EX-17.(D) 5 0005.txt ANNUAL REPORT -------------------------------------------------------------------------------- MERRILL LYNCH VARIABLE ------------------------------------------------------------------------- SERIES FUNDS, INC. -------------------------------------------------------------------------
PAGE ---- American Balanced Fund................ 1 Balanced Capital Focus Fund........... 15 Basic Value Focus Fund................ 29 Developing Capital Markets Focus Fund................................ 44 Domestic Money Market Fund............ 64 Focus Twenty Select Fund.............. 76 Fundamental Growth Focus Fund......... 88 Global Bond Focus Fund................ 100 Global Growth Focus Fund.............. 114 Global Strategy Focus Fund............ 128 Government Bond Fund.................. 147 High Current Income Fund.............. 159 Index 500 Fund........................ 177 International Equity Focus Fund....... 194 Natural Resources Focus Fund.......... 215 Prime Bond Fund....................... 229 Quality Equity Fund................... 244 Reserve Assets Fund................... 259 Small Cap Value Focus Fund............ 270 Utilities and Telecommunications Focus Fund................................ 287
Annual Report December 31, 2000 -------------------------------------------------------------------------------- MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INTERNATIONAL EQUITY FOCUS FUND DECEMBER 31, 2000--ANNUAL REPORT -------------------------------------------------------------------------------- DEAR SHAREHOLDER: The year ended December 31, 2000 began amid great hope and optimism and evolved into the worst year for international markets since 1990. The Morgan Stanley Capital International (MSCI) World (Ex-US) Index, the Fund's benchmark, fell by 14.4% over the 12-month period--in fact, only for a few days in late March was the Index higher than its year-end 1999 level. The only markets to deliver positive returns this year in US dollars terms were Switzerland, Canada and Denmark. The markets in New Zealand, Japan and Singapore declined by more than 25% over the course of the year. As has been widely discussed in the media, technology and telecommunications stocks were the drivers of equity markets around the world--propelling them upward in 1999 and downward in 2000. Globally, the information technology sector fell by 30.6% in US dollar terms, while telecommunications stocks fell by 39% for the year ended December 31, 2000. These sectors had maintained their 1999 outperformance only until March 10, 2000, when the NASDAQ Composite Index peaked at just over 5000. The international investor was also hurt this year by the strength of the US dollar against its major competitors. The US dollar gained 6.3% against the euro, 11.6% against the yen and 7.7% against the pound. Had it not been for the rising US dollar, international markets might have outperformed the Standard & Poor's 500 Index, which declined 7.8% against a 10.2% fall in the United States. FISCAL YEAR IN REVIEW For the fiscal year ended December 31, 2000, the Fund's Class A Shares had a total return of -17.28%. This compared to a return of -13.4% in US dollars for the MSCI World (Ex-US) Index for the same period. The bulk of the Fund's underperformance occurred in the last four months of the year and was triggered by three factors: an underweighted position in the equity markets of the European Monetary Union (EMU)-bloc and an overweighted position in Japan; an underweighted position in defensive European sectors, such as food and healthcare; and an overweighted position in Japanese technology and telecommunications shares. The first factor contributed to the Fund's underperformance as investors sold down their Japanese holdings despite strong profits growth reported toward the end of the year, concentrating instead on fears of an economic slowdown. The sector weightings mentioned above led to underperformance following the sharp and sudden downturn in the US economy and the 45% decline in the NASDAQ in the last third of the year as technology companies of all types found themselves unable to match the earnings expectations that investors had built into their high share prices. Relative to the Fund's benchmark, we began the year with underweighted positions in Japan, the United Kingdom and the Pacific Basin. The Fund was broadly neutral in the EMU-bloc and held positions in emerging markets (not in the benchmark) and in cash. In the first quarter of 2000, we reduced our EMU-bloc weighting in favor of the Japanese and UK markets in anticipation of a peak in the EMU economic cycle. Over the course of the year, we continued to increase the Fund's weightings in Japan and the United Kingdom, while further reducing our exposure to the EMU-bloc and emerging markets. This strategy proved effective until the fourth quarter. In December, it became clear that investors were prepared to overlook the favorable results in Japan, focusing instead on the negatives in the economy, and we subsequently reduced our overweight position in Japan to neutral. The Fund ended 2000 with relatively small active positions, befitting a time of major uncertainty and volatility. Our underweighted EMU-bloc equity position was offset by an overweighted position in UK equities, where the cycle is more advanced and interest rate cuts nearer at hand; by positions in EMU bonds, which provide currency but not equity exposure; and by some cash. IN CONCLUSION The new year begins with more uncertainty than usual. The US economy has slowed sharply and it is unclear whether this reflects a short-term reaction to overstocking in many technology sectors or whether companies have over-invested in technology and individuals have become over-exposed to the stock market. If the latter is true, we could see a dramatic contraction in US private spending, which would bring about difficult consequences for the world economy. The new year began with an interest rate cut in the United States. We expect the United Kingdom to follow, then Europe and Japan. These cuts were priced into the various money markets at the end of 2000 and, therefore, are already discounted to some extent. Should central banks introduce these interest rate cuts 194 -------------------------------------------------------------------------------- slowly, worldwide equity markets could be disappointed. We thank you for your investment in International Equity Focus Fund of Merrill Lynch Variable Series Funds, Inc., and we look forward to reviewing our strategy and performance with you in our next report to shareholders. Sincerely, /s/ Terry K. Glenn Terry K. Glenn President and Director /s/ Terry K. Glenn Jeremy Beckwith Vice President and Senior Portfolio Manager January 19, 2001 -------------------------------------------------------- We are pleased to announce that Jeremy Beckwith is responsible for the day-to-day management of International Equity Focus Fund of Merrill Lynch Variable Series Funds, Inc. Mr. Beckwith has been employed by Merrill Lynch Investment Managers, L.P. since 1990. -------------------------------------------------------- 195 -------------------------------------------------------------------------------- MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INTERNATIONAL EQUITY FOCUS FUND TOTAL RETURN BASED ON A $10,000 INVESTMENT--CLASS A SHARES --------------------------------------------------------------------------------
MORGAN STANLEY CAPITAL INTERNATIONAL EQUITY FOCUS FUND+ INTERNATIONAL WORLD (EX-US) --CLASS A SHARES* INDEX++ -------------------------------- --------------------------- 07/01/93** 10000 10000 12/93 11030 10756 12/94 11091 11546 12/95 11698 12863 12/96 12472 13747 12/97 11904 14059 12/98 12833 16697 12/99 17661 21360 12/00 14609 18504
* Assuming transaction costs and other operating expenses, including advisory fees. Does not include insurance-related fees and expenses. ** Commencement of operations. + International Equity Focus Fund invests in a portfolio of securities of issuers from foreign countries, both developed and developing, throughout the world. ++ This unmanaged market capitalization-weighted Index is comprised of a representative sampling of stocks in 21 countries, excluding the United States. The starting date for the Index is from 6/30/93. ----------------------------------------------------------------------------- MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INTERNATIONAL EQUITY FOCUS FUND AVERAGE ANNUAL TOTAL RETURN--CLASS A SHARES* ----------------------------------------------------------------------------- PERIOD COVERED % RETURN ----------------------------------------------------------------------------- One Year Ended 12/31/00 -17.28% ----------------------------------------------------------------------------- Five Years Ended 12/31/00 + 4.55 ----------------------------------------------------------------------------- Inception (07/01/93) through 12/31/00 + 5.18 ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INTERNATIONAL EQUITY FOCUS FUND RECENT PERFORMANCE RESULTS* -----------------------------------------------------------------------------
6 MONTH 12 MONTH AS OF DECEMBER 31, 2000 TOTAL RETURN TOTAL RETURN ----------------------------------------------------------------------------------------- Class A Shares -13.37% -17.28% -----------------------------------------------------------------------------------------
* Total investment returns are based on changes in net asset values for the periods shown, and assume reinvestment of all dividends and capital gains distributions at net asset value on the ex-dividend date. Insurance-related fees and expenses are not reflected in these returns. Past results shown should not be considered a representation of future performance. 196 -------------------------------------------------------------------------------- MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INTERNATIONAL EQUITY FOCUS FUND SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2000 (IN US DOLLARS) --------------------------------------------------------------------------------
LATIN SHARES PERCENT OF AMERICA INDUSTRY HELD INVESTMENTS VALUE NET ASSETS ---------------------------------------------------------------------------------------------------------------------------- BRAZIL AEROSPACE & 9,720 Embraer-Empresa Brasileira de Aeronautica SA DEFENSE (Preferred)................................ $ 90,720 0.1% ----------------------------------------------------------------------------------------------------- BANKS 1,400,000 Banco Itau SA (Preferred).................... 132,821 0.1 ----------------------------------------------------------------------------------------------------- EQUITY BASKET 8,000 MSCI Brazil OPALS(f)......................... 376,560 0.3 ----------------------------------------------------------------------------------------------------- TOBACCO 16,500 Souza Cruz SA(d)............................. 72,769 0.0 ----------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN BRAZIL 672,870 0.5 ---------------------------------------------------------------------------------------------------------------------------- MEXICO INSURANCE 1,538,000 United Mexican States (Value Recovery Rights)(g)................................. 15 0.0 ----------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN MEXICO 15 0.0 ----------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN LATIN AMERICA (COST--$735,655) 672,885 0.5 ---------------------------------------------------------------------------------------------------------------------------- NORTH AMERICA ---------------------------------------------------------------------------------------------------------------------------- CANADA AEROSPACE & 15,300 Bombardier Inc. 'B'.......................... 235,816 0.2 DEFENSE 9,280 CAE, Inc.(d)................................. 150,754 0.1 ------------ ----- 386,570 0.3 ----------------------------------------------------------------------------------------------------- BANKS 4,090 Bank of Montreal............................. 214,031 0.2 7,640 Royal Bank of Canada......................... 258,651 0.2 2,330 The Toronto-Dominion Bank.................... 67,402 0.0 ------------ ----- 540,084 0.4 ----------------------------------------------------------------------------------------------------- COMMUNICATIONS 34,000 Nortel Networks Corporation.................. 1,092,210 0.8 EQUIPMENT ----------------------------------------------------------------------------------------------------- DIVERSIFIED 10,860 C.I. Fund Management Inc.(d)................. 118,939 0.1 FINANCIALS ----------------------------------------------------------------------------------------------------- ELECTRIC 6,260 TransAlta Corporation........................ 91,691 0.0 UTILITIES ----------------------------------------------------------------------------------------------------- ELECTRONIC 2,660 Celestica Inc.(d)............................ 143,449 0.1 EQUIPMENT & INSTRUMENTS ----------------------------------------------------------------------------------------------------- FOOD & DRUG 5,470 Sobeys Inc. ................................. 91,045 0.1 RETAILING ----------------------------------------------------------------------------------------------------- GOLD PRODUCERS 14,000 Barrick Gold Corporation..................... 229,387 0.2 ----------------------------------------------------------------------------------------------------- INSURANCE 7,100 Sun Life Financial Services of Canada........ 189,081 0.1 ----------------------------------------------------------------------------------------------------- MEDIA 6,700 The Thomson Corporation...................... 256,045 0.2 ----------------------------------------------------------------------------------------------------- OIL & GAS 5,950 Anderson Exploration Ltd.(d)................. 134,885 0.1 4,030 Canadian Hunter Exploration Ltd.(d).......... 110,275 0.1 ------------ ----- 245,160 0.2 ----------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN NORTH AMERICA (COST--$3,293,453) 3,383,661 2.5 ---------------------------------------------------------------------------------------------------------------------------- PACIFIC BASIN ---------------------------------------------------------------------------------------------------------------------------- AUSTRALIA BANKS 25,000 National Australia Bank Limited.............. 400,243 0.3 32,000 Suncorp-Metway Limited....................... 191,641 0.1 16,000 Westpac Banking Corporation Limited.......... 117,310 0.1 ------------ ----- 709,194 0.5 ----------------------------------------------------------------------------------------------------- DIVERSIFIED 14,000 Lend Lease Corporation Limited............... 130,234 0.1 FINANCIALS ----------------------------------------------------------------------------------------------------- HOLDING COMPANY 96,000 Southcorp Limited............................ 261,081 0.2 ----------------------------------------------------------------------------------------------------- INSURANCE 37,000 AMP Limited.................................. 415,762 0.3 32,000 QBE Insurance Group Limited.................. 175,868 0.1 ------------ ----- 591,630 0.4 -----------------------------------------------------------------------------------------------------
197 -------------------------------------------------------------------------------- MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INTERNATIONAL EQUITY FOCUS FUND SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2000 (CONTINUED) (IN US DOLLARS) --------------------------------------------------------------------------------
PACIFIC BASIN SHARES PERCENT OF (CONTINUED) INDUSTRY HELD INVESTMENTS VALUE NET ASSETS ---------------------------------------------------------------------------------------------------------------------------- AUSTRALIA MEDIA 19,200 The News Corporation Limited................. $ 149,372 0.1% (CONCLUDED) 61,440 The News Corporation Limited (Preferred)..... 437,020 0.3 36,000 Publishing & Broadcasting Limited............ 261,008 0.2 ------------ ----- 847,400 0.6 ----------------------------------------------------------------------------------------------------- METALS & 7,000 OneSteel Limited(d).......................... 3,695 0.0 MINING 90,000 WMC Limited.................................. 382,950 0.3 ------------ ----- 386,645 0.3 ----------------------------------------------------------------------------------------------------- OIL & GAS 80,000 Santos Limited............................... 267,625 0.2 ----------------------------------------------------------------------------------------------------- REAL ESTATE 16,960 Westfield Holdings Limited................... 126,781 0.1 ----------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN AUSTRALIA 3,320,590 2.4 ---------------------------------------------------------------------------------------------------------------------------- CHINA BANKS 74,000 Citic Pacific Limited........................ 262,324 0.2 ----------------------------------------------------------------------------------------------------- WIRELESS 17,000 China Mobile (Hong Kong) Limited TELECOMMUNICATION (ADR)(a)(d)................................ 461,125 0.3 SERVICES ----------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN CHINA 723,449 0.5 ---------------------------------------------------------------------------------------------------------------------------- HONG KONG REAL ESTATE 60,000 Cheung Kong (Holdings) Ltd. ................. 767,318 0.6 42,000 Sun Hung Kai Properties Ltd. ................ 418,659 0.3 ----------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN HONG KONG 1,185,977 0.9 ---------------------------------------------------------------------------------------------------------------------------- JAPAN AUTO 34,000 Futaba Industrial Co., Ltd. ................. 406,988 0.3 COMPONENTS 106,000 Sanden Corporation 492,872 0.4 ------------ ----- 899,860 0.7 ----------------------------------------------------------------------------------------------------- AUTOMOBILES 115,000 Fuji Heavy Industries, Ltd. ................. 698,862 0.5 16,000 Honda Motor Co., Ltd. ....................... 596,848 0.4 ------------ ----- 1,295,710 0.9 ----------------------------------------------------------------------------------------------------- BANKS 53,000 The 77 Bank, Ltd. ........................... 302,128 0.2 11,550 Aiful Corporation............................ 943,621 0.7 68,000 The Gunma Bank Ltd. ......................... 332,855 0.3 58,000 The Sumitomo Bank, Ltd. ..................... 595,744 0.4 180,000 The Tokai Bank Ltd. ......................... 780,210 0.6 104,000 The Toyo Trust & Banking Co., Ltd. .......... 327,846 0.2 ------------ ----- 3,282,404 2.4 ----------------------------------------------------------------------------------------------------- BEVERAGES 94,000 Asahi Breweries Limited...................... 958,932 0.7 ----------------------------------------------------------------------------------------------------- BUILDING 45,000 Tostem Corporation........................... 559,151 0.4 PRODUCTS ----------------------------------------------------------------------------------------------------- CHEMICALS 103,000 Asahi Chemical Industry Co., Ltd. ........... 593,468 0.4 85,000 Kaneka Corporation........................... 804,597 0.6 17,000 Shin-Etsu Chemical Co., Ltd. ................ 654,991 0.5 ------------ ----- 2,053,056 1.5 ----------------------------------------------------------------------------------------------------- CLOSED END 35,000 Atlantis Japan Growth Fund................... 297,500 0.2 INVESTMENT FUND ----------------------------------------------------------------------------------------------------- COMMERCIAL 10,000 Secom Co., Ltd. ............................. 652,364 0.5 SERVICES & SUPPLIES ----------------------------------------------------------------------------------------------------- COMMUNICATIONS 4,800 Matsushita Communication Industrial Co., EQUIPMENT Ltd. ...................................... 603,152 0.4 ----------------------------------------------------------------------------------------------------- COMPUTERS & 133,000 Toshiba Corporation.......................... 889,772 0.7 PERIPHERALS ----------------------------------------------------------------------------------------------------- DIVERSIFIED 6,900 Takefuji Corporation......................... 435,026 0.3 FINANCIALS ----------------------------------------------------------------------------------------------------- DIVERSIFIED 135 Nippon Telegraph & Telephone Corporation TELECOMMUNICATION (NTT)...................................... 972,898 0.7 SERVICES -----------------------------------------------------------------------------------------------------
198 -------------------------------------------------------------------------------- MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INTERNATIONAL EQUITY FOCUS FUND SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2000 (CONTINUED) (IN US DOLLARS) --------------------------------------------------------------------------------
PACIFIC BASIN SHARES PERCENT OF (CONTINUED) INDUSTRY HELD INVESTMENTS VALUE NET ASSETS ---------------------------------------------------------------------------------------------------------------------------- JAPAN ELECTRICAL 18,000 Honda Tsushin Kogyo Co., Ltd................. $ 395,622 0.3% (CONCLUDED) EQUIPMENT 110,000 Mitsubishi Electric Corporation.............. 677,145 0.5 ------------ ----- 1,072,767 0.8 ----------------------------------------------------------------------------------------------------- ELECTRONIC 85 Hakuto Company Ltd. ......................... 2,397 0.0 EQUIPMENT & 20 Keyence Corporation.......................... 4,904 0.0 INSTRUMENTS 7,900 TDK Corporation.............................. 769,247 0.6 88,000 Toko, Inc. .................................. 426,130 0.3 ------------ ----- 1,202,678 0.9 ----------------------------------------------------------------------------------------------------- FOOD PRODUCTS 27,200 Katokichi Co., Ltd. ......................... 714,536 0.5 ----------------------------------------------------------------------------------------------------- HEALTH CARE 27,000 Fukuda Denshi Co., Ltd. ..................... 517,776 0.4 EQUIPMENT & SUPPLIES ----------------------------------------------------------------------------------------------------- HOUSEHOLD 49,000 Sharp Corporation............................ 591,261 0.4 DURABLES 18,900 Sony Corporation............................. 1,307,443 1.0 ------------ ----- 1,898,704 1.4 ----------------------------------------------------------------------------------------------------- HOUSEHOLD 24,000 Kao Corporation.............................. 697,723 0.5 PRODUCTS ----------------------------------------------------------------------------------------------------- INTERNET 3,000 Trend Micro Incorporated(d).................. 217,250 0.2 SOFTWARE & SERVICES ----------------------------------------------------------------------------------------------------- MACHINERY 11,000 Fanuc Ltd. .................................. 748,424 0.6 74,000 Minebea Company Ltd. ........................ 685,569 0.5 56,000 Nippon Thompson Co., Ltd. ................... 420,736 0.3 ------------ ----- 1,854,729 1.4 ----------------------------------------------------------------------------------------------------- MEDIA 30,200 Aoi Advertising Promotion Inc. .............. 264,448 0.2 20,400 Asatsu-Dk Inc. .............................. 491,243 0.4 37 Fuji Television Network, Incorporated........ 257,898 0.2 14,000 Nippon Broadcasting System, Incorporated..... 529,597 0.4 ------------ ----- 1,543,186 1.2 ----------------------------------------------------------------------------------------------------- MULTILINE RETAIL 8,000 Ito-Yokado Co., Ltd. ........................ 399,299 0.3 34,000 Uny Co., Ltd. ............................... 363,222 0.3 ------------ ----- 762,521 0.6 ----------------------------------------------------------------------------------------------------- OFFICE 35,000 Ricoh Co., Ltd. ............................. 646,673 0.5 ELECTRONICS ----------------------------------------------------------------------------------------------------- PHARMACEUTICALS 22,000 Fujisawa Pharmaceutical Co., Ltd. ........... 728,196 0.5 43,000 Kissei Pharmaceutical Co., Ltd. ............. 850,963 0.6 14,000 Takeda Chemical Industries, Ltd. ............ 828,722 0.6 ------------ ----- 2,407,881 1.7 ----------------------------------------------------------------------------------------------------- SEMICONDUCTOR 4,800 Rohm Company Ltd. ........................... 912,084 0.7 EQUIPMENT & PRODUCTS ----------------------------------------------------------------------------------------------------- SOFTWARE 470 Miroku Jyoho Service Co., Ltd. .............. 3,412 0.0 21,700 Square Co., Ltd. ............................ 560,552 0.4 ------------ ----- 563,964 0.4 ----------------------------------------------------------------------------------------------------- TEXTILES & 28,000 HIMIKO Co., Ltd. ............................ 291,769 0.2 APPAREL ----------------------------------------------------------------------------------------------------- TRADING 101,000 Mitsubishi Corporation....................... 744,676 0.5 COMPANIES & DISTRIBUTORS ----------------------------------------------------------------------------------------------------- WIRELESS 68 NTT Mobile Communications Network, Inc. ..... 1,173,030 0.9 TELECOMMUNICATION SERVICES ----------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN JAPAN 30,121,772 22.2 ----------------------------------------------------------------------------------------------------------------------------
199 -------------------------------------------------------------------------------- MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INTERNATIONAL EQUITY FOCUS FUND SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2000 (CONTINUED) (IN US DOLLARS) --------------------------------------------------------------------------------
PACIFIC BASIN SHARES PERCENT OF (CONCLUDED) INDUSTRY HELD INVESTMENTS VALUE NET ASSETS ---------------------------------------------------------------------------------------------------------------------------- MALAYSIA BANKS 285 Rashid Hussain BHD (Warrants)(c)............. $ 30 0.0% ----------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN MALAYSIA 30 0.0 ---------------------------------------------------------------------------------------------------------------------------- NEW ZEALAND DIVERSIFIED 160,000 Telecom Corporation of New Zealand Limited... 339,840 0.3 TELECOMMUNICATION SERVICES ----------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN NEW ZEALAND 339,840 0.3 ---------------------------------------------------------------------------------------------------------------------------- SINGAPORE BANKS 42,000 DBS Group Holdings Limited................... 474,740 0.3 ----------------------------------------------------------------------------------------------------- COMPUTERS & 9,000 Creative Technology Limited.................. 102,249 0.1 PERIPHERALS ----------------------------------------------------------------------------------------------------- DIVERSIFIED 75,000 Keppel Corporation Ltd. ..................... 146,194 0.1 FINANCIALS ----------------------------------------------------------------------------------------------------- EQUITY BASKET 21,400 MSCI Singapore OPALS 'B'(f).................. 923,196 0.7 ----------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SINGAPORE 1,646,379 1.2 ---------------------------------------------------------------------------------------------------------------------------- SOUTH KOREA SEMICONDUCTOR 5,600 Samsung Electronics (GDR)(b)(e).............. 396,200 0.3 EQUIPMENT & PRODUCTS ----------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SOUTH KOREA 396,200 0.3 ---------------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN THE PACIFIC BASIN (COST--$43,158,980) 37,734,237 27.8 ---------------------------------------------------------------------------------------------------------------------------- WESTERN EUROPE ---------------------------------------------------------------------------------------------------------------------------- DENMARK MARINE 75 D/S 1912 'B' 650,952 0.5 ----------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN DENMARK 650,952 0.5 ---------------------------------------------------------------------------------------------------------------------------- FINLAND COMMUNICATIONS 62,000 Nokia Oyj.................................... 2,765,061 2.0 EQUIPMENT ----------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN FINLAND 2,765,061 2.0 ---------------------------------------------------------------------------------------------------------------------------- FRANCE AUTO COMPONENTS 14,000 Compagnie Generale des Etablissements Michelin 'B'............................... 506,724 0.4 ----------------------------------------------------------------------------------------------------- AUTOMOBILES 4,600 PSA Peugeot Citroen.......................... 1,046,479 0.8 ----------------------------------------------------------------------------------------------------- BANKS 7,200 Banque Nationale de Paris (BNP).............. 632,067 0.5 14,000 Societe Generale 'A'......................... 870,173 0.6 ------------ ----- 1,502,240 1.1 ----------------------------------------------------------------------------------------------------- COMMUNICATIONS 21,600 Alcatel...................................... 1,226,955 0.9 EQUIPMENT ----------------------------------------------------------------------------------------------------- DIVERSIFIED 11,000 France Telecom SA............................ 949,650 0.7 TELECOMMUNICATION SERVICES ----------------------------------------------------------------------------------------------------- ELECTRICAL 10,600 Schneider SA................................. 773,297 0.6 EQUIPMENT ----------------------------------------------------------------------------------------------------- ENERGY EQUIPMENT 2,000 Coflexip..................................... 254,254 0.2 & SERVICES ----------------------------------------------------------------------------------------------------- FOOD & DRUG 11,700 Carrefour SA................................. 734,905 0.5 RETAILING ----------------------------------------------------------------------------------------------------- FOOD PRODUCTS 3,800 Groupe Danone................................ 572,992 0.4 ----------------------------------------------------------------------------------------------------- INSURANCE 8,000 Axa.......................................... 1,156,725 0.9 ----------------------------------------------------------------------------------------------------- MEDIA 4,600 Lagardere S.C.A. ............................ 266,910 0.2 ----------------------------------------------------------------------------------------------------- METALS & MINING 7,000 Pechiney SA 'A'.............................. 320,005 0.3 44,000 Usinor SA.................................... 580,841 0.4 ------------ ----- 900,846 0.7 ----------------------------------------------------------------------------------------------------- MULTI-UTILITIES 4,000 Suez Lyonnaise des Eaux SA................... 730,464 0.5 -----------------------------------------------------------------------------------------------------
200 -------------------------------------------------------------------------------- MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INTERNATIONAL EQUITY FOCUS FUND SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2000 (CONTINUED) (IN US DOLLARS) --------------------------------------------------------------------------------
SHARES WESTERN HELD/ EUROPE FACE PERCENT OF (CONTINUED) INDUSTRY AMOUNT INVESTMENTS VALUE NET ASSETS ---------------------------------------------------------------------------------------------------------------------------- FRANCE MULTILINE RETAIL 4,000 Pinault-Printemps-Redoute SA................. $ 859,657 0.6% (CONCLUDED) ----------------------------------------------------------------------------------------------------- OIL & GAS 10,000 Total Fina SA 'B'............................ 1,487,218 1.1 ----------------------------------------------------------------------------------------------------- PHARMACEUTICALS 10,000 Aventis SA................................... 877,872 0.6 5,500 Sanofi-Synthelabo SA......................... 366,640 0.3 ------------ ----- 1,244,512 0.9 ----------------------------------------------------------------------------------------------------- UTILITIES--WATER 10,000 Vivendi Universal SA......................... 658,169 0.5 ----------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN FRANCE 14,871,997 11.0 ---------------------------------------------------------------------------------------------------------------------------- GERMANY AIRLINES 40,000 Deutsche Lufthansa AG (Registered Shares).... 1,013,636 0.8 ----------------------------------------------------------------------------------------------------- BANKS 15,400 HypoVereinsbank.............................. 864,652 0.6 ----------------------------------------------------------------------------------------------------- CHEMICALS 13,000 Bayer AG..................................... 684,740 0.5 ----------------------------------------------------------------------------------------------------- DIVERSIFIED 28,000 Deutsche Telekom AG (Registered Shares)...... 843,883 0.6 TELECOMMUNICATION SERVICES ----------------------------------------------------------------------------------------------------- FOREIGN E2,020,000 Bundesrepublic Deutschland, 5.25% due GOVERNMENT 7/04/2010.................................. 1,956,643 1.4 OBLIGATIONS ----------------------------------------------------------------------------------------------------- INDUSTRIAL 9,600 Preussag AG.................................. 347,919 0.2 CONGLOMERATES 5,800 Siemens AG................................... 758,303 0.6 ------------ ----- 1,106,222 0.8 ----------------------------------------------------------------------------------------------------- INSURANCE 2,400 Allianz AG (Registered Shares)............... 902,921 0.7 2,800 Muenchener Rueckversicherungs-Gesellschaft AG (Registered Shares)........................ 998,990 0.7 ------------ ----- 1,901,911 1.4 ----------------------------------------------------------------------------------------------------- INVESTMENT 4,400 Marschollek, Lautenschlaeger und Partner MANAGEMENT AG......................................... 481,280 0.4 ----------------------------------------------------------------------------------------------------- MULTI-UTILITIES 23,000 RWE AG....................................... 1,020,350 0.8 11,600 Veba AG...................................... 705,752 0.5 ------------ ----- 1,726,102 1.3 ----------------------------------------------------------------------------------------------------- SOFTWARE 2,800 SAP AG (Systeme, Anwendungen, Produkte in der Datenverarbeitung)......................... 325,460 0.3 2,250 SAP AG (Systeme, Anwendungen, Produkte in der Datenverarbeitung) (Preferred)............. 318,569 0.2 ------------ ----- 644,029 0.5 ----------------------------------------------------------------------------------------------------- TEXTILES & 12,000 Adidas-Salomon AG............................ 743,609 0.5 APPAREL ----------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN GERMANY 11,966,707 8.8 ---------------------------------------------------------------------------------------------------------------------------- ITALY BANKS 74,000 Unicredito Italiano SpA...................... 386,996 0.3 ----------------------------------------------------------------------------------------------------- DIVERSIFIED 36,000 Telecom Italia SpA........................... 398,169 0.3 TELECOMMUNICATION SERVICES ----------------------------------------------------------------------------------------------------- ENERGY EQUIPMENT 54,000 Saipem SpA................................... 294,570 0.2 & SERVICES ----------------------------------------------------------------------------------------------------- INSURANCE 30,000 Assicurazioni Generali....................... 1,191,464 0.9 ----------------------------------------------------------------------------------------------------- MEDIA 1,344 Seat Pagine Gialle SpA....................... 2,997 0.0 ----------------------------------------------------------------------------------------------------- WIRELESS 110,000 Telecom Italia Mobile (TIM) SpA.............. 877,872 0.6 TELECOMMUNICATION SERVICES ----------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN ITALY 3,152,068 2.3 ---------------------------------------------------------------------------------------------------------------------------- NETHERLANDS BANKS 48,000 ABN AMRO Holding NV.......................... 1,091,528 0.8 ----------------------------------------------------------------------------------------------------- CHEMICALS 7,500 Akzo Nobel NV................................ 402,788 0.3 -----------------------------------------------------------------------------------------------------
201 -------------------------------------------------------------------------------- MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INTERNATIONAL EQUITY FOCUS FUND SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2000 (CONTINUED) (IN US DOLLARS) --------------------------------------------------------------------------------
WESTERN EUROPE SHARES PERCENT OF (CONTINUED) INDUSTRY HELD INVESTMENTS VALUE NET ASSETS ---------------------------------------------------------------------------------------------------------------------------- NETHERLANDS DIVERSIFIED 17,000 ING Groep NV................................. $ 1,357,987 1.0% (CONCLUDED) FINANCIALS ----------------------------------------------------------------------------------------------------- DIVERSIFIED 82,350 KPN NV....................................... 947,924 0.7 TELECOMMUNICATION SERVICES ----------------------------------------------------------------------------------------------------- ELECTRONIC 32,000 ASM Lithography Holding NV(d)................ 726,784 0.5 COMPONENTS ----------------------------------------------------------------------------------------------------- FOODS 10,600 Koninklijke Ahold NV......................... 341,962 0.3 ----------------------------------------------------------------------------------------------------- HOUSEHOLD 16,000 Koninklijke (Royal) Philips Electronics DURABLES NV(d)...................................... 586,174 0.4 ----------------------------------------------------------------------------------------------------- INSURANCE 28,000 Aegon NV..................................... 1,158,302 0.9 ----------------------------------------------------------------------------------------------------- MACHINERY 11,000 IHC Caland NV................................ 516,395 0.4 ----------------------------------------------------------------------------------------------------- OIL & GAS 33,500 Royal Dutch Petroleum Company................ 2,052,633 1.5 ----------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN THE NETHERLANDS 9,182,477 6.8 ---------------------------------------------------------------------------------------------------------------------------- NORWAY EQUITY BASKET 14,000 MSCI Norway OPALS 'B'(e)(f).................. 1,393,280 1.0 ----------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN NORWAY 1,393,280 1.0 ---------------------------------------------------------------------------------------------------------------------------- SPAIN BANKS 120,000 Banco Santander Central Hispano, SA.......... 1,284,415 0.9 ----------------------------------------------------------------------------------------------------- DIVERSIFIED 80,000 Telefonica SA(d)............................. 1,321,971 1.0 TELECOMMUNICATION SERVICES ----------------------------------------------------------------------------------------------------- ELECTRIC 54,000 Endesa SA.................................... 920,216 0.7 UTILITIES ----------------------------------------------------------------------------------------------------- OIL & GAS 22,000 Repsol-YPF, SA............................... 351,562 0.3 ----------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SPAIN 3,878,164 2.9 ---------------------------------------------------------------------------------------------------------------------------- SWEDEN BANKS 34,000 Skandinaviska Enskilda Banken (SEB) 'A'...... 374,755 0.3 ----------------------------------------------------------------------------------------------------- COMMUNICATIONS 100,000 Telefonaktiebolaget LM Ericsson AB 'B'....... 1,139,314 0.8 EQUIPMENT ----------------------------------------------------------------------------------------------------- EQUITY BASKET 2,000 MSCI Sweden OPALS 'B'(f)..................... 553,260 0.4 ----------------------------------------------------------------------------------------------------- MACHINERY 13,000 SKF AB 'B'................................... 196,333 0.1 ----------------------------------------------------------------------------------------------------- TOBACCO 160,000 Swedish Match AB............................. 624,026 0.5 ----------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SWEDEN 2,887,688 2.1 ---------------------------------------------------------------------------------------------------------------------------- SWITZERLAND BANKS 2,000 Credit Suisse Group (Registered Shares)...... 380,130 0.3 8,000 UBS AG (Registered).......................... 1,305,770 0.9 ------------ ----- 1,685,900 1.2 ----------------------------------------------------------------------------------------------------- CHEMICALS 843 Syngenta AG(d)............................... 45,258 0.0 ----------------------------------------------------------------------------------------------------- FOOD PRODUCTS 450 Nestle SA (Registered Shares)................ 1,049,676 0.8 ----------------------------------------------------------------------------------------------------- INSURANCE 500 Schweizerische Rueckversicherungs- Gesellschaft (Registered Shares)........... 1,198,704 0.9 ----------------------------------------------------------------------------------------------------- PHARMACEUTICALS 860 Novartis AG (Registered Shares).............. 1,520,457 1.1 90 Roche Holding AG (Genuss).................... 916,939 0.7 ------------ ----- 2,437,396 1.8 ----------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SWITZERLAND 6,416,934 4.7 ---------------------------------------------------------------------------------------------------------------------------- UNITED KINGDOM AEROSPACE & 58,000 British Aerospace PLC........................ 330,966 0.3 DEFENSE ----------------------------------------------------------------------------------------------------- BANKS 28,000 Abbey National PLC........................... 509,864 0.4 50,000 Bank of Scotland............................. 523,203 0.4 42,000 Barclays PLC................................. 1,299,965 0.9 80,000 HSBC Holdings PLC............................ 1,177,114 0.8 112,000 Lloyds TSB Group PLC......................... 1,184,524 0.9 26,000 Standard Chartered PLC....................... 374,600 0.3 ------------ ----- 5,069,270 3.7 -----------------------------------------------------------------------------------------------------
202 -------------------------------------------------------------------------------- MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INTERNATIONAL EQUITY FOCUS FUND SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2000 (CONTINUED) (IN US DOLLARS) --------------------------------------------------------------------------------
WESTERN EUROPE SHARES PERCENT OF (CONTINUED) INDUSTRY HELD INVESTMENTS VALUE NET ASSETS ---------------------------------------------------------------------------------------------------------------------------- UNITED KINGDOM BEVERAGES 66,000 Allied Domecq PLC............................ $ 435,771 0.3% (CONTINUED) ----------------------------------------------------------------------------------------------------- BEVERAGES & 98,000 Cadbury Schweppes PLC........................ 677,797 0.5 TOBACCO ----------------------------------------------------------------------------------------------------- BIOTECHNOLOGY 16,000 Celltech Group PLC(d)........................ 282,746 0.2 ----------------------------------------------------------------------------------------------------- CHEMICALS 26,000 BOC Group PLC................................ 394,991 0.3 42,000 Imperial Chemical Industries PLC............. 346,323 0.3 ------------ ----- 741,314 0.6 ----------------------------------------------------------------------------------------------------- COMMERCIAL 124,000 Shanks & McEwan Group PLC.................... 421,401 0.3 SERVICES & SUPPLIES ----------------------------------------------------------------------------------------------------- COMMUNICATIONS 70,000 Marconi PLC.................................. 751,830 0.6 EQUIPMENT ----------------------------------------------------------------------------------------------------- CONSTRUCTION 16,000 RMC Group PLC................................ 140,776 0.1 MATERIALS ----------------------------------------------------------------------------------------------------- CONTAINERS & 96,000 Rexam PLC.................................... 322,661 0.2 PACKAGING ----------------------------------------------------------------------------------------------------- CRUISE LINES 80,000 P&O Princess Cruises PLC(d).................. 338,196 0.2 ----------------------------------------------------------------------------------------------------- DIVERSIFIED 118,000 British Telecommunications PLC............... 1,008,255 0.7 TELECOMMUNICATION SERVICES ----------------------------------------------------------------------------------------------------- ELECTRIC 54,000 British Energy PLC (Deferred Shares)......... 1 0.0 UTILITIES 84,000 International Power PLC(d)................... 314,953 0.2 40,000 National Grid Group PLC...................... 363,591 0.3 ------------ ----- 678,545 0.5 ----------------------------------------------------------------------------------------------------- FOOD & DRUG 80,000 J Sainsbury PLC.............................. 474,431 0.4 RETAILING ----------------------------------------------------------------------------------------------------- GAS UTILITIES 80,000 BG Group PLC................................. 313,100 0.2 60,000 Centrica PLC................................. 232,361 0.2 ------------ ----- 545,461 0.4 ----------------------------------------------------------------------------------------------------- HOTELS, 36,000 Bass PLC..................................... 392,033 0.3 RESTAURANTS & LEISURE 62,000 Granada Compass PLC.......................... 674,705 0.5 ------------ ----- 1,066,738 0.8 ----------------------------------------------------------------------------------------------------- HOUSEHOLD 35,000 The Berkeley Group PLC....................... 392,645 0.3 DURABLES ----------------------------------------------------------------------------------------------------- INDUSTRIAL 100,000 Rentokil Initial PLC......................... 345,068 0.3 CONGLOMERATES ----------------------------------------------------------------------------------------------------- INSURANCE 30,000 CGNU PLC..................................... 484,887 0.4 160,000 Legal & General Group PLC.................... 440,970 0.3 46,000 Prudential Corporation PLC................... 740,058 0.5 50,000 Royal & Sun Alliance Insurance Group PLC..... 427,974 0.3 ------------ ----- 2,093,889 1.5 ----------------------------------------------------------------------------------------------------- INTERNET & 80,000 The Great Universal Stores PLC............... 627,994 0.5 CATALOG RETAIL ----------------------------------------------------------------------------------------------------- MACHINERY 150,000 Invensys PLC................................. 350,670 0.3 ----------------------------------------------------------------------------------------------------- MEDIA 37,000 EMI Group PLC................................ 303,988 0.2 16,000 Reuters Group PLC............................ 270,796 0.2 ------------ ----- 574,784 0.4 ----------------------------------------------------------------------------------------------------- METALS & MINING 6,000 Anglo American PLC........................... 330,727 0.2 ----------------------------------------------------------------------------------------------------- MULTILINE RETAIL 300,000 Marks & Spencer PLC.......................... 833,540 0.6 -----------------------------------------------------------------------------------------------------
203 -------------------------------------------------------------------------------- MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INTERNATIONAL EQUITY FOCUS FUND SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2000 (CONTINUED) (IN US DOLLARS) --------------------------------------------------------------------------------
WESTERN EUROPE SHARES PERCENT OF (CONCLUDED) INDUSTRY HELD INVESTMENTS VALUE NET ASSETS ---------------------------------------------------------------------------------------------------------------------------- UNITED KINGDOM OIL & GAS 360,000 BP Amoco PLC................................. $ 2,903,947 2.1% (CONCLUDED) 30,000 Enterprise Oil PLC........................... 254,095 0.2 ------------ ----- 3,158,042 2.3 ----------------------------------------------------------------------------------------------------- PHARMACEUTICALS 17,000 AstraZeneca Group PLC........................ 857,068 0.6 86,416 GlaxoSmithKline PLC(d)....................... 2,439,767 1.8 12,800 Shire Pharmaceuticals Group PLC(d)........... 201,723 0.2 ------------ ----- 3,498,558 2.6 ----------------------------------------------------------------------------------------------------- REAL ESTATE 160,000 The British Land Company PLC................. 1,135,288 0.8 34,000 Canary Wharf Finance PLC(d).................. 247,597 0.2 ------------ ----- 1,382,885 1.0 ----------------------------------------------------------------------------------------------------- SERVICES 36,000 Serco Group PLC.............................. 287,706 0.2 ----------------------------------------------------------------------------------------------------- SPECIALTY RETAIL 120,000 Dixons Group PLC............................. 401,533 0.3 ----------------------------------------------------------------------------------------------------- TOBACCO 54,000 British American Tobacco PLC................. 411,191 0.3 ----------------------------------------------------------------------------------------------------- WIRELESS 1,100,000 Vodafone AirTouch PLC........................ 4,034,007 3.0 TELECOMMUNICATION SERVICES ----------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN THE UNITED KINGDOM 32,009,397 23.6 ---------------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN WESTERN EUROPE (COST--$88,510,597) 89,174,725 65.7 ---------------------------------------------------------------------------------------------------------------------------- SHORT-TERM FACE SECURITIES AMOUNT ---------------------------------------------------------------------------------------------------------------------------- COMMERCIAL US$3,260,000 PAPER* General Motors Acceptance Corp., 6.75% due 1/02/2001.................................. 3,257,555 2.4 ---------------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN COMMERCIAL PAPER 3,257,555 2.4 ---------------------------------------------------------------------------------------------------------------------------- US GOVERNMENT OBLIGATIONS* US Treasury Bills(h): 500,000 6.18% due 2/22/2001........................ 495,985 0.3 250,000 5.92% due 3/08/2001........................ 247,413 0.2 ---------------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN US GOVERNMENT OBLIGATIONS.................................. 743,398 0.5 ---------------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SHORT-TERM SECURITIES (COST--$3,999,998) 4,000,953 2.9 ----------------------------------------------------------------------------------------------------------------------------
NOMINAL VALUE COVERED OPTIONS BY OPTIONS PURCHASED PURCHASED ISSUE ---------------------------------------------------------------------------------------------------------------------------- CURRENCY PUT 4,000,000 OPTIONS PURCHASED Japanese Yen, expiring February 2001 at Y110....................................... 138,080 0.1 ---------------------------------------------------------------------------------------------------------------------------- TOTAL OPTIONS PURCHASED (PREMIUMS PAID--$30,800) 138,080 0.1 ---------------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS (COST--$139,729,483)....... 135,104,541 99.5 VARIATION MARGIN ON FINANCIAL FUTURES CONTRACTS**.................................. 8,085 0.0 UNREALIZED APPRECIATION ON FORWARD FOREIGN EXCHANGE CONTRACTS***........................ 234,329 0.2 OTHER ASSETS LESS LIABILITIES................ 430,522 0.3 ------------ ----- NET ASSETS................................... $135,777,477 100.0% ============ ===== ----------------------------------------------------------------------------------------------------------------------------
(a) American Depositary Receipts (ADR). (b) Global Depositary Receipts (GDR). (c) Warrants entitle the Fund to purchase a predetermined number of shares of common stock and are non-income producing. The purchase price and number of shares are subject to adjustment under certain conditions until the expiration date. (d) Non-income producing security. (e) The security may be offered and sold to "qualified institutional buyers" under Rule 144A of the Securities Act of 1933. 204 -------------------------------------------------------------------------------- MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INTERNATIONAL EQUITY FOCUS FUND SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2000 (CONCLUDED) (IN US DOLLARS) -------------------------------------------------------------------------------- (f) Optimized Portfolio As Listed Securities (OPALS) are investments that are exchange quoted and provide an equivalent investment exposure to that of the specific Morgan Stanley Capital International (MSCI) country index. (g) The rights may be exercised until 6/30/2003. (h) Securities held as collateral in connection with open financial futures contracts. * Commercial Paper and certain US Government Obligations are traded on a discount basis; the interest rates shown reflect the discount rates paid at the time of purchase by the Fund. ** Financial futures contracts purchased as of December 31, 2000 were as follows:
----------------------------------------------------------------------------- NUMBER OF EXPIRATION CONTRACTS ISSUE EXCHANGE DATE VALUE ----------------------------------------------------------------------------- 8 FT-SE 100 LIFFE March 2001 $ 741,044 12 Hang Seng SIMEX January 2001 1,166,169 14 Taiwan MSCI SIMEX January 2001 310,520 ----------------------------------------------------------------------------- TOTAL FINANCIAL FUTURES CONTRACTS PURCHASED (TOTAL CONTRACT PRICE--$2,211,143) $2,217,733 ========== -----------------------------------------------------------------------------
Financial futures contracts sold as of December 31, 2000 were as follows:
----------------------------------------------------------------------------- NUMBER OF EXPIRATION CONTRACTS ISSUE EXCHANGE DATE VALUE ----------------------------------------------------------------------------- 10 Nikkei 225 SIMEX March 2001 $ 602,890 13 CAC 40 MATIF January 2001 726,849 ----------------------------------------------------------------------------- TOTAL FINANCIAL FUTURES CONTRACTS SOLD (TOTAL CONTRACT PRICE--$1,364,031) $1,329,739 ========== -----------------------------------------------------------------------------
*** Forward foreign exchange contracts as of December 31, 2000 were as follows:
----------------------------------------------------------------------------- FOREIGN CURRENCY EXPIRATION UNREALIZED PURCHASED DATE APPRECIATION ----------------------------------------------------------------------------- E 4,620,616 January 2001 $ 230,775 ----------------------------------------------------------------------------- (US$ Commitment--$4,110,502) $ 230,775 ---------- ----------------------------------------------------------------------------- FOREIGN CURRENCY SOLD ----------------------------------------------------------------------------- A$ 2,692,515 January 2001 $ 3,554 ----------------------------------------------------------------------------- (US$ Commitment--$1,500,000) $ 3,554 ---------- ----------------------------------------------------------------------------- UNREALIZED APPRECIATION ON FORWARD FOREIGN EXCHANGE CONTRACTS--NET $ 234,329 ========== -----------------------------------------------------------------------------
See Notes to Financial Statements. 205 -------------------------------------------------------------------------------- MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INTERNATIONAL EQUITY FOCUS FUND STATEMENT OF ASSETS AND LIABILITIES AS OF DECEMBER 31, 2000 -------------------------------------------------------------------------------- ASSETS: Investments, at value (identified cost--$139,698,683)....... $134,966,461 Options purchased, at value (cost--$30,800)................. 138,080 Unrealized appreciation on forward foreign exchange contracts................................................. 234,329 Cash........................................................ 4,438 Foreign cash................................................ 197,525 Receivables: Securities sold........................................... $ 520,139 Dividends................................................. 322,585 Interest.................................................. 65,153 Variation margin.......................................... 8,085 Capital shares sold....................................... 2,724 918,686 ---------- Prepaid expenses............................................ 8,520 ------------ Total assets................................................ 136,468,039 ------------ --------------------------------------------------------------------------------------- LIABILITIES: Payables: Securities purchased...................................... 455,159 Capital shares redeemed................................... 101,800 Investment adviser........................................ 77,622 634,581 ---------- Accrued expenses and other liabilities...................... 55,981 ------------ Total liabilities........................................... 690,562 ------------ --------------------------------------------------------------------------------------- NET ASSETS.................................................. $135,777,477 ============ --------------------------------------------------------------------------------------- NET ASSETS CONSIST OF: Class A Shares of Common Stock, $.10 par value, 100,000,000 shares authorized+........................................ $ 1,249,700 Paid-in capital in excess of par............................ 143,058,536 Undistributed investment income--net........................ 252,741 Accumulated realized capital losses on investments and foreign currency transactions--net........................ (134,678) Accumulated distributions in excess of realized capital gains on investments and foreign currency transactions--net......................................... (4,327,721) Unrealized depreciation on investments and foreign currency transactions--net......................................... (4,321,101) ------------ NET ASSETS.................................................. $135,777,477 ============ --------------------------------------------------------------------------------------- NET ASSET VALUE: Class A--Based on net assets of $135,777,477 and 12,496,998 shares outstanding........................................ $ 10.86 ============ ---------------------------------------------------------------------------------------
+ The Fund is also authorized to issue 100,000,000 Class B Shares. See Notes to Financial Statements. 206 -------------------------------------------------------------------------------- MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INTERNATIONAL EQUITY FOCUS FUND STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2000 -------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends (net of $288,075 foreign withholding tax)......... $ 2,934,223 Interest and discount earned................................ 516,981 Other income................................................ 9,038 ------------ Total income................................................ 3,460,242 ------------ ----------------------------------------------------------------------------------------- EXPENSES: Investment advisory fees.................................... $ 1,259,320 Custodian fees.............................................. 142,167 Professional fees........................................... 32,479 Interest rate swap expense.................................. 26,048 Accounting services......................................... 25,278 Printing and shareholder reports............................ 10,103 Transfer agent fees......................................... 5,031 Directors' fees and expenses................................ 3,628 ------------ Total expenses.............................................. 1,504,054 ------------ Investment income--net...................................... 1,956,188 ------------ ----------------------------------------------------------------------------------------- REALIZED & UNREALIZED GAIN (LOSS) ON INVESTMENTS & FOREIGN CURRENCY TRANSACTIONS--NET: Realized gain (loss) on: Investments--net.......................................... 6,351,540 Foreign currency transactions--net........................ (122,164) 6,229,376 ------------ Change in unrealized appreciation/depreciation on: Investments--net.......................................... (40,007,643) Foreign currency transactions--net........................ 487,890 (39,519,753) ------------ ------------ NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $(31,334,189) ============ -----------------------------------------------------------------------------------------
See Notes to Financial Statements. 207 -------------------------------------------------------------------------------- MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INTERNATIONAL EQUITY FOCUS FUND STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, ---------------------------- INCREASE (DECREASE) IN NET ASSETS: 2000 1999 ------------------------------------------------------------------------------------------ OPERATIONS: Investment income--net...................................... $ 1,956,188 $ 2,466,795 Realized gain on investments and foreign currency transactions--net......................................... 6,229,376 27,762,316 Change in unrealized appreciation/depreciation on investments and foreign currency transactions--net........ (39,519,753) 28,190,034 ------------ ------------ Net increase (decrease) in net assets resulting from operations................................................ (31,334,189) 58,419,145 ------------ ------------ ------------------------------------------------------------------------------------------ DIVIDENDS & DISTRIBUTIONS TO SHAREHOLDERS: Investment income--net: Class A................................................... (1,364,978) (9,348,952) In excess of investment income--net: Class A................................................... -- (211,899) Realized gain on investments--net: Class A................................................... (2,631,145) -- In excess of realized gain on investments--net: Class A................................................... (4,327,721) -- ------------ ------------ Net decrease in net assets resulting from dividends and distributions to shareholders............................. (8,323,844) (9,560,851) ------------ ------------ ------------------------------------------------------------------------------------------ CAPITAL SHARE TRANSACTIONS: Net decrease in net assets derived from capital share transactions.............................................. (23,483,833) (43,395,754) ------------ ------------ ------------------------------------------------------------------------------------------ NET ASSETS: Total increase (decrease) in net assets..................... (63,141,866) 5,462,540 Beginning of year........................................... 198,919,343 193,456,803 ------------ ------------ End of year*................................................ $135,777,477 $198,919,343 ============ ============ ------------------------------------------------------------------------------------------ * Undistributed (accumulated distributions in excess of) investment income--net.................................... $ 252,741 $ (473,147) ============ ============ ------------------------------------------------------------------------------------------
See Notes to Financial Statements. 208 -------------------------------------------------------------------------------- MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INTERNATIONAL EQUITY FOCUS FUND FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE BEEN DERIVED FROM INFORMATION PROVIDED IN THE FINANCIAL STATEMENTS. CLASS A+ -------------------------------------------------------- FOR THE YEAR ENDED DECEMBER 31, -------------------------------------------------------- INCREASE (DECREASE) IN NET ASSET VALUE: 2000 1999 1998 1997 1996 ------------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of year....................... $ 13.99 $ 10.68 $ 10.80 $ 11.63 $ 11.06 -------- -------- -------- -------- -------- Investment income--net................................... .15 .16 .21 .20 .23 Realized and unrealized gain (loss) on investments and foreign currency transactions--net..................... (2.58) 3.71 .56 (.71) .49 -------- -------- -------- -------- -------- Total from investment operations......................... (2.43) 3.87 .77 (.51) .72 -------- -------- -------- -------- -------- Less dividends and distributions: Investment income--net................................. (.11) (.55) (.09) (.23) (.15) In excess of investment income--net.................... -- (.01) -- -- -- Realized gain on investments--net...................... (.22) -- (.03) (.09) -- In excess of realized gain on investments--net......... (.37) -- (.77) -- -- -------- -------- -------- -------- -------- Total dividends and distributions........................ (.70) (.56) (.89) (.32) (.15) -------- -------- -------- -------- -------- Net asset value, end of year............................. $ 10.86 $ 13.99 $ 10.68 $ 10.80 $ 11.63 ======== ======== ======== ======== ======== ------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENT RETURN:* Based on net asset value per share....................... (17.28%) 37.63% 7.80% (4.55%) 6.62% ======== ======== ======== ======== ======== ------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Expenses................................................. .89% .92% .89% .90% .89% ======== ======== ======== ======== ======== Investment income--net................................... 1.16% 1.36% 2.03% 1.69% 1.96% ======== ======== ======== ======== ======== ------------------------------------------------------------------------------------------------------------------- SUPPLEMENTAL DATA: Net assets, end of year (in thousands)................... $135,777 $198,919 $193,457 $425,223 $349,080 ======== ======== ======== ======== ======== Portfolio turnover....................................... 154.06% 154.72% 126.23% 127.96% 49.87% ======== ======== ======== ======== ======== -------------------------------------------------------------------------------------------------------------------
*Total investment returns exclude insurance-related fees and expenses. +Based on average shares outstanding. See Notes to Financial Statements. 209 -------------------------------------------------------------------------------- MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INTERNATIONAL EQUITY FOCUS FUND NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- 1. SIGNIFICANT ACCOUNTING POLICIES: Merrill Lynch Variable Series Funds, Inc. (the "Company") is an open-end management investment company that is comprised of 20 separate funds. Each fund offers two classes of shares to the Merrill Lynch Life Insurance Company, ML Life Insurance Company of New York (indirect wholly-owned subsidiaries of Merrill Lynch & Co., Inc. ("ML & Co.")), and other insurance companies that are not affiliated with ML & Co., for their separate accounts to fund benefits under certain variable annuity and variable life insurance contracts. Class A and Class B Shares have equal voting, dividend, liquidation and other rights, except that only shares of the respective classes are entitled to vote on matters concerning only that class and Class B Shares bear certain expenses related to the distribution of such shares. International Equity Focus Fund (the "Fund") is classified as "diversified," as defined in the Investment Company Act of 1940. The Fund's financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, which may require the use of management accruals and estimates. The following is a summary of significant accounting policies followed by the Fund. (a) Valuation of investments--Portfolio securities that are traded on stock exchanges are valued at the last sale price as of the close of business on the day the securities are being valued, or lacking any sales, at the closing bid price. Securities traded in the over-the-counter market are valued at the last available bid price prior to the time of valuation. Portfolio securities that are traded both in the over-the-counter market and on a stock exchange are valued according to the broadest and most representative market, and it is expected that for debt securities this ordinarily will be the over-the-counter market. Options written or purchased are valued at the last sale price in the case of exchange-traded options. In the case of options traded in the over-the-counter market, valuation is the last asked price (options written) or the last bid price (options purchased). Futures contracts are valued at the settlement price at the close of the applicable exchange. Short-term securities are valued at amortized cost, which approximates market value. Securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith by or under the direction of the Board of Directors of the Company. (b) Derivative financial instruments--The Fund may engage in various portfolio investment strategies to increase or decrease the level of risk to which the Fund is exposed more quickly and efficiently than transactions in other types of instruments. Losses may arise due to changes in the value of the contract or if the counterparty does not perform under the contract. - Forward foreign exchange contracts--The Fund is authorized to enter into forward foreign exchange contracts as a hedge against either specific transactions or portfolio positions. Such contracts are not entered on the Fund's records. However, the effect on operations is recorded from the date the Fund enters into such contracts. - Equity swaps--The Fund is authorized to enter into equity swap agreements, which are over-the-counter contracts in which one party agrees to make periodic payments based on the change in market value of a specified equity security, basket of equity securities or equity index in return for periodic payments based on a fixed or variable interest rate of the change in market value of a different equity security, basket of equity securities or equity index. Swap agreements may be used to obtain exposure to an equity or market without owning or taking physical custody of securities in circumstances in which direct investment is restricted by local law or is otherwise impractical. - Options--The Fund may write and purchase call and put options. When the Fund writes an option, an amount equal to the premium received by the Fund is reflected as an asset and an equivalent liability. The amount of the liability is subsequently marked to market to reflect the current market value of the option written. When a security is purchased or sold through an exercise of an option, the related premium paid or received is added to (or deducted from) the basis of the security acquired or deducted from (or added to) the proceeds of the security sold. When an option expires (or the Fund enters into a closing transaction), the Fund realizes a gain or loss on the option to the extent of the premiums received or paid (or gain or loss to the extent the cost of the closing transaction exceeds the premium paid or received). Written and purchased options are non-income producing investments. - Financial futures contracts--The Fund may purchase or sell financial futures contracts and options on such futures contracts for the pur- 210 -------------------------------------------------------------------------------- pose of hedging the market risk on existing securities or the intended purchase of securities. Futures contracts are contracts for delayed delivery of securities at a specific future date and at a specific price or yield. Upon entering into a contract, the Fund deposits and maintains as collateral such initial margin as required by the exchange on which the transaction is effected. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as variation margin and are recorded by the Fund as unrealized gains or losses. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. - Foreign currency options and futures--The Fund may also purchase or sell listed or over-the-counter foreign currency options, foreign currency futures and related options on foreign currency futures as a short or long hedge against possible variations in foreign exchange rates. Such transactions may be effected with respect to hedges on non-US dollar denominated securities owned by the Fund, sold by the Fund but not yet delivered, or committed or anticipated to be purchased by the Fund. (c) Foreign currency transactions--Transactions denominated in foreign currencies are recorded at the exchange rate prevailing when recognized. Assets and liabilities denominated in foreign currencies are valued at the exchange rate at the end of the period. Foreign currency transactions are the result of settling (realized) or valuing (unrealized) assets and liabilities expressed in foreign currencies into US dollars. Realized and unrealized gains or losses from investments include the effects of foreign exchange rates on investments. (d) Income taxes--It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no Federal income tax provision is required. Under the applicable foreign tax law, a withholding tax may be imposed on interest, dividends and capital gains at various rates. (e) Security transactions and investment income--Security transactions are recorded on the dates the transactions are entered into (the trade dates). Dividend income is recorded on the ex-dividend dates. Dividends from foreign securities where the ex-dividend date may have passed are subsequently recorded when the Fund has determined the ex-dividend date. Interest income is recognized on the accrual basis. Realized gains and losses on security transactions are determined on the identified cost basis. The Fund will adopt the provisions of the AICPA Audit and Accounting Guide for Investment Companies, as revised, effective for fiscal years beginning after December 15, 2000. As required, the Fund will amortize premiums and discounts on debt securities effective January 1, 2001. The cumulative effect of this accounting change will have no impact on the total net assets of the Fund, but will result in a $205 decrease to cost of securities and a $205 increase in net unrealized depreciation, based on securities held as of December 31, 2000. (f) Dividends and distributions--Dividends and distributions paid by the Fund are recorded on the ex-dividend dates. Distributions in excess of net investment income and in excess of realized gains on investments are due primarily to differing tax treatments for futures, foreign currency transactions and post-October losses. (g) Reclassification--Accounting principles generally accepted in the United States of America require that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. Accordingly, the current year's permanent book/tax differences of $134,678 have been reclassified between accumulated net realized capital losses and undistributed net investment income. These reclassifications have no effect on net assets or net asset value per share. 2. INVESTMENT ADVISORY AGREEMENT AND TRANSACTIONS WITH AFFILIATES: The Company has entered into an Investment Advisory Agreement with Merrill Lynch Investment Managers, L.P. ("MLIM"). The general partner of MLIM is Princeton Services, Inc. ("PSI"), an indirect, wholly-owned subsidiary of ML & Co., which is the limited partner. MLIM is responsible for the management of the Company's funds and provides the necessary personnel, facilities, equipment and certain other services necessary to the operations of the funds. For such services, the Fund pays a monthly fee at the annual rate of .75% of the average daily value of the Fund's net assets. MLIM and Merrill Lynch Life Agency, Inc. ("MLLA") have entered into an agreement which limits the operating expenses paid by the Fund, exclusive of any distribution fees imposed on Class B Shares, to 1.25% of its average daily net assets. Any such expenses in excess of 1.25% of average daily net assets will be 211 -------------------------------------------------------------------------------- reimbursed to the Fund by MLIM which, in turn, will be reimbursed by MLLA. For the year ended December 31, 2000, Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), a subsidiary of ML & Co., earned $43,398 in commissions on the execution of portfolio security transactions. Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of ML & Co., is the Company's transfer agent. FAM Distributors, Inc.("FAMD"), which is a wholly-owned subsidiary of Merrill Lynch Group, Inc., is the Fund's distributor. Accounting services were provided to the Fund by MLIM. Certain officers and/or directors of the Company are officers and/or directors of MLIM, PSI, FDS, FAMD, and/or ML & Co. 3. INVESTMENTS: Purchases and sales of investments, excluding short-term securities, for the year ended December 31, 2000 were $249,881,945 and $280,230,555, respectively. Net realized gains (losses) for the year ended December 31, 2000 and net unrealized gains (losses) as of December 31, 2000 were as follows:
--------------------------------------------------------------------- Realized Unrealized Gains (Losses) Gains (Losses) --------------------------------------------------------------------- Investments: Long-term.......................... $ 7,294,164 $(4,733,177) Short-term......................... (38) 955 Financial futures contracts........ (1,472,067) 40,882 Options written.................... 6,745 -- Options purchased.................. 522,736 -- ----------- ----------- Total investments................... 6,351,540 (4,691,340) ----------- ----------- Currency transactions: Options purchased.................. 96,400 107,280 Foreign currency transactions...... 117,435 28,630 Forward foreign exchange contracts........................ (335,999) 234,329 ----------- ----------- Total currency transactions......... (122,164) 370,239 ----------- ----------- Total............................... $ 6,229,376 $(4,321,101) =========== =========== ---------------------------------------------------------------------
Transactions in options written for the year ended December 31, 2000, were as follows:
--------------------------------------------------------------- Nominal Value Covered by Premiums Call Options Written Written Options Received --------------------------------------------------------------- Outstanding call options written, beginning of year............... -- -- Options written.................. 362,421 $ 230,522 Options closed................... (420) (34,372) Options expired.................. (362,001) (196,150) -------- --------- Outstanding call options written, end of year..................... -- $ -- ======== ========= ---------------------------------------------------------------
--------------------------------------------------------------- Nominal Value Covered by Premiums Put Options Written Written Options Received --------------------------------------------------------------- Outstanding put options written, beginning of year............... -- -- Options written.................. 362,001 $ 169,488 Options closed................... (362,001) (169,488) -------- --------- Outstanding put options written, end of year..................... -- $ -- ======== ========= ---------------------------------------------------------------
At December 31, 2000, net unrealized depreciation for Federal income tax purposes aggregated $6,064,865, of which $7,438,043 related to appreciated securities and $13,502,908 related to depreciated securities. At December 31, 2000, the aggregate cost of investments for Federal income tax purposes was $141,031,326. 4. CAPITAL SHARE TRANSACTIONS: Transactions in capital shares were as follows:
----------------------------------------------------------------- Class A Shares for the Year Ended Dollar December 31, 2000 Shares Amount ----------------------------------------------------------------- Shares sold.......................... 269,163 $ 3,606,892 Shares issued to shareholders in reinvestment of dividends and distributions....................... 771,337 8,323,844 ---------- ------------ Total issued......................... 1,040,500 11,930,736 Shares redeemed...................... (2,760,299) (35,414,569) ---------- ------------ Net decrease......................... (1,719,799) $(23,483,833) ========== ============ -----------------------------------------------------------------
----------------------------------------------------------------- Class A Shares for the Year Ended Dollar December 31, 1999 Shares Amount ----------------------------------------------------------------- Shares sold.......................... 2,232,377 $ 24,152,546 Shares issued to shareholders in reinvestment of dividends and distributions....................... 863,539 9,560,851 ---------- ------------ Total issued......................... 3,095,916 33,713,397 Shares redeemed...................... (6,990,543) (77,109,151) ---------- ------------ Net decrease......................... (3,894,627) $(43,395,754) ========== ============ -----------------------------------------------------------------
5. SHORT-TERM BORROWINGS: On December 1, 2000, the Fund, along with certain other funds managed by MLIM and its affiliates, renewed and amended a $1,000,000,000 credit agreement with Bank One, N.A. and certain other lenders. The Fund may borrow under the credit agreement to fund shareholder redemptions and for other lawful purposes other than for leverage. The Fund may borrow up to the maximum amount allowable under the Fund's current prospectus and statement of additional information, subject to various other legal, regulatory or contractual limits. The Fund pays a commitment fee of .09% per annum based on the Fund's pro rata share of the unused portion of the facility. Amounts borrowed under the facility bear interest at a rate equal to, at each fund's election, the Federal Funds rate plus .50% or a base rate as determined by Bank One, N.A. The Fund did not borrow under the 212 -------------------------------------------------------------------------------- facility during the year ended December 31, 2000. 6. COMMITMENTS: At December 31, 2000, the Fund had entered into foreign exchange contracts, in addition to the contracts listed in the Schedule of Investments, under which it had agreed to sell various foreign currencies with an approximate value of $32,000. 7. REORGANIZATION PLAN: The Company's Board of Directors approved a plan of reorganization, subject to shareholder approval and certain other conditions, whereby Mercury HW International Value VIP Portfolio (the "Portfolio") would acquire substantially all of the assets and liabilities of the Fund in exchange for newly issued shares of the Portfolio. These funds are registered, open-end management investment companies. Both entities have a similar investment objective. The Portfolio is managed by Mercury Advisors, an affiliate of MLIM. 213 -------------------------------------------------------------------------------- MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INTERNATIONAL EQUITY FOCUS FUND INDEPENDENT AUDITORS' REPORT -------------------------------------------------------------------------------- THE BOARD OF DIRECTORS AND SHAREHOLDERS, INTERNATIONAL EQUITY FOCUS FUND OF MERRILL LYNCH VARIABLE SERIES FUNDS, INC.: We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of International Equity Focus Fund of Merrill Lynch Variable Series Funds, Inc. as of December 31, 2000, the related statements of operations for the year then ended and changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and the financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned at December 31, 2000 by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements and financial highlights present fairly, in all material respects, the financial position of International Equity Focus Fund of Merrill Lynch Variable Series Funds, Inc. as of December 31, 2000, the results of its operations, the changes in its net assets, and the financial highlights for the respective stated periods in conformity with accounting principles generally accepted in the United States of America. Deloitte & Touche LLP Princeton, New Jersey February 9, 2001 214 --------------------------------------------------------- MERRILL LYNCH VARIABLE SERIES FUNDS, INC. --------------------------------------------------------- PRINCIPAL OFFICE OF THE FUNDS Box 9011 Princeton, NJ 08543-9011 CUSTODIAN For all Funds except Developing Capital Markets Focus Fund: The Bank of New York 110 Washington Street New York, NY 10286 For Developing Capital Markets Focus Fund: Brown Brothers Harriman & Co. 40 Water Street Boston, MA 02109 TRANSFER AGENT Financial Data Services, Inc. 4800 Deer Lake Drive East Jacksonville, FL 32246-6484 (800) 637-3863 --------------------------------------- Arthur Zeikel, Director of Merrill Lynch Variable Series Funds, Inc., has recently retired. The Funds' Board of Directors wishes Mr. Zeikel well in his retirement. --------------------------------------- DIRECTORS AND OFFICERS Terry K. Glenn President Kevin M. Rendino Senior Vice President Joe Grills Director Thomas R. Robinson Senior Vice President Walter Mintz Director Walter D. Rogers Senior Vice President Robert S. Salomon Jr. Director Kurt Schansinger Senior Vice President Melvin R. Seiden Director Robert M. Shearer Senior Vice President Stephen B. Swensrud Director Daniel V. Szemis Senior Vice President Christopher G. Ayoub Senior Vice President Jeremy Beckwith Vice President R. Elise Baum Senior Vice President Edward F. Gobora Vice President Robert C. Doll, Jr. Senior Vice President Robert F. Murray Vice President Lawrence R. Fuller Senior Vice President Jacqueline L. Rogers Vice President Vincent T. Lathbury III Senior Vice President Donald C. Burke Vice President and Treasurer James D. McCall Senior Vice President Allan J. Oster Secretary Kevin J. McKenna Senior Vice President Eric S. Mitofsky Senior Vice President Joseph T. Monagle Jr. Senior Vice President Grace Pineda Senior Vice President -------------------------------------------------------------------------------- This report is only for distribution to shareholders of one of the Funds of Merrill Lynch Variable Series Funds, Inc. Past performance results shown in this report should not be considered a representation of future performance. Investment return and principal value of non-money market fund shares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Statements and other information herein are as dated and are subject to change. Merrill Lynch Variable Series Funds, Inc. Box 9011 Princeton, NJ 08543-9011