 1.52% 1.59% 1.41% 1.20%
======== ======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands).......... $326,431 $341,200 $341,855 $398,558 $448,704 $319,740
======== ======== ======== ======== ======== ========
Portfolio turnover................................ 8% 4% 10% 3% 2% 8%
======== ======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------
</Table>
* Total investment returns exclude insurance-related fees and expenses.
** Based on average shares outstanding.
*** Annualized.
+ Aggregate total investment return.
See Notes to Financial Statements.
16
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock S&P 500 Index V.I. Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS II
----------------------------------------------------------
FOR THE SIX FOR THE YEAR ENDED
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE MONTHS ENDED DECEMBER 31, FOR THE PERIOD
BEEN DERIVED FROM INFORMATION PROVIDED IN THE JUNE 30, 2007 ------------------- SEPTEMBER 30, 2004@
FINANCIAL STATEMENTS. (UNAUDITED) 2006 2005 TO DECEMBER 31, 2004
- --------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................... $17.97 $ 15.80 $ 15.34 $ 14.29
------ ------- ------- -------
Investment income--net**................................ .18 .26 .24 .10
Realized and unrealized gain--net....................... .90 2.20 .45 1.20
------ ------- ------- -------
Total from investment operations........................ 1.08 2.46 .69 1.30
------ ------- ------- -------
Less dividends from investment income--net.............. -- (.29) (.23) (.25)
------ ------- ------- -------
Net asset value, end of period.......................... $19.05 $ 17.97 $ 15.80 $ 15.34
====== ======= ======= =======
- --------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:*
Based on net asset value per share...................... 6.01%+ 15.56% 4.50% 9.12%+
====== ======= ======= =======
- --------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses................................................ .52%*** .39% .39% .39%***
====== ======= ======= =======
Investment income--net.................................. 1.41%*** 1.59% 1.53% 2.60%***
====== ======= ======= =======
- --------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)................ $ 3 $ 1 $ 1 $ 1
====== ======= ======= =======
Portfolio turnover...................................... 8% 4% 10% 3%
====== ======= ======= =======
- --------------------------------------------------------------------------------------------------------------------
</Table>
* Total investment returns exclude insurance-related fees and expenses.
** Based on average shares outstanding.
*** Annualized.
+ Aggregate total investment return.
@ Commencement of operations.
See Notes to Financial Statements.
17
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock S&P 500 Index V.I. Fund
Financial Highlights (concluded)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS III
---------------------------------------------------------
FOR THE SIX FOR THE YEAR ENDED
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE MONTHS ENDED DECEMBER 31, FOR THE PERIOD
BEEN DERIVED FROM INFORMATION PROVIDED IN THE JUNE 30, 2007 ------------------ SEPTEMBER 30, 2004@
FINANCIAL STATEMENTS. (UNAUDITED) 2006 2005 TO DECEMBER 31, 2004
- ------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................... $ 17.96 $ 15.80 $ 15.34 $ 14.29
------- ------- ------- -------
Investment income--net**............................... .14 .26 .24 .10
Realized and unrealized gain--net...................... 1.06 2.19 .45 1.20
------- ------- ------- -------
Total from investment operations....................... 1.20 2.45 .69 1.30
------- ------- ------- -------
Less dividends from investment income--net............. -- (.29) (.23) (.25)
------- ------- ------- -------
Net asset value, end of period......................... $ 19.16 $ 17.96 $ 15.80 $ 15.34
======= ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:*
Based on net asset value per share..................... 6.68%+ 15.50% 4.50% 9.12%+
======= ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses............................................... .64%*** .41% .39% .39%***
======= ======= ======= =======
Investment income--net................................. 1.41%*** 1.57% 1.53% 2.60%***
======= ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)............... $ 1 $ 1 $ 1 $ 1
======= ======= ======= =======
Portfolio turnover..................................... 8% 4% 10% 3%
======= ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------
</Table>
* Total investment returns exclude insurance-related fees and expenses.
** Based on average shares outstanding.
*** Annualized.
+ Aggregate total investment return.
@ Commencement of operations.
See Notes to Financial Statements.
18
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock S&P 500 Index V.I. Fund
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES:
BlackRock Variable Series Funds, Inc. (the "Company") is an open-end management
investment company that is comprised of 16 separate funds. Each fund offers
three 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. ("Merrill Lynch")), and other insurance companies that are not
affiliated with Merrill Lynch, for their separate accounts to fund benefits
under certain variable annuity and variable life insurance contracts. BlackRock
S&P 500 Index V.I. Fund (the "Fund") is classified as "non-diversified," as
defined in the Investment Company Act of 1940, as amended. Class I, Class II and
Class III 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. In addition, Class II and Class III Shares
bear certain expenses related to the distribution of such shares. The Fund's
financial statements are prepared in conformity with U.S. generally accepted
accounting principles, which may require the use of management accruals and
estimates. Actual results may differ from these estimates. These unaudited
financial statements reflect all adjustments, which are, in the opinion of
management, necessary to present a fair statement of the results for the interim
period. All such adjustments are of a normal, recurring nature. Income, expenses
(other than expenses attributable to a specific class) and realized and
unrealized gains and losses are allocated daily to each class based on its
relative net assets. The following is a summary of significant accounting
policies followed by the Fund.
(a) Valuation of investments--Equity securities held by the Fund that are
traded on stock exchanges or the NASDAQ Global Market are valued at the last
sale price or official close price on the exchange, as of the close of business
on the day the securities are being valued or, lacking any sales, at the last
available bid price for long positions, and at the last available asked price
for short positions. In cases where equity securities are traded on more than
one exchange, the securities are valued on the exchange designated as the
primary market by or under the authority of the Board of Directors of the
Company. Long positions traded in the over-the-counter ("OTC") market, NASDAQ
Capital Market or Bulletin Board are valued at the last available bid price or
yield equivalent obtained from one or more dealers or pricing services approved
by the Board of Directors of the Company. Short positions traded in the OTC
market are valued at the last available asked price. Portfolio securities that
are traded both in the OTC market and on a stock exchange are valued according
to the broadest and most representative market.
Options written or purchased are valued at the last sale price in the case of
exchange-traded options. Options traded in the OTC market are valued at the last
asked price (options written) or the last bid price (options purchased). Swap
agreements are valued based upon quoted fair valuations received daily by the
Fund from a pricing service or counterparty. Financial futures contracts and
options thereon, which are traded on exchanges, are valued at their last sale
price as of the close of such exchanges. Valuation of short-term investment
vehicles is generally based on the net asset value of the underlying investment
vehicle or amortized cost.
Repurchase agreements are valued at cost plus accrued interest. The Fund
employs pricing services to provide certain securities prices for the Fund.
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, including valuations furnished by the
pricing services retained by the Fund, which may use a matrix system for
valuations. The procedures of a pricing service and its valuations are reviewed
by the officers of the Fund under the general supervision of the Company's Board
of Directors. Such valuations and procedures will be reviewed periodically by
the Board of Directors of the Company.
Generally, trading in foreign securities, as well as U.S. government
securities, money market instruments and certain fixed income securities, is
substantially completed each day at various times prior to the close of business
on the New York Stock Exchange ("NYSE"). The values of such securities used in
computing the net asset value of the Fund's shares are determined as of such
times. Foreign currency exchange rates will generally be determined as of the
close of business on the NYSE. Occasionally, events affecting the values of such
securities and such exchange rates may occur between the times at which they are
determined and the close of business on the NYSE that may not be reflected in
the computation of the Fund's net asset
19
- --------------------------------------------------------------------------------
value. If events (for example, a company announcement, market volatility or a
natural disaster) occur during such periods that are expected to materially
affect the value of such securities, those securities will be valued at their
fair value as determined in good faith by the Company's Board of Directors or by
BlackRock Advisors, LLC (the "Manager"), an indirect, wholly owned subsidiary of
BlackRock, Inc., using a pricing service and/or procedures approved by the
Fund's Board of Directors.
(b) Derivative financial instruments--The Fund may engage in various portfolio
investment strategies both to increase the return of the Fund and to hedge, or
protect, its exposure to interest rate movements and movements in the securities
markets. Losses may arise due to changes in the value of the contract, due to an
unfavorable change in the price of the underlying security or index, or if the
counterparty does not perform under the contract. The counterparty for certain
instruments may pledge cash or securities as collateral.
- - Financial futures contracts--The Fund may purchase or sell financial futures
contracts and options on such financial futures contracts. Financial futures
contracts are contracts for delayed delivery of securities at a specific future
date and at a specific price or yield. Upon entering into a contract, the Fund
deposits and maintains as collateral such initial margin as required by the
exchange on which the transaction is effected. Pursuant to the contract, the
Fund agrees to receive from or pay to the broker an amount of cash equal to the
daily fluctuation in value of the contract. Such receipts or payments are known
as variation margin and are recorded by the Fund as unrealized gains or losses.
When the contract is closed, the Fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed.
- - Options--The Fund may write call and put options and purchase 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.
(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 U.S. dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates on investments.
The Fund invests in foreign securities, which may involve a number of risk
factors and special considerations not present with investments in securities of
U.S. corporations.
(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).
Realized gains and losses on security transactions are determined on the
identified cost basis. Dividend income is recorded on the ex-dividend dates.
Dividends from foreign securities where the ex-dividend date may have passed are
subsequently recorded when the Fund has determined the ex-dividend date.
Interest income is recognized on the accrual basis.
(f) Dividends and distributions--Dividends and distributions paid by the Fund
are recorded on the ex-dividend dates.
(g) Expenses--Certain expenses have been allocated to the individual funds in
the Company on a pro rata basis based upon the respective aggregate net asset
value of each fund included in the Company.
(h) Securities lending--The Fund may lend securities to financial institutions
that provide cash or securities issued or guaranteed by the U.S. government as
collateral, which will be maintained at all times in an amount equal to at least
100% of the current market value of the loaned securities. The market value of
the loaned securities is determined at the close of
20
- --------------------------------------------------------------------------------
business of the Fund and any additional required collateral is delivered to the
Fund on the next business day. Where the Fund receives securities as collateral
for the loaned securities, it collects a fee from the borrower. The Fund
typically receives the income on the loaned securities, but does not receive the
income on the collateral. Where the Fund receives cash collateral, it may invest
such collateral and retain the amount earned on such investment, net of any
amount rebated to the borrower. Loans of securities are terminable at any time
and the borrower, after notice, is required to return borrowed securities within
five business days. The Fund may pay reasonable finder's, lending agent,
administrative and custodial fees in connection with its loans. In the event
that the borrower defaults on its obligation to return borrowed securities
because of insolvency or for any other reason, the Fund could experience delays
and costs in gaining access to the collateral. The Fund also could suffer a loss
where the value of the collateral falls below the market value of the borrowed
securities, in the event of borrower default or in the event of losses on
investments made with cash collateral.
(i) Recent accounting pronouncements--Effective June 29, 2007, the Fund
implemented Financial Accounting Standards Board ("FASB") Interpretation No. 48,
"Accounting for Uncertainty in Income Taxes--an interpretation of FASB Statement
No. 109" ("FIN 48"). FIN 48 prescribes the minimum recognition threshold a tax
position must meet in connection with accounting for uncertainties in income tax
positions taken or expected to be taken by an entity, including investment
companies, before being measured and recognized in the financial statements.
Management has evaluated the application of FIN 48 to the Fund, and has
determined that the adoption of FIN 48 does not have a material impact on the
Fund's financial statements. The Fund files U.S. and various state tax returns.
No income tax returns are currently under examination. The statute of
limitations on the Fund's tax returns remains open for the years ended December
31, 2003 through December 31, 2006.
In September 2006, Statement of Financial Accounting Standards No. 157, "Fair
Value Measurements" ("FAS 157"), was issued and is effective for fiscal years
beginning after November 15, 2007. FAS 157 defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. At this time, management is evaluating the implications of FAS 157
and its impact on the Fund's financial statements, if any, has not been
determined.
In addition, in February 2007, Statement of Financial Accounting Standards No.
159, "The Fair Value Option for Financial Assets and Financial Liabilities"
("FAS 159"), was issued and is effective for fiscal years beginning after
November 15, 2007. Early adoption is permitted as of the beginning of a fiscal
year that begins on or before November 15, 2007, provided the entity also elects
to apply the provisions of FAS 157. FAS 159 permits entities to choose to
measure many financial instruments and certain other items at fair value that
are not currently required to be measured at fair value. FAS 159 also
establishes presentation and disclosure requirements designed to facilitate
comparisons between entities that choose different measurement attributes for
similar types of assets and liabilities. At this time, management is evaluating
the implications of FAS 159 and its impact on the Fund's financial statements,
if any, has not been determined.
2. INVESTMENT ADVISORY AGREEMENT AND TRANSACTIONS WITH AFFILIATES:
The Fund has entered into an Investment Advisory Agreement with the Manager. The
Fund has also entered into separate Distribution Agreements and Distribution
Plans with FAM Distributors, Inc. ("FAMD") and BlackRock Distributors, Inc. and
its affiliates ("BDI") (collectively, the "Distributor"). FAMD is a wholly owned
subsidiary of Merrill Lynch Group, Inc., and BDI is an affiliate of BlackRock,
Inc. Merrill Lynch and The PNC Financial Services Group, Inc. ("PNC") are the
principal owners of BlackRock, Inc.
The Manager 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 Fund. For such services, the Fund
pays a monthly fee at the annual rate of .30% of the average daily value of the
Fund's net assets. In addition, the Manager has entered into a sub-advisory
agreement with BlackRock Investment Management, LLC ("BIM"), an affiliate of the
Manager, under which the Manager pays BIM, for services it provides, a monthly
fee at an annual rate that is a percentage of the management fee paid by the
Fund to the Manager.
Pursuant to the Distribution Plans adopted by the Company, in accordance with
Rule 12b-1 under the investment Company Act of 1940, the Fund pays the
Distributor an ongoing distribution fee each month at the annual rate of .15%
and .25% of the average daily value of the Fund's Class II and Class III net
assets, respectively.
The Company has received an exemptive order from the Securities and Exchange
Com-
21
- --------------------------------------------------------------------------------
mission permitting it to lend portfolio securities to Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S"), a wholly owned subsidiary of Merrill
Lynch, or its affiliates. As of June 30, 2007, the Fund lent securities with a
value of $1,766,600 to MLPF&S or its affiliates. Pursuant to that order, the
Company also has retained BIM as the securities lending agent for a fee based on
a share of the returns on investment of cash collateral. BIM may, on behalf of
the Company and the Fund, invest cash collateral received by the Fund for such
loans, among other things, in a private investment company managed by the
Manager or in registered money market funds advised by the Manager or its
affiliates. For the six months ended June 30, 2007, BIM received $1,988 in
securities lending agent fees from the Fund.
For the six months ended June 30, 2007, the Fund reimbursed the Manager $3,030
for certain accounting services.
In addition, MLPF&S received $732 in commissions on the execution of portfolio
security transactions for the Fund for the six months ended June 30, 2007.
PFPC Inc., an indirect, wholly owned subsidiary of PNC and an affiliate of the
Manager, is the Fund's transfer agent.
Certain officers and/or directors of the Company are officers and/or directors
of BlackRock, Inc. or its affiliates.
3. INVESTMENTS:
Purchases and sales of investments, excluding short-term securities, for the six
months ended June 30, 2007 were $23,471,336 and $30,528,347, respectively.
4. CAPITAL SHARE TRANSACTIONS:
Net decrease in net assets derived from capital share transactions was
$35,346,267 and $41,281,695 for the six months ended June 30, 2007 and the year
ended December 31, 2006, respectively.
Transactions in capital shares for each class were as follows:
<Table>
<Caption>
- --------------------------------------------------------------------
Class I Shares for the Six Months Ended
June 30, 2007 Shares Dollar Amount
- --------------------------------------------------------------------
Shares sold........................... 1,116,104 $ 21,297,523
Shares redeemed....................... (3,088,056) (56,646,880)
---------- ------------
Net decrease.......................... (1,971,952) $(35,349,357)
========== ============
- --------------------------------------------------------------------
</Table>
<Table>
<Caption>
- ------------------------------------------------------------------
Class I Shares for the Year Ended
December 31, 2006 Shares Dollar Amount
- ------------------------------------------------------------------
Shares sold.......................... 2,540,316 $ 44,108,921
Shares issued to shareholders in
reinvestment of dividends........... 281,594 5,060,105
---------- ------------
Total issued......................... 2,821,910 49,169,026
Shares redeemed...................... (5,459,026) (90,450,763)
---------- ------------
Net decrease......................... (2,637,116) $(41,281,737)
========== ============
- ------------------------------------------------------------------
</Table>
<Table>
<Caption>
- -----------------------------------------------------------------
Class II Shares for the Six Months Ended Dollar
June 30, 2007 Shares Amount
- -----------------------------------------------------------------
Shares sold................................. 9,324 $ 180,038
Shares redeemed............................. (9,225) (176,948)
------ ---------
Net increase................................ 99 $ 3,090
====== =========
- -----------------------------------------------------------------
</Table>
<Table>
<Caption>
- ------------------------------------------------------------------
Class II Shares for the Year Ended Dollar
December 31, 2006 Shares Amount
- ------------------------------------------------------------------
Shares issued to shareholders in reinvestment of
dividends...................................... 1 $21
-- ---
Net increase.................................... 1 $21
== ===
- ------------------------------------------------------------------
</Table>
<Table>
<Caption>
- ------------------------------------------------------------------
Class III Shares for the Six Months Ended Dollar
June 30, 2007 Shares Amount
- ------------------------------------------------------------------
Shares sold..................................... -- --
---- ----
Net increase.................................... -- --
==== ====
- ------------------------------------------------------------------
</Table>
<Table>
<Caption>
- ------------------------------------------------------------------
Class III Shares for the Year Ended Dollar
December 31, 2006 Shares Amount
- ------------------------------------------------------------------
Shares issued to shareholders in reinvestment of
dividends...................................... 1 $21
-- ---
Net increase.................................... 1 $21
== ===
- ------------------------------------------------------------------
</Table>
5. SHORT-TERM BORROWINGS:
The Company, on behalf of the Fund, along with certain other funds managed by
the Manager and its affiliates, is party to a $500,000,000 credit agreement with
a group of lenders, which expires November 2007. 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 .06% per annum based on the Fund's pro rata share of the
unused portion of the credit agreement. Amounts borrowed under the credit
agreement bear interest at a rate equal to, at each fund's election, the federal
funds rate plus .35% or a base rate as defined in the credit agreement. The Fund
did not borrow under the credit agreement during the six months ended June 30,
2007.
6. CAPITAL LOSS CARRYFORWARD:
On December 31, 2006, the Fund had a net capital loss carryforward of
$20,591,546, of which $16,474,565 expires in 2010, $1,879,475 expires in 2011
and $2,237,506 expires in 2012. This amount will be available to offset like
amounts of any future taxable gains.
22
- --------------------------------------------------------------------------------
BLACKROCK UTILITIES AND
-------------------------------------------------------------------------
TELECOMMUNICATIONS V.I. FUND
-------------------------------------------------------------------------
Semi-Annual Report (Unaudited)
June 30, 2007
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Utilities and Telecommunications V.I. Fund
A Discussion With Your Fund's Portfolio Manager
- --------------------------------------------------------------------------------
The Fund outperformed its benchmarks for the period, benefiting from favorable
stock selection across key industries.
HOW DID THE FUND PERFORM DURING THE PERIOD IN LIGHT OF THE EXISTING MARKET
CONDITIONS?
For the six-month period ended June 30, 2007, BlackRock Utilities and
Telecommunications V.I. Fund's Class I Shares had a total return of +15.06%. The
Fund significantly outpaced the +6.96% return of the broad-market Standard &
Poor's (S&P) 500 Index and the +8.87% return of the S&P Utilities Index for the
same period. Fund performance was competitive with the +15.20% average return of
the Lipper Utility Funds (Variable Products) category for the six-month period.
(Funds in this Lipper category invest primarily in the equity securities of
domestic and foreign companies providing utilities. The Fund also invests in
telecommunication services stocks, in which many funds in the Lipper group have
no position.)
U.S. equity markets enjoyed positive returns during the past six months, with
much of the advance realized in the second half of this semi-annual reporting
period. A near 5% retreat in the broad market (as measured by the S&P 500 Index)
in late February was triggered by fears of an overheating in China's stock
market and concerns over slowing economic growth in the United States. The
investor jitters proved fairly short-lived, as equities embarked on a recovery
in early March through May. The market entered a trading range in June, leading
to a -1.66% monthly return for the S&P 500 Index. Overall, more defensive
sectors fared well amid the volatile backdrop, as evidenced by the S&P Utilities
Index's outperformance of the broader market.
The Fund's performance for the period was positively affected by above-average
returns from its holdings in electric utilities and independent power producers,
as well as strong results among our holdings in wireless telecommunications. In
particular, performance in the latter industry was driven by companies such as
MetroPCS Communications, Inc., America Movil S.A. de C.V., Rogers Communications
Inc. and Leap Wireless International Inc. Among independent power producers, the
two most significant contributors to performance for the period were NRG Energy,
Inc. and Mirant Corp.
WHAT CHANGES WERE MADE TO THE PORTFOLIO DURING THE PERIOD?
Over the course of the six-month period, the Fund's weighting in the
telecommunications sector declined by nearly 3%, utilities increased close to 3%
and energy exposure was relatively unchanged at roughly 4.6%. Drilling down to
the subsector level, the portfolio's holdings in wireless telecommunications
increased, as did its position in independent power producers (IPPs).
Conversely, our position in multi-utilities declined slightly.
We continued adding to the Fund's weighting in IPPs in 2007, a move we noted
in our annual report to shareholders dated December 2006. We expect the IPPs and
unregulated merchant power companies to benefit from the lack of new capacity to
come to the market, while growth in demand for electric power continues at a
pace that, on average, is consistent with the rate of gross domestic product
growth.
In the telecommunications sector, the Fund maintained significant weightings
in AT&T Corp. and Verizon Communications Inc., the leaders in the wireless
telecommunications industry. These two companies have the ability to bundle
their products to provide a more complete package for consumers (wireline phone,
wireless, broadband and video). We also maintained positions in Leap Wireless
International, Inc. and MetroPCS Communications, Inc., both of which provide
wireless communication services to more credit-challenged consumers and lower-
income users. The cost to acquire these customers is relatively low, and the
customers pay upfront for the wireless access, which typically is their only
phone service. Sprint Nextel Corp., another Fund holding, has entered this
lower-end market, although neither AT&T nor Verizon have done so as yet. We
believe growth in this market should continue for some time and, eventually, we
expect that we may see some consolidation among the smaller providers.
HOW WOULD YOU CHARACTERIZE THE FUND'S POSITION AT THE CLOSE OF THE PERIOD?
At June 30, 2007, the Fund comprised approximately 100 holdings and was
diversified across 12 countries. Utilities remained the most heavily weighted
sector at period-end, at 65% of net assets, followed by telecommunication
services at 27%. Energy represented the next highest weighting at just under 5%
of net assets. This was followed by consumer discretionary
2
- --------------------------------------------------------------------------------
(cable and satellite television) and industrials (power generation
equipment/services).
The electric utility industry is entering a higher capital expenditure cycle.
This historically has been a positive development for the integrated utilities
since regulators allow the companies a set return on equity for the dollars
spent on equipment, thereby growing the companies' rate base. As a result, the
stock prices of these companies ran up earlier in the year to trade at valuation
multiples that we perceived to be at or close to fair value. We have since
trimmed these holdings, while maintaining an investment focus on the unregulated
power-generation and transmission/distribution companies. We believe the
unregulated power-generation companies (that is, the IPPs) will be better
positioned to take advantage of rising power prices given the potential
demand/supply imbalance. Meanwhile, the transmission/distribution companies
benefit from the need for better infrastructure and from the fact that they are
regulated on a federal level rather than based on decisions made at the state
level.
As mentioned earlier, we see improving trends in the telecommunications
sector. While the decline in the number of wireline access lines persists, the
rate of decline is slowing. The bundling of products is reducing customer churn,
and wireless penetration continues to grow. Companies offering prepaid wireless
service have an opportunity to capture a wider customer base. The enterprise
business also is showing signs of improvement as the pricing environment becomes
more rational.
Overall, we remain optimistic about the trends we are seeing in the United
States, Europe and Latin America for both the utilities and telecommunications
sectors.
Kathleen M. Anderson
Portfolio Manager
July 13, 2007
3
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Utilities and Telecommunications V.I. Fund
Total Return Based on a $10,000 Investment
- --------------------------------------------------------------------------------
[LINE GRAPH]
<Table>
<Caption>
BLACKROCK UTILITIES AND
TELECOMMUNICATIONS V.I.
FUND+--CLASS I SHARES* S&P 500 INDEX++ S&P UTILITIES INDEX+++
----------------------- --------------- ----------------------
6/97 10000 10000 10000
6/98 12477 13016 13029
6/99 14228 15978 14129
6/00 15138 17137 14474
6/01 14558 14595 17531
6/02 12172 11970 11953
6/03 11996 12000 11452
6/04 13534 14293 12768
6/05 17871 15197 17618
6/06 20001 16508 18661
6/07 26836 19907 23529
</Table>
[LINE GRAPH]
<Table>
<Caption>
BLACKROCK UTILITIES BLACKROCK UTILITIES
AND AND
TELECOMMUNICATIONS TELECOMMUNICATIONS
V.I. FUND+--CLASS II V.I. FUND+--CLASS III
SHARES* SHARES* S&P 500 INDEX++ S&P UTILITIES INDEX+++
-------------------- --------------------- --------------- ----------------------
9/30/04** 10000 10000 10000 10000
6/05 12439 12439 10835 12928
6/06 13936 13936 11770 13693
6/07 18673 18674 14193 17265
</Table>
* Assuming transaction costs, if any, and other operating expenses, including
advisory fees. Does not include insurance-related fees and expenses.
Effective September 2, 2003, Class A Shares were redesignated Class I
Shares.
** Commencement of operations.
+ The Fund invests at least 80% of its net assets in a diversified portfolio
of equity and debt securities issued by utility companies.
++ This unmanaged Index covers 500 industrial, utility, transportation and
financial companies of the U.S. markets (mostly NYSE issues), representing
about 75% of NYSE market capitalization and 30% of NYSE issues.
+++ This unmanaged capitalization Index is comprised of all stocks designed to
measure the performance of electric and natural gas utilities within the S&P
500 Index.
Past results shown should not be considered a representation of future
performance.
4
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Utilities and Telecommunications V.I. Fund
Average Annual Total Return--Class I Shares*
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERIOD COVERED RETURN
- --------------------------------------------------------------------------
One Year Ended 6/30/07 +34.17%
- --------------------------------------------------------------------------
Five Years Ended 6/30/07 +17.13
- --------------------------------------------------------------------------
Ten Years Ended 6/30/07 +10.38
- --------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Utilities and Telecommunications V.I. Fund
Average Annual Total Return--Class II Shares*
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERIOD COVERED RETURN
- --------------------------------------------------------------------------
One Year Ended 6/30/07 +34.00%
- --------------------------------------------------------------------------
Inception (9/30/04) through 6/30/07 +25.52
- --------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Utilities and Telecommunications V.I. Fund
Average Annual Total Return--Class III Shares*
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERIOD COVERED RETURN
- --------------------------------------------------------------------------
One Year Ended 6/30/07 +34.00%
- --------------------------------------------------------------------------
Inception (9/30/04) through 6/30/07 +25.52
- --------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Utilities and Telecommunications V.I. Fund
Recent Performance Results
- --------------------------------------------------------------------------------
<Table>
<Caption>
6-MONTH 12-MONTH STANDARDIZED
AS OF JUNE 30, 2007 TOTAL RETURN TOTAL RETURN 30-DAY YIELD
- --------------------------------------------------------------------------------------------------------
Class I Shares* +15.06% +34.17% 1.44%
- --------------------------------------------------------------------------------------------------------
Class II Shares* +14.91 +34.00 --
- --------------------------------------------------------------------------------------------------------
Class III Shares* +15.01 +34.00 --
- --------------------------------------------------------------------------------------------------------
S&P 500(R) Index** + 6.96 +20.59 --
- --------------------------------------------------------------------------------------------------------
S&P Utilities Index*** + 8.87 +26.09 --
- --------------------------------------------------------------------------------------------------------
</Table>
* Average annual and cumulative 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. For a portion of the period, returns do not show the effects
of distribution fees (12b-1 fees) applicable to Class II and Class III
Shares. If such fees were included, returns shown would have been lower.
** This unmanaged Index covers 500 industrial, utility, transportation and
financial companies of the U.S. markets (mostly NYSE issues), representing
about 75% of NYSE market capitalization and 30% of NYSE issues.
*** This unmanaged capitalization Index is comprised of all stocks designed to
measure the performance of electric and natural gas utilities within the S&P
500 Index.
Past results shown should not be considered a representation of future
performance.
S&P 500 is a registered trademark of the McGraw-Hill Companies.
5
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Utilities and Telecommunications V.I. Fund
Disclosure of Expenses
- --------------------------------------------------------------------------------
Shareholders of this Fund may incur the following charges: (a) expenses related
to transactions, including sales charges, redemption fees and exchange fees; and
(b) operating expenses including advisory fees, distribution fees including
12b-1 fees, and other Fund expenses. The following example (which is based on a
hypothetical investment of $1,000 invested on January 1, 2007 and held through
June 30, 2007) is intended to assist shareholders both in calculating expenses
based on an investment in the Fund and in comparing these expenses with similar
costs of investing in other mutual funds.
The first table below provides information about actual account values and
actual expenses. In order to estimate the expenses a shareholder paid during the
period covered by this report, shareholders can divide their account value by
$1,000 and then multiply the result by the number in the first line under the
heading entitled "Expenses Paid During the Period."
The second table below provides information about hypothetical account values
and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses. In order to assist
shareholders in comparing the ongoing expenses of investing in this Fund and
other funds, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in other funds' shareholder reports.
The expenses shown in the table are intended to highlight shareholders'
ongoing costs only and do not reflect any transactional expenses, such as sales
charges, redemption fees or exchange fees. Therefore, the second table is useful
in comparing ongoing expenses only, and will not help shareholders determine the
relative total expenses of owning different funds. If these transactional
expenses were included, shareholder expenses would have been higher.
<Table>
<Caption>
EXPENSES PAID
BEGINNING ENDING DURING THE PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JANUARY 1, 2007 TO
JANUARY 1, 2007 JUNE 30, 2007 JUNE 30, 2007
- ------------------------------------------------------------------------------------------------------------------
ACTUAL
- ------------------------------------------------------------------------------------------------------------------
Class I $1,000 $1,150.60 $4.02
- ------------------------------------------------------------------------------------------------------------------
Class II $1,000 $1,149.10 $4.88
- ------------------------------------------------------------------------------------------------------------------
Class III $1,000 $1,150.10 $5.25
- ------------------------------------------------------------------------------------------------------------------
HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES)**
- ------------------------------------------------------------------------------------------------------------------
Class I $1,000 $1,021.16 $3.78
- ------------------------------------------------------------------------------------------------------------------
Class II $1,000 $1,020.36 $4.58
- ------------------------------------------------------------------------------------------------------------------
Class III $1,000 $1,020.01 $4.94
- ------------------------------------------------------------------------------------------------------------------
</Table>
* For each class of the Fund, expenses are equal to the annualized expense
ratio for the class (.75% for Class I, .91% for Class II and .98% for Class
III), multiplied by the average account value over the period, multiplied by
182/365 (to reflect the one-half year period shown).
** Hypothetical 5% annual return before expenses is calculated by pro-rating the
number of days in the most recent fiscal half year divided by 365.
6
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Utilities and Telecommunications V.I. Fund
Portfolio Information as of June 30, 2007
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENT OF
INDUSTRY REPRESENTATION LONG-TERM INVESTMENTS
- -----------------------------------------------------------------------------------
Electric Utilities.......................................... 35.6%
Diversified Telecommunication Services...................... 15.7
Multi-Utilities............................................. 13.4
Independent Power Producers & Energy Traders................ 12.2
Wireless Telecommunication Services......................... 11.5
Gas Utilities............................................... 3.9
Oil, Gas & Consumable Fuels................................. 3.9
Media....................................................... 1.4
Water Utilities............................................. 0.9
Energy Equipment & Services................................. 0.7
Construction & Engineering.................................. 0.5
Electrical Equipment........................................ 0.3
- -----------------------------------------------------------------------------------
</Table>
For Fund compliance purposes, the Fund's industry classifications refer to any
one or more of the industry sub-classifications used by one or more widely
recognized market indexes or ratings group indexes, and/or as defined by Fund
management. This definition may not apply for purposes of this report, which may
combine industry sub-classifications for reporting ease.
7
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Utilities and Telecommunications V.I. Fund
Schedule of Investments as of June 30, 2007 (unaudited) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES
COUNTRY INDUSTRY HELD COMMON STOCKS VALUE
- ----------------------------------------------------------------------------------------------------------------------
BRAZIL--3.0% DIVERSIFIED TELECOMMUNICATION 1,900 GVT Holding SA(b)...................... $ 32,996
SERVICES--0.1%
--------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES--1.8% 8,000 CPFL Energia SA(a)..................... 485,840
16,000 Cia Energetica de Minas Gerais(a)...... 337,600
11,000 EDP--Energias do Brasil SA............. 225,246
-----------
1,048,686
--------------------------------------------------------------------------------------------------
INDEPENDENT POWER PRODUCERS & 20,000,000 Cia Energetica de Sao Paulo (Preference
ENERGY TRADERS--0.6% Shares)(b)........................... 364,334
--------------------------------------------------------------------------------------------------
WATER UTILITIES--0.5% 7,200 Cia De Saneamento Basico Do Estado De
Sao Paulo............................ 158,706
11,000 Companhia de Saneamento de Minas
Gerais............................... 164,800
-----------
323,506
--------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN BRAZIL.......... 1,769,522
- ----------------------------------------------------------------------------------------------------------------------
CANADA--1.8% DIVERSIFIED TELECOMMUNICATION 10,300 Manitoba Telecom Services, Inc. ....... 453,384
SERVICES--0.8%
--------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION 13,700 Rogers Communications, Inc. Class B.... 582,113
SERVICES--1.0%
--------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN CANADA.......... 1,035,497
- ----------------------------------------------------------------------------------------------------------------------
CZECH ELECTRIC UTILITIES--0.5% 6,000 CEZ.................................... 309,098
REPUBLIC--0.5%
--------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN THE CZECH
REPUBLIC............................... 309,098
- ----------------------------------------------------------------------------------------------------------------------
FINLAND--1.0% ELECTRIC UTILITIES--1.0% 18,200 Fortum Oyj............................. 568,704
--------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN FINLAND......... 568,704
- ----------------------------------------------------------------------------------------------------------------------
FRANCE--3.8% DIVERSIFIED TELECOMMUNICATION 10,300 France Telecom SA...................... 282,492
SERVICES--0.8%
4,900 Neuf Cegetel(b)........................ 191,717
-----------
474,209
--------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES--0.9% 4,900 Electricite de France.................. 529,607
--------------------------------------------------------------------------------------------------
MULTI-UTILITIES--2.1% 11,000 Suez SA................................ 628,853
7,087 Veolia Environnement................... 556,620
-----------
1,185,473
--------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN FRANCE.......... 2,189,289
- ----------------------------------------------------------------------------------------------------------------------
GERMANY--2.1% ELECTRIC UTILITIES--1.8% 6,200 E.ON AG................................ 1,041,032
--------------------------------------------------------------------------------------------------
MULTI-UTILITIES--0.3% 1,700 RWE AG................................. 181,439
--------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN GERMANY......... 1,222,471
- ----------------------------------------------------------------------------------------------------------------------
GREECE--0.5% DIVERSIFIED TELECOMMUNICATION 9,300 Hellenic Telecommunications
SERVICES--0.5% Organization SA...................... 288,245
--------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN GREECE.......... 288,245
- ----------------------------------------------------------------------------------------------------------------------
ITALY--0.3% ELECTRIC UTILITIES--0.3% 14,000 Enel SpA............................... 150,486
--------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN ITALY........... 150,486
- ----------------------------------------------------------------------------------------------------------------------
LUXEMBOURG--0.5% WIRELESS TELECOMMUNICATION 3,400 Millicom International Cellular
SERVICES--0.5% SA(b)................................ 311,576
--------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN LUXEMBOURG...... 311,576
- ----------------------------------------------------------------------------------------------------------------------
MEXICO--1.8% WIRELESS TELECOMMUNICATION 16,600 America Movil, SA de CV(a)............. 1,028,038
SERVICES--1.8%
--------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN MEXICO.......... 1,028,038
- ----------------------------------------------------------------------------------------------------------------------
</Table>
8
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Utilities and Telecommunications V.I. Fund
Schedule of Investments as of June 30, 2007 (continued) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES
COUNTRY INDUSTRY HELD COMMON STOCKS VALUE
- ----------------------------------------------------------------------------------------------------------------------
NORWAY--0.7% DIVERSIFIED TELECOMMUNICATION 22,100 Telenor ASA............................ $ 431,986
SERVICES--0.7%
--------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN NORWAY.......... 431,986
- ----------------------------------------------------------------------------------------------------------------------
SPAIN--2.7% DIVERSIFIED TELECOMMUNICATION 26,688 Telefonica SA.......................... 593,917
SERVICES--1.0%
--------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES--1.4% 5,400 Endesa SA.............................. 293,881
9,000 Iberdrola SA........................... 502,529
-----------
796,410
--------------------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT--0.3% 4,900 Gamesa Corp. Tecnologica SA............ 177,262
--------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN SPAIN........... 1,567,589
- ----------------------------------------------------------------------------------------------------------------------
UNITED DIVERSIFIED TELECOMMUNICATION 37,700 BT Group Plc........................... 250,914
KINGDOM--5.4% SERVICES--0.4%
--------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES--0.7% 13,900 Scottish & Southern Energy Plc......... 403,020
--------------------------------------------------------------------------------------------------
INDEPENDENT POWER PRODUCERS & 66,600 International Power Plc................ 572,473
ENERGY TRADERS--1.0%
--------------------------------------------------------------------------------------------------
MULTI-UTILITIES--1.2% 44,600 Centrica Plc........................... 346,510
23,538 National Grid Plc...................... 347,310
-----------
693,820
--------------------------------------------------------------------------------------------------
WATER UTILITIES--0.4% 34,400 Northumbrian Water Group Plc........... 211,041
--------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION 29,037 Vodafone Group Plc(a).................. 976,514
SERVICES--1.7%
--------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN THE UNITED
KINGDOM................................ 3,107,782
- ----------------------------------------------------------------------------------------------------------------------
UNITED CONSTRUCTION & 7,900 InfraSource Services, Inc.(b).......... 293,090
STATES--74.8% ENGINEERING--0.5%
--------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION 77,747 AT&T Inc. ............................. 3,226,501
SERVICES--11.3%
27,100 Citizens Communications Co. ........... 413,817
3,400 Embarq Corp. .......................... 215,458
92,000 Level 3 Communications, Inc.(b)........ 538,200
26,000 Qwest Communications International
Inc.(b).............................. 252,200
40,500 Verizon Communications, Inc. .......... 1,667,385
13,355 Windstream Corp. ...................... 197,120
-----------
6,510,681
--------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES--27.0% 17,500 Allegheny Energy, Inc.(b).............. 905,450
15,300 American Electric Power Co., Inc. ..... 689,112
25,200 DPL, Inc. ............................. 714,168
46,343 Duke Energy Corp. ..................... 848,077
23,200 Edison International................... 1,301,984
17,700 Entergy Corp. ......................... 1,900,095
26,100 Exelon Corp. .......................... 1,894,860
21,600 FPL Group, Inc. ....................... 1,225,584
17,700 FirstEnergy Corp. ..................... 1,145,721
16,700 ITC Holdings Corp. .................... 678,521
24,800 Mirant Corp.(b)........................ 1,057,720
12,100 Northeast Utilities Inc. .............. 343,156
35,100 PPL Corp. ............................. 1,642,329
10,300 Pepco Holdings, Inc. .................. 290,460
3,800 Progress Energy, Inc. ................. 173,242
12,700 Reliant Energy, Inc.(b)................ 342,265
14,600 The Southern Co. ...................... 500,634
-----------
15,653,378
--------------------------------------------------------------------------------------------------
</Table>
9
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Utilities and Telecommunications V.I. Fund
Schedule of Investments as of June 30, 2007 (continued) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES
COUNTRY INDUSTRY HELD COMMON STOCKS VALUE
- ----------------------------------------------------------------------------------------------------------------------
UNITED STATES ENERGY EQUIPMENT & 4,900 Grant Prideco, Inc.(b)................. $ 263,767
(CONCLUDED) SERVICES--0.7%
1,500 Transocean, Inc.(b).................... 158,970
-----------
422,737
--------------------------------------------------------------------------------------------------
GAS UTILITIES--3.9% 7,900 Energen Corp. ......................... 434,026
8,300 Equitable Resources, Inc. ............. 411,348
4,600 New Jersey Resources Corp. ............ 234,692
14,600 Questar Corp. ......................... 771,610
9,021 Spectra Energy Corp. .................. 234,185
6,400 UGI Corp. ............................. 174,592
-----------
2,260,453
--------------------------------------------------------------------------------------------------
INDEPENDENT POWER PRODUCERS & 18,100 The AES Corp.(b)....................... 396,028
ENERGY TRADERS--9.9%
18,500 Constellation Energy Group, Inc. ...... 1,612,645
33,517 Dynegy, Inc. Class A(b)................ 316,401
47,600 NRG Energy, Inc.(b).................... 1,978,732
8,500 Ormat Technologies, Inc. .............. 320,280
16,300 TXU Corp. ............................. 1,096,990
-----------
5,721,076
--------------------------------------------------------------------------------------------------
MEDIA--1.4% 18,600 Comcast Corp. Special Class A(b)....... 520,056
6,700 EchoStar Communications Corp. Class
A(b)................................. 290,579
-----------
810,635
--------------------------------------------------------------------------------------------------
MULTI-UTILITIES--9.7% 45,400 CMS Energy Corp. ...................... 780,880
6,300 DTE Energy Co. ........................ 303,786
11,800 Dominion Resources, Inc. .............. 1,018,458
7,100 MDU Resources Group, Inc. ............. 199,084
14,300 NSTAR.................................. 464,035
18,500 PG&E Corp. ............................ 838,050
15,600 Public Service Enterprise Group,
Inc. ................................ 1,369,368
6,500 Sempra Energy.......................... 384,995
6,300 Wisconsin Energy Corp. ................ 278,649
-----------
5,637,305
--------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE 4,400 Devon Energy Corp. .................... 344,476
FUELS--3.9%
5,200 EOG Resources, Inc. ................... 379,912
4,400 Holly Corp. ........................... 326,436
6,400 Range Resources Corp. ................. 239,424
7,500 Southwestern Energy Co.(b)............. 333,750
19,700 Williams Cos., Inc. ................... 622,914
-----------
2,246,912
--------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION 4,540 Alltel Corp. .......................... 306,677
SERVICES--6.5%
11,000 American Tower Corp. Class A(b)........ 462,000
13,425 Crown Castle International Corp.(b).... 486,925
20,600 Dobson Communications Corp. Class
A(b)................................. 228,660
2,700 Leap Wireless International, Inc.(b)... 228,150
30,000 MetroPCS Communications, Inc.(b)....... 991,200
14,300 SBA Communications Corp. Class A(b).... 480,337
26,900 Sprint Nextel Corp. ................... 557,099
-----------
3,741,048
--------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN THE
UNITED STATES.......................... 43,297,315
- ----------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST--$37,459,320)--98.9%............. 57,277,598
- ----------------------------------------------------------------------------------------------------------------------
</Table>
10
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Utilities and Telecommunications V.I. Fund
Schedule of Investments as of June 30, 2007 (concluded) (in U.S. dollars)
- --------------------------------------------------------------------------------
<Table>
<Caption>
FACE
COUNTRY INDUSTRY AMOUNT TRUST PREFERRED VALUE
- ----------------------------------------------------------------------------------------------------------------------
UNITED STATES--0.6% INDEPENDENT POWER PRODUCERS & $ 357,550 AES Trust III, 6.75% due
ENERGY TRADERS--0.6% 10/15/2029(c)........................ $ 352,246
- ----------------------------------------------------------------------------------------------------------------------
TOTAL TRUST PREFERRED
(COST--$218,696)--0.6%................. 352,246
- ----------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST--$37,678,016*)--99.5%............ 57,629,844
OTHER ASSETS LESS LIABILITIES--0.5%.... 284,663
-----------
NET ASSETS--100.0%..................... $57,914,507
===========
- ----------------------------------------------------------------------------------------------------------------------
</Table>
* The cost and unrealized appreciation (depreciation) of investments as of
June 30, 2007, as computed for federal income tax purposes, were as
follows:
<Table>
Aggregate cost.............................................. $37,678,016
===========
Gross unrealized appreciation............................... $19,963,246
Gross unrealized depreciation............................... (11,418)
-----------
Net unrealized appreciation................................. $19,951,828
===========
</Table>
(a) Depositary receipts.
(b) Non-income producing security.
(c) Convertible security.
- - Investments in companies considered to be an affiliate of the Fund, for
purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as
follows:
<Table>
<Caption>
- -------------------------------------------------------------------------------------
NET INTEREST
AFFILIATE ACTIVITY INCOME
- -------------------------------------------------------------------------------------
BlackRock Liquidity Series, LLC Cash Sweep Series........... $(2,521,336) $29,162
- -------------------------------------------------------------------------------------
</Table>
- - For Fund compliance purposes, the Fund's industry classifications refer to
any one or more of the industry sub-classifications used by one or more
widely recognized market indexes or ratings group indexes, and/or as
defined by Fund management. This definition may not apply for purposes of
this report, which may combine industry sub-classifications for reporting
ease. Industries are shown as a percent of net assets.
See Notes to Financial Statements.
11
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Utilities and Telecommunications V.I. Fund
Statement of Assets and Liabilities as of June 30, 2007 (unaudited)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments in unaffiliated securities, at value (identified
cost--$37,678,016)........................................ $57,629,844
Foreign cash (cost--$37,190)................................ 37,456
Receivables:
Securities sold........................................... $ 412,125
Dividends................................................. 122,856
Capital shares sold....................................... 65,258
Interest (including $3,728 from affiliates)............... 9,032 609,271
-----------
Prepaid expenses............................................ 462
-----------
Total assets................................................ 58,277,033
-----------
- -----------------------------------------------------------------------------------------
LIABILITIES:
Bank overdraft.............................................. 275,021
Payables:
Securities purchased...................................... 52,939
Investment adviser........................................ 28,269
Other affiliates.......................................... 1,771
Capital shares redeemed................................... 242
Distributor............................................... 1 83,222
-----------
Accrued expenses and other liabilities...................... 4,283
-----------
Total liabilities........................................... 362,526
-----------
- -----------------------------------------------------------------------------------------
NET ASSETS.................................................. $57,914,507
===========
- -----------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Class I Shares of Common Stock, $.10 par value, 100,000,000
shares authorized......................................... $ 438,946
Class II Shares of Common Stock, $.10 par value, 100,000,000
shares authorized......................................... 14
Class III Shares of Common Stock, $.10 par value,
100,000,000 shares authorized............................. 14
Paid-in capital in excess of par............................ 33,932,503
Undistributed investment income--net........................ $ 302,639
Undistributed realized capital gains--net................... 3,287,468
Unrealized appreciation--net................................ 19,952,923
-----------
Total accumulated earnings--net............................. 23,543,030
-----------
NET ASSETS.................................................. $57,914,507
===========
- -----------------------------------------------------------------------------------------
NET ASSET VALUE:
Class I--Based on net assets of $57,910,772 and 4,389,462
shares outstanding........................................ $ 13.19
===========
Class II--Based on net assets of $1,868 and 141.7 shares
outstanding............................................... $ 13.18
===========
Class III--Based on net assets of $1,867 and 141.7 shares
outstanding............................................... $ 13.18
===========
- -----------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements.
12
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Utilities and Telecommunications V.I. Fund
Statement of Operations for the Six Months Ended June 30, 2007 (unaudited)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividends (net of $28,268 foreign withholding tax).......... $ 704,255
Interest (including $29,162 from affiliates)................ 41,938
----------
Total income................................................ 746,193
----------
- ---------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees.................................... $ 170,616
Professional fees........................................... 15,149
Accounting services......................................... 6,948
Custodian fees.............................................. 5,154
Printing and shareholder reports............................ 4,371
Transfer agent fees--Class I................................ 2,559
Directors' fees and expenses................................ 2,045
Pricing services............................................ 1,669
Distribution fees--Class III................................ 2
Distribution fees--Class II................................. 1
Other....................................................... 5,024
----------
Total expenses.............................................. 213,538
----------
Investment income--net...................................... 532,655
----------
- ---------------------------------------------------------------------------------------
REALIZED & UNREALIZED GAIN--NET:
Realized gain on:
Investments--net.......................................... 3,286,016
Foreign currency transactions--net........................ 1,455 3,287,471
----------
Change in unrealized appreciation on:
Investments--net.......................................... 4,060,594
Foreign currency transactions--net........................ 465 4,061,059
---------- ----------
Total realized and unrealized gain--net..................... 7,348,530
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $7,881,185
==========
- ---------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements.
13
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Utilities and Telecommunications V.I. Fund
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<Table>
<Caption>
FOR THE SIX
MONTHS ENDED FOR THE
JUNE 30, 2007 YEAR ENDED
INCREASE (DECREASE) IN NET ASSETS: (UNAUDITED) DECEMBER 31, 2006
- -----------------------------------------------------------------------------------------------
OPERATIONS:
Investment income--net...................................... $ 532,655 $ 1,458,741
Realized gain--net.......................................... 3,287,471 8,516,009
Change in unrealized appreciation/depreciation--net......... 4,061,059 1,612,821
----------- -----------
Net increase in net assets resulting from operations........ 7,881,185 11,587,571
----------- -----------
- -----------------------------------------------------------------------------------------------
DIVIDENDS & DISTRIBUTIONS TO SHAREHOLDERS:
Investment income--net:
Class I................................................... (229,460) (1,451,732)
Class II.................................................. (6) (42)
Class III................................................. (6) (42)
Realized gain--net:
Class I................................................... (2,056,031) (1,385,996)
Class II.................................................. (64) (41)
Class III................................................. (64) (41)
----------- -----------
Net decrease in net assets resulting from dividends and
distributions to shareholders............................. (2,285,631) (2,837,894)
----------- -----------
- -----------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Net decrease in net assets derived from capital share
transactions.............................................. (2,733,629) (5,140,451)
----------- -----------
- -----------------------------------------------------------------------------------------------
NET ASSETS:
Total increase in net assets................................ 2,861,925 3,609,226
Beginning of period......................................... 55,052,582 51,443,356
----------- -----------
End of period*.............................................. $57,914,507 $55,052,582
=========== ===========
- -----------------------------------------------------------------------------------------------
* Undistributed (accumulated distributions in excess of)
investment income--net.................................... $ 302,639 $ (544)
=========== ===========
- -----------------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements.
14
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Utilities and Telecommunications V.I. Fund
Financial Highlights
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS I
---------------------------------------------------------------
FOR THE SIX
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE MONTHS ENDED FOR THE YEAR ENDED DECEMBER 31,
BEEN DERIVED FROM INFORMATION PROVIDED IN THE JUNE 30, 2007 -----------------------------------------------
FINANCIAL STATEMENTS. (UNAUDITED) 2006 2005 2004 2003 2002
- ------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............. $ 11.93 $ 10.06 $ 9.03 $ 7.37 $ 6.32 $ 8.25
------- ------- ------- ------- ------- -------
Investment income--net***........................ .12 .31 .24 .20 .20 .25
Realized and unrealized gain (loss)--net......... 1.66 2.19 1.03 1.67 1.05 (1.76)
------- ------- ------- ------- ------- -------
Total from investment operations................. 1.78 2.50 1.27 1.87 1.25 (1.51)
------- ------- ------- ------- ------- -------
Less dividends and distributions:
Investment income--net......................... (.05) (.32) (.24) (.21) (.20) (.26)
Realized gain--net............................. (.47) (.31) -- -- -- (.16)
------- ------- ------- ------- ------- -------
Total dividends and distributions................ (.52) (.63) (.24) (.21) (.20) (.42)
------- ------- ------- ------- ------- -------
Net asset value, end of period................... $ 13.19 $ 11.93 $ 10.06 $ 9.03 $ 7.37 $ 6.32
======= ======= ======= ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:**
Based on net asset value per share............... 15.06%+ 25.23% 14.14% 25.72% 20.19% (18.77%)
======= ======= ======= ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses......................................... .75%* .77% .83% .79% .73% .75%
======= ======= ======= ======= ======= =======
Investment income--net........................... 1.87%* 2.86% 2.48% 2.60% 3.02% 3.50%
======= ======= ======= ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)......... $57,911 $55,049 $51,441 $50,665 $47,790 $46,039
======= ======= ======= ======= ======= =======
Portfolio turnover............................... 16% 47% 29% 12% 20% 30%
======= ======= ======= ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------
</Table>
* Annualized.
** Total investment returns exclude insurance-related fees and expenses.
*** Based on average shares outstanding.
+ Aggregate total investment return.
See Notes to Financial Statements.
15
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Utilities and Telecommunications V.I. Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS II
---------------------------------------------------------
FOR THE SIX FOR THE YEAR ENDED
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE MONTHS ENDED DECEMBER 31, FOR THE PERIOD
BEEN DERIVED FROM INFORMATION PROVIDED IN THE JUNE 30, 2007 ------------------ SEPTEMBER 30, 2004+
FINANCIAL STATEMENTS. (UNAUDITED) 2006 2005 TO DECEMBER 31, 2004
- ------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................... $ 11.93 $ 10.06 $ 9.03 $ 8.04
------- ------- ------- -------
Investment income--net***.............................. .11 .31 .24 .05
Realized and unrealized gain--net...................... 1.66 2.19 1.03 1.05
------- ------- ------- -------
Total from investment operations....................... 1.77 2.50 1.27 1.10
------- ------- ------- -------
Less dividends and distributions:
Investment income--net............................... (.05) (.32) (.24) (.11)
Realized gain--net................................... (.47) (.31) -- --
------- ------- ------- -------
Total dividends and distributions...................... (.52) (.63) (.24) (.11)
------- ------- ------- -------
Net asset value, end of period......................... $ 13.18 $ 11.93 $ 10.06 $ 9.03
======= ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:**
Based on net asset value per share..................... 14.91%@ 25.23% 14.14% 13.69%@
======= ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses............................................... .91%* .79% .83% .79%*
======= ======= ======= =======
Investment income--net................................. 1.72%* 2.83% 2.44% 2.30%*
======= ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)............... $ 2 $ 2 $ 1 $ 1
======= ======= ======= =======
Portfolio turnover..................................... 16% 47% 29% 12%
======= ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------
</Table>
* Annualized.
** Total investment returns exclude insurance-related fees and expenses.
*** Based on average shares outstanding.
+ Commencement of operations.
@ Aggregate total investment return.
See Notes to Financial Statements.
16
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Utilities and Telecommunications V.I. Fund
Financial Highlights (concluded)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS III
---------------------------------------------------------
FOR THE SIX FOR THE YEAR ENDED
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE MONTHS ENDED DECEMBER 31, FOR THE PERIOD
BEEN DERIVED FROM INFORMATION PROVIDED IN THE JUNE 30, 2007 ------------------ SEPTEMBER 30, 2004+
FINANCIAL STATEMENTS. (UNAUDITED) 2006 2005 TO DECEMBER 31, 2004
- ------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................... $ 11.92 $ 10.06 $ 9.03 $ 8.04
------- ------- ------- -------
Investment income--net***.............................. .11 .31 .24 .05
Realized and unrealized gain--net...................... 1.67 2.18 1.03 1.05
------- ------- ------- -------
Total from investment operations....................... 1.78 2.49 1.27 1.10
------- ------- ------- -------
Less dividends and distributions:
Investment income--net............................... (.05) (.32) (.24) (.11)
Realized gain--net................................... (.47) (.31) -- --
------- ------- ------- -------
Total dividends and distributions...................... (.52) (.63) (.24) (.11)
------- ------- ------- -------
Net asset value, end of period......................... $ 13.18 $ 11.92 $ 10.06 $ 9.03
======= ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:**
Based on net asset value per share..................... 15.01%@ 25.13% 14.14% 13.69%@
======= ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses............................................... .98%* .82% .83% .79%*
======= ======= ======= =======
Investment income--net................................. 1.66%* 2.80% 2.44% 2.30%*
======= ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)............... $ 2 $ 2 $ 1 $ 1
======= ======= ======= =======
Portfolio turnover..................................... 16% 47% 29% 12%
======= ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------
</Table>
* Annualized.
** Total investment returns exclude insurance-related fees and expenses.
*** Based on average shares outstanding.
+ Commencement of operations.
@ Aggregate total investment return.
See Notes to Financial Statements.
17
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Utilities and Telecommunications V.I. Fund
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES:
BlackRock Variable Series Funds, Inc. (the "Company") is an open-end management
investment company that is comprised of 16 separate funds. Each fund offers
three 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. ("Merrill Lynch")), and other insurance companies that are not
affiliated with Merrill Lynch, for their separate accounts to fund benefits
under certain variable annuity and variable life insurance contracts. BlackRock
Utilities and Telecommunications V.I. Fund (the "Fund") is classified as
"diversified," as defined in the Investment Company Act of 1940, as amended.
Class I, Class II and Class III 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. In addition, Class II and Class
III Shares bear certain expenses related to the distribution of such shares. The
Fund's financial statements are prepared in conformity with U.S. generally
accepted accounting principles, which may require the use of management accruals
and estimates. Actual results may differ from these estimates. These unaudited
financial statements reflect all adjustments, which are, in the opinion of
management, necessary to present a fair statement of the results for the interim
period. All such adjustments are of a normal, recurring nature. Income, expenses
(other than expenses attributable to a specific class) and realized and
unrealized gains and losses are allocated daily to each class based on its
relative net assets. The following is a summary of significant accounting
policies followed by the Fund.
(a) Valuation of investments--Equity securities held by the Fund that are
traded on stock exchanges or the NASDAQ Global Market are valued at the last
sale price or official close price on the exchange, as of the close of business
on the day the securities are being valued or, lacking any sales, at the last
available bid price for long positions, and at the last available asked price
for short positions. In cases where equity securities are traded on more than
one exchange, the securities are valued on the exchange designated as the
primary market by or under the authority of the Board of Directors of the
Company. Long positions traded in the over-the-counter ("OTC") market, NASDAQ
Capital Market or Bulletin Board are valued at the last available bid price or
yield equivalent obtained from one or more dealers or pricing services approved
by the Board of Directors of the Company. Short positions traded in the OTC
market are valued at the last available asked price. Portfolio securities that
are traded both in the OTC market and on a stock exchange are valued according
to the broadest and most representative market.
Options written or purchased are valued at the last sale price in the case of
exchange-traded options. Options traded in the OTC market are valued at the last
asked price (options written) or the last bid price (options purchased). Swap
agreements are valued based upon quoted fair valuations received daily by the
Fund from a pricing service or counterparty. Financial futures contracts and
options thereon, which are traded on exchanges, are valued at their last sale
price as of the close of such exchanges. Valuation of short-term investment
vehicles is generally based on the net asset value of the underlying investment
vehicle or amortized cost.
Repurchase agreements are valued at cost plus accrued interest. The Fund
employs pricing services to provide certain securities prices for the Fund.
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, including valuations furnished by the
pricing services retained by the Fund, which may use a matrix system for
valuations. The procedures of a pricing service and its valuations are reviewed
by the officers of the Fund under the general supervision of the Company's Board
of Directors. Such valuations and procedures will be reviewed periodically by
the Board of Directors of the Company.
Generally, trading in foreign securities, as well as U.S. government
securities, money market instruments and certain fixed income securities, is
substantially completed each day at various times prior to the close of business
on the New York Stock Exchange ("NYSE"). The values of such securities used in
computing the net asset value of the Fund's shares are determined as of such
times. Foreign currency exchange rates will generally be determined as of the
close of business on the NYSE. Occasionally, events affecting the values of such
securities and such exchange rates may occur between the times at which they are
determined and the close of business on the NYSE that may not be reflected in
the computation of the Fund's net asset
18
- --------------------------------------------------------------------------------
value. If events (for example, a company announcement, market volatility or a
natural disaster) occur during such periods that are expected to materially
affect the value of such securities, those securities will be valued at their
fair value as determined in good faith by the Company's Board of Directors or by
BlackRock Advisors, LLC (the "Manager"), an indirect, wholly owned subsidiary of
BlackRock, Inc., using a pricing service and/or procedures approved by the
Company's Board of Directors.
(b) Derivative financial instruments--The Fund may engage in various portfolio
investment strategies both to increase the return of the Fund and to hedge, or
protect, its exposure to interest rate movements and movements in the securities
markets. Losses may arise due to changes in the value of the contract due to an
unfavorable change in the price of the underlying security or index, or if the
counterparty does not perform under the contract. The counterparty for certain
instruments may pledge cash or securities as collateral.
- - Options--The Fund may write covered call and put options and purchase 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 financial futures contracts. Financial 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 OTC foreign currency options, foreign currency futures and related
options on foreign currency futures as a short or long hedge against possible
variations in foreign exchange rates. Such transactions may be effected with
respect to hedges on non-U.S. dollar-denominated securities owned by the Fund,
sold by the Fund but not yet delivered, or committed or anticipated to be
purchased by the Fund.
- - Forward foreign exchange contracts--The Fund may enter into forward foreign
exchange contracts as a hedge against either specific transactions or portfolio
positions. The contract is marked-to-market daily and the change in market value
is recorded by the Fund as an unrealized gain or loss. When the contract is
closed, the Fund records a realized gain or loss equal to the difference between
the value at the time it was opened and the value at the time it was closed.
(c) Foreign currency transactions--Transactions denominated in foreign
currencies are recorded at the exchange rate prevailing when recognized. Assets
and liabilities denominated in foreign currencies are valued at the exchange
rate at the end of the period. Foreign currency transactions are the result of
settling (realized) or valuing (unrealized) assets and liabilities expressed in
foreign currencies into U.S. dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates on investments.
The Fund invests in foreign securities, which may involve a number of risk
factors and special considerations not present with investments in securities of
U.S. corporations.
(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).
Realized gains and losses on security transactions are determined on the
identified cost basis. Dividend income is recorded on the ex-dividend dates.
Dividends
19
- --------------------------------------------------------------------------------
from foreign securities where the ex-dividend date may have passed are
subsequently recorded when the Fund has determined the ex-dividend date.
Interest income is recognized on the accrual basis.
(f) Dividends and distributions--Dividends from net investment income are
declared and paid quarterly. Distributions of capital gains are recorded on the
ex-dividend date.
(g) Expenses--Certain expenses have been allocated to the individual funds in
the Company on a pro rata basis based upon the respective aggregate net asset
value of each fund included in the Company.
(h) Securities lending--The Fund may lend securities to financial institutions
that provide cash or securities issued or guaranteed by the U.S. government as
collateral, which will be maintained at all times in an amount equal to at least
100% of the current market value of the loaned securities. The market value of
the loaned securities is determined at the close of business of the Fund and any
additional required collateral is delivered to the Fund on the next business
day. Where the Fund receives securities as collateral for the loaned securities,
it collects a fee from the borrower. The Fund typically receives the income on
the loaned securities, but does not receive the income on the collateral. Where
the Fund receives cash collateral, it may invest such collateral and retain the
amount earned on such investment, net of any amount rebated to the borrower.
Loans of securities are terminable at any time and the borrower, after notice,
is required to return borrowed securities within five business days. The Fund
may pay reasonable finder's, lending agent, administrative and custodial fees in
connection with its loans. In the event that the borrower defaults on its
obligation to return borrowed securities because of insolvency or for any other
reason, the Fund could experience delays and costs in gaining access to the
collateral. The Fund also could suffer a loss where the value of the collateral
falls below the market value of the borrowed securities, in the event of
borrower default or in the event of losses on investments made with cash
collateral.
(i) Bank overdraft--The Fund recorded a bank overdraft, which resulted from
management estimates of available cash.
(j) Recent accounting pronouncements--Effective June 29, 2007, the Fund
implemented Financial Accounting Standards Board ("FASB") Interpretation No. 48,
"Accounting for Uncertainty in Income Taxes -- an interpretation of FASB
Statement No. 109" ("FIN 48"). FIN 48 prescribes the minimum recognition
threshold a tax position must meet in connection with accounting for
uncertainties in income tax positions taken or expected to be taken by an
entity, including investment companies, before being measured and recognized in
the financial statements. Management has evaluated the application of FIN 48 to
the Fund, and has determined that the adoption of FIN 48 does not have a
material impact on the Fund's financial statements. The Fund files U.S. and
various state tax returns. No income tax returns are currently under
examination. The statute of limitations on the Fund's tax returns remains open
for the years ended December 31, 2003 through December 31, 2006.
In September 2006, Statement of Financial Accounting Standards No. 157, "Fair
Value Measurements" ("FAS 157"), was issued and is effective for fiscal years
beginning after November 15, 2007. FAS 157 defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. At this time, management is evaluating the implications of FAS 157
and its impact on the Fund's financial statements, if any, has not been
determined.
In addition, in February 2007, Statement of Financial Accounting Standards No.
159, "The Fair Value Option for Financial Assets and Financial Liabilities"
("FAS 159"), was issued and is effective for fiscal years beginning after
November 15, 2007. Early adoption is permitted as of the beginning of a fiscal
year that begins on or before November 15, 2007, provided the entity also elects
to apply the provisions of FAS 157. FAS 159 permits entities to choose to
measure many financial instruments and certain other items at fair value that
are not currently required to be measured at fair value. FAS 159 also
establishes presentation and disclosure requirements designed to facilitate
comparisons between entities that choose different measurement attributes for
similar types of assets and liabilities. At this time, management is evaluating
the implications of FAS 159 and its impact on the Fund's financial statements,
if any, has not been determined.
2. INVESTMENT ADVISORY AGREEMENT AND TRANSACTIONS WITH AFFILIATES:
The Fund has entered into an Investment Advisory Agreement with the Manager. The
Fund has also entered into separate Distribution Agreements and Distribution
Plans with FAM Distributors, Inc. ("FAMD") and BlackRock Distributors, Inc. and
its affiliates ("BDI") (collectively, the "Distributor"). FAMD is a wholly owned
subsidiary of Merrill Lynch Group, Inc., and BDI is an affiliate of BlackRock,
Inc.
20
- --------------------------------------------------------------------------------
Merrill Lynch and The PNC Financial Services Group, Inc. ("PNC") are the
principal owners of BlackRock, Inc.
The Manager 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 Fund. For such services, the Fund
pays a monthly fee at the annual rate of .60% of the average daily value of the
Fund's net assets. In addition, the Manager has entered into a sub-advisory
agreement with BlackRock Investment Management, LLC ("BIM"), an affiliate of the
Manager, under which the Manager pays BIM for services it provides a monthly fee
at an annual rate that is a percentage of the management fee paid by the Fund to
the Manager.
Pursuant to the Distribution Plans adopted by the Company, in accordance with
Rule 12b-1 under the investment Company Act of 1940, the Fund pays the
Distributor an ongoing distribution fee each month at the annual rate of .15%
and .25% of the average daily value of the Fund's Class II and Class III net
assets, respectively.
The Company has received an exemptive order from the Securities and Exchange
Commission permitting it to lend portfolio securities to Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S"), a wholly owned subsidiary of Merrill
Lynch, or its affiliates. Pursuant to that order, the Company also has retained
BIM as the securities lending agent for a fee based on a share of the returns on
investment of cash collateral. BIM may, on behalf of the Company and the Fund,
invest cash collateral received by the Fund for such loans, among other things,
in a private investment company managed by the Manager or in registered money
market funds advised by the Manager or its affiliates.
For the six months ended June 30, 2007, the Fund reimbursed the Manager $541
for certain accounting services.
In addition, MLPF&S received $3,230 in commissions on the execution of
portfolio security transactions for the Fund for the six months ended June 30,
2007.
PFPC Inc., an indirect, wholly owned subsidiary of PNC and an affiliate of the
Manager, is the Fund's transfer agent.
Certain officers and/or directors of the Company are officers and/or directors
of BlackRock, Inc. or its affiliates.
3. INVESTMENTS:
Purchases and sales of investments, excluding short-term securities, for the six
months ended June 30, 2007 were $8,874,315 and $11,770,390, respectively.
4. CAPITAL SHARE TRANSACTIONS:
Net decrease in net assets derived from capital share transactions was
$2,733,629 and $5,140,451 for the six months ended June 30, 2007 and the year
ended December 31, 2006, respectively.
Transactions in capital shares for each class were as follows:
<Table>
<Caption>
- ------------------------------------------------------------------
Class I Shares for the Six Months Ended Dollar
June 30, 2007 Shares Amount
- ------------------------------------------------------------------
Shares sold............................... 326,287 $ 4,178,460
Shares issued to shareholders in
reinvestment of dividends and
distributions............................ 178,219 2,285,631
-------- -----------
Total issued.............................. 504,506 6,464,091
Shares redeemed........................... (728,367) (9,197,860)
-------- -----------
Net decrease.............................. (223,861) $(2,733,769)
======== ===========
- ------------------------------------------------------------------
</Table>
<Table>
<Caption>
- -------------------------------------------------------------------
Class I Shares for the Year Ended
December 31, 2006 Shares Dollar Amount
- -------------------------------------------------------------------
Shares sold............................ 357,878 $ 4,070,091
Shares issued to shareholders in
reinvestment of dividends and
distributions......................... 248,126 2,837,728
---------- ------------
Total issued........................... 606,004 6,907,819
Shares redeemed........................ (1,107,405) (12,048,436)
---------- ------------
Net decrease........................... (501,401) $ (5,140,617)
========== ============
- -------------------------------------------------------------------
</Table>
<Table>
<Caption>
- -------------------------------------------------------------------
Class II Shares for the Six Months Ended Dollar
June 30, 2007 Shares Amount
- -------------------------------------------------------------------
Shares issued to shareholders in reinvestment of
dividends and distributions...................... 5.5 $70
--- ---
Net increase...................................... 5.5 $70
=== ===
- -------------------------------------------------------------------
</Table>
<Table>
<Caption>
- -------------------------------------------------------------------
Class II Shares for the Year Ended Dollar
December 31, 2006 Shares Amount
- -------------------------------------------------------------------
Shares issued to shareholders in reinvestment of
dividends and distributions...................... 7 $83
-- ---
Net increase...................................... 7 $83
== ===
- -------------------------------------------------------------------
</Table>
<Table>
<Caption>
- -------------------------------------------------------------------
Class III Shares for the Six Months Ended Dollar
June 30, 2007 Shares Amount
- -------------------------------------------------------------------
Shares issued to shareholders in reinvestment of
dividends and distributions...................... 5.5 $70
--- ---
Net increase...................................... 5.5 $70
=== ===
- -------------------------------------------------------------------
</Table>
<Table>
<Caption>
- -------------------------------------------------------------------
Class III Shares for the Year Ended Dollar
December 31, 2006 Shares Amount
- -------------------------------------------------------------------
Shares issued to shareholders in reinvestment of
dividends and distributions...................... 7 $83
-- ---
Net increase...................................... 7 $83
== ===
- -------------------------------------------------------------------
</Table>
5. SHORT-TERM BORROWINGS:
The Company, on behalf of the Fund, along with certain other funds managed by
the Manager and its affiliates, is party to a $500,000,000 credit agreement with
a group of lenders, which expires November 2007. The Fund may borrow
21
- --------------------------------------------------------------------------------
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 .06% per annum based on the Fund's pro rata
share of the unused portion of the credit agreement. Amounts borrowed under the
credit agreement bear interest at a rate equal to, at each fund's election, the
federal funds rate plus .35% or a base rate as defined in the credit agreement.
The Fund did not borrow under the credit agreement during the six months ended
June 30, 2007.
6. SUBSEQUENT EVENT:
The Fund paid an ordinary income dividend of $.069867 per share of Class I
shares, $.069867 per share of Class II shares and $.069867 per share of Class
III shares on July 20, 2007 to shareholders of record on July 18, 2007.
22
- --------------------------------------------------------------------------------
BLACKROCK VALUE
-------------------------------------------------------------------------
OPPORTUNITIES V.I. FUND
-------------------------------------------------------------------------
Semi-Annual Report (Unaudited)
June 30, 2007
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Value Opportunities V.I. Fund
A Discussion With Your Fund's Portfolio Manager
- --------------------------------------------------------------------------------
The Fund outperformed both its benchmark and comparable Lipper category
average for the period, benefiting primarily from successful stock selection.
HOW DID THE FUND PERFORM DURING THE PERIOD IN LIGHT OF THE EXISTING MARKET
CONDITIONS?
For the six-month period ended June 30, 2007, BlackRock Value Opportunities
V.I. Fund's Class I, Class II and Class III Shares had total returns of +9.65%,
+9.55% and +9.41%, respectively. For the same period, the benchmark Russell 2000
Index returned +6.45% and the Lipper Small Cap Value Funds (Variable Products)
category posted an average return of +5.69%. (Funds in this Lipper category seek
long-term growth of capital by investing in small-capitalization companies that
are considered to be undervalued relative to a major unmanaged stock index.)
U.S. equity markets closed the first half of 2007 firmly in positive
territory, despite growing investor concern regarding the deteriorating housing
market, credit risk in the subprime mortgage segment and diminishing
expectations for a near-term cut in the target federal funds rate. In this
environment, large cap stocks outperformed small cap stocks; however mid cap
stocks were the market's best overall performers throughout the six months. In
terms of style, growth outpaced value across the market capitalization spectrum.
This was quite pronounced in the small cap space, where the Russell 2000 Growth
Index's return of +9.33% more than doubled the +3.80% return of the Russell 2000
Value Index. For this reason, our relative value approach--wherein we look for
stocks trading at the low end of their historical valuation ranges, rather than
making decisions on an absolute valuation basis--proved advantageous.
WHAT FACTORS MOST INFLUENCED FUND PERFORMANCE?
The majority of the Fund's outperformance relative to the Russell 2000 Index
resulted from selection across multiple industries.
The largest contributor to portfolio performance was Dresser-Rand Group, Inc.,
a manufacturer of compressors sold into the energy industry. The company
benefited from a substantial increase in orders and solid earnings. Overall, the
energy sector contributed about 150 basis points (1.50%) of outperformance, most
of which was driven by favorable stock selection. In the consumer discretionary
sector, shares of RadioShack were the leading contributor. The stock graduated
to mid cap status, and we eliminated it from the portfolio on share price
strength. In the industrials sector, aerospace & defense company, EDO Corp.
contributed favorably as the shares surged on news of additional contract wins
from the U.S. Department of defense.
The Fund's financial services positioning also proved advantageous during the
period. We had minimal exposure to the subprime market based on our long-held
conviction that default rates would increase. We favored financial services
stocks without much credit risk, such as the insurers. Our position in Conseco,
Inc., a provider of life insurance and supplemental medical insurance,
contributed to Fund results, and we significantly reduced the position on
strength. Our investments in real estate investment trusts (REITs) also
benefited performance. Crescent Real Estate Equities Co., the Fund's largest
REITs position, appreciated on news that it would be acquired by Morgan Stanley.
While REITs as a group declined sharply, our substantial position in Crescent
did well on the takeover announcement. Merger-and-acquisition (M&A) activity
continued at a robust pace and drove returns for a number of our holdings.
During this six-month period, roughly 11 of the portfolio's investments were the
subject of takeover activity or merger announcements.
Detracting from performance, although not enough to hinder the Fund's solid
results, was stock selection in the health care sector. One of our large
positions, Medicis Pharmaceutical Corp., underperformed as the launch of a
competitor's product led to worries regarding the company's market positioning.
Nevertheless, with only two players addressing this emerging growth opportunity,
we expect continued strong earnings. Finally, our position in Friedman,
Billings, Ramsey Group, Inc. hindered relative results. We initially purchased
Friedman, Billings, Ramsey Group for its investment banking/capital markets
business, but it also owned a portfolio of subprime mortgages that it was
looking to sell. The subprime market collapsed before the company could
liquidate its portfolio. Ultimately, we sold our position in Friedman, Billings,
Ramsey Group upon a small bounce in subprime stocks.
2
- --------------------------------------------------------------------------------
WHAT CHANGES WERE MADE TO THE PORTFOLIO DURING THE PERIOD?
Our emphasis on the larger end of our market-capitalization range played out
nicely in the first half of 2007 as large and mid cap stocks outperformed their
smaller counterparts. For the most part, however, we have emphasized the
extremes of our benchmark, with exposure at the high end of our capitalization
range coupled with a lot of very small/micro-cap names. It was at the market cap
extremes of our category where we were able to find opportunities that were less
exploited by the marketplace.
More recent purchases have been in the heart of the small cap space. As stocks
graduated out of the portfolio, we have replaced them with market caps below
$2.0 billion. Crescent Real Estate Equities Co., for example, became mid cap on
the acquisition announcement and we replaced it with smaller names. One addition
was Omega Healthcare Investors, Inc., which invests in and provides financing to
the long-term care industry. In the energy sector, we trimmed our position in
Dresser-Rand Group, Inc. as it had appreciated sharply and moved into mid cap
territory. We reinvested the proceeds in smaller energy stocks, such as oil and
gas exploration and production companies Venoco, Inc. and Swift Energy Co.
We increased the Fund's position in utilities, an area where we have seen some
M&A activity. We previously had underweighted utilities, but the sector is
beginning to look attractive again. Health care also has been an area of new
investment, particularly within the biotechnology industry. We have seen a lot
of consolidation activity and believe large cap pharmaceutical companies could
be looking to acquire additional small players with emerging drug pipelines. For
example, we initiated positions in Regeneron Pharmaceuticals, Inc., Enzon
Pharmaceuticals, Inc. and PDL BioPharma, Inc.
On the sell side, we reined in our overweighting in energy somewhat as oil
prices topped $72 per barrel. Similarly, we reduced our overweighting in
industrials upon the strong performance seen in the aerospace & defense
industry. Finally, we have not found many compelling new opportunities in
materials stocks and slightly pruned our existing positions in steel-related
names, which on a combined basis represents a modest underweighting of the
sector.
HOW WOULD YOU CHARACTERIZE THE FUND'S POSITION AT THE CLOSE OF THE PERIOD?
At June 30, 2007, the Fund was most overweight versus the Russell 2000 Index
in financial services and energy, and most underweight in consumer discretionary
and industrials. The Fund's largest absolute exposure at period-end was in
financial services, followed by information technology.
Small cap stocks are vulnerable to concerns about rising financing costs and
slowing M&A activity. Higher interest rates are likely to ease investor interest
in small caps, and we expect that the pace of consolidation activity will slow.
We have a more cautious long-term view, but continue to find attractive
opportunities in specific small cap stocks. We ended the period with a fully
invested portfolio and will continue to rebalance our positioning to mitigate
risk.
R. Elise Baum, CFA
Portfolio Manager
July 13, 2007
3
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Value Opportunities V.I. Fund
Total Return Based on a $10,000 Investment
- --------------------------------------------------------------------------------
[LINE GRAPH]
<Table>
<Caption>
BLACKROCK VALUE OPPORTUNITIES
V.I. FUND+--CLASS I SHARES* RUSSELL 2000 INDEX++
----------------------------- --------------------
6/97 10000 10000
6/98 11434 11651
6/99 11647 11826
6/00 14511 13520
6/01 18303 13597
6/02 17695 12428
6/03 17136 12224
6/04 22642 16303
6/05 24297 17843
6/06 28457 20443
6/07 33310 23803
</Table>
[LINE GRAPH]
<Table>
<Caption>
BLACKROCK VALUE OPPORTUNITIES
V.I. FUND+--CLASS II SHARES* RUSSELL 2000 INDEX++
----------------------------- --------------------
10/23/97** 10000 10000
6/98 9757 10232
6/99 9921 10386
6/00 12348 11873
6/01 15552 11941
6/02 15007 10915
6/03 14516 10736
6/04 19146 14318
6/05 20518 15670
6/06 23994 17954
6/07 28040 20905
</Table>
[LINE GRAPH]
<Table>
<Caption>
BLACKROCK VALUE OPPORTUNITIES
V.I. FUND+--CLASS III SHARES* RUSSELL 2000 INDEX++
----------------------------- --------------------
11/18/03** 10000 10000
6/04 11406 11416
6/05 12212 12494
6/06 14228 14315
6/07 16588 16668
</Table>
* Assuming transaction costs, if any, and other operating expenses, including
advisory fees. Does not include insurance-related fees and expenses.
Effective September 2, 2003, Class A and Class B Shares were redesignated
Class I and Class II Shares.
** Commencement of operations.
+ The Fund invests primarily in common stocks of small companies and emerging
growth companies that Fund management believes have special investment value.
++ This unmanaged Index is comprised of approximately 2,000
smaller-capitalization common stocks from various industrial sectors.
Past results shown should not be considered a representation of future
performance.
4
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Value Opportunities V.I. Fund
Average Annual Total Return--Class I Shares*
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERIOD COVERED RETURN
- --------------------------------------------------------------------------
One Year Ended 6/30/07 +17.05%
- --------------------------------------------------------------------------
Five Years Ended 6/30/07 +13.49
- --------------------------------------------------------------------------
Ten Years Ended 6/30/07 +12.79
- --------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Value Opportunities V.I. Fund
Average Annual Total Return--Class II Shares*
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERIOD COVERED RETURN
- --------------------------------------------------------------------------
One Year Ended 6/30/07 +16.87%
- --------------------------------------------------------------------------
Five Years Ended 6/30/07 +13.32
- --------------------------------------------------------------------------
Inception (10/23/97) through 6/30/07 +11.23
- --------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Value Opportunities V.I. Fund
Average Annual Total Return--Class III Shares*
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERIOD COVERED RETURN
- --------------------------------------------------------------------------
One Year Ended 6/30/07 +16.59%
- --------------------------------------------------------------------------
Inception (11/18/03) through 6/30/07 +15.02
- --------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Value Opportunities V.I. Fund
Recent Performance Results
- --------------------------------------------------------------------------------
<Table>
<Caption>
6-MONTH 12-MONTH
AS OF JUNE 30, 2007 TOTAL RETURN TOTAL RETURN
- -----------------------------------------------------------------------------------------
Class I Shares* +9.65% +17.05%
- -----------------------------------------------------------------------------------------
Class II Shares* +9.55 +16.87
- -----------------------------------------------------------------------------------------
Class III Shares* +9.41 +16.59
- -----------------------------------------------------------------------------------------
Russell 2000(R) Index** +6.45 +16.43
- -----------------------------------------------------------------------------------------
</Table>
* Average annual and cumulative 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.
** This unmanaged Index is comprised of approximately 2,000
smaller-capitalization common stocks from various industrial sectors.
Past results shown should not be considered a representation of future
performance.
Russell 2000 is a registered trademark of the Frank Russell Company.
5
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Value Opportunities V.I. Fund
Disclosure of Expenses
- --------------------------------------------------------------------------------
Shareholders of this Fund may incur the following charges: (a) expenses related
to transactions, including sales charges, redemption fees and exchange fees; and
(b) operating expenses including advisory fees, distribution fees including
12b-1 fees, and other Fund expenses. The following example (which is based on a
hypothetical investment of $1,000 invested on January 1, 2007 and held through
June 30, 2007) is intended to assist shareholders both in calculating expenses
based on an investment in the Fund and in comparing these expenses with similar
costs of investing in other mutual funds.
The first table below provides information about actual account values and
actual expenses. In order to estimate the expenses a shareholder paid during the
period covered by this report, shareholders can divide their account value by
$1,000 and then multiply the result by the number in the first line under the
heading entitled "Expenses Paid During the Period."
The second table below provides information about hypothetical account values
and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses. In order to assist
shareholders in comparing the ongoing expenses of investing in this Fund and
other funds, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in other funds' shareholder reports.
The expenses shown in the table are intended to highlight shareholders'
ongoing costs only and do not reflect any transactional expenses, such as sales
charges, redemption fees or exchange fees. Therefore, the second table is useful
in comparing ongoing expenses only, and will not help shareholders determine the
relative total expenses of owning different funds. If these transactional
expenses were included, shareholder expenses would have been higher.
<Table>
<Caption>
EXPENSES PAID
BEGINNING ENDING DURING THE PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JANUARY 1, 2007 TO
JANUARY 1, 2007 JUNE 30, 2007 JUNE 30, 2007
- -------------------------------------------------------------------------------------------------------------------
ACTUAL
- -------------------------------------------------------------------------------------------------------------------
Class I $1,000 $1,096.50 $4.34
- -------------------------------------------------------------------------------------------------------------------
Class II $1,000 $1,095.50 $5.12
- -------------------------------------------------------------------------------------------------------------------
Class III $1,000 $1,094.10 $5.64
- -------------------------------------------------------------------------------------------------------------------
HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES)**
- -------------------------------------------------------------------------------------------------------------------
Class I $1,000 $1,020.76 $4.18
- -------------------------------------------------------------------------------------------------------------------
Class II $1,000 $1,020.01 $4.94
- -------------------------------------------------------------------------------------------------------------------
Class III $1,000 $1,019.51 $5.44
- -------------------------------------------------------------------------------------------------------------------
</Table>
* For each class of the Fund, expenses are equal to the annualized expense
ratio for the class (.83% for Class I, .98% for Class II and 1.08% for Class
III), multiplied by the average account value over the period, multiplied by
182/365 (to reflect the one-half year period shown).
** Hypothetical 5% annual return before expenses is calculated by pro-rating the
number of days in the most recent fiscal half year divided by 365.
6
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Value Opportunities V.I. Fund
Portfolio Information as of June 30, 2007
- --------------------------------------------------------------------------------
<Table>
<Caption>
- ------------------------------------------------------------------------------------
PERCENT OF
SECTOR REPRESENTATION LONG-TERM INVESTMENTS
- ------------------------------------------------------------------------------------
Financials.................................................. 24.1%
Information Technology...................................... 20.7
Consumer Discretionary...................................... 12.5
Industrials................................................. 12.1
Health Care................................................. 10.8
Energy...................................................... 8.3
Materials Processing........................................ 3.4
Consumer Staples............................................ 2.6
Utilities................................................... 2.3
Other*...................................................... 3.2
- ------------------------------------------------------------------------------------
</Table>
* Includes portfolio holdings in exchange-traded funds.
For Fund compliance purposes, the Fund's sector classifications refer to any one
or more of the sector sub-classifications used by one or more widely recognized
market indexes or ratings group indexes, and/or as defined by Fund management.
This definition may not apply for purposes of this report, which may combine
sector sub-classifications for reporting ease.
7
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Value Opportunities V.I. Fund
Schedule of Investments as of June 30, 2007 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES
INDUSTRY HELD COMMON STOCKS VALUE
- --------------------------------------------------------------------------------------------------------------------
AEROSPACE & DEFENSE--2.4% 40,000 Curtiss-Wright Corp. .................... $ 1,864,400
263,900 EDO Corp.(e)............................. 8,674,393
6,800 Triumph Group, Inc. ..................... 445,196
------------
10,983,989
- --------------------------------------------------------------------------------------------------------------------
AUTO COMPONENTS--1.2% 242,300 ArvinMeritor, Inc. ...................... 5,379,060
- --------------------------------------------------------------------------------------------------------------------
BIOTECHNOLOGY--3.4% 237,500 Angiotech Pharmaceuticals, Inc.(e)(a).... 1,688,625
14,600 Applera Corp.--Celera Genomics
Group(a)............................... 181,040
226,600 Enzon Pharmaceuticals, Inc.(a)(e)........ 1,778,810
200,900 Human Genome Sciences, Inc.(a)(e)........ 1,792,028
51,300 ImClone Systems, Inc.(a)................. 1,813,968
103,400 MannKind Corp.(a)(e)..................... 1,274,922
179,400 Maxygen, Inc.(a)......................... 1,537,458
77,700 NPS Pharmaceuticals, Inc.(a)............. 321,678
252,200 Neurogen Corp.(a)........................ 1,674,608
48,500 PDL BioPharma, Inc.(a)................... 1,130,050
105,300 Regeneron Pharmaceuticals, Inc.(a)....... 1,886,976
153,300 Vical, Inc.(a)........................... 795,627
------------
15,875,790
- --------------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS--2.2% 29,200 HFF, Inc. Class A(a)..................... 452,892
83,100 Knight Capital Group, Inc. Class A(a).... 1,379,460
44,300 optionsXpress Holdings, Inc. ............ 1,136,738
53,000 Thomas Weisel Partners Group, Inc.(a).... 882,450
241,100 Waddell & Reed Financial, Inc. Class
A(e)................................... 6,271,011
------------
10,122,551
- --------------------------------------------------------------------------------------------------------------------
CHEMICALS--0.6% 91,300 Valspar Corp. ........................... 2,593,833
- --------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS--5.3% 19,800 Banner Corp. ............................ 674,388
79,700 Cullen/Frost Bankers, Inc. .............. 4,261,559
58,700 First Merchants Corp. ................... 1,410,561
249,800 First Midwest Bancorp, Inc. ............. 8,870,398
63,100 Greater Bay Bancorp(e)................... 1,756,704
33,450 MetroCorp Bancshares, Inc. .............. 716,499
207,260 Old National Bancorp..................... 3,442,589
52,650 Sterling Financial Corp. ................ 1,523,691
83,200 Texas Capital Bancshares, Inc.(a)........ 1,859,520
------------
24,515,909
- --------------------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES 69,100 Administaff, Inc. ....................... 2,314,159
& SUPPLIES--2.9% 271,200 Allied Waste Industries, Inc.(a)......... 3,650,352
12,000 CRA International, Inc.(a)............... 578,400
164,900 Casella Waste Systems, Inc.(a)........... 1,777,622
31,400 Heidrick & Struggles International,
Inc.(a)................................ 1,608,936
21,700 RSC Holdings, Inc.(a).................... 434,000
140,500 Tetra Tech, Inc.(a)...................... 3,027,775
------------
13,391,244
- --------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT--5.0% 711,700 Andrew Corp.(a).......................... 10,276,948
64,500 Black Box Corp.(e)....................... 2,669,010
761,700 Extreme Networks, Inc.(a)................ 3,084,885
6,300 Starent Networks Corp.(a)................ 92,610
491,900 Tellabs, Inc.(a)......................... 5,292,844
611,400 Westell Technologies, Inc. Class A(a).... 1,595,754
------------
23,012,051
- --------------------------------------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS--1.3% 159,500 Neoware Systems, Inc.(a)(e).............. 2,159,630
293,700 Rackable Systems, Inc.(a)(e)............. 3,630,132
------------
5,789,762
- --------------------------------------------------------------------------------------------------------------------
</Table>
8
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Value Opportunities V.I. Fund
Schedule of Investments as of June 30, 2007 (continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES
INDUSTRY HELD COMMON STOCKS VALUE
- --------------------------------------------------------------------------------------------------------------------
CONTAINERS & PACKAGING--1.7% 598,800 Smurfit-Stone Container Corp.(a)......... $ 7,970,028
- --------------------------------------------------------------------------------------------------------------------
DIVERSIFIED CONSUMER SERVICES--1.5% 101,900 Corinthian Colleges, Inc.(a)............. 1,659,951
212,400 Universal Technical Institute,
Inc.(a)(e)............................. 5,392,836
------------
7,052,787
- --------------------------------------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT--0.4% 33,100 Hubbell, Inc. Class B.................... 1,794,682
- --------------------------------------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT 189,300 Ingram Micro, Inc. Class A(a)(e)......... 4,109,703
& INSTRUMENTS--2.8% 227,800 Tech Data Corp.(a)....................... 8,761,188
------------
12,870,891
- --------------------------------------------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES--3.7% 223,200 Dresser-Rand Group, Inc.(a).............. 8,816,400
181,400 Key Energy Services, Inc.(a)............. 3,361,342
114,500 Rowan Cos., Inc.(e)...................... 4,692,210
------------
16,869,952
- --------------------------------------------------------------------------------------------------------------------
FOOD & STAPLES RETAILING--0.6% 109,100 Casey's General Stores, Inc.(e).......... 2,974,066
- --------------------------------------------------------------------------------------------------------------------
FOOD PRODUCTS--0.6% 36,700 The J.M. Smucker Co. .................... 2,336,322
18,900 Smithfield Foods, Inc.(a)................ 581,931
------------
2,918,253
- --------------------------------------------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & 268,600 DexCom, Inc.(a)(e)....................... 2,199,834
SUPPLIES--2.7% 636,400 OraSure Technologies, Inc.(a)............ 5,205,752
219,800 Wright Medical Group, Inc.(a)............ 5,301,576
------------
12,707,162
- --------------------------------------------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & 117,900 Hooper Holmes, Inc.(a)................... 394,965
SERVICES--0.6% 49,400 LifePoint Hospitals, Inc.(a)............. 1,910,792
9,100 Molina Healthcare, Inc.(a)............... 277,732
------------
2,583,489
- --------------------------------------------------------------------------------------------------------------------
HEALTH CARE TECHNOLOGY--1.0% 249,348 HLTH Corp.(a)............................ 3,493,365
191,900 Merge Technologies, Inc.(a)(e)........... 1,253,107
------------
4,746,472
- --------------------------------------------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE--1.6% 17,911 Ambassadors Group, Inc. ................. 636,378
35,100 Ambassadors International, Inc. ......... 1,167,426
10,200 Isle of Capri Casinos, Inc.(a)(e)........ 244,392
264,500 O'Charleys, Inc. ........................ 5,332,320
------------
7,380,516
- --------------------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES--1.0% 225,000 Furniture Brands International,
Inc.(e)................................ 3,195,000
62,300 Meritage Homes Corp.(a).................. 1,666,525
------------
4,861,525
- --------------------------------------------------------------------------------------------------------------------
IT SERVICES--1.0% 405,300 BearingPoint, Inc.(a).................... 2,962,743
45,900 Global Payments, Inc. ................... 1,819,935
------------
4,782,678
- --------------------------------------------------------------------------------------------------------------------
INSURANCE--5.8% 2,700 American National Insurance Co. ......... 412,020
470,000 Conseco, Inc.(a)......................... 9,818,300
2,036 Greenlight Capital Re Ltd.(a)............ 45,871
200,600 HCC Insurance Holdings, Inc. ............ 6,702,046
78,000 Harleysville Group, Inc.(e).............. 2,602,080
144,900 IPC Holdings, Ltd. ...................... 4,678,821
117,400 Presidential Life Corp. ................. 2,308,084
------------
26,567,222
- --------------------------------------------------------------------------------------------------------------------
</Table>
9
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Value Opportunities V.I. Fund
Schedule of Investments as of June 30, 2007 (continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES
INDUSTRY HELD COMMON STOCKS VALUE
- --------------------------------------------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES--2.3% 86,100 Ariba, Inc.(a)........................... $ 853,251
739,000 CNET Networks, Inc.(a)(e)................ 6,052,410
11,200 ComScore, Inc.(a)........................ 259,280
10,400 Data Domain, Inc.(a)..................... 239,200
19,100 Limelight Networks, Inc.(a).............. 377,798
378,500 RealNetworks, Inc.(a).................... 3,092,345
8,500 TechTarget, Inc.(a)...................... 109,225
------------
10,983,509
- --------------------------------------------------------------------------------------------------------------------
LEISURE EQUIPMENT & PRODUCTS--1.1% 132,100 Brunswick Corp. ......................... 4,310,423
75,000 Nautilus, Inc. .......................... 903,000
------------
5,213,423
- --------------------------------------------------------------------------------------------------------------------
LIFE SCIENCES TOOLS & SERVICES--0.7% 136,000 Affymetrix, Inc.(a)...................... 3,385,040
- --------------------------------------------------------------------------------------------------------------------
MACHINERY--3.4% 79,000 Mueller Industries, Inc. ................ 2,720,760
244,000 Timken Co. .............................. 8,810,840
280,600 Wabash National Corp.(e)................. 4,105,178
------------
15,636,778
- --------------------------------------------------------------------------------------------------------------------
MEDIA--3.4% 242,400 Harte-Hanks, Inc.(e)..................... 6,224,832
212,500 Playboy Enterprises, Inc. Class B(a)..... 2,407,625
406,700 Valassis Communications, Inc.(a)(e)...... 6,991,173
------------
15,623,630
- --------------------------------------------------------------------------------------------------------------------
METALS & MINING--1.1% 45,400 Reliance Steel & Aluminum Co. ........... 2,554,204
54,400 Steel Dynamics, Inc. .................... 2,279,904
------------
4,834,108
- --------------------------------------------------------------------------------------------------------------------
MULTI-UTILITIES--2.3% 182,800 OGE Energy Corp. ........................ 6,699,620
154,700 Puget Energy, Inc. ...................... 3,740,646
------------
10,440,266
- --------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS--4.6% 98,600 Cabot Oil & Gas Corp. Class A(e)......... 3,636,368
266,600 Denbury Resources, Inc.(a)(e)............ 9,997,500
84,500 Plains Exploration & Production Co.(a)... 4,039,945
52,300 Swift Energy Co.(a)...................... 2,236,348
61,300 Venoco, Inc.(a).......................... 1,144,471
------------
21,054,632
- --------------------------------------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS--0.1% 5,400 Neenah Paper, Inc. ...................... 222,804
- --------------------------------------------------------------------------------------------------------------------
PERSONAL PRODUCTS--1.3% 249,100 Alberto-Culver Co. ...................... 5,908,652
- --------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS--2.2% 330,400 Medicis Pharmaceutical Corp. Class A(e).. 10,090,416
- --------------------------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS 64,900 Alexandria Real Estate Equities, Inc. ... 6,283,618
(REITS)--7.4% 420,300 Crescent Real Estate Equities Co. ....... 9,431,532
265,900 FelCor Lodging Trust, Inc.(e)............ 6,921,377
46,000 Healthcare Realty Trust, Inc. ........... 1,277,880
135,200 Lexington Corporate Properties
Trust(e)............................... 2,812,160
282,600 Omega Healthcare Investors, Inc. ........ 4,473,558
111,200 UDR, Inc. ............................... 2,924,560
------------
34,124,685
- --------------------------------------------------------------------------------------------------------------------
ROAD & RAIL--1.5% 113,800 Marten Transport Ltd.(a)................. 2,049,538
7,800 Old Dominion Freight Line, Inc.(a)....... 235,170
140,950 U.S. Xpress Enterprises, Inc. Class
A(a)................................... 2,618,851
92,200 Vitran Corp., Inc.(a).................... 1,967,548
------------
6,871,107
- --------------------------------------------------------------------------------------------------------------------
</Table>
10
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Value Opportunities V.I. Fund
Schedule of Investments as of June 30, 2007 (continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES
INDUSTRY HELD COMMON STOCKS VALUE
- --------------------------------------------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR 130,500 Actel Corp.(a)........................... $ 1,815,255
EQUIPMENT--3.0% 44,500 Cree, Inc.(a)(e)......................... 1,150,325
230,300 Genesis Microchip, Inc.(a)............... 2,155,608
1,400 Integrated Silicon Solutions, Inc.(a).... 8,820
256,100 Mattson Technology, Inc.(a).............. 2,484,170
111,400 Omnivision Technologies, Inc.(a)(e)...... 2,017,454
199,800 Zoran Corp.(a)........................... 4,003,992
------------
13,635,624
- --------------------------------------------------------------------------------------------------------------------
SOFTWARE--5.1% 328,900 BEA Systems, Inc.(a)..................... 4,502,641
288,600 Bottomline Technologies, Inc.(a)(e)...... 3,564,210
363,500 InterVoice, Inc.(a)...................... 3,027,955
848,900 TIBCO Software, Inc.(a).................. 7,682,545
411,400 Wind River Systems, Inc.(a)(e)........... 4,525,400
------------
23,302,751
- --------------------------------------------------------------------------------------------------------------------
SPECIALTY RETAIL--1.4% 266,500 Foot Locker, Inc. ....................... 5,809,700
33,400 Talbots, Inc. ........................... 836,002
------------
6,645,702
- --------------------------------------------------------------------------------------------------------------------
TEXTILES, APPAREL & LUXURY GOODS--1.0% 169,000 Jones Apparel Group, Inc. ............... 4,774,250
- --------------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE--3.1% 15,100 Anchor Bancorp Wisconsin, Inc. .......... 395,469
87,800 Dime Community Bancshares, Inc. ......... 1,158,082
46,300 Franklin Bank Corp.(a)(e)................ 689,870
99,500 The PMI Group, Inc. ..................... 4,444,665
179,600 Webster Financial Corp. ................. 7,663,532
------------
14,351,618
- --------------------------------------------------------------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS--1.4% 66,100 Applied Industrial Technologies, Inc. ... 1,949,950
137,400 United Rentals, Inc.(a).................. 4,470,996
------------
6,420,946
- --------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST--$412,326,096)--95.7%.............. 441,263,853
- --------------------------------------------------------------------------------------------------------------------
EXCHANGE-TRADED FUNDS
- --------------------------------------------------------------------------------------------------------------------
75,200 iShares Russell 2000 Index Fund(e)....... 6,237,088
19,400 iShares Russell Microcap Index Fund(e)... 1,173,700
69,600 iShares S&P SmallCap 600/BARRA Value
Index Fund(e).......................... 5,524,848
40,400 PowerShares Zacks Micro Cap Portfolio.... 761,944
14,300 streetTRACKS(R) Gold Trust(a)............ 918,918
- --------------------------------------------------------------------------------------------------------------------
TOTAL EXCHANGE-TRADED FUNDS
(COST--$12,990,229)--3.2%................ 14,616,498
- --------------------------------------------------------------------------------------------------------------------
<Caption>
BENEFICIAL
INTEREST SHORT-TERM SECURITIES
- --------------------------------------------------------------------------------------------------------------------
$ 5,234,835 BlackRock Liquidity Series, LLC Cash
Sweep Series, 5.33%(b)(d).............. 5,234,835
90,742,520 BlackRock Liquidity Series, LLC Money
Market Series, 5.33%(b)(c)(d).......... 90,742,520
- --------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM SECURITIES
(COST--$95,977,355)--20.8%............... 95,977,355
- --------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST--$521,293,680*)--119.7%............ 551,857,706
LIABILITIES IN EXCESS OF OTHER
ASSETS--(19.7%).......................... (90,755,492)
------------
NET ASSETS--100.0%....................... $461,102,214
============
- --------------------------------------------------------------------------------------------------------------------
</Table>
11
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Value Opportunities V.I. Fund
Schedule of Investments as of June 30, 2007 (concluded)
- --------------------------------------------------------------------------------
* The cost and unrealized appreciation (depreciation) of investments as of
June 30, 2007, as computed for federal income tax purposes, were as
follows:
<Table>
Aggregate cost.............................................. $524,552,682
============
Gross unrealized appreciation............................... $ 45,718,613
Gross unrealized depreciation............................... (18,413,589)
------------
Net unrealized appreciation................................. $ 27,305,024
============
</Table>
(a) Non-income producing security.
(b) Investments in companies considered to be an affiliate of the Fund, for
purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as
follows:
<Table>
<Caption>
- ------------------------------------------------------------------------------------
NET INTEREST
AFFILIATE ACTIVITY INCOME
- ------------------------------------------------------------------------------------
BlackRock Liquidity Series, LLC Cash Sweep Series........... $ 3,768,934 $102,220
BlackRock Liquidity Series, LLC Money Market Series......... $10,684,620 $103,792
- ------------------------------------------------------------------------------------
</Table>
(c) Security was purchased with the cash proceeds from securities loans.
(d) Represents the current yield as of June 30, 2007.
(e) Security, or a portion of security, is on loan.
- For Fund compliance purposes, the Fund's industry classifications
refer to any one or more of the industry sub-classifications used by
one or more widely recognized market indexes or ratings group indexes,
and/or as defined by Fund management. This definition may not apply
for purposes of this report, which may combine industry sub-
classifications for reporting ease. Industries are shown as a percent
of net assets.
See Notes to Financial Statements.
12
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Value Opportunities V.I. Fund
Statement of Assets and Liabilities as of June 30, 2007 (unaudited)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments in unaffiliated securities, at value (including
securities loaned of $88,034,269) (identified
cost--$425,316,325)....................................... $455,880,351
Investments in affiliated securities, at value (identified
cost--$95,977,355)........................................ 95,977,355
Receivables:
Securities sold........................................... $ 6,626,601
Dividends................................................. 327,460
Securities lending........................................ 34,364
Capital shares sold....................................... 11 6,988,436
-----------
Prepaid expenses and other assets......................... 18,539
------------
Total assets.............................................. 558,864,681
------------
- ------------------------------------------------------------------------------------------
LIABILITIES:
Collateral on securities loaned, at value................... 90,742,520
Bank overdraft.............................................. 92,706
Payables:
Securities purchased...................................... 5,547,780
Capital shares redeemed................................... 965,140
Investment adviser........................................ 277,460
Other affiliates.......................................... 5,708
Distributor............................................... 3,435 6,799,523
-----------
Accrued expenses............................................ 127,718
------------
Total liabilities........................................... 97,762,467
------------
- ------------------------------------------------------------------------------------------
NET ASSETS.................................................. $461,102,214
============
- ------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Class I Shares of Common Stock, $.10 par value, 100,000,000
shares authorized......................................... $ 1,708,067
Class II Shares of Common Stock, $.10 par value, 100,000,000
shares authorized......................................... 55,220
Class III Shares of Common Stock, $.10 par value,
100,000,000 shares authorized............................. 388,499
Paid-in capital in excess of par............................ 384,102,232
Undistributed investment income--net........................ $ 249,102
Undistributed realized capital gains--net................... 44,035,068
Unrealized appreciation--net................................ 30,564,026
-----------
Total accumulated earnings--net............................. 74,848,196
------------
NET ASSETS.................................................. $461,102,214
============
- ------------------------------------------------------------------------------------------
NET ASSET VALUE:
Class I--Based on net assets of $438,383,021 and 17,080,667
shares outstanding........................................ $ 25.67
============
Class II--Based on net assets of $14,125,114 and 552,203
shares outstanding........................................ $ 25.58
============
Class III--Based on net assets of $8,594,079 and 3,884,985
shares outstanding........................................ $ 2.21
============
- ------------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements.
13
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Value Opportunities V.I. Fund
Statement of Operations for the Six Months Ended June 30, 2007 (unaudited)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividends (net of $815 foreign withholding tax)............. $ 1,989,843
Interest from affiliates.................................... 102,220
Securities lending--net..................................... 103,792
-----------
Total income................................................ 2,195,855
-----------
- ----------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees.................................... $1,732,539
Accounting services......................................... 87,018
Printing and shareholder reports............................ 32,585
Custodian fees.............................................. 28,245
Professional fees........................................... 20,400
Directors' fees and expenses................................ 12,859
Distribution fees--Class II................................. 11,072
Distribution fees--Class III................................ 10,331
Transfer agent fees--Class I................................ 2,384
Pricing services............................................ 698
Transfer agent fees--Class II............................... 79
Transfer agent fees--Class III.............................. 45
Other....................................................... 8,498
----------
Total expenses.............................................. 1,946,753
-----------
Investment income--net...................................... 249,102
-----------
- ----------------------------------------------------------------------------------------
REALIZED & UNREALIZED GAIN--NET:
Realized gain on investments--net........................... 36,730,187
Change in unrealized appreciation on investments--net....... 5,587,683
-----------
Total realized and unrealized gain--net..................... 42,317,870
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $42,566,972
===========
- ----------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements.
14
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Value Opportunities V.I. Fund
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<Table>
<Caption>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
JUNE 30, 2007 DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS: (UNAUDITED) 2006
- ---------------------------------------------------------------------------------------------
OPERATIONS:
Investment income--net...................................... $ 249,102 $ 1,281,574
Realized gain--net.......................................... 36,730,187 80,831,231
Change in unrealized appreciation--net...................... 5,587,683 (19,994,108)
------------ ------------
Net increase in net assets resulting from operations........ 42,566,972 62,118,697
------------ ------------
- ---------------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Investment income--net:
Class I................................................... -- (1,210,266)
Class II.................................................. -- (17,203)
Class III................................................. -- (59,375)
Realized gain--net:
Class I................................................... -- (76,462,800)
Class II.................................................. -- (2,592,602)
Class III................................................. -- (9,914,947)
------------ ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders............................. -- (90,257,193)
------------ ------------
- ---------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Net decrease in net assets derived from capital share
transactions.............................................. (47,419,520) (32,677,427)
------------ ------------
- ---------------------------------------------------------------------------------------------
NET ASSETS:
Total decrease in net assets................................ (4,852,548) (60,815,923)
Beginning of period......................................... 465,954,762 526,770,685
------------ ------------
End of period*.............................................. $461,102,214 $465,954,762
============ ============
- ---------------------------------------------------------------------------------------------
* Undistributed investment income--net...................... $ 249,102 --
============ ============
- ---------------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements.
15
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Value Opportunities V.I. Fund
Financial Highlights
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS I
--------------------------------------------------------------------
FOR THE SIX
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE MONTHS ENDED FOR THE YEAR ENDED DECEMBER 31,
BEEN DERIVED FROM INFORMATION PROVIDED IN THE JUNE 30, 2007 ----------------------------------------------------
FINANCIAL STATEMENTS. (UNAUDITED) 2006 2005 2004 2003 2002
- -------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......... $ 23.41 $ 24.93 $ 26.17 $ 25.60 $ 18.09 $ 25.08
-------- -------- -------- -------- -------- --------
Investment income (loss)--net***............. .01 .07 .07 --+ .02 (.02)
Realized and unrealized gain (loss)--net..... 2.25 3.12 2.58 3.83 7.67 (5.84)
-------- -------- -------- -------- -------- --------
Total from investment operations............. 2.26 3.19 2.65 3.83 7.69 (5.86)
-------- -------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net..................... -- (.08) (.07) -- (.02) --
Realized gain--net......................... -- (4.63) (3.82) (3.26) (.16) (1.13)
-------- -------- -------- -------- -------- --------
Total dividends and distributions............ -- (4.71) (3.89) (3.26) (.18) (1.13)
-------- -------- -------- -------- -------- --------
Net asset value, end of period............... $ 25.67 $ 23.41 $ 24.93 $ 26.17 $ 25.60 $ 18.09
======== ======== ======== ======== ======== ========
- -------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:**
Based on net asset value per share........... 9.65%@ 12.82% 10.38% 14.98% 42.91% (23.76%)
======== ======== ======== ======== ======== ========
- -------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses..................................... .83%* .84% .84% .83% .83% .84%
======== ======== ======== ======== ======== ========
Investment income (loss)--net................ .12%* .27% .28% (.01%) .08% (.11%)
======== ======== ======== ======== ======== ========
- -------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)..... $438,383 $443,153 $482,681 $583,301 $601,270 $460,279
======== ======== ======== ======== ======== ========
Portfolio turnover........................... 50% 72% 80% 82% 64% 76%
======== ======== ======== ======== ======== ========
- -------------------------------------------------------------------------------------------------------------------
</Table>
* Annualized.
** Total investment returns exclude insurance-related fees and expenses.
*** Based on average shares outstanding.
+ Amount is less than $(.01) per share.
@ Aggregate total investment return.
See Notes to Financial Statements.
16
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Value Opportunities V.I. Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS II
---------------------------------------------------------------------
FOR THE SIX
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE MONTHS ENDED FOR THE YEAR ENDED DECEMBER 31,
BEEN DERIVED FROM INFORMATION PROVIDED IN THE JUNE 30, 2007 ----------------------------------------------------
FINANCIAL STATEMENTS. (UNAUDITED) 2006 2005 2004 2003 2002
- --------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period...... $ 23.35 $ 24.87 $ 26.11 $ 25.55 $ 18.08 $ 25.05
------- ------- ------- ------- ------- --------
Investment income (loss)--net***.......... --+ .03 .04 (.04) (.02) (.06)
Realized and unrealized gain (loss)--net.. 2.23 3.11 2.57 3.82 7.65 (5.82)
------- ------- ------- ------- ------- --------
Total from investment operations.......... 2.23 3.14 2.61 3.78 7.63 (5.88)
------- ------- ------- ------- ------- --------
Less dividends and distributions:
Investment income--net.................. -- (.03) (.03) -- -- --
Realized gain--net...................... -- (4.63) (3.82) (3.22) (.16) (1.09)
------- ------- ------- ------- ------- --------
Total dividends and distributions......... -- (4.66) (3.85) (3.22) (.16) (1.09)
------- ------- ------- ------- ------- --------
Net asset value, end of period............ $ 25.58 $ 23.35 $ 24.87 $ 26.11 $ 25.55 $ 18.08
======= ======= ======= ======= ======= ========
- --------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:**
Based on net asset value per share........ 9.55%@ 12.67% 10.24% 14.80% 42.62% (23.86%)
======= ======= ======= ======= ======= ========
- --------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................. .98%* .99% .99% .98% .98% .99%
======= ======= ======= ======= ======= ========
Investment income (loss)--net............. (.04%)* .12% .14% (.16%) (.08%) (.26%)
======= ======= ======= ======= ======= ========
- --------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands).. $14,125 $14,991 $16,489 $18,360 $18,313 $ 16,172
======= ======= ======= ======= ======= ========
Portfolio turnover........................ 50% 72% 80% 82% 64% 76%
======= ======= ======= ======= ======= ========
- --------------------------------------------------------------------------------------------------------------------
</Table>
* Annualized.
** Total investment returns exclude insurance-related fees and expenses.
*** Based on average shares outstanding.
+ Amount is less than $(.01) per share.
@ Aggregate total investment return.
See Notes to Financial Statements.
17
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Value Opportunities V.I. Fund
Financial Highlights (concluded)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS III
-----------------------------------------------------------------------
FOR THE SIX FOR THE PERIOD
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE MONTHS ENDED FOR THE YEAR ENDED DECEMBER 31, NOVEMBER 18, 2003++
BEEN DERIVED FROM INFORMATION PROVIDED IN THE JUNE 30, 2007 --------------------------------- TO DECEMBER 31,
FINANCIAL STATEMENTS. (UNAUDITED) 2006 2005 2004 2003
- -----------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 2.02 $ 5.97 $ 9.00 $ 10.68 $10.00
------ ------- ------- ------- ------
Investment income (loss)--net***.............. --+ --+ .01 --+ .01
Realized and unrealized gain--net............. .19 .73 .84 1.57 .68
------ ------- ------- ------- ------
Total from investment operations.............. .19 .73 .85 1.57 .69
------ ------- ------- ------- ------
Less dividends and distributions:
Investment income--net...................... -- (.05) (.06) -- (.01)
Realized gain--net.......................... -- (4.63) (3.82) (3.25) --
------ ------- ------- ------- ------
Total dividends and distributions............. -- (4.68) (3.88) (3.25) (.01)
------ ------- ------- ------- ------
Net asset value, end of period................ $ 2.21 $ 2.02 $ 5.97 $ 9.00 $10.68
====== ======= ======= ======= ======
- -----------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:**
Based on net asset value per share............ 9.41%@ 12.28% 10.11% 14.75% 6.95%@
====== ======= ======= ======= ======
- -----------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses...................................... 1.08%* 1.08% 1.09% 1.07% 1.08%*
====== ======= ======= ======= ======
Investment income (loss)--net................. (.13%)* (.02%) .11% (.18%) .36%*
====== ======= ======= ======= ======
- -----------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)...... $8,594 $ 7,810 $27,600 $10,489 $ 61
====== ======= ======= ======= ======
Portfolio turnover............................ 50% 72% 80% 82% 64%
====== ======= ======= ======= ======
- -----------------------------------------------------------------------------------------------------------------------
</Table>
* Annualized.
** Total investment returns exclude insurance-related fees and expenses.
*** Based on average shares outstanding.
+ Amount is less than $(.01) per share.
++ Commencement of operations.
@ Aggregate total investment return.
See Notes to Financial Statements.
18
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Value Opportunities V.I. Fund
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES:
BlackRock Variable Series Funds, Inc. (the "Company") is an open-end management
investment company that is comprised of 16 separate funds. Each fund offers
three 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. ("Merrill Lynch")), and other insurance companies that are not
affiliated with Merrill Lynch, for their separate accounts to fund benefits
under certain variable annuity and variable life insurance contracts. BlackRock
Value Opportunities V.I. Fund (the "Fund") is classified as "diversified," as
defined in the Investment Company Act of 1940, as amended. Class I, Class II and
Class III 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. In addition, Class II and Class III Shares
bear certain expenses related to the distribution of such shares. The Fund's
financial statements are prepared in conformity with U.S. generally accepted
accounting principles, which may require the use of management accruals and
estimates. Actual results may differ from these estimates. These unaudited
financial statements reflect all adjustments, which are, in the opinion of
management, necessary to present a fair statement of the results for the interim
period. All such adjustments are of a normal, recurring nature. Income, expenses
(other than expenses attributable to a specific class) and realized and
unrealized gains and losses are allocated daily to each class based on its
relative net assets. The following is a summary of significant accounting
policies followed by the Fund.
(a) Valuation of investments--Equity securities held by the Fund that are
traded on stock exchanges or the NASDAQ Global Market are valued at the last
sale price or official close price on the exchange, as of the close of business
on the day the securities are being valued or, lacking any sales, at the last
available bid price for long positions, and at the last available asked price
for short positions. In cases where equity securities are traded on more than
one exchange, the securities are valued on the exchange designated as the
primary market by or under the authority of the Board of Directors of the
Company. Long positions traded in the over-the-counter ("OTC") market, NASDAQ
Capital Market or Bulletin Board are valued at the last available bid price or
yield equivalent obtained from one or more dealers or pricing services approved
by the Board of Directors of the Company. Short positions traded in the OTC
market are valued at the last available asked price. Portfolio securities that
are traded both in the OTC market and on a stock exchange are valued according
to the broadest and most representative market.
Options written or purchased are valued at the last sales price in the case of
exchange-traded options. Options traded in the OTC market are valued at the last
asked price (options written) or the last bid price (options purchased). Swap
agreements are valued based upon quoted fair valuations received daily by the
Fund from a pricing service or counterparty. Financial futures contracts and
options thereon, which are traded on exchanges, are valued at their last sale
price as of the close of such exchanges. Valuation of short-term investment
vehicles is generally based on the net asset value of the underlying investment
vehicle or amortized cost.
Repurchase agreements are valued at cost plus accrued interest. The Fund
employs pricing services to provide certain securities prices for the Fund.
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, including valuations furnished by the
pricing services retained by the Fund, which may use a matrix system for
valuations. The procedures of a pricing service and its valuations are reviewed
by the officers of the Fund under the general supervision of the Company's Board
of Directors. Such valuations and procedures will be reviewed periodically by
the Board of Directors of the Company.
Generally, trading in foreign securities, as well as U.S. government
securities, money market instruments and certain fixed income securities, is
substantially completed each day at various times prior to the close of business
on the New York Stock Exchange ("NYSE"). The values of such securities used in
computing the net asset value of the Fund's shares are determined as of such
times. Foreign currency exchange rates will generally be determined as of the
close of business on the NYSE. Occasionally, events affecting the values of such
securities and such exchange rates may occur between the times at which they are
determined and the close of business on the NYSE that may not be reflected in
the computation of the Fund's net asset
19
- --------------------------------------------------------------------------------
value. If events (for example, a company announcement, market volatility or a
natural disaster) occur during such periods that are expected to materially
affect the value of such securities, those securities will be valued at their
fair value as determined in good faith by the Company's Board of Directors or by
BlackRock Advisors, LLC (the "Manager"), an indirect, wholly owned subsidiary of
BlackRock, Inc., using a pricing service and/or procedures approved by the
Company's Board of Directors.
(b) Derivative financial instruments--The Fund may engage in various portfolio
investment strategies both to increase the return of the Fund and to hedge, or
protect, its exposure to interest rate movements and movements in the securities
markets. Losses may arise due to changes in the value of the contract due to an
unfavorable change in the price of the underlying security or index, or if the
counterparty does not perform under the contract.
- - Options--The Fund may purchase and write covered 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 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.
(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 U.S. dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates on investments.
The Fund invests in foreign securities, which may involve a number of risk
factors and special considerations not present with investments in securities of
U.S. corporations.
(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).
Realized gains and losses on security transactions are determined on the
identified cost basis. Dividend income is recorded on the ex-dividend dates.
Interest income is recognized on the accrual basis.
(f) Dividends and distributions--Dividends and distributions paid by the Fund
are recorded on the ex-dividend dates.
(g) Expenses--Certain expenses have been allocated to the individual funds in
the Company on a pro rata basis based upon the respective aggregate net asset
value of each fund included in the Company.
(h) Securities lending--The Fund may lend securities to financial institutions
that provide cash or securities issued or guaranteed by the U.S. government as
collateral, which will be maintained at all times in an amount equal to at least
100% of the current market value of the loaned securities. The market value of
the loaned securities is determined at the close of business of the Fund and any
additional required collateral is delivered to the Fund on the next business
day. Where the Fund receives securities as collateral for the loaned securities,
it receives a fee from the borrower. The Fund typically receives the income on
the loaned securities, but does not receive the income on the collateral. Where
the Fund receives cash collateral, it may invest such collateral and retain the
amount earned on such investment, net of any amount rebated to the borrower.
Loans of securities are terminable at any time and the borrower, after notice,
is required to return borrowed securities within five business days. The Fund
may pay reasonable finder's, lending agent, administrative and custodial fees in
connection with its loans. In the event that the borrower defaults on its
obligation to return borrowed securities because of insolvency or for any other
reason, the Fund could experience delays and costs in gaining access to the
collateral. The Fund also could suffer a loss where the value of the collateral
falls below the market value of the borrowed securities, in the event of
borrower default or in the event of
20
- --------------------------------------------------------------------------------
losses on investments made with cash collateral.
(i) Bank overdraft--The Fund recorded a bank overdraft which resulted from
failed trades that settled the next day.
(j) Recent accounting pronouncements--Effective June 29, 2007, the Fund
implemented Financial Accounting Standards Board ("FASB") Interpretation No. 48,
"Accounting for Uncertainty in Income Taxes--an interpretation of FASB Statement
No. 109" ("FIN 48"). FIN 48 prescribes the minimum recognition threshold a tax
position must meet in connection with accounting for uncertainties in income tax
positions taken or expected to be taken by an entity, including investment
companies, before being measured and recognized in the financial statements.
Management has evaluated the application of FIN 48 to the Fund, and has
determined that the adoption of FIN 48 does not have a material impact on the
Fund's financial statements. The Fund files U.S. and various state tax returns.
No income tax returns are currently under examination. The statute of
limitations on the Fund's tax returns remains open for the years ended December
31, 2003 through December 31, 2006.
In September 2006, Statement of Financial Accounting Standards No. 157, "Fair
Value Measurements" ("FAS 157"), was issued and is effective for fiscal years
beginning after November 15, 2007. FAS 157 defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. At this time, management is evaluating the implications of FAS 157
and its impact on the Fund's financial statements, if any, has not been
determined.
In addition, in February 2007, Statement of Financial Accounting Standards No.
159, "The Fair Value Option for Financial Assets and Financial Liabilities"
("FAS 159"), was issued and is effective for fiscal years beginning after
November 15, 2007. Early adoption is permitted as of the beginning of a fiscal
year that begins on or before November 15, 2007, provided the entity also elects
to apply the provisions of FAS 157. FAS 159 permits entities to choose to
measure many financial instruments and certain other items at fair value that
are not currently required to be measured at fair value. FAS 159 also
establishes presentation and disclosure requirements designed to facilitate
comparisons between entities that choose different measurement attributes for
similar types of assets and liabilities. At this time, management is evaluating
the implications of FAS 159 and its impact on the Fund's financial statements,
if any, has not been determined.
2. INVESTMENT ADVISORY AGREEMENT AND TRANSACTIONS WITH AFFILIATES:
The Fund has entered into an Investment Advisory Agreement with the Manager. The
Fund has also entered into separate Distribution Agreements and Distribution
Plans with FAM Distributors, Inc. ("FAMD") and BlackRock Distributors, Inc. and
its affiliates ("BDI") (collectively, the "Distributor"). FAMD is a wholly owned
subsidiary of Merrill Lynch Group, Inc. and BDI is an affiliate of BlackRock,
Inc. Merrill Lynch and The PNC Financial Services Group, Inc. ("PNC") are the
principal owners of BlackRock, Inc.
The Manager 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 Fund. 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. In addition, the Manager has entered into a sub-advisory
agreement with BlackRock Investment Management, LLC ("BIM"), an affiliate of the
Manager, under which the Manager pays BIM for services it provides a monthly fee
at an annual rate that is a percentage of the management fee paid by the Fund to
the Manager.
Pursuant to the Distribution Plans adopted by the Company, in accordance with
Rule 12b-1 under the Investment Company Act of 1940, the Fund pays the
Distributor an ongoing distribution fee each month at the annual rate of .15%
and .25% of the average daily value of the Fund's Class II and Class III net
assets, respectively.
The Company has received an exemptive order from the Securities and Exchange
Commission permitting it to lend portfolio securities to Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S"), a wholly owned subsidiary of Merrill
Lynch, or its affiliates. As of June 30, 2007 the Fund lent securities with a
value of $26,995,099 to MLPF&S or its affiliates. Pursuant to that order, the
Company also has retained BIM as the securities lending agent for a fee based on
a share of the returns on investment of cash collateral. BIM may, on behalf of
the Company and the Fund, invest cash collateral received by the Fund for such
loans, among other things, in a private investment company managed by the
Manager or in registered money market funds advised by the Manager or its
affiliates. For the six months ended June 30, 2007, BIM received $34,615 in
securities lending agent fees from the Fund.
For the six months ended June 30, 2007, the Fund reimbursed the Manager $4,448
for certain accounting services.
21
- --------------------------------------------------------------------------------
In addition, MLPF&S received $75,492 in commissions on the execution of
portfolio security transactions for the Fund for the six months ended June 30,
2007.
PFPC Inc., an indirect, wholly owned subsidiary of PNC and an affiliate of the
Manager, is the Fund's transfer agent.
Certain officers and/or directors of the Company are officers and/or directors
of BlackRock, Inc. or its affiliates.
3. INVESTMENTS:
Purchases and sales of investments, excluding short-term securities, for the six
months ended June 30, 2007 were $227,874,780 and $278,396,660, respectively.
4. CAPITAL SHARE TRANSACTIONS:
Net decrease in net assets derived from capital share transactions was
$47,419,520 and $32,677,427 for the six months ended June 30, 2007 and the year
ended December 31, 2006, respectively.
Transactions in capital shares for each class were as follows:
<Table>
<Caption>
- ------------------------------------------------------------------
Class I Shares for Six Months Ended
June 30, 2007 Shares Dollar Amount
- ------------------------------------------------------------------
Shares sold.......................... 138,118 $ 3,349,381
Shares redeemed...................... (1,984,721) (48,591,435)
---------- ------------
Net decrease......................... (1,846,603) $(45,242,054)
========== ============
- ------------------------------------------------------------------
</Table>
<Table>
<Caption>
- -----------------------------------------------------------------
Class I Shares for the Year Ended
December 31, 2006 Shares Dollar Amount
- -----------------------------------------------------------------
Shares sold......................... 509,548 $ 13,346,070
Shares issued to shareholders in
reinvestment of dividends and
distributions...................... 3,240,760 77,673,066
---------- -------------
Total issued........................ 3,750,308 91,019,136
Shares redeemed..................... (4,184,475) (109,681,176)
---------- -------------
Net decrease........................ (434,167) $ (18,662,040)
========== =============
- -----------------------------------------------------------------
</Table>
<Table>
<Caption>
- -----------------------------------------------------------------
Class II Shares for Six Months Ended Dollar
June 30, 2007 Shares Amount
- -----------------------------------------------------------------
Shares sold.............................. 2,372 $ 55,367
Shares redeemed.......................... (92,135) (2,259,574)
------- -----------
Net decrease............................. (89,763) $(2,204,207)
======= ===========
- -----------------------------------------------------------------
</Table>
<Table>
<Caption>
- -----------------------------------------------------------------
Class II Shares for the Year Ended Dollar
December 31, 2006 Shares Amount
- -----------------------------------------------------------------
Shares sold............................. 1,315 $ 35,689
Shares issued to shareholders in
reinvestment of dividends and
distributions.......................... 109,155 2,609,805
-------- -----------
Total issued............................ 110,470 2,645,494
Shares redeemed......................... (131,434) (3,461,480)
-------- -----------
Net decrease............................ (20,964) $ (815,986)
======== ===========
- -----------------------------------------------------------------
</Table>
<Table>
<Caption>
- -----------------------------------------------------------------
Class III Shares for Six Months Ended Dollar
June 30, 2007 Shares Amount
- -----------------------------------------------------------------
Shares sold............................. 519,362 $ 1,088,578
Shares redeemed......................... (499,883) (1,061,837)
-------- -----------
Net increase............................ 19,479 $ 26,741
======== ===========
- -----------------------------------------------------------------
</Table>
<Table>
<Caption>
- ------------------------------------------------------------------
Class III Shares for the Year Ended
December 31, 2006 Shares Dollar Amount
- ------------------------------------------------------------------
Shares sold.......................... 2,628,990 $ 17,072,832
Shares issued to shareholders in
reinvestment of dividends and
distributions....................... 3,367,429 9,974,322
---------- ------------
Total issued......................... 5,996,419 27,047,154
Shares redeemed...................... (6,755,328) (40,246,555)
---------- ------------
Net decrease......................... (758,909) $(13,199,401)
========== ============
- ------------------------------------------------------------------
</Table>
5. SHORT-TERM BORROWINGS:
The Company, on behalf of the Fund, along with certain other funds managed by
the Manager and its affiliates, is party to a $500,000,000 credit agreement with
a group of lenders, which expires November 2007. 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 .06% per annum based on the Fund's pro rata share of the
unused portion of the credit agreement. Amounts borrowed under the credit
agreement bear interest at a rate equal to, at each fund's election, the federal
funds rate plus .35% or a base rate as defined in the credit agreement. The Fund
did not borrow under the credit agreement during the six months ended June 30,
2007.
22
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
Officers and Directors
- --------------------------------------------------------------------------------
OFFICERS AND DIRECTORS
Robert C. Doll, Jr.
Fund President and Director
James H. Bodurtha
Director
Kenneth A. Froot
Director
Joe Grills
Director
Herbert I. London
Director
Roberta Cooper Ramo
Director
Robert S. Salomon, Jr.
Director
Donald C. Burke
Vice President and
Treasurer
Karen Clark
Fund Chief Compliance Officer
Alice A. Pellegrino
Secretary
CUSTODIAN
For all Funds except BlackRock Global Allocation
V.I. Fund, BlackRock International Value V.I. Fund
and BlackRock Large Cap Growth V.I. Fund:
The Bank of New York
100 Church Street
New York, NY 10286
For BlackRock Global Allocation V.I. Fund,
BlackRock International Value V.I. Fund and
BlackRock Large Cap Growth V.I. Fund:
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109-3661
TRANSFER AGENT
PFPC Inc.
Wilmington, DE 19809
PRINCIPAL OFFICE OF THE FUNDS
P.O. Box 9011
Princeton, NJ 08543-9011
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
Availability of Quarterly Schedule of Investments
- --------------------------------------------------------------------------------
Each Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The Funds' Forms N-Q are available on the SEC's Web site at
http://www.sec.gov. The Funds' Forms N-Q may also be reviewed and copied at the
SEC's Public Reference Room in Washington, DC. Information on the operation of
the Public Reference Room may be obtained by calling 1-800-SEC-0330.
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Privacy Principles
- --------------------------------------------------------------------------------
BlackRock is committed to maintaining the privacy of its current and former fund
investors and individual clients (collectively, "Clients") and to safeguarding
their nonpublic personal information. The following information is provided to
help you understand what personal information BlackRock collects, how we protect
that information and why in certain cases we share such information with select
parties.
If you are located in a jurisdiction where specific laws, rules or regulations
require BlackRock to provide you with additional or different privacy-related
rights beyond what is set forth below, then BlackRock will comply with those
specific laws, rules or regulations.
BlackRock obtains or verifies personal nonpublic information from and about you
from different sources, including the following: (i) information we receive from
you or, if applicable, your financial intermediary, on applications, forms or
other documents; (ii) information about your transactions with us, our
affiliates, or others; (iii) information we receive from a consumer reporting
agency; and (iv) from visits to our Web sites.
BlackRock does not sell or disclose to nonaffiliated third parties any nonpublic
personal information about its Clients, except as permitted by law, as necessary
to respond to regulatory requests, or as is necessary to service Client
accounts. These nonaffiliated third parties are required to protect the
confidentiality and security of this information and to use it only for its
intended purpose.
We may share information with our affiliates to service your account or to
provide you with information about other BlackRock products or services that may
be of interest to you. In addition, BlackRock restricts access to nonpublic
personal information about its Clients to those BlackRock employees with a
legitimate business need for the information. BlackRock maintains physical,
electronic and procedural safeguards that are designed to protect the nonpublic
personal information of its Clients, including procedures relating to the proper
storage and disposal of such information.
This report is only for distribution to shareholders of the Funds of BlackRock
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. An investment
in the BlackRock Money Market V.I. Fund is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. Although
the money market fund seeks to preserve the value of your investment at $1.00
per share, it is possible to lose money by investing in money market funds.
Statements and other information herein are as dated and are subject to change.
Investment in foreign securities involves special risks including fluctuating
foreign exchange rates, foreign government regulations, differing degrees of
liquidity and the possibility of substantial volatility due to adverse
political, economic or other developments.
A description of the policies and procedures that each Fund uses to determine
how to vote proxies relating to portfolio securities is available (1) without
charge, upon request, by calling toll-free 1-800-441-7762; (2) on
www.blackrock.com; and (3) on the Securities and Exchange Commission's Web site
at http://www.sec.gov. Information about how each Fund voted proxies relating to
securities held in each Fund's portfolio during the most recent 12-month period
ended June 30 is available (1) at www.blackrock.com and (2) on the Securities
and Exchange Commission's Web site at http://www.sec.gov.
#16897-6/07
- --------------------------------------------------------------------------------
Item 2 -- Code of Ethics -- Not Applicable to this semi-annual report
Item 3 -- Audit Committee Financial Expert -- Not Applicable to this semi-annual
report
Item 4 -- Principal Accountant Fees and Services -- Not Applicable to this
semi-annual report
Item 5 -- Audit Committee of Listed Registrants -- Not Applicable
Item 6 -- Schedule of Investments -- Attached hereto for BlackRock S&P 500 Index
V.I. Fund
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
Blackrock S&P 500 Index V.I. Fund
Schedule of Investments as of June 30, 2007 (Unaudited)
- --------------------------------------------------------------------------------
SHARES
INDUSTRY HELD COMMON STOCKS VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
AEROSPACE & DEFENSE - 2.6% 19,228 Boeing Co. ...................................... $ 1,848,964
9,228 General Dynamics Corp. .......................... 721,814
3,063 Goodrich Corp. .................................. 182,432
19,063 Honeywell International, Inc. ................... 1,072,866
2,629 L-3 Communications Holdings, Inc. ............... 256,038
8,133 Lockheed Martin Corp. ........................... 765,559
7,840 Northrop Grumman Corp. .......................... 610,501
3,500 Precision Castparts Corp. ....................... 424,760
10,446 Raytheon Co. .................................... 562,935
4,283 Rockwell Collins, Inc. .......................... 302,551
23,764 United Technologies Corp. ....................... 1,685,581
------------
8,434,001
- ------------------------------------------------------------------------------------------------------------------------------------
AIR FREIGHT & LOGISTICS - 0.9% 4,100 CH Robinson Worldwide, Inc. ..................... 215,332
7,655 FedEx Corp. ..................................... 849,475
25,300 United Parcel Service, Inc. Class B (d) ......... 1,846,900
------------
2,911,707
- ------------------------------------------------------------------------------------------------------------------------------------
AIRLINES - 0.1% 16,475 Southwest Airlines Co. .......................... 245,642
- ------------------------------------------------------------------------------------------------------------------------------------
AUTO COMPONENTS - 0.2% 5,334 The Goodyear Tire & Rubber Co. (a) .............. 185,410
4,446 Johnson Controls, Inc. .......................... 514,713
------------
700,123
- ------------------------------------------------------------------------------------------------------------------------------------
AUTOMOBILES - 0.4% 46,971 Ford Motor Co. (d) .............................. 442,467
13,983 General Motors Corp. ............................ 528,557
5,652 Harley-Davidson, Inc. ........................... 336,916
------------
1,307,940
- ------------------------------------------------------------------------------------------------------------------------------------
BEVERAGES - 2.1% 18,831 Anheuser-Busch Cos., Inc. ....................... 982,225
2,118 Brown-Forman Corp. Class B ...................... 154,783
48,696 The Coca-Cola Co. ............................... 2,547,288
7,337 Coca-Cola Enterprises, Inc. ..................... 176,088
4,900 Constellation Brands, Inc. Class A (a) .......... 118,972
1,341 Molson Coors Brewing Co. Class B ................ 123,989
3,804 Pepsi Bottling Group, Inc. ...................... 128,119
38,939 PepsiCo, Inc. ................................... 2,525,194
------------
6,756,658
- ------------------------------------------------------------------------------------------------------------------------------------
BIOTECHNOLOGY - 1.1% 27,723 Amgen, Inc. (a) ................................. 1,532,805
7,226 Biogen Idec, Inc. (a) ........................... 386,591
8,900 Celgene Corp. (a) ............................... 510,237
6,700 Genzyme Corp. (a) ............................... 431,480
22,600 Gilead Sciences, Inc. (a) ....................... 876,202
------------
3,737,315
- ------------------------------------------------------------------------------------------------------------------------------------
BUILDING PRODUCTS - 0.2% 3,600 American Standard Cos., Inc. .................... 212,328
9,751 Masco Corp. ..................................... 277,611
------------
489,939
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS - 3.6% 5,195 Ameriprise Financial, Inc. ...................... 330,246
17,232 The Bank of New York Co., Inc. (a) .............. 714,094
3,053 The Bear Stearns Cos., Inc. ..................... 427,420
23,965 The Charles Schwab Corp. ........................ 491,762
9,300 E*Trade Financial Corp. (a) ..................... 205,437
2,700 Federated Investors, Inc. Class B ............... 103,491
3,622 Franklin Resources, Inc. ........................ 479,806
9,800 The Goldman Sachs Group, Inc. ................... 2,124,150
1
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
Blackrock S&P 500 Index V.I. Fund
Schedule of Investments as of June 30, 2007 (Unaudited)
- --------------------------------------------------------------------------------
SHARES
INDUSTRY HELD COMMON STOCKS VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
5,411 Janus Capital Group, Inc. ....................... $ 150,642
2,800 Legg Mason, Inc. ................................ 275,464
13,100 Lehman Brothers Holdings, Inc. .................. 976,212
10,711 Mellon Financial Corp. .......................... 471,284
20,779 Merrill Lynch & Co., Inc. (b) ................... 1,736,709
25,163 Morgan Stanley .................................. 2,110,672
4,001 Northern Trust Corp. ............................ 257,024
8,893 State Street Corp. .............................. 608,281
6,386 T. Rowe Price Group, Inc. ....................... 331,370
------------
11,794,064
- ------------------------------------------------------------------------------------------------------------------------------------
CHEMICALS - 1.5% 4,789 Air Products & Chemicals, Inc. .................. 384,892
1,291 Ashland, Inc. ................................... 82,559
22,136 The Dow Chemical Co. ............................ 978,854
21,396 E.I. du Pont de Nemours & Co. ................... 1,087,773
1,558 Eastman Chemical Co. ............................ 100,226
4,576 Ecolab, Inc. .................................... 195,395
2,776 Hercules, Inc. (a) .............................. 54,548
2,399 International Flavors & Fragrances, Inc. ........ 125,084
12,634 Monsanto Co. .................................... 853,300
3,443 PPG Industries, Inc. ............................ 262,047
7,654 Praxair, Inc. ................................... 551,011
3,788 Rohm & Haas Co. ................................. 207,128
3,334 Sigma-Aldrich Corp. ............................. 142,262
------------
5,025,079
- ------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 3.7% 12,596 BB&T Corp. ...................................... 512,405
3,126 Comerica, Inc. .................................. 185,903
4,000 Commerce Bancorp, Inc. .......................... 147,960
3,353 Compass Bancshares, Inc. ........................ 231,290
14,019 Fifth Third Bancorp ............................. 557,536
2,000 First Horizon National Corp. .................... 78,000
9,405 Huntington Bancshares, Inc. ..................... 213,870
9,703 KeyCorp ......................................... 333,104
1,900 M&T Bank Corp. .................................. 203,110
5,500 Marshall & Ilsley Corp. ......................... 261,965
12,625 National City Corp. ............................. 420,665
8,264 The PNC Financial Services Group, Inc. (b) ...... 591,537
17,693 Regions Financial Corp. ......................... 585,638
8,896 SunTrust Banks, Inc. ............................ 762,743
7,810 Synovus Financial Corp. ......................... 239,767
42,604 U.S. Bancorp .................................... 1,403,802
46,384 Wachovia Corp. .................................. 2,377,180
79,906 Wells Fargo & Co. ............................... 2,810,294
2,224 Zions Bancorp. .................................. 171,048
------------
12,087,817
- ------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES - 0.6% 6,394 Allied Waste Industries, Inc. (a) ............... 86,063
2,567 Avery Dennison Corp. ............................ 170,654
3,636 Cintas Corp. .................................... 143,367
3,479 Equifax, Inc. ................................... 154,537
2,671 Monster Worldwide, Inc. (a) ..................... 109,778
5,515 Pitney Bowes, Inc. .............................. 258,212
2
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
Blackrock S&P 500 Index V.I. Fund
Schedule of Investments as of June 30, 2007 (Unaudited)
- --------------------------------------------------------------------------------
SHARES
INDUSTRY HELD COMMON STOCKS VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
5,544 RR Donnelley & Sons Co. ......................... $241,219
4,186 Robert Half International, Inc. ................. 152,789
12,710 Waste Management, Inc. .......................... 496,326
------------
1,812,945
- ------------------------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 2.6% 11,013 Avaya, Inc. (a) ................................. 185,459
2,514 Ciena Corp. (a) ................................. 90,831
145,215 Cisco Systems, Inc. (a) ......................... 4,044,238
36,858 Corning, Inc. (a) ............................... 941,722
3,834 JDS Uniphase Corp. (a) .......................... 51,491
13,700 Juniper Networks, Inc. (a) ...................... 344,829
55,036 Motorola, Inc. .................................. 974,137
39,868 QUALCOMM, Inc. .................................. 1,729,873
8,533 Tellabs, Inc. (a) ............................... 91,815
------------
8,454,395
- ------------------------------------------------------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS - 3.9% 20,690 Apple Computer, Inc. (a) ........................ 2,525,008
54,376 Dell, Inc. (a) .................................. 1,552,435
51,204 EMC Corp. (a) ................................... 926,792
62,643 Hewlett-Packard Co. ............................. 2,795,131
32,634 International Business Machines Corp. ........... 3,434,729
2,507 Lexmark International, Inc. Class A (a) ......... 123,620
3,840 NCR Corp. (a) ................................... 201,754
9,465 Network Appliance, Inc. (a) ..................... 276,378
2,686 QLogic Corp. (a) ................................ 44,722
5,800 SanDisk Corp. (a) ............................... 283,852
89,012 Sun Microsystems, Inc. (a) ...................... 468,203
------------
12,632,624
- ------------------------------------------------------------------------------------------------------------------------------------
CONSTRUCTION & ENGINEERING - 0.1% 1,874 Fluor Corp. ..................................... 208,707
- ------------------------------------------------------------------------------------------------------------------------------------
CONSTRUCTION MATERIALS - 0.1% 2,450 Vulcan Materials Co. ............................ 280,623
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER FINANCE - 0.9% 28,378 American Express Co. ............................ 1,736,166
9,532 Capital One Financial Corp. ..................... 747,690
9,423 SLM Corp. ....................................... 542,576
------------
3,026,432
- ------------------------------------------------------------------------------------------------------------------------------------
CONTAINERS & PACKAGING - 0.2% 2,836 Ball Corp. ...................................... 150,790
2,256 Bemis Co. ....................................... 74,854
3,767 Pactiv Corp. (a) ................................ 120,130
3,920 Sealed Air Corp. ................................ 121,598
2,908 Temple-Inland, Inc. ............................. 178,929
------------
646,301
- -----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTORS - 0.1% 4,338 Genuine Parts Co. ............................... 215,165
- ------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED CONSUMER SERVICES - 0.1% 3,800 Apollo Group, Inc. Class A (a) .................. 222,034
6,462 H&R Block, Inc. ................................. 151,017
------------
373,051
- ------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 5.0% 106,069 Bank of America Corp. ........................... 5,185,713
4,300 CIT Group, Inc. ................................. 235,769
899 Chicago Mercantile Exchange Holdings, Inc. ...... 480,390
118,251 Citigroup, Inc. ................................. 6,065,094
81,668 JPMorgan Chase & Co. (d) ........................ 3,956,815
5,604 Moody's Corp. ................................... 348,569
------------
16,272,350
- ------------------------------------------------------------------------------------------------------------------------------------
3
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
Blackrock S&P 500 Index V.I. Fund
Schedule of Investments as of June 30, 2007 (Unaudited)
- --------------------------------------------------------------------------------
SHARES
INDUSTRY HELD COMMON STOCKS VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 3.1% 147,402 AT&T Inc. (d) ................................... $ 6,117,183
3,202 CenturyTel, Inc. ................................ 157,058
8,803 Citizens Communications Co. ..................... 134,422
3,084 Embarq Corp. .................................... 195,433
38,996 Qwest Communications International Inc. (a) . . . 378,261
69,418 Verizon Communications, Inc. .................... 2,857,939
9,802 Windstream Corp. ................................ 144,678
------------
9,984,974
- ------------------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 1.8% 3,522 Allegheny Energy, Inc. (a) ...................... 182,228
8,818 American Electric Power Co., Inc. ............... 397,163
28,531 Duke Energy Corp. ............................... 522,117
7,696 Edison International ............................ 431,900
5,072 Entergy Corp. ................................... 544,479
16,578 Exelon Corp. .................................... 1,203,563
9,914 FPL Group, Inc. ................................. 562,520
7,788 FirstEnergy Corp. ............................... 504,117
9,258 PPL Corp. ....................................... 433,182
2,324 Pinnacle West Capital Corp. ..................... 92,611
6,229 Progress Energy, Inc. ........................... 283,980
19,018 The Southern Co. ................................ 652,127
------------
5,809,987
- ------------------------------------------------------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT - 0.4% 4,430 Cooper Industries Ltd. Class A .................. 252,909
18,250 Emerson Electric Co. ............................ 854,100
4,183 Rockwell Automation, Inc. ....................... 290,468
------------
1,397,477
- ------------------------------------------------------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.2% 8,962 Agilent Technologies, Inc. (a) .................. 344,499
4,015 Jabil Circuit, Inc. ............................. 88,611
3,763 Molex, Inc. ..................................... 112,928
24,335 Solectron Corp. (a) ............................. 89,553
2,231 Tektronix, Inc. ................................. 75,274
------------
710,865
- ------------------------------------------------------------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES - 2.1% 7,800 BJ Services Co. ................................. 221,832
8,008 Baker Hughes, Inc. .............................. 673,713
3,500 ENSCO International, Inc. ....................... 213,535
21,004 Halliburton Co. ................................. 724,638
7,592 Nabors Industries Ltd. (a) ...................... 253,421
4,201 National Oilwell Varco, Inc. (a) ................ 437,912
3,487 Noble Corp. ..................................... 340,052
3,335 Rowan Cos., Inc. ................................ 136,668
28,190 Schlumberger Ltd. ............................... 2,394,459
4,300 Smith International, Inc. ....................... 252,152
7,111 Transocean, Inc. (a) ............................ 753,624
7,600 Weatherford International Ltd. (a) .............. 419,824
------------
6,821,830
- ------------------------------------------------------------------------------------------------------------------------------------
FOOD & STAPLES RETAILING - 2.3% 37,366 CVS Caremark Corp. .............................. 1,361,991
10,505 Costco Wholesale Corp. .......................... 614,753
17,826 The Kroger Co. .................................. 501,445
4,638 SUPERVALU INC. .................................. 214,832
13,871 SYSCO Corp. ..................................... 457,604
10,447 Safeway, Inc. ................................... 355,511
4
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
Blackrock S&P 500 Index V.I. Fund
Schedule of Investments as of June 30, 2007 (Unaudited)
- --------------------------------------------------------------------------------
SHARES
INDUSTRY HELD COMMON STOCKS VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
57,916 Wal-Mart Stores, Inc. ........................... $ 2,786,339
23,244 Walgreen Co. .................................... 1,012,044
3,900 Whole Foods Market, Inc. ........................ 149,370
------------
7,453,889
- ------------------------------------------------------------------------------------------------------------------------------------
FOOD PRODUCTS - 1.4% 16,282 Archer-Daniels-Midland Co. ...................... 538,771
4,893 Campbell Soup Co. ............................... 189,897
10,832 ConAgra Foods, Inc. ............................. 290,948
3,100 Dean Foods Co. .................................. 98,797
8,908 General Mills, Inc. ............................. 520,405
7,049 H.J. Heinz Co. .................................. 334,616
3,548 The Hershey Co. ................................. 179,600
5,289 Kellogg Co. ..................................... 273,917
39,371 Kraft Foods, Inc. ............................... 1,387,828
3,500 McCormick & Co., Inc. ........................... 133,630
16,017 Sara Lee Corp. .................................. 278,696
6,800 Tyson Foods, Inc. Class A ....................... 156,672
5,470 Wm. Wrigley Jr. Co. ............................. 302,546
------------
4,686,323
- ------------------------------------------------------------------------------------------------------------------------------------
GAS UTILITIES - 0.2% 429 Nicor, Inc. ..................................... 18,413
3,600 Questar Corp. ................................... 190,260
14,265 Spectra Energy Corp. ............................ 370,319
------------
578,992
- ------------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES - 1.6% 973 Bausch & Lomb, Inc. ............................. 67,565
15,058 Baxter International, Inc. ...................... 848,368
5,688 Becton Dickinson & Co. .......................... 423,756
5,125 Biomet, Inc. .................................... 234,315
29,225 Boston Scientific Corp. (a) ..................... 448,311
2,054 CR Bard, Inc. ................................... 169,722
3,852 Hospira, Inc. (a) ............................... 150,382
28,162 Medtronic, Inc. ................................. 1,460,481
7,688 St. Jude Medical, Inc. (a) ...................... 318,975
6,696 Stryker Corp. ................................... 422,451
3,100 Varian Medical Systems, Inc. (a) ................ 131,781
6,016 Zimmer Holdings, Inc. (a) ....................... 510,698
------------
5,186,805
- ------------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES - 2.2% 12,072 Aetna, Inc. (c) ................................. 596,357
4,070 AmerisourceBergen Corp. ......................... 201,343
9,137 Cardinal Health, Inc. ........................... 645,438
7,689 Cigna Corp. ..................................... 401,520
3,250 Coventry Health Care, Inc. (a) .................. 187,363
7,000 Express Scripts, Inc. (a) ....................... 350,070
3,657 Humana, Inc. (a) ................................ 222,748
2,500 Laboratory Corp. of America Holdings (a) ........ 195,650
1,449 Manor Care, Inc. ................................ 94,605
6,607 McKesson Corp. .................................. 394,041
6,883 Medco Health Solutions, Inc. (a) ................ 536,805
2,600 Patterson Cos., Inc. (a) ........................ 96,902
4,000 Quest Diagnostics, Inc. ......................... 206,600
11,812 Tenet Healthcare Corp. (a) ...................... 76,896
5
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
Blackrock S&P 500 Index V.I. Fund
Schedule of Investments as of June 30, 2007 (Unaudited)
- --------------------------------------------------------------------------------
SHARES
INDUSTRY HELD COMMON STOCKS VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
32,058 UnitedHealth Group, Inc. ........................ $ 1,639,446
15,104 WellPoint, Inc. (a) ............................. 1,205,752
------------
7,051,536
- ------------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE TECHNOLOGY - 0.1% 5,214 IMS Health, Inc. ................................ 167,526
- ------------------------------------------------------------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE - 1.5% 9,873 Carnival Corp. .................................. 481,506
2,661 Darden Restaurants, Inc. ........................ 117,057
4,455 Harrah's Entertainment, Inc. .................... 379,833
8,563 Hilton Hotels Corp. ............................. 286,604
8,508 International Game Technology ................... 337,768
7,066 Marriott International, Inc. Class A ............ 305,534
27,872 McDonald's Corp. ................................ 1,414,783
18,644 Starbucks Corp. (a) ............................. 489,219
5,509 Starwood Hotels & Resorts Worldwide, Inc. ....... 369,489
2,219 Wendy's International, Inc. ..................... 81,548
4,265 Wyndham Worldwide Corp. (a) ..................... 154,649
13,084 Yum! Brands, Inc. ............................... 428,108
------------
4,846,098
- ------------------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES - 0.5% 1,485 Black & Decker Corp. ............................ 131,140
2,572 Centex Corp. .................................... 103,137
6,400 DR Horton, Inc. ................................. 127,552
3,299 Fortune Brands, Inc. ............................ 271,739
1,600 Harman International Industries, Inc. ........... 186,880
1,478 KB Home, Inc. ................................... 58,189
4,755 Leggett & Platt, Inc. ........................... 104,848
2,750 Lennar Corp. Class A ............................ 100,540
6,985 Newell Rubbermaid, Inc. ......................... 205,569
5,084 Pulte Homes, Inc. ............................... 114,136
1,441 Snap-On, Inc. ................................... 72,785
1,841 The Stanley Works ............................... 111,749
1,813 Whirlpool Corp. ................................. 201,606
------------
1,789,870
- -----------------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS - 1.9% 3,068 Clorox Co. ...................................... 190,523
12,785 Colgate-Palmolive Co. ........................... 829,107
10,421 Kimberly-Clark Corp. ............................ 697,061
75,284 The Procter & Gamble Co. ........................ 4,606,628
------------
6,323,319
- ------------------------------------------------------------------------------------------------------------------------------------
IT SERVICES - 1.1% 2,400 Affiliated Computer Services, Inc. Class A (a) .. 136,128
13,755 Automatic Data Processing, Inc. ................. 666,705
3,700 Cognizant Technology Solutions Corp. (a) ........ 277,833
4,608 Computer Sciences Corp. (a) ..................... 272,563
3,934 Convergys Corp. (a) ............................. 95,360
12,238 Electronic Data Systems Corp. ................... 339,360
3,700 Fidelity National Information Services, Inc. .... 200,836
17,308 First Data Corp. ................................ 565,452
4,055 Fiserv, Inc. (a) ................................ 230,324
8,960 Paychex, Inc. ................................... 350,515
8,569 Unisys Corp. (a) ................................ 78,321
17,408 The Western Union Co. ........................... 362,609
------------
3,576,006
- ------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT POWER PRODUCERS & ENERGY
TRADERS - 0.5% 15,522 The AES Corp. (a) ............................... 339,621
4,652 Constellation Energy Group, Inc. ................ 405,515
6
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
Blackrock S&P 500 Index V.I. Fund
Schedule of Investments as of June 30, 2007 (Unaudited)
- --------------------------------------------------------------------------------
SHARES
INDUSTRY HELD COMMON STOCKS VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
10,734 Dynegy, Inc. Class A (a) ........................ $ 101,329
10,516 TXU Corp. ....................................... 707,727
------------
1,554,192
- ------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES - 3.9% 17,246 3M Co. .......................................... 1,496,780
246,065 General Electric Co. (d) ........................ 9,419,368
2,780 Textron, Inc. ................................... 306,106
48,363 Tyco International Ltd. (a) ..................... 1,634,186
------------
12,856,440
- ------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 4.6% 7,200 ACE Ltd. ........................................ 450,144
2,732 AMBAC Financial Group, Inc. ..................... 238,203
7,575 AON Corp. (d) ................................... 322,771
11,542 Aflac, Inc. ..................................... 593,259
13,945 The Allstate Corp. .............................. 857,757
62,007 American International Group, Inc. (c) .......... 4,342,350
2,300 Assurant, Inc. .................................. 135,516
8,996 Chubb Corp. ..................................... 487,043
4,266 Cincinnati Financial Corp. ...................... 185,144
9,300 Genworth Financial, Inc. Class A ................ 319,920
7,277 Hartford Financial Services Group, Inc. ......... 716,857
6,852 Lincoln National Corp. .......................... 486,149
9,828 Loews Corp. ..................................... 501,031
3,588 MBIA, Inc. ...................................... 223,245
12,460 Marsh & McLennan Cos., Inc. ..................... 384,765
17,253 MetLife, Inc. ................................... 1,112,473
6,500 Principal Financial Group, Inc. ................. 378,885
18,200 The Progressive Corp. ........................... 435,526
11,000 Prudential Financial, Inc. ...................... 1,069,530
3,044 Safeco Corp. .................................... 189,519
2,697 Torchmark Corp. ................................. 180,699
15,237 The Travelers Cos., Inc. ........................ 815,180
7,389 UnumProvident Corp. ............................. 192,927
4,855 XL Capital Ltd. Class A ......................... 409,228
------------
15,028,121
- ------------------------------------------------------------------------------------------------------------------------------------
INTERNET & CATALOG RETAIL - 0.2% 7,200 Amazon.com, Inc. (a) ............................ 492,552
4,900 IAC/InterActiveCorp (a) ......................... 169,589
------------
662,141
- ------------------------------------------------------------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES - 1.4% 26,500 eBay, Inc. (a) .................................. 852,770
5,230 Google, Inc. Class A (a) ........................ 2,737,277
6,200 VeriSign, Inc. (a) .............................. 196,726
28,060 Yahoo! Inc. (a) ................................. 761,268
------------
4,548,041
- ------------------------------------------------------------------------------------------------------------------------------------
LEISURE EQUIPMENT & PRODUCTS - 0.2% 1,576 Brunswick Corp. ................................. 51,425
7,711 Eastman Kodak Co. ............................... 214,597
4,345 Hasbro, Inc. .................................... 136,476
8,480 Mattel, Inc. .................................... 214,459
------------
616,957
- ------------------------------------------------------------------------------------------------------------------------------------
LIFE SCIENCES TOOLS & SERVICES - 0.3% 4,652 Applera Corp. - Applied Biosystems Group ........ 142,072
1,431 Millipore Corp. (a) ............................. 107,454
3,209 PerkinElmer, Inc. ............................... 83,627
7
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
Blackrock S&P 500 Index V.I. Fund
Schedule of Investments as of June 30, 2007 (Unaudited)
- --------------------------------------------------------------------------------
SHARES
INDUSTRY HELD COMMON STOCKS VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
10,036 Thermo Fisher Scientific, Inc. (a) .............. $ 519,062
2,700 Waters Corp. (a) ................................ 160,272
------------
1,012,487
- ------------------------------------------------------------------------------------------------------------------------------------
MACHINERY - 1.7% 14,984 Caterpillar, Inc. ............................... 1,173,247
2,690 Cummins, Inc. ................................... 272,255
5,266 Danaher Corp. ................................... 397,583
5,588 Deere & Co. ..................................... 674,695
5,034 Dover Corp. ..................................... 257,489
3,778 Eaton Corp. ..................................... 351,354
3,856 ITT Corp. ....................................... 263,288
9,232 Illinois Tool Works, Inc. ....................... 500,282
7,758 Ingersoll-Rand Co. Class A ...................... 425,294
5,969 PACCAR, Inc. .................................... 519,542
3,110 Pall Corp. ...................................... 143,029
3,035 Parker Hannifin Corp. ........................... 297,157
2,300 Terex Corp. (a) ................................. 186,990
------------
5,462,205
- ------------------------------------------------------------------------------------------------------------------------------------
MEDIA - 3.2% 17,203 CBS Corp. Class B ............................... 573,204
190 Citadel Broadcasting Corp. ...................... 1,226
11,045 Clear Channel Communications, Inc. .............. 417,722
65,686 Comcast Corp. Class A (a) ....................... 1,847,090
8,966 Comcast Corp. Special Class A (a) ............... 250,689
17,200 The DIRECTV Group, Inc. (a) ..................... 397,492
1,485 Dow Jones & Co., Inc. ........................... 85,313
1,300 EW Scripps Co. Class A .......................... 59,397
4,947 Gannett Co., Inc. ............................... 271,838
9,392 Interpublic Group of Cos., Inc. (a) ............. 107,069
8,304 The McGraw-Hill Cos., Inc. ...................... 565,336
1,432 Meredith Corp. .................................. 88,211
54,300 News Corp. Class A .............................. 1,151,703
2,177 The New York Times Co. Class A .................. 55,296
7,634 Omnicom Group Inc. .............................. 403,991
92,048 Time Warner, Inc. ............................... 1,936,690
2,062 Tribune Co. ..................................... 60,623
15,503 Viacom, Inc. Class B (a) ........................ 645,390
47,782 Walt Disney Co. ................................. 1,631,277
------------
10,549,557
- ------------------------------------------------------------------------------------------------------------------------------------
METALS & MINING - 0.9% 20,224 Alcoa, Inc. (c) ................................. 819,679
2,361 Allegheny Technologies, Inc. .................... 247,622
9,216 Freeport-McMoRan Copper & Gold, Inc. Class B .... 763,269
11,503 Newmont Mining Corp. ............................ 449,307
6,840 Nucor Corp. ..................................... 401,166
2,989 United States Steel Corp. ....................... 325,054
------------
3,006,097
- ------------------------------------------------------------------------------------------------------------------------------------
MULTI-UTILITIES - 1.1% 4,497 Ameren Corp. .................................... 220,398
3,654 CMS Energy Corp. ................................ 62,849
8,483 CenterPoint Energy, Inc. ........................ 147,604
7,258 Consolidated Edison, Inc. ....................... 327,481
4,323 DTE Energy Co. .................................. 208,455
8,761 Dominion Resources, Inc. ........................ 756,162
8
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
Blackrock S&P 500 Index V.I. Fund
Schedule of Investments as of June 30, 2007 (Unaudited)
- --------------------------------------------------------------------------------
SHARES
INDUSTRY HELD COMMON STOCKS VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
1,152 Integrys Energy Group, Inc. ..................... $ 58,441
3,217 KeySpan Corp. ................................... 135,050
6,911 NiSource, Inc. .................................. 143,127
7,681 PG&E Corp. ...................................... 347,949
6,414 Public Service Enterprise Group, Inc. ........... 563,021
6,117 Sempra Energy ................................... 362,310
5,015 TECO Energy, Inc. ............................... 86,158
10,084 Xcel Energy, Inc. ............................... 206,419
------------
3,625,424
- ------------------------------------------------------------------------------------------------------------------------------------
MULTILINE RETAIL - 1.1% 2,845 Big Lots, Inc. (a) .............................. 83,700
2,026 Dillard's, Inc. Class A ......................... 72,794
8,088 Dollar General Corp. ............................ 177,289
3,027 Family Dollar Stores, Inc. ...................... 103,887
5,735 JC Penney Co., Inc. ............................. 415,099
7,325 Kohl's Corp. (a) ................................ 520,295
11,506 Macy's, Inc. .................................... 457,709
5,268 Nordstrom, Inc. ................................. 269,300
2,070 Sears Holdings Corp. (a) ........................ 350,865
20,834 Target Corp. .................................... 1,325,042
------------
3,775,980
- ------------------------------------------------------------------------------------------------------------------------------------
OFFICE ELECTRONICS - 0.1% 22,023 Xerox Corp. (a) ................................. 406,985
- ------------------------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 8.4% 11,736 Anadarko Petroleum Corp. ........................ 610,155
8,366 Apache Corp. .................................... 682,582
10,600 Chesapeake Energy Corp. ......................... 366,760
51,407 Chevron Corp. ................................... 4,330,526
39,124 ConocoPhillips .................................. 3,071,234
4,000 Consol Energy, Inc. ............................. 184,440
10,402 Devon Energy Corp. .............................. 814,373
5,332 EOG Resources, Inc. ............................. 389,556
16,512 El Paso Corp. ................................... 284,502
134,746 Exxon Mobil Corp. ............................... 11,302,494
6,215 Hess Corp. ...................................... 366,436
16,780 Marathon Oil Corp. .............................. 1,006,129
4,000 Murphy Oil Corp. ................................ 237,760
19,758 Occidental Petroleum Corp. ...................... 1,143,593
6,000 Peabody Energy Corp. ............................ 290,280
3,256 Sunoco, Inc. .................................... 259,438
13,400 Valero Energy Corp. ............................. 989,724
13,607 Williams Cos., Inc. ............................. 430,253
9,733 XTO Energy, Inc. ................................ 584,953
------------
27,345,188
- ------------------------------------------------------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS - 0.3% 10,824 International Paper Co. ......................... 422,677
4,942 MeadWestvaco Corp. .............................. 174,551
4,929 Weyerhaeuser Co. ................................ 389,046
986,274
- ------------------------------------------------------------------------------------------------------------------------------------
PERSONAL PRODUCTS - 0.1% 9,794 Avon Products, Inc. ............................. 359,929
3,300 The Estee Lauder Cos., Inc. Class A ............. 150,183
------------
510,112
- ------------------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS - 6.1% 37,420 Abbott Laboratories ............................. 2,003,841
6,854 Allergan, Inc. .................................. 395,065
9
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
Blackrock S&P 500 Index V.I. Fund
Schedule of Investments as of June 30, 2007 (Unaudited)
- --------------------------------------------------------------------------------
SHARES
INDUSTRY HELD COMMON STOCKS VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
2,300 Barr Pharmaceuticals, Inc. (a) .................. $ 115,529
47,963 Bristol-Myers Squibb Co. ........................ 1,513,712
23,248 Eli Lilly & Co. ................................. 1,299,098
8,018 Forest Laboratories, Inc. (a) ................... 366,022
69,253 Johnson & Johnson ............................... 4,267,370
6,116 King Pharmaceuticals, Inc. (a) .................. 125,133
51,879 Merck & Co., Inc. ............................... 2,583,574
5,430 Mylan Laboratories Inc. ......................... 98,772
167,860 Pfizer, Inc. .................................... 4,292,180
35,011 Schering-Plough Corp. ........................... 1,065,735
1,640 Watson Pharmaceuticals, Inc. (a) ................ 53,349
32,651 Wyeth ........................................... 1,872,208
------------
20,051,588
- ------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS (REITS) - 1.2% 1,600 Apartment Investment & Management Co. Class A ... 80,672
4,900 Archstone-Smith Trust ........................... 289,639
2,200 AvalonBay Communities, Inc. ..................... 261,536
3,200 Boston Properties, Inc. ......................... 326,816
2,900 Developers Diversified Realty Corp. ............. 152,859
6,900 Equity Residential .............................. 314,847
5,600 General Growth Properties, Inc. ................. 296,520
12,500 Host Marriott Corp. ............................. 289,000
4,500 Kimco Realty Corp. .............................. 171,315
4,500 Plum Creek Timber Co., Inc. ..................... 187,470
5,900 ProLogis ........................................ 335,710
2,500 Public Storage, Inc. ............................ 192,050
5,700 Simon Property Group, Inc. ...................... 530,328
3,400 Vornado Realty Trust ............................ 373,456
------------
3,802,218
- ------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE MANAGEMENT & DEVELOPMENT - 0.0% 4,100 CB Richard Ellis Group, Inc. (a) ................ 149,650
- ------------------------------------------------------------------------------------------------------------------------------------
ROAD & RAIL - 0.7% 8,066 Burlington Northern Santa Fe Corp. .............. 686,739
10,508 CSX Corp. ....................................... 473,701
9,386 Norfolk Southern Corp. .......................... 493,422
1,584 Ryder System, Inc. .............................. 85,219
6,207 Union Pacific Corp. ............................. 714,736
------------
2,453,817
- ------------------------------------------------------------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 2.6% 13,172 Advanced Micro Devices, Inc. (a)(d) ............. 188,360
7,047 Altera Corp. .................................... 155,950
8,473 Analog Devices, Inc. ............................ 318,924
33,062 Applied Materials, Inc. ......................... 656,942
10,497 Broadcom Corp. Class A (a) ...................... 307,037
138,988 Intel Corp. ..................................... 3,302,355
5,100 KLA-Tencor Corp. ................................ 280,245
19,096 LSI Logic Corp. (a) ............................. 143,411
6,764 Linear Technology Corp. ......................... 244,722
5,200 MEMC Electronic Materials, Inc. (a) ............. 317,824
8,487 Maxim Integrated Products, Inc. ................. 283,551
19,626 Micron Technology, Inc. (a) ..................... 245,914
7,308 National Semiconductor Corp. .................... 206,597
2,142 Novellus Systems, Inc. (a) ...................... 60,769
10
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
Blackrock S&P 500 Index V.I. Fund
Schedule of Investments as of June 30, 2007 (Unaudited)
- --------------------------------------------------------------------------------
SHARES
INDUSTRY HELD COMMON STOCKS VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
8,200 Nvidia Corp. (a) ................................ $ 338,742
4,838 Teradyne, Inc. (a) .............................. 85,052
34,871 Texas Instruments, Inc. ......................... 1,312,196
6,913 Xilinx, Inc. .................................... 185,061
------------
8,633,652
- ------------------------------------------------------------------------------------------------------------------------------------
SOFTWARE - 3.2% 14,260 Adobe Systems, Inc. (a) ......................... 572,539
6,052 AutoDesk, Inc. (a) .............................. 284,928
5,101 BMC Software, Inc. (a) .......................... 154,560
10,746 CA, Inc. ........................................ 277,569
3,729 Citrix Systems, Inc. (a) ........................ 125,555
9,818 Compuware Corp. (a) ............................. 116,441
7,900 Electronic Arts, Inc. (a) ....................... 373,828
7,386 Intuit, Inc. (a) ................................ 222,171
201,286 Microsoft Corp. ................................. 5,931,898
6,682 Novell, Inc. (a) ................................ 52,053
94,685 Oracle Corp. (a) ................................ 1,866,241
22,830 Symantec Corp. (a) .............................. 461,166
------------
10,438,949
- ------------------------------------------------------------------------------------------------------------------------------------
SPECIALTY RETAIL - 1.9% 2,400 Abercrombie & Fitch Co. Class A ................. 175,152
4,383 AutoNation, Inc. (a) ............................ 98,355
1,308 AutoZone, Inc. (a) .............................. 178,699
7,248 Bed Bath & Beyond, Inc. (a) ..................... 260,856
10,118 Best Buy Co., Inc. .............................. 472,207
2,765 Circuit City Stores, Inc. ....................... 41,696
11,603 The Gap, Inc. ................................... 221,617
47,159 Home Depot, Inc. ................................ 1,855,707
8,879 Limited Brands, Inc. ............................ 243,729
35,122 Lowe's Cos., Inc. ............................... 1,077,894
6,740 Office Depot, Inc. (a) .......................... 204,222
1,379 OfficeMax, Inc. ................................. 54,195
3,783 RadioShack Corp. ................................ 125,369
2,866 The Sherwin-Williams Co. ........................ 190,503
18,192 Staples, Inc. ................................... 431,696
10,656 TJX Cos., Inc. .................................. 293,040
2,747 Tiffany & Co. ................................... 145,756
------------
6,070,693
- ------------------------------------------------------------------------------------------------------------------------------------
TEXTILES, APPAREL & LUXURY GOODS - 0.5% 8,600 Coach, Inc. (a) ................................. 407,554
3,100 Jones Apparel Group, Inc. ....................... 87,575
2,708 Liz Claiborne, Inc. ............................. 101,008
9,634 Nike, Inc. Class B .............................. 561,566
1,500 Polo Ralph Lauren Corp. ......................... 147,165
2,308 VF Corp. ........................................ 211,367
------------
1,516,235
- ------------------------------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 1.3% 13,658 Countrywide Financial Corp. ..................... 496,468
23,234 Fannie Mae ...................................... 1,517,877
16,350 Freddie Mac ..................................... 992,445
12,000 Hudson City Bancorp, Inc. ....................... 146,640
2,467 MGIC Investment Corp. ........................... 140,274
9,280 Sovereign Bancorp, Inc. ......................... 196,179
22,051 Washington Mutual, Inc. ......................... 940,255
------------
4,430,138
- ------------------------------------------------------------------------------------------------------------------------------------
11
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
Blackrock S&P 500 Index V.I. Fund
Schedule of Investments as of June 30, 2007 (Unaudited)
- --------------------------------------------------------------------------------
SHARES
INDUSTRY HELD COMMON STOCKS VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
TOBACCO - 1.2% 50,689 Altria Group, Inc. .............................. $ 3,555,326
3,600 Reynolds American, Inc. ......................... 234,720
3,299 UST, Inc. ....................................... 177,189
------------
3,967,235
- ------------------------------------------------------------------------------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS - 0.1% 2,021 WW Grainger, Inc. ............................... 188,054
- ------------------------------------------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES - 0.6% 8,087 Alltel Corp. .................................... 546,277
68,191 Sprint Nextel Corp. ............................. 1,412,236
------------
1,958,513
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST - $172,651,950) - 97.8% ................... 319,405,318
- ------------------------------------------------------------------------------------------------------------------------------------
BENEFICIAL
INTEREST SHORT-TERM SECURITIES
- ------------------------------------------------------------------------------------------------------------------------------------
$7,694,417 BlackRock Liquidity Series, LLC Cash Sweep
Series, 5.33% (b)(e) ............................ 7,694,417
13,365,100 BlackRock Liquidity Series, LLC Money Market
Series, 5.33% (b)(e)(f) ......................... 13,365,100
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM SECURITIES
(COST - $21,059,517) - 6.5% ..................... 21,059,517
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST - $193,711,467*) - 104.3% ................. 340,464,835
LIABILITIES IN EXCESS OF OTHER ASSETS - (4.3%) .. (14,029,006)
------------
NET ASSETS - 100.0% ............................. $326,435,829
============
* The cost and unrealized appreciation (depreciation) of investments as of
June 30, 2007, as computed for federal income tax purposes, were as
follows:
<Table>
Aggregate cost ........................... $201,466,552
============
Gross unrealized appreciation ............ $143,519,829
Gross unrealized depreciation ............ (4,521,546)
------------
Net unrealized appreciation .............. $138,998,283
============
</Table>
(a) Non-income producing security.
(b) Investments in companies considered to be an affiliate of the Fund, for
purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as
follows:
<Table>
<Caption>
- -----------------------------------------------------------------------------------------------------------
PURCHASE SALE REALIZED INTEREST/DIVIDEND
AFFILIATE COST COST GAIN (LOSS) INCOME
- -----------------------------------------------------------------------------------------------------------
BlackRock Liquidity Series, LLC
Cash Sweep Series ................. -- $2,299,081 * -- $ 501,875
BlackRock Liquidity Series, LLC
Money Market Series ............... -- $ 504,600 * -- $ 5,950
Merrill Lynch & Co., Inc. ............ $ 91,944 $ 64,519 $ 82,487 $ 14,405
The PNC Financial Services Group, Inc.
Group, Inc. ....................... $ 159,652 $ 51,275 $ (896) $ 8,360
- -----------------------------------------------------------------------------------------------------------
</Table>
* Represents net sale cost.
(c) All or a portion of security held as collateral in connection with open
financial futures contracts.
(d) Security, or a portion of security, is on loan.
(e) Represents the current yield as of June 30, 2007.
(f) Security was purchased with the cash proceeds from securities loans.
* For Fund compliance purposes, the Fund's industry classifications refer to
any one or more of the industry sub-classifications used by one
or more widely recognized market indexes or ratings group indexes, and/or
as defined by Fund management. This definition may not apply for purposes
of this report, which may combine industry sub-classifications for
reporting ease. Industries are shown as a percent of net assets.
12
- --------------------------------------------------------------------------------
BLACKROCK VARIABLE SERIES FUNDS, INC.
Blackrock S&P 500 Index V.I. Fund
Schedule of Investments as of June 30, 2007 (Unaudited)
- --------------------------------------------------------------------------------
- - Financial futures contracts purchased as of June 30, 2007 were as follows:
<Table>
<Caption>
- -----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF EXPIRATION FACE UNREALIZED
CONTRACTS ISSUE DATE VALUE DEPRECIATION
- -----------------------------------------------------------------------------------------------------------------------------------
20 S&P 500 Financial Futures Index September 2007 $ 7,626,583 $ (49,422)
- -----------------------------------------------------------------------------------------------------------------------------------
</Table>
See Notes to Financial Statements.
13
Item 7 -- Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies -- Not Applicable
Item 8 -- Portfolio Managers of Closed-End Management Investment Companies --
Not Applicable
Item 9 -- Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers -- Not Applicable
Item 10 -- Submission of Matters to a Vote of Security Holders -- The
registrant's Nominating Committee will consider nominees to the Board
recommended by shareholders when a vacancy becomes available.
Shareholders who wish to recommend a nominee should send nominations
which include biographical information and set forth the
qualifications of the proposed nominee to the registrant's Secretary.
There have been no material changes to these procedures.
Item 11 -- Controls and Procedures
11(a) -- The registrant's principal executive and principal financial
officers or persons performing similar functions have concluded that
the registrant's disclosure controls and procedures (as defined in
Rule 30a-3(c) under the Investment Company Act of 1940, as amended
(the "1940 Act")) are effective as of a date within 90 days of the
filing of this report based on the evaluation of these controls and
procedures required by Rule 30a-3(b) under the 1940 Act and Rule
15d-15(b) under the Securities and Exchange Act of 1934, as amended.
11(b) -- There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act
(17 CFR 270.30a-3(d)) that occurred during the second fiscal quarter
of the period covered by this report that have materially affected,
or are reasonably likely to materially affect, the registrant's
internal control over financial reporting.
Item 12 -- Exhibits attached hereto
12(a)(1) -- Code of Ethics -- Not Applicable to this semi-annual report
12(a)(2) -- Certifications -- Attached hereto
12(a)(3) -- Not Applicable
12(b) -- Certifications -- Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
BlackRock Variable Series Funds, Inc.
By: /s/ Robert C. Doll, Jr.
-----------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
BlackRock Variable Series Funds, Inc.
Date: August 20, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
By: /s/ Robert C. Doll, Jr.
-----------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
BlackRock Variable Series Funds, Inc.
Date: August 20, 2007
By: /s/ Donald C. Burke
-------------------
Donald C. Burke,
Chief Financial Officer of
BlackRock Variable Series Funds, Inc.
Date: August 20, 2007