<PAGE>
MERRILL LYNCH VARIABLE
SERIES FUNDS, INC.
INVESTMENT PORTFOLIOS
AVAILABLE WITH THE MERRILL
LYNCH FUNDS RETIREMENT
PLUS VARIABLE ANNUITY:
- -American Balanced Fund
- -Basic Value Focus Fund
- -Developing Capital Markets Focus Fund
- -Domestic Money Market Fund
- -Equity Growth Fund
- -Flexible Strategy Fund
- -Global Strategy Focus Fund
- -Global Utility Focus Fund
- -High Current Income Fund
- -Intermediate Government Bond Fund
- -International Bond Fund
- -International Equity Focus Fund
- -Natural Resources Focus Fund
- -Prime Bond Fund
- -Quality Equity Fund
- -Reserve Assets Fund
- -World Income Focus Fund
INVESTMENT PORTFOLIOS
AVAILABLE WITH THE PORTFOLIO
PLUS VARIABLE ANNUITY:
- -American Balanced Fund
- -Equity Growth Fund
- -Flexible Strategy Fund
- -High Current Income Fund
- -Natural Resources Focus Fund
- -Prime Bond Fund
- -Quality Equity Fund
- -Reserve Assets Fund
INVESTMENT PORTFOLIOS
AVAILABLE WITH THE MERRILL
LYNCH FUNDS INVESTOR LIFE,
INVESTOR LIFE PLUS AND
ESTATE INVESTOR I & II
VARIABLE LIFE INSURANCE
POLICIES:
- -Basic Value Focus Fund
- -Developing Capital Markets Focus Fund
- -Global Utility Focus Fund
- -International Bond Fund
- -International Equity Focus Fund
- -World Income Focus Fund
Annual Report
December 31, 1995
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MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
ANNUAL REPORT--DECEMBER 31, 1995
DEAR SHAREHOLDER:
We are pleased to submit this annual report for Merrill Lynch Variable Series
Funds, Inc. in which we summarize the investment performance of each of the
Fund's portfolios and outline our views on the investment environment.
Performance information for each portfolio in Merrill Lynch Variable Series
Funds, Inc., excluding the Domestic Money Market Fund and Reserve Assets Fund,
can be found in the graphs and tables on pages 13-26 of this report to
shareholders.
THE ENVIRONMENT
As 1995 drew to a close, the pace of US economic activity apparently slowed.
There was strong evidence of a slowing economy by mid-year, a trend that was
quickly reversed as gross domestic product growth rebounded to a 4.2% pace
during the third calendar quarter of 1995. However, recent economic releases
suggest that this rate of expansion has not been sustained.
A number of key measures of economic growth indicate evidence of slowing
momentum. Retail sales for November were soft, a trend that continued throughout
the all-important holiday season, reflecting ongoing caution on the part of
debt-burdened consumers. At the same time, there has been an increase in initial
unemployment claims, along with weak job and income growth. As labor costs
continue to decelerate and commodity price pressures remain subdued,
inflationary pressures continue to be well under control.
These developments led the Federal Reserve Board to ease its monetary policy
slightly at the December 19, 1995 Federal Open Market Committee meeting.
However, the Clinton Administration and Congress have yet to reach an agreement
in their current Federal budget deliberations. While the probable direction of
economic activity will continue to be the primary focus of investors in the
months ahead, a credible plan for reducing the Federal budget deficit will also
be an important factor in the investment outlook.
AMERICAN BALANCED FUND
The maintenance of a significant commitment in US Government obligations with a
duration in excess of six years during most of 1995 was a positive contributor
to the overall portfolio return. On the other hand, we maintained our US equity
position at a level well below the maximum allowable 50%, as outlined in the
Fund's prospectus, for most of the year. Given the exceptionally attractive
returns on US stocks, the
lower level of equity participation and the Fund's cash position provided
negative influences on overall Fund performance.
As of December 31, 1995, the asset allocation for American Balanced Fund was:
US bonds, 47% of net assets; US stocks, 36%; and cash reserves, 17%. The US bond
position was unchanged at year-end relative to its position during most of 1995.
The maintenance of an average duration in excess of six years reflected an
optimistic assessment of prospects for US bonds during 1995. We believe that the
bond market rally, which commenced late in 1994, could be extended in 1996. Even
if the Federal Reserve Board undertakes a further easing of monetary policy, US
economic growth is unlikely to accelerate dramatically. In such an environment,
US inflation is likely to remain at historically low levels.
We increased the Fund's cash reserve position and reduced its equity
representation during the last two months of 1995. This reduction of equity
representation reflected a restructuring of holdings and a cautious view of the
US equity market following the strong gains during much of 1995. The Fund
currently has a significant weighting in areas which are expected to do well in
a sluggish economic environment, including consumer staples, credit-sensitive
and energy holdings. However, a possible further easing of monetary policy led
us to maintain representation in "early cycle" equities in the consumer cyclical
and basic industry sectors. We also maintain representation in capital spending
through selected technology equities which appear reasonably valued, as well as
the aerospace industry. Our current intention is to recommit the cash to US
equities in the months ahead as opportunities present themselves.
BASIC VALUE FOCUS FUND
As we began 1995, the Basic Value Focus Fund's absolute return far exceeded the
historical norm for stocks and our own expectations. However, our strategy of
investing a portion of the Fund's assets in small- capitalization value
companies, a strategy that enabled us to outperform the broader averages in 1993
and 1994, hurt our overall performance as small cap companies significantly
underperformed big multinational companies in 1995. Although we view many of the
valuations for our small cap universe to be quite compelling and remain
committed to our existing holdings, we should note a change in strategy we are
implementing in response to growth in your Fund's assets. At inception, Basic
Value Focus Fund had $2 million in assets, and it seemed appropriate to include
all companies, regardless of market cap, in our screening universe of potential
investments. By December 31, 1995, Fund assets grew to over $300 million, and it
is no longer feasible to concentrate on smaller companies, given our desire to
have between 40-60 stocks in the
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portfolio. We are likely to deemphasize small cap stocks during 1996.
As the US economy began to slow in 1995, concerns over corporate earnings
caused dramatic underperformance of cyclical stocks versus growth stocks. We
used periods of weakness to add to our weighting in stocks more sensitive to
changes in the economy, including ASARCO Inc., Eaton Corp., Ford Motor Co.,
General Motors Corp., International Paper Co., Olin Corp., USX-US Steel Group
and WHX Corp. Although we realize the economy has slowed enough to cause
uncertainity in the earnings of some of our holdings, valuations are quite
attractive. We are overweighted in the credit cyclicals, basic industries,
financials, consumer cyclicals and capital goods technology sectors. We believe
the Federal Reserve Board will lower interest rates enough to avoid a recession,
and investors will return to cyclical stocks once they are convinced that the
health of the US economy is on better footing.
After a broad surge for the better part of two years, technology stocks came
under pressure in the second half of 1995, primarily in response to concerns of
a slowdown in the personal computer industry. We used this period of weakness to
increase our weighting in technology stocks to 15.8% of net assets from 9.8% for
the period ended June 30, 1995. New positions included Computervision Corp.,
Exabyte Corp. and International Business Machines Corp., one of our largest
commitments. Confusion over the long-term strategy of how IBM was going to grow
its revenues and worries about potential future dilutive acquisitions led to a
25% decline in the price of IBM stock. At our average cost, IBM's stock was
trading at 7.3 times our 1996 earnings estimate, a level we find compelling. We
remain convinced that over time, new management will outline a long-term
strategy which will ease investor concerns and help IBM resume its turnaround.
Other new positions in the period included American Exploration Co., Bankers
Trust New York Corp., Charming Shoppes, Inc., Comsat Corp., Darden Restaurants,
Inc., Deere & Co., Klamath First Bancorp, Inc., MCI Communications Corp., Swift
Energy Co., Tandem Computers, Inc., and Woolworth Corp. Woolworth has gone
through a major repositioning in the past few years, focusing on expanding its
higher-margin Foot Locker chain. Following a major management change last year,
Woolworth should begin to benefit from a cost containment program, the
disposition of underperforming stores and the use of its valuable real estate.
Since our last report, we eliminated 18 positions. Of notable interest was our
sale of Brooklyn Bancorp Inc., a New York savings and loan that was purchased by
Republic New York Corp. Other stocks in which we took profits include Centex
Corp., Federated Department Stores, Inc., KCS Energy Inc., Liz Claiborne Inc.,
PartnerRe Holdings Ltd., Philip Morris Cos. Inc., Sara Lee Corp., Valero Energy
Corp., and Varco International, Inc. During this period we sold our long-term
and unprofitable position in K mart Corp. Weak retail sales coupled with K
mart's difficult challenge of competing with Wal-Mart Stores and Target have led
to weak earnings at K mart. It is apparent that a much- needed financial
restructuring will be done at the dilutive expense of the common equity
shareholder.
As 1996 begins, we continue to believe our overweighting in cyclicals will be
rewarded as the Federal Reserve Board continues to ease interest rates in order
to stimulate the economy. After the recent uptrend in the US stock market, we
expect more modest gains in stocks in the coming year. We will continue to
select only stocks that meet our strict valuation measures.
DEVELOPING CAPITAL MARKETS FOCUS FUND
During the year ended December 31, 1995, the total return for Developing
Capital Markets Focus Fund was -1.08%. The unmanaged Morgan Stanley Capital
International EAFE Index increased 11.21% during this period.The Fund's
performance benefited from its investments in South Korea and Brazil and its
underweighting in Malaysia and Latin America. Detrimental to performance was the
Fund's underweighting in South Africa. During the six-month period ended
December 31, 1995, the total return for Developing Capital Markets Focus Fund
was +1.75%. The Morgan Stanley Capital International EAFE Index increased 8.39%
during this period.
During the past year, we decreased the Fund's cash position from 26.8% of net
assets to 21.2% and our fixed-income investments from 12.0% of net assets to
1.4%. One of our goals for 1996 is to continue reducing our cash position when
appropriate. While we reduced our investments in emerging European and Latin
American markets such as Portugal and Argentina, we increased equity investments
in other regions, including the Pacific, Middle East and Africa.
In the Pacific, purchases largely in Australia, Hong Kong, Malaysia and South
Korea raised the Fund's allocation in this region from 28.4% of net assets to
38.1%. In Malaysia, where valuations declined to more reasonable levels, we
bought Telekom Malaysia BHD, the dominant telecommunications utility. Prospects
for the company should improve with the growing trend toward consolidation in
the industry. In Hong Kong,
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where stocks are likely to continue to benefit from falling global interest
rates, we purchased shares of blue- chip companies such as banking multinational
HSBC Holdings PLC and the conglomerate Cheung Kong (Holdings) Ltd. and added to
property developer, Sun Hung Kai Properties Ltd. Of the Asian markets, Hong Kong
benefited the most from the drop in US long- term bond yields and expectations
of further interest rate cuts. In contrast, persistent worries over economic
overheating negatively affected most of the Southeast Asian markets. The
Malaysian budget released in October disappointed many investors who believed it
would not sufficiently slow the economy. In Thailand, continued political
uncertainty added to inflation and current account deficit concerns.
The Fund's investments in Latin American equities decreased from 28.2% of net
assets to 19.9%. Mexico's devaluation of the peso on December 20, 1994 sent
shock waves throughout Latin America. The spillover effect in the other Latin
American markets, which became known as the "tequila effect," was quick and
widespread. While there were several rallies during the year, none has been
sustained and confidence had not been fully restored in the Latin American
equity markets by year end. Nonetheless, during this period of uncertainty,
policies implemented have largely been favorable for investors. For example, in
Brazil the Finance Ministry approved an initial rebalancing of telephone tariffs
and the first inflation adjustment since the implementation of the Real Plan.
This is positive for Telecomunicacoes Brasileiras S.A. (Telebras), the holding
company for 27 telephone operating subsidiaries, because of its positive impact
on earnings. The elimination of cross-subsidies between services and increased
local and long-distance rates also could enhance prospects for a dramatic
increase in net income for Telebras.
The Fund initiated investments in Israel, where it currently has 2.9% of its
net assets. The assassination of Prime Minister Yitzhak Rabin highlighted the
disparity of views in Israel concerning the country's peace talks with
neighbors, Palestine and Syria. Under the leadership of former Foreign Minister
Shimon Peres, we believe these talks will continue and may even accelerate. We
note also that the Tel Aviv stock exchange was resilient in the days following
the assassination. This suggests that, in the opinion of investors, Middle East
peace is not dependent on Mr. Rabin's efforts alone. We anticipate that the
potential "peace dividend" has yet to be reflected in stock prices.
The Fund's investments in South African equities increased from 2.8% of net
assets to 9.9%. Among the Fund's investments is Kinross Mines Ltd., a gold
mining company in South Africa. Among gold stocks, this stock's valuation is
extremely attractive based on the company's market capitalization to gold
production. Given our expectations of currency depreciation in the South African
Rand, we believe exporters such as South African gold producers should benefit.
With wage negotiations concluded, we expect the gold mines to post higher
production levels. We believe the current environment will be more conducive to
changes that could benefit these companies and their labor force. In fact,
during a recent visit to some of the South African mines, we sensed a better
tone in labor and management relationships. Both parties appear to agree that
better cooperation and communication will lead to better productivity and higher
gold production. We expect the valuation gap between South African mines (with
gold reserves valued at $35 per ounce) and many Australian mines (valued at $85
per ounce) to narrow. This should result in an upward revaluation of South
African gold mining stocks. We expect Kinross and other gold mining shares to
benefit from this as well as from weakness in the South African currency.
DOMESTIC MONEY MARKET FUND
For the six-month period ended December 31, 1995, the Domestic Money Market
Fund's net annualized yield was 5.50%*. The Fund's 7-day yield as of December
31, 1995 was 5.28% (excluding gains and losses) and 5.28% (including gains and
losses). The average portfolio maturity was 79 days at December 31, 1995
compared to 75 days at June 30, 1995.
The Fund's composition at the end of December and as of our last report is
detailed below:
<TABLE>
<CAPTION>
<S> <C> <C>
ISSUE 12/31/95 6/30/95
- -------------------------------------------------------------------------
Commercial Paper. . . . . . . . . . . . . . . . . . 37.6% 37.2%
-------
Corporate Notes. . . . . . . . . . . . . . . . . . 7.8 3.7
- ---------------------------------------------------- --- ---------
Master Notes. . . . . . . . . . . . . . . . . . . . 1.0 1.0
Medium-Term Notes. . . . . . . . . . . . . . . . . 6.8 4.0
- ---------------------------------------------------- --- ---------
US Government Agency & Instrumentality Obligations--
Discount. . . . . . . . . . . . . . . . . . . . . 12.4 14.7
US Government Agency & Instrumentality Obligations--
Non-Discount. . . . . . . . . . . . . . . . . . . 35.5 34.8
- ---------------------------------------------------- --- ---------
Repurchase Agreements. . . . . . . . . . . . . . . -- 4.2
Other Assets Less Liabilities/Liabilities in Excess
of Other Assets. . . . . . . . . . . . . . . . . . (1.1) 0.4
- ---------------------------------------------------- ------- ---------
Total. . . . . . . . . . . . . . . . . . . . . . . 100.0 % 100.0 %
------ -----
------ -----
</TABLE>
EQUITY GROWTH FUND
Emerging growth stocks lagged behind their large- cap peers in 1995, probably
as a result of growing
- -------
* Based on a constant investment throughout the period, with dividends
compounded daily, and reflecting a
net return to the investor after all expenses.
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investor perceptions that the US economy was slowing. These stocks were laggards
through most of the first half of the year, as investors apparently felt that
the interest rate increases of 1994 would adversely impact smaller companies to
a greater degree than larger companies. The market finally began to reward
small- cap issues starting in June 1995, significantly closing the differential
between unmanaged large- and small- cap indexes by the end of August. During the
balance of the year, larger-capitalized stocks were favored by investors by a
significant margin, once again leaving small-cap stocks well behind.
As a result of this market action, we are becoming more constructive on the
small-cap area, and expect to reduce the portfolio's significant cash reserve
position over the next several months. Looking ahead, we expect strong earnings
momentum to continue in the emerging growth area. We anticipate that investors
will increase their participation in this sector as the economy moves into a
sustained period of little or no growth accompanied by low inflation and flat to
lower interest rates. Earnings of emerging growth issues, such as those upon
which this portfolio focuses, tend to grow relatively faster in such an
environment. The prospect of a capital gains tax cut also focuses investor
attention on this area, as capital gains become more attractive to investors
than dividend returns. Strength in the US dollar also creates investor interest
in the small-cap and growth areas since revenues of these companies tend to be
less sensitive to currency fluctuations.
During the year, the Fund's cash equivalent position ranged from 5% of net
assets to 18%. We increased the technology sector to an intra-year high of 33%
of net assets in July before gradually reducing it to 17% of the portfolio at
year-end. While fundamentals appeared to be strong in this area, we reduced
these holdings in response to concerns about prospects for further market value
increases over the near term. Through the year the healthcare area became
increasingly attractive as a result of strong earnings prospects and lagging
performance in the recent past. Significant new healthcare commitments were in
the areas of service providers (Health Management Associates, Inc., Health Care
& Retirement Corp.), medical supplies (Uromed Corp. and Quest Medical, Inc.),
drug development and testing (Ostex International, Inc. and Sano Corporation)
and biotechnology (Centocor, Inc. and COR Therapeutics, Inc.).
We held several issues which appreciated significantly during the year in
response to merger proceedings. Among them were Cordis Corporation, taken over
by Johnson & Johnson; Heart Technology, Inc., taken over by Boston Scientific
Corporation; and Magma Copper Company, acquired by Broken Hill Proprietary
Company Ltd. While the portfolio participated in a number of initial and
secondary public offerings during the December quarter, these issues constituted
only 3.4% of the Fund's market value at year end.
The most significant contribution to performance (approximately +10.9%) in 1995
came from the technology sector. The healthcare sector ran a close second
(+9.8%) followed by the industrial and consumer discretionary sectors,
contributing +6.0% and +5.7%, respectively. Characteristics of the portfolio on
December 31, 1995 included a median market capitalization of $498 million, with
29% of holdings (25 of 86) having a capitalization of over $1 billion and 28%
(24 of 86) with a capitalization under $250 million.
1995 was exceptional in terms of investment returns, and we do not expect a
repeat performance in 1996. We have significant concerns about the economy and
prospects for corporate earnings. Disappointments are possible given the stock
market's recent strength and expected economic weakness, and we will seek to
protect net asset value while purchasing and holding attractively valued
equities. Further, our moderate economic outlook probably means a reduced
initial and secondary offering calendar in 1996 as well as continued sector
rotation within the markets. New commitments to the portfolio and additions to
existing holdings will be made where appealing growth prospects are available at
reasonable valuations. Target prices, and the disciplines utilized to measure
them, are examined weekly and reevaluated whenever necessary. As for sectors,
the portfolio is likely to maintain a significant percentage of its net assets
(15%-30%) in both the technology and healthcare areas, as long as attractive
opportunities present themselves. Reductions will be made selectively where
individual issues have achieved their target prices or where sectors appear to
be overvalued or unfavorably impacted by economic conditions. Our cash position
will accordingly fluctuate somewhat as market conditions warrant and attractive
purchase candidates present themselves.
FLEXIBLE STRATEGY PORTFOLIO
The US equity sector, particularly the commitments in selected technology,
financial services and healthcare stocks, was a positive contributor to overall
performance. On the other hand, foreign equities as a whole provided returns
that were significantly below those of the US market. US and foreign bonds also
provided returns below US equities. However, the major factor in holding down
the overall return was the cash position, given the large differential between
the returns on US money market instruments and the US stock market during 1995.
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As of December 31, 1995, the asset allocation of Flexible Strategy Portfolio
was: US equities, 29%; foreign equities, 6%; dollar-denominated government and
corporate bonds, 13%; and cash reserves, 52%. In the bond sector, we liquidated
commitments in Deutschemark- and lira-denominated bonds as well as commitments
in Danish kroner bonds established in prior months. These sales reflected our
belief that a rally in the US dollar versus these currencies could offset any
yield pick-up over dollar-denominated bonds. On the other hand, we did not
significantly change the US bond commitment. We expect the decline in
intermediate-term and longer-term US interest rates, which commenced in late
1994, to continue during 1996.
We significantly increased the cash reserve position of the Fund during the
last two months of 1995, reflecting a restructuring and reduction of the
commitments in US and foreign equities. We became increasingly cautious toward
the US equity market following the strong gains during much of 1995. In the
remaining US equity holdings, we retained commitments in the consumer staples
area as well as credit-sensitive and energy areas, which we expect to do well in
an environment of sluggish economic growth. In expectation of additional
monetary easing by the Federal Reserve Board, we retained commitments in "early
cycle" equities in the consumer cyclical and basic industry sectors. We reduced
our position in technology equities and maintained representation in the
aerospace industry. On balance, we are not uncomfortable with the large cash
position over the near term. Our intention is to recommit the cash primarily to
US and foreign equities in the months ahead as opportunities present themselves.
GLOBAL STRATEGY FOCUS FUND
The primary positive contributor to overall Fund returns was the US equity
sector, since the US stock market was among the highest-returning equity markets
in 1995. With the exception of Switzerland, the returns of other equity markets
represented in the portfolio lagged those of the United States. Although
attractive on a historic basis, returns on the portfolio's US and foreign bonds
were below that of US equities. The Fund's average cash position, which was
34.4% of net assets, was also a major factor in holding down the portfolio's
return during 1995.
As of December 31, 1995, Global Strategy Focus Fund's asset allocation was:
foreign equities, 22%; US equities, 18%; US bonds, 19%; foreign bonds, 6%; and
cash reserves, 35%. The positions in Deutschemark- and lira-denominated bonds
were liquidated in late 1995, leaving foreign bond positions in the United
Kingdom and Canada. On the other hand, we maintained our position in US bonds.
In our opinion, the potential exists for a further interest rate decline in the
United States during 1996, reflecting a historically low rate of inflation.
The cash reserve position as of December 31, 1995 reflects a significant
increase during the last two months of 1995 and resulted from the reduction of
foreign equity positions. Evidence of slowing economic growth in Europe and the
emerging economies, particularly those of Asia, resulted in a less-optimistic
assessment of prospects for these markets. Our remaining positions in these
markets reflect a highly selective approach. We retained a significant
commitment to Japanese equities, since we believed that an improving economic
and financial background could lead to favorable relative performance for the
Japanese stock market in the coming months. We reduced our commitment in US
equities in response to our cautious outlook. In the remaining US equity
holdings, we retained significant commitments in areas which we expected to
perform well in a sluggish economic environment, including consumer staples,
financial services and energy. Our current intention is to recommit the cash
primarily to US and foreign equities as opportunities present themselves in
coming months.
GLOBAL UTILITY FOCUS FUND
The Fund finished the year ended December 31, 1995, with net assets of $148
million, an increase of 17.4% over the same period last year. For the 12- month
period, the Fund had a total return of +24.33%. For the six-month period ended
December 31, 1995, the Fund's total return was +13.48% and net assets increased
by 11.0%.
The Fund's assets are currently geographically diversified across 23 countries,
with the US accounting for 54.1% of net assets and non-US holdings accounting
for 35.6% of net assets. This factor was a major contributor to the Fund's total
rate of return for the year. For instance, the data compiled for the Financial
Times/S&P--Actuaries World Utility Index show that the total return for the
world (excluding the United States) was +8.21% for the 12-month period ended
December 31, 1995 versus +22.07% for the world (including the United States).
During the year we made modest changes to our US holdings. We eliminated one
holding in the gas sector, NICOR, Inc., one in the telecommunications sector,
Pacific Telesis Group, and three in the electric sector, Pennsylvania Power &
Light Co., Rochester Gas & Electric Corp. and Texas Utilities Co. New holdings
during the year consisted of AT&T Corp., Frontier Corp, Sprint Corporation,
Enron Global Power & Pipeline L.L.C. and Pacific Gas & Electric Co. The net
effect of these changes to the domestic side of the Fund's portfolio coupled
with price changes resulted in our increasing the weighting of the
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telecommunications sector from 17.7% of net assets at December 31, 1994 to 19.0%
at December 31, 1995, decreasing the gas sector from 10.9% of net assets to
10.2% and reducing the weighting in electrics from 25.2% of net assets to 24.9%.
In terms of the Fund's foreign holdings in the December period, we eliminated
our holdings in the Brazilian electric company, Companhia Energetica de Minas
Gerais S.A., and a Hong Kong-based holding, China Light & Power Co., Ltd. The
elimination of the latter, coupled with previous trades, has resulted in a
significant reduction in the Fund's weighting in Hong Kong. This change reflects
our concern over the changing economic and political climate as well as
valuations not reflecting changing current fundamentals. In terms of additions
to the Fund's portfolio, we added the Brazilian telephone company
Telecomunicacoes Brasileiras S.A.--Telebras, based on improving fundamentals
that resulted in positive earnings momentum. Moreover, during the quarter we
added P.T. Telekomunikasi Indonesia, a telephone company, to the portfolio on a
stock offering. Finally, we added to our existing position in Telefonica de
Espana S.A., also on a stock offering.
Looking ahead, with valuations depressed in emerging markets relative to the US
market for utilities, we expect a rebound in market values from these
investments in the current year. Performance of the European stock markets may
remain mixed in the near term as utility investors await the large issuance of
telecommunications securities, particularly from Germany. However, we do expect
some rebound as investors focus on company-specific items, declining interest
rates and increasingly attractive valuation levels. Declining long-term interest
rates in the US would certainly give a further boost to the performance of
domestic utility stocks. The fundamental outlook for the domestic utility sector
continues to change and present new opportunities as competition enters the
marketplace, regulation evolves and management characteristics come to the
forefront. We believe that the Fund is currently well-positioned to enter the
new year. We will, of course, continue to seek new opportunities and assess the
risk/reward ratio of current and new investments.
HIGH CURRENT INCOME FUND
For the fiscal year ended December 31, 1995, the total return of the Fund was
+17.21%, while the total return for the unmanaged Merrill Lynch High Yield
Master Index was +19.91%. Over the past year, the Fund's high exposure to the
communications/media sector made a positive contribution to total return, while
the Fund's investments in specialty retail, restaurant and consumer durable
industries negatively impacted the Fund's performance.
The best-performing industries in the Fund were transportation and
communications. Cyclical weakness dampened prices of steel, restaurant and
specialty retail holdings. Strong performance in our gaming holdings was more
than offset by the surprise Chapter 11 filing of Harrah's Jazz Co. We are
pursuing recovery vigorously. We have attempted to stay fully invested in order
to seek to reap the benefits of expected rising bond prices.
The high-yield bond rally of 1995 was largely in response to interest rate
declines and supported by economic growth during the first half of the year,
resulting in many credits producing healthy year-over-year operating
comparisons. The air transportation industry (Delta Air Lines Inc., United Air
Lines Inc., USAir Inc.) outperformed all other high-yield industry groups with a
return of +33.8%. Other above-average performers included: homebuilders, +28.2%;
cable TV, +26%; telecommunications, +24.7%; electric utilities, +23%; and,
broadcasting, +22%. The weak relative performers were: retailers, -0.7%;
restaurants, +7.2%; and, consumer durables, +10.81%. Companies in these
industries struggled with weak earnings and a number of defaults. Because of its
greater sensitivity to overall interest rates, the higher-quality BB-rated
sector of the high-yield market outperformed securities rated B or lower.
In addition to benefiting from falling interest rates, the high-yield market
was supported by strong cash inflows ($8.4 billion). New-issue volume stood at
$47 billion, the second-highest ever recorded. Approximately 70% of total
offerings ranked senior or senior secured. Credit quality held steady. Default
rates rose from 1.4% in 1994 to 2.8% in 1995. The average annual default rate
since 1978 has been 3.1%; 1995 represents normalization after two years of
strikingly low rates, in our opinion.
While maintaining approximately a market weighting in terms of credit quality
sector representation, we have increased our investments in consumer products,
conglomerates and broadcasting. Industry groups that we overweighted because of
above-average value included broadcasting, publishing and communications, which
accounted for 17.4% of net assets. This broad category includes broadcast and
cable television operations in the United States and Great Britain, paging
services, as well as two telephone companies in Argentina. These relatively
young industries are building and expanding the underlying infrastructure of
their businesses. They also have the potential to post above-average growth for
several years to come, and
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few have any liquidity concerns until after 1997 because of deferred pay debt
structures. The rise in the number of these development companies has increased
the technological risks facing the investor, however. Other major industry
representation included: conglomerates, 6.2% of net assets; energy, 6.2%; and,
consumer products, 6.8%. The Fund's average life stood at 7 years, 2 months by
December 31, 1995.
At year-end 1995, the portfolio was structured in a way that we believe will
enhance returns over the new year. As modest economic growth and relatively
stable interest rates seem the most likely environment, at least over the next
six months, corporate profits may become the determining factor for high-yield
bond prices. Therefore, industry and company selection seem likely to dominate
investment performance to an even greater degree than in 1995.
INTERMEDIATE GOVERNMENT BOND FUND
The bond market experienced one of its strongest rallies in several years as
the domestic economy showed a significant deceleration from the pace of 1994.
The data released during the year reinforced the perception that the economy has
achieved a soft landing, which is to say that the rapid growth in the fourth
quarter of 1994 was slowed without a corresponding increase in inflationary
pressures. Yields dropped through the first six months of the year and then
began to rise slightly in July, with the expectation that lower interest rates
would begin to become overly stimulative to the economy. However, inflation has
remained contained with the absence of any significant price pressures. The
Federal Reserve Board began to ease short-term interest rates in July and cut
them again in December. Real wage growth, the key factor that determines the
economy's core rate of inflation, has been particularly subdued.
During the periods when the bond market rallied, from January through June, we
took advantage of the heavy cash flow by extending the Fund's average portfolio
maturity from 1.06 years to 6.38 years, which enabled us to capture the
comparatively larger price increases which occurred in the longer end of the
yield curve. We shortened the Fund's average portfolio maturity to 6.34 years in
July and to 5.70 years at year- end. We increased the percentage of Treasury
securities from 71% of net assets at the end of June to 82% at year-end.
INTERNATIONAL BOND FUND
Bond markets provided positive rates of return in the December calendar
quarter. The decline in economic activity throughout most of the world led to a
steady decline in interest rates. A significant part of the decline in interest
rates was in response to the continued low inflation levels reached across the
economies. While in general financial trends have been similar worldwide, there
have been noteworthy differences.
In Japan, the government implemented strong stimulative fiscal packages to
revive economic activity. Sectors of the economy have been negatively affected
by the strong yen and banking crisis. In an effort to promote consumer and
capital spending, the monetary authority has reflated the money supply. The
effect thus far has been a low level of short-term interest rates at
approximately 0.5%. On the other hand, long- term interest rates have been kept
high to assist the banks' earnings.
In contrast, European authorities have implemented fiscal austerity programs to
reign in government deficits. This has had the unfavorable consequence of
slowing their economies at a time of unacceptably high unemployment levels.
Accordingly, central banks have been keen to lower interest rates. Short-term
interest rates that are more easily controlled by the monetary authorities on a
near-term basis have been lowered. However, long-term interest rates have
remained relatively high given present and expected inflation levels.
In the dollar bloc countries, Canada and Australia, economies remain
lackluster. Fiscal austerity also remains the norm in these two countries. While
monetary policy is on the side of easing, its consequent impact on exchange
rates makes it a slower process and one dependent on outside factors.
We remain underweighted in Japanese assets late in the fiscal year as
investments in this sector appear to be defensive in nature and the other
markets appear to offer better value at greater absolute yield levels.
Investments in Europe were at the long end of the yield curve in those
countries with a steep curve, such as Germany, Belgium and Denmark. In contrast,
in countries with a flatter curve, such as Spain and Sweden, investments were
kept at the shorter end of the maturity spectrum. In the United Kingdom and
Italy, prospects for lower interest rates and the favorable yield pick ups
suggested that an appropriate portfolio strategy would be to have maturities
longer than the JP Morgan Government Bond Index which has an average maturity of
7.1 years. In France, investments were kept neutral to this index as the
volatility of the market in response to social unrest appeared to warrant a more
cautious approach.
In Canada and Australia, investments continued to be at the longer end of the
yield curve as the favorable
7
<PAGE>
yield pick-up and expectations of lower interest rates appeared to make these
investments particularly attractive.
With respect to currency, the US dollar currently appears to be in a
consolidation phase. Although the outlook for the dollar over the longer term
appears favorable, there is a near-term risk that the fragility and instability
of the Japanese banking system may place pressure on the US dollar. Hence, the
currency exposure in the portfolio is neutral to the index and unhedged, in
general.
The favorable inflation levels and low growth experienced by the major
industrialized countries over the past year put in place the necessary
ingredients for the international bond market. For the year, yields declined
worldwide providing better-than expected returns. Additionally, the decline in
the US dollar benefited foreign investments. However, this trend was reversed
during the second half of the year. Nevertheless, returns on international
investments were favorable for the year. For the portfolio, the volatility of
the dollar affected returns particularly during the first half of the year when
the Fund underperformed the JP Morgan International Government Bond Index.
However, by the second half of the year investment strategies were changed and
the Fund outperformed the index but did not completely recoup the relative
underperformance of the first half.
INTERNATIONAL EQUITY FOCUS FUND
International equity markets significantly underperformed the US equity market
in the 1995 calendar year. The total return for the unmanaged Financial
Times/S&P--Actuaries World (ex US) Index was +10.5% in US dollar terms. This
contrasted with a 37.5% total return for the Standard & Poor's 500 Composite
Index. The total return for International Equity Focus Fund shares for the year
ended December 31, 1995 was +5.5%. The Fund's underperformance relative to the
benchmark reflected shortfalls in stock selection against local benchmarks in
emerging markets and Europe. Equity asset allocation and currency management
taken together were slightly positive influences. The Fund continued to receive
net cash inflow with net assets of $265.6 million as of December 31, 1995.
Within the international equity market universe, European equities outperformed
the other major regions, rising by 22.6% over the year. The next best
performance was registered in the Pacific Basin (ex Japan) region, which rose by
14.7%. The Japanese equity market was flat, while emerging market issues
declined by 8.4% as measured by the International Finance Corporation
Investables Composite Index. The second half of 1995 was marked by cuts in
official interest rates throughout the world as the result of weakening economic
growth and inflation indicators. Easier conditions were particularly supportive
of Japanese and emerging market equities which recovered sharply at the end of
1995, having been the weakest performers throughout most of 1995.
The Fund's effective equity exposure was approximately 90% at the end of 1995,
down from average levels of about 92% during the year. We reduced the Fund's
exposure in the United Kingdom and increased its exposure to Pacific Basin (ex
Japan) developed markets and emerging markets.
The major investment category remains Japan, which currently represents around
40% of Fund assets, comprising 28% in Japanese equities and 12% in Japanese
futures and options. Elsewhere, the Fund retains a significant exposure to
smaller European equity markets such as Sweden, Finland, Spain and Portugal,
with the overall European weight (excluding the United Kingdom) at 21.0% of net
assets. The reduction in UK exposure to 3.2% of net assets at the end of the
year largely reflected sales of Rolls Royce PLC, The Rank Organization PLC,
British Telecommunications PLC and B.A.T. Industries PLC. In the Pacific Basin
(excluding Japan), we increased the Fund's weighting in Hong Kong and New
Zealand, while at the same time we increased exposure in emerging Asian markets,
with a particular emphasis in India, Korea and Indonesia.
During 1995, the US Treasury ten-year benchmark bond yield declined by about
225 basis points (2.25%) to a redemption yield of 5.6%. Although the Federal
Reserve Board may lower the Federal Funds rate again in 1996, financial market
expectations have shifted to anticipate further cuts in official interest rates
in the first quarter of 1996. This positive view of US interest rate
expectations has reflected generally weak US economic data and relatively stable
inflation indicators.
Elsewhere, the Bundesbank has continued to gradually lower interest rates in
Germany, although further cuts in the discount or Lombard rates in December were
not made. In Continental Europe, interest rates have fallen, reflecting the
combined influence of stronger exchange rates relative to the Deutschemark and
weakening economic activity.
In Japan, the Bank of Japan lowered the official discount rate from 1.75% to
0.5% in 1995. More importantly, since late September 1995, the Bank of Japan has
been consistently injecting surplus liquidity, leaving overnight interest rates
around 0.45%. This liquidity injection has supported a sharp recovery in narrow
money supply growth and bank profits. Additionally,
8
<PAGE>
growth expectations for Japanese gross domestic product have been revised upward
for the first time in this business cycle. Consistent with that upward revision
for expected economic activity, Japanese companies generally reported
stronger-than-expected profit growth for the six-months ended September 30,
1995.
Significant underperformance of equity markets in Malaysia, Thailand,
Argentina, Chile and Brazil during the September to early November period led
the Fund to increase its exposure to those markets. We have become more
confident of a renewed interest on the part of global investors in emerging
markets. Additionally, appropriate policy tightening programs are in place in
Thailand and Chile. Finally, confidence in the policy framework in Argentina and
Brazil has continued to improve.
We envisage a period of significant outperformance in Pacific Basin and
emerging equity markets relative to Europe. The Fund maintains a positive
outlook on the Japanese market and we are fully weighted in that market.
Additionally, we anticipate that after a year of underperformance, international
equities in general may outperform US equities. Our investment strategy favors a
relatively fully invested stance, with overweighted positions in the Pacific
Basin, emerging markets and peripheral European countries. We continue to reduce
our hedge into US dollars in the fund, although this partly reflects our
increased exposure to US dollar-linked markets.
We believe that the recent strong rally in US bond yields may be overdone and
as a result, if US economic activity regains momentum, there is a significant
chance of disappointment in many equity markets. As a result, we are closely
monitoring developments in the US economy and, at some stage in 1996, we may
become more defensive in our investment strategy.
NATURAL RESOURCES FOCUS FUND
The environment for investments in the natural resource sector was mixed during
the 12-month period ended December 31, 1995. Returns from resource-related
stocks generally lagged the returns of the broad stock market averages during
the period, primarily in response to concerns about future economic growth
prospects worldwide. In the United States, economic growth remained strong
through the third quarter of 1995. However, recent signs of weakness in the
manufacturing sector, and an increase in inventory levels in some cyclical
industries, have led some investors to conclude that the United States is in the
late stages of the economic cycle, increasing the risk of an economic slowdown
in the near future. In many European economies, growth has been solid but below
expectations, and thus disappointing to many analysts and investors. This has
resulted in a number of downgrades to economic growth estimates for 1996. The
uncertainty about future economic growth, particularly in the industrialized
countries, shifted investor focus away from the commodity cyclical industries.
Investors feared that any slowdown in economic activity could significantly
reduce the demand for many basic materials, and have a negative impact on the
earnings prospects for companies involved in these industries. Commodity prices
were also mixed during the period. Energy prices, including oil and natural gas,
were flat to slightly higher over the period. Conversely, industrial commodity
prices, including steels, papers, chemicals, and base metals, generally weakened
as the year progressed as lower demand led to increased inventories.
Fund returns were enhanced by our large exposure to energy-related stocks,
which benefited from improved underlying commodity prices. Cold weather in the
United States, combined with historically low storage levels and a decline in
natural gas drilling over the past year, pushed natural gas prices sharply
higher in the fourth quarter of 1995. Oil prices staged a strong rebound as
investors were relieved that the Organization of Petroleum Exporting Countries
decided at its November meeting to maintain its current production quotas
instead of raising production ceilings in a battle for market share. Fund
returns also benefited from our exposure to the base metals industry. Tightening
supply/demand fundamentals and attractive valuations heightened investor
interest in this sector. Fund returns were generally hurt by our overweighted
position in the paper and forest products sector. Share prices of paper
companies fell sharply in the second half of the year as rising inventories in
many paper grades led to underlying price weakness.
During the year there was little change in our investment strategy. We
continued to increase the Fund's exposure to the base metals sector, where we
believe significant structural changes are occurring, particularly in terms of
the outlook for demand. These secular changes should help keep the consumption
growth of the base metals above the growth rates experienced over the past two
decades, and could have the effect of extending the current cycle for metals
demand. In addition, we added to our exposure in the gold sector where the
fundamentals of the gold market are improving as physical demand continues to
exceed mine supply. We also maintained a large position in the energy sector,
including both integrated oil companies and natural gas-oriented exploration and
production companies.
Despite recent skepticism in the global equity markets toward natural
resource-related stocks, we
9
<PAGE>
remain positive on the outlook for investing in this sector. We continue to
expect global economic growth to improve, led by robust growth in the developing
Asian economies and the trend toward lower interest rates in Europe and Japan.
This should help keep the demand for basic resources strong, and should have
positive implications for the earnings of many resource-related companies.
Conversely, if economic activity slows, governments may begin to adopt
stimulative policies which could potentially trigger new inflationary pressures.
PRIME BOND FUND
The bond market experienced one of its strongest rallies in several years as
the domestic economy showed a significant deceleration from the pace of 1994.
The data released during the year reinforced the perception that the economy has
achieved a soft landing, which is to say that the rapid growth in the fourth
quarter of 1994 was slowed without a corresponding increase in inflationary
pressures. Yields dropped through the first six months of the year and then
began to rise slightly in July with the expectation that lower interest rates
would begin to become overly stimulative to the economy. However, inflation has
remained contained with the absence of any significant price pressures. The
Federal Reserve Board began to ease short-term interest rates in July and cut
them again in December. Real wage growth, the key factor that determines the
economy's core rate of inflation, has been particularly subdued.
During the periods when the bond market rallied, from January through June, we
extended the Fund's average portfolio maturity from 9.4 years to 12.5 years,
which enabled us to capture the comparatively larger price increases which
occurred in the longer end of the yield curve. We shortened the Fund's average
portfolio maturity to 11.2 years in July and then extended it to 11.4 years at
year-end. We reduced the percentage of Treasury securities from 18.6% of net
assets at the end of June to 13.3% at year-end as we traded into corporate
issues to improve the total return. During the summer, when the market sold out,
we built up our cash position, which protected us from the adverse effects of
lower bond prices. We invested in industrial issues which did well and avoided
those utilities which performed poorly.
QUALITY EQUITY FUND
The maintenance of a significant cash position during much of 1995 was a major
contributor to holding down the return of the Fund, given the large differential
between the returns on money market instruments and US equities during the year.
Similarly, foreign equities as a group provided returns which were significantly
less than those of US equities in 1995. In the US equity sector, strong gains
from selected technology, healthcare and financial services stocks were positive
contributors to overall performance.
As of December 31, 1995, Quality Equity Fund's asset allocation was: US
equities, 50% of net assets; foreign equities, 4%; and cash reserves, 46%. We
significantly increased the cash reserve portion of the Fund during the last two
months of 1995. This increase reflected a restructuring of the Fund as well as a
cautious view of the US equity market following the strong gains during much of
1995. In restructuring the portfolio, we reduced the weighting in
technology-related equities. Positions were limited to those which appeared to
lack the valuation excesses of the group as a whole. In the capital spending
group, we also maintained commitments in the aerospace industry. In an
environment of sluggish economic growth, we retained significant positions in
the consumer staples area, most notably through investments in healthcare
equities, as well as credit-sensitive and energy-related companies.
We expect the Federal Reserve Board to react to a sluggish US economy by
undertaking additional monetary easing in coming months. On this basis, we feel
it is appropriate to retain commitments in "early cycle" equities which could
appreciate in the expectation that lower short-term interest rates will lead to
somewhat stronger economic activity. Equities which have this potential include
consumer cyclical and basic industry investments. On balance, we are comfortable
with the large cash position over the near term. Our intention is to recommit
the cash to equities in the months ahead as opportunities present themselves. In
addition to expanding the position in US equities, we are looking for
opportunities in selected foreign equities which offer superior potential to
that of the US equity market as a whole.
RESERVE ASSETS FUND
For the six-month period ended December 31, 1995, the Reserve Asset Fund's net
annualized yield was 5.50%*. The Fund's 7-day yield as of December 31, 1995 was
5.33% (excluding gains and losses) and 5.34% (including gains and losses). The
average
- -------
* Based on a constant investment throughout the period, with dividends
compounded daily, and reflecting a
net return to the investor after all expenses.
10
<PAGE>
portfolio maturity was 84 days at December 31, 1995 compared to 75 days at June
30, 1995.
The Fund's composition at the end of December and as of our last report is
detailed below:
<TABLE>
<CAPTION>
<S> <C> <C>
ISSUE 12/31/95 6/30/95
- ----------------------------------------------------------------------------
Certificates of Deposit--European. . . . . . . . . 2.0% 1.7%
- ----------------------------------------------------- ------- ------
Commercial Paper. . . . . . . . . . . . . . . . . . 26.8 49.7
Corporate Notes. . . . . . . . . . . . . . . . . . 7.1 1.1
- ----------------------------------------------------- --- ---------
Master Notes. . . . . . . . . . . . . . . . . . . . 3.9 3.4
Medium-Term Notes. . . . . . . . . . . . . . . . . 1.0 1.7
- ----------------------------------------------------- --- ---------
US Government Agency & Instrumentality Obligations--
Discount. . . . . . . . . . . . . . . . . . . . . 26.0 16.3
US Government Agency & Instrumentality Obligations--
Non-Discount. . . . . . . . . . . . . . . . . . . 34.5 22.5
- ----------------------------------------------------- --- ---------
Repurchase Agreements. . . . . . . . . . . . . . . -- 3.4
Other Assets Less Liabilities/Liabilities in
Excess of Other Assets. . . . . . . . . . . . . . . (1.3) 0.2
------- ------
- ----------------------------------------------------- --- ---------
Total. . . . . . . . . . . . . . . . . . . . . . . 100.0% 100.0%
------ -----
------ -----
</TABLE>
WORLD INCOME FOCUS FUND
World growth continues to slow and inflation remains subdued, although the US
economy remains the most resilient, owing largely to the substantial interest
rate declines seen this year. The 4.2% annualized increase in US third quarter
1995 gross domestic product, while overstating the economy's underlying
strength, suggests the fourth quarter began at an above-trend pace. However, a
decline in October industrial production and retail sales without a rebound in
November brought this notion into question.
European growth continues to disappoint as demand has remained weak with
interest rate- sensitive spending not yet responding to this year's decline in
interest rates. German economic weakness clearly can be seen in the drop in
third quarter capacity utilization, the sharp drop in fourth quarter industrial
production and waning business and consumer confidence. The Bundesbank lowered
interest rates over 100 basis points (1.00%) in 1995 from 4.85% at year- end
1994, with its latest reduction in December, but the continued softness suggests
more needs to be done. Meanwhile, France announced a very tough fiscal reform
package coupled with an immediate sharp hike in taxes, in an effort to ensure
growth will stay soft, especially given France's desire to maintain a "Franc
fort" policy. The risks of a sharp inventory correction in the United Kingdom
have risen, posing a dilemma for policymakers following the United Kingdom's
relatively tight November budget. Italy shows clear signs of slowing but
interest rate declines are unlikely while inflation stays high and political
stability remains uncertain, as Prime Minister Dini's resignation at year-end
could lead to elections over the next few months. The "no" vote on Quebec
separatism has lifted a major cloud over the Canadian market, while in Australia
inflation drifts upward, albeit against a slowdown in economic activity. A
brighter picture for Latin American markets emerged over the last six months
resulting from stable political environments, a firm dollar and US bond market,
and rising global liquidity.
During the fourth quarter of 1995, virtually all of the major markets in which
your Fund is invested continued their 1995 rallies. The dollar remained in a
fairly narrow range as compared to all other currencies other than the yen,
which declined just over 4% relative to the dollar. Since August, the US bond
market rally has continued as economic growth remained soft and inflationary
pressures remained subdued. Expectations for a constructive Federal budget
agreement have faded but have not been dashed. With the background of a poor
holiday selling season and a weather- induced weak start to the new year, a
positive tone to the US bond market is likely to persist over the near term.
European economic activity remains below trend which, along with continued low
inflation, has allowed many countries to lower interest rates. Continued
below-trend growth is expected for the first quarter of 1996, which should
provide a solid underpinning to the European markets. Not surprisingly, in this
environment of a steady dollar and rising bond prices, the higher-yielding
markets in Europe have outperformed Germany. Although the Australian market
underperformed the US market during the December quarter, the Australian market
finished the year ahead of the two other dollar bloc markets, the United States
and Canada.
During the December quarter, the Fund's exposure to the US high-yield sector
remained unchanged at 42%, while the European exposure dropped slightly
following a reduction in the United Kingdom. In the dollar bloc (Canada,
Australia and New Zealand), we moved 1% from New Zealand to Australia while
slightly extending the average portfolio maturity. In Europe, we raised the
Danish exposure to 5% of net assets from 3% while extending the average
portfolio maturity from 5.2 years to 6.5 years. We also extended the average
portfolio maturities in the United Kingdom, Italy and Denmark. These extensions,
while allowing us to maintain overweighted positions in the higher-yielding
European markets, substantially boosted performance in the December quarter. In
the emerging markets arena, we reduced our small exposure to Mexico, given the
recent sharp deterioration in the peso and continued negative growth announced
for the third quarter.
The outlook for global bond prices remains positive, given sluggish world
economic activity, falling inflation and/or inflationary expectations and
expanding
11
<PAGE>
liquidity. However, since these positive factors are recognized globally, there
is little value to insulate prices from adverse news regarding any of the
aforementioned factors. We will continue to utilize emerging markets debt as a
dollar bloc alternative, constantly maintaining our preference for the most
liquid and creditworthy issuers.
From a currency perspective, the dollar is likely to remain within a broad
trading range given the easier monetary policy stances of the Bank of Japan and
the Bundesbank, while set against a background of what appears to be much slower
fourth quarter economic growth relative to the third quarter in the United
States. The performance of the European economies over the next year will be
critical in determining the continued adherence to the current monetary union
timetable. Failure to maintain the present timetable could cause undue
volatility within European markets.
The market driver in the high-yield market for the year and quarter was falling
interest rates. Yields on ten-year US Treasury bonds fell from 7.85% to 5.63%
over the course of the year as investors reacted positively to moderate economic
growth, low inflation and falling short-term interest rates. Because of its
greater sensitivity to overall interest rates, the higher-quality BB-rated
sector of the high-yield market outperformed issues rated B or less. The air
transportation industry (Delta Air Lines Inc., United Air Lines Inc., USAir
Inc.) outperformed all other high-yield industry groups with a return of 33.8%.
Other above-average performers included: homebuilders, +28.2%; cable TV, +26%;
telecommunications, +24.7%; electric utilities, +23%; and, broadcasting, +22%.
The weak performers were: retailers, -0.7%, and restaurants, +7.2%. Companies in
these industries struggled with weak earnings and a number of defaults. Default
rates rose from 1.4% in 1994 to 2.8% in 1995. The average annual default rate
since 1978 has been 3.1%, and 1995 represents a normalization after several very
low years, in our opinion. The portfolio experienced a surprise bankruptcy in
November when Harrah's Jazz Company, a casino project in New Orleans, filed for
protection after the bank lenders withdrew financing. We are pursuing recovery
vigorously.
At year-end 1995, the high-yield portion of the Fund was structured in a
fashion that we believe will enhance returns over the new year. As modest
economic growth and relatively stable interest rates seem the most likely
environment, at least for the next six months, corporate profits may become the
dominant force behind high-yield bond prices. Therefore, in 1996 industry and
company selection seem likely to dominate investment performance to an even
greater degree than in 1995.
During the fiscal year, we attempted to stay fully invested in the high-yield
portion of the Fund's portfolio to seek to reap the benefits of generally rising
bond prices. While maintaining an overweighted position in higher-quality
credits, we added to holdings in undervalued companies with rising earnings and
sold bonds of issuers with weak earnings. This strategy enhanced the total
return for our high-yield investments. Overall, however, the Fund underperformed
its benchmark for the fiscal year ended December 31, 1995, largely because of
its overweighted exposures to the dollar and higher-yielding European markets
entering the year. This posture reflected our belief that solid growth in the
United States would continue in the first half of the year as would the dollar
rally which had begun in October 1994. At the end of the 1995 fiscal year, in an
environment of a rising dollar, your Fund is overweighted in the higher-yielding
European markets as their currencies are generally rising versus the
Deutschemark. The Mexican peso devaluation in late December 1994 began to
seriously affect the higher- yielding currencies in February by casting a
negative light on all high-deficit countries. This led to massive "safe haven"
capital flows from the high-yielding European countries into the Deutschemark
and Swiss Franc. This, coupled with negative implications regarding the US
bailout of Mexico, caused new historic lows for the dollar. At the end of the
first quarter of 1995, with the recovery beginning in the emerging markets along
with the first easing by the Bundesbank, the higher-yielding markets started
their recovery. Adjusting our investment posture allowed us to take advantage of
this recovery, which helped enhance total return.
IN CONCLUSION
We appreciate your investment in Merrill Lynch Variable Series Funds, Inc., and
we look forward to sharing our investment outlook and objectives with you in our
June semi-annual report to shareholders.
Sincerely,
Arthur Zeikel
President
February 20, 1996
12
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
DECEMBER 31, 1995
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
TOTAL RETURNS
- ---------------------------------------------------------------------------------------
12 MONTH 6 MONTH
- --------------------------------------12/31/95-6/30/95 12/31/94 % CHANGE % CHANGE
-------- ----------------------------------------
AMERICAN BALANCED FUND $15.17 $14.38 $13.08 +20.81%(1) + 7.61%(2)
- ---------------------------------------------------------------------------------------
BASIC VALUE FOCUS FUND 13.10 12.12 11.10 +25.49(3) + 8.86(4)
- ---------------------------------------------------------------------------------------
DEVELOPING CAPITAL MARKETS FOCUS FUND 9.32 9.16 9.51 - 1.08(5) + 1.75
- ---------------------------------------------------------------------------------------
EQUITY GROWTH FUND 27.98 23.73 19.26 +45.90(6) +18.15(7)
- ---------------------------------------------------------------------------------------
FLEXIBLE STRATEGY FUND 16.47 15.59 14.70 +17.40(8) + 7.21(9)
- ---------------------------------------------------------------------------------------
GLOBAL STRATEGY FOCUS FUND 12.55 12.04 11.73 +10.60(10) + 6.10(11)
- ---------------------------------------------------------------------------------------
GLOBAL UTILITY FOCUS FUND 11.30 10.16 9.45 +24.33(12) +13.48(13)
- ---------------------------------------------------------------------------------------
HIGH CURRENT INCOME FUND 11.25 11.14 10.61 +17.21(14) + 6.00(15)
- ---------------------------------------------------------------------------------------
INTERMEDIATE GOVERNMENT BOND FUND 10.79 10.51 9.97 +14.83(16) + 5.87(17)
- ---------------------------------------------------------------------------------------
INTERNATIONAL BOND FUND 10.52 10.51 9.70 +16.35(18) + 3.58(19)
- ---------------------------------------------------------------------------------------
INTERNATIONAL EQUITY FOCUS FUND 11.06 10.14 10.90 + 5.48(20) + 9.07
- ---------------------------------------------------------------------------------------
NATURAL RESOURCES FOCUS FUND 11.95 11.59 10.82 +12.65(21) + 4.11(22)
- ---------------------------------------------------------------------------------------
PRIME BOND FUND 12.45 12.02 11.12 +20.14(23) + 7.18(24)
- ---------------------------------------------------------------------------------------
QUALITY EQUITY FUND 32.76 29.82 27.74 +22.61(25) +10.78(26)
- ---------------------------------------------------------------------------------------
WORLD INCOME FOCUS FUND 9.79 9.54 9.17 +16.69(27) + 7.24(28)
- ---------------------------------------------------------------------------------------
</TABLE>
(1) Percent change includes reinvestment of $0.558 per share ordinary income
dividends.
(2) Percent change includes reinvestment of $0.286 per share ordinary income
dividends.
(3) Percent change includes reinvestment of $0.657 per share ordinary income
dividends and $0.016 per share capital gains distributions.
(4) Percent change includes reinvestment of $0.087 per share ordinary income
dividends.
(5) Percent change includes reinvestment of $0.086 per share ordinary income
dividends.
(6) Percent change includes reinvestment of $0.092 per share ordinary income
dividends.
(7) Percent change includes reinvestment of $0.049 per share ordinary income
dividends.
(8) Percent change includes reinvestment of $0.421 per share ordinary income
dividends and $0.271 per share capital gains distributions.
(9) Percent change includes reinvestment of $0.231 per share ordinary income
dividends.
(10) Percent change includes reinvestment of $0.390 per share ordinary income
dividends and $0.005 per share capital gains distributions.
(11) Percent change includes reinvestment of $0.216 per share ordinary income
dividends.
(12) Percent change includes reinvestment of $0.389 per share ordinary income
dividends.
(13) Percent change includes reinvestment of $0.210 per share ordinary income
dividends.
(14) Percent change includes reinvestment of $1.102 per share ordinary income
dividends.
(15) Percent change includes reinvestment of $0.541 per share ordinary income
dividends.
(16) Percent change includes reinvestment of $0.611 per share ordinary income
dividends.
(17) Percent change includes reinvestment of $0.323 per share ordinary income
dividends.
(18) Percent change includes reinvestment of $0.721 per share ordinary income
dividends.
(19) Percent change includes reinvestment of $0.355 per share ordinary income
dividends.
(20) Percent change includes reinvestment of $0.330 per share ordinary income
dividends and $0.080 per share capital gains distributions.
(21) Percent change includes reinvestment of $0.191 per share ordinary income
dividends and $0.032 per share capital gains distributions.
(22) Percent change includes reinvestment of $0.114 per share ordinary income
dividends.
(23) Percent change includes reinvestment of $0.827 per share ordinary income
dividends.
(24) Percent change includes reinvestment of $0.412 per share ordinary income
dividends.
(25) Percent change includes reinvestment of $0.535 per share ordinary income
dividends and $0.512 per share capital gains distributions.
(26) Percent change includes reinvestment of $0.253 per share ordinary income
dividends.
(27) Percent change includes reinvestment of $0.840 per share ordinary income
dividends.
(28) Percent change includes reinvestment of $0.423 per share ordinary income
dividends.
13
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
DECEMBER 31, 1995
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
AVERAGE ANNUAL TOTAL RETURNS
YEAR FIVE YEARS TEN YEARS SINCE
ENDED ENDED ENDED INCEPTION
12/31/95 12/31/95 12/31/95 TO 12/31/95
- --------------------------------------------------------------------------------
AMERICAN BALANCED FUND +20.81% +10.88% -- +10.17%+
- --------------------------------------------------------------------------------
BASIC VALUE FOCUS FUND +25.49% -- -- +14.61%++
- --------------------------------------------------------------------------------
DEVELOPING CAPITAL MARKETS FOCUS FUND - 1.08% -- -- - 3.60%+++
- --------------------------------------------------------------------------------
EQUITY GROWTH FUND +45.90% +18.93% + 8.84% --
- --------------------------------------------------------------------------------
FLEXIBLE STRATEGY FUND +17.40% +11.16% -- + 9.90%++++
- --------------------------------------------------------------------------------
GLOBAL STRATEGY FOCUS FUND +10.60% -- -- + 8.20%+++++
- --------------------------------------------------------------------------------
GLOBAL UTILITY FOCUS FUND +24.33% -- -- + 8.11%++
- --------------------------------------------------------------------------------
HIGH CURRENT INCOME FUND +17.21% +17.98% +11.46% --
- --------------------------------------------------------------------------------
INTERMEDIATE GOVERNMENT BOND FUND +14.83% -- -- + 9.82%+++
- --------------------------------------------------------------------------------
INTERNATIONAL BOND FUND +16.35% -- -- + 9.76%+++
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY FOCUS FUND + 5.48% -- -- + 6.47%++
- --------------------------------------------------------------------------------
NATURAL RESOURCES FOCUS FUND +12.65% + 5.34% -- + 4.31%+
- --------------------------------------------------------------------------------
PRIME BOND FUND +20.14% + 9.86% + 8.84% --
- --------------------------------------------------------------------------------
QUALITY EQUITY FUND +22.61% +13.16% +12.73% --
- --------------------------------------------------------------------------------
WORLD INCOME FOCUS FUND +16.69% -- -- + 6.98%++
- --------------------------------------------------------------------------------
</TABLE>
+ The Fund commenced operations on 6/01/88.
++ The Fund commenced operations on 7/01/93.
+++ The Fund commenced operations on 5/02/94.
++++ Flexible Strategy Fund commenced operations on 5/01/86.
+++++ Global Strategy Focus Fund commenced operations on 2/28/92.
14
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
DECEMBER 31, 1995
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SEPARATE ACCOUNT AVERAGE ANNUAL TOTAL RETURNS*
RETIREMENT PLUS VARIABLE ANNUITY
- --------------------------------------------------------------------------------
YEAR FIVE YEARS TEN YEARS SINCE
ENDED ENDED ENDED INCEPTION
12/31/95 12/31/95 12/31/95 TO 12/31/95
- --------------------------------------------------------------------------------
AMERICAN BALANCED FUND +12.29% + 8.90% -- + 8.61%+
- --------------------------------------------------------------------------------
BASIC VALUE FOCUS FUND +17.62% -- -- +11.61%++
- --------------------------------------------------------------------------------
DEVELOPING CAPITAL MARKETS FOCUS FUND - 7.92% -- -- - 8.09%+++
- --------------------------------------------------------------------------------
EQUITY GROWTH FUND +36.80% +16.89% + 7.24% --
- --------------------------------------------------------------------------------
FLEXIBLE STRATEGY FUND + 9.01% + 9.18% -- + 8.34%++++
- --------------------------------------------------------------------------------
GLOBAL STRATEGY FOCUS FUND + 2.27% -- -- + 5.79%+++++
- --------------------------------------------------------------------------------
GLOBAL UTILITY FOCUS FUND +16.45% -- -- + 5.02%++
- --------------------------------------------------------------------------------
HIGH CURRENT INCOME FUND + 8.62% +15.97% + 9.86% --
- --------------------------------------------------------------------------------
INTERMEDIATE GOVERNMENT BOND FUND + 6.15% -- -- + 4.83%+++
- --------------------------------------------------------------------------------
INTERNATIONAL BOND FUND + 7.83% -- -- + 4.81%+++
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY FOCUS FUND - 2.08% -- -- + 3.27%++
- --------------------------------------------------------------------------------
NATURAL RESOURCES FOCUS FUND + 5.22% + 3.53% -- + 2.97%+
- --------------------------------------------------------------------------------
PRIME BOND FUND +11.34% + 7.82% + 7.26% --
- --------------------------------------------------------------------------------
QUALITY EQUITY FUND +14.29% +11.22% +11.14% --
- --------------------------------------------------------------------------------
WORLD INCOME FOCUS FUND + 8.28% -- -- + 3.65%++
- --------------------------------------------------------------------------------
</TABLE>
* Returns are calculated as if the contract were surrendered at the end of
the periods shown and assume the separate account had been in existence and a
contract had been in force during the periods shown. They reflect separate
account charges deducted daily at an annual rate of 1.25% mortality and
expense risk charge, and a 0.10% administrative charge. In addition, a
contingent deferred sales charge incrementally decreasing from 7% in the
first year a premium is invested in the contract to 0% the eighth year and
later that the premium remains in the contract, deducted on the last day of
the period shown, and a contract maintenance charge of $40 are reflected. All
charges and fees are described in the product prospectuses. See those
prospectuses for more complete information.
+ The Fund commenced operations on 6/01/88.
++ The Fund commenced operations on 7/01/93.
+++ The Fund commenced operations on 5/02/94.
++++ The Fund commenced operations on 5/01/86.
+++++ The Fund commenced operations on 2/28/92.
Investment results and principal value will fluctuate so that an investment may
be worth more or less than its original cost. Past performance illustrated
should not be considered a representation of future performance.
15
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
DECEMBER 31, 1995
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SEPARATE ACCOUNT AVERAGE ANNUAL TOTAL RETURNS*
PORTFOLIO PLUS VARIABLE ANNUITY
- --------------------------------------------------------------------------------
YEAR FIVE YEARS TEN YEARS SINCE
ENDED ENDED ENDED INCEPTION
12/31/95 12/31/95 12/31/95 TO 12/31/95
- --------------------------------------------------------------------------------
AMERICAN BALANCED FUND +14.96% + 8.83% -- +8.39%+
- --------------------------------------------------------------------------------
EQUITY GROWTH FUND +39.50% +16.88% + 7.37% --
- --------------------------------------------------------------------------------
FLEXIBLE STRATEGY FUND +11.67% + 9.12% -- +8.45%++
- --------------------------------------------------------------------------------
HIGH CURRENT INCOME FUND +11.29% +15.94% + 9.99% --
- --------------------------------------------------------------------------------
NATURAL RESOURCES FOCUS FUND + 7.90% + 3.41% -- +2.60%+++
- --------------------------------------------------------------------------------
PRIME BOND FUND +14.01% + 7.74% + 7.38% --
- --------------------------------------------------------------------------------
QUALITY EQUITY FUND +16.96% +11.16% +11.26% --
- --------------------------------------------------------------------------------
</TABLE>
* Returns are calculated as if the contract were surrendered at the end of
the periods shown. They reflect separate account charges deducted daily at an
annual rate of 1.25% mortality and expense risk charge, and 0.05%
distribution expense charge. (Family Life Insurance Company contracts are
assessed a 1.30% mortality and expense risk charge and no distribution
expense charge.) In addition, a contingent deferred sales charge of 5% for
the first seven years the premium remains in the contract, deducted on the
last day of the period shown, and a contract administration charge of $30 are
reflected. All charges and fees are described in the product prospectuses.
See those prospectuses for more complete information.
Charges reflected are for non-qualified contracts. Qualified contracts have a
lower expense risk charge. Average annual total returns for those contract
owners would, therefore, be higher than the returns shown above.
+ The Fund commenced operations on 6/01/88.
++ The Fund commenced operations on 5/01/86.
+++ The Fund commenced operations on 6/01/88.
Investment results and principal value will fluctuate so that an investment may
be worth more or less than its original cost. Past performance illustrated
should not be considered a representation of future performance.
16
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
DECEMBER 31, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
SEPARATE ACCOUNT AVERAGE ANNUAL TOTAL RETURNS*
INVESTOR LIFE/INVESTOR LIFE PLUS VARIABLE LIFE INSURANCE POLICIES
- --------------------------------------------------------------------------------------
YEAR SINCE
ENDED INCEPTION
12/31/95 TO 12/31/95
- --------------------------------------------------------------------------------------
BASIC VALUE FOCUS FUND +15.36% +11.75%+
- --------------------------------------------------------------------------------------
DEVELOPING CAPITAL MARKETS FOCUS FUND -10.97% -10.14%++
- --------------------------------------------------------------------------------------
GLOBAL UTILITY FOCUS FUND +14.21% + 5.15%+
- --------------------------------------------------------------------------------------
INTERNATIONAL BOND FUND + 6.31% + 3.50%++
- --------------------------------------------------------------------------------------
INTERNATIONAL EQUITY FOCUS FUND - 4.47% - 4.23%+
- --------------------------------------------------------------------------------------
WORLD INCOME FOCUS FUND + 6.65% + 3.07%+
- --------------------------------------------------------------------------------------
</TABLE>
* Returns reflect a separate account mortality and expense risk charge at an
annual rate of 0.90% and a deferred contract load of 9%. They do not reflect
quarterly cost of insurance. Returns would be lower if they reflected the
deduction for cost of insurance, which can vary by age, sex, and rating class
of the insured, and by each contract's net amount at risk. All charges and
fees are described in the product prospectuses. See those prospectuses for
more complete information.
+ Funds commenced operations on 7/1/93.
++ Funds commenced operations on 5/2/94.
Investment results and principal value will fluctuate so that an investment may
be worth more or less than its original cost. Past performance illustrated
should not be considered a representation of future performance.
17
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
DECEMBER 31, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
SEPARATE ACCOUNT AVERAGE ANNUAL TOTAL RETURNS*
ESTATE INVESTOR I & II VARIABLE LIFE INSURANCE POLICIES
- -------------------------------------------------------------------------------
YEAR SINCE
ENDED INCEPTION
12/31/95 TO 12/31/95
- -------------------------------------------------------------------------------
BASIC VALUE FOCUS +24.36% +16.82%+
- -------------------------------------------------------------------------------
GLOBAL UTILITY FOCUS +23.21% +10.41%+
- -------------------------------------------------------------------------------
INTERNATIONAL EQUITY FOCUS + 4.53% + 1.25%+
- -------------------------------------------------------------------------------
WORLD INCOME FOCUS +15.65% + 8.36%+
- -------------------------------------------------------------------------------
DEVELOPING CAPITAL MARKETS FOCUS - 1.97% - 4.47%++
- -------------------------------------------------------------------------------
INTERNATIONAL BOND +15.31% + 8.78%++
- -------------------------------------------------------------------------------
</TABLE>
* Returns assume the separate account had been in existence and a contract had
been in force during the periods shown. They reflect the separate account
mortality and expense risks charge at an annual rate of 0.90%. Returns do not
reflect contract loading or quarterly cost of insurance, which varies by age,
sex and underwriting class of the insured and the contract's net amount at
risk. Returns would be lower if these two charges were reflected. Refer to the
product prospectus which contains a more complete description of all charges
and fees.
When contract loading is reflected, the returns for One Year and Since
Inception, respectively, would be: Basic Value Focus Fund, -37.82%, -22.95%;
Global Utility Focus, -38.39%, -27.17%; International Equity Focus, -47.74%,
-33.21%; World Income Focus, -42.18%, -28.53%; Developing Capital Markets
Focus, -50.99%, -36.99; and International Bond, -42.35%, -28.25%.
+ Funds commenced operations on 7/1/93.
++ Funds commenced operations on 5/2/94.
Investment results and principal value will fluctuate so that an investment may
be worth more or less than its original cost. Past performance illustrated
should not be considered a representation of future performance.
18
<PAGE>
AMERICAN BALANCED FUND
TOTAL RETURN BASED ON A $10,000 INVESTMENT
A line graph depicting the growth of an investment in the Fund compared to
growth of an investment in the S&P 500 Index and a Weighted Index. Beginning
and ending values are:
6/01/88** 12/95
----------- -----------
American Balanced Fund*+ $10,000 $20,853
S&P 500 Index++ $10,000 $29,211
Weighted Index+++ $10,000 $21,413
* Assuming transaction costs and other operating expenses, including advisory
fees. Does not include insurance-related fees and expenses.
** Commencement of Operations.
+ American Balanced Fund invests in a balanced portfolio of fixed-income and
equity securities.
++ This unmanaged broad-based Index is comprised of common stocks.
+++ This unmanaged Index, which is an equally weighted blend of the
Three-Month Treasury Bill Index, the Merrill Lynch B0A0 Index, and the S&P 500
Index, is comprised of US Treasury Bills maturing in up to 3 months,
investment-grade bonds, and common stocks.
Past performance is not predictive of future performance.
BASIC VALUE FOCUS FUND
TOTAL RETURN BASED ON $10,000 INVESTMENT
A line graph depicting the growth of an investment in the Fund compared to
growth of an investment in the S&P 500 Index. Beginning and ending values are:
7/01/93** 12/95
----------- -----------
Basic Value Focus Fund*+ $10,000 $14,065
S&P 500 Index++ $10,000 $14,672
* Assuming transaction costs and other operating expenses, including advisory
fees. Does not include insurance-related fees and expenses.
** Commencement of Operations.
+ Basic Value Focus Fund invests primarily in equities that Fund Management
believes are undervalued.
++ This unmanaged broad-based Index is comprised of common stocks.
Past performance is not predictive of future performance.
19
<PAGE>
DEVELOPING CAPITAL MARKETS FOCUS FUND
TOTAL RETURN BASED ON A $10,000 INVESTMENT
A line graph depicting the growth of an investment in the Fund compared to
growth of an investment in the Morgan Stanley Capital International EAFE Index.
Beginning and ending values are:
5/02/94** 12/95
----------- -----------
Developing Capital Markets
Focus Fund*+ $10,000 $ 9,407
Morgan Stanley Capital
International EAFE Index++ $10,000 $11,110
* Assuming transaction costs and other operating expenses, including advisory
fees. Does not include insurance-related fees and expenses.
** Commencement of Operations.
+ Developing Capital Markets Focus Fund invests in securities, principally
equities, of issuers in countries having smaller capital markets
++ This unmanaged Index measures the total returns of developed foreign stock
markets in Europe, Asia and the Far East, calculated in US dollars.
Past performance is not predictive of future performance.
EQUITY GROWTH FUND
TOTAL RETURN BASED ON A $10,000 INVESTMENT
A line graph depicting the growth of an investment in the Fund compared to
growth of an investment in the Russell 1000 Growth Index. Beginning and ending
values are:
12/85 12/95
----------- -----------
Equity Growth Fund*+ $10,000 $23,325
Russell 1000 Growth Index++ $10,000 $39,364
Russell 2000 Growth Index+++ $10,000 $26,160
* Assuming transaction costs and other operating expenses, including advisory
fees. Does not include insurance-related fees and expenses.
+ Equity Growth Fund invests primarily in common stocks of small companies and
emerging growth companies regardless of size.
++ This unmanaged broad-based index is comprised of a representative sampling
of the common stocks of 1,000 of the largest publicly traded companies
domiciled in the United States.
+++ This unmanaged broad-based index is comprised of the common stock of the
bottom two thirds of the largest 3,000 publicly traded companies domiciled in
the United States.
Past performance is not predictive of future performance
20
<PAGE>
FLEXIBLE STRATEGY FUND
TOTAL RETURN BASED ON A $10,000 INVESTMENT
A line graph depicting the growth of an investment in the Fund compared to
growth of an investment in the S&P 500 Index and a Weighted Index. Beginning
and ending values are:
5/01/86** 12/95
----------- -----------
Flexible Strategy Fund*+ $10,000 $24,918
S&P 500 Index++ $10,000 $35,482
Weighted Index+++ $10,000 $28,891
* Assuming transaction costs and other operating expenses, including advisory
fees. Does not include insurance-related fees and expenses.
** Commencement of Operations.
+ Flexible Strategy Fund, through a flexible investment policy, invests in
equity securities, intermediate- and long-term debt obligations and money
market securities of domestic and foreign issuers.
++ This unmanaged broad-based Index is comprised of common stocks.
+++ This unmanaged Index, which is an equally weighted blend of the S&P 500
Index and the Merrill Lynch B0A0 Index, is comprised of common stocks as well
as investment-grade bonds.
Past performance is not predictive of future performance.
GLOBAL STRATEGY FOCUS FUND
TOTAL RETURN BASED ON A $10,000 INVESTMENT
A line graph depicting the growth of an investment in the Fund compared to
growth of an investment in the Morgan Stanley Capital International World
Index and a Weighted Index. Beginning and ending values are:
2/28/92** 12/95
----------- -----------
Global Strategy Focus Fund*+ $10,000 $13,537
Morgan Stanley Capital
International World Index++ $10,000 $15,277
Weighted Index+++ $10,000 $14,634
* Assuming transaction costs and other operating expenses, including advisory
fees. Does not include insurance-related fees and expenses.
** Commencement of Operations.
+ Global Strategy Focus Fund invests primarily in a portfolio of equity and
fixed-income securities of US and foreign issuers.
++ This unmanaged market capitalization-weighted index is comprised of a
representative sampling of stocks of large-, medium-, and small-
capitalization companies in 22 countries, including the United States.
+++ This unmanaged Index, which is an equally weighted blend of the Morgan
Stanley World Index, the Salomon Brothers World Government Bond Index, and
the Salomon Brothers World Money Market Index, is comprised of a
representative sampling of stocks of large-, medium-, and
small-capitalization companies in 22 countries, government bonds and
money market securities in the major markets, including the United
States.
Past performance is not predictive of future performance.
21
<PAGE>
GLOBAL UTILITY FOCUS FUND
TOTAL RETURN BASED ON A $10,000 INVESTMENT
A line graph depicting the growth of an investment in the Fund compared to
growth of an investment in the Financial Times/S&P-Actuaries World Index and
the Financial Times-Actuaries World Utilities Index. Beginning and ending
values are:
7/01/93** 12/95
----------- -----------
Global Utility Focus Fund*+ $10,000 $12,154
Financial Times/S&P-Actuaries
World Index++ $10,000 $13,435
Financial Times/S&P-Actuaries
World Utilities Index+++ $10,000 $11,912
* Assuming transaction costs and other operating expenses, including advisory
fees. Does not include insurance-related fees and expenses.
** Commencement of Operations.
+ Global Utility Focus Fund invests at least 65% of total assets in equity and
debt securities of domestic and foreign firms involved in electricity,
telecommunications, gas or water.
++ This unmanaged market capitalization-weighted Index is comprised of nearly
2,200 equities from 24 countries in 12 regions, including the United States.
+++ This unmanaged market capitalization-weighted Index is comprised of
utility stocks from any of the 24 countries that make up the Financial
Times/S&P--Actuaries World Index.
Past performance is not predictive of future performance.
HIGH CURRENT INCOME FUND
TOTAL RETURN BASED ON A $10,000 INVESTMENT
A line graph depicting the growth of an investment in the Fund compared to
growth of an investment in the First Boston High Yield Index. Beginning and
ending values are:
12/85 12/95
----------- -----------
High Current Income Fund*+ $10,000 $29,603
First Boston High Yield Index++ $10,000 $30,498
* Assuming transaction costs and other operating expenses, including advisory
fees. Does not include insurance-related fees and expenses.
+ High Current Income Fund invests principally in fixed-income securities,
which are rated in the lower rating categories of the established rating
services or in unrated securities of comparable quality.
++ This unmanaged market-weighted Index of high-yield debt securities is
comprised of 423 securities rated BBB or lower.
Past performance is not predictive of future performance.
22
<PAGE>
INTERMEDIATE GOVERNMENT FUND
TOTAL RETURN BASED ON A $10,000 INVESTMENT
A line graph depicting the growth of an investment in the Fund compared to
growth of an investment in the Merrill Lynch G402 Index. Beginning and ending
values are:
5/02/94** 12/95
----------- -----------
Intermediate Government Fund*+ $10,000 $11,688
Merrill Lynch G402 Index++ $10,000 $12,310
* Assuming transaction costs and other operating expenses, including advisory
fees. Does not include insurance-related fees and expenses.
** Commencement of Operations.
+ Intermediate Government Bond Fund invests only in securities issued or
guaranteed by the US Government and its agencies with a maximum maturity not
to exceed 15 years.
++ This unmanaged Index is comprised of intermediate-term US Government bond
and US Treasury securities maturing in 7-10 years.
Past performance is not predictive of future performance.
INTERNATIONAL BOND FUND
TOTAL RETURN BASED ON A $10,000 INVESTMENT
A line graph depicting the growth of an investment in the Fund compared to
growth of an investment in the JP Morgan Non-US Dollar Government Bond Index.
Beginning and ending values are:
5/02/94** 12/95
----------- -----------
International Bond Fund*+ $10,000 $11,678
JP Morgan Non-US Dollar
Government Bond Index++ $10,000 $12,500
* Assuming transaction costs and other operating expenses, including advisory
fees. Does not include insurance-related fees and expenses.
** Commencement of Operations.
+ International Bond Fund invests only in a non-US international portfolio of
debt instruments denominated in various currencies and multinational currency
units.
++ This unmanaged Index is comprised of global government bonds of the
economies of the Organization for Economic Organization and Development, other
than the United States.
Past performance is not predictive of future performance.
23
<PAGE>
INTERNATIONAL EQUITY FOCUS FUND
TOTAL RETURN BASED ON A $10,000 INVESTMENT
A line graph depicting the growth of an investment in the Fund compared to
growth of an investment in the Financial Times/S&P-Actuaries World Ex-US Index.
Beginning and ending values are:
7/01/93** 12/95
----------- -----------
International Equity Focus Fund*+ $10,000 $11,698
Financial Times/S&P-Actuaries
Ex-US Index Index++ $10,000 $12,827
* 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
foreign countries, both developed and developing, throughout the world.
++ This unmanaged capitalization-weighted index is comprised of over 1,800
companies in 24 countries, excluding the United States.
Past performance is not predictive of future performance.
NATURAL RESOURCES FOCUS FUND
TOTAL RETURN BASED ON A $10,000 INVESTMENT
A line graph depicting the growth of an investment in the Fund compared to
growth of an investment in the S&P Industrials Index, the Consumer Price Index
and the Lipper Natural Resources Aveerage. Beginning and ending values are:
6/01/88** 12/95
----------- -----------
Natural Resources Focus Fund*+ $10,000 $13,778
S&P Industrials Index++ $10,000 $29,272
Lipper Natural Resources Average+++ $10,000 $18,453
Consumer Price Index++++ $10,000 $13,096
* Assuming transaction costs and other operating expenses, including advisory
fees. Does not include insurance-related fees and expenses.
** Commencement of Operations.
+ Natural Resources Focus Fund invests primarily in a portfolio of equity
securities of domestic and foreign companies with substantial natural
resource assets.
++ This unmanaged Index measures the pattern of movements of the common
stocks of 400 large industrial companies and their weighting by
capitalization.
+++ This unmanaged Index is comprised of all US mutual funds classified as
natural resource-related funds.
++++ This unmanaged Index is the most widely used index of price changes over
time and is designed to measure changes in the typical market basket of
purchases by urban consumers.
Past performance is not predictive of future performance.
24
<PAGE>
PRIME BOND FUND
TOTAL RETURN BASED ON A $10,000 INVESTMENT
A line graph depicting the growth of an investment in the Fund compared to
growth of an investment in the Merrill Lynch C0A0 Index. Beginning and ending
values are:
12/85 12/95
----------- -----------
Prime Bond Fund*+ $10,000 $23,321
Merrill Lynch C0A0 Index++ $10,000 $27,146
* Assuming transaction costs and other operating expenses, including advisory
fees. Does not include insurance-related fees and expenses.
+ Prime Bond Fund invests primarily in long-term corporate bonds rated A or
better by either Standard & Poor's Corp. or Moody's Investors Service, Inc.
++ This unmanaged broad-based Index is comprised of all industrialized bonds
rated BBB3 of higher, of all maturities.
Past performance is not predictive of future performance.
QUALITY EQUITY FUND
TOTAL RETURN BASED ON A $10,000 INVESTMENT
A line graph depicting the growth of an investment in the Fund compared to
growth of an investment in the S&P 500 Index. Beginning and ending
values are:
12/85 12/95
----------- -----------
Quality Equity Fund*+ $10,000 $33,146
S&P 500 Index++ $10,000 $40,109
* Assuming transaction costs and other operating expenses, including advisory
fees. Does not include insurance-related fees and expenses.
+ Quality Equity Fund, which uses a fully managed investment policy, invests
primarily in common stocks of large-capitalization companies, as well as
investment-grade debt and convertible securities.
++ This unmanaged broad-based Index is comprised of all common stocks.
Past performance is not predictive of future performance.
25
<PAGE>
WORLD INCOME FOCUS FUND
TOTAL RETURN BASED ON A $10,000 INVESTMENT
A line graph depicting the growth of an investment in the Fund compared to
growth of an investment in the Merrill Lynch G5A0 Index and a Weighted Index.
Beginning and ending values are:
7/01/93** 12/95
----------- -----------
World Income Focus Fund*+ $10,000 $11,834
Merrill Lynch G5A0 Index++ $10,000 $11,526
Weighted Index+++ $10,000 $14,188
* Assuming transaction costs and other operating expenses, including advisory
fees. Does not include insurance-related fees and expenses.
** Commencement of Operations.
+ World Income Focus Fund invests in US and foreign government and corporate
bonds, including US high-yield bonds.
++ This unmanaged Index is comprised of intermediate-term Government bonds
maturing in one to ten years.
+++ The weighted index consists of 40% High Yield Master Index MLJ0A0 and 60%
JP Morgan Global Government Bond Index excluding Japan.
Past performance is not predictive of future performance.
26
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--AMERICAN BALANCED FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
SHARES VALUE PERCENT OF
INDUSTRY HELD COMMON STOCKS COST (NOTE 1A) NET ASSETS
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AEROSPACE 20,000 Boeing Co.. . . . . . . . . . . . . . $ 1,465,078 $ 1,567,500 0.7%
42,000 United Technologies Corp. . . . . . . 2,368,095 3,984,750 1.9
--------------- --------------- -----------
3,833,173 5,552,250 2.6
- -------------------------------------------------------------------------------------------------------------------------------
APPLIANCES 60,000 Whirlpool Corp.. . . . . . . . . . . 3,469,400 3,195,000 1.5
- -------------------------------------------------------------------------------------------------------------------------------
AUTO & TRUCK 120,000 Ford Motor Co.. . . . . . . . . . . . 3,234,604 3,480,000 1.6
- -------------------------------------------------------------------------------------------------------------------------------
BANKING 45,000 Bank of New York, Inc.. . . . . . . . 2,126,624 2,193,750 1.0
- -------------------------------------------------------------------------------------------------------------------------------
CHEMICALS 55,100 Eastman Chemical Co.. . . . . . . . . 2,468,862 3,450,638 1.6
- -------------------------------------------------------------------------------------------------------------------------------
COMPUTER SERVICES 40,000 General Motors Corp. (Class E). . . . 2,058,814 2,080,000 1.0
- -------------------------------------------------------------------------------------------------------------------------------
ELECTRONIC/INSTRUMENTS 57,900 Corning Inc.. . . . . . . . . . . . . 1,598,515 1,852,800 0.9
27,000 Texas Instruments Inc.. . . . . . . . 1,621,890 1,397,250 0.7
--------------- --------------- -----------
3,220,405 3,250,050 1.6
- -------------------------------------------------------------------------------------------------------------------------------
ENERGY RELATED 14,800 +California Energy Co., Inc.. . . . . 251,600 288,600 0.1
- -------------------------------------------------------------------------------------------------------------------------------
ENVIRONMENTAL CONTROL 197,792 Wheelabrator Technologies, Inc.. . . 3,340,872 3,313,016 1.6
- -------------------------------------------------------------------------------------------------------------------------------
HARDWARE PRODUCTS 67,700 Stanley Works Co. (The). . . . . . . 2,802,105 3,486,550 1.6
- -------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE 172,400 +Humana, Inc.. . . . . . . . . . . . . 2,449,466 4,719,450 2.2
- -------------------------------------------------------------------------------------------------------------------------------
INSURANCE 30,000 Aetna Life & Casualty Co.. . . . . . 2,232,630 2,077,500 1.0
50,000 Allstate Corp.. . . . . . . . . . . . 2,046,610 2,056,250 1.0
43,200 National Re Corp.. . . . . . . . . . 1,400,864 1,641,600 0.8
--------------- --------------- -----------
5,680,104 5,775,350 2.8
- -------------------------------------------------------------------------------------------------------------------------------
1,726,248 1,586,250 0.7
METALS 30,000 Aluminum Co. of America. . . . . . .
- -------------------------------------------------------------------------------------------------------------------------------
NATURAL GAS 18,100 Enron Corp.. . . . . . . . . . . . . 684,228 690,062 0.3
- -------------------------------------------------------------------------------------------------------------------------------
PETROLEUM 27,000 Pennzoil Co.. . . . . . . . . . . . . 1,067,242 1,140,750 0.5
- -------------------------------------------------------------------------------------------------------------------------------
PETROLEUM & EQUIPMENT SERVICES 160,300 Dresser Industries, Inc.. . . . . . . 3,300,993 3,907,312 1.8
- -------------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS 90,000 Abbott Laboratories. . . . . . . . . 2,827,672 3,757,500 1.8
101,000 Merck & Co., Inc.. . . . . . . . . . 3,482,470 6,640,750 3.1
--------------- --------------- -----------
6,310,142 10,398,250 4.9
- -------------------------------------------------------------------------------------------------------------------------------
PHOTOGRAPHY 67,400 Eastman Kodak Co.. . . . . . . . . . 2,909,430 4,515,800 2.1
- -------------------------------------------------------------------------------------------------------------------------------
RETAIL 41,000 Sears, Roebuck & Co.. . . . . . . . . 1,634,436 1,599,000 0.8
- -------------------------------------------------------------------------------------------------------------------------------
SCIENTIFIC EQUIPMENT 80,000 Fisher Scientific International, Inc. 2,468,552 2,670,000 1.3
- -------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS 67,800 AT&T Corp.. . . . . . . . . . . . . . 3,588,830 4,390,050 2.1
59,600 Bell Atlantic Corp.. . . . . . . . . 3,218,314 3,985,750 1.9
--------------- --------------- -----------
6,807,144 8,375,800 4.0
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS 61,844,444 75,667,878 35.6
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--AMERICAN BALANCED FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995 (CONCLUDED)
<TABLE>
<CAPTION>
FACE VALUE PERCENT OF
AMOUNT US GOVERNMENT OBLIGATIONS COST (NOTE 1A) NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
US TREASURY NOTES US Treasury Notes:
$ 12,550,000 6.25% due 2/15/2003. . . . . . . . . . $ 12,863,703 $ 13,093,164 6.1%
8,750,000 5.75% due 8/15/2003. . . . . . . . . . 8,756,820 8,855,263 4.2
11,300,000 7.25% due 5/15/2004. . . . . . . . . . 11,427,203 12,543,000 5.9
30,500,000 7.25% due 8/15/2004. . . . . . . . . . 30,594,766 33,916,915 15.9
10,000,000 7.875% due 11/15/2004. . . . . . . . . 10,003,750 11,575,000 5.4
19,500,000 6.50% due 8/15/2005. . . . . . . . . . 19,528,063 20,773,545 9.8
---------------- ---------------- --------------
93,174,305 100,756,887 47.3
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL US GOVERNMENT OBLIGATIONS 93,174,305 100,756,887 47.3
- -----------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM SECURITIES
- -----------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER* 8,837,000 General Electric Capital Corp.,
5.90% due 1/02/1996. . . . . . . . . . 8,831,207 8,831,207 4.1
2,000,000 Sandoz Corp., 5.75% due 1/29/1996. . . 1,990,097 1,990,097 0.9
---------------- ---------------- --------------
10,821,304 10,821,304 5.0
- -----------------------------------------------------------------------------------------------------------------------------------
US GOVERNMENT & Federal National Mortgage Association:
AGENCY OBLIGATIONS* 17,000,000 5.44% due 1/23/1996. . . . . . . . . . 16,935,778 16,935,778 8.0
3,000,000 5.45% due 2/02/1996. . . . . . . . . . 2,984,104 2,984,104 1.4
---------------- ---------------- --------------
19,919,882 19,919,882 9.4
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM SECURITIES 30,741,186 30,741,186 14.4
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS. . . . . . . . . . . $ 185,759,935 207,165,951 97.3
----------------
----------------
OTHER ASSETS LESS LIABILITIES. . . . . 5,746,263 2.7
---------------- --------
NET ASSETS. . . . . . . . . . . . . . $ 212,912,214 100.0%
---------------- --------
---------------- --------
- -----------------------------------------------------------------------------------------------------------------------------------
* Commercial Paper and certain US Government & Agency Obligations are traded on a discount basis; the interest rates shown are the
discount rates paid at the time of purchase by the Fund.
+ Non-income producing security.
</TABLE>
See Notes to Financial Statements.
28
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--BASIC VALUE FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
SHARES VALUE PERCENT OF
INDUSTRY HELD STOCKS COST (NOTE 1A) NET ASSETS
<S> <C> <C> <C> <C> <C>
DISCOUNT FROM BOOK VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
METALS--NON FERROUS 200,000 ASARCO Inc.. . . . . . . . . . . . . . $ 5,560,078 $ 6,400,001 2.1%
BANKING 115,000 Bankers Trust New York Corp.. . . . . 7,324,748 7,647,500 2.5
HOME--BUILDERS 300,000 +Beazer Homes USA, Inc.. . . . . . . . 4,726,724 6,187,500 2.0
RETAIL 1,250,000 Charming Shoppes, Inc.. . . . . . . . 4,542,678 3,515,625 1.2
SAVINGS & LOANS 425,000 +Greater N.Y. Savings Bank. . . . . . . 3,903,636 4,993,750 1.6
SAVINGS & LOANS 350,000 Klamath First Bancorp, Inc.. . . . . . 4,558,580 4,725,000 1.5
TECHNOLOGY 892,500 +Micronics Computers, Inc.. . . . . . . 3,961,500 3,123,750 1.0
TECHNOLOGY 350,000 +Storage Technology Corp.. . . . . . . 8,993,541 8,356,250 2.7
OIL--REFINERS 600,000 Total Petroleum Ltd.. . . . . . . . . 6,950,309 5,850,000 1.9
STEEL 500,000 +WHX Corp.. . . . . . . . . . . . . . . 5,555,716 5,437,500 1.8
------------- ------------- -----
56,077,510 56,236,876 18.3
- ---------------------------------------------------------------------------------------------------------------------------------
BELOW-AVERAGE PRICE/EARNINGS RATIO
- ---------------------------------------------------------------------------------------------------------------------------------
OIL--DOMESTIC 400,000 +American Exploration Co.. . . . . . . 4,320,000 4,500,000 1.5
TEXTILE 300,000 +Burlington Industries, Inc.. . . . . . 3,402,116 3,937,500 1.3
TECHNOLOGY 450,000 +Computervision Corp.. . . . . . . . . 5,182,593 6,918,750 2.2
RESTAURANTS 400,000 Darden Restaurants, Inc.. . . . . . . 4,190,320 4,750,000 1.5
FARM & CONSTRUCTION EQUIPMENT 200,000 Deere & Co.. . . . . . . . . . . . . . 5,763,000 7,050,000 2.3
RETAIL 200,000 Dillard Department Stores Inc.. . . . 5,604,050 5,700,000 1.9
CAPITAL GOODS 55,000 Eaton Corp.. . . . . . . . . . . . . . 2,768,865 2,949,375 1.0
MEDICAL SERVICES 170,000 +Foundation Health Corp.. . . . . . . . 5,212,568 7,310,000 2.4
AUTOMOTIVE 115,000 General Motors Corp.. . . . . . . . . 4,897,034 6,080,625 2.0
FOREST PRODUCTS & PAPER 200,000 International Paper Co.. . . . . . . . 7,553,471 7,575,000 2.5
OIL & GAS PRODUCERS 400,000 +Swift Energy Co.. . . . . . . . . . . 3,428,253 4,800,000 1.6
TECHNOLOGY 450,000 +SyQuest Technology, Inc.. . . . . . . 6,081,628 4,443,750 1.4
INFORMATION PROCESSING 600,000 +Tandem Computers, Inc.. . . . . . . . 7,341,921 6,375,000 2.1
INSURANCE 120,000 TIG Holdings, Ltd.. . . . . . . . . . 2,212,475 3,420,000 1.1
INSURANCE 60,000 Travelers Inc.. . . . . . . . . . . . 2,164,264 3,772,500 1.2
STEEL 200,000 USX-US Steel Group. . . . . . . . . . 6,442,753 6,150,000 2.0
TECHNOLOGY 350,000 +Western Digital Corp.. . . . . . . . . 5,776,739 6,256,250 2.0
------------- ------------- ---------
82,342,050 91,988,750 30.0
- ---------------------------------------------------------------------------------------------------------------------------------
ABOVE-AVERAGE YIELD
- ---------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST 170,000 Bay Apartment Communities, Inc.. . . . 3,289,250 4,122,500 1.3
PHARMACEUTICALS 50,000 Bristol-Myers Squibb Co.. . . . . . . 3,266,500 4,293,750 1.4
REAL ESTATE INVESTMENT TRUST 150,000 Camden Property Trust. . . . . . . . . 3,552,388 3,581,250 1.2
TELECOMMUNICATIONS 200,000 Comsat Corp.. . . . . . . . . . . . . 4,502,407 3,725,000 1.2
REAL ESTATE INVESTMENT TRUST 150,000 Evans Withycombe Residential, Inc. 3,013,687 3,225,000 1.0
REAL ESTATE INVESTMENT TRUST 200,000 Felcor Suite Hotels, Inc.. . . . . . . 4,559,750 5,550,000 1.8
AUTOMOTIVE 150,000 Ford Motor Co.. . . . . . . . . . . . 4,269,630 4,350,000 1.4
OIL/DOMESTIC 400,000 Occidental Petroleum Corp.. . . . . . 8,263,747 8,550,000 2.8
CHEMICALS 75,000 Olin Corp.. . . . . . . . . . . . . . 5,103,379 5,568,750 1.8
FINANCIAL SERVICES 120,000 Student Loan Marketing Association. . 4,600,626 7,905,000 2.6
SAVINGS & LOANS 200,000 Washington Mutual Savings Bank. . . . 4,325,030 5,725,000 1.9
OIL/INTERNATIONAL 350,000 Yacimientos Petroliferos Fiscales S.A.
(ADR) (a). . . . . . . . . . . . . . . 6,701,840 7,568,750 2.5
------------- ------------- -----
55,448,234 64,165,000 20.9
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--BASIC VALUE FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995 (CONCLUDED)
<TABLE>
<CAPTION>
SHARES VALUE PERCENT OF
INDUSTRY HELD STOCKS COST (NOTE 1A) NET ASSETS
<S> <C> <C> <C> <C> <C>
SPECIAL SITUATIONS
- -----------------------------------------------------------------------------------------------------------------------------
CONGLOMERATES 410,000 +ADT Ltd. (ADR)(a). . . . . . . . . . . $ 4,023,839 $ 6,150,000 2.0%
ENVIRONMENTAL SERVICES 749,000 +Allwaste, Inc.. . . . . . . . . . . . 4,019,112 3,557,750 1.2
MEDICAL SERVICES 600,000 +Applied Bioscience International Inc.. 3,131,814 4,050,000 1.3
PHOTOGRAPHY 80,000 Eastman Kodak Co.. . . . . . . . . . . 3,807,057 5,360,000 1.7
TECHNOLOGY 410,000 +Exabyte Corp.. . . . . . . . . . . . . 5,727,299 5,996,250 2.0
INFORMATION PROCESSING 73,700 International Business Machines Corp.. 6,578,580 6,761,975 2.2
HOTELS 428,600 John Q. Hammons Hotels, Inc.. . . . . 5,770,642 3,964,550 1.3
RETAIL SPECIALTY 100,000 The Limited, Inc.. . . . . . . . . . . 1,883,236 1,737,500 0.6
STEEL 550,000 +Lone Star Technologies, Inc.. . . . . 4,005,548 6,050,000 2.0
TELECOMMUNICATIONS 200,000 MCI Communications Corp.. . . . . . . 4,374,687 5,225,000 1.7
PHARMACEUTICALS 20,000 Merck & Co., Inc.. . . . . . . . . . . 604,700 1,315,000 0.4
AUTO--RELATED 375,000 +National Auto Credit, Inc.. . . . . . 4,184,203 6,093,750 2.0
SEMICONDUCTORS 100,000 +National Semiconductor Corp.. . . . . 2,292,800 2,225,000 0.7
OIL--RELATED 400,000 +TETRA Technologies, Inc.. . . . . . . 3,882,680 6,950,000 2.3
RETAIL 400,000 Woolworth Corp.. . . . . . . . . . . . 5,519,879 5,200,000 1.7
-------------- -------------- ------
59,806,076 70,636,775 23.1
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKS 253,673,870 283,027,401 92.3
- -----------------------------------------------------------------------------------------------------------------------------
FACE
AMOUNT SHORT-TERM SECURITIES
- -----------------------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER* $ 4,000,000 Ciesco L.P., 5.70% due 1/11/1996. . . 3,991,767 3,991,767 1.3
4,000,000 Daimler-Benz AG, 5.72%
due 1/26/1996. . . . . . . . . . . . . 3,982,204 3,982,204 1.3
3,778,000 General Electric Capital Corp., 5.90%
due 1/02/1996. . . . . . . . . . . . . 3,775,523 3,775,523 1.2
4,000,000 National Fleet Corp., 5.57% due
2/23/1996. . . . . . . . . . . . . . . 3,965,342 3,965,342 1.3
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER 15,714,836 15,714,836 5.1
- -----------------------------------------------------------------------------------------------------------------------------
US GOVERNMENT & AGENCY 10,000,000 Federal National Mortgage Association,
OBLIGATIONS* 5.59% due 1/18/1996. . . . . . . . . 9,968,944 9,968,944 3.3
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL US GOVERNMENT & AGENCY
OBLIGATIONS 9,968,944 9,968,944 3.3
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM SECURITIES 25,683,780 25,683,780 8.4
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS. . . . . . . . . . . $279,357,650 308,711,181 100.7
--------------
LIABILITIES IN EXCESS OF OTHER ASSETS. -- ---------- (2,248,288) (0.7)
----------- ------
NET ASSETS. . . . . . . . . . . . . . $306,462,893 100.0%
-------------- ------
-- ---------- -----
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commercial Paper and certain US Government & Agency obligations are traded on
a discount basis; the interest rates shown are the discount rates paid at the
time of purchase by the Fund.
(a) American Depositary Receipts (ADR).
+ Non-income producing security.
See Notes to Financial Statements.
30
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--DEVELOPING CAPITAL MARKETS FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
VALUE PERCENT OF
AFRICA INDUSTRY SHARES HELD INVESTMENTS COST (NOTE 1A) NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SOUTH AFRICA BEVERAGE & TOBACCO 83,700 Rembrandt Group Ltd.. . . . . $ 561,187 $ 803,814 1.5%
15,000 South African Breweries Ltd.. 344,669 549,458 1.0
-- -------- -- -------- ---- ----
905,856 1,353,272 2.5
---------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES 39,000 Nedcor Ltd.. . . . . . . . . 471,036 674,167 1.2
---------------------------------------------------------------------------------------------------------------
GOLD MINING 43,700 Beatrix Mines Ltd.. . . . . . 400,616 392,694 0.7
66,000 Kinross Mines Ltd. 707,287 620,250 1.1
-------- -------- ----
1,107,903 1,012,944 1.8
---------------------------------------------------------------------------------------------------------------
MINING 18,000 De Beers Consolidated
Mines Ltd. (ADR) (a). . . . . 454,723 545,754 1.0
33,900 Driefontein Consolidated Ltd.
(ADR) (a). . . . . . . . . . 484,124 419,513 0.8
-------- -------- ----
938,847 965,267 1.8
---------------------------------------------------------------------------------------------------------------
MULTI--INDUSTRY 6,000 ASA Ltd. (ADR) (a). . . . . . 281,052 222,750 0.4
22,000 The Morgan Stanley Africa
Investment Fund, Inc. (ADR)
(a). . . . . . . . . . . . . 254,320 283,250 0.5
18,000 New South Africa Fund, Inc.
(ADR) (a). . . . . . . . . . 257,580 270,000 0.5
18,000 Southern Africa Fund, Inc.
(ADR) (a). . . . . . . . . . 264,224 294,750 0.5
-- -------- -- -------- ---- ----
1,057,176 1,070,750 1.9
---------------------------------------------------------------------------------------------------------------
STEEL 403,499 South Africa Iron & Steel
Industrial Corp., Ltd.. . . 438,274 363,144 0.7
---------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
SOUTH AFRICA 4,919,092 5,439,544 9.9
---------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
AFRICA 4,919,092 5,439,544 9.9
- ----------------------------------------------------------------------------------------------------------------------------
EUROPE
- ----------------------------------------------------------------------------------------------------------------------------
GREECE BEVERAGE 14,400 Hellenic Bottling Co. S.A.. . 281,725 471,622 0.8
---------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
GREECE 281,725 471,622 0.8
- ----------------------------------------------------------------------------------------------------------------------------
HUNGARY FOOD 2,065 Pick Szeged
Reszvenytarsasag (ADR)
(a) (d). . . . . . . . . . . 141,347 76,983 0.1
---------------------------------------------------------------------------------------------------------------
HEALTH/PERSONAL CARE 26,000 Gideon Richter (GDR) (b). . . 474,500 499,200 0.9
---------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS 1,100 +Magyar TavKozlesi
Reszvenytarsasag
(Ordinary). . . . . . . . . . 174,885 168,326 0.3
---------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
HUNGARY 790,732 744,509 1.3
- ----------------------------------------------------------------------------------------------------------------------------
POLAND MULTI--INDUSTRY 182,551 +Mostostal-Export S.A.. . . . 469,280 359,323 0.7
---------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
POLAND 469,280 359,323 0.7
- ----------------------------------------------------------------------------------------------------------------------------
PORTUGAL ENGINEERING & 32,500 Sociedade de Construcoes
CONSTRUCTION Soares de Costa S.A.. . . . . 550,438 369,744 0.7
---------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
PORTUGAL 550,438 369,744 0.7
- ----------------------------------------------------------------------------------------------------------------------------
RUSSIA MULTI--INDUSTRY 134,688 +Fleming Russia Securities
Fund (ADR) (a). . . . . . . . 1,198,948 740,784 1.3
---------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
RUSSIA 1,198,948 740,784 1.3
- ----------------------------------------------------------------------------------------------------------------------------
SRI LANKA DIVERSIFIED 6,500 John Keells Holdings Corp.
(GDR) (b). . . . . . . . . . 65,000 34,125 0.1
---------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
SRI LANKA 65,000 34,125 0.1
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--DEVELOPING CAPITAL MARKETS FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995 (CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
EUROPE VALUE PERCENT OF
(CONCLUDED) INDUSTRY SHARES HELD INVESTMENTS COST (NOTE 1A) NET ASSETS
- -------------------------------------------------------------------------------------------------------------------------
TURKEY BUILDING MATERIALS 1,437,165 Alarko Holdings A.S.. . . . . $ 598,650 $ 581,992 1.1%
-------------------------------------------------------------------------------------------------------------
FOOD 9,269,000 +Dardanel Onentas Gida A.S.. . 608,632 405,998 0.7
-------------------------------------------------------------------------------------------------------------
INSURANCE 116,250 +Aksigorta A.S.. . . . . . . . 23,250 9,127 0.0
-------------------------------------------------------------------------------------------------------------
METAL FABRICATING 3,800,000 Eregli Demir Ve Celik
Fabrikalari T A.S.. . . . . . 507,414 314,050 0.6
-------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
TURKEY 1,737,946 1,311,167 2.4
- -------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
EUROPE 5,094,069 4,031,274 7.3
- -------------------------------------------------------------------------------------------------------------------------
LATIN
AMERICA
-------------------------------------------------------------------------------------------------------------
ARGENTINA OIL & RELATED 103,000 Compania Naviera Perez Companc
S.A.C.F.I.M.F.A.,
Class B. . . . . . . . . . . 494,603 545,845 1.0
20,800 Yacimientos Petroliferos
Fiscales S.A. (Sponsored)
(ADR) (a). . . . . . . . . . . 398,789 449,800 0.8
-- -------- -- -------- ---- ----
893,392 995,645 1.8
-------------------------------------------------------------------------------------------------------------
STEEL 129,000 Siderca S.A.. . . . . . . . . 100,461 125,118 0.2
-------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS 8,500 Telefonica de Argentina S.A.
(Class B) (ADR) (a). . . . . 245,003 231,625 0.4
-------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
ARGENTINA 1,238,856 1,352,388 2.4
- -------------------------------------------------------------------------------------------------------------------------
BRAZIL APPLIANCES 2,985,000 Brasmotor Group S.A.
(Preferred). . . . . . . . . 959,593 592,883 1.1
-------------------------------------------------------------------------------------------------------------
BANKING 1,064,349 Banco Bradesco S.A.
(ON Shares). . . . . . . . . . 7,568 9,310 0.0
45,520,000 Banco Bradesco S.A.
(Preferred). . . . . . . . . . 412,890 398,189 0.8
-------- -------- ----
420,458 407,499 0.8
-------------------------------------------------------------------------------------------------------------
BEVERAGE 1,900,000 Companhia Cervejaria
Brahma S.A. PN
(Preferred). . . . . . . . . . 643,289 782,154 1.4
-------------------------------------------------------------------------------------------------------------
FOODS 800,000 La Bombril S.A. PN (Preferred) 19,694 12,020 0.0
-------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS 32,780 Telecomunicacoes Brasileiras
S.A.--Telebras PN (ADR)
(a). . . . . . . . . . . . . . 1,337,550 1,552,953 2.8
7,155,745 Telecomunicacoes Brasileiras
S.A.--Telebras PN
(Preferred). . . . . . . . . . 267,474 344,642 0.6
-------- -------- ----
1,605,024 1,897,595 3.4
-------------------------------------------------------------------------------------------------------------
UTILITIES 29,513 Companhia Energetica de
Minas Gerais S.A. (CEMIG)
(ADR) (a). . . . . . . . . . . 558,442 630,840 1.1
20,000 Companhia Energetica de
Minas Gerais S.A. (CEMIG)
(ADR) (a) (d). . . . . . . . . 426,315 427,500 0.8
-------- -------- ----
984,757 1,058,340 1.9
-------------------------------------------------------------------------------------------------------------
UTILITIES--ELECTRIC 117,000 Centrais Eletricas Brasileiras
S.A.--Eletrobras 'B'
(Preferred). . . . . . . . . . 40,181 31,667 0.1
1,928,000 Light--Servicios de
Electricidade S.A.. . . . . . 806,939 617,071 1.1
-------- -------- ----
847,120 648,738 1.2
-------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
BRAZIL 5,479,935 5,399,229 9.8
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
32
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--DEVELOPING CAPITAL MARKETS FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995 (CONTINUED)
<TABLE>
<CAPTION>
LATIN
AMERICA
(CONCLUDED) VALUE PERCENT OF
- ------------INDUSTRY SHARES HELD INVESTMENTS COST (NOTE 1A) NET ASSETS
<S> <C> <C> <C> <C> <C> <C>
CHILE CLOSED-END FUNDS 6,500 The Chile Fund, Inc. (ADR) (a) $ 180,636 $ 169,000 0.3%
-------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS 7,500 Compania de Telefonos de Chile
S.A. (ADR) (a). . . . . . . . 639,600 621,563 1.1
-------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
CHILE 820,236 790,563 1.4
- -------------------------------------------------------------------------------------------------------------------------------
ECUADOR BUILDING MATERIALS 332 La Cemento Nacional C.A. (ADR)
(a) (d). . . . . . . . . . . 100,100 56,440 0.1
-------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
ECUADOR 100,100 56,440 0.1
- -------------------------------------------------------------------------------------------------------------------------------
MEXICO BEVERAGE 150,000 Fomento Economico
Mexicano, S.A. de C.V.
(Femsa) 'B'. . . . . . . . . . 438,253 336,576 0.6
24,000 Fomento Economico
Mexicano, S.A. de C.V.
(Femsa) 'B' (ADR) (a) (d). . . 67,488 51,000 0.1
-- --------- -- --------- --- ----
505,741 387,576 0.7
-----------------------------------------------------------------------------------
BUILDING & CONSTRUCTION 126,000 Apasco S.A. de C.V.. . . . . . 458,715 516,420 0.9
------------------------------------------ ---- ---
BUILDING MATERIALS 31,280 Cementos Mexicanos S.A. de
C.V.. . . . . . . . . . . . . 95,316 103,050 0.2
-------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES 77,000 +Banca Quadrum S.A. de C.V.
(ADR) (a). . . . . . . . . . . 510,125 385,000 0.7
-------------------------------------------------------------------------------------------------------------------
HEALTH & PERSONAL CARE 44,000 Kimberly-Clark de Mexico,
S.A. de C.V.. . . . . . . . . 461,632 664,280 1.2
-------------------------------------------------------------------------------------------------------------------
LEISURE 56,000 +Grupo Carso, S.A. de C.V.
'A1'. . . . . . . . . . . . . 562,674 302,879 0.6
-------------------------------------------------------------------------------------------------------------------
RETAIL STORES 24,000 +Sears Roebuck de Mexico,
S.A. de C.V. 'B'. . . . . . . 99,756 56,342 0.1
-------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS 19,400 Telefonos de Mexico, S.A. de
C.V. (ADR) (a). . . . . . . . 861,114 618,375 1.1
-------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN MEXICO 3,555,073 3,033,922 5.5
- -------------------------------------------------------------------------------------------------------------------------------
VENEZUELA BUILDING MATERIALS 96,100 +Corimon C.A. S.A. (ADR)
(a). . . . . . . . . . . . . . 696,568 360,375 0.7
-------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN VENEZUELA
696,568 360,375 0.7
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
LATIN AMERICA 11,890,768 10,992,917 19.9
- -------------------------------------------------------------------------------------------------------------------------------
MIDDLE
EAST
- -------------------------------------------------------------------------------------------------------------------------------
ISRAEL BANKING 358,000 +Bank Leumi Israel. . . . . . . 476,621 492,273 0.9
-------------------------------------------------------------------------------------------------------------------
MULTI--INDUSTRY 5,568 Koor Industries Ltd.. . . . . 477,651 552,057 1.0
-------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS 11,600 Teva Pharmaceutical
Industries Ltd. (ADR) (a). . . 474,069 536,500 1.0
-------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
ISRAEL 1,428,341 1,580,830 2.9
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
THE MIDDLE EAST 1,428,341 1,580,830 2.9
- -------------------------------------------------------------------------------------------------------------------------------
PACIFIC
BASIN/ASIA
- -------------------------------------------------------------------------------------------------------------------------------
AUSTRALIA BANKING 21,000 National Australia Bank Ltd.. 192,233 188,949 0.3
-------------------------------------------------------------------------------------------------------------------
MERCHANDISING 21,400 Amway Asia Pacific Ltd.
(ADR) (a). . . . . . . . . . . 732,865 762,375 1.4
-------------------------------------------------------------------------------------------------------------------
MULTI--INDUSTRY 82,000 Pacific Dunlop Ltd.++. . . . . 198,126 192,072 0.4
-------------------------------------------------------------------------------------------------------------------
RECREATION 34,900 +Crown Casino Ltd.. . . . . . . 46,935 64,879 0.1
-------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
AUSTRALIA 1,170,159 1,208,275 2.2
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
33
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--DEVELOPING CAPITAL MARKETS FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995 (CONTINUED)
<TABLE>
<CAPTION>
PACIFIC
BASIN/ASIA
(CONTINUED) SHARES HELD/ VALUE PERCENT OF
- ------------INDUSTRY FACE AMOUNT INVESTMENTS COST (NOTE 1A) NET ASSETS
<S> <C> <C> <C> <C> <C> <C>
HONG KONG AUTOMOTIVE 254,000 Sime Darby (Hong Kong) Ltd. $ 406,139 $ 244,736 0.4%
-----------------------------------------------------------------------------------------------------------------
BANKING 88,000 HSBC Holdings PLC (Warrants)
(c). . . . . . . . . . . . . 31,319 35,851 0.1
76,000 HSBC Holdings PLC (Warrants)
(c). . . . . . . . . . . . . 30,860 34,402 0.1
61,000 HSBC Holdings PLC (Warrants)
(c). . . . . . . . . . . . . 35,297 38,658 0.1
20,000 Hang Seng Bank Ltd. (Warrants)
(c). . . . . . . . . . . . . 5,250 6,079 0.0
500,000
JCG Holdings, Ltd.. . . . . . 371,726 365,365 ---- 0.7
-------- -------- ----
474,452 480,355 1.0
-----------------------------------------------------------------------------------------------------------------
CONGLOMERATES 270,000 Citic Pacific Ltd. (Warrants)
(c). . . . . . . . . . . . . 25,014 31,079 0.1
60,000 Citic Pacific Ltd. (Warrants)
(c). . . . . . . . . . . . . 6,374 7,760 0.0
440,000 Hutchison Whampoa Ltd.
(Warrants) (c). . . . . . .. 90,202 106,415 0.2
90,000 Hutchison Whampoa Ltd.
(Warrants) (c). . . . . . .. 19,525 24,444 0.0
140,000 Wharf (Holdings) Limited
(Warrants) (c). . . . . . . 7,823 8,057 0.0
-- -------- -- -------- ---- ----
148,938 177,755 0.3
-----------------------------------------------------------------------------------------------------------------
MULTI--INDUSTRY 3,570,000 Sinocan Holdings Ltd.. . . . 726,557 1,269,723 2.3
-----------------------------------------------------------------------------------------------------------------
OIL & GAS PRODUCERS 974,000 Zhenhai Refining & Chemical
Co., Ltd.. . . . . . . . . . 239,204 182,656 0.3
-----------------------------------------------------------------------------------------------------------------
PROPERTY 920,000 Cheung Kong (Holdings) Ltd.
(Warrants) (c). . . . . . . 217,729 255,820 0.5
794,000
Henderson Land Development
Co., Ltd. (Warrants) (c). . 164,149 166,358 0.3
-------- -------- ----
381,878 422,178 0.8
-----------------------------------------------------------------------------------------------------------------
REAL ESTATE 40,000 Sun Hung Kai Properties Ltd.
(Warrants) (c). . . . . . . . 8,599 9,312 0.0
-----------------------------------------------------------------------------------------------------------------
UTILITIES 367,000 China Light & Power
Company, Ltd. (Warrants)
(c).. . . . . . . . . . . . . 33,496 33,700 0.1
260,000 Hong Kong & China Gas Co.,
Ltd. (Warrants) (c). . . . . 9,897 9,247 0.0
150,000 Hong Kong Electric Holdings,
Ltd. (Warrants) (c). . . . . 8,530 7,760 0.0
-- -------- -- -------- ---- ----
51,923 50,707 0.1
-----------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
HONG KONG 2,437,690 2,837,422 5.2
- -----------------------------------------------------------------------------------------------------------------------------
INDIA AUTOMOTIVE 28,000 Ashok Leyland Ltd. (GDR) (b)
(d). . . . . . . . . . . . . 357,560 287,000 0.5
-----------------------------------------------------------------------------------------------------------------
BROADCASTING & 185,600 +Videocon International Ltd.
PUBLISHING (ADR) (a). . . . . . . . . . 839,737 501,120 0.9
-----------------------------------------------------------------------------------------------------------------
LEISURE 51,800 East India Hotels, Ltd. (ADR)
(a) (d). . . . . . . . . . . 820,294 919,450 1.7
-----------------------------------------------------------------------------------------------------------------
TEXTILES 22,000 +Reliance Industries (ADR)
(a)++. . . . . . . . . . . . 412,500 302,500 0.6
-----------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN INDIA 2,430,091 2,010,070 3.7
- -----------------------------------------------------------------------------------------------------------------------------
INDONESIA BANKING--INTERNATIONAL 222,000 P.T. Bank Bali. . . . . . . . 485,642 437,391 0.8
-----------------------------------------------------------------------------------------------------------------
BROADCASTING & US$765,000 P.T. Surya Citra Television
PUBLISHING (Convertible), 4% due
7/01/1997 (d). . . . . . . . 800,697 765,153 1.4
-----------------------------------------------------------------------------------------------------------------
BUILDING MATERIALS 170,000 P.T. Mulia Industrindo. . . . 505,363 480,079 0.9
-----------------------------------------------------------------------------------------------------------------
FOOD & TOBACCO 330,000 P.T. Wickaksana Overseas
International. . . . . . . . 938,974 881,349 1.6
-----------------------------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--DEVELOPING CAPITAL MARKETS FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995 (CONTINUED)
<TABLE>
<CAPTION>
PACIFIC
BASIN/ASIA VALUE PERCENT OF
(CONCLUDED) INDUSTRY SHARES HELD INVESTMENTS COST (NOTE 1A) NET ASSETS
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INDONESIA MINING 12,500 +P.T. Tambang Timah (GDR)
(CONCLUDED) (b) (d). . . . . . . . . . . $ 159,125 $ 145,375 0.3%
-------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS & 544,000 P.T. Kabelmetal Indonesia. . 705,466 446,585 0.8
EQUIPMENT
236,500 P.T. Supreme Cable
Manufacturing Corp. (GDR)
(b). . . . . . . . . . . . . 647,658 352,058 0.6
--------- --------- ----
1,353,124 798,643 1.4
-------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
INDONESIA 4,242,925 3,507,990 6.4
- -------------------------------------------------------------------------------------------------------------------------------
MALAYSIA BANKING 65,000 Malayan Banking BHD. . . . . 538,715 547,961 1.0
270,000 Public Bank (Malaysia) BHD
'Foreign'. . . . . . . . . . 507,714 516,919 0.9
-- --------- -- --------- --- ----
1,046,429 1,064,880 1.9
---------------------------------------------------------------------
BROADCASTING 174,000 Sistem Televisyen Malaysia
BHD. . . . . . . . . . . . . 505,957 627,181 1.1
FINANCIAL SERVICES 121,000 Commerce Asset--Holdings
BHD. . . . . . . . . . . . . 458,885 610,124 1.1
-------------------------------------------------------------------------------------------------------------------
STEEL 46,000 Maruichi (Malaysia) Steel
Tube BHD. . . . . . . . . . . 179,313 171,243 0.3
-------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS 69,000 Telekom Malaysia BHD. . . . . 503,276 538,192 1.0
-------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
MALAYSIA 2,693,860 3,011,620 5.4
- -------------------------------------------------------------------------------------------------------------------------------
NEW ZEALAND TRANSPORTATION 84,666 Ports of Auckland Ltd.. . . . 152,218 273,840 0.5
-------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
NEW ZEALAND 152,218 273,840 0.5
- -------------------------------------------------------------------------------------------------------------------------------
PHILIPPINES BANKING 15,100 Metropolitan Bank and Trust
Company. . . . . . . . . . . 304,113 293,819 0.5
30,000 Philippine Commercial
International Bank, Inc.. . . 249,139 276,994 0.5
--------- --------- ----
553,252 570,813 1.0
-------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN THE
PHILIPPINES 553,252 570,813 1.0
- -------------------------------------------------------------------------------------------------------------------------------
SINGAPORE AUTOMOBILES 41,000 Cycle & Carriage Ltd.. . . . 401,358 408,840 0.7
-------------------------------------------------------------------------------------------------------------------
BANKING 76,000 Development Bank of
Singapore Ltd.. . . . . . . . 893,689 945,969 1.7
-------------------------------------------------------------------------------------------------------------------
REAL ESTATE 138,000 City Developments Ltd.. . . . 859,813 1,005,233 1.8
-------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
SINGAPORE 2,154,860 2,360,042 4.2
- -------------------------------------------------------------------------------------------------------------------------------
SOUTH KOREA TELECOMMUNICATIONS 61,400 Korea Mobile
Telecommunications
Corp. (GDR) (b). . . . . . . 2,128,475 2,624,850 4.7
-------------------------------------------------------------------------------------------------------------------
UTILITIES--ELECTRIC 45,000 Korea Electric Power Corp.
(ADR) (a). . . . . . . . . . 937,520 1,203,750 2.2
-------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
SOUTH KOREA 3,065,995 3,828,600 6.9
- -------------------------------------------------------------------------------------------------------------------------------
TAIWAN ELECTRICAL & ELECTRONICS 17,000 Advanced Semiconductor
Engineering, Inc. (GDR) (b). 250,750 224,825 0.4
-------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN TAIWAN 250,750 224,825 0.4
- -------------------------------------------------------------------------------------------------------------------------------
THAILAND BANKING 63,000 Thai Farmers Bank, Ltd.. . . 594,557 635,504 1.2
-------------------------------------------------------------------------------------------------------------------
FINANCE 80,500 Finance One Public Company
Limited, Foreign. . . . . . . 538,049 508,320 0.9
-------------------------------------------------------------------------------------------------------------------
UTILITIES 15,300 Sanyo Universal Electric Co.,
Ltd.. . . . . . . . . . . . . 9,344 61,978 0.1
-------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
THAILAND 1,141,950 1,205,802 2.2
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN THE
PACIFIC BASIN/ASIA 20,293,750 21,039,299 38.1
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
35
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--DEVELOPING CAPITAL MARKETS FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995 (CONCLUDED)
<TABLE>
<CAPTION>
VALUE
- ------------------ FACE AMOUNT SHORT-TERM SECURITIES COST (NOTE 1A)
<S> <C> <C> <C> <C>
COMMERCIAL PAPER* US$ 2,295,000 General Electric Capital Corp.,
5.90% due 1/02/1996. . . . . . $ 2,293,496 $ 2,293,496
2,500,000 Goldman Sachs Group L.P.,
5.75% due 1/03/1996. . . . . . 2,498,004 2,498,004
1,000,000 National Fleet Funding Corp.,
5.75% due 1/10/1996. . . . . . 998,083 998,083
2,000,000 Riverwoods Funding Corp.,
5.77% due 1/12/1996. . . . . . 1,995,512 1,995,512
-- --------- -- ---------
7,785,095 7,785,095
- -------------------------------------------------------------------------------------------------------------------------
US GOVERNMENT & 2,950,000 Federal Home Loan Bank, 5.60%
AGENCY OBLIGATIONS* due 1/19/1996. . . . . . . . . 2,940,363 2,940,363
1,000,000 Federal Home Loan Mortgage
Corp., 5.43% due
1/22/1996. . . . . . . . . . . 996,380 996,380
-- --------- -- ---------
3,936,743 3,936,743
- -------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
SHORT-TERM SECURITIES 11,721,838 11,721,838
- -------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS. . . . . . . . . . . . . . . . . . . . . . . $55,347,858 54,805,702
-------------
OTHER ASSETS LESS LIABILITIES. . . . . . . . . . . . . . . . . ------------- 402,928
-- ---------
NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . $55,208,630
-------------
-------------
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
PERCENT OF
- ------------------ NET ASSETS
<S> <C>
COMMERCIAL PAPER*
4.2%
4.5
1.8
3.6
----- ------
14.1
- ----------------------------------
US GOVERNMENT &
AGENCY OBLIGATIONS* 5.3
1.8
----- ------
7.1
- ----------------------------------
21.2
- ----------------------------------
99.3
0.7
------------
100.0%
-------------
-------------
- ----------------------------------
</TABLE>
(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. The purchase price and number of shares are subject to adjustment
under certain conditions until the expiration date.
(d) Restricted security as to resale. The value of the Fund's investment in
restricted securities was approximately $2,729,000, representing 4.9% of net
assets.
<TABLE>
<CAPTION>
ACQUISITION VALUE
ISSUE DATE(S) COST (NOTE 1A)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Ashok Leyland Ltd. (GDR). . . . . . . . . . . . . . . . . . 7/07/1995 $ 357,560 $ 287,000
Companhia Energetica de Minas Gerais S.A. (CEMIG). . . . . 7/20/1995-8/01/1995 426,315 427,500
East India Hotels, Ltd. (ADR) 12/12/1994-7/10/1995 820,294 919,450
Fomento Economico Mexicano, S.A. de C.V. (Femsa) 'B' (ADR). 8/22/1995 67,488 51,000
La Cemento Nacional C.A.. . . . . . . . . . . . . . . . . . 1/05/1994 100,100 56,440
Pick Szeged Reszvenytarsasag (ADR) 6/01/1994 141,347 76,983
P.T. Surya Citra Television (Convertible), 4% due 7/01/1997 6/24/1994-3/31/1995 800,697 765,153
P.T. Tambang Timah (GDR). . . . . . . . . . . . . . . . . . 10/06/1995 159,125 145,375
- -------------------------------------------------------------------------------------------------------------
TOTAL $2,872,926 $ 2,728,901
------------ -------------
------------ -------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
* Commercial Paper and certain US Government & Agency Obligations are traded on
a discount basis; the interest rates shown are the discount rates paid at the
time of purchase by the Fund.
+ Non-income producing security.
++ Investment in companies 5% or more of whose outstanding securities are held
by the Fund (such companies are defined as "Affiliated Companies" in Section
2(a)(3) of the Investment Company Act of 1940) are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET SHARE NET DIVIDEND
INDUSTRY AFFILIATE ACTIVITY COST INCOME
- ---------------------------------------------------------------------------------- -------------
Multi-Industry Pacific Dunlop Ltd.. . . . . . 82,000 $ 198,126 $ 3,167
Textiles Reliance Industries Ltd. (ADR) 22,000 412,500 ++ --
TOTAL $ 610,626
----------------
----------------
- ---------------------------------------------------------------------------------------------------
</TABLE>
++ Non-income producing security.
36
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--DOMESTIC MONEY MARKET FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
FACE INTEREST MATURITY VALUE
AMOUNT ISSUE RATE* DATE (NOTE 1A)
<S> <C> <C> <C> <C> <C>
COMMERCIAL $ 3,500,000 Abbey National N.A. Corp.. . . . . . . . . . 5.44 % 5/30/96 $ 3,419,973
PAPER--37.6%
5,190,000 Allomon Funding Corp.. . . . . . . . . . . . 5.65 2/16/96 5,150,087
9,700,000 American Express Credit Corp.. . . . . . . . 5.62 4/11/96 9,546,438
5,229,000 Asset Securitization Cooperative Corp.. . . . 5.70 2/02/96 5,200,023
5,000,000 Beta Finance Inc.. . . . . . . . . . . . . . 5.50 3/29/96 4,930,486
1,596,000 CSW Credit, Inc.. . . . . . . . . . . . . . . 5.73 1/25/96 1,589,081
2,769,000 Ford Motor Credit, Co.. . . . . . . . . . . . 5.62 3/27/96 2,731,349
6,076,000 General Electric Capital Corp.. . . . . . . . 5.59 4/22/96 5,969,636
14,000,000 General Motors Acceptance Corp.. . . . . . . 5.80 2/01/96 13,923,311
1,836,000 Goldman Sachs Group L.P.. . . . . . . . . . . 5.60 4/04/96 1,808,890
3,625,000 Goldman Sachs Group L.P.. . . . . . . . . . . 5.60 4/12/96 3,567,060
5,191,000 Goldman Sachs Group L.P.. . . . . . . . . . . 5.60 4/18/96 5,103,289
5,000,000 Internationale Nederlanden (US) Funding Corp. 5.65 2/26/96 4,953,456
8,493,000 Internationale Nederlanden (US) Funding Corp. 5.60 2/28/96 8,412,411
6,358,000 McKenna Triangle National Corp.. . . . . . . 5.74 1/16/96 6,339,625
951,000 Premium Funding, Inc. (Series A). . . . . . . 5.78 1/18/96 947,946
8,349,000 Premium Funding, Inc. (Series A). . . . . . . 5.80 1/22/96 8,316,829
10,000,000 Santander Finance (Delaware), Inc.. . . . . . 5.62 3/05/96 9,897,639
1,866,000 Svenska Handelsbanken, Inc.. . . . . . . . . 5.71 1/17/96 1,860,308
7,540,000 Svenska Handelsbanken, Inc.. . . . . . . . . 5.75 2/01/96 7,499,410
3,141,000 Windmill Funding Corp.. . . . . . . . . . . . 5.75 1/16/96 3,131,923
- ------------------------------------------------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER (COST--$114,284,201) 114,299,170
- ------------------------------------ --------------------------------------
CORPORATE NOTES--7.8% 8,000,000 Beta Finance Inc.+. . . . . . . . . . . . . . 5.88 9/16/96 8,000,000
2,000,000 Ford Motor Credit Co.. . . . . . . . . . . . 8.00 10/01/96 2,035,960
3,000,000 J.P. Morgan & Company+. . . . . . . . . . . . 5.90 7/17/96 2,998,880
1,600,000 SMM Trust 1995-K+. . . . . . . . . . . . . . 5.833 6/14/96 1,600,000
9,000,000 SMM Trust 1995-Q+. . . . . . . . . . . . . . 5.938 1/08/97 9,000,000
- ------------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE NOTES (COST--$23,629,852) 23,634,840
- ------------------------------------------------------------------------------------------------------------------------
MASTER NOTES--1.0% 3,000,000 Goldman Sachs Group L.P.+. . . . . . . . . . 5.83 2/14/96 3,000,000
- ------------------------------------------------------------------------------------------------------------------------
TOTAL MASTER NOTES (COST--$3,000,000) 3,000,000
- ------------------------------------------------------------------------------------------------------------------------
MEDIUM-TERM 8,000,000 CIT Group Holdings, Inc. (The). . . . . . . . 5.81 9/12/96 7,995,080
NOTES--6.8%
5,000,000 General Electric Capital Corp.. . . . . . . . 6.55 3/28/96 5,010,750
2,750,000 General Electric Capital Corp.. . . . . . . . 7.625 7/30/96 2,782,423
5,000,000 Society National Bank, Cleveland. . . . . . . 6.70 4/15/96 5,010,749
- ------------------------------------------------------------------------------------------------------------------------
TOTAL MEDIUM-TERM NOTES (COST--$20,780,586) 20,799,002
- ------------------------------------------------------------------------------------------------------------------------
US GOVERNMENT, AGENCY 160,000 Federal Home Loan Bank. . . . . . . . . . . . 6.10 2/26/96 158,542
& INSTRUMENTALITY
OBLIGATIONS-- 2,000,000 Federal Home Loan Bank. . . . . . . . . . . . 5.983 12/01/97 2,000,623
DISCOUNT--12.4%
5,000,000 Federal Home Loan Mortgage Corp.. . . . . . . 6.84 2/28/96 5,009,175
4,000,000 Federal National Mortgage Association. . . . 6.86 2/28/96 4,007,500
12,500,000 Federal National Mortgage Association. . . . 6.46 3/27/96 12,528,313
25,000 Federal National Mortgage Association. . . . 5.44 4/22/96 24,578
2,000,000 Federal National Mortgage Association. . . . 5.11 10/30/96 1,913,980
2,000,000 Federal National Mortgage Association. . . . 6.18 11/04/96 1,996,000
3,700,000 Student Loan Marketing Association. . . . . . 5.97 10/04/96 3,698,890
1,775,000 US Treasury Bills. . . . . . . . . . . . . . 6.59 2/08/96 1,764,215
4,500,000 US Treasury Bills. . . . . . . . . . . . . . 6.605 2/08/96 4,472,658
- ------------------------------------------------------------------------------------------------------------------------
TOTAL US GOVERNMENT, AGENCY & INSTRUMENTALITY OBLIGATIONS--
DISCOUNT (COST--$37,528,159) 37,574,474
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
37
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--DOMESTIC MONEY MARKET FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995 (CONCLUDED)
<TABLE>
<CAPTION>
FACE INTEREST MATURITY VALUE
AMOUNT ISSUE RATE* DATE (NOTE 1A)
<S> <C> <C> <C> <C> <C>
US GOVERNMENT, AGENCY $ 5,000,000 Federal Farm Credit Bank+. . . . . . . . . . . 5.88 % 11/25/97 $ 4,998,001
& INSTRUMENTALITY
OBLIGATIONS-- 1,500,000 Federal Home Loan Bank+. . . . . . . . . . . . 5.99 5/06/96 1,499,059
NON-DISCOUNT--35.5%
5,000,000 Federal Home Loan Bank+. . . . . . . . . . . . 5.05 9/12/96 4,998,136
1,040,000 Federal Home Loan Bank+. . . . . . . . . . . . 6.10 1/26/98 1,040,584
1,000,000 Federal Home Loan Mortgage Corp.+.. . . . . . . 5.75 6/03/96 999,142
10,000,000 Federal Home Loan Mortgage Corp.+. . . . . . . 6.20 6/07/96 9,998,647
10,000,000 Federal National Mortgage Association+. . . . . 5.05 5/10/96 9,998,246
2,000,000 Federal National Mortgage Association+. . . . . 6.08 5/13/96 2,000,000
2,000,000 Federal National Mortgage Association+. . . . . 6.08 8/13/96 2,000,000
15,000,000 Federal National Mortgage Association+. . . . . 5.781 10/11/96 15,000,000
5,000,000 Federal National Mortgage Association+. . . . . 6.35 2/14/97 5,023,755
12,000,000 Federal National Mortgage Association+. . . . . 5.05 2/21/97 12,000,000
2,000,000 Federal National Mortgage Association+. . . . . 6.20 5/19/97 2,000,000
2,000,000 Federal National Mortgage Association+. . . . . 6.25 5/14/98 2,000,000
3,960,000 Student Loan Marketing Association+. . . . . . 5.05 3/20/96 3,960,298
3,000,000 Student Loan Marketing Association+. . . . . . 5.05 5/14/96 3,000,861
4,000,000 Student Loan Marketing Association+. . . . . . 5.05 8/22/96 4,007,703
5,000,000 Student Loan Marketing Association+. . . . . . 5.05 1/23/97 5,004,629
2,000,000 Student Loan Marketing Association+. . . . . . 5.05 3/03/97 2,000,272
500,000 US Treasury Notes. . . . . . . . . . . . . . . 4.00 1/31/96 499,239
1,500,000 US Treasury Notes. . . . . . . . . . . . . . . 6.125 5/31/97 1,517,813
1,800,000 US Treasury Notes. . . . . . . . . . . . . . . 6.00 8/31/97 1,821,656
1,800,000 US Treasury Notes. . . . . . . . . . . . . . . 5.75 9/30/97 1,815,750
2,000,000 US Treasury Notes. . . . . . . . . . . . . . . 5.625 10/31/97 2,014,374
3,800,000 US Treasury Notes. . . . . . . . . . . . . . . 5.375 11/30/97 3,810,686
5,000,000 US Treasury Notes. . . . . . . . . . . . . . . 5.25 12/31/97 5,005,465
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL US GOVERNMENT, AGENCY & INSTRUMENTALITY OBLIGATIONS--
NON-DISCOUNT (COST--$107,960,721) 108,014,316
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (COST--$307,183,519)--101.1%. 307,321,802
LIABILITIES IN EXCESS OF OTHER ASSETS--(1.1%). (3,409,973)
-----------------
NET ASSETS--100.0%. . . . . . . . . . . . . . . $ 303,911,829
-----------------
-----------------
- -----------------------------------------------------------------------------------------------------------------------------------
*Commercial Paper and certain US Government Obligations are traded on a discount basis; the interest rates shown are the discount
rates paid at the time of purchase by the Fund. Other securities bear interest at the rates shown, payable at fixed dates or upon
maturity. The interest rates on variable rate securities are adjusted periodically based upon appropriate indexes; the interest
rates shown are the rates in effect at December 31, 1995.
+Variable Rate Notes.
</TABLE>
See Notes to Financial Statements.
38
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--EQUITY GROWTH FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
SHARES VALUE
INDUSTRY HELD COMMON STOCKS COST (NOTE 1A) PERCENT OF
- ------------------------------------------------------------------------------------------------------- NET ASSETS
<S> <C> <C> <C> <C> <C>
BANKING 90,000 Collective Bancorp, Inc.. . . . . . . . $ 1,741,251 $ 2,283,750 0.7%
124,000 TCF Financial Corp.. . . . . . . . . . 2,485,152 4,107,500 1.2
------------- ------------- -----
4,226,403 6,391,250 1.9
- ---------------------------------------------------------------------------------------------------------------------
BIOTECHNOLOGY 300,000 COR Therapeutics, Inc.. . . . . . . . . 3,455,626 2,437,500 0.7
152,500 +Centocor, Inc.. . . . . . . . . . . . . 1,966,252 4,708,437 1.4
60,000 +Genzyme Corp.. . . . . . . . . . . . . 3,225,624 3,720,000 1.1
100,000 Ostex International, Inc.. . . . . . . 1,708,750 1,850,000 0.5
70,000 +Sano Corporation. . . . . . . . . . . . 805,000 770,000 0.2
------------- ------------- ----------
11,161,252 13,485,937 3.9
- ---------------------------------------------------------------------------------------------------------------------
BROADCAST, RADIO & TV 330,000 +Westcott Communications, Inc.. . . . . 4,996,253 4,537,500 1.3
- ---------------------------------------------------------------------------------------------------------------------
BUILDING MATERIALS 165,000 Apogee Enterprises, Inc.. . . . . . . . 2,358,910 2,805,000 0.8
250,000 Ply-Gem Industries, Inc.. . . . . . . . 4,496,890 4,062,500 1.2
------------- ------------- -----
6,855,800 6,867,500 2.0
- ---------------------------------------------------------------------------------------------------------------------
BUSINESS SERVICES 100,000 Reynolds & Reynolds Co. (The) (Class A) 2,392,876 3,887,500 1.1
- ---------------------------------------------------------------------------------------------------------------------
CAPITAL EQUIPMENT 210,000 BWIP Holdings, Inc.. . . . . . . . . . 3,594,688 3,360,000 1.0
- ---------------------------------------------------------------------------------------------------------------------
CHEMICALS 100,000 Arcadian Corp.. . . . . . . . . . . . . 1,680,075 1,937,500 0.6
280,000 Crompton & Knowles Corp.. . . . . . . . 4,569,537 3,710,000 1.1
------------- ------------- -----
6,249,612 5,647,500 1.7
- ---------------------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES 155,000 Rollins Inc.. . . . . . . . . . . . . . 3,898,215 3,429,375 1.0
- ---------------------------------------------------------------------------------------------------------------------
COMPUTER SOFTWARE 77,000 +DataWorks Corp.. . . . . . . . . . . . 1,001,000 962,500 0.3
20,000 GT Interactive Software Corp.. . . . . 280,000 277,500 0.1
55,000 +Sterling Software, Inc.. . . . . . . . 1,711,139 3,430,625 1.0
------------- ------------- -----
2,992,139 4,670,625 1.4
- ---------------------------------------------------------------------------------------------------------------------
COMPUTERS 192,500 +3d Systems Corp.. . . . . . . . . . . . 3,328,750 4,571,875 1.3
100,000 Mylex Corp.. . . . . . . . . . . . . . 1,742,500 1,912,500 0.6
------------- ------------- -----
5,071,250 6,484,375 1.9
- ---------------------------------------------------------------------------------------------------------------------
DIVERSIFIED 50,000 Harsco Corp.. . . . . . . . . . . . . . 2,075,492 2,906,250 0.9
100,000 Lancaster Colony Corporation. . . . . . 3,435,624 3,725,000 1.1
75,000 Martin Industries, Inc.. . . . . . . . 712,500 656,250 0.2
------------- ------------- -----
6,223,616 7,287,500 2.2
- ---------------------------------------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT 136,000 +Sheldahl, Inc.. . . . . . . . . . . . . 1,933,125 2,448,000 0.7
60,000 Silicon Storage Technology, Inc.. . . . 540,000 750,000 0.2
------------- ------------- -----
2,473,125 3,198,000 0.9
- ---------------------------------------------------------------------------------------------------------------------
ELECTRONIC/INSTRUMENTS 220,000 BMC Industries, Inc.. . . . . . . . . . 1,333,308 5,115,000 1.5
70,000 +DOVatron International, Inc.. . . . . . 1,491,875 2,362,500 0.7
60,000 Electro Scientific Industries, Inc.. . 2,110,099 1,710,000 0.5
157,500 Methode Electronics Inc. (Class A). . . 1,463,857 2,205,000 0.7
------------- ------------- -----
6,399,139 11,392,500 3.4
- ---------------------------------------------------------------------------------------------------------------------
ELECTRONIC/SEMI- 60,000 +Oak Technology Inc.. . . . . . . . . . 2,565,000 2,535,000 0.7
CONDUCTORS 140,000 +Orbit Semiconductor, Inc. 2,762,500 1,330,000 0.4
------------- ------------- ----------
5,327,500 3,865,000 1.1
- ---------------------------------------------------------------------------------------------------------------------
ELECTRONICS 37,500 +Altron Inc.. . . . . . . . . . . . . . 658,125 1,106,250 0.3
1,372 Aura Systems Inc.. . . . . . . . . . . 6,346 7,718 0.0
100,000 Quality Semiconductor, Inc.. . . . . . 1,746,878 550,000 0.2
150,000 +Semitool Inc.. . . . . . . . . . . . . 2,496,875 1,931,250 0.6
------------- ------------- -----
4,908,224 3,595,218 1.1
- ---------------------------------------------------------------------------------------------------------------------
ENVIRONMENTAL 300,000 Calgon Carbon Corp.. . . . . . . . . . 3,679,060 3,600,000 1.1
150,400 IMCO Recycling, Inc.. . . . . . . . . . 2,149,984 3,684,800 1.1
109,375 +TETRA Technologies, Inc.. . . . . . . . 1,201,250 2,488,281 0.7
------------- ------------- -----
7,030,294 9,773,081 2.9
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--EQUITY GROWTH FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995 (CONTINUED)
<TABLE>
<CAPTION>
SHARES VALUE
INDUSTRY HELD COMMON STOCKS COST (NOTE 1A) PERCENT OF
- ---------------------------------------------------------------------------------------------------- NET ASSETS
<S> <C> <C> <C> <C> <C>
FINANCIAL SERVICES 100,000 FINOVA Group, Inc.. . . . . . . . . . $ 3,520,726 $ 4,825,000 1.4%
105,000 First USA, Inc.. . . . . . . . . . . 4,734,200 4,659,375 1.4
200,000 +National Auto Credit, Inc.. . . . . . 2,454,377 3,250,000 1.0
200,000 Transmedia Network, Inc.. . . . . . . 2,407,899 1,875,000 0.6
------------- ------------- -----
13,117,202 14,609,375 4.4
- ------------------------------------------------------------------------------------------------------------------
FOODS/FOOD PROCESSING 100,000 +Smithfield Foods, Inc.. . . . . . . . 2,671,870 3,175,000 0.9
- ------------------------------------------------------------------------------------------------------------------
GAMING 70,000 +Sodak Gaming, Inc.. . . . . . . . . . 1,633,874 1,417,500 0.4
- ------------------------------------------------------------------------------------------------------------------
1,535,333
HEALTHCARE-- 110,000 +Thermedics, Inc.. . . . . . . . . . . 3,052,500 0.9
PRODUCTS & SERVICES
- ------------------------------------------------------------------------------------------------------------------
HOSPITAL MANAGEMENT 100,000 Community Care of America, Inc.. . . 950,000 1,037,500 0.3
110,000 Health Care & Retirement Corp.. . . . 3,219,599 3,850,000 1.1
150,000 +Health Management Associates, Inc.. . 3,119,314 3,918,750 1.2
150,000 +OrNda Health Corp.. . . . . . . . . . 2,331,250 3,487,500 1.0
150,000 Surgical Care Affiliates, Inc.. . . . 2,877,775 5,100,000 1.5
------------- ------------- -----
12,497,938 17,393,750 5.1
- ------------------------------------------------------------------------------------------------------------------
HOTEL(S) 150,000 Red Lion Hotels Inc.. . . . . . . . . 2,660,250 2,625,000 0.8
- ------------------------------------------------------------------------------------------------------------------
LEISURE 300,000 Callaway Golf Co.. . . . . . . . . . 4,470,495 6,787,500 2.0
130,000 Royal Caribbean Cruises Ltd. . . . . 3,032,800 2,860,000 0.8
------------- ------------- -----
7,503,295 9,647,500 2.8
- ------------------------------------------------------------------------------------------------------------------
MANUFACTURED HOUSING 156,250 Clayton Homes, Inc.. . . . . . . . . 1,920,136 3,339,844 1.0
75,000 +Redman Industries, Inc.. . . . . . . 1,380,374 2,512,500 0.7
------------- ------------- -----
3,300,510 5,852,344 1.7
- ------------------------------------------------------------------------------------------------------------------
MANUFACTURING 52,000 +Chicago Miniature Lamp, Inc.. . . . . 687,500 1,170,000 0.3
135,000 Fisher Scientific International, Inc. 3,813,699 4,505,625 1.3
111,200 +Lydall, Inc.. . . . . . . . . . . . . 1,777,124 2,529,800 0.7
------------- ------------- -----
6,278,323 8,205,425 2.3
- ------------------------------------------------------------------------------------------------------------------
MEDICAL SERVICES 150,000 Curative Technologies, Inc.. . . . . 1,968,750 2,137,500 0.6
330,000 Mariner Health Group, Inc.. . . . . . 4,886,250 5,527,500 1.6
300,000 +North American Biologicals, Inc.. . . 2,381,250 3,225,000 1.0
------------- ------------- -----
9,236,250 10,890,000 3.2
- ------------------------------------------------------------------------------------------------------------------
MEDICAL SUPPLIES 225,000 +ATS Medical, Inc.. . . . . . . . . . 1,248,750 2,081,250 0.6
170,000 ATS Medical, Inc. (Warrants) (a). . . 0 148,750 0.0
340,000 +Angeion Corp.. . . . . . . . . . . . 1,434,070 2,847,500 0.8
170,000 Beckman Instruments, Inc.. . . . . . 4,789,806 6,013,750 1.8
105,000 Dentsply International, Inc.. . . . . 3,690,000 4,173,750 1.2
143,600 +Maxxim Medical, Inc.. . . . . . . . . 1,919,391 2,405,300 0.7
150,000 Quest Medical, Inc.. . . . . . . . . 1,562,500 1,537,500 0.5
160,000 +Sofamor Danek Group, Inc.. . . . . . 3,957,764 4,540,000 1.3
115,000 U.S. Surgical Corp.. . . . . . . . . 2,597,375 2,458,125 0.7
200,000 +Uromed Corp.. . . . . . . . . . . . . 1,929,250 2,475,000 0.7
------------- ------------- -----
23,128,906 28,680,925 8.3
- ------------------------------------------------------------------------------------------------------------------
METAL FABRICATING 112,500 Valmont Industries, Inc.. . . . . . . 2,398,749 2,728,125 0.8
- ------------------------------------------------------------------------------------------------------------------
METALS 120,000 Magma Copper Co.. . . . . . . . . . . 1,944,425 3,345,000 1.0
- ------------------------------------------------------------------------------------------------------------------
OIL & GAS 170,000 Parker & Parsley Development Partners 3,461,990 3,740,000 1.1
200,000 Snyder Oil Corp.. . . . . . . . . . . 2,755,632 2,425,000 0.7
------------- ------------- -----
6,217,622 6,165,000 1.8
- ------------------------------------------------------------------------------------------------------------------
OIL/GAS 150,000 Barrett Resources Corp.. . . . . . . 3,428,886 4,406,250 1.3
EQUIPMENT & SERVICES
300,000 +Pride Petroleum Services, Inc.. . . . 2,085,008 3,112,500 0.9
125,000 +Weatherford Enterra, Inc.. . . . . . 2,662,915 3,609,375 1.1
------------- ------------- -----
8,176,809 11,128,125 3.3
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
40
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--EQUITY GROWTH FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995 (CONTINUED)
<TABLE>
<CAPTION>
SHARES VALUE
INDUSTRY HELD COMMON STOCKS COST (NOTE 1A) PERCENT OF
- ----------------------------------------------------------------------------------------------------- NET ASSETS
<S> <C> <C> <C> <C> <C>
OIL/GAS--EXPLORATION 270,000 +Belden & Blake Energy Co.. . . . . . $ 4,281,147 $ 4,725,000 1.4%
150,000 +Seagull Energy Corp.. . . . . . . . 2,956,364 3,337,500 1.0
-------------- -------------- -----
7,237,511 8,062,500 2.4
- -----------------------------------------------------------------------------------------------------------------
PRINTING & PUBLISHING 110,000 Banta Corp.. . . . . . . . . . . . . 3,611,250 4,840,000 1.4
- -----------------------------------------------------------------------------------------------------------------
REAL ESTATE 100,000 National Golf Properties Inc.. . . . 2,144,530 2,287,500 0.7
80,450 National Health Investors, Inc.. . . 2,201,700 2,664,906 0.8
-------------- -------------- -----
4,346,230 4,952,406 1.5
- -----------------------------------------------------------------------------------------------------------------
RESTAURANTS 200,000 Morrison Restaurants, Inc.. . . . . 4,505,648 2,800,000 0.8
100,000 +Outback Steakhouse, Inc.. . . . . . 2,617,815 3,587,500 1.1
-------------- -------------- -----
7,123,463 6,387,500 1.9
- -----------------------------------------------------------------------------------------------------------------
RETAIL--APPAREL 110,000 +Tommy Hilfiger Corp. 2,350,999 4,661,250 1.4
- -----------------------------------------------------------------------------------------------------------------
RETAIL SPECIALTY 300,000 +MicroAge Inc.. . . . . . . . . . . . 3,448,132 2,362,500 0.7
60,000 Moovies, Inc.. . . . . . . . . . . . 870,000 780,000 0.2
-------------- -------------- -----
4,318,132 3,142,500 0.9
- -----------------------------------------------------------------------------------------------------------------
SEMICONDUCTOR 57,500 +ASM Lithography Holding N.V. (ADR)** 1,258,125 1,911,875 0.6
PRODUCTION EQUIPMENT
40,000 Ade Corporation. . . . . . . . . . . 560,000 555,000 0.2
60,000 +Asyst Technologies, Inc.. . . . . . 2,040,000 2,100,000 0.6
110,800 MEMC Electrical Materials, Inc.. . . 3,396,954 3,614,850 1.1
60,000 +Ultratech Stepper Inc.. . . . . . . 657,858 1,537,500 0.5
130,000 Veeco Instruments, Inc.. . . . . . . 2,706,249 1,787,500 0.5
-------------- -------------- -----
10,619,186 11,506,725 3.5
- -----------------------------------------------------------------------------------------------------------------
TECHNOLOGY 75,000 Smart Modular Technologies, Inc.. . 900,000 778,125 0.2
- -----------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS & 89,000 +Teltrend Inc.. . . . . . . . . . . . 1,424,000 4,160,750 1.2
EQUIPMENT
- -----------------------------------------------------------------------------------------------------------------
TEXTILES 188,800 +Galey & Lord, Inc.. . . . . . . . . 2,380,203 2,029,600 0.6
140,000 +Mohawk Industries, Inc.. . . . . . . 2,311,875 2,100,000 0.6
-------------- -------------- -----
4,692,078 4,129,600 1.2
- -----------------------------------------------------------------------------------------------------------------
UTILITIES--GAS 100,000 MCN Corporation. . . . . . . . . . . 1,794,000 2,325,000 0.7
125,000 NICOR Inc.. . . . . . . . . . . . . 3,068,051 3,437,500 1.0
-------------- -------------- -----
4,862,051 5,762,500 1.7
- -----------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS 237,586,642 285,172,286 83.8
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
41
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--EQUITY GROWTH FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995 (CONCLUDED)
<TABLE>
<CAPTION>
FACE VALUE PERCENT OF
AMOUNT SHORT-TERM SECURITIES COST (NOTE 1A) NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMMERCIAL PAPER* $ 6,000,000 Daimler-Benz AG, 5.72% due
1/26/1996. . . . . . . . . . . . . . . $ 5,973,307 $ 5,973,307 1.8%
12,441,000 General Electric Capital Corp., 5.90%
due 1/02/1996. . . . . . . . . . . . 12,432,844 12,432,844 3.7
10,000,000 National Australia Funding (Delaware)
Inc., 5.69% due 1/12/1996. . . . . . 9,977,872 9,977,872 2.9
10,000,000 National Fleet Funding Corp., 5.77% due
1/10/1996. . . . . . . . . . . . . . 9,980,767 9,980,767 2.9
10,500,000 Preferred Receivable Funding Corp.,
5.78% due 1/02/1996. . . . . . . . . 10,493,257 10,493,257 3.1
---------------- ---------------- --------
48,858,047 48,858,047 14.4
- -----------------------------------------------------------------------------------------------------------------------------------
US GOVERNMENT & 5,000,000 Federal National Mortgage Association,
AGENCY OBLIGATIONS* 5.47% due 1/17/1996
4,985,565 4,985,565 1.5
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM SECURITIES 53,843,612 53,843,612 15.9
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS. . . . . . . . . . . $ 291,430,254 339,015,898 99.7
----------------
----------------
OTHER ASSETS LESS LIABILITIES. . . . . 905,256 0.3
---------------- --------
NET ASSETS. . . . . . . . . . . . . . $ 339,921,154 100.0%
---------------- --------
---------------- --------
- -----------------------------------------------------------------------------------------------------------------------------------
* Commercial Paper and certain US Government & Agency Obligations are traded on a discount basis; the interest rates shown are
the discount rates paid at the time of purchase by the Fund.
** American Depositary Receipts (ADR).
(a)Warrants entitle the Fund to purchase a predetermined number of shares of common stock. The purchase price and number of
shares are subject to adjustment under certain conditions until the expiration date.
+ Non-income producing security.
</TABLE>
See Notes to Financial Statements.
42
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--FLEXIBLE STRATEGY FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
SHARES VALUE PERCENT OF
INDUSTRY HELD US STOCKS & WARRANTS COST (NOTE 1A) NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AEROSPACE 70,000 Boeing Co.. . . . . . . . . . . . . . . $ 4,507,170 $ 5,486,250 1.7%
60,000 United Technologies Corp.. . . . . . . . 4,788,081 5,692,500 1.8
------------- ---------- -----
9,295,251 11,178,750 3.5
- -----------------------------------------------------------------------------------------------------------------------
ALUMINUM 75,000 Aluminum Co. of America. . . . . . . . . 4,217,218 3,965,625 1.2
- -----------------------------------------------------------------------------------------------------------------------
APPLIANCES 30,000 Whirlpool Corporation. . . . . . . . . . 1,635,297 1,597,500 0.5
- -----------------------------------------------------------------------------------------------------------------------
AUTO & TRUCK 150,000 Ford Motor Co.. . . . . . . . . . . . . 4,450,543 4,350,000 1.3
- -----------------------------------------------------------------------------------------------------------------------
BANKING 120,000 Bank of New York, Inc.. . . . . . . . . 3,845,764 5,850,000 1.8
40,000 Bank of New York, Inc. (Warrants) (b). . 300,937 1,445,000 0.5
------------- ------------- -----
4,146,701 7,295,000 2.3
- -----------------------------------------------------------------------------------------------------------------------
CHEMICALS 35,000 Eastman Chemical Co.. . . . . . . . . . 2,119,343 2,191,875 0.7
- -----------------------------------------------------------------------------------------------------------------------
COMMUNICATION EQUIPMENT 20,000 +ADC Telecommunications Inc.. . . . . . . 599,662 725,000 0.2
- -----------------------------------------------------------------------------------------------------------------------
COMPUTER SERVICES 120,000 General Motors Corp. (Class E). . . . . 4,994,239 6,240,000 2.0
- -----------------------------------------------------------------------------------------------------------------------
ELECTRIC/INSTRUMENTS 89,100 Corning Inc.. . . . . . . . . . . . . . 2,459,964 2,851,200 0.9
45,000 Texas Instruments, Inc.. . . . . . . . . 3,214,156 2,328,750 0.7
------------- ------------- -----
5,674,120 5,179,950 1.6
- -----------------------------------------------------------------------------------------------------------------------
ENVIRONMENTAL CONTROL 350,000 Wheelabrator Technologies, Inc.. . . . . 5,888,869 5,862,500 1.8
- -----------------------------------------------------------------------------------------------------------------------
HARDWARE PRODUCTS 23,100 Stanley Works Co. (The). . . . . . . . . 1,147,302 1,189,650 0.4
- -----------------------------------------------------------------------------------------------------------------------
HEALTHCARE 150,000 +Humana, Inc.. . . . . . . . . . . . . . 3,124,478 4,106,250 1.3
- -----------------------------------------------------------------------------------------------------------------------
INSURANCE 65,000 Aetna Life & Casualty Co.. . . . . . . . 3,829,284 4,501,250 1.4
85,000 Allstate Corp.. . . . . . . . . . . . . 2,798,812 3,495,625 1.1
38,000 National Re Corp.. . . . . . . . . . . . 1,085,853 1,444,000 0.5
------------- ------------- -----
7,713,949 9,440,875 3.0
- -----------------------------------------------------------------------------------------------------------------------
NATURAL GAS 33,800 Enron Corp.. . . . . . . . . . . . . . . 1,277,730 1,288,625 0.4
- -----------------------------------------------------------------------------------------------------------------------
OIL SERVICES 100,000 Dresser Industries, Inc.. . . . . . . . 2,343,697 2,437,500 0.8
- -----------------------------------------------------------------------------------------------------------------------
PETROLEUM 38,900 Pennzoil Co.. . . . . . . . . . . . . . 1,537,591 1,643,525 0.5
- -----------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS 78,000 Abbott Laboratories. . . . . . . . . . . 3,193,987 3,256,500 1.0
55,000 Merck & Co., Inc.. . . . . . . . . . . . 3,307,995 3,616,250 1.1
------------- ------------- -----
6,501,982 6,872,750 2.1
- -----------------------------------------------------------------------------------------------------------------------
PHOTOGRAPHY 85,000 Eastman Kodak Co.. . . . . . . . . . . . 4,669,589 5,695,000 1.8
- -----------------------------------------------------------------------------------------------------------------------
RETAIL 80,000 Sears, Roebuck & Co.. . . . . . . . . . 2,791,819 3,120,000 1.0
- -----------------------------------------------------------------------------------------------------------------------
SCIENTIFIC EQUIPMENT 41,900 Fisher Scientific International Inc.. . 1,370,446 1,398,412 0.4
- -----------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS 50,000 AT&T Corp.. . . . . . . . . . . . . . . 3,289,943 3,237,500 1.0
- -----------------------------------------------------------------------------------------------------------------------
TOTAL US STOCKS & WARRANTS 78,789,769 89,016,287 27.8
- -----------------------------------------------------------------------------------------------------------------------
COUNTRY FOREIGN STOCKS++++
- -----------------------------------------------------------------------------------------------------------------------
CANADA 35,000 Magna International Inc. (Class A) (6). 1,374,340 1,513,750 0.5
- -----------------------------------------------------------------------------------------------------------------------
CHILE 18,400 Cristalerias de Chile S.A. (ADR) (a) (7) 335,560 409,400 0.1
- -----------------------------------------------------------------------------------------------------------------------
HONG KONG 1,000,000 Hong Kong Telecommunications Ltd.
(ADR) (a) (5). . . . . . . . . . . . . . 1,768,771 1,784,790 0.5
- -----------------------------------------------------------------------------------------------------------------------
INDONESIA 1,200 P.T. Indonesia Satellite Corp. (ADR) 43,122 43,800 0.0
(a) (5). . . . . . . . . . . . . . . . .
- -----------------------------------------------------------------------------------------------------------------------
JAPAN 80,000 Canon, Inc. (9). . . . . . . . . . . . . 1,467,936 1,449,051 0.4
160,000 Nomura Securities Co., Ltd. (ADR)
(a) (8). . . . . . . . . . . . . . . . . 3,147,107 3,487,021 1.1
120,000 Tokio Marine & Fire Insurance Co.
(ADR) (a) (2). . . . . . . . . . . . . . 1,428,630 1,569,159 0.5
------------- ------------- -----
6,043,673 6,505,231 2.0
- -----------------------------------------------------------------------------------------------------------------------
MEXICO 146,400 +Grupo Carso, S.A. de C.V. (ADR)
(a) (3)++. . . . . . . . . . . . . . . . 1,702,240 1,482,300 0.5
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
43
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--FLEXIBLE STRATEGY FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995 (CONTINUED)
<TABLE>
<CAPTION>
SHARES VALUE PERCENT OF
COUNTRY HELD FOREIGN STOCKS++++ COST (NOTE 1A) NET ASSETS
<S> <C> <C> <C> <C> <C>
NETHERLANDS 20,000 Royal Dutch Petroleum Co. N.V. (ADR)
(a) (4). . . . . . . . . . . . . . $ 2,672,362 $ 2,822,500 0.9%
120,000 Singer Co. N.V. (d) (1). . . . . . . 4,025,070 3,345,000 1.0
-------------- -------------- ---------
6,697,432 6,167,500 1.9
---
SPAIN 35,000 Repsol S.A. (ADR) (a) (4). . . . . . 1,151,615 1,150,625 0.4
- --------------------------------------------------------------------------------------------------------------------------
SWITZERLAND 2,300 Sandoz A.G. (10). . . . . . . . . . 1,996,772 2,110,715 0.7
- --------------------------------------------------------------------------------------------------------------------------
TOTAL FOREIGN STOCKS 21,113,525 21,168,111 6.6
- --------------------------------------------------------------------------------------------------------------------------
FACE
INDUSTRY AMOUNT* CORPORATE & FOREIGN BONDS++++
- --------------------------------------------------------------------------------------------------------------------------
FOREIGN--CANADA US$ 5,000,000 Hydro-Electric Quebec, 6.35% due
1/15/2002 (12). . . . . . . . . . . 5,000,000 5,065,500 1.6
- --------------------------------------------------------------------------------------------------------------------------
FOREIGN--ITALY 500,000 Republic of Italy, 8.75% due
2/08/2001 (1). . . . . . . . . . . . 537,305 558,282 0.2
- --------------------------------------------------------------------------------------------------------------------------
US--FINANCIAL SERVICES 1,000,000 Ford Motor Credit Co., 7.125%
due 12/01/1997. . . . . . . . . . . 995,000 1,025,420 0.3
- --------------------------------------------------------------------------------------------------------------------------
US--INDUSTRIAL 1,000,000 International Business Machines Corp.,
6.375% due 6/15/2000. . . . . . . . 1,000,000 1,024,700 0.3
- --------------------------------------------------------------------------------------------------------------------------
US--TELECOMMUNICATIONS 5,000,000 Chesapeake & Potomac Telecom Co.,
6.125% due 7/15/2005. . . . . . . . 4,503,300 5,032,350 1.6
- --------------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE & FOREIGN BONDS 12,035,605 12,706,252 4.0
- --------------------------------------------------------------------------------------------------------------------------
US GOVERNMENT & AGENCY OBLIGATIONS
- --------------------------------------------------------------------------------------------------------------------------
FEDERAL AGENCY Federal National Mortgage Association:
OBLIGATIONS
5,000,000 7.85% due 9/10/2004. . . . . . . . . 4,992,969 5,317,950 1.7
4,726,069 8.00% due 11/01/2024 (c). . . . . . 4,512,658 4,894,412 1.5
2,000,000 Series 93D, 5.85% due 2/25/2006 (c). 1,996,250 1,999,360 0.6
----------- ----------- -----
11,501,877 12,211,722 3.8
- --------------------------------------------------------------------------------------------------------------------------
GOVERNMENT US Treasury Notes:
OBLIGATIONS
1,000,000 8.625% due 8/15/1997. . . . . . . . 1,027,344 1,052,500 0.3
6,000,000 7.50% due 11/15/2001. . . . . . . . 6,143,336 6,608,460 2.1
5,000,000 6.25% due 2/15/2003. . . . . . . . . 4,990,469 5,216,400 1.6
3,000,000 US Treasury STRIPS++, 7.77% (e) due
5/15/2000. . . . . . . . . . . . . 2,283,715 2,382,120 0.8
----------- ----------- -----
14,444,864 15,259,480 4.8
- --------------------------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED Government National Mortgage
SECURITIES Association (c):
982,310 9.00% due 11/15/2019. . . . . . . . 973,397 1,046,465 0.3
444,482 9.00% due 11/15/2019. . . . . . . . 441,427 473,512 0.2
----------- ----------- -----
1,414,824 1,519,977 0.5
- --------------------------------------------------------------------------------------------------------------------------
TOTAL US GOVERNMENT &
AGENCY OBLIGATIONS 27,361,565 28,991,179 9.1
- --------------------------------------------------------------------------------------------------------------------------
SHORT-TERM SECURITIES
- --------------------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER** 10,000,000 ABN-AMRO North America Finance, Inc.,
5.54% due 1/26/1996. . . . . . . . 9,958,450 9,958,450 3.1
10,000,000 Ciesco L.P., 5.72% due 1/31/1996. . 9,949,156 9,949,156 3.1
10,000,000 Corporate Asset Funding Co. Inc., 5.67%
due 1/09/1996. . . . . . . . . . . 9,984,250 9,984,250 3.1
16,595,000 General Electric Capital Corp., 5.90%
due 1/02/1996. . . . . . . . . . . 16,586,841 16,586,841 5.2
12,000,000 Monsanto Company, 5.72% due
1/23/1996. . . . . . . . . . . . . . 11,954,240 11,954,240 3.7
12,000,000 Morgan Stanley Group, Inc., 5.65% due
1/17/1996. . . . . . . . . . . . . 11,966,100 11,966,100 3.8
15,000,000 National Australia Funding (Delaware)
Inc., 5.73% due 1/12/1996. . . . . 14,968,963 14,968,963 4.7
15,000,000 National Fleet Funding Corp., 5.75% due
1/12/1996. . . . . . . . . . . . . 14,968,854 14,968,854 4.7
10,000,000 Preferred Receivable Funding Corp.,
5.78% due 1/02/1996. . . . . . . . 9,995,183 9,995,183 3.1
10,000,000 USAA Capital Corp., 5.70% due
1/29/1996. . . . . . . . . . . . . . 9,952,500 9,952,500 3.1
12,000,000 Xerox Corp., 5.69% due 1/18/1996. . 11,963,963 11,963,963 3.7
-------------- -------------- -----
132,248,500 132,248,500 41.3
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
44
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--FLEXIBLE STRATEGY FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995 (CONCLUDED)
<TABLE>
<CAPTION>
FACE VALUE PERCENT OF
AMOUNT* SHORT-TERM SECURITIES COST (NOTE 1A) NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
US GOVERNMENT & Federal National Mortgage Association:
AGENCY OBLIGATIONS**US$ 15,000,000 5.67% due 1/08/1996. . . . . . . . . $ 14,978,738 $ 14,978,738 4.7%
10,000,000 5.67% due 1/17/1996. . . . . . . . . 9,971,650 9,971,650 3.1
12,000,000 5.67% due 1/19/1996. . . . . . . . . 11,962,200 11,962,200 3.7
----------- ----------- ------
36,912,588 36,912,588 11.5
- ------------------------------------------------------------------------------------------------------------------------
169,161,088 169,161,088 52.8
TOTAL SHORT-TERM SECURITIES
- ------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS. . . . . . . . . . $308,461,552 321,042,917 100.3
--------------
--------------
LIABILITIES IN EXCESS OF OTHER
ASSETS. . . . . . . . . . . . . . . . (809,254) (0.3)
----------- ------
NET ASSETS. . . . . . . . . . . . . . $320,233,663 100.0%
-------------- ------
-------------- ------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) American Depositary Receipts (ADR).
(b) Warrants entitle the Fund to purchase a predetermined number of shares of
common stock. The purchase price and number of
shares are subject to adjustment under certain conditions until the expiration
date.
(c) US Government Agency Mortgage-Backed Obligations are subject to principal
paydowns as a result of prepayments or
refinancings of the underlying mortgage investments. As a result, the average
life may be substantially less than the original
maturity.
(d) Consistent with general policy of the Securities and Exchange Commission,
the nationality or domicile of an issuer for
determination of foreign issuer status may be (i) the country under whose laws
the issuer is organized, (ii) the country in which the
issuer's securities are principally traded, or (iii) the country in which the
issuer derives a significant proportion (at least 50%) of
its revenue or profits from goods produced or sold, investment made, or
services performed in the country, or in which at least
50% of the assets of the issuers are situated.
(e) Represents a zero coupon bond; the interest rate shown is the effective
yield at the time of purchase by the Fund.
*Denominated in US dollars unless otherwise indicated.
** Commercial Paper and certain US Government & Agency Obligations are traded
on a discount basis; the interest rates shown are
the discount rates paid at the time of purchase by the Fund.
+Non-income producing security.
++ Restricted securities as to resale. The value of the Fund's investment in
restricted securities was approximately $1,482,000,
representing 0.5% of net assets.
<TABLE>
<CAPTION>
VALUE
ISSUE ACQUISITION DATES COST (NOTE 1A)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Grupo Carso, S.A. de C.V. (ADR). . . 1/24/1992-1/31/1995 $1,702,240 $ 1,482,300
- -------------------------------------------------------------------------------------
TOTAL $1,702,240 $ 1,482,300
------------ -------------
------------ -------------
- -------------------------------------------------------------------------------------
</TABLE>
++ Separate Trading of Registered Interest and Principal of Securities
(STRIPS).
++++ Corresponding industry groups for foreign securities:
<TABLE>
<CAPTION>
<S> <C> <C>
(1) Government Entities
(2) Insurance
(3) Multi-Industry
(4) Petroleum
(5) Telecommunications
(6) Auto Parts--Original
(7) Containers
(8) Financial
(9) Photography
(10) Pharmaceuticals
(11) Appliances
(12) Public Utilities
</TABLE>
45
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--GLOBAL STRATEGY FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
SHARES VALUE PERCENT OF
INDUSTRY HELD US STOCKS COST (NOTE 1A) NET ASSETS
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AEROSPACE 20,000 Boeing Co.. . . . . . . . . . . . . . $ 1,465,078 $ 1,567,500 0.3%
61,500 United Technologies Corp. . . . . . . 3,820,923 5,834,812 1.1
------------- ------------- -----
5,286,001 7,402,312 1.4
- ---------------------------------------------------------------------------------------------------------------------------
ALUMINUM 30,000 Aluminum Co. of America. . . . . . . . 1,726,248 1,586,250 0.3
- ---------------------------------------------------------------------------------------------------------------------------
APPLIANCES 90,000 Whirlpool Corporation. . . . . . . . . 5,124,101 4,792,500 0.9
- ---------------------------------------------------------------------------------------------------------------------------
AUTO & TRUCK 120,000 Ford Motor Co.. . . . . . . . . . . . 3,221,336 3,480,000 0.6
- ---------------------------------------------------------------------------------------------------------------------------
BANKING 45,000 Bank of New York, Inc.. . . . . . . . 2,126,624 2,193,750 0.4
- ---------------------------------------------------------------------------------------------------------------------------
CHEMICALS 72,050 Eastman Chemical Co.. . . . . . . . . 3,290,340 4,512,131 0.8
- ---------------------------------------------------------------------------------------------------------------------------
COMPUTER SERVICES 40,000 General Motors Corp. (Class E). . . . 2,058,814 2,080,000 0.4
- ---------------------------------------------------------------------------------------------------------------------------
ELECTRONICS/INSTRUMENTS 64,500 Corning Inc.. . . . . . . . . . . . . 1,780,749 2,064,000 0.4
30,000 Texas Instruments, Inc.. . . . . . . . 1,802,100 1,552,500 0.3
------------- ------------- -----
3,582,849 3,616,500 0.7
- ---------------------------------------------------------------------------------------------------------------------------
ENERGY RELATED 17,400 +California Energy Co., Inc.. . . . . . 279,096 339,300 0.1
- ---------------------------------------------------------------------------------------------------------------------------
ENVIRONMENTAL CONTROL 261,800 Wheelabrator Technologies, Inc.. . . . 4,510,490 4,385,150 0.8
- ---------------------------------------------------------------------------------------------------------------------------
HARDWARE PRODUCTS 95,700 Stanley Works Co. (The). . . . . . . . 3,935,571 4,928,550 0.9
- ---------------------------------------------------------------------------------------------------------------------------
HEALTHCARE 160,000 +Humana Inc.. . . . . . . . . . . . . . 3,839,054 4,380,000 0.8
- ---------------------------------------------------------------------------------------------------------------------------
INSURANCE 30,000 Aetna Life & Casualty Co.. . . . . . . 2,232,630 2,077,500 0.4
50,000 Allstate Corp.. . . . . . . . . . . . 2,046,610 2,056,250 0.4
43,100 National Re Corp.. . . . . . . . . . . 1,397,635 1,637,800 0.3
------------- ------------- -----
5,676,875 5,771,550 1.1
- ---------------------------------------------------------------------------------------------------------------------------
NATURAL GAS 28,200 Enron Corp.. . . . . . . . . . . . . . 1,066,036 1,075,125 0.2
- ---------------------------------------------------------------------------------------------------------------------------
PETROLEUM 29,900 Pennzoil Co.. . . . . . . . . . . . . 1,181,791 1,263,275 0.2
- ---------------------------------------------------------------------------------------------------------------------------
PETROLEUM & SERVICE EQUIPMENT 192,900 Dresser Industries, Inc.. . . . . . . 4,099,100 4,701,938 0.9
50,200 Schlumberger Ltd.. . . . . . . . . . . 2,972,633 3,476,350 0.6
------------- ------------- -----
7,071,733 8,178,288 1.5
- ---------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS 112,000 Abbott Laboratories. . . . . . . . . . 3,152,867 4,676,000 0.8
105,000 Merck & Co., Inc.. . . . . . . . . . . 3,539,150 6,903,750 1.3
------------- ------------- -----
6,692,017 11,579,750 2.1
- ---------------------------------------------------------------------------------------------------------------------------
PHOTOGRAPHY 77,200 Eastman Kodak Co.. . . . . . . . . . . 3,487,735 5,172,400 1.0
- ---------------------------------------------------------------------------------------------------------------------------
RETAIL 46,000 Sears, Roebuck & Co.. . . . . . . . . 1,833,758 1,794,000 0.3
- ---------------------------------------------------------------------------------------------------------------------------
SCIENTIFIC INSTRUMENTS 110,000 Fisher Scientific International, Inc.. 3,455,487 3,671,250 0.7
- ---------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS 70,100 AT & T Corp.. . . . . . . . . . . . . 3,715,987 4,538,975 0.8
70,300 Bell Atlantic Corp.. . . . . . . . . . 3,816,168 4,701,312 0.9
------------- ------------- -----
7,532,155 9,240,287 1.7
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL US STOCKS 76,978,111 91,442,368 16.9
- ---------------------------------------------------------------------------------------------------------------------------
COUNTRY FOREIGN STOCKS++
- ---------------------------------------------------------------------------------------------------------------------------
ARGENTINA 150,473 Banco de Galicia S.A. (ADR)* (3). . . 2,868,834 3,084,696 0.6
134,550 Banco Frances del Rio de la Plata S.A.
(Class A) (ADR)* (3). . . . . . . . . 3,272,016 3,616,031 0.7
100,000 Yacimientos Petroliferos Fiscales S.A.
(Sponsored) (ADR)* (21). . . . . . . 2,345,882 2,162,500 0.4
------------- ------------- -----
8,486,732 8,863,227 1.7
- ---------------------------------------------------------------------------------------------------------------------------
CANADA 172,100 Canadian Pacific Ltd. (18). . . . . . 2,710,067 3,119,312 0.6
77,400 Northern Telecommunications,
Ltd. (27). . . . . . . . . . . . . . . 2,137,422 3,328,200 0.6
------------- ------------- -----
4,847,489 6,447,512 1.2
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
46
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--GLOBAL STRATEGY FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995 (CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SHARES VALUE PERCENT OF
COUNTRY HELD FOREIGN STOCKS++ COST (NOTE 1A) NET ASSETS
GERMANY 10,250 Mannesmann AG (17). . . . . . . . . . . . $ 2,195,390 $ 3,270,119 0.6%
9,750 Preussag AG (18). . . . . . . . . . . . . 2,569,641 2,731,226 0.5
6,150 Siemens AG (12). . . . . . . . . . . . . 2,507,770 3,372,511 0.6
-------------- -------------- -----
7,272,801 9,373,856 1.7
- ---------------------------------------------------------------------------------------------------------------------
HONG KONG 1,600,000 Hong Kong Telecommunications
Ltd. (27). . . . . . . . . . . . . . . . 2,845,505 2,855,665 0.5
- ---------------------------------------------------------------------------------------------------------------------
INDONESIA 65,180 P.T. Indonesian Satellite Corp.
(ADR)* (27). . . . . . . . . . . . . . . 2,516,111 2,379,070 0.4
- ---------------------------------------------------------------------------------------------------------------------
ITALY 680,000 Danieli & Co. (17). . . . . . . . . . . . 2,451,794 1,844,795 0.4
800,000 Societa Finanziara Telefonica S.p.A.
(STET) (27). . . . . . . . . . . . . . . 2,442,272 2,266,246 0.4
-------------- -------------- -----
4,894,066 4,111,041 0.8
- ---------------------------------------------------------------------------------------------------------------------
JAPAN 165,000 Canon, Inc. (12). . . . . . . . . . . . . 2,315,252 2,988,667 0.6
165,000 Dai Nippon Printing Co., Ltd. (23). . . . 2,681,206 2,796,881 0.5
455,000 Hitachi Cable, Ltd. (8). . . . . . . . . 3,313,228 3,221,668 0.6
57,000 Ito-Yokado Co., Ltd. (25). . . . . . . . 2,773,666 3,511,430 0.6
381,000 Kamigumi Co., Ltd (26). . . . . . . . . . 4,232,708 3,657,216 0.7
242,000 Maeda Corp. (4). . . . . . . . . . . . . 2,444,979 2,367,493 0.4
166,000 Matsushita Electric Industries, Ltd. (12) 2,324,955 2,701,279 0.5
430,000 Mitsubishi Electric Co. (11). . . . . . . 2,778,342 3,094,634 0.6
486,000 Mitsubishi Heavy Industry, Ltd. (8). . . 3,075,981 3,874,254 0.7
180,000 Mitsubishi Trust & Banking Corp. (3). . . 3,089,062 2,998,838 0.6
150,000 Nomura Securities Co., Ltd. (33). . . . . 3,097,803 3,269,082 0.6
310,000 Okumura Corp. (4). . . . . . . . . . . . 2,626,893 2,822,549 0.5
60,000 Rohm Company Ltd. (12). . . . . . . . . . 3,105,057 3,388,222 0.6
60,000 SMC Corp. (17). . . . . . . . . . . . . . 3,085,930 4,341,341 0.8
130,000 Sanwa Bank, Ltd. (3). . . . . . . . . . . 2,639,823 2,644,324 0.5
285,000 Sumitomo Corp. (30). . . . . . . . . . . 2,414,459 2,898,586 0.6
305,000 Tokio Marine and Fire Insurance Co.,
Ltd. (16). . . . . . . . . . . . . . . . 3,851,033 3,988,280 0.7
550,000 Toray Industries Ltd. (28). . . . . . . . 3,773,274 3,622,627 0.7
-------------- -------------- -----
53,623,651 58,187,371 10.8
NETHERLANDS 466 ABN-AMRO Holdings N.V. (Preferred)
(3). . . . . . . . . . . . . . . . . . . 15,383 20,019 0.0
29,000 Royal Dutch Petroleum Co., N.V.
(ADR)* (21). . . . . . . . . . . . . . .
3,006,732 4,092,625 0.8
110,000 Singer Co. N.V. (a) (34). . . . . . . . . 2,946,559 3,066,250 0.6
-------------- -------------- -----
5,968,674 7,178,894 1.4
PHILIPPINES 40,000 Philippine Long Distance Telephone Co.
(ADR)* (27). . . . . . . . . . . . . . . 2,829,796 2,165,000 0.4
SPAIN 102,400 Repsol S.A. (Sponsored) (ADR)* (21). . . 3,034,619 3,366,400 0.6
SWITZERLAND 3,300 BBC Brown Boveri & Cie AG (8). . . . . . 2,297,018 3,842,878 0.7
2,300 Sandoz AG (22). . . . . . . . . . . . . . 1,996,772 2,110,715 0.4
-------------- -------------- -----
4,293,790 5,953,593 1.1
UNITED KINGDOM 294,000 GKN PLC (6). . . . . . . . . . . . . . . 2,318,167 3,554,942 0.6
585,000 General Electric Co. PLC (11). . . . . . 2,809,289 3,223,531 0.6
207,000 Imperial Chemical Industries PLC (9). . . 2,402,001 2,449,954 0.5
-------------- -------------- -----
7,529,457 9,228,427 1.7
- ---------------------------------------------------------------------------------------------------------------------
TOTAL FOREIGN STOCKS 108,142,691 120,110,056 22.3
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
47
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--GLOBAL STRATEGY FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995 (CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
FACE VALUE PERCENT OF
COUNTRY AMOUNT** FOREIGN BONDS++ COST (NOTE 1A) NET ASSETS
CANADA C$ 15,800,000 Government of Canada,
7.25% due 6/01/2003 (15). . . . . . . $11,839,689 $ 11,791,527 2.2%
- ------------------------------------------------------------------------------------------------------------------------
UNITED KINGDOM UK Treasury Gilt (15):
(pound sterling) 8,190,000 7.25% due 3/30/1998. . . . . . . . . 12,651,800 12,946,911 2.4
75,000 9.75% due 8/27/2002. . . . . . . . . 149,409 132,277 0.0
3,000,000 8.00% due 6/10/2003. . . . . . . . . 4,822,692 4,867,605 0.9
------------- -------------- -----
17,623,901 17,946,793 3.3
- ------------------------------------------------------------------------------------------------------------------------
TOTAL FOREIGN BONDS 29,463,590 29,738,320 5.5
- ------------------------------------------------------------------------------------------------------------------------
US GOVERNMENT OBLIGATIONS
- ------------------------------------------------------------------------------------------------------------------------
US Treasury Notes:
US$ 14,000,000 5.75% due 8/15/2003. . . . . . . . . 14,037,891 14,168,420 2.6
29,000,000 7.25% due 8/15/2004. . . . . . . . . 29,290,000 32,248,870 6.0
40,000,000 7.875% due 11/15/2004. . . . . . . . 39,980,781 46,300,000 8.5
10,000,000 6.50% due 8/15/2005. . . . . . . . . 9,966,406 10,653,100 2.0
- ------------------------------------------------------------------------------------------------------------------------
TOTAL US GOVERNMENT OBLIGATIONS 93,275,078 103,370,390 19.1
- ------------------------------------------------------------------------------------------------------------------------
SHORT-TERM SECURITIES
- ------------------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER***US$ 10,000,000 Ciesco L.P., 5.53% due 2/20/1996. . . 9,920,122 9,920,122 1.9
20,000,000 Corporate Asset Funding Co. Inc.,
5.72% due 1/04/1996. . . . . . . . . 19,984,111 19,984,111 3.7
21,211,000 General Electric Capital Corp., 5.90%
due 1/02/1996. . . . . . . . . . . . 21,200,571 21,200,571 3.9
12,000,000 Sandoz Corporation, 5.75% due
1/29/1996. . . . . . . . . . . . . . 11,942,500 11,942,500 2.2
------------- -------------- ----
63,047,304 63,047,304 11.7
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
48
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--GLOBAL STRATEGY FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995 (CONCLUDED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
FACE VALUE PERCENT OF
AMOUNT** SHORT-TERM SECURITIES COST (NOTE 1A) NET ASSETS
US GOVERNMENT & US$43,495,000 Federal Home Loan Bank, 5.58% due
AGENCY OBLIGATIONS*** 1/19/1996. . . . . . . . . . . . . . $ 43,360,166 $ 43,360,166 8.0%
Federal National Mortgage Association:
20,000,000 5.65% due 1/12/1996. . . . . . . . . 19,959,195 19,959,195 3.7
20,000,000 5.59% due 1/18/1996 19,940,994 19,940,994 3.7
30,000,000 5.67% due 1/18/1996. . . . . . . . . 29,910,225 29,910,225 5.5
7,000,000 5.50% due 1/19/1996 --- 6,978,611 --- 6,978,611 1.3
----------- ----------- -------
120,149,191 120,149,191 22.2
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM SECURITIES 183,196,495 183,196,495 33.9
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS. . . . . . . . . . . . . . . . . . . . . . . $491,055,965 527,857,629 97.7
--------------
UNREALIZED APPRECIATION ON FORWARD FOREIGN -- ----------
EXCHANGE CONTRACTS++. . . . . . . . . . . . . . . . . . . . . 9,681,629 1.8
OTHER ASSETS LESS LIABILITIES. . . . . . . . . . . . . . . . . 2,702,355 0.5
-------------- -------
NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . $540,241,613 100.0%
-------------- -------
-- ---------- ------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* American Depositary Receipts (ADR).
** Denominated in US dollars unless otherwise indicated.
*** Commercial Paper and certain US Government & Agency Obligations are traded
on a discount basis; the interest rates shown are the discount rates paid at
the time of purchase by the Fund.
(a) Consistent with general policy of the Securities and Exchange Commission,
the nationality or domicile of an issuer for determination of foreign issuer
status may be (i) the country under whose laws the issuer is organized, (ii)
the country in which the issuer's securities are principally traded, or (iii)
the country in which the issuer derives a significant proportion (at least
50%) of its revenue or profits from goods produced or sold, investment made,
or services performed in the country, or in which at least 50% of the assets
of the issuers are situated.
+ Non-income producing securities.
++ Corresponding industry groups for foreign stocks and bonds:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(1) Automobiles (18) Multi-Industry
(2) Automotive Equipment (19) Natural Gas
(3) Banking (20) Packaging
(4) Building & Construction (21) Petroleum
(5) Building Materials (22) Pharmaceutical
(6) Business & Public Service (23) Printing & Publishing
(7) Business Publishing (24) Real Estate
(8) Capital Goods (25) Retail Stores
(9) Chemicals (26) Shipping
(10) Diversified (27) Telecommunications
(11) Electrical Equipment (28) Textiles
(12) Electronics (29) Toys
(13) Food (30) Trading
(14) Glass (31) Utilities
(15) Government (Bonds) (32) Utilities--Electric
(16) Insurance (33) Financial Services
(17) Machinery (34) Appliances
</TABLE>
++ Forward foreign exchange contracts as of December 31, 1995 were as follows:
<TABLE>
<CAPTION>
UNREALIZED
EXPIRATION APPRECIATION
FOREIGN CURRENCY SOLD DATE (NOTE 1B)
- --------------------------------------------------------------------------------------
<S> <C> <C>
Y4,819,200,000. . . . . . . . . . . . . . . . . . . . . January 1996 $ 9,681,629
- --------------------------------------------------------------------------------------
TOTAL UNREALIZED APPRECIATION ON FORWARD
FOREIGN EXCHANGE CONTRACTS (US$ COMMITMENT--$56,457,357) $ 9,681,629
---------------
--- ----------
- --------------------------------------------------------------------------------------
</TABLE>
49
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--GLOBAL UTILITY FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995
(IN US DOLLARS)
<TABLE>
<CAPTION>
SHARES VALUE PERCENT OF
COUNTRY INDUSTRY HELD COMMON STOCKS COST (NOTE 1A) NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ARGENTINA TELECOMMUNICATIONS 7,900 Central Costanera S.A. (ADR)* (b) $ 261,847 $ 240,950 0.2%
25,600 Telecom Argentina Stet S.A.
(ADR)*. . . . . . . . . . . . . . 1,160,819 1,219,200 0.8
44,800 Telefonica de Argentina S.A.
(ADR)*. . . . . . . . . . . . . . 1,173,168 1,220,800 0.8
--------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN
ARGENTINA 2,595,834 2,680,950 1.8
- ------------------------------------------------------------------------------------------------------------------------
AUSTRALIA UTILITIES--GAS 434,496 Australian Gas & Light Co. Ltd.. 1,238,060 1,631,611 1.1
--------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN
AUSTRALIA 1,238,060 1,631,611 1.1
- ------------------------------------------------------------------------------------------------------------------------
AUSTRIA UTILITIES--GAS 11,300 Energie-Versorgung
Niederoesterreich AG (EVN). . . . 1,388,213 1,555,870 1.1
--------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN
AUSTRIA 1,388,213 1,555,870 1.1
- ------------------------------------------------------------------------------------------------------------------------
BRAZIL TELECOMMUNICATIONS 18,000 Telecomunicacoes Brasileiras
S.A.-Telebras (ADR)*. . . . . . . 870,759 852,750 0.6
--------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN BRAZIL 870,759 852,750 0.6
- ------------------------------------------------------------------------------------------------------------------------
CANADA TELECOMMUNICATIONS 56,000 BC Telecom, Inc.. . . . . . . . . 1,052,989 1,026,167 0.7
--------------------------------------------------------------------------------------------------------------
UTILITIES--GAS 70,100 Transcanada Pipeline Co., Ltd.
(ADR)*. . . . . . . . . . . . . . 1,045,275 963,875 0.7
93,000 Westcoast Energy, Inc.. . . . . . 1,594,099 1,360,125 0.9
------------ ------------ ----------
2,639,374 2,324,000 1.6
--------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN
CANADA 3,692,363 3,350,167 2.3
- ------------------------------------------------------------------------------------------------------------------------
CHILE TELECOMMUNICATIONS 14,400 Compania de Telefonos de Chile
S.A. (ADR)*. . . . . . . . . . . 1,254,995 1,193,400 0.8
--------------------------------------------------------------------------------------------------------------
UTILITIES--ELECTRIC 20,000 Chilgener S.A. (ADR)*. . . . . . 460,000 500,000 0.4
35,100 Distribuidora Chilectra
Metropolitan, S.A. (ADR)* (b). . 1,098,338 1,737,450 1.2
48,300 Enersis S.A. (ADR)*. . . . . . . 1,026,061 1,376,550 0.9
------------ ------------ ----------
2,584,399 3,614,000 2.5
--------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN CHILE 3,839,394 4,807,400 3.3
- ------------------------------------------------------------------------------------------------------------------------
DENMARK TELECOMMUNICATIONS 77,000 Tele Danmark A/S (ADR)*. . . . . 1,826,433 2,127,125 1.4
--------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN
DENMARK 1,826,433 2,127,125 1.4
- ------------------------------------------------------------------------------------------------------------------------
FRANCE UTILITIES--WATER 16,409 Generale des Eaux. . . . . . . . 1,872,761 1,639,961 1.1
7,111 Lyonnaise des Eaux-Dumez. . . . . 722,326 685,399 0.5
--------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN
FRANCE 2,595,087 2,325,360 1.6
- ------------------------------------------------------------------------------------------------------------------------
GERMANY UTILITIES--ELECTRIC 40,000 Veba AG. . . . . . . . . . . . . 1,305,397 1,701,711 1.1
--------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN
GERMANY 1,305,397 1,701,711 1.1
- ------------------------------------------------------------------------------------------------------------------------
HONG KONG UTILITIES--ELECTRIC 57,500 Hong Kong Electric Holdings, Ltd. 180,587 188,518 0.1
--------------------------------------------------------------------------------------------------------------
UTILITIES--GAS 473,760 The Hong Kong & China Gas Co.,
Ltd.. . . . . . . . . . . . . . . 755,615 762,844 0.5
32,900 The Hong Kong & China Gas Co.,
Ltd. (Warrants) (a). . . . . . . -- 43 0.0
------------ ------------ ----------
755,615 762,887 0.5
--------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
IN HONG KONG 936,202 951,405 0.6
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
50
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--GLOBAL UTILITY FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995 (CONTINUED)
(IN US DOLLARS)
<TABLE>
<CAPTION>
SHARES VALUE PERCENT OF
COUNTRY INDUSTRY HELD COMMON STOCKS COST (NOTE 1A) NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INDIA UTILITIES--ELECTRIC 4,500 CESC Ltd. (GDR)** (b). . . . . . $ 40,950 $ 12,375 0.0%
7,500 CESC Ltd. (Units) (c). . . . . . 400,050 90,000 0.1
1,000 Tata Electric Companies
(GDR)** (b). . . . . . . . . . . 710,000 320,000 0.2
------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN INDIA 1,151,000 422,375 0.3
- ------------------------------------------------------------------------------------------------------------------------
INDONESIA TELECOMMUNICATIONS 1,110 P.T. Indonesian Satellite
Corp. (ADR)*. . . . . . . . . . 35,576 40,515 0.0
8,000 P.T. Telekomunikasi Indonesia
(ADR)*. . . . . . . . . . . . . 144,000 202,000 0.1
------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN
INDONESIA 179,576 242,515 0.1
- ------------------------------------------------------------------------------------------------------------------------
ITALY TELECOMMUNICATIONS 761,900 Societa Finanziara Telefonica
S.p.A. (STET). . . . . . . . . . 1,629,934 1,557,449 1.0
729,600 Telecom Italia S.p.A.. . . . . . 950,865 1,136,979 0.8
729,600 Telecom Italia Mobile S.p.A.. . 684,328 1,286,582 0.9
------------ ------------ ----------
3,265,127 3,981,010 2.7
------------------------------------------------------------------------------------------------------------
UTILITIES--GAS 513,400 Italgas Torino. . . . . . . . . 1,581,576 1,564,493 1.0
------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN ITALY 4,846,703 5,545,503 3.7
- ------------------------------------------------------------------------------------------------------------------------
KOREA UTILITIES--ELECTRIC 40,800 Korea Electric Power Corp.
(ADR)*. . . . . . . . . . . . . 821,100 1,091,400 0.8
------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN
KOREA 821,100 1,091,400 0.8
- ------------------------------------------------------------------------------------------------------------------------
MALAYSIA TELECOMMUNICATIONS 139,000 Telekom Malaysia BHD. . . . . . 962,438 1,084,184 0.8
------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN
MALAYSIA 962,438 1,084,184 0.8
- ------------------------------------------------------------------------------------------------------------------------
MEXICO TELECOMMUNICATIONS 29,000 Telefonos de Mexico, S.A. de C.V.
(Telemex) (ADR)*. . . . . . . . 1,706,306 924,375 0.6
------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN
MEXICO 1,706,306 924,375 0.6
- ------------------------------------------------------------------------------------------------------------------------
NEW TELECOMMUNICATIONS 36,800 Telecom Corporation of New
ZEALAND Zealand Ltd. (ADR)*. . . . . . . 1,680,030 2,553,000 1.7
------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN
NEW ZEALAND 1,680,030 2,553,000 1.7
- ------------------------------------------------------------------------------------------------------------------------
PHILIPPINES TELECOMMUNICATIONS 21,800 Philippine Long Distance
Telephone Co. (ADR)* 1,270,791 1,179,925 0.8
------------------------------------------------------------------------------------------------------------
UTILITIES--ELECTRIC 57,000 Manila Electric Co. (MERALCO)
'B'. . . . . . . . . . . . . . . 518,117 465,395 0.3
------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN THE
PHILIPPINES 1,788,908 1,645,320 1.1
- ------------------------------------------------------------------------------------------------------------------------
PORTUGAL TELECOMMUNICATIONS 20,600 +Portugal Telecom S.A. (ADR)*. . 385,735 391,400 0.3
------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN
PORTUGAL 385,735 391,400 0.3
- ------------------------------------------------------------------------------------------------------------------------
SPAIN TELECOMMUNICATIONS 50,700 Telefonica de Espana S.A. (ADR)* 1,942,165 2,123,062 1.4
------------------------------------------------------------------------------------------------------------
UTILITIES--ELECTRIC 36,400 Empresa Nacional de Electricidad,
S.A. (Endesa) (ADR)*. . . . . . 1,634,684 2,083,900 1.4
15,000 HidroElectrica Del Cantabrico,
S.A.. . . . . . . . . . . . . . 503,484 519,588 0.4
131,000 Iberdrola I S.A.. . . . . . . . 879,896 1,199,258 0.8
------------ ------------ ----------
3,018,064 3,802,746 2.6
------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN SPAIN 4,960,229 5,925,808 4.0
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
51
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--GLOBAL UTILITY FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995 (CONTINUED)
(IN US DOLLARS)
<TABLE>
<CAPTION>
SHARES VALUE PERCENT OF
COUNTRY INDUSTRY HELD COMMON STOCKS COST (NOTE 1A) NET ASSETS
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
THAILAND TELECOMMUNICATIONS 2,000 +TelecomAsia Corp. Public
Co., Ltd. (ADR)*. . . . . . . . $ 43,740 $ 56,000 0.0%
------------------------------------------------------------------------------------------------------------
UTILITIES--ELECTRIC 68,000 +Electricity Generating Company
Ltd. (EGCOMP). . . . . . . . . . 60,715 232,248 0.2
------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN
THAILAND 104,455 288,248 0.2
- ---------------------------------------------------------------------------------------------------------------------
UNITED TELECOMMUNICATIONS 57,000 British Telecommunications PLC. 406,712 313,203 0.2
KINGDOM
10,000 British Telecommunications PLC
(ADR)*. . . . . . . . . . . . . 741,450 565,000 0.4
87,000 Vodafone Group PLC (ADR)*. . . . 2,549,289 3,066,750 2.0
------------- ------------- ---------
3,697,451 3,944,953 2.6
------------------------------------------------------------------------------------------------------------
UTILITIES--ELECTRIC 86,000 London Electricity PLC. . . . . 860,944 765,561 0.5
60,000 Midlands Electricity PLC. . . . 684,138 707,803 0.5
174,822 National Grid Holding Co. PLC. . 561,038 541,361 0.4
140,000 National Power PLC. . . . . . . 1,010,949 976,799 0.7
90,000 Powergen PLC. . . . . . . . . . 658,010 743,892 0.5
58,000 South Wales Electricity PLC. . . 691,336 839,958 0.5
------------- ------------- ---------
4,466,415 4,575,374 3.1
TOTAL COMMON STOCKS IN THE
UNITED KINGDOM 8,163,866 8,520,327 5.7
- ---------------------------------------------------------------------------------------------------------------------
UNITED TELECOMMUNICATIONS 36,400 +AirTouch Communications, Inc.. . 879,157 1,028,300 0.7
STATES
10,000 AT&T Corp.. . . . . . . . . . . 564,350 647,500 0.4
45,800 Ameritech Corp.. . . . . . . . . 1,864,458 2,702,200 1.8
31,800 Bell Atlantic Corp.. . . . . . . 1,872,160 2,126,625 1.4
67,400 BellSouth Corp.. . . . . . . . . 2,020,584 2,931,900 2.0
32,000 Frontier Corporation.. . . . . . 653,920 960,000 0.6
53,500 GTE Corp.. . . . . . . . . . . . 1,866,628 2,354,000 1.6
150,000 NYNEX Corp.. . . . . . . . . . . 5,893,598 8,100,000 5.5
45,300 SBC Communications. . . . . . . 1,921,580 2,604,750 1.8
60,000 Sprint Corporation. . . . . . . 2,135,074 2,392,500 1.6
66,900 U S West, Inc.. . . . . . . . . 1,765,286 2,391,675 1.6
------------- ------------- ---------
21,436,795 28,239,450 19.0
------------------------------------------------------------------------------------------------------------
UTILITIES--ELECTRIC 65,600 Allegheny Power System, Inc.. . 1,689,846 1,877,800 1.3
47,500 Boston Edison Co.. . . . . . . . 1,386,299 1,401,250 0.9
84,192 CINergy Corp.. . . . . . . . . . 2,052,668 2,578,380 1.7
49,300 Consolidated Edison Co. of New
York. . . . . . . . . . . . . . 1,597,050 1,577,600 1.1
31,500 DTE Energy. . . . . . . . . . . 989,953 1,086,750 0.7
26,400 Dominion Resources, Inc.. . . . 1,242,516 1,089,000 0.7
61,000 Duke Power Co.. . . . . . . . . 2,452,906 2,889,875 1.9
54,300 Entergy Corp.. . . . . . . . . . 1,905,240 1,588,275 1.1
85,200 General Public Utilities Corp.. 2,559,840 2,896,800 2.0
146,200 Houston Industries, Inc.. . . . 3,215,466 3,545,350 2.4
56,000 NIPSCO Industries, Inc.. . . . . 1,787,890 2,142,000 1.4
50,700 New York State Electric & Gas
Corp.. . . . . . . . . . . . . . 1,537,761 1,311,862 0.9
42,300 Northeast Utilities Co.. . . . . 1,096,216 1,031,062 0.7
93,800 PECO Energy Co.. . . . . . . . . 2,719,313 2,825,725 1.9
50,000 Pacific Gas and Electric Company 1,378,500 1,418,750 1.0
72,800 PacifiCorp.. . . . . . . . . . . 1,401,416 1,547,000 1.0
44,000 Public Service Co. of Colorado. 1,312,146 1,556,500 1.1
64,000 SCEcorp.. . . . . . . . . . . . 1,220,732 1,136,000 0.8
86,200 Southern Co.. . . . . . . . . . 1,846,654 2,122,675 1.4
40,600 Western Resources Co.. . . . . . 1,393,851 1,355,025 0.9
------------- ------------- ---------
34,786,263 36,977,679 24.9
------------------------------------------------------------------------------------------------------------
</TABLE>
52
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--GLOBAL UTILITY FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995 (CONCLUDED)
(IN US DOLLARS)
<TABLE>
<CAPTION>
SHARES VALUE PERCENT OF
COUNTRY INDUSTRY HELD COMMON STOCKS COST (NOTE 1A) NET ASSETS
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
UNITED UTILITIES--GAS 33,000 The Brooklyn Union Gas Co.. . $ 855,855 $ 965,250 0.7%
STATES
(CONCLUDED) 52,000 The Coastal Corp.. . . . . . . 1,509,758 1,937,000 1.3
24,800 El Paso Natural Gas Co.. . . . 895,148 703,700 0.5
40,000 Enron Global Power & Pipelines
L.L.C., Com. . . . . . . . . . 930,101 995,000 0.7
26,100 National Fuel Gas Company. . . 788,314 877,612 0.6
25,000 New Jersey Resources Corp.. . 656,623 753,125 0.5
53,500 Questar Corp.. . . . . . . . . 1,908,628 1,792,250 1.2
72,200 Sonat, Inc.. . . . . . . . . . 2,342,585 2,572,125 1.7
49,800 Washington Gas Light Co.. . . 1,046,197 1,020,900 0.7
78,600 Williams Co., Inc.. . . . . . 2,298,643 3,448,575 2.3
-------------- -------------- -------------
13,231,852 15,065,537 10.2
---------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS IN THE
UNITED STATES 69,454,910 80,282,666 54.1
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN COMMON
STOCKS 116,492,998 130,901,470 88.3
- ---------------------------------------------------------------------------------------------------------------------------------
FACE
AMOUNT FIXED-INCOME SECURITIES
- ------------
AUSTRALIA TELECOMMUNICATIONS US$ 1,040,000 Telstra Corp. Ltd., 6.50% due
7/31/2003 (b). . . . . . . . . 1,084,062 1,062,100 0.7
---------------------------------------------------------------------------------------------------------------------
TOTAL FIXED-INCOME SECURITIES
IN AUSTRALIA 1,084,062 1,062,100 0.7
- ---------------------------------------------------------------------------------------------------------------------------------
KOREA UTILITIES--ELECTRIC 1,000,000 Korea Electric Power Corp.,
6.375% due 12/01/2003. . . . . 985,510 996,160 0.7
---------------------------------------------------------------------------------------------------------------------
TOTAL FIXED-INCOME SECURITIES
IN KOREA 985,510 996,160 0.7
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN FIXED-
INCOME SECURITIES 2,069,572 2,058,260 1.4
- ---------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM SECURITIES
---------------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER*** 7,457,000 General Electric Capital Corp.,
5.90% due 1/02/1996. . . . . . 7,452,112 7,452,112 5.0
------------------------------------------------------------------------------------------------
US GOVERNMENT & 6,000,000 Federal Home Loan Bank,
AGENCY OBLIGATIONS*** Discount Note, 5.67%
due 1/16/1996. . . . . . . . . 5,982,990 5,982,990 4.0
400,000 Federal Home Loan Mortgage
Corp., 5.47% due 2/12/1996. . 397,265 397,265 0.3
-------------- -------------- -------------
6,380,255 6,380,255 4.3
------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
SHORT-TERM SECURITIES 13,832,367 13,832,367 9.3
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS. . . . . . . $132,394,937 146,792,097 99.0
--------------
OTHER ASSETS LESS LIABILITIES. -- ---------- 1,433,180 1.0
-------------- -------------
NET ASSETS. . . . . . . . . . $148,225,277 100.0%
-------------- -------------
-- ---------- ------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* American Depositary Receipts (ADR).
** Global Depositary Receipts (GDR).
*** Commercial Paper and certain US Government & Agency Obligations are traded
on a discount basis; the interest rates shown are the discount rates paid at
the time of purchase by the Fund.
(a) Warrants entitle the Fund to purchase a predetermined number of shares of
common stock. The purchase price and number of shares are subject to
adjustment under certain conditions until the expiration date.
(b) Restricted security as to resale. The value of the Fund's investment in
restricted securities was approximately $3,373,000, representing 2.2% of net
assets.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
VALUE
ISSUE ACQUISITION DATE(S) COST (NOTE 1A)
- -- --
- ---------------------------------------------------- -------------------- ------------ -------------
CESC Ltd. (GDR). . . . . . . . . . . . . . . . . 5/17/1994 $ 40,950 $ 12,375
Central Costanera S.A. (ADR). . . . . . . . . . 12/17/1993 261,847 240,950
Distribuidora Chilectra Metropolitana S.A. (ADR) 8/06/1993-12/21/1993 1,098,338 1,737,450
Tata Electric Companies (GDR). . . . . . . . . . 2/22/1994 710,000 320,000
Telstra Corp. Ltd., 6.50% due 7/31/2003. . . . . 7/26/1993-9/29/1993 1,084,062 1,062,100
TOTAL $3,195,197 $ 3,372,875
------------ -------------
-- -------- -- ---------
- ------------------------------------------------------------------------------------------------------
</TABLE>
(c) Each unit consists of five GDR's and two warrants of CESC Ltd.
+ Non-income producing security.
See Notes to Financial Statements.
53
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--HIGH CURRENT INCOME FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
S&P MOODY'S FACE VALUE
INDUSTRY RATINGS RATINGS AMOUNT ISSUE COST (NOTE 1A)
<S> <C> <C> <C> <C> <C> <C>
AEROSPACE--1.2% B B3 $4,000,000++ Howmet Corp., 10.00% due
12/01/2003. . . . . . . . . . . . . . $ 4,000,000 $ 4,200,000
- ------------------------------------------------------------------------------------------------------------------------
AIRLINES--1.7% BB+ Baa2 500,000 Delta Air Lines Inc., 10.50% due
4/30/2016. . . . . . . . . . . . . . 506,875 630,325
United Air Lines, Inc.:
BB+ Baa1 500,000 10.02% due 3/22/2014. . . . . . . . . 506,250 598,175
BB+ Baa1 1,000,000 9.35% due 4/07/2016. . . . . . . . . . 1,016,260 1,102,500
BB- B1 4,000,000 USAir, Inc., 10.375% due
3/01/2013. . . . . . . . . . . . . . . 3,935,000 3,720,000
------------- --------------
5,964,385 6,051,000
- ------------------------------------------------------------------------------------------------------------------------
AUTOMOTIVE--1.2% NR* B1 1,000,000 Exide Corp., 10.00% due 4/15/2005. . . 1,000,000 1,085,000
B B3 2,000,000 SPX Corp., 11.75% due 6/01/2002. . . . 2,043,750 2,120,000
B+ Ba3 1,000,000 Walbro Corp., 9.875% due 7/15/2005. . 980,000 997,500
------------- --------------
4,023,750 4,202,500
- ------------------------------------------------------------------------------------------------------------------------
BROADCASTING & B- B3 3,000,000 ACT III Broadcasting Inc., 10.25% due
PUBLISHING--5.6% 12/15/2005. . . . . . . . . . . . . . 3,000,000 3,063,750
B B1 4,000,000 American Media, Inc., 11.625% due
11/15/2004. . . . . . . . . . . . . . 4,015,000 4,040,000
BB- Ba3 750,000 Heritage Media Services Corporation,
11.00% due 6/15/2002. . . . . . . . . 789,063 796,875
BB- Ba3 1,000,000 K-III Communications Corp., 10.25% due
6/01/2004. . . . . . . . . . . . . . 995,000 1,070,000
B Caa 4,300,000 NWCG Holding Corp., 13.50% due
6/15/1999 (d). . . . . . . . . . . . 2,737,640 2,967,000
BB- B3 2,500,000 SCI Television Inc., 11.00% due
6/30/2005. . . . . . . . . . . . . . 2,560,000 2,643,750
Sinclair Broadcasting Group Inc.:
B+ B3 2,500,000 10.00% due 12/15/2003. . . . . . . . . 2,436,250 2,550,000
B+ B1 1,250,000 10.00% due 9/30/2005. . . . . . . . . 1,250,000 1,278,125
B* B2 1,500,000 Young Broadcasting Corp., 10.125% due
2/15/2005. . . . . . . . . . . . . . 1,500,000 1,582,500
------------- --------------
19,282,953 19,992,000
- ------------------------------------------------------------------------------------------------------------------------
BROADCASTING/ CCC+ Caa 5,023,939 American Telecasting, Inc., 14.38% due
CABLE--6.1% 6/15/2004 (d). . . . . . . . . . . . 3,103,217 3,453,958
CCC B3 5,000,000 Australis Media Ltd., 14.07% due
5/15/2003 (d). . . . . . . . . . . . 2,756,486 3,612,500
BB- B2 9,000,000++ Bell Cablemedia PLC., 11.74% due
9/15/2005 (d). . . . . . . . . . . . 5,282,944 5,647,500
BB- B3 2,500,000 Cai Wireless Systems Inc., 12.25% due
9/15/2002. . . . . . . . . . . . . . 2,500,000 2,668,750
Videotron Holdings PLC.:
B+ B3 5,500,000 11.77% due 7/01/2004 (d). . . . . . . 3,597,244 3,836,250
BB+ Baa3 2,500,000 10.625% due 2/15/2005. . . . . . . . . 2,559,375 2,681,250
------------- --------------
19,799,266 21,900,208
- ------------------------------------------------------------------------------------------------------------------------
BUILDING MATERIALS-- B+ B3 3,340,000 Pacific Lumber Co., 10.50% due
0.9% 3/01/2003. . . . . . . . . . . . . . 3,252,088 3,164,650
- ------------------------------------------------------------------------------------------------------------------------
CAPITAL GOODS--1.7% B+ B1 1,660,000 Essex Group, Inc., 10.00% due
5/01/2003. . . . . . . . . . . . . . . 1,668,925 1,626,800
B- B3 4,500,000 International Wire Group Inc., 11.75%
due 6/01/2005. . . . . . . . . . . . 4,490,625 4,275,000
------------- --------------
6,159,550 5,901,800
- ------------------------------------------------------------------------------------------------------------------------
CHEMICALS--3.8% B B2 4,100,000 Agricultural Minerals & Chemicals Co.,
L.P., 10.75% due 9/30/2003. . . . . . 4,123,188 4,530,500
B+ Ba3 7,495,000 G-I Holdings Inc., 12.77% due
10/01/1998 (d). . . . . . . . . . . . 5,421,149 5,808,625
B B3 3,000,000 Laroche Industries Inc., 13.00% due
8/15/2004. . . . . . . . . . . . . . 2,991,250 3,187,500
------------- --------------
12,535,587 13,526,625
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
54
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--HIGH CURRENT INCOME FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995 (CONTINUED)
<TABLE>
<CAPTION>
S&P MOODY'S FACE VALUE
INDUSTRY RATINGS RATINGS AMOUNT ISSUE COST (NOTE 1A)
<S> <C> <C> <C> <C> <C> <C>
COMMUNICATIONS--5.3% CCC+ B3 $6,000,000 NEXTEL Communications, Inc., 14.11%
due 8/15/2004 (d). . . . . . . . . . $ 3,275,312 $ 3,255,000
B- B3 3,000,000 Panamsat L.P., 12.16% due
8/01/2003 (d). . . . . . . . . . . . 2,148,774 2,460,000
BB- B2 3,000,000 Rogers Communications, Inc., 10.875%
due 4/15/2004. . . . . . . . . . . . 3,042,500 3,135,000
BB- B1 3,000,000 Telecom Argentina S.A., 8.375% due
10/18/2000. . . . . . . . . . . . . 2,357,500 2,842,500
BB- B1 4,000,000 Telefonica de Argentina S.A., 11.875%
due 11/01/2004. . . . . . . . . . . 3,917,780 4,140,000
CCC+ B3 3,000,000 USA Mobile Communications Holdings,
Inc., 9.50% due 2/01/2004. . . . . . 2,710,000 2,970,000
------------- --------------
17,451,866 18,802,500
- ----------------------------------------------------------------------------------------------------------------------
CONGLOMERATES--6.2% BB+ Ba3 4,000,000 ADT Operations, Inc., 9.25% due
8/01/2003. . . . . . . . . . . . . . 4,010,000 4,290,000
BB- B3 3,890,000 Coltec Industries, Inc., 10.25% due
4/01/2002. . . . . . . . . . . . . . 4,070,450 3,996,975
CCC+ B3 2,500,000 Interlake Corp., 12.125% due
3/01/2002. . . . . . . . . . . . . . 2,354,188 2,375,000
B+ B2 2,000,000 JB Poindexter & Co., 12.50% due
5/15/2004. . . . . . . . . . . . . . 2,000,000 1,605,000
B+ B3 3,000,000 Jordan Industries Inc., 10.375% due
8/01/2003. . . . . . . . . . . . . . 2,993,000 2,670,000
NR* NR* 890,000 MacAndrews & Forbes Group, Inc.,
13.00% due 3/01/1999. . . . . . . . 868,373 898,900
Sequa Corp.:
BB B2 750,000 9.625% due 10/15/1999. . . . . . . . 740,625 742,500
B+ B3 2,500,000 9.375% due 12/15/2003. . . . . . . . 2,512,813 2,325,000
BB- B1 3,000,000 Sherritt Gordon, Ltd., 9.75% due
4/01/2003. . . . . . . . . . . . . . 2,985,938 3,195,000
------------- --------------
22,535,387 22,098,375
- ----------------------------------------------------------------------------------------------------------------------
CONSUMER-- B NR* 4,950,000 Coleman Holdings, Inc., 11.41% due
PRODUCTS--6.8% 5/27/1998 (d). . . . . . . . . . . . 3,779,986 4,009,500
B+ Ba3 1,250,000 Coty Inc., 10.25% due 5/01/2005. . . 1,250,000 1,325,000
NR* B2 4,000,000 Herff Jones Inc., 11.00% due
8/15/2005. . . . . . . . . . . . . . 4,000,000 4,250,000
B+ Ba2 7,000,000 International Semi-Tech
Microelectronics, Inc., 13.13% due
8/15/2003 (d). . . . . . . . . . . . 3,734,702 3,675,000
B- Caa 4,000,000 Polymer Group Inc., 12.25% due
7/15/2002. . . . . . . . . . . . . . 3,967,500 4,120,000
B B2 3,000,000 Revlon Consumer Products Corp., 9.375%
due 4/01/2001. . . . . . . . . . . . 2,678,438 3,037,500
B- B3 4,000,000 Samsonite Corp., 11.125% due
7/15/2005. . . . . . . . . . . . . . 3,851,875 3,840,000
------------- --------------
23,262,501 24,257,000
- ----------------------------------------------------------------------------------------------------------------------
CONVERTIBLE B B2 200,000 OHM Corp., 8.00% due
BONDS+--0.1% 10/01/2006 (1). . . . . . . . . . . . 186,500 173,000
- ----------------------------------------------------------------------------------------------------------------------
DIVERSIFIED--0.7% Foamex L.P. :
B+ B1 530,000 9.50% due 6/01/2000. . . . . . . . . 517,413 523,375
B B1 1,950,000 11.25% due 10/01/2002. . . . . . . . 1,936,375 1,950,000
------------- --------------
2,453,788 2,473,375
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
55
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--HIGH CURRENT INCOME FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995 (CONTINUED)
<TABLE>
<CAPTION>
S&P MOODY'S FACE VALUE
INDUSTRY RATINGS RATINGS AMOUNT ISSUE COST (NOTE 1A)
<S> <C> <C> <C> <C> <C> <C>
ENERGY--6.2% BB- Ba3 $2,500,000 California Energy Company, Inc., 9.875%
due 6/30/2003. . . . . . . . . . . . . $ 2,518,750 $ 2,625,000
B+ B1 6,000,000 Clark R & M Holdings, Inc., 11.00% due
2/15/2000 (d). . . . . . . . . . . . . 3,867,581 3,990,000
NR* NR* 1,500,000 Consolidated Hydro, Inc., 11.80% due
7/15/2003 (d). . . . . . . . . . . . . 1,120,411 875,625
BB- B1 2,925,000 Energy Ventures, Inc., 10.25% due
3/15/2004. . . . . . . . . . . . . . . 2,901,875 3,085,875
BB B1 1,580,000 Gulf Canada Resources, Ltd., 9.00% due
8/15/1999. . . . . . . . . . . . . . . 1,517,450 1,666,900
BB+ B2 3,500,000 TransTexas Gas Corp., 11.50% due
6/15/2002. . . . . . . . . . . . . . . 3,500,000 3,613,750
B- Caa 3,400,000 Transamerican Refining Corp., 19.11% due
2/15/2002 (d). . . . . . . . . . . . . 2,253,092 2,057,000
BB- B1 4,500,000 Yacimientos Petroliferos Fiscales S.A.,
8.00% due 2/15/2004. . . . . . . . . . 3,694,375 4,230,000
------------- --------------
21,373,534 22,144,150
- -------------------------------------------------------------------------------------------------------------------------
ENTERTAINMENT--2.5% BB- B1 4,500,000 Marvel Holdings, Inc., 9.125% due
2/15/1998. . . . . . . . . . . . . . . 3,999,375 4,140,000
B B2 5,000,000 Six Flags Theme Parks, 12.25% due
6/15/2005 (d). . . . . . . . . . . . . 3,782,056 3,900,000
D Caa 3,415,000 SpectraVision Inc., 16.80% due
10/01/2001 (d). . . . . . . . . . . . 2,983,294 683,000
------------- --------------
10,764,725 8,723,000
- -------------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES-- D Ca 1,500,000 Lomas Mortgage USA, Inc., 10.25% due
1.3% 10/01/2002. . . . . . . . . . . . . . 1,561,250 720,000
BB- B1 4,000,000 Reliance Group Holdings Inc., 9.75% due
11/15/2003. . . . . . . . . . . . . . 3,898,750 4,120,000
------------- --------------
5,460,000 4,840,000
- -------------------------------------------------------------------------------------------------------------------------
FOOD & BEVERAGE--3.3% B+ B1 3,000,000 Chiquita Brands International Inc.,
9.125% due 3/01/2004. . . . . . . . . . 2,950,625 2,970,000
B B3 2,500,000 Del Monte Corp., 10.00% due
5/01/2003. . . . . . . . . . . . . . . 2,310,000 2,262,500
B- B2 3,000,000 Envirodyne Industries, Inc., 10.25%
due 12/01/2001. . . . . . . . . . . . . 3,056,250 2,205,000
B B3 4,500,000 Specialty Foods Corp., 11.125%
due 10/01/2002. . . . . . . . . . . . . 4,444,375 4,365,000
------------- --------------
12,761,250 11,802,500
- --------------------------------------------------------------------------------------------------------------
FOREIGN GOVERNMENT BB- B1 3,000,000 Republic of Argentina, 8.375% due
OBLIGATIONS--0.7% 12/20/2003. . . . . . . . . . . . . . 2,257,500 2,527,500
- -------------------------------------------------------------------------------------------------------------------------
GAMING--4.1% BB B1 3,000,000 Bally's Park Place Funding Corp., 9.25%
due 3/15/2004. . . . . . . . . . . . . 2,850,000 3,052,500
158,000 Goldriver Hotel & Casino Corp., 13.375%
D NR* due 8/31/1999. . . . . . . . . . . . . 222,801 74,260
4,000,000 Greate Bay Properties, Inc., 10.875% due
B+ B2 1/15/2004. . . . . . . . . . . . . . . 3,590,000 3,510,000
4,500,000 Harrah's Jazz Company, 14.25% due
D Caa 11/15/2001. . . . . . . . . . . . . . 4,468,750 1,237,500
250,000 Pioneer Finance Corp., 13.50% due
B- B3 12/01/1998. . . . . . . . . . . . . . 264,062 195,000
2,500,000 Showboat Inc., 13.00% due
B B2 8/01/2009. . . . . . . . . . . . . . . 2,500,000 2,812,500
3,000,000 Trump Plaza Funding, Inc., 10.875% due
B+ B3 6/15/2001. . . . . . . . . . . . . . . 2,963,277 3,105,000
552,658 Trump Taj Mahal Funding, Inc., 11.35%
NR* Caa due 11/15/1999 (a). . . . . . . . . . 446,353 518,893
------------- --------------
17,305,243 14,505,653
- -------------------------------------------------------------------------------------------------------------------------
HEALTH SERVICES--0.9% B+ Ba3 2,900,000 Tenet Healthcare Corp., 10.125% due
3/01/2005. . . . . . . . . . . . . . . 2,900,000 3,226,250
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
56
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--HIGH CURRENT INCOME FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995 (CONTINUED)
<TABLE>
<CAPTION>
S&P MOODY'S FACE VALUE
INDUSTRY RATINGS RATINGS AMOUNT ISSUE COST (NOTE 1A)
<S> <C> <C> <C> <C> <C> <C>
HOME BUILDERS--0.8% B- B2 $2,500,000 Del Webb Corporation, 9.00% due
2/15/2006. . . . . . . . . . . . . . . . $ 2,497,500 $ 2,375,000
B B1 250,000 K. Hovnanian Enterprise Inc., 11.25% due
4/15/2002. . . . . . . . . . . . . . . . 247,812 227,500
------------- --------------
2,745,312 2,602,500
- -----------------------------------------------------------------------------------------------------------------------------
HOTEL(S)--2.2% BB- Ba3 500,000++ HMC Acquisition Properties, 9.00% due
12/15/2007. . . . . . . . . . . . . . . 500,000 505,000
BB- B1 4,000,000 Host Marriott Hospitality Inc., 9.50% due
5/15/2005. . . . . . . . . . . . . . . . 3,873,216 4,085,000
BB- B1 3,500,000 John Q. Hammons Hotel, Inc., 8.875% due
2/15/2004. . . . . . . . . . . . . . . . 3,092,500 3,465,000
------------- --------------
7,465,716 8,055,000
- -----------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL- B- B3 3,500,000 Day International Corp., 11.125% due
SERVICES--1.0% 6/01/2005. . . . . . . . . . . . . . . . 3,525,000 3,517,500
- -----------------------------------------------------------------------------------------------------------------------------
METALS & MINING--0.9% B- B2 1,000,000 Kaiser Aluminum and Chemical Corp., 12.75%
due 2/01/2003. . . . . . . . . . . . . . 1,003,750 1,095,000
B- B3 3,000,000 Maxxam Group, Inc., 12.25% due 8/01/2003
(d). . . . . . . . . . . . . . . . . . . 2,204,282 2,055,000
------------- --------------
3,208,032 3,150,000
- -----------------------------------------------------------------------------------------------------------------------------
PACKAGING--4.0% CCC+ Ca 4,000,000 Anchor Glass Container Co., 9.875% due
12/15/2008. . . . . . . . . . . . . . . 3,782,500 2,360,000
Owens-Illinois, Inc.:
B+ B2 2,000,000 10.00% due 8/01/2002. . . . . . . . . . . 2,000,000 2,100,000
BB Ba3 2,000,000 11.00% due 12/01/2003. . . . . . . . . . 2,145,312 2,260,000
B B2 4,000,000 Portola Packaging Inc., 10.75% due
10/01/2005. . . . . . . . . . . . . . . 4,000,000 4,140,000
B- B3 3,660,000 Siligan Holdings, Inc., 12.53% due
12/15/2002 (d). . . . . . . . . . . . . 3,478,600 3,458,700
------------- --------------
15,406,412 14,318,700
- -----------------------------------------------------------------------------------------------------------------------------
PAPER--4.0% B B3 3,000,000 Crown Paper Co., 11.00% due
9/01/2005. . . . . . . . . . . . . . . . 2,740,000 2,625,000
BB Ba2 2,000,000 P.T. Indah Kiat International Finance,
11.875% due 6/15/2002. . . . . . . . . . 1,957,500 2,020,000
BB- B1 3,000,000 Repap Wisconsin Finance, Inc., 9.25% due
2/01/2002. . . . . . . . . . . . . . . . 2,760,000 2,850,000
B B1 1,250,000 Riverwood International Corp., 11.25% due
6/15/2002. . . . . . . . . . . . . . . . 1,340,312 1,356,250
B+ B1 2,000,000 S.D. Warren Co., 12.00% due
12/15/2004. . . . . . . . . . . . . . . . 2,000,000 2,205,000
Stone Container Corp.:
B B1 1,950,000 9.875% due 2/01/2001. . . . . . . . . . . 1,869,375 1,896,375
B+ B1 1,300,000 10.75% due 10/01/2002. . . . . . . . . . 1,287,000 1,342,250
------------- --------------
13,954,187 14,294,875
- -----------------------------------------------------------------------------------------------------------------------------
RESTAURANTS--1.2% CCC+ Caa 3,890,000 Flagstar Corp., 11.375% due
9/15/2003. . . . . . . . . . . . . . . . 3,701,100 2,761,900
B+ Ba3 1,750,000 Foodmaker, Inc., 9.75% due
11/01/2003. . . . . . . . . . . . . . . . 1,722,700 1,610,000
------------- --------------
5,423,800 4,371,900
- -----------------------------------------------------------------------------------------------------------------------------
RETAIL SPECIALTY--0.8% D Caa 4,500,000 Bradlees, Inc., 11.00% due
8/01/2002. . . . . . . . . . . . . . . . 4,466,562 1,125,000
B- Caa 2,500,000 Pamida Holdings, Inc., 11.75% due
3/15/2003. . . . . . . . . . . . . . . . 2,457,187 1,925,000
------------- --------------
6,923,749 3,050,000
- -----------------------------------------------------------------------------------------------------------------------------
SPECIALTY NR* NR* 1,957,000++ Cumberland Farms, 10.50% due
RETAILING--0.5% 10/01/2003. . . . . . . . . . . . . . . . 1,915,414 1,800,440
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
57
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--HIGH CURRENT INCOME FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995 (CONTINUED)
<TABLE>
<CAPTION>
S&P MOODY'S FACE VALUE
INDUSTRY RATINGS RATINGS AMOUNT ISSUE COST (NOTE 1A)
<S> <C> <C> <C> <C> <C> <C>
STEEL--2.7% B B1 $4,000,000 Gulf States Steel Acquisition Corp.,
13.50% due 4/15/2003. . . . . . . . . $ 3,975,780 $ 3,530,000
B+ B1 3,000,000 WCI Steel Inc., 10.50% due
3/01/2002. . . . . . . . . . . . . . . 2,990,000 2,917,500
B B2 3,500,000 Weirton Steel Corp., 10.75% due
6/01/2005. . . . . . . . . . . . . . 3,346,250 3,298,750
-------------- ---------------
10,312,030 9,746,250
- ---------------------------------------------------------------------------------------------------------------------------
SUPERMARKETS--0.6% B- B3 2,274,000 Grand Union Co., 12.00% due
9/01/2004. . . . . . . . . . . . . . . 2,187,686 1,967,010
- ---------------------------------------------------------------------------------------------------------------------------
TEXTILES--2.8% B+ B2 3,000,000 Decorative Home Accents, Inc., 13.00%
due 6/30/2002. . . . . . . . . . . . 2,977,008 2,970,000
BB- Ba3 3,500,000 Tultex Corp., 10.625% due 3/15/2005. . 3,500,000 3,561,250
B+ B3 3,500,000 Westpoint Stevens Industries, Inc.,
9.375% due 12/15/2005. . . . . . . . 3,291,250 3,456,250
-------------- ---------------
9,768,258 9,987,500
- ---------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--1.6% B- B3 3,700,000 Transtar Holdings Inc., 11.02% due
12/15/2003 (d). . . . . . . . . . . . 2,464,067 2,442,000
B+ Ba3 3,000,000 Viking Star Shipping Co., 9.625% due
7/15/2003. . . . . . . . . . . . . . 2,905,937 3,075,000
-------------- ---------------
5,370,004 5,517,000
- ---------------------------------------------------------------------------------------------------------------------------
UTILITIES--6.5% B+ B1 3,453,000 Beaver Valley Funding Corp., 9.00% due
6/01/2017. . . . . . . . . . . . . . 3,252,225 2,912,536
BB Ba2 2,000,000 Cleveland Electric Illuminating, 9.50%
due 5/15/2005. . . . . . . . . . . . 1,996,160 2,070,000
CTC Mansfield Funding Corp.:
B+ Ba3 1,000,000 10.25% due 3/30/2003. . . . . . . . . 983,750 1,013,750
B+ Ba3 2,300,000 11.125% due 9/30/2016. . . . . . . . 2,402,500 2,448,580
NR* NR* 4,000,000 Gas Argentino S.A., 7.25% due
12/07/1998. . . . . . . . . . . . . . 3,521,372 3,620,000
BB- B1 4,000,000 Metrogas S.A., 12.00% due
8/15/2000. . . . . . . . . . . . . . . 3,935,000 4,050,000
Midland Cogeneration Venture L.P.:
BB Ba3 2,597,494 10.33% due 7/23/2002. . . . . . . . . 2,641,869 2,739,289
B- B2 250,000 11.75% due 7/23/2005 250,000 261,923
BBB- NR* 3,000,000++ Trans Gas de Occidente, 9.79% due
11/01/2010. . . . . . . . . . . . . . 3,000,000 2,970,000
++
Tucson Electric & Power Co.:
NR* NR* 570,387 10.21% due 1/01/2009. . . . . . . . . 529,034 579,393
NR* NR* 500,000 10.732% due 1/01/2013. . . . . . . . 461,050 503,175
-------------- ---------------
22,972,960 23,168,646
- ---------------------------------------------------------------------------------------------------------------------------
WASTE B B3 3,500,000 Mid-American Waste Systems, Inc.,
MANAGEMENT--0.9% 12.25% due 2/15/2003. . . . . . . . . 3,555,000 3,325,000
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
CORPORATE BONDS--90.8% 328,463,433 323,384,407
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
58
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--HIGH CURRENT INCOME FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995 (CONTINUED)
<TABLE>
<CAPTION>
SHARES VALUE
INDUSTRY HELD PREFERRED STOCKS COST (NOTE 1A)
<S> <C> <C> <C> <C>
BROADCASTING & 13,607 K-III Communications Corp. (a) (c) $1,348,536 $ 1,347,180
PUBLISHING--0.4%
- -------------------------------------------------------------------------------------------------------
STEEL--0.8% 120,000 USX Capital Corp (c).. . . . . . . 3,000,000 3,045,000
- -------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN 4,348,536 4,392,180
PREFERRED STOCKS--1.2%
- -------------------------------------------------------------------------------------------------------
COMMON STOCKS
- -------------------------------------------------------------------------------------------------------
FOOD & BEVERAGE--0.0% 4,211 Foodbrands America, Inc (c).. . . 239,652 48,427
- -------------------------------------------------------------------------------------------------------
GAMING--0.0% 2,500 Goldriver Hotel & Casino Finance
Corp. (c). . . . . . . . . . . . . 18,603 2,500
500 Trump Taj Mahal Holding Corp.
(Class A) (c). . . . . . . . . . . 250 9,000
------------ -------------
18,853 11,500
- -------------------------------------------------------------------------------------------------------
HOTEL(S)--0.0% 107 Buckhead America Corp. (c). . . . 575 642
- -------------------------------------------------------------------------------------------------------
INDUSTRIAL- 311 Thermadyne Industries, Inc. (c). . 4,495 5,637
SERVICES--0.0%
- -------------------------------------------------------------------------------------------------------
SUPERMARKETS--0.4% 53,022 Grand Union Co. (c). . . . . . . . 3,090,000 391,037
37,642 Kash-N-Karry Food Stores, Inc. (c) 1,123,412 950,461
------------ -------------
4,213,412 1,341,498
- -------------------------------------------------------------------------------------------------------
TEXTILES--0.0% 3,000++ Decorative Home Accents, Inc.
(Class F) (c). . . . . . . . . . . 22,992 30,000
- -------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
COMMON STOCKS--0.4% 4,499,979 1,437,704
- -------------------------------------------------------------------------------------------------------
TRUSTS AND WARRANTS
- -------------------------------------------------------------------------------------------------------
BROADCASTING/ 23,350 American Telecasting, Inc.
CABLE--0.1% (Warrants) (b). . . . . . . . . . 4,776 145,938
- -------------------------------------------------------------------------------------------------------
COMPUTER 7,587 Anacomp, Inc. (Warrants) (b). . . 10,000 237
SERVICES--0.0%
- -------------------------------------------------------------------------------------------------------
ENERGY--0.0% 42,733 Transamerica Refining Corp.
(Warrants) (b). . . . . . . . . . 99,622 106,832
833 UGI Corp. (Warrants) (b). . . . . 3,644 125
------------ -------------
103,266 106,957
- -------------------------------------------------------------------------------------------------------
GAMING--0.0% 250++ Goldriver Hotel & Casino Finance
Corp. (Liquidating Trust). . . . . 6,000 2,141
- -------------------------------------------------------------------------------------------------------
STEEL--0.0% 4,000 Gulf States Steel Acquisition
Corp. (Warrants) (b). . . . . . . 44,220 1,000
- -------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
TRUSTS AND WARRANTS--0.1% 168,262 256,273
- -------------------------------------------------------------------------------------------------------
</TABLE>
59
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--HIGH CURRENT INCOME FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995 (CONCLUDED)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT SHORT-TERM SECURITIES COST (NOTE 1A)
<S> <C> <C> <C> <C> <C> <C>
COMMERCIAL $15,714,000 General Electric Capital Corp., 5.90%
PAPER**--5.8% due 1/02/1996. . . . . . . . . . . . . $ 15,703,699 $ 15,703,699
5,000,000 National Fleet Funding Corp., 5.77% due
1/10/1996. . . . . . . . . . . . . . . 4,990,383 4,990,383
- -----------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN 20,694,082 20,694,082
SHORT-TERM SECURITIES--5.8%
- -----------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS--98.3%. . . . . . . . $358,174,292 350,164,646
--------------
OTHER ASSETS LESS LIABILITIES--1.7%. . -------------- 6,187,294
---------------
NET ASSETS--100.0%. . . . . . . . . . .
$ 356,351,940
---------------
---------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
* Not Rated.
** Commercial Paper is traded on a discount basis; the interest rates shown are
the discount rates paid at the time of purchase by the Fund.
(a) Represents a pay-in-kind security which may pay interest/dividend in
additional face/shares.
(b) Warrants entitle the Fund to purchase a predetermined number of shares of
common stock/face amount of bonds. The purchase price and number of shares/face
amount are subject to adjustment under certain conditions until the expiration
date.
(c) Non-income producing security.
(d) Represents a zero coupon or step bond; the interest rate shown is the
effective yield at the time of purchase by the Fund.
+ Corresponding industry group for convertible bonds:
(1) Waste Management
++ Restricted security as to resale. The value of the Fund's investment in
restricted securities was approximately $16,238,000, representing 4.6% of net
assets.
<TABLE>
<CAPTION>
VALUE
ISSUE ACQUISITION DATE(S) COST (NOTE 1A)
<S> <C> <C> <C>
Bell Cablemedia PLC, 11.74% due 9/15/2005. . . . . . . . . 9/13/1995 $ 5,282,944 $ 5,647,500
Cumberland Farms, 10.50% due 10/01/2003. . . . . . . . . . 2/18/1994 1,915,414 1,800,440
Decorative Home Accents, Inc. (Class F). . . . . . . . . . 6/30/1995-9/21/1995 22,992 30,000
Goldriver Hotel & Casino Finance Corp. (Liquidating Trust) 8/31/1992 6,000 2,141
HMC Acquisition Properties, 9.00% due 12/15/2007. . . . . 12/18/1995 500,000 505,000
Howmet Corp., 10.00% due 12/01/2003. . . . . . . . . . . . 11/22/1995 4,000,000 4,200,000
Trans Gas de Occidente, 9.79% due 11/01/2010. . . . . . . 11/02/1995 3,000,000 2,970,000
Tucson Electric & Power Co., 10.21% due 1/01/2009. . . . . 6/16/1993 529,034 579,393
Tucson Electric & Power Co., 10.732% due 1/01/2013. . . . 3/01/1993 461,050 503,175
- -------------------------------------------------------------------------------------------------------------
TOTAL $15,717,434 $ 16,237,649
------------- --------------
------------- --------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
60
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INTERMEDIATE GOVERNMENT BOND FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT ISSUE COST (NOTE 1A)
US GOVERNMENT & AGENCY OBLIGATIONS
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FEDERAL NATIONAL MORTGAGE $ 500,000 Federal National Mortgage Association, 7.85% due
ASSOCIATION--1.3% 9/10/2004. . . . . . . . . . . . . . . . . . . $ 499,297 $ 531,795
- -------------------------------------------------------------------------------------------------------------------------
TOTAL FEDERAL NATIONAL MORTGAGE ASSOCIATION 499,297 531,795
- -------------------------------------------------------------------------------------------------------------------------
US TREASURY NOTES--81.7% US Treasury Notes:
1,000,000 5.75% due 9/30/1997. . . . . . . . . . . . . . 999,140 1,009,060
1,000,000 8.875% due 2/15/1999. . . . . . . . . . . . . . 1,086,250 1,102,500
2,000,000 6.875% due 8/31/1999. . . . . . . . . . . . . . 2,056,875 2,101,880
1,000,000 7.50% due 10/31/1999. . . . . . . . . . . . . . 1,062,780 1,073,590
2,000,000 7.125% due 2/29/2000. . . . . . . . . . . . . . 2,004,375 2,129,060
2,000,000 6.875% due 3/31/2000. . . . . . . . . . . . . . 2,038,750 2,112,820
2,000,000 7.50% due 11/15/2001. . . . . . . . . . . . . . 2,021,875 2,202,820
5,000,000 6.375% due 8/15/2002. . . . . . . . . . . . . . 4,978,034 5,242,950
2,000,000 7.25% due 5/15/2004. . . . . . . . . . . . . . 2,010,625 2,220,000
4,000,000 7.875% due 11/15/2004. . . . . . . . . . . . . 4,440,000 4,630,000
1,000,000 7.50% due 2/15/2005. . . . . . . . . . . . . . 1,106,875 1,133,440
8,000,000 6.50% due 5/15/2005. . . . . . . . . . . . . . 7,732,480 8,511,280
- -------------------------------------------------------------------------------------------------------------------------
TOTAL US TREASURY NOTES 31,538,059 33,469,400
- -------------------------------------------------------------------------------------------------------------------------
TOTAL US GOVERNMENT & AGENCY
OBLIGATIONS--83.0% 32,037,356 34,001,195
- -------------------------------------------------------------------------------------------------------------------------
SHORT-TERM SECURITIES
- -------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT*--4.6% 1,873,000 Morgan Stanley Group, Inc., purchased on
12/29/1995 to yield 5.87% to 1/02/1996. . . . . 1,873,000 1,873,000
- -------------------------------------------------------------------------------------------------------------------------
US TREASURY BILLS**--10.9% US Treasury Bills:
500,000 4.30% due 1/11/1996. . . . . . . . . . . . . . 499,224 499,224
4,000,000 4.83% due 1/11/1996. . . . . . . . . . . . . . 3,993,023 3,993,023
------------- --------------
4,492,247 4,492,247
- -------------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM SECURITIES--15.5% 6,365,247 6,365,247
- -------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS--98.5%. . . . . . . . . . . . $38,402,603 40,366,442
-------------
OTHER ASSETS LESS LIABILITIES--1.5%. . . . . . -- --------- 629,985
--------------
NET ASSETS--100.0%. . . . . . . . . . . . . . . $ 40,996,427
--------------
-- ----------
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Repurchase Agreements are fully collateralized by US Government Obligations.
** Certain US Government Obligations are traded on a discount basis; the
interest rates shown are the discount rates paid at the time of purchase by the
Fund.
61
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INTERNATIONAL BOND FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995
(IN US DOLLARS)
<TABLE>
<CAPTION>
NORTH FACE VALUE PERCENT OF
AMERICA AMOUNT INVESTMENTS COST (NOTE 1A) NET ASSETS
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CANADA FOREIGN GOVERNMENT Canadian Government Bonds:
OBLIGATIONS C$ 600,000 6.50% due 6/01/2004. . . . $ 413,533 $ 425,053 2.4%
600,000 8.75% due 12/01/2005. . . 478,644 491,461 2.7
--------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
CANADA 892,177 916,514 5.1
- ------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
NORTH AMERICA 892,177 916,514 5.1
- ------------------------------------------------------------------------------------------------------------------
PACIFIC
BASIN
- ------------------------------------------------------------------------------------------------------------------
AUSTRALIA FOREIGN GOVERNMENT A$ 350,000 Australian Government Bond,
OBLIGATIONS 9.00% due 9/15/2004. . . . 261,381 274,124 1.5
--------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
AUSTRALIA 261,381 274,124 1.5
- ------------------------------------------------------------------------------------------------------------------
JAPAN FOREIGN GOVERNMENT Y 65,000,000 Asian Development Bank,
OBLIGATIONS 5.625% due 2/18/2002. . . 750,697 737,578 4.1
50,000,000 European Investment Bank,
4.625% due 2/26/2003. . . 545,588 539,762 3.0
40,000,000 Japanese Government Bond-
182, 3.00% due 9/20/2005. 395,762 385,420 2.1
--------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN JAPAN 1,692,047 1,662,760 9.2
- ------------------------------------------------------------------------------------------------------------------
NEW FOREIGN GOVERNMENT NZ$ 800,000 New Zealand Government
ZEALAND OBLIGATIONS Bond, 8.00% due
7/15/1998. . . . . . . . . 515,668 525,292 2.9
--------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN NEW
ZEALAND 515,668 525,292 2.9
- ------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN THE 2,469,096 2,462,176 13.6
PACIFIC BASIN
- ------------------------------------------------------------------------------------------------------------------
WESTERN
EUROPE
- ------------------------------------------------------------------------------------------------------------------
AUSTRIA FOREIGN GOVERNMENT Ats 4,000,000 Republic of Austria, 7.625%
OBLIGATIONS due 10/18/2004. . . . . . 419,440 429,864 2.4
--------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
AUSTRIA 419,440 429,864 2.4
- ------------------------------------------------------------------------------------------------------------------
DENMARK FOREIGN GOVERNMENT Dkr 3,300,000 Denmark Government Bonds,
OBLIGATIONS 7.00% due 11/10/2024. . . 530,814 530,334 2.9
--------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
DENMARK 530,814 530,334 2.9
- ------------------------------------------------------------------------------------------------------------------
FRANCE FOREIGN GOVERNMENT Frf French Government 'B-Tan':
OBLIGATIONS 2,500,000 4.75% due 4/12/1999. . . . 423,692 499,509 2.8
2,000,000 7.00% due 10/12/2000. . . 420,453 427,462 2.4
4,500,000 French Oat STRIPS,**
6.33757%++ due10/25/2001.
600,123 647,668 3.6
2,000,000 Government of France,
7.75% due 10/25/2005. . .
423,657 440,165 2.4
--------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
FRANCE 1,867,925 2,014,804 11.2
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
62
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INTERNATIONAL BOND FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995 (CONTINUED)
(IN US DOLLARS)
<TABLE>
<CAPTION>
WESTERN
EUROPE FACE VALUE
(CONCLUDED) AMOUNT INVESTMENTS COST (NOTE 1A)
<S> <C> <C> <C> <C> <C>
GERMANY FOREIGN GOVERNMENT DM 890,000 Bundes Obligations, 6.25%
OBLIGATIONS due 1/04/2024.. . . . . . . $ 569,521 $ 579,137
1,000,000 Bundesrepublic
Deutscheland, 6.875% due
5/12/2005.. . . . . . . . 733,343 739,225
1,000,000 Export Import Bank, 7.75%
due 2/21/2005.. . . . . . . 729,491 761,439
800,000 Kingdom of Belgium, 6.25%
due 10/06/2003.. . . . . . 472,882 568,914
500,000 Landes Banken Badenwurtt,
6.75% due 6/22/2005. . . . 344,882 360,112
800,000 World Bank, 6.125%
due 9/27/2002. . . . . . . 541,224 572,546
-------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
GERMANY 3,391,343 3,581,373
- -------------------------------------------------------------------------------------------------------------------------
ITALY FOREIGN GOVERNMENT Buoni Poliennali Del Tesoro
OBLIGATIONS (Italian Goverment Bonds):
Lit 600,000,000 10.50% due 4/01/2005. . . . 356,303 376,088
760,000,000 10.50% due 9/01/2005. . . . 455,552 475,324
Y 80,000,000 Government of Italy, 3.75%
due 6/08/2005. . . . . . . 800,625 787,679
Lit 600,000,000 Nordic Investment Bank,
10.80% due 5/24/2003. . . . 368,311 382,107
-------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
ITALY 1,980,791 2,021,198
- -------------------------------------------------------------------------------------------------------------------------
NETHERLANDS FOREIGN GOVERNMENT Nlg 1,000,000 Netherlands Government
OBLIGATIONS Bond, 6.75% due
11/15/2005. . . . . . . . . 647,163 656,634
-------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN THE
NETHERLANDS 647,163 656,634
- -------------------------------------------------------------------------------------------------------------------------
FOREIGN GOVERNMENT
SPAIN OBLIGATIONS Government of Spain:
Pta 50,000,000 7.40% due 7/30/1999. . . . 333,061 390,062
50,000,000 10.15% due 1/31/2006. . . . 386,365 420,247
Y 65,000,000 Kingdom of Spain,
5.75% due 3/23/2002. . . . 753,715 742,300
-------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
SPAIN 1,473,141 1,552,609
- -------------------------------------------------------------------------------------------------------------------------
SWEDEN FOREIGN GOVERNMENT Skr 2,000,000 Government of Sweden,
OBLIGATIONS 11.00% due 1/21/1999 283,043 324,335
-------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
SWEDEN 283,043 324,335
- -------------------------------------------------------------------------------------------------------------------------
FOREIGN GOVERNMENT
UNITED OBLIGATIONS United Kingdom Gilt,
KINGDOM (pound sterling) 630,000 8.50% due 12/07/2005. . . . 1,023,238 1,051,834
320,000 9.00% due 8/06/2012. . . . 548,620 556,507
-------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
THE UNITED KINGDOM 1,571,858 1,608,341
- -------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
WESTERN EUROPE 12,165,518 12,719,492
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
WESTERN
EUROPE PERCENT OF
(CONCLUDED) NET ASSETS
<S> <C>
GERMANY
3.2%
4.1
4.2
3.1
2.0
3.2
------------
19.8
- ------------------------
ITALY
2.1
2.6
4.3
2.1
------------
11.1
- ------------------------
NETHERLANDS
3.6
------------
3.6
- ------------------------
SPAIN
2.1
2.3
4.1
------------
8.5
- ------------------------
SWEDEN
1.8
------------
1.8
- ------------------------
UNITED
KINGDOM 5.8
3.1
------------
8.9
- ------------------------
70.2
- ------------------------
</TABLE>
63
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INTERNATIONAL BOND FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995 (CONCLUDED)
(IN US DOLLARS)
<TABLE>
<CAPTION>
FACE VALUE PERCENT OF
AMOUNT SHORT-TERM SECURITIES COST (NOTE 1A) NET ASSETS
<S> <C> <C> <C> <C> <C>
COMMERCIAL PAPER* $ 962,000 General Electric Capital
Corp., 5.90% due
1/02/1996. . . . . . . . . . $ 961,527 $ 961,527 5.3%
- -----------------------------------------------------------------------------------------------------------------------------------
US GOVERNMENT & AGENCY 400,000 Federal Home Loan Mortgage
OBLIGATIONS* Corp., 5.65% due
1/04/1996. . . . . . . . . . 399,686 399,686 2.2
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
SHORT-TERM SECURITIES 1,361,213 1,361,213 7.5
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS. . . . . . . . . . . $ 16,888,004 17,459,395 96.4
-----------------
OTHER ASSETS LESS LIABILITIES. . . . . ---- ----------- 661,149 3.6
----------------- --------------
NET ASSETS. . . . . . . . . . . . . .
$ 18,120,544 100.0%
----------------- --------------
---- ----------- ----- -------
- -----------------------------------------------------------------------------------------------------------------------------------
*Commercial Paper and certain US Government & Agency Obligations are traded on a discount basis; the interest rates shown are the
discount rates paid at the time of purchase by the Fund.
** Separate Trading of Registered Interest and Principal of Securities (STRIPS).
++ Represents a zero coupon bond; the interest rate shown is the effective yield at the time of purchase by the Fund.
</TABLE>
See Notes to Financial Statements.
64
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INTERNATIONAL EQUITY FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995
(IN US DOLLARS)
<TABLE>
<CAPTION>
VALUE PERCENT OF
AFRICA INDUSTRY SHARES HELD INVESTMENTS COST (NOTE 1A) NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SOUTH BANKING 102,120 Nedcor Ltd. (GDR) (b) (f). . . . . $1,087,409 $1,698,256 0.6%
AFRICA
25,530 Nedcor Ltd. (Warrants) (d) (f). . . 61,441 140,415 0.1
--------- --------- -----
1,148,850 1,838,671 0.7
- ------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED 152,698 Malbak Ltd.. . . . . . . . . . . . 894,767 992,537 0.4
--------------------------------------------------------------------------------------------------------------------
MINING 54,545 Beatrix Mines Ltd.. . . . . . . . . 486,726 490,149 0.2
13,000 Driefontein Consolidated
Ltd.. . . . . . . . . . . . . . . . 191,888 164,975 0.1
36,000 Driefontein Consolidated Ltd.
(ADR) (a). . . . . . . . . . . . . 541,728 445,500 0.2
47,300 Kinross Mines Ltd.. . . . . . . . . 511,564 444,512 0.2
44,000 Vaal Reefs Exploration & Mining Ltd
(ADR) (a). . . . . . . . . . . . . 328,154 280,500 0.1
11,300 Western Areas Gold Mining
Company, Ltd.. . . . . . . . . . . 175,713 190,685 0.1
32,680 Western Areas Gold Mining
Company, Ltd. (ADR) (a). . . . . . 534,291 543,305 0.2
------------ ------------ ----------
2,770,064 2,559,626 1.1
--------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
SOUTH AFRICA 4,813,681 5,390,834 2.2
--------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
AFRICA 4,813,681 5,390,834 2.2
--------------------------------------------------------------------------------------------------------------------
LATIN
AMERICA
- ------------------------------------------------------------------------------------------------------------------------------
ARGENTINA BANKING 17,250 Banco Frances del Rio de la Plata
(ADR) (a). . . . . . . . . . . . . 386,412 463,594 0.2
--------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS 6,600 Telecom Argentina Stet-France
Telecom S.A. (GDR) (b). . . . . . . 275,474 314,325 0.1
11,700 Telefonica de Argentina S.A.
(Class B) (ADR) (a). . . . . . . . 284,969 318,825 0.1
------------ ------------ ----------
560,443 633,150 0.2
--------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
ARGENTINA 946,855 1,096,744 0.4
- ------------------------------------------------------------------------------------------------------------------------------
BRAZIL OIL--RELATED 5,750,000 Petroleo Brasileiro S.A.
(Preferred). . . . . . . . . . . . 504,797 491,090 0.2
--------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS 44,540 Telecommunicacoes Brasileiras
S.A.--Telebras (ADR) (a). . . . . . 1,917,250 2,110,083 0.8
--------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
BRAZIL 2,422,047 2,601,173 1.0
--------------------------------------------------------------------------------------------------------------------
CHILE TELECOMMUNICATIONS 13,500 Compania de Telefonos de Chile
S.A. (ADR) (a). . . . . . . . . . . 963,907 1,118,813 0.4
--------------------------------------------------------------------------------------------------------------------
UTILITIES 16,000 Enersis S.A. (ADR) (a). . . . . . . 400,482 456,000 0.2
--------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
CHILE 1,364,389 1,574,813 0.6
--------------------------------------------------------------------------------------------------------------------
MEXICO MULTI-INDUSTRY 216,000 Grupo Carso, S.A. de C.V.
(Series A1) (e). . . . . . . . . . 1,901,439 1,168,249 0.4
--------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
MEXICO 1,901,439 1,168,249 0.4
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
LATIN AMERICA 6,634,730 6,440,979 2.4
- ------------------------------------------------------------------------------------------------------------------------------
MIDDLE
EAST
- ------------------------------------------------------------------------------------------------------------------------------
ISRAEL COMPUTER SOFTWARE 29,200 Scitex Corporation Ltd. . . . . . . 638,646 394,200 0.2
--------------------------------------------------------------------------------------------------------------------
HOLDING COMPANIES 34,460 PEC Israel Economic Corp. (e). . . 897,278 831,348 0.3
--------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
ISRAEL 1,535,924 1,225,548 0.5
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
THE MIDDLE EAST 1,535,924 1,225,548 0.5
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
65
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INTERNATIONAL EQUITY FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995 (CONTINUED)
(IN US DOLLARS)
<TABLE>
<CAPTION>
PACIFIC VALUE PERCENT OF
BASIN INDUSTRY SHARES HELD INVESTMENTS COST (NOTE 1A) NET ASSETS
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AUSTRALIA FOOD & BEVERAGE 563,598 Coca-Cola Amatil, Ltd. (Ordinary) $ 3,228,491 $ 4,496,852 1.7%
----------------------------------------------------------------------------------------------------------------------
MEDIA 89,939 The News Corp., Ltd. (ADR) (a). . 431,743 480,189 0.2
52,364 The News Corp., Ltd. (Preferred). 222,611 244,919 0.1
------------- ---------- ----------
654,354 725,108 0.3
----------------------------------------------------------------------------------------------------------------------
MERCHANDISING 30,300 Amway Asia Pacific Ltd.. . . . . . 1,176,105 1,079,437 0.4
----------------------------------------------------------------------------------------------------------------------
NATURAL GAS PIPELINES 37,943 Broken Hill Proprietary Co.. . . . 452,087 536,074 0.2
----------------------------------------------------------------------------------------------------------------------
PROPERTY 276,131 Lend Lease Corp.. . . . . . . . . 3,552,157 4,003,955 1.5
----------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
AUSTRALIA 9,063,194 10,841,426 4.1
- --------------------------------------------------------------------------------------------------------------------------------
HONG KONG BANKING 297,870 HSBC Holdings PLC. . . . . . . . . 3,584,349 4,507,345 1.7
----------------------------------------------------------------------------------------------------------------------
DIVERSIFIED 717,140 Hutchison Whampoa Ltd.. . . . . . 3,770,398 4,368,507 1.6
----------------------------------------------------------------------------------------------------------------------
MULTI-INDUSTRY 399,000 Swire Pacific Ltd. (Class A). . . 2,742,209 3,096,223 1.2
----------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
HONG KONG 10,096,956 11,972,075 4.5
- --------------------------------------------------------------------------------------------------------------------------------
JAPAN AUTOMOBILES 340,000 3,740,006 3,787,292 1.4
Suzuki Motor Corp. (Ordinary). . .
----------------------------------------------------------------------------------------------------------------------
BEVERAGES
23,000 Chukyo Coca-Cola Bottling Co.,
Ltd. (Ordinary). . . . . . . . . . 303,183 225,010 0.1
31,000 Hokkaido Coca-Cola Bottling Co.,
Ltd. (Ordinary). . . . . . . . . . 473,832 375,339 0.1
27,000 Kinki Coca-Cola Bottling Co., Ltd.
(Ordinary). . . . . . . . . . . . 429,219 366,137 0.1
35,000 Mikuni Coca-Cola Bottling Co.,
Ltd.. . . . . . . . . . . . . . . 539,515 478,012 0.2
29,000 Sanyo Coca-Cola Bottling Co., Ltd.
434,480 421,348 0.2
------------- ------------- ----------
2,180,229 1,865,846 0.7
----------------------------------------------------------------------------------------------------------------------
CAPITAL GOODS 669,000 Mitsubishi Heavy Industries, Ltd.. 4,613,257 5,333,078 2.0
----------------------------------------------------------------------------------------------------------------------
CHEMICALS 119,000 Shin-Etsu Chemical Co., Ltd.
(Ordinary). . . . . . . . . . . . 2,474,232 2,466,680 0.9
----------------------------------------------------------------------------------------------------------------------
ELECTRICAL
CONSTRUCTION 72,000 Chudenko Corp. (Ordinary). . . . . 2,550,265 2,468,811 0.9
63,000 Sanki Engineering Co., Ltd.. . . . 888,004 738,377 0.3
74,000 Taihei Dengyo Kaisha, Ltd.. . . . 1,583,696 1,168,346 0.4
------------- ------------- ----------
5,021,965 4,375,534 1.6
----------------------------------------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT
172,000 Murata Manufacturing Co., Ltd.. . 6,479,053 6,330,880 2.4
215,000 NEC Corporation. . . . . . . . . . 3,017,807 2,623,983 1.0
74,000 The Nippon Signal Co., Ltd.. . . . 1,013,087 605,676 0.2
95,000 Rohm Co., Ltd.. . . . . . . . . . 3,630,393 5,364,684 2.0
------------- ------------- ----------
14,140,340 14,925,223 5.6
----------------------------------------------------------------------------------------------------------------------
ENGINEERING & 123,000 Kinden Corp.. . . . . . . . . . . 2,323,181 2,132,604 0.8
CONSTRUCTION
----------------------------------------------------------------------------------------------------------------------
INSURANCE 383,000 Dai-Tokyo Fire & Marine
Insurance Co., Ltd.. . . . . . . . 2,735,642 2,923,324 1.1
70,000 Fuji Fire & Marine Insurance Co.,
Ltd.. . . . . . . . . . . . . . . 477,842 368,849 0.1
292,000 Koa Fire & Marine Insurance Co.,
Ltd.. . . . . . . . . . . . . . . 2,008,042 1,787,524 0.7
149,000 Mitsui Marine & Fire Insurance Co.,
Ltd.. . . . . . . . . . . . . . . 1,217,441 1,062,224 0.4
318,000 Nichido Fire & Marine Insurance
Co., Ltd.. . . . . . . . . . . . . 2,497,420 2,556,567 1.0
117,000 Nippon Fire & Marine Insurance
Co., Ltd.. . . . . . . . . . . . . 858,344 793,297 0.3
342,000 Sumitomo Marine & Fire
Insurance Co., Ltd.. . . . . . . . 2,851,410 2,809,144 1.1
</TABLE>
66
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INTERNATIONAL EQUITY FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995 (CONTINUED)
(IN US DOLLARS)
<TABLE>
<CAPTION>
PACIFIC
BASIN SHARES HELD/ VALUE PERCENT OF
(CONTINUED) INDUSTRY FACE AMOUNT INVESTMENTS COST (NOTE 1A) NET ASSETS
<S> <C> <C> <C> <C> <C> <C>
JAPAN INSURANCE 321,000 Tokio Marine & Fire Insurance Co.,
(CONTINUED) (CONTINUED) Ltd. (Ordinary). . . . . . . . . . . $ 3,745,007 $ 4,197,501 1.6%
201,000 Yasuda Fire & Marine Insurance
Co., Ltd.. . . . . . . . . . . . . . 1,505,908 1,421,251 0.5
------------- ------------- ---------
17,897,056 17,919,681 6.8
--------------------------------------------------------------------------------------------------------------------
OFFICE EQUIPMENT 299,000 Canon, Inc. (Ordinary). . . . . . . 5,269,209 5,415,827 2.0
--------------------------------------------------------------------------------------------------------------------
PACKAGING 169,000 Toyo Seikan Kaisha, Ltd.
(Ordinary). . . . . . . . . . . . . 5,221,253 5,058,214 1.9
--------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS
141,000 Sankyo Co., Ltd. (Ordinary). . . . . 3,106,650 3,168,539 1.2
67,000 Taisho Pharmaceutical Co., Ltd.
(Ordinary). . . . . . . . . . . . . 1,345,910 1,323,905 0.5
------------- ------------- ---------
4,452,560 4,492,444 1.7
--------------------------------------------------------------------------------------------------------------------
RETAILING
90,000 Ito-Yokado Co., Ltd. (Ordinary). . . 4,668,048 5,544,363 2.1
30,000 Sangetsu Co., Ltd.. . . . . . . . . 1,120,547 755,521 0.3
------------- ------------- ---------
5,788,595 6,299,884 2.4
--------------------------------------------------------------------------------------------------------------------
STEEL 48,000 Maruichi Steel Tube, Ltd. (Ordinary) 840,875 878,729 0.3
--------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
JAPAN 73,962,758 74,951,036 28.1
- --------------------------------------------------------------------------------------------------------------------------------
MALAYSIA BANKING
127,000 Malayan Banking BHD. . . . . . . . . 1,045,198 1,070,632 0.4
251,000 Public Bank (Malaysia) BHD
'Foreign'. . . . . . . . . . . . . . 507,895 480,544 0.2
------------- ------------- ---------
1,553,093 1,551,176 0.6
--------------------------------------------------------------------------------------------------------------------
LEISURE 40,000 Resorts World BHD. . . . . . . . . . 200,377 214,300 0.1
--------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS 110,000 Telekom Malaysia BHD. . . . . . . . 825,241 857,987 0.3
--------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
MALAYSIA 2,578,711 2,623,463 1.0
- --------------------------------------------------------------------------------------------------------------------------------
NEW FOODS 221,600 Wrightson Ltd.. . . . . . . . . . . 173,395 167,960 0.1
ZEALAND
--------------------------------------------------------------------------------------------------------------------
FOREIGN GOVERNMENT NZ$ 2,600,000 New Zealand Government Bonds,
OBLIGATIONS 9.00% due 11/15/1996 (c). . . . . . 1,626,140 1,707,640 0.6
--------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY 1,759,000 Brierley Investments Ltd.. . . . . . 1,360,501 1,390,690 0.5
--------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS 60,000 Telecom Corporation of New
Zealand. . . . . . . . . . . . . . . 250,249 258,746 0.1
--------------------------------------------------------------------------------------------------------------------
TEXTILES 52,000 Lane Walker Rudkin Industries,
Ltd.. . . . . . . . . . . . . . . . 62,863 57,761 0.0
--------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
NEW ZEALAND
3,473,148 3,582,797 1.3
- --------------------------------------------------------------------------------------------------------------------------------
PHILIPPINES BANKING 58,150 Metropolitan Bank and Trust
Company. . . . . . . . . . . . . . . 1,143,382 1,131,496 0.4
--------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN THE
PHILIPPINES 1,143,382 1,131,496 0.4
- --------------------------------------------------------------------------------------------------------------------------------
SINGAPORE BANKING 98,000 Development Bank of Singapore
Ltd.. . . . . . . . . . . . . . . . 1,199,385 1,219,802 0.5
--------------------------------------------------------------------------------------------------------------------
MACHINERY 80,000 Jurong Shipyard Ltd.. . . . . . . . 619,257 616,690 0.2
--------------------------------------------------------------------------------------------------------------------
NEWSPAPER/ 61,000 Singapore Press Holdings Ltd.. . . . 881,155 1,078,501 0.4
PUBLISHING
--------------------------------------------------------------------------------------------------------------------
REAL ESTATE 160,000 City Developments Ltd., 'Local'. . . 1,067,498 1,165,488 0.4
--------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
SINGAPORE 3,767,295 4,080,481 1.5
- --------------------------------------------------------------------------------------------------------------------------------
SOUTH TELECOMMUNICATIONS 39,400 Korea Mobile Telecommunications
KOREA Corp. (GDR) (b). . . . . . . . . . . 1,367,350 1,684,350 0.6
--------------------------------------------------------------------------------------------------------------------
</TABLE>
67
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INTERNATIONAL EQUITY FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995 (CONTINUED)
(IN US DOLLARS)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
PACIFIC
BASIN VALUE PERCENT OF
(CONCLUDED) INDUSTRY SHARES HELD INVESTMENTS COST (NOTE 1A) NET ASSETS
SOUTH UTILITIES %
KOREA 19,000 Korea Electric Power Corp.. . . . . $ 753,726 $ 822,313 0.3
(CONCLUDED)
52,000 Korea Electric Power Corp.
(ADR) (a). . . . . . . . . . . . . 1,011,333 1,391,000 0.5
-------------- -------------- ---------
1,765,059 2,213,313 0.8
---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
SOUTH KOREA 3,132,409 3,897,663 1.4
- ---------------------------------------------------------------------------------------------------------------------------------
TAIWAN ELECTRONICS 63,700 Advanced Semiconductor
Engineering, Inc. (GDR) (b). . . . 986,796 842,432 0.3
---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
TAIWAN 986,796 842,432 0.3
- ---------------------------------------------------------------------------------------------------------------------------------
THAILAND BANKING 190,500 Krung Thai Bank Public Company Ltd.
800,696 786,815 0.3
98,700 Phatra Thanakit Public Co. Ltd.,
'Foreign'. . . . . . . . . . . . .
853,230 846,672 0.3
23,000 Thai Farmers Bank Public Co., Ltd..
217,409 232,010 0.1
-------------- -------------- ---------
1,871,335 1,865,497 0.7
---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN THAILAND 1,871,335 1,865,497 0.7
---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN THE
PACIFIC BASIN 110,075,984 115,788,366 43.3
- ---------------------------------------------------------------------------------------------------------------------------------
SOUTHEAST
ASIA
- ---------------------------------------------------------------------------------------------------------------------------------
INDIA AUTOMOBILES 46,300 Ashok Leyland Ltd. (GDR) (b) (f). . 558,306 474,575 0.2
---------------------------------------------------------------------------------------------------------------------
CHEMICALS 23,100 Reliance Industries Ltd. (GDR)
(b) (e). . . . . . . . . . . . . . 428,575 317,625 0.1
---------------------------------------------------------------------------------------------------------------------
MEDIA 113,500 Videocon International Ltd. (GDR)
(b) (e). . . . . . . . . . . . . . 662,808 306,450 0.1
---------------------------------------------------------------------------------------------------------------------
TEXTILES
20,800 JCT Ltd. (GDR) (b) (e). . . . . . . 358,965 114,400 0.0
8,000 Raymond Woolen Mills Ltd. (GDR)
(b). . . . . . . . . . . . . . . . 123,750 132,000 0.1
-------------- -------------- ---------
482,715 246,400 0.1
---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN INDIA 2,132,404 1,345,050 0.5
---------------------------------------------------------------------------------------------------------------------
INDONESIA BANKING 68,000 P.T. Bank Bali. . . . . . . . . . . 149,525 133,975 0.1
---------------------------------------------------------------------------------------------------------------------
FOOD & HOUSEHOLD 290,000 P.T. Wicaksana Overseas
PRODUCTS International. . . . . . . . . . . 504,511 774,518 0.3
---------------------------------------------------------------------------------------------------------------------
METALS & MINING 51,900 P.T. Tambag Timah (GDR) (b) (e) (f) 660,687 603,597 0.2
---------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS
18,960 P.T. Indonesian Satellite (ADR) (a) 664,105 692,040 0.3
599,500 P.T. Kabelmetal Indonesia (e). . . 757,512 492,146 0.2
14,300 P.T. Telekomunikasi Indonesia
(ADR) (a) (e). . . . . . . . . . . 301,145 361,075 0.1
-------------- -------------- ---------
1,722,762 1,545,261 0.6
---------------------------------------------------------------------------------------------------------------------
TOBACCO 17,000 P.T. Hanjaya Mandala Sampoerna. . . 167,001 177,145 0.1
---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN INDONESIA 3,204,486 3,234,496 1.3
---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
SOUTHEAST ASIA 5,336,890 4,579,546 1.8
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
68
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INTERNATIONAL EQUITY FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995 (CONTINUED)
(IN US DOLLARS)
<TABLE>
<CAPTION>
WESTERN VALUE PERCENT OF
EUROPE INDUSTRY SHARES HELD INVESTMENTS COST (NOTE 1A) NET ASSETS
<S> <C> <C> <C> <C> <C> <C>
AUSTRIA ENGINEERING & 1,500 V.A. Technologie AG. . . . . . $ 163,987 $ 190,874 0.1%
CONSTRUCTION
--------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
AUSTRIA 163,987 190,874 0.1
--------------------------------------------------------------------------------------------------------------
FINLAND BANKING 273,566 Unitas Bank Ltd., (Class A)
(Ordinary) (e). . . . . . . . . 1,047,133 693,322 0.3
--------------------------------------------------------------------------------------------------------------
DIVERSIFIED 41,500 Outokumpu OY. . . . . . . . . . 653,106 659,747 0.3
--------------------------------------------------------------------------------------------------------------
FOREST PRODUCTS 24,850 Kymmene OY(Ordinary). . . . . . 746,318 658,422 0.2
--------------------------------------------------------------------------------------------------------------
MACHINE-- 12,400 Rauma OY (e). . . . . . . . . . 223,784 244,269 0.1
DIVERSIFIED
--------------------------------------------------------------------------------------------------------------
PAPER & FOREST 132,100 Enso-Gutzeit OY (Registered). . 1,005,099 882,635 0.3
PRODUCTS
22,100 Metsa Serla OY. . . . . . . . . 873,739 682,303 0.3
55,575 Repola OY. . . . . . . . . . . 919,279 1,049,962 0.4
------------ ------------ ----------
2,798,117 2,614,900 1.0
--------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS 13,470 Nokia AB. . . . . . . . . . . . 650,389 530,694 0.2
--------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
FINLAND 6,118,847 5,401,354 2.1
--------------------------------------------------------------------------------------------------------------
FRANCE AUTOMOBILES 8,680 Peugeot S.A.. . . . . . . . . . 1,298,715 1,146,261 0.4
--------------------------------------------------------------------------------------------------------------
BANKING 17,800 Compagnie Financiere de Paribas
(Ordinary). . . . . . . . . . . 902,586 977,002 0.4
18,900 Compangie Financiere de Suez
(Ordinary). . . . . . . . . . . 743,625 780,449 0.3
6,050 Societe Generale de Surveillance
S.A. (Class A) (Ordinary). . . 634,340 748,242 0.3
------------ ------------ ----------
2,280,551 2,505,693 1.0
--------------------------------------------------------------------------------------------------------------
BUILDING & 6,000 Compagnie de Saint-Gobain S.A. 717,949 654,974 0.2
CONSTRUCTION
--------------------------------------------------------------------------------------------------------------
COMMUNICATION 7,400 Alcatel Alsthom Cie Generale
EQUIPMENT d'Electricite S.A.. . . . . . . 712,930 638,677 0.2
--------------------------------------------------------------------------------------------------------------
INSURANCE 30,120 Assurances Generales de France
S.A. (AGF). . . . . . . . . . . 768,212 1,009,788 0.4
--------------------------------------------------------------------------------------------------------------
MULTI-INDUSTRY 2,828 EuraFrance S.A.. . . . . . . . 918,349 950,991 0.4
--------------------------------------------------------------------------------------------------------------
OIL & RELATED 9,475 Societe Nationale Elf Aquitaine 657,126 698,839 0.3
--------------------------------------------------------------------------------------------------------------
STEEL 62,980 Usinor Sacilor S.A. (e). . . . 1,028,190 833,631 0.3
--------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
FRANCE 8,382,022 8,438,854 3.2
--------------------------------------------------------------------------------------------------------------
GERMANY BANKING 2,693 Deutsche Bank AG (Warrants) (d) 41,046 41,670 0.0
2,800 Hoechst AG. . . . . . . . . . . 733,417 760,880 0.3
------------ ------------ ----------
774,463 802,550 0.3
--------------------------------------------------------------------------------------------------------------
CHEMICALS 2,900 Bayer AG (Ordinary) (e). . . . 663,276 766,783 0.3
--------------------------------------------------------------------------------------------------------------
MACHINERY 17,250 Kloeckner Werke AG (e). . . . . 1,232,262 651,921 0.2
3,300 Mannesmann AG. . . . . . . . . 819,475 1,052,819 0.4
------------ ------------ ----------
2,051,737 1,704,740 0.6
--------------------------------------------------------------------------------------------------------------
UTILITIES 2,600 Vereinigte Elektrizitaets &
Bergwerks AG (Veba)
(Warrants) (d). . . . . . . . . 111,934 179,811 0.1
--------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN GERMANY 3,601,410 3,453,884 1.3
--------------------------------------------------------------------------------------------------------------
GREECE BANKING 12,900 Ergo Bank S.A. (Registered). . 510,673 514,899 0.2
--------------------------------------------------------------------------------------------------------------
BEVERAGES 25,225 Hellenic Bottling Co. S.A.. . . 576,119 826,158 0.3
--------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
GREECE 1,086,792 1,341,057 0.5
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
69
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INTERNATIONAL EQUITY FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995 (CONTINUED)
(IN US DOLLARS)
<TABLE>
<CAPTION>
WESTERN
EUROPE VALUE PERCENT OF
(CONTINUED) INDUSTRY SHARES HELD INVESTMENTS COST (NOTE 1A) NET ASSETS
<S> <C> <C> <C> <C> <C> <C>
HUNGARY FOODS 3,400 Pick Szeged Reszvenytarsasag
(GDR) (b) (f). . . . . . . . . . $ 167,513 $ 126,752 0.0%
-------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS 5,500 Magyar TarKozlesi
Reszvenytarsasag (Ordinary) (e). 910,789 841,631 0.3
-------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
HUNGARY 1,078,302 968,383 0.3
-------------------------------------------------------------------------------------------------------------------
IRELAND BUILDING MATERIALS 53,650 CRH PLC. . . . . . . . . . . . . 327,852 406,385 0.2
-------------------------------------------------------------------------------------------------------------------
CLOSED-END FUNDS 445,000 First Ireland Investment Co.. . 658,002 842,689 0.3
-------------------------------------------------------------------------------------------------------------------
INSURANCE 157,000 Irish Life PLC. . . . . . . . . 526,948 604,365 0.2
-------------------------------------------------------------------------------------------------------------------
PACKAGING & 297,800 Jefferson Smurfit Group PLC
CONTAINERS (Ordinary). . . . . . . . . . . 888,436 716,480 0.3
------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
IRELAND 2,401,238 2,569,919 1.0
-------------------------------------------------------------------------------------------------------------------
ITALY AUTOMOBILES 250,000 Fiat S.p.A. (Ordinary). . . . . 750,125 812,303 0.3
1,750,000 Montedison S.p.A. (e). . . . . . 1,364,663 1,174,763 0.4
------------ ------------ ----------
2,114,788 1,987,066 0.7
-------------------------------------------------------------------------------------------------------------------
BUILDING & CONTAINERS 96,100 Fochi Filippo S.p.A. (e). . . . 304,917 18,189 0.0
-------------------------------------------------------------------------------------------------------------------
DIVERSIFIED 335,500 CIR NC Savings (e). . . . . . . 157,313 119,383 0.0
1,411,500 Compagnie Industrial Riunite
S.p.A. (CIR) (e). . . . . . . . 1,306,203 943,968 0.4
------------ ------------ ----------
1,463,516 1,063,351 0.4
-------------------------------------------------------------------------------------------------------------------
INSURANCE 55,000 Assicurazioni Generali S.p.A.. . 1,392,767 1,334,227 0.5
-------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS 543,216 Stet Savings Telecom. . . . . . 1,356,502 1,110,423 0.4
-------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
ITALY 6,632,490 5,513,256 2.0
- -------------------------------------------------------------------------------------------------------------------------------
NETHERLANDS BANKING 20,350 ABN-AMRO Bank (Ordinary). . . . 711,620 928,870 0.4
20,000 Amev N.V. (Ordinary). . . . . . 825,683 1,342,491 0.5
------------ ------------ ----------
1,537,303 2,271,361 0.9
-------------------------------------------------------------------------------------------------------------------
CHEMICALS 3,200 Akzo N.V. (Ordinary). . . . . . 379,245 370,852 0.1
26,570 European Vinyls Corporation
International N.V.. . . . . . . 1,144,357 691,832 0.3
------------ ------------ ----------
1,523,602 1,062,684 0.4
-------------------------------------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT 49,465 Philips Electronics N.V.. . . . 1,534,025 1,791,427 0.7
-------------------------------------------------------------------------------------------------------------------
FINANCE 39,000 AEGON N.V. (Ordinary). . . . . . 813,328 1,729,004 0.7
-------------------------------------------------------------------------------------------------------------------
INSURANCE 21,900 Internationale Nederlanden
Groep N.V.. . . . . . . . . . . 1,030,181 1,465,926 0.6
-------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS 19,425 Koninklijke PTT Nederland N.V.. 712,827 707,135 0.3
-------------------------------------------------------------------------------------------------------------------
TRANSPORTATION 12,550 KLM Royal Dutch Airlines. . . . 352,565 441,973 0.2
-------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN THE
NETHERLANDS 7,503,831 9,469,510 3.8
- -------------------------------------------------------------------------------------------------------------------------------
NORWAY OIL & GAS PRODUCERS 84,000 Saga Petroleum A.S. (Class B). . 951,425 1,050,449 0.4
-------------------------------------------------------------------------------------------------------------------
OIL & RELATED 16,900 Norsk Hydro A.S.. . . . . . . . 707,860 711,601 0.3
-------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
NORWAY 1,659,285 1,762,050 0.7
- -------------------------------------------------------------------------------------------------------------------------------
POLAND AUTOMOTIVE & 12,900 T.C. Debica S.A.. . . . . . . . 199,796 194,756 0.1
EQUIPMENT
-------------------------------------------------------------------------------------------------------------------
ENGINEERING & 138,000 Mostostal-Export S.A.. . . . . . 393,039 271,631 0.1
CONSTRUCTION
-------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
POLAND 592,835 466,387 0.2
-------------------------------------------------------------------------------------------------------------------
</TABLE>
70
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INTERNATIONAL EQUITY FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995 (CONTINUED)
(IN US DOLLARS)
<TABLE>
<CAPTION>
WESTERN
EUROPE VALUE PERCENT OF
(CONTINUED) INDUSTRY SHARES HELD INVESTMENTS COST (NOTE 1A) NET ASSETS
<S> <C> <C> <C> <C> <C> <C>
PORTUGAL BANKING 106,600 Banco Commercial Portugues S.A.
(ADR) (a). . . . . . . . . . . . $1,616,748 $1,399,125 0.5%
------------------------------------------------------------------------------------------------------------------
FOREST PRODUCTS 46,780 Sonae Investimentos-SGPS S.A.. . 1,028,891 1,002,071 0.4
------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
PORTUGAL 2,645,639 2,401,196 0.9
- ------------------------------------------------------------------------------------------------------------------------------
SPAIN BANKING 4,800 Banco Popular Espanol (Ordinary). 545,778 885,575 0.3
------------------------------------------------------------------------------------------------------------------
GLASS 11,400 Cristaleria Espanola S.A. (e). . 502,213 639,340 0.2
------------------------------------------------------------------------------------------------------------------
OIL & RELATED 51,000 Repsol S.A.. . . . . . . . . . . 1,551,028 1,671,959 0.6
------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
SPAIN 2,599,019 3,196,874 1.1
- ------------------------------------------------------------------------------------------------------------------------------
SWEDEN APPLIANCES 18,481 Electrolux AB. . . . . . . . . . 898,932 759,921 0.3
------------------------------------------------------------------------------------------------------------------
AUTOMOBILES & 80,000 Volvo AB 'B'. . . . . . . . . . . 1,466,079 1,641,744 0.6
EQUIPMENT
------------------------------------------------------------------------------------------------------------------
BUILDING RELATED 24,750 Svedala Industry. . . . . . . . . 601,966 638,628 0.2
------------------------------------------------------------------------------------------------------------------
ENGINEERING 36,350 SKF AB 'A'. . . . . . . . . . . . 668,183 688,374 0.3
15,300 SKF AB 'B' Free. . . . . . . . . 297,054 293,205 0.1
------------ ------------ -----
965,237 981,579 0.4
------------------------------------------------------------------------------------------------------------------
FINANCE 23,875 Stadshypotek AB. . . . . . . . . 352,150 479,150 0.2
------------------------------------------------------------------------------------------------------------------
FOREST PRODUCTS 18,900 Mo Och Domsjo AB-'B' Free. . . . 962,403 807,095 0.3
432,300 Rottneros Bruks AB. . . . . . . . 666,730 456,625 0.2
91,500 Stora Kopparbergs Bergslags AB. . 1,152,700 1,076,942 0.4
------------ ------------ ----------
2,781,833 2,340,662 0.9
------------------------------------------------------------------------------------------------------------------
METALS & MINING 51,800 Avesta Sheffield AB. . . . . . . 463,023 457,259 0.2
------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
SWEDEN 7,529,220 7,298,943 2.8
- ------------------------------------------------------------------------------------------------------------------------------
SWITZERLAND CHEMICALS 895 Ciba-Geigy AG (Registered). . . . 621,919 789,454 0.3
------------------------------------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT 790 BBC Brown Boveri AG. . . . . . . 668,242 919,962 0.3
------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
SWITZERLAND 1,290,161 1,709,416 0.6
- ------------------------------------------------------------------------------------------------------------------------------
TURKEY BEVERAGES 439,392 Erciyas Biracilik Ve Malt Sanayii
A.S.. . . . . . . . . . . . . . . 251,703 206,986 0.1
------------------------------------------------------------------------------------------------------------------
BUILDING MATERIALS 568,330 Alarko Holdings A.S.. . . . . . . 281,111 230,150 0.1
97,073 Cimentas Izmir Cimento Fabrikasi
T.A.S.. . . . . . . . . . . . . . 65,259 57,762 0.0
------------ ------------ ----------
346,370 287,912 0.1
------------------------------------------------------------------------------------------------------------------
FOOD & HOUSEHOLD 774,008 Dardanel Onentas Gida A.S.. . . . 49,722 33,903 0.0
PRODUCTS
------------------------------------------------------------------------------------------------------------------
INSURANCE 863,750 Akisgorta A.S.. . . . . . . . . . 168,498 67,815 0.0
------------------------------------------------------------------------------------------------------------------
RETAIL STORES 472,075 Migros Turk A.S.. . . . . . . . . 378,827 362,834 0.1
------------------------------------------------------------------------------------------------------------------
STEEL 10,103,279 Izmir Demir Celik Sanayii A.S.. . 356,666 192,046 0.1
------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
TURKEY 1,551,786 1,151,496 0.4
- ------------------------------------------------------------------------------------------------------------------------------
UNITED AUTOMOBILE PARTS 274,900 T & N PLC. . . . . . . . . . . . 704,904 691,254 0.3
KINGDOM
------------------------------------------------------------------------------------------------------------------
BANKING 121,355 TSB Group PLC (Ordinary). . . . . 568,019 623,496 0.2
------------------------------------------------------------------------------------------------------------------
BEVERAGE 94,900 Grand Metropolitan PLC (Ordinary) 581,693 682,753 0.3
------------------------------------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT 133,500 General Electric Co., Ltd. PLC
(Ordinary). . . . . . . . . . . . 668,517 735,626 0.3
------------------------------------------------------------------------------------------------------------------
FOOD & BEVERAGE 43,100 Tate & Lyle PLC (Ordinary). . . . 286,107 315,767 0.1
------------------------------------------------------------------------------------------------------------------
</TABLE>
71
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INTERNATIONAL EQUITY FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995 (CONTINUED)
(IN US DOLLARS)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
WESTERN
EUROPE VALUE PERCENT OF
(CONCLUDED) INDUSTRY SHARES HELD INVESTMENTS COST (NOTE 1A) NET ASSETS
- --------------------------------------------------------------------------------------------------------------------------------
UNITED INDUSTRIAL--OTHER 286,000 Tomkins PLC. . . . . . . . . . . $ 995,138 $ 1,249,661 0.5%
KINGDOM
(CONCLUDED)
--------------------------------------------------------------------------------------------------------------------
INSURANCE 78,500 Prudential Corp. PLC. . . . . . 386,922 505,059 0.2
--------------------------------------------------------------------------------------------------------------------
OIL--RELATED 142,400 British Petroleum Co., Ltd.. . . 1,039,907 1,190,264 0.4
--------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS 62,750 Glaxo Holdings PLC. . . . . . . 750,029 891,215 0.3
--------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS 204,300 Racal Electronics PLC. . . . . . 712,277 902,191 0.3
229,300 Vodafone Group PLC (Ordinary). . 843,348 822,174 0.3
------------- ------------- ---------
1,555,625 1,724,365 0.6
--------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN THE
UNITED KINGDOM 7,536,861 8,609,460 3.2
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
WESTERN EUROPE 62,373,725 63,942,913 24.2
--------------------------------------------------------------------------------------------------------------------
FACE
AMOUNT SHORT-TERM SECURITIES
--------------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER* US$ 5,000,000 Corporate Asset Funding Co. Inc.,
5.75% due 1/05/1996. . . . . . . 4,994,410 4,994,410 1.9
8,762,000
General Electric Capital Corp.,
5.90% due 1/02/1996. . . . . . . 8,756,256 8,756,256 3.3
------------- ------------- ---------
13,750,666 13,750,666 5.2
FOREIGN GOVERNMENT MXP 3,438,050 Mexican Cetes, 52.375%,
OBLIGATIONS* due 2/08/1996. . . . . . . . . . 428,837 423,608 0.2
--------------------------------------------------------------------------------------------------------------------
US GOVERNMENT & AGENCY US$12,000,000 Federal National Mortgage
OBLIGATIONS* Association, 5.40%
due 2/01/1996. . . . . . . . . . 11,938,800 11,938,800 4.5
United States Treasury Bills (c):
600,000 5.10% due 1/25/1996. . . . . . . 597,705 597,686 0.2
4,900,000 5.21% due 1/25/1996. . . . . . . 4,880,853 4,881,102 1.8
100,000 5.21% due 1/25/1996. . . . . . . 99,609 99,614 0.0
20,000,000 5.225% due 1/25/1996. . . . . . 19,921,625 19,922,867 7.5
1,200,000 5.33% due 1/25/1996. . . . . . . 1,195,203 1,195,372 0.5
130,000 5.33% due 1/25/1996. . . . . . . 129,481 129,499 0.0
500,000 5.34% due 1/25/1996. . . . . . . 497,998 498,072 0.2
400,000 5.35% due 1/25/1996. . . . . . . 398,395 398,457 0.2
1,800,000 5.40% due 1/25/1996. . . . . . . 1,792,710 1,793,058 0.7
1,740,000 5.88% due 3/07/1996. . . . . . . 1,720,390 1,723,322 0.6
------------- ------------- ---------
43,172,769 43,177,849 16.2
--------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
SHORT-TERM SECURITIES 57,352,272 57,352,123 21.6
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
72
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INTERNATIONAL EQUITY FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995 (CONTINUED)
(IN US DOLLARS)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
NUMBER OF
OPTIONS CONTRACTS/ PREMIUMS VALUE PERCENT OF
PURCHASED FACE AMOUNT ISSUE PAID (NOTE 1A) NET ASSETS
- --------------------------------------------------------------------------------------------------------------------------------
CALL OPTIONS
PURCHASED 6,800 OMX, expiring April 1996 at $ $
Skr 1,491. . . . . . . . . . . . 34,918 17,140 0.0%
914 NZ Top Ten Index, expiring August
1996 at NZ$1,094. . . . . . . . 45,173 45,264 0.0
24,496 Nikkei, expiring March 1996 at
Y21,091.5. . . . . . . . . . . . 45,800 65,250 0.0
14,600 Nikkei, expiring May 1996 at
Y18,388. . . . . . . . . . . . . 148,569 253,845 0.1
14,600 Nikkei, expiring May 1996 at --- ---
Y19,000. . . . . . . . . . . . . 117,700 194,591 ---- 0.1
17,289 Nikkei, expiring June 1996 at
Y20,500. . . . . . . . . . . . . 111,943 119,418 0.0
----------- ----------- -----
504,103 695,508 0.2
- --------------------------------------------------------------------------------------------------------------------------------
CURRENCY PUT Y
OPTIONS PURCHASED 1,500,000 Japanese Yen, expiring January
1996 at Y 86.15. . . . . . . . . 49,842 240,272 0.1
7,000,000 Japanese Yen, expiring January
1996 at Y 86.15. . . . . . . . . 145,600 1,121,267 0.4
3,500,000 Japanese Yen, expiring June
1996 at Y 108. . . . . . . . . . 29,750 44,800 0.0
3,500,000 Japanese Yen, expiring June
1996 at Y 108. . . . . . . . . . 32,200 44,800 0.0
--- --- ----
10,000,000 Japanese Yen, expiring
September 1996 at Y 105. . . . . 235,000 254,000 0.1
----------- ----------- -----
492,392 1,705,139 0.6
-------------------------------------------------------------------------------------------------------------------------
TOTAL OPTIONS PURCHASED 996,495 2,400,647 0.8
TOTAL INVESTMENTS 249,119,701 257,120,956 96.8
- --------------------------------------------------------------------------------------------------------------------------------
PREMIUMS
RECEIVED
- --------------------------------------------------------------------------------------------------------------------------------
OPTIONSCALL OPTIONS WRITTEN 6,800 OMX, expiring April 1996 at
WRITTEN Skr 1,491. . . . . . . . . . . . (54,253) (17,140) 0.0
-------------------------------------------------------------------------------------------------------------------------
PUT OPTIONS WRITTEN 914 NZ Top Ten Index, expiring August
1996 at NZ$1,094. . . . . . . . (21,437) (22,880) 0.0
-------------------------------------------------------------------------------------------------------------------------
TOTAL OPTIONS WRITTEN (75,690) (40,020) 0.0
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, NET OF OPTIONS WRITTEN. . . . . . . . . . . . . . . . . $249,044,011 257,080,936 96.8
--------------
-- ----------
VARIATION MARGIN ON STOCK INDEX FUTURES CONTRACTS**. . . . . . . . . . . . (49,882) 0.0
UNREALIZED DEPRECIATION ON FORWARD FOREIGN EXCHANGE CONTRACTS***. . . . . (267,385) (0.1)
OTHER ASSETS LESS LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . 8,838,572 3.3
-------------- ---------
NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $265,602,241 1 00.0%
-------------- ---------
-- ---------- --- ----
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
(a) American Depositary Receipts (ADR).
(b) Global Depositary Receipts (GDR).
(c) Securities held as collateral in connection with open stock index futures contracts.
(d) Warrants entitle the Fund to purchase a predetermined number of shares of common stock. The purchase price and the number of
shares are subject to adjustment under certain conditions until the expiration date.
(e) Non-income producing securities.
(f) Restricted securities as to resale. The value of the Fund's investment in restricted securities was approximately $3,044,000,
representing 1.1% of net assets.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
ISSUE ACQUISITION COST VALUE
- --------------------------------------- DATE(S) -----------------(NOTE 1A)
-------------------- ----------
Ashok Leyland Ltd. (GDR). . . . . . . 3/09/1995-10/23/1995 $ 558,306 $ 474,575
Nedcor Ltd. (GDR). . . . . . . . . . 5/23/1995 1,087,409 1,698,256
Nedcor Ltd. (Warrants). . . . . . . . 5/23/1995 61,441 140,415
Pick Szeged Reszvenytarsasag (GDR). . 2/14/1995-9/07/1995 167,513 126,752
P.T. Tambag Timah (GDR). . . . . . . 10/06/1995 660,687 603,597
- --------------------------------------------------------------------------------------
TOTAL $ 2,535,356 $ 3,043,595
------------ -------------
-- -------- -- ---------
- --------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
* Commercial Paper and certain Foreign and US Government & Agency Obligations are traded on a discount
basis; the interest rates shown are the rates paid at the time of purchase by the Fund.
</TABLE>
73
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INTERNATIONAL EQUITY FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995 (CONCLUDED)
(IN US DOLLARS)
<TABLE>
<CAPTION>
<S> <C> <C>
** Stock Index futures contracts purchased as of December 31, 1995 were as follows:
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
NUMBER OF EXPIRATION VALUE
CONTRACTS ISSUE EXCHANGE DATE (NOTE 1A & 1B)
- ---------------------------------------------------------------------------------------------------------------------
161 Tokyo. . . . . . . . . . . . . . . . . . . . TOPIX March 1996 $ 24,546,106
13 CAC 40 Index. . . . . . . . . . . . . . . . CAC 40 January 1996 996,566
30 Hang Seng. . . . . . . . . . . . . . . . . . Hang Seng January 1996 1,967,149
- ------------------------------------------------------------------- -----------------------------
TOTAL STOCK INDEX FUTURES CONTRACTS PURCHASED (TOTAL CONTRACT PRICE--$26,021,702) $ 27,509,821
----------------
--- -----------
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
***Forward foreign exchange contracts as of December 31, 1995 were as follows:
UNREALIZED
APPRECIATION
EXPIRATION (DEPRECIATION)
FOREIGN CURRENCY PURCHASED DATE (NOTE 1B)
- -----------------------------------------------------------------------------------------------------------------------
Y732,275,000 . . . . . . . . . . . . . . . . . . . . . . . . January 1996 $ (123,968)
Y999,425,000 . . . . . . . . . . . . . . . . . . . . . . . . April 1996 (195,110)
TOTAL (US$ COMMITMENT--$17,245,976) $ (319,078)
-------------
- -------------------------------------------------------------------------------------------------------------------------
FOREIGN CURRENCY SOLD
- -----------------------------------------------------------------------------------------------------------------------
DM7,170,500 . . . . . . . . . . . . . . . . . . . . . . . . January 1996 $ (9,319)
Frf25,100,000 . . . . . . . . . . . . . . . . . . . . . . . . February 1996 (134,492)
Frf9,913,020 . . . . . . . . . . . . . . . . . . . . . . . . April 1996 (26,986)
Y1,199,435,000 . . . . . . . . . . . . . . . . . . . . . . . . April 1996 198,018
Nlg1,733,340 . . . . . . . . . . . . . . . . . . . . . . . . April 1996 24,472
TOTAL (US$ COMMITMENT--$25,116,244) $ 51,693
-------------
- -----------------------------------------------------------------------------------------------------------------------
TOTAL UNREALIZED DEPRECIATION--NET ON FORWARD FOREIGN EXCHANGE CONTRACTS $ (267,385)
-------------
-- ---------
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
74
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--NATURAL RESOURCES FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
SHARES VALUE PERCENT OF
INDUSTRY HELD COMMON STOCKS COST (NOTE 1A) NET ASSETS
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ALUMINUM 15,000 Alcan Aluminium, Ltd.. . . . . . . . . $ 314,175 $ 466,875 1.1%
4,300 Aluminum Co. of America. . . . . . . . 224,399 227,363 0.5
18,100 Comalco Ltd.. . . . . . . . . . . . . 65,166 97,041 0.2
7,700 Reynolds Metals Co.. . . . . . . . . . 349,628 436,013 1.0
------------ ------------ ---------
953,368 1,227,292 2.8
- ---------------------------------------------------------------------------------------------------------------
CHEMICALS 100,000 Asahi Chemical Industry Co., Ltd.. . . 735,324 765,207 1.8
10,400 Dow Chemical Co.. . . . . . . . . . . 646,664 731,900 1.7
10,700 du Pont (E.I.) de Nemours & Co.. . . . 534,988 747,663 1.7
------------ ------------ ---------
1,916,976 2,244,770 5.2
- ---------------------------------------------------------------------------------------------------------------
DIVERSIFIED RESOURCES 26,500 Canadian Pacific, Ltd.. . . . . . . . 415,534 480,312 1.1
COMPANIES
14,000 Coastal Corp.. . . . . . . . . . . . . 376,945 521,500 1.2
33,000 Cyprus Amax Minerals Co.. . . . . . . 921,470 862,125 2.0
3,999 Freeport-McMoran Inc.. . . . . . . . . 98,200 147,963 0.3
38,500 Norcen Energy Resources Ltd.. . . . . 600,603 578,502 1.4
20,000 Occidental Petroleum Corp.. . . . . . 391,200 427,500 1.0
44,600 RGC Ltd.. . . . . . . . . . . . . . . 170,568 222,203 0.5
------------ ------------ ---------
2,974,520 3,240,105 7.5
- ---------------------------------------------------------------------------------------------------------------
GAS DISTRIBUTION/ 12,100 Consolidated Natural Gas Co.. . . . . 586,109 549,037 1.3
TRANSMISSION
- ---------------------------------------------------------------------------------------------------------------
GOLD 95,220 +Acacia Resources Ltd.. . . . . . . . . 163,669 171,350 0.4
17,000 +Amax Gold, Inc.. . . . . . . . . . . . 107,020 123,250 0.3
167,100 +Delta Gold N.L.. . . . . . . . . . . . 315,856 405,073 0.9
15,000 Driefontein Consolidated Ltd.. . . . . 229,000 190,355 0.5
52,000 Newcrest Mining Ltd.. . . . . . . . . 221,509 218,856 0.5
22,864 Newmont Mining Corp.. . . . . . . . . 914,907 1,034,596 2.4
45,000 Placer Dome Inc. (ADR)*. . . . . . . . 1,018,177 1,085,625 2.5
75,900 Sante Fe Pacific Gold Corp.. . . . . . 1,018,143 920,287 2.1
------------ ------------ ---------
3,988,281 4,149,392 9.6
- ---------------------------------------------------------------------------------------------------------------
INTEGRATED OIL 10,500 Amoco Corp.. . . . . . . . . . . . . . 554,378 754,687 1.8
COMPANIES
10,600 British Petroleum Co. PLC (ADR)*. . . 808,886 1,082,525 2.5
2,200 Mobil Corp.. . . . . . . . . . . . . . 214,196 246,400 0.6
2,000 OMV AG. . . . . . . . . . . . . . . . 214,068 173,974 0.4
25,000 Petro-Canada (Installment Receipts). . 117,895 143,750 0.3
17,700 Phillips Petroleum Co.. . . . . . . . 517,938 604,012 1.4
3,000 Repsol S.A. (ADR)*. . . . . . . . . . 86,490 98,625 0.2
7,300 Repsol S.A. (Foreign). . . . . . . . . 210,174 239,320 0.5
11,000 Societe Nationale Elf Aquitaine (ADR)* 391,885 404,250 0.9
14,000 Total S.A. (Class B). . . . . . . . . 841,537 945,869 2.2
29,000 Unocal Corp. . . . . . . . . . . . . . 819,256 844,625 2.0
23,000 Yacimientos Petroliferos Fiscales S.A.
(ADR)*. . . . . . . . . . . . . . . . 508,759 497,375 1.2
------------ ------------ ---------
5,285,462 6,035,412 14.0
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
75
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--NATURAL RESOURCES FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995 (CONTINUED)
<TABLE>
<CAPTION>
SHARES VALUE PERCENT OF
INDUSTRY HELD COMMON STOCKS COST (NOTE 1A) NET ASSETS
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
METALS & MINING 12,100 ASARCO Inc.. . . . . . . . . . . . . . . . . $ 341,486 $ 387,200 0.9%
14,942 CRA Ltd.. . . . . . . . . . . . . . . . . . 179,473 219,329 0.5
26,900 Falconbridge Ltd. (Installment Receipts) (a) 217,391 234,140 0.5
16,841 Freeport-McMoran Copper & Gold Inc.. . . . . 366,388 473,653 1.1
1,200 Freeport-McMoran Copper & Gold Inc.
(Class A). . . . . . . . . . . . . . . . . . 27,601 33,600 0.1
283,000 M.I.M. Holdings Ltd.. . . . . . . . . . . . 618,436 391,416 0.9
4,700 Magma Copper Co.. . . . . . . . . . . . . . 77,543 131,012 0.3
91,000 Mitsubishi Materials Corp.. . . . . . . . . 461,572 471,571 1.1
38,000 Nippon Light Metal Co. Ltd.. . . . . . . . . 225,758 217,900 0.5
32,400 Noranda Inc.. . . . . . . . . . . . . . . . 600,505 667,925 1.5
25,500 Outokumpu OY. . . . . . . . . . . . . . . . 455,626 405,387 0.9
+
9,400 P.T. Tambang Timah (GDR)***++. . . . . . . . 115,742 109,322 0.3
10,000 Phelps Dodge Corp.. . . . . . . . . . . . . 556,143 622,500 1.5
108,000 QNI Ltd.. . . . . . . . . . . . . . . . . . 216,381 228,077 0.5
64,600 RTZ Corp. PLC (The). . . . . . . . . . . . . 837,147 938,547 2.2
+
300,000 Savage Resources Ltd.. . . . . . . . . . . . 228,385 207,464 0.5
56,000 Sumitomo Metal Mining Co. Ltd.. . . . . . . 467,299 503,371 1.2
34,000 Trelleborg 'B' Fria. . . . . . . . . . . . . 454,495 366,827 0.9
156,600 WMC Ltd.. . . . . . . . . . . . . . . . . . 914,727 1,006,109 2.3
------------ ------------ ---------
7,362,098 7,615,350 17.7
- -------------------------------------------------------------------------------------------------------------------
OIL & GAS PRODUCERS 151,300 +Ampolex Ltd.. . . . . . . . . . . . . . . . 461,392 330,770 0.8
10,500 Anadarko Petroleum Corp.. . . . . . . . . . 513,411 568,312 1.3
18,000 Apache Corp.. . . . . . . . . . . . . . . . 482,356 531,000 1.2
37,000 +Chauvco Resources Ltd.. . . . . . . . . . . 437,096 332,222 0.8
17,300 Enron Oil & Gas Co.. . . . . . . . . . . . . 370,478 415,200 1.0
78,100 Enterprise Oil PLC. . . . . . . . . . . . . 510,617 480,058 1.1
8,900 Louisiana Land and Exploration Co. (The). . 342,742 381,587 0.9
25,000 Mitchell Energy & Development Corp.
(Class B). . . . . . . . . . . . . . . . . . 437,442 468,750 1.1
13,000 +Oryx Energy Co.. . . . . . . . . . . . . . . 216,739 173,875 0.4
93,000 Ranger Oil Ltd.. . . . . . . . . . . . . . . 625,617 581,250 1.4
19,000 Sonat, Inc.. . . . . . . . . . . . . . . . . 614,630 676,875 1.6
3,300 Triton Energy Corp.. . . . . . . . . . . . . 109,905 189,337 0.4
9,800 Vastar Resources, Inc.. . . . . . . . . . . 268,604 311,150 0.7
------------ ------------ ---------
5,391,029 5,440,386 12.7
- -------------------------------------------------------------------------------------------------------------------
OIL SERVICE 8,000 Coflexip Stena Offshore, Inc. (ADR)*. . . . 172,000 150,000 0.4
15,600 IHC Caland N.V.. . . . . . . . . . . . . . . 345,620 526,007 1.2
11,400 Schlumberger Ltd.. . . . . . . . . . . . . . 693,409 789,450 1.8
------------ ------------ ---------
1,211,029 1,465,457 3.4
- -------------------------------------------------------------------------------------------------------------------
PAPER & FOREST 24,533 Aracruz Celulose S.A. (ADR)*. . . . . . . . 196,788 190,131 0.4
PRODUCTS
28,800 Avenor Inc.. . . . . . . . . . . . . . . . . 573,943 493,440 1.2
10,000 Georgia-Pacific Corp.. . . . . . . . . . . . 710,723 686,250 1.6
14,800 International Paper Co.. . . . . . . . . . . 497,368 560,550 1.3
11,700 Kimberly-Clark Corp.. . . . . . . . . . . . 299,588 968,175 2.3
11,500 Metsa-Serla OY 'B'. . . . . . . . . . . . . 499,397 355,045 0.8
11,300 Mo Och Domsjo AB Co.. . . . . . . . . . . . 492,512 482,549 1.1
20,000 Weyerhaeuser Co.. . . . . . . . . . . . . . 796,864 865,000 2.0
9,000 Willamette Industries, Inc.. . . . . . . . . 376,875 504,000 1.2
------------ ------------ ---------
4,444,058 5,105,140 11.9
- -------------------------------------------------------------------------------------------------------------------
PLANTATIONS 86,000 Golden Hope Plantations BHD. . . . . . . . . 158,974 143,644 0.3
60,000 Kuala Lumpur Kepong BHD. . . . . . . . . . . 120,553 190,270 0.5
------------ ------------ ---------
279,527 333,914 0.8
- -------------------------------------------------------------------------------------------------------------------
REFINING 22,300 Total Petroleum (North America), Ltd. (ADR)*
328,442 217,425 0.5
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
76
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--NATURAL RESOURCES FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995 (CONCLUDED)
<TABLE>
<CAPTION>
SHARES VALUE PERCENT OF
INDUSTRY HELD COMMON STOCKS COST (NOTE 1A) NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STEEL 21,000 Allegheny Ludlum Corp.. . . . . . . . . . $ 493,494 $ 388,500 0.9%
10,800 Koninklijke Nederlandsche Hoogovens en
Staalfabrienken N.V.. . . . . . . . . . 460,210 362,135 0.8
213,000 +Nippon Steel Corp.. . . . . . . . . . . . 728,282 730,356 1.7
255,000 +Sumitomo Metal Industries, Ltd.. . . . . 820,271 773,102 1.8
------------- -------------- ---------------
2,502,257 2,254,093 5.2
- -----------------------------------------------------------------------------------------------------------------------------------
WOOD PRODUCTS 18,400 Louisiana-Pacific Corp.. . . . . . . . . 467,929 446,200 1.0
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS 37,691,085 40,323,973 93.6
- -----------------------------------------------------------------------------------------------------------------------------------
FACE
AMOUNT SHORT-TERM SECURITIES
- -----------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER** $ 1,818,000 General Electric Capital Corp., 5.90% due
1/02/1996. . . . . . . . . . . . . . . . 1,816,808 1,816,808 4.2
- -----------------------------------------------------------------------------------------------------------------------------------
US GOVERNMENT & Federal National Mortgage Association,
AGENCY OBLIGATIONS** 1,000,000 5.44% due 1/23/1996. . . . . . . . . . . 996,222 996,222 2.3
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM SECURITIES 2,813,030 2,813,030 6.5
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS. . . . . . . . . . . . $40,504,115 43,137,003 1 00.1
-------------
-------------
LIABILITIES IN EXCESS OF OTHER ASSETS. . (34,652) (0.1)
-------------- ---------------
NET ASSETS. . . . . . . . . . . . . . . . $ 43,102,351 100.0%
-------------- ---------------
-------------- ---------------
- -----------------------------------------------------------------------------------------------------------------------------------
* American Depositary Receipts (ADR).
**
Commercial Paper and certain US Government & Agency Obligations are traded on a discount basis; the interest rates shown are the
discount rates paid at the time of purchase by the Fund.
*** Global Depositary Receipts (GDR).
+ Non-income producing security.
++Restricted securities as to resale. The value of the Fund's investment in restricted securities was approximately $109,000,
representing 0.3% of net assets.
</TABLE>
<TABLE>
<CAPTION>
VALUE
ISSUE ACQUISITION DATE COST (NOTE 1A)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
P.T. Tambang Timah (GDR). . . . . . . . . . 10/06/1995 $115,742 $ 109,322
- ---------------------------------------------------------------------------------------
TOTAL $115,742 $ 109,322
---------- -----------
---------- -----------
- ---------------------------------------------------------------------------------------
</TABLE>
(a) Receipts evidence payment by the Fund of 34% of the purchase price of common
stock of Falconbridge Ltd. The Fund is obligated to pay the remaining 66%,
approximately $375,000, over the next two years.
See Notes to Financial Statements.
77
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--PRIME BOND FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
S&P MOODY'S FACE VALUE
INDUSTRY RATINGS RATINGS AMOUNT CORPORATE BONDS & NOTES COST (NOTE 1A)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BANKS & THRIFTS--4.3% A A $ 1,000,000 BankAmerica Corp., 7.125% due
5/12/2005. . . . . . . . . . . . . $ 985,500 $ 1,058,670
A- A3 2,000,000 Golden West Financial Corp.,
9.15% due 5/23/1998. . . . . . . . . 2,271,480 2,152,800
NationsBank Corp.:
A A2 2,000,000 7.50% due 2/15/1997. . . . . . . . . 1,998,280 2,041,240
A- A3 6,500,000 10.50% due 3/15/1999. . . . . . . . 6,808,555 6,559,540
A- A3 2,000,000 7.75% due 8/15/2015. . . . . . . . . 2,000,000 2,190,700
Wachovia Corp.:
AA+ Aa2 3,000,000 6.55% due 6/09/1997. . . . . . . . . 2,997,810 3,048,870
AA- A1 4,000,000 6.80% due 6/01/2005. . . . . . . . . 3,936,200 4,176,240
----------- -----------
20,997,825 21,228,060
- ---------------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES-- Chrysler Finance Corp.:
CAPTIVE--3.9%
A- A3 1,000,000 7.13% due 9/30/1996. . . . . . . . 985,130 1,010,680
A- A3 6,500,000 10.95% due 8/01/2017. . . . . . . . 7,380,520 7,293,520
General Motors Acceptance Corp.:
BBB+ A3 3,000,000 7.125% due 5/11/1998. . . . . . . . 3,033,840 3,097,590
BBB+ A3 7,500,000 7.40% due 9/01/2025. . . . . . . . . 7,439,550 8,001,900
---------- -----------
18,839,040 19,403,690
- ---------------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES-- A+ A1 2,000,000 American General Finance Corp.,
CONSUMER--6.2% 8.50% due 8/15/1998. . . . . . . . . 2,278,920 2,138,040
Associates Corp. of North America:
AA- Aa3 5,000,000 8.375% due 1/15/1998. . . . . . . . 5,016,100 5,269,050
AA- Aa3 1,500,000 5.25% due 9/01/1998. . . . . . . . 1,454,385 1,486,800
AA- Aa3 1,000,000 7.25% due 9/01/1999. . . . . . . . 987,620 1,047,740
A A2 10,000,000 Beneficial Corp., 5.41% due
10/14/1997. . . . . . . . . . . . . 10,000,000 9,954,590
A+ Aa3 3,000,000 CIT Group Holdings, Inc., 7.625% due
12/05/1996. . . . . . . . . . . . . 2,990,340 3,056,508
Commercial Credit Co.:
A+ A1 3,250,000 10.00% due 5/01/1999. . . . . . . . 3,626,350 3,660,962
A+ A1 3,000,000 6.70% due 8/01/1999. . . . . . . . 3,022,580 3,087,720
A+ A2 1,000,000 Transamerica Financial Corp., 6.80%
due 3/15/1999. . . . . . . . . . . 999,730 1,030,810
----------- --------------
30,376,025 30,732,220
- ---------------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES-- A A2 10,000,000 Bear Stearns Companies Inc. (The),
OTHER--11.7% 6.75% due 8/15/2000. . . . . . . . 9,936,500 10,283,900
Dean Witter, Discover & Co.:
A A2 3,500,000 6.75% due 8/15/2000. . . . . . . . 3,486,805 3,623,550
A A2 4,000,000 6.50% due 11/01/2005. . . . . . . . 3,953,800 4,041,600
A A2 2,250,000 6.75% due 10/15/2013. . . . . . . . 2,207,925 2,236,387
A+ A2 2,000,000 Dillard Investment Co., 9.25% due
2/01/2001. . . . . . . . . . . . . 2,354,230 2,272,400
General Electric Capital Corp.:
AAA Aaa 3,000,000 14.00% due 7/01/1996. . . . . . . . 3,405,570 3,121,710
AAA Aaa 3,500,000 8.125% due 5/15/2012. . . . . . . . 3,553,725 4,087,685
A A3 10,000,000 Lehman Brothers Holdings, Inc.,
7.375% due 8/15/1997. . . . . . . . 9,987,000 10,216,600
PaineWebber Group, Inc.:
BBB+ Baa1 3,000,000 9.25% due 12/15/2001. . . . . . . . 3,501,570 3,394,080
BBB+ Baa1 2,000,000 8.875% due 3/15/2005. . . . . . . . 2,012,540 2,276,400
A- A3 6,000,000 Smith Barney Holdings, Inc., 6.50%
due 10/15/2002. . . . . . . . . . . 5,972,240 6,104,340
Travelers Corp. (The):
A+ A2 1,000,000 9.50% due 3/01/2002. . . . . . . . 1,084,200 1,172,490
A+ A2 4,000,000 7.875% due 5/15/2025. . . . . . . . 3,997,680 4,477,800
----------- --------------
55,453,785 57,308,942
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
78
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--PRIME BOND FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995 (CONTINUED)
<TABLE>
<CAPTION>
S&P MOODY'S FACE VALUE
INDUSTRY RATINGS RATINGS AMOUNT CORPORATE BONDS & NOTES COST (NOTE 1A)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOREIGN*--11.5% A+ Aa2 $6,500,000 ABN AMRO Bank, 7.25% due
5/31/2005 (1). . . . . . . . . . . . $ 6,651,015 $ 6,978,270
AA- A1 4,000,000 Aegon N.V., 8.00% due 8/15/2006 (1). 3,963,480 4,528,640
CRA Finance Ltd. (3):
A+ A2 6,500,000 6.50% due 12/01/2003. . . . . . . . 6,509,920 6,589,830
A+ A2 3,000,000 7.125% due 12/01/2013. . . . . . . . 2,982,600 3,087,240
AAA Aaa 2,000,000 Export-Import Bank of Japan, 8.35% due
12/01/1999 (1). . . . . . . . . . . 2,113,320 2,189,940
Metropolis of Tokyo (Japan) (2):
AAA Aaa 3,000,000 8.70% due 10/05/1999. . . . . . . . 3,469,410 3,305,670
AAA Aaa 250,000 9.25% due 11/08/2000. . . . . . . . 268,428 287,090
A+ A1 1,000,000+ Petronas Corp., 6.875% due 7/01/2003
(4). . . . . . . . . . . . . . . . . 986,480 1,037,270
A+ A2 4,500,000 Pohang Iron & Steel Co., Ltd., 7.375%
due 5/15/2005 (3). . . . . . . . . . 4,581,720 4,780,755
AA- Aa3 6,000,000 Province of Ontario (Canada), 7.75%
due 6/04/2002 (2). . . . . . . . . . 5,854,440 6,532,020
Province of Quebec (Canada) (2):
A+ A2 3,500,000 8.80% due 4/15/2003. . . . . . . . . 3,944,780 4,007,535
A+ A2 6,500,000 7.125% due 2/09/2024. . . . . . . . 5,283,240 6,536,595
AA A1 7,000,000 Republic of Italy, 6.875% due
9/27/2023 (2). . . . . . . . . . . . 6,487,690 6,835,850
----------- --------------
53,096,523 56,696,705
- ---------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL--CONSUMER A- A2 2,000,000 American Home Products Corp., 7.90%
GOODS--12.3% due 2/15/2005. . . . . . . . . . . . 1,996,100 2,249,480
Anheuser-Busch Cos., Inc.:
AA- A1 2,500,000 8.75% due 12/01/1999. . . . . . . . 2,839,090 2,765,700
AA- A1 5,000,000 7.375% due 7/01/2023. . . . . . . . 5,127,300 5,292,250
A+ A1 2,500,000 Bass America, Inc., 8.125% due
3/31/2002. . . . . . . . . . . . . . 2,668,930 2,784,350
Dillard Department Stores, Inc.:
A+ A2 5,000,000 7.375% due 6/15/1999. . . . . . . . 5,305,840 5,224,500
A+ A2 3,000,000 9.125% due 8/01/2011. . . . . . . . 3,240,150 3,740,850
Grand Metropolitan Investment Corp.:
A+ A2 5,500,000 6.50% due 9/15/1999. . . . . . . . . 5,615,810 5,624,905
A+ A2 1,000,000 8.625% due 8/15/2001. . . . . . . . 1,049,910 1,127,530
AAA Aaa 3,000,000 Johnson & Johnson Co., 8.72% due
11/01/2024. . . . . . . . . . . . . 3,000,000 3,488,190
A+ A1 2,000,000 Kimberly-Clark Corporation, 7.875% due
2/01/2023. . . . . . . . . . . . . . 2,033,960 2,185,680
A A2 2,000,000 May Department Stores Company (The),
10.625% due 11/01/2010. . . . . . . 2,419,800 2,771,340
A A1 1,000,000 PepsiCo., Inc., 6.125% due 1/15/1998. 993,060 1,010,210
Philip Morris Companies, Inc.:
A A2 4,000,000 9.00% due 1/01/2001. . . . . . . . . 4,071,540 4,503,920
A A2 5,500,000 7.25% due 1/15/2003. . . . . . . . . 5,537,840 5,811,300
AA Aa1 4,000,000 Wal-Mart Stores, Inc., 8.50% due
9/15/2024. . . . . . . . . . . . . . 3,926,560 4,616,960
A A2 5,000,000 Weyerhaeuser Co., 7.95% due
3/15/2025. . . . . . . . . . . . . . 4,945,200 5,811,800
----------- --------------
54,771,090 59,008,965
- ---------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL--ENERGY-- BP America Inc.:
2.3%
AA- A1 2,000,000 9.375% due 11/01/2000. . . . . . . . 2,204,960 2,299,720
AA- A1 4,000,000 8.50% due 4/15/2001. . . . . . . . . 4,176,000 4,480,440
Texaco Capital Inc.:
A+ A1 1,500,000 9.00% due 12/15/1999. . . . . . . . 1,731,670 1,667,265
A+ A1 1,000,000 8.875% due 2/15/2021. . . . . . . . 999,860 1,291,940
A+ A1 1,000,000 8.625% due 11/15/2031. . . . . . . . 1,045,390 1,258,850
----------- --------------
10,157,880 10,998,215
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
79
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--PRIME BOND FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995 (CONTINUED)
<TABLE>
<CAPTION>
S&P MOODY'S FACE VALUE
INDUSTRY RATINGS RATINGS AMOUNT CORPORATE BONDS & NOTES COST (NOTE 1A)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INDUSTRIAL--OTHER--9.5% A A3 $4,000,000 Alco Standard Corporation, 6.75% due
12/01/2025. . . . . . . . . . . . . . $ 3,939,200 $ 3,961,008
AA- Aa2 2,000,000 Archer-Daniels-Midland Co., 8.125% due
6/01/2012. . . . . . . . . . . . . . 2,125,020 2,298,800
AA- Aa3 2,500,000 Capital Cities/ABC, Inc., 8.75% due
8/15/2021. . . . . . . . . . . . . . 2,711,750 3,123,975
A- A3 4,000,000 Carnival Cruise Lines, Inc., 7.70% due
7/15/2004. . . . . . . . . . . . . . 4,208,480 4,317,360
AA- Aa3 5,950,000 du Pont (E.I.) de Nemours & Co., 8.25%
due 1/15/2022. . . . . . . . . . . . 6,188,164 6,558,923
A A1 7,000,000+ Electronic Data Systems Corp., 6.85%
due 5/15/2000. . . . . . . . . . . . 6,994,470 7,271,250
Ford Motor Credit Co.:
A+ A1 3,000,000 6.25% due 11/08/2000. . . . . . . . . 2,990,100 3,040,770
A+ A1 2,500,000 7.75% due 3/15/2005. . . . . . . . . 2,497,725 2,754,475
A+ A1 2,000,000 9.50% due 6/01/2010. . . . . . . . . 2,217,880 2,490,000
AA Aa2 5,890,000 Kaiser Foundation Hospital, 9.55% due
7/15/2005. . . . . . . . . . . . . . 6,625,366 7,282,043
BBB+ Aa3 3,000,000 Philips Electronics N.V., 7.75% due
5/15/2025. . . . . . . . . . . . . . 2,989,830 3,332,970
------------ ---------------
43,487,985 46,431,574
- -----------------------------------------------------------------------------------------------------------------------------------
SUPRANATIONAL--2.5% Asian Development Bank:
AAA Aaa 1,000,000 10.75% due 6/01/1997. . . . . . . . . 1,084,890 1,069,290
AAA Aaa 4,000,000 6.125% due 3/09/2004. . . . . . . . . 3,962,320 4,017,600
Inter-American Development Bank Co.:
AAA Aaa 2,000,000 8.875% due 6/01/2009. . . . . . . . . 2,481,700 2,551,360
AAA Aaa 4,000,000 8.50% due 3/15/2011. . . . . . . . . 4,910,200 4,861,840
------------ ---------------
12,439,110 12,500,090
- -----------------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION AA A1 9,500,000 Boeing Co., 6.35% due
SERVICES--3.9% 6/15/2003. . . . . . . . . . . . . . . 8,549,905 9,673,850
Southwest Airlines, Inc.:
A- Baa1 3,500,000 9.40% due 7/01/2001. . . . . . . . . 4,021,990 4,025,175
A- Baa1 4,000,000 8.00% due 3/01/2005. . . . . . . . . 3,980,450 4,451,200
A- Baa1 1,000,000 7.875% due 9/01/2007. . . . . . . . . 992,600 1,089,000
------------ ---------------
17,544,945 19,239,225
- -----------------------------------------------------------------------------------------------------------------------------------
UTILITIES-- AA Aa3 4,000,000 AT&T Corp., 8.35% due 1/15/2025. . . . 3,929,080 4,575,800
COMMUNICATIONS--3.2%
AAA Aaa 3,500,000 BellSouth Corp., 7.00% due 10/01/2025.
3,467,380 3,720,010
GTE Corp.:
8.85% due 3/01/1998. . . . . . . . .
BBB+ Baa1 1,000,000 1,143,360 1,066,150
9.10% due 6/01/2003. . . . . . . . .
BBB+ Baa1 1,000,000 1,221,680 1,162,710
Southwestern Bell Telecommunications
A+ A1 1,000,000 Corp., 6.125% due 3/01/2000. . . . .
1,005,000 1,015,590
US West Communications, 7.25% due
AA- Aa3 4,000,000 9/15/2025. . . . . . . . . . . . . .
3,993,200 4,304,360
------------ ---------------
14,759,700 15,844,620
- -----------------------------------------------------------------------------------------------------------------------------------
UTILITIES--ELECTRIC--3.9% AA- Aa2 7,000,000 Duke Power Co., 8.00% due
11/01/1999. . . . . . . . . . . . . . 6,966,520 7,546,770
A A2 3,000,000 Georgia Power Co., 6.125% due
9/01/1999. . . . . . . . . . . . . . . 2,892,720 3,032,670
A A2 7,500,000 Virginia Electric & Power Co., 8.625%
due 10/01/2024. . . . . . . . . . . . 7,416,540 8,746,215
------------ ---------------
17,275,780 19,325,655
- -----------------------------------------------------------------------------------------------------------------------------------
UTILITIES--GAS--1.6% AA- A1 7,000,000 Consolidated Natural Gas Co., 8.75% due
6/01/1999. . . . . . . . . . . . . . 7,448,861 7,634,060
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS & NOTES-- 76.8%
356,648,549 376,352,021
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
80
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--PRIME BOND FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995 (CONCLUDED)
<TABLE>
<CAPTION>
S&P MOODY'S FACE VALUE
RATINGS RATINGS AMOUNT US GOVERNMENT & AGENCY OBLIGATIONS COST (NOTE 1A)
<S> <C> <C> <C> <C> <C> <C>
US GOVERNMENT AGENCY AAA Aaa $ 5,000,000 Federal Home Loan Bank, 5.96% due
OBLIGATIONS--2.5% 5/06/1996. . . . . . . . . . . . . . . $ 4,980,500 $ 5,003,495
AAA Aaa 7,000,000 Federal National Mortgage Association,
7.85% due 9/10/2004. . . . . . . . . . 6,925,569 7,445,130
-------------- -----------------
11,906,069 12,448,625
- -----------------------------------------------------------------------------------------------------------------------------------
US GOVERNMENT US Treasury Notes & Bonds:
OBLIGATIONS--13.3%
AAA Aaa 2,500,000 7.75% due 12/31/1999. . . . . . . . . 2,669,922 2,712,900
AAA Aaa 10,000,000 5.875% due 6/30/2000. . . . . . . . . 10,008,100 10,203,100
AAA Aaa 2,500,000 8.75% due 8/15/2000. . . . . . . . . . 2,976,172 2,839,450
AAA Aaa 7,000,000 6.375% due 8/15/2002. . . . . . . . . 6,734,033 7,340,130
AAA Aaa 11,000,000 6.50% due 5/15/2005. . . . . . . . . . 10,668,276 11,703,010
AAA Aaa 1,000,000 5.875% due 11/15/2005. . . . . . . . . 1,015,156 1,022,500
AAA Aaa 10,500,000 8.875% due 8/15/2017. . . . . . . . . 11,899,219 14,063,385
AAA Aaa 12,000,000 7.625% due 2/15/2025. . . . . . . . . 14,101,562 14,673,720
-------------- -----------------
60,072,440 64,558,195
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL US GOVERNMENT & AGENCY
OBLIGATIONS--15.8% 71,978,509 77,006,820
- -----------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM SECURITIES
- -----------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER**-- 5,000,000 General Electric Capital Corp., 5.90%
1.0% due 1/03/1996. . . . . . . . . . . . . 4,995,903 4,995,903
- -----------------------------------------------------------------------------------------------------------------------------------
REPURCHASE 22,531,000 Morgan Stanley Group, Inc., purchased on
AGREEMENT***--4.6% 12/29/1995 to yield 5.87% to 1/02/1996
22,531,000 22,531,000
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM SECURITIES--5.6% 27,526,903 27,526,903
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS--98.2%. . . . . . . . $ 456,153,961 480,885,744
--------------
OTHER ASSETS LESS LIABILITIES-- --------------
1.8%. . . . . . . . . . . . . . . . . . 8,952,224
-----------------
NET ASSETS--100.0%. . . . . . . . . . .
$ 489,837,968
-----------------
-----------------
- -----------------------------------------------------------------------------------------------------------------------------------
*Corresponding industry groups for foreign securities, which are denominated in US dollars.
(1) Financial Institution
(2) Government Entity
(3) Industrial Mining and Metals
(4) Industrial Energy
**Commercial Paper is traded on a discount basis. The interest rate shown is the discount rate paid at the time of purchase by the
Fund.
***Repurchase Agreements are fully collateralized by US Government and Agency Obligations.
+Restricted securities as to resale. The value of the Fund's investment in restricted securities was approximately $8,309,000,
representing 1.7% of net assets.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
ISSUE ACQUISITION VALUE
- ------------------------------------------------------- DATE ---- COST ----(NOTE 1A)
----------- --------- ----------
Petronas Corp., 6.875% due 7/01/2003. . . . . . . 8/10/1995 $ 986,480 $ 1,037,270
Electronic Data Systems Corp., 6.85% due 5/15/2000 5/26/1995 6,994,470 7,271,250
- ---------------------------------------------------------------------------------------------
$ 7,980,950 $ 8,308,520
------------ -------------
TOTAL ------------ -------------
- ---------------------------------------------------------------------------------------------
</TABLE>
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
81
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--QUALITY EQUITY FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
SHARES VALUE PERCENT OF
HELD (NOTE 1A) NET ASSETS
INDUSTRY STOCKS & WARRANTS COST
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AEROSPACE 215,000 Boeing Co.. . . . . . . . . . . . . . $ 13,710,875 $ 16,850,625 2.6%
220,000 United Technologies Corp.. . . . . . 17,602,167 20,872,500 3.2
-------------- -------------- -----
31,313,042 37,723,125 5.8
- --------------------------------------------------------------------------------------------------------------------
ALUMINUM 215,000 Aluminum Co. of America. . . . . . . 11,993,522 11,368,125 1.8
- --------------------------------------------------------------------------------------------------------------------
APPLIANCES 120,000 Whirlpool Corporation.. . . . . . . . 6,541,272 6,390,000 1.0
- --------------------------------------------------------------------------------------------------------------------
AUTO & TRUCK 520,000 Ford Motor Co.. . . . . . . . . . . . 15,558,788 15,080,000 2.3
- --------------------------------------------------------------------------------------------------------------------
AUTOMOBILE PARTS-- 85,000 Magna International, Inc. (Class A). 3,105,362 3,676,250 0.6
ORIGINAL EQUIPMENT
- --------------------------------------------------------------------------------------------------------------------
BANKING 425,000 Bank of New York, Inc.. . . . . . . . 14,242,811 20,718,750 3.2
60,000 Bank of New York, Inc. (Warrants) (b) 433,750 2,167,500 0.3
-------------- -------------- -----
14,676,561 22,886,250 3.5
- --------------------------------------------------------------------------------------------------------------------
CHEMICALS 120,000 Eastman Chemical Co.. . . . . . . . . 7,251,299 7,515,000 1.2
- --------------------------------------------------------------------------------------------------------------------
COMMUNICATION EQUIPMENT 75,000 +ADC Telecommunications, Inc.. . . . . 3,014,376 2,718,750 0.4
- --------------------------------------------------------------------------------------------------------------------
COMPUTER SERVICES 425,000 General Motors Corp. (Class E). . . . 17,936,810 22,100,000 3.4
- --------------------------------------------------------------------------------------------------------------------
ELECTRONICS/INSTRUMENTS 255,800 Corning Inc.. . . . . . . . . . . . . 7,062,592 8,185,600 1.3
130,000 Texas Instruments, Inc.. . . . . . . 9,342,810 6,727,500 1.0
-------------- -------------- -----
16,405,402 14,913,100 2.3
- --------------------------------------------------------------------------------------------------------------------
ENVIRONMENTAL CONTROL 800,000 Wheelabrator Technologies, Inc.. . . 13,684,829 13,400,000 2.1
- --------------------------------------------------------------------------------------------------------------------
FOREIGN--HONG KONG 300,000 Hong Kong Telecommunications
Limited (ADR) (a) (3). . . . . . . . 5,342,920 5,325,000 0.8
- --------------------------------------------------------------------------------------------------------------------
FOREIGN--NETHERLANDS 80,000 Royal Dutch Petroleum Co., N.V.
(ADR) (a) (1). . . . . . . . . . . . 10,690,414 11,290,000 1.8
400,000
Singer Co., N.V. (c) (4). . . . . . . 13,220,178 11,150,000 1.7
-------------- -------------- -----
23,910,592 22,440,000 3.5
- --------------------------------------------------------------------------------------------------------------------
FOREIGN--SWITZERLAND 160,000 Sandoz AG (ADR) (a) (2). . . . . . . 6,973,917 7,300,000 1.1
- --------------------------------------------------------------------------------------------------------------------
HARDWARE PRODUCTS 120,100 Stanley Works Co. (The). . . . . . . 5,965,108 6,185,150 1.0
- --------------------------------------------------------------------------------------------------------------------
13,687,500 2.1
HEALTHCARE 500,000 +Humana Inc.. . . . . . . . . . . . . 10,288,989
- --------------------------------------------------------------------------------------------------------------------
INSURANCE 240,000 Aetna Life & Casualty Co.. . . . . . 14,392,691 16,620,000 2.6
290,000 Allstate Corp.. . . . . . . . . . . . 9,515,583 11,926,250 1.9
100,000 National Re Corp.. . . . . . . . . . 2,890,779 3,800,000 0.6
-------------- -------------- -----
26,799,053 32,346,250 5.1
- --------------------------------------------------------------------------------------------------------------------
NATURAL GAS 93,000 Enron Corp.. . . . . . . . . . . . . 3,515,656 3,545,625 0.6
- --------------------------------------------------------------------------------------------------------------------
OIL SERVICE 350,000 Dresser Industries, Inc.. . . . . . . 8,202,968 8,531,250 1.3
- --------------------------------------------------------------------------------------------------------------------
PETROLEUM 124,000 Pennzoil Co.. . . . . . . . . . . . . 4,904,735 5,239,000 0.8
- --------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS 300,000 Abbott Laboratories. . . . . . . . . 12,284,595 12,525,000 1.9
255,000 Merck & Co., Inc.. . . . . . . . . . 15,352,870 16,766,250 2.6
-------------- -------------- -----
27,637,465 29,291,250 4.5
- --------------------------------------------------------------------------------------------------------------------
PHOTOGRAPHY 275,000 Eastman Kodak Co.. . . . . . . . . . 15,238,527 18,425,000 2.9
- --------------------------------------------------------------------------------------------------------------------
RETAIL 385,000 Sears, Roebuck & Co.. . . . . . . . . 13,882,526 15,015,000 2.3
- --------------------------------------------------------------------------------------------------------------------
SCIENTIFIC INSTRUMENTS 167,700 Fisher Scientific Intl Inc... . . . . 5,485,059 5,596,987 0.9
- --------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS 230,000 AT&T Corp. . . . . . . . . . . . . . 15,125,009 14,892,500 2.3
- --------------------------------------------------------------------------------------------------------------------
TOTAL STOCKS & WARRANTS 314,753,787 345,591,112 53.6
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
82
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--QUALITY EQUITY FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995 (CONCLUDED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FACE VALUE PERCENT OF
AMOUNT SHORT-TERM SECURITIES COST (NOTE 1A) NET ASSETS
- -------------------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER* $28,000,000 Corporate Asset Funding Co. Inc., 5.67%
due 1/09/1996. . . . . . . . . . . . $ 27,951,490 $ 27,951,490 4.3%
15,000,000 Ford Motor Credit Co., 5.76% due
1/04/1996. . . . . . . . . . . . . . 14,985,600 14,985,600 2.3
30,387,000 General Electric Capital Corp., 5.90%
due 1/02/1996. . . . . . . . . . . . 30,367,080 30,367,080 4.7
10,000,000 Matterhorn Capital Corp., 5.75% due
1/03/1996. . . . . . . . . . . . . . 9,992,014 9,992,014 1.6
----------- ----------- ------
83,296,184 83,296,184 12.9
- -------------------------------------------------------------------------------------------------------------------------
US GOVERNMENT &
AGENCY OBLIGATIONS*
Federal Home Loan Mortgage Corporation:
40,000,000 5.62% due 1/16/1996. . . . . . . . . . 39,887,600 39,887,600 6.2
70,000,000 5.43% due 1/22/1996. . . . . . . . . . 69,746,600 69,746,600 10.8
Federal National Mortgage Association:
49,000,000 5.65% due 1/19/1996. . . . . . . . . . 48,838,504 48,838,504 7.6
20,000,000 5.67% due 1/19/1996. . . . . . . . . . 19,933,850 19,933,850 3.1
40,000,000 5.45% due 2/02/1996. . . . . . . . . . 39,788,056 39,788,056 6.2
----------- ----------- ------
218,194,610 218,194,610 33.9
- -------------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM SECURITIES 301,490,794 301,490,794 46.8
- -------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS. . . . . . . . . . . $616,244,581 647,081,906 100.4
--------------
--------------
LIABILITIES IN EXCESS OF OTHER ASSETS. (2,531,305) (0.4)
----------- ------
NET ASSETS. . . . . . . . . . . . . . $644,550,601 100.0%
-------------- ------
-------------- ------
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) American Depositary Receipts (ADR).
(b) Warrants entitle the Fund to purchase a predetermined number of shares of
common stock. The purchase price and number of shares are subject to adjustment
under certain conditions until the expiration date.
(c) Consistent with general policy of the Securities and Exchange Commission,
the nationality or domicile of an issuer for determination of foreign issuer
status may be (i) the country under whose laws the issuer is organized, (ii)
the country in which the issuer's securities are principally traded, or (iii)
the country in which the issuer derives a significant proportion (at least 50%)
of its revenue or profits from goods produced or sold, investment made, or
services performed in the country, or in which at least 50% of the assets of
the issuers are situated.
* Commercial Paper and certain US Government & Agency Obligations trade on a
discount basis; the interest rates shown are the discount rates paid at the
time of purchase by the Fund.
+ Non-income producing security.
Corresponding industry groups for foreign securities:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(1) Petroleum
(2) Pharmaceuticals
(3) Telecommunications
(4) Appliances
</TABLE>
See Notes to Financial Statements.
83
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--RESERVE ASSETS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
FACE INTEREST MATURITY VALUE
AMOUNT ISSUE RATE* DATE (NOTE 1A)
<S> <C> <C> <C> <C> <C>
CERTIFICATE OF DEPOSIT-- $ 500,000 Abbey National PLC. . . . . . . . . . . 6.54 % 4/09/96 $ 501,056
EUROPEAN--2.0%
- -----------------------------------------------------------------------------------------------------------------------
TOTAL CERTIFICATE OF DEPOSIT/EUROPEAN (COST--$500,013) 501,056
- -----------------------------------------------------------------------------------------------------------------------
COMMERCIAL 500,000 Abbey National PLC. . . . . . . . . . . 5.44 5/30/96 488,567
PAPER--26.8%
300,000 American Express Credit Corp.. . . . . . 5.62 4/11/96 295,251
500,000 CXC Inc.. . . . . . . . . . . . . . . . 5.75 1/19/96 498,314
748,000 Ford Motor Credit Co.. . . . . . . . . . 5.62 3/27/96 737,829
1,200,000 General Motors Acceptance Corp.. . . . . 5.80 2/01/96 1,193,427
1,000,000 Kingdom of Sweden. . . . . . . . . . . . 5.60 3/11/96 988,847
698,000 Korea Development Bank. . . . . . . . . 5.68 2/20/96 692,163
887,000 McKenna Triangle National Corp.. . . . . 5.74 1/16/96 884,437
500,000 National Australia Funding (Delaware). . 5.44 5/29/96 488,642
285,000 Premium Funding, Inc.. . . . . . . . . . 5.78 1/16/96 284,176
300,000 Svenska Handelsbanken, Inc.. . . . . . . 5.71 1/31/96 298,405
- -----------------------------------------------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER (COST--$6,849,309) 6,850,058
- -----------------------------------------------------------------------------------------------------------------------
CORPORATE NOTES--7.1% 1,000,000 Beta Finance Inc.+. . . . . . . . . . . 5.88 9/16/96 1,000,000
500,000 Morgan (J.P.) & Company, Inc.+. . . . . 5.92 7/17/96 499,813
325,000 SMM Trust+. . . . . . . . . . . . . . . 5.8325 6/14/96 325,000
- -----------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE NOTES--INT BEARING
(COST--$1,824,813) 1,824,813
- -----------------------------------------------------------------------------------------------------------------------
MASTER NOTES--3.9% 1,000,000 Goldman Sachs Group L.P.+. . . . . . . . 5.85 2/14/96 1,000,000
- -----------------------------------------------------------------------------------------------------------------------
TOTAL MASTER NOTES (COST--$1,000,000) 1,000,000
- -----------------------------------------------------------------------------------------------------------------------
MEDIUM-TERM 500,000 Federal National Mortgage Association+.. 6.46 3/27/96 501,133
NOTES--2.9%
250,000 General Electric Capital Corp.. . . . . 7.625 7/30/96 252,948
- -----------------------------------------------------------------------------------------------------------------------
TOTAL MEDIUM-TERM NOTES (COST--$752,560) 754,081
- -----------------------------------------------------------------------------------------------------------------------
US GOVERNMENT, AGENCY 190,000 Federal Farm Credit Bank. . . . . . . . 5.56 3/20/96 187,685
& INSTRUMENTALITY
OBLIGATIONS-- 130,000 Federal Home Loan Bank.. . . . . . . . . 6.18 3/07/96 128,667
DISCOUNT--26.0%
270,000 Federal Home Loan Bank.. . . . . . . . . 5.48 4/09/96 265,961
170,000 Federal Home Loan Bank.. . . . . . . . . 5.58 4/10/96 167,432
270,000 Federal Home Loan Bank.. . . . . . . . . 5.58 4/11/96 265,882
165,000 Federal Home Loan Bank.. . . . . . . . . 5.43 7/12/96 160,418
312,000 Federal Home Loan Mortgage Corporation. 6.44 2/09/96 309,976
170,000 Federal National Mortgage Association. . 5.60 3/06/96 168,282
390,000 Federal National Mortgage Association. . 5.41 3/28/96 384,784
450,000 Federal National Mortgage Association. . 5.38 4/02/96 443,730
70,000 Federal National Mortgage Association. . 5.47 4/02/96 69,024
450,000 Federal National Mortgage Association. . 5.44 4/05/96 443,532
300,000 Federal National Mortgage Association. . 5.59 4/05/96 295,688
220,000 Federal National Mortgage Association. . 5.57 4/12/96 216,612
475,000 Federal National Mortgage Association. . 5.44 4/16/96 467,406
120,000 Federal National Mortgage Association. . 5.44 4/22/96 117,976
155,000 Federal National Mortgage Association. . 5.47 5/03/96 152,179
350,000 Federal National Mortgage Association. . 5.45 5/09/96 343,327
450,000 Federal National Mortgage Association. . 5.21 9/05/96 434,062
315,000 US Treasury Bills. . . . . . . . . . . . 5.30 1/11/96 314,396
300,000 US Treasury Bills. . . . . . . . . . . . 6.815 1/11/96 299,425
500,000 US Treasury Bills. . . . . . . . . . . . 6.59 2/08/96 496,962
500,000 US Treasury Bills. . . . . . . . . . . . 6.605 2/08/96 496,962
- -----------------------------------------------------------------------------------------------------------------------
TOTAL US GOVERNMENT, AGENCY & INSTRUMENTALITY
6,630,368
OBLIGATIONS--DISCOUNT (COST--$6,625,227)
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
84
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--RESERVE ASSETS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995 (CONCLUDED)
<TABLE>
<CAPTION>
FACE INTEREST MATURITY VALUE
AMOUNT ISSUE RATE* DATE (NOTE 1A)
<S> <C> <C> <C> <C> <C>
US GOVERNMENT, AGENCY $ 150,000 Federal Farm Credit Bank+. . . . . . . 6.11 % 8/19/96 $ 149,941
& INSTRUMENTALITY
OBLIGATIONS-- 500,000 Federal Home Loan Mortgage Corporation+ 6.84 2/28/96 500,918
NON-DISCOUNT--32.6%
1,000,000 Federal National Mortgage Association+. 6.35 2/14/97 1,004,751
1,000,000 Federal National Mortgage Association+. 6.08 5/13/96 1,000,000
1,000,000 Federal National Mortgage Association+. 5.4596 10/11/96 1,000,000
1,000,000 Federal National Mortgage Association+. 6.20 5/19/97 1,000,000
1,000,000 Federal National Mortgage Association+. 6.25 5/14/98 1,000,000
450,000 Student Loan Marketing Association+. . 5.40 3/20/96 450,000
100,000 Student Loan Marketing Association+. . 5.27 4/16/96 100,019
300,000 Student Loan Marketing Association+. . 5.97 10/04/96 299,910
365,000 Student Loan Marketing Association+. . 5.45 1/23/97 365,338
200,000 US Treasury Notes. . . . . . . . . . . 6.125 5/31/97 202,375
200,000 US Treasury Notes. . . . . . . . . . . 6.00 8/31/97 202,406
400,000 US Treasury Notes. . . . . . . . . . . 5.625 10/31/97 402,875
200,000 US Treasury Notes. . . . . . . . . . . 5.375 11/30/97 200,562
450,000 US Treasury Notes. . . . . . . . . . . 5.25 12/31/97 450,492
- ------------------------------------------------------------------------------------------------------------------
TOTAL US GOVERNMENT AGENCY & INSTRUMENTALITY
OBLIGATIONS--NON-DISCOUNT (COST--$8,324,092) 8,329,587
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
TOTAL INVESTMENTS (COST--$25,876,014)--101.3%. 25,889,963
LIABILITIES IN EXCESS OF OTHER ASSETS--1.3%. . (340,094)
------------------------------------------
NET ASSETS--100.0%. . . . . . . . . . . . . .
$ 25,549,869
------------------------------------------
------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
*Commercial Paper and certain US Government, Agency & Instrumentality Obligations are traded on a discount basis; the interest
rates shown are the discount rates paid at the time of purchase by the Fund. Other securities bear interest at the rates shown,
payable at fixed dates or upon maturity. The interest rates on variable rate securities are adjusted periodically based upon
appropriate indexes; the interest rates shown are the rates in effect at December 31, 1995.
+Variable Rate Notes.
</TABLE>
See Notes to Financial Statements.
85
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--WORLD INCOME FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995 (IN US DOLLARS)
<TABLE>
<CAPTION>
VALUE PERCENT OF
AFRICA INDUSTRY FACE AMOUNT FIXED-INCOME INVESTMENTS COST (NOTE 1A) NET ASSETS
<S> <C> <C> <C> <C> <C> <C>
SOUTH AFRICA FOREIGN GOVERNMENT US$ 500,000 Republic of South Africa,
OBLIGATIONS 9.625% due 12/15/1999. . . $ 498,425 $ 540,000 0.7%
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL FIXED-INCOME INVESTMENTS
IN SOUTH AFRICA 498,425 540,000 0.7
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL FIXED-INCOME INVESTMENTS
IN AFRICA 498,425 540,000 0.7
- ----------------------------------------------------------------------------------------------------------------------------
LATIN AMERICA
AND THE CARIBBEAN
- ----------------------------------------------------------------------------------------------------------------------------
ARGENTINA TELECOMMUNICATIONS 500,000 Telefonica de Argentina, S.A.,
11.875% due 11/01/2004. . . 490,040 517,500 0.6
--------------------------------------------------------------------------------------------------------------
TOTAL FIXED-INCOME INVESTMENTS
IN ARGENTINA 490,040 517,500 0.6
- ----------------------------------------------------------------------------------------------------------------------------
BRAZIL BANKING 500,000+ UNIBANCO--Uniao de Bancos
Brasilerios S.A., 10.25% due
6/12/1997. . . . . . . . . 498,750 502,500 0.6
--------------------------------------------------------------------------------------------------------------
TOTAL FIXED-INCOME
INVESTMENTS IN BRAZIL 498,750 502,500 0.6
- ----------------------------------------------------------------------------------------------------------------------------
MEXICO ENERGY 500,000 Petroleos Mexicanos, 8.25% due
2/04/1998. . . . . . . . . 521,875 488,750 0.6
--------------------------------------------------------------------------------------------------------------
TOTAL FIXED-INCOME INVESTMENTS
IN MEXICO 521,875 488,750 0.6
- ----------------------------------------------------------------------------------------------------------------------------
TRINIDAD & FOREIGN GOVERNMENT 350,000 Republic of Trinidad &
TOBAGO OBLIGATIONS Tobago, 11.50% due 11/20/1997. 368,500 369,250 0.5
--------------------------------------------------------------------------------------------------------------
TOTAL FIXED-INCOME INVESTMENTS
IN TRINIDAD & TOBAGO 368,500 369,250 0.5
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
LATIN AMERICAN AND
CARIBBEAN SECURITIES 1,879,165 1,878,000 2.3
- ----------------------------------------------------------------------------------------------------------------------------
NORTH AMERICA
- ----------------------------------------------------------------------------------------------------------------------------
UNITED STATES AIRLINES 500,000 USAir Inc., 10.375% due
3/01/2013. . . . . . . . . 504,688 465,000 0.6
United Air Lines, Inc.:
500,000 10.02% due 3/22/2014. . . . 506,250 598,175 0.7
100,000 United Air Pass Through 10.125%
due 3/22/2015. . . . . . . 109,036 120,015 0.1
-- -------- -- -------- ---- ----
1,119,974 1,183,190 1.4
--------------------------------------------------------------------------------------------------------------
AUTOMOTIVE 500,000 Walbro Corp., 9.875% due
7/15/2005. . . . . . . . . 490,000 498,750 0.6
--------------------------------------------------------------------------------------------------------------
BROADCASTING & 500,000 SCI Television Inc., 11.00% due
PUBLISHING 6/30/2005. . . . . . . . . 520,625 528,750 0.6
250,000 Sinclair Broadcast Group Inc.,
10.00% due 9/30/2005. . . . 250,000 255,625 0.3
-- -------- -- -------- ---- ----
770,625 784,375 0.9
--------------------------------------------------------------------------------------------------------------
BROADCASTING/CABLE 1,011,242 American Telecasting Inc.,
12.59%* due 6/15/2004. . . 642,918 695,229 0.8
1,000,000 Videotron Holdings PLC, 11.05%*
7/01/2004. . . . . . . . . 652,360 697,500 0.9
-- -------- -- -------- ---- ----
1,295,278 1,392,729 1.7
--------------------------------------------------------------------------------------------------------------
BUILDING MATERIALS 500,000 Pacific Lumber Co., 10.50% due
3/01/2003. . . . . . . . . 492,000 473,750 0.6
--------------------------------------------------------------------------------------------------------------
</TABLE>
86
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--WORLD INCOME FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995 (CONTINUED) (IN US DOLLARS)
<TABLE>
<CAPTION>
NORTH AMERICA VALUE PERCENT OF
(CONTINUED) INDUSTRY FACE AMOUNT FIXED-INCOME INVESTMENTS COST (NOTE 1A) NET ASSETS
<S> <C> <C> <C> <C> <C> <C>
UNITED STATES CHEMICALS US$ 1,225,000 G-I Holdings, Inc., 12.86%*
(CONTINUED) due 10/01/1998. . . . . . . $ 886,971 $ 946,313 1.2%
----------------------------------------------------------------------------------------------------------
COMMUNICATIONS 1,375,000 Panamsat L.P., 11.35%*
due 8/01/2003. . . . . . . . . 987,186 1,127,500 1.4
1,000,000 Rogers Communications, Inc.,
10.875% due 4/15/2004. . . . 1,007,500 1,045,000 1.3
500,000 USA Mobile Communications
Holdings, Inc., 9.50% due
2/01/2004. . . . . . . . . . 454,375 495,000 0.6
-- -------- -- -------- ---- ----
2,449,061 2,667,500 3.3
----------------------------------------------------------------------------------------------------------
CONGLOMERATES Coltec Industries Inc.:
150,000 9.75% due 11/01/1999. . . . . 159,000 154,500 0.2
600,000 10.25% due 4/01/2002. . . . . 622,000 616,500 0.8
J.B. Poindexter Co., Inc.,
500,000 12.50% due 5/15/2004. . . . . 500,000 401,250 0.5
Jordan Industries, Inc.,
500,000 10.375% due 8/01/2003. . . . 495,688 445,000 0.5
Sequa Corp., 9.375% due
500,000 12/15/2003. . . . . . . . . . 508,750 465,000 0.6
Sherritt Gordon, Ltd., 9.75%
500,000 due 4/01/2003. . . . . . . . 503,625 532,500 0.7
-- -------- -- -------- ---- ----
2,789,063 2,614,750 3.3
----------------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS 1,000,000 Polymer Group Inc., 12.25% due
7/15/2002. . . . . . . . . . 1,001,250 1,030,000 1.3
1,000,000 Revlon Consumer Products Corp.,
9.375% due
4/01/2001. . . . . . . . . . 872,167 1,012,500 1.2
1,000,000 Samsonite Corp., 11.125% due
7/15/2005. . . . . . . . . . 963,125 960,000 1.2
-- -------- -- -------- ---- ----
2,836,542 3,002,500 3.7
----------------------------------------------------------------------------------------------------------
DIVERSIFIED Foamex L.P.:
191,000 9.50% due 6/01/2000. . . . . . 186,464 188,613 0.2
500,000 11.25% due 10/01/2002. . . . . 498,125 500,000 0.6
-- -------- -- -------- ---- ----
684,589 688,613 0.8
----------------------------------------------------------------------------------------------------------
ENERGY 2,000,000 Clark R & M Holdings, Inc.,
10.52%* due 12/15/2000. . . 1,268,150 1,330,000 1.6
250,000 Consolidated-Hydro Inc.,
16.05%* due 7/15/2003. . . 186,735 145,937 0.2
500,000 TransTexas Gas Corp., 12.55%
due 6/15/2002. . . . . . . 500,000 516,250 0.6
-- -------- -- -------- ---- ----
1,954,885 1,992,187 2.4
----------------------------------------------------------------------------------------------------------
ENTERTAINMENT 500,000 Marvel Holdings, Inc., 9.125%
due 2/15/1998. . . . . . . 448,000 460,000 0.6
350,000 SpectraVision Inc., 11.50%* due
10/01/2001. . . . . . . . . 303,557 70,000 0.1
-- -------- -- -------- ---- ----
751,557 530,000 0.7
----------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES 500,000 Penn Financial Corp., 9.25% due
12/15/2003. . . . . . . . . 498,750 507,500 0.6
500,000 Reliance Group Holdings, Inc.,
9.00% due 11/15/2000. . . . 460,000 514,375 0.6
-- -------- -- -------- ---- ----
958,750 1,021,875 1.2
----------------------------------------------------------------------------------------------------------
</TABLE>
87
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--WORLD INCOME FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995 (CONTINUED) (IN US DOLLARS)
<TABLE>
<CAPTION>
NORTH AMERICA VALUE PERCENT OF
(CONTINUED) INDUSTRY FACE AMOUNT FIXED-INCOME INVESTMENTS COST (NOTE 1A) NET ASSETS
<S> <C> <C> <C> <C> <C> <C>
UNITED STATES FOOD & BEVERAGE US$ 500,000 Chiquita Brands International
(CONTINUED) Corp., 9.125% due
3/01/2004. . . . . . . . . $ 497,500 $ 495,000 0.6%
750,000 Del Monte Corp., 10.00% due
5/01/2003. . . . . . . . . 740,000 665,625 0.8
500,000 Envirodyne Industries, Inc.,
10.25% due 12/01/2001. . . 509,375 367,500 0.4
250,000 Specialty Foods Corp., 10.25%
due 8/15/2001. . . . . . . 250,000 235,000 0.3
-- -------- -- -------- ---- ----
1,996,875 1,763,125 2.1
------------------------------------------------------------------------------------------------------------
GAMING 1,000,000 Bally's Park Place Funding,
Inc., 9.25% due 3/15/2004. 920,000 1,017,500 1.2
1,100,000 Greate Bay Properties, Inc.,
10.875% due 1/15/2004. . . 990,750 965,250 1.2
500,000 Harrah's Jazz Company, 14.25%
due 11/15/2001. . . . . . . 482,500 137,500 0.2
500,000 Showboat, Inc., 13.00% due
8/01/2009. . . . . . . . . 500,000 562,500 0.7
750,000 Trump Plaza Funding, Inc.,
10.875% due 6/15/2001. . . 741,250 776,250 0.9
103,633 Trump Taj Mahal Funding, Inc.,
11.35% due
11/15/1999 (a) (c). . . . . 98,002 92,411 0.1
-- -------- -- -------- ---- ----
3,732,502 3,551,411 4.3
------------------------------------------------------------------------------------------------------------
HOME BUILDING 500,000 Del E. Webb Corp., 9.00% due
2/15/2006. . . . . . . . . 500,000 475,000 0.6
------------------------------------------------------------------------------------------------------------
HOTEL(S) 500,000+ HMC Acquisition Properties,
9.00% due 12/15/2007. . . . 500,000 505,000 0.6
1,000,000 John Q. Hammons Hotel, Inc. ,
8.875% due 2/15/2004. . . . 887,500 990,000 1.2
-- -------- -- -------- ---- ----
1,387,500 1,495,000 1.8
------------------------------------------------------------------------------------------------------------
METALS & MINING 250,000 Maxxam Group, Inc., 14.04%* due
8/01/2003. . . . . . . . . 183,690 171,250 0.2
------------------------------------------------------------------------------------------------------------
PACKAGING 500,000 Anchor Glass Container Co.,
9.875% due 12/15/2008. . . 493,125 295,000 0.4
500,000 Owens-Illinois, Inc., 11.00%
due 12/01/2003. . . . . . . 512,500 565,000 0.7
500,000 Portola Packaging Inc., 10.75%
due 10/01/2005. . . . . . . 500,000 515,000 0.6
-- -------- -- -------- ---- ----
1,505,625 1,375,000 1.7
------------------------------------------------------------------------------------------------------------
PAPER 250,000 Riverwood International Corp.,
11.25% due 6/15/2002. . . . 274,813 271,250 0.3
500,000 S.D. Warren Co., 12.00% due
12/15/2004. . . . . . . . . 500,000 551,250 0.7
100,000 Stone Container Group, 10.75%
due 10/01/2002. . . . . . . 99,000 103,250 0.1
-- -------- -- -------- ---- ----
873,813 925,750 1.1
------------------------------------------------------------------------------------------------------------
RESTAURANTS 750,000 Flagstar Corp., 11.375% due
9/15/2003. . . . . . . . . 762,500 532,500 0.7
250,000 Foodmaker, Inc., 9.75% due
11/01/2003. . . . . . . . . 246,563 230,000 0.3
-- -------- -- -------- ---- ----
1,009,063 762,500 1.0
------------------------------------------------------------------------------------------------------------
SPECIALTY RETAILING 500,000 Bradlees Inc., 11.00% due
8/01/2002. . . . . . . . . 489,375 125,000 0.2
487,000+ Cumberland Farms, 10.50% due
10/01/2003. . . . . . . . . 476,651 448,040 0.5
-- -------- -- -------- ---- ----
966,026 573,040 0.7
------------------------------------------------------------------------------------------------------------
STEEL 500,000 WCI Steel, Inc., 10.50% due
3/01/2002. . . . . . . . . 500,000 486,250 0.6
------------------------------------------------------------------------------------------------------------
</TABLE>
88
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--WORLD INCOME FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995 (CONTINUED) (IN US DOLLARS)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
NORTH AMERICA VALUE PERCENT OF
(CONCLUDED) INDUSTRY FACE AMOUNT FIXED-INCOME INVESTMENTS COST (NOTE 1A) NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------
UNITED STATES TEXTILES US$ 500,000 Tultex Corp., 10.625% due
(CONCLUDED) 3/15/2005. . . . . . . . . $ 500,000 $ 512,500 0.6%
1,500,000
WestPoint Stevens Inc.,
9.375% due 12/15/2005. . . 1,451,875 1,481,250 1.8
-- --------- -- --------- --- ----
1,951,875 1,993,750 2.4
----------------------------------------------------------------------------------------------------------
TRANSPORT SERVICES 250,000 Eletson Holdings Inc., 9.25%
due 11/15/2003. . . . . . 250,000 245,937 0.3
1,050,000 Transtar Holdings L.P.,
12.52%* due 12/15/1999. . 699,453 693,000 0.8
250,000 Viking Star Shipping Co.,
9.625% due 7/15/2003. . . 250,937 256,250 0.3
-- --------- -- --------- --- ----
1,200,390 1,195,187 1.4
----------------------------------------------------------------------------------------------------------
UTILITIES 494,000 Beaver Valley Funding Corp.,
9.00% due 6/01/2017. . . . 466,212 416,679 0.5
86,583 Midland Congeneration Venture
L.P., 10.33% due
7/23/2002. . . . . . . . . 84,851 91,310 0.1
233,383+ Tucson Electric Power Co.,
10.732% due 1/01/2013. . . 223,464 234,865 0.3
-- --------- -- --------- --- ----
774,527 742,854 0.9
----------------------------------------------------------------------------------------------------------
WASTE MANAGEMENT 500,000 Mid-American Waste System,
Inc., 12.25% due 2/15/2003 511,250 470,000 0.6
----------------------------------------------------------------------------------------------------------
TOTAL FIXED-INCOME
INVESTMENTS IN THE 34,572,431 33,776,649 41.2
UNITED STATES
- ------------------------------------------------------------------------------------------------------------------------
SHARES HELD STOCKS & WARRANTS
- ------------------------------------------------------------------------------------------------------------------------
UNITED STATES BROADCASTING/CABLE 4,700 American Telecasting Inc.
(Warrants) (b). . . . . . 11,222 29,375 0.0
----------------------------------------------------------------------------------------------------------
BROADCASTING & 2,572 K-III Communications Corp.
PUBLISHING (Non-Convertible Preferred) 253,090 254,628 0.3
----------------------------------------------------------------------------------------------------------
SUPERMARKETS 17,674 Grand Union Co.. . . . . . 917,437 130,346 0.2
----------------------------------------------------------------------------------------------------------
TOTAL STOCKS & WARRANTS IN
THE UNITED STATES 1,181,749 414,349 0.5
----------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN 35,754,180 34,190,998 41.7
NORTH AMERICAN SECURITIES
- ------------------------------------------------------------------------------------------------------------------------
PACIFIC
BASIN FACE AMOUNT FIXED-INCOME INVESTMENTS
- ------------------------------------------------------------------------------------------------------------------------
AUSTRALIA FOREIGN GOVERNMENT Australian Government
OBLIGATIONS-- Bonds:
REGIONAL & AGENCY
A$ 7,000,000 10.00% due 10/15/2002. . . . 5,743,662 5,744,771 7.0
1,200,000 9.50% due 8/15/2003. . . . 962,680 963,982 1.2
----------------------------------------------------------------------------------------------------------
TOTAL FIXED-INCOME
INVESTMENTS IN AUSTRALIA 6,706,342 6,708,753 8.2
- ------------------------------------------------------------------------------------------------------------------------
NEW ZEALAND FOREIGN GOVERNMENT NZ$ 4,100,000 New Zealand Government Bond,
OBLIGATIONS 10.00% due
7/15/1997. . . . . . . . . 2,780,898 2,752,102 3.4
----------------------------------------------------------------------------------------------------------
TOTAL FIXED-INCOME
INVESTMENTS IN
NEW ZEALAND 2,780,898 2,752,102 3.4
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
89
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--WORLD INCOME FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995 (CONTINUED) (IN US DOLLARS)
<TABLE>
<CAPTION>
PACIFIC
BASIN VALUE PERCENT OF
(CONCLUDED) INDUSTRY FACE AMOUNT FIXED-INCOME INVESTMENTS COST (NOTE 1A) NET ASSETS
<S> <C> <C> <C> <C> <C> <C>
PHILIPPINES TELECOMMUNICATIONS US$ 1,000,000 Philippine Long Distance
Telephone Co., 9.125%
due 8/01/2002. . . . . . . $ 1,000,000 $ 1,051,250 1.3%
-----------------------------------------------------------------------------------------------------------------------
TOTAL FIXED-INCOME INVESTMENTS
IN THE
PHILIPPINES 1,000,000 1,051,250 1.3
-----------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN PACIFIC
BASIN SECURITIES 10,487,240 10,512,105 12.9
- -----------------------------------------------------------------------------------------------------------------------------------
WESTERN
EUROPE
- -----------------------------------------------------------------------------------------------------------------------------------
DENMARK FOREIGN GOVERNMENT Denmark Government Bonds:
OBLIGATIONS
Dkr 13,250,000 9.00% due 11/15/2000. . . . 2,569,181 2,655,020 3.2
2,500,000 8.00% due 5/15/2003. . . . . 468,522 480,471 0.6
4,730,000 8.00% due 3/15/2006. . . . . 854,226 897,616 1.1
-----------------------------------------------------------------------------------------------------------------------
TOTAL FIXED-INCOME INVESTMENTS
IN DENMARK 3,891,929 4,033,107 4.9
- -----------------------------------------------------------------------------------------------------------------------------------
GERMANY FOREIGN GOVERNMENT DM 5,000,000 German Unity, 8.00% due
OBLIGATIONS 1/21/2002. . . . . . . . . 3,938,016 3,936,430 4.8
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL FIXED-INCOME INVESTMENTS
IN GERMANY 3,938,016 3,936,430 4.8
- -----------------------------------------------------------------------------------------------------------------------------------
ITALY FOREIGN GOVERNMENT Buoni Poliennali del Tesoro
OBLIGATIONS (Italian Government Bonds):
Lit 6,750,000,000 10.50% due 4/01/2000. . . . 4,129,686 4,291,041 5.2
1,000,000,000 10.50% due 9/01/2005. . . . 583,280 625,426 0.8
2,600,000,000 Credit Local de France S.A.,
12.20% due 6/12/1996. . . . 1,627,204 1,646,120 2.0
-----------------------------------------------------------------------------------------------------------------------
TOTAL FIXED-INCOME INVESTMENTS
IN ITALY 6,340,170 6,562,587 8.0
- -----------------------------------------------------------------------------------------------------------------------------------
SPAIN FOREIGN GOVERNMENT Government of Spain:
OBLIGATIONS
Pta 775,000,000 12.25% due 3/25/2000. . . . 6,468,254 7,018,144 8.6
190,000,000 10.50% due 10/30/2003. . . 1,505,519 1,640,503 2.0
-----------------------------------------------------------------------------------------------------------------------
TOTAL FIXED-INCOME INVESTMENTS
IN SPAIN 7,973,773 8,658,647 10.6
- -----------------------------------------------------------------------------------------------------------------------------------
SWEDEN FOREIGN GOVERNMENT Skr 8,500,000 Government of Sweden, 11.00%
OBLIGATIONS-- due 1/21/1999. . . . . . . 1,344,113 1,378,423 1.7
REGIONAL & AGENCY
-----------------------------------------------------------------------------------------------------------------------
TOTAL FIXED-INCOME INVESTMENTS
IN SWEDEN 1,344,113 1,378,423 1.7
- -----------------------------------------------------------------------------------------------------------------------------------
UNITED FOREIGN GOVERNMENT (pound 1,250,000 United Kingdom Treasury Gilt,
KINGDOM OBLIGATIONS sterling) 8.50% due 12/07/2005. . . . 2,014,816 2,086,972 2.6
-----------------------------------------------------------------------------------------------------------------------
TOTAL FIXED-INCOME INVESTMENTS
IN
UNITED KINGDOM 2,014,816 2,086,972 2.6
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN WESTERN
EUROPEAN
SECURITIES 25,502,817 26,656,166 32.6
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
90
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--WORLD INCOME FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1995 (CONCLUDED) (IN US DOLLARS)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
VALUE PERCENT OF
FACE AMOUNT SHORT-TERM SECURITIES COST (NOTE 1A) NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL US $ 3,127,000 General Electric Capital Corp.,
PAPER** 5.90% due 1/02/1996. . . . $3,125,463 $ 3,125,463 3.8%
2,000,000 Preferred Receivables Funding
Corp., 5.70% due
1/25/1996. . . . . . . . . 1,991,767 1,991,767 2.4
-- -------- -- --------- --- -----
5,117,230 5,117,230 6.2
- -----------------------------------------------------------------------------------------------------------------------------------
US GOVERNMENT 555,000 Federal Home Loan Bank, 5.65%
& AGENCY due 1/16/1996. . . . . . . 553,519 553,519
OBLIGATIONS** 0.7
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN 5,670,749 5,670,749 6.9
SHORT-TERM SECURITIES
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $79,792,576 79,448,018 97.1
------------
UNREALIZED DEPRECIATION ON FORWARD FOREIGN ------------
EXCHANGE CONTRACTS***. . . . . . . . . . . . . . . . . . . . . . . . . . . (5,151) 0.0
OTHER ASSETS LESS LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . 2,401,765 2.9
-- --------- --- -----
NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $81,844,632 100.0%
------------- ----------
------------- ----------
- -----------------------------------------------------------------------------------------------------------------------------------
(a)Each $1,000 face amount contains one non-detachable share of Taj Mahal Holding Corp.'s Class B redeemable Common Stock.
(b)
Warrants entitle the Fund to purchase a predetermined number of shares of common stock. The purchase price and number of shares
are subject to adjustments under certain conditions until the expiration date.
(c)Represents a pay-in-kind security which may pay interest/dividends in additional face/shares.
* Represents a zero coupon or step bond; the interest rate shown is the effective yield at the time of purchase by the Fund.
**
Commercial Paper and certain US Government & Agency Obligations are traded on a discount basis; the interest rates shown are the
discount rates paid at the time of purchase by the Fund.
*** Forward foreign exchange contracts as of December 31, 1995 were as follows:
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
FOREIGN CURRENCY PURCHASED EXPIRATION UNREALIZED APPRECIATION
DATE (DEPRECIATION) (NOTE 1B)
DM2,000,000. . . . . . . . . . . . . . . January 1996 $ 9,657
- ----------------------------------------------------------------------- ------
TOTAL US$ COMMITMENT--$1,388,600 $ 9,657
--- ---------
- ---------------------------------------------------------------------------------------
FOREIGN CURRENCY SOLD
- ---
------------------------------------------------------------------------------------
Lit2,229,100,000. . . . . . . . . . . . January 1996 $ (14,808)
- ---
------------------------------------------------------------------------------------
TOTAL US$ COMMITMENT--$1,388,600 $ (14,808)
--- ---------
- ---------------------------------------------------------------------------------------
TOTAL UNREALIZED DEPRECIATION ON
FORWARD FOREIGN EXCHANGE CONTRACTS--NET $ (5,151)
--------------
--------------
- ---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
+Restricted security as to resale. The value of the Fund's investment in restricted scurities was approximately $1,690,000,
representing 2.1% of net assets.
<S> <C> <C> <C>
ACQUISITION VALUE
ISSUE DATE COST (NOTE 1A)
- -----------------------------------------------------------------------------------------------------------------------------------
Cumberland Farms, 10.50% due 10/01/2003. . 3/10/1994 $ 476,651 $ 448,040
HMC Acquisition Properties, 9.00% due
12/15/2007. . . . . . . . . . . . . . . . . 12/21/1995 500,000 505,000
Tucson Electric Power Co., 10.732% due
1/01/2013. . . . . . . . . . . . . . . . . 8/19/1993 223,464 234,865
UNIBANCO--Uniao de Bancos Brasilerios S.A.,
10.25% due 6/12/1997. . . . . . . . . . . . 6/12/1995 498,750 502,500
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL $ 1,698,865 $ 1,690,405
------------------------------ -------------------------------
------------------------------ -------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
91
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
STATEMENTS OF ASSETS AND LIABILITIES AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
BASIC DEVELOPING DOMESTIC
AMERICAN VALUE CAPITAL MONEY
BALANCED FOCUS MARKETS MARKET
FUND FUND FOCUS FUND FUND
- ---------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments, at value* (Note 1a). . . . . . . . . . . . . . . . $ 207,165,951 $ 308,711,181 $ 54,805,702 $ 307,321,802
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 480,538 -- 12,285 13,894
Foreign cash (Note 1c). . . . . . . . . . . . . . . . . . . . . -- -- 19 --
Receivable for securities sold. . . . . . . . . . . . . . . . . 3,768,310 -- 371,831 --
Interest receivable. . . . . . . . . . . . . . . . . . . . . . . 1,955,663 -- 15,133 1,723,932
Receivable for capital shares sold. . . . . . . . . . . . . . . 200,059 912,338 270,955 --
Dividends receivable. . . . . . . . . . . . . . . . . . . . . . 142,836 568,240 146,937 --
Receivable from investment adviser (Note 2). . . . . . . . . . . -- -- 7,129 --
Deferred organization expenses (Note 1f). . . . . . . . . . . . -- 2,160 2,667 1,340
Prepaid registration fees and other assets (Note 1f). . . . . .
18,329 21,000 5,980 28,178
-------------- -------------- ------------- ----------------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . 213,731,686 310,214,919 55,638,638 309,089,146
-------------- -------------- ------------- -----------------
- ---------------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for custodian bank (Note 1h). . . . . . . . . . . . . . -- 2,550,277 -- --
Payable for securities purchased. . . . . . . . . . . . . . . . 684,228 977,032 391,924 5,003,947
Payable to investment adviser (Note 2). . . . . . . . . . . . . 91,752 142,121 -- 121,062
Payable for capital shares redeemed. . . . . . . . . . . . . . . 8,060 16,967 188 --
Accrued expenses and other liabilities. . . . . . . . . . . . . 35,432 65,629 37,896 52,308
-------------- -------------- ------------- -----------------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . 819,472 3,752,026 430,008 5,177,317
- --------------------------------------------------------------------------------------------------------------------------------
-------------- -------------- ------------- ----------------
NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 212,912,214 $ 306,462,893 $ 55,208,630 $ 303,911,829
-------------- -------------- ------------- -----------------
-------------- -------------- ------------- -----------------
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Common Stock, $0.10 par value+. . . . . . . . . . . . . . . . . $ 1,403,143 $ 2,339,143 $ 592,201 $ 30,377,355
Paid-in capital in excess of par. . . . . . . . . . . . . . . . 186,902,200 259,065,629 57,775,197 273,396,191
Undistributed investment income--net. . . . . . . . . . . . . . 4,146,614 2,262,426 1,184,973 --
Undistributed (accumulated) realized capital gains (losses) on
investments and foreign currency transactions--net (Note 5). . . (945,759) 13,442,164 (3,801,898) --
Unrealized appreciation (depreciation) on investments and foreign
currency transactions--net. . . . . . . . . . . . . . . . . . . 21,406,016 29,353,531 (541,843) 138,283
-------------- -------------- ------------- ----------------
NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 212,912,214 $ 306,462,893 $ 55,208,630 $ 303,911,829
-------------- -------------- ------------- -----------------
-------------- -------------- ------------- -----------------
- ---------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARES OUTSTANDING. . . . . . . . . . . . . . . . . . . 14,031,432 23,391,429 5,922,009 303,773,546
-------------- -------------- ------------- ----------------
-------------- -------------- ------------- ----------------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE. . . . $ 15.17 $ 13.10 $ 9.32 $ 1.00
-------------- -------------- ------------- -----------------
-------------- -------------- ------------- -----------------
- ---------------------------------------------------------------------------------------------------------------------------------
* Identified cost. . . . . . . . . . . . . . . . . . . . . . . . $ 185,759,935 $ 279,357,650 $ 55,347,858 $ 307,183,519
-------------- -------------- ------------- -----------------
-------------- -------------- ------------- -----------------
+ Authorized shares. . . . . . . . . . . . . . . . . . . . . . . 100,000,000 100,000,000 100,000,000 1,300,000,000
-------------- -------------- ------------- ----------------
-------------- -------------- ------------- ----------------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
92
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
STATEMENTS OF ASSETS AND LIABILITIES AS OF DECEMBER 31, 1995 (CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
GLOBAL GLOBAL
EQUITY FLEXIBLE STRATEGY UTILITY
GROWTH STRATEGY FOCUS FOCUS
FUND FUND FUND FUND
- ----------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments, at value* (Note 1a). . . . . . . . . . . . . . . . . $ 339,015,898 $ 321,042,917 $ 527,857,629 $ 146,792,097
Unrealized appreciation on forward foreign exchange
contracts (Note 1b). . . . . . . . . . . . . . . . . . . . . . . . -- -- 9,681,629 --
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,050 24,217 576,498 46,328
Foreign cash (Note 1c). . . . . . . . . . . . . . . . . . . . . . -- -- -- 311
Interest receivable. . . . . . . . . . . . . . . . . . . . . . . . -- 603,012 2,034,611 32,615
Receivable for securities sold. . . . . . . . . . . . . . . . . . -- 119,466 645,794 1,155,189
Dividends receivable. . . . . . . . . . . . . . . . . . . . . . . 201,590 169,134 584,726 541,544
Receivable for capital shares sold. . . . . . . . . . . . . . . . 935,425 13,787 426,771 49,593
Deferred organization expenses (Note 1f). . . . . . . . . . . . . -- -- -- 3,277
Prepaid registration fees and other assets (Note 1f). . . . . . . 23,118 26,761 41,934 11,488
-------------- -------------- -------------- --------------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . 340,204,081 321,999,294 541,849,592 148,632,442
---------------------------------------------------------------
- ------------------------------------------------------------------- -------------- -------------- -------------- ----------------
LIABILITIES:
Payable for securities purchased. . . . . . . . . . . . . . . . . -- 1,277,730 1,066,036 --
Payable to investment adviser (Note 2). . . . . . . . . . . . . . 195,114 164,372 275,588 68,668
Payable for capital shares redeemed. . . . . . . . . . . . . . . . 24,213 269,553 98,531 299,897
Accrued expenses and other liabilities. . . . . . . . . . . . . . 63,600 53,976 167,824 38,600
-------------- -------------- -------------- --------------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . 282,927 1,765,631 1,607,979 407,165
-------------------------------------------------------------
- ------------------------------------------------------------------- -------------- -------------- -------------- --------------
NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 339,921,154 $ 320,233,663 $ 540,241,613 $ 148,225,277
-------------- -------------- -------------- ----------------
-------------- -------------- -------------- ----------------
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Common Stock, $0.10 par value+. . . . . . . . . . . . . . . . . . $ 1,214,674 $ 1,944,346 $ 4,306,428 $ 1,311,353
Paid-in capital in excess of par. . . . . . . . . . . . . . . . . 246,436,854 274,133,560 505,710,448 134,208,350
Undistributed investment income--net. . . . . . . . . . . . . . . 1,279,867 4,603,408 7,489,615 2,159,534
Undistributed (accumulated) realized capital gains (losses) on
investments and foreign currency transactions--net (Note 5). . . . 43,404,115 26,971,363 (23,380,052) (3,861,578)
Accumulated distributions in excess of realized capital gains--net -- -- (369,180) --
Unrealized appreciation on investments and foreign
currency transactions--net. . . . . . . . . . . . . . . . . . . . 47,585,644 12,580,986 46,484,354 14,407,618
-------------- -------------- -------------- --------------
NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 339,921,154 $ 320,233,663 $ 540,241,613 $ 148,225,277
-------------- -------------- -------------- ----------------
-------------- -------------- -------------- ----------------
- ----------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARES OUTSTANDING. . . . . . . . . . . . . . . . . . . . 12,146,738 19,443,457 43,064,280 13,113,525
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE. . . . . $ 27.98 $ 16.47 $ 12.55 $ 11.30
-------------- -------------- -------------- ----------------
-------------- -------------- -------------- ----------------
- ----------------------------------------------------------------------------------------------------------------------------------
* Identified cost. . . . . . . . . . . . . . . . . . . . . . . . . $ 291,430,254 $ 308,461,552 $ 491,055,965 $ 132,394,937
-------------- -------------- -------------- ----------------
-------------- -------------- -------------- ----------------
+ Authorized shares. . . . . . . . . . . . . . . . . . . . . . . . 100,000,000 100,000,000 100,000,000 100,000,000
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
- -------------------------------------------------------------------
-------------------------------------------------------------
</TABLE>
93
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
STATEMENTS OF ASSETS AND LIABILITIES AS OF DECEMBER 31, 1995 (CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
HIGH INTERMEDIATE
CURRENT GOVERNMENT INTERNATIONAL
INCOME BOND BOND
FUND FUND FUND
- --------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments, at value* (Note 1a). . . . . . . . . . . . . . . . . $ 350,164,646 $ 40,366,442 $ 17,459,395
Options purchased, at value (premiums paid-$996,495)
(Notes 1a & 1b). . . . . . . . . . . . . . . . . . . . . . . . . . -- -- --
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65,784 1,028 812
Foreign cash (Note 1c). . . . . . . . . . . . . . . . . . . . . . -- -- 2,251
Interest receivable. . . . . . . . . . . . . . . . . . . . . . . . 6,855,429 478,550 475,274
Receivable for capital shares sold. . . . . . . . . . . . . . . . 458,735 147,197 183,421
Receivable for securities sold. . . . . . . . . . . . . . . . . . -- -- 537,598
Dividends receivable. . . . . . . . . . . . . . . . . . . . . . . -- -- --
Receivable from investment adviser (Note 2). . . . . . . . . . . . -- 18,524 9,242
Receivable for forward foreign exchange contracts (Note 1b). . . . -- -- --
Deferred organization expenses (Note 1f). . . . . . . . . . . . . -- -- 2,667
Prepaid registration fees and other assets (Note 1f). . . . . . . 30,383 3,078 3,008
-------------- --------------- ---------------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . 357,574,977 41,014,819 18,673,668
-------------------------------------------------
- ------------------------------------------------------------------- -------------- --------------- ---------------
LIABILITIES:
Options written, at value (premiums received-$75,690)
(Notes 1a & 1b). . . . . . . . . . . . . . . . . . . . . . . . . . -- -- --
Unrealized depreciation on forward foreign exchange
contracts (Note 1b). . . . . . . . . . . . . . . . . . . . . . . . -- -- --
Payable for securities purchased. . . . . . . . . . . . . . . . . 907,222 -- 536,115
Payable to investment adviser (Note 2). . . . . . . . . . . . . . 136,548 -- --
Payable for capital shares redeemed. . . . . . . . . . . . . . . . 109,895 5,523 384
Payable for variation margin on stock index futures
contracts (Note 1b). . . . . . . . . . . . . . . . . . . . . . . . -- -- --
Accrued expenses and other liabilities. . . . . . . . . . . . . . 69,372 12,869 16,625
-------------- --------------- ---------------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . 1,223,037 18,392 553,124
-------------------------------------------------
- ------------------------------------------------------------------- -------------- --------------- ---------------
NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 356,351,940 $ 40,996,427 $ 18,120,544
-------------- --------------- ---------------
-------------- --------------- ---------------
- --------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Common Stock, $0.10 par value+. . . . . . . . . . . . . . . . . . $ 3,168,717 $ 380,014 $ 172,214
Paid-in capital in excess of par. . . . . . . . . . . . . . . . . 359,886,019 38,315,855 17,186,094
Undistributed investment income--net. . . . . . . . . . . . . . . 2,822,298 199,053 88,192
Undistributed (accumulated) realized capital gains (losses) on
investments and foreign currency transactions--net (Note 5). . . . (1,515,448) 137,666 102,508
Accumulated distributions in excess of realized capital gains--net -- -- --
Unrealized appreciation (depreciation) on investments and foreign
currency transactions--net. . . . . . . . . . . . . . . . . . . . (8,009,646) 1,963,839 571,536
-------------- --------------- ---------------
NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 356,351,940 $ 40,996,427 $ 18,120,544
-------------- --------------- ---------------
-------------- --------------- ---------------
- --------------------------------------------------------------------------------------------------------------------
CAPITAL SHARES OUTSTANDING. . . . . . . . . . . . . . . . . . . . 31,687,165 3,800,136 1,722,139
-------------- --------------- ---------------
-------------- --------------- ---------------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE. . . . . $ 11.25 $ 10.79 $ 10.52
-------------- --------------- ---------------
-------------- --------------- ---------------
- --------------------------------------------------------------------------------------------------------------------
* Identified cost. . . . . . . . . . . . . . . . . . . . . . . . . $ 358,174,292 $ 38,402,603 $ 16,888,004
-------------- --------------- ---------------
-------------- --------------- ---------------
+ Authorized shares. . . . . . . . . . . . . . . . . . . . . . . . 100,000,000 100,000,000 100,000,000
-------------- --------------- ---------------
-------------- --------------- ---------------
- -------------------------------------------------------------------
-------------------------------------------------
<CAPTION>
<S> <C>
INTERNATIONAL
EQUITY FOCUS
FUND
- --------------------------------------------------------------------------------------
ASSETS:
Investments, at value* (Note 1a). . . . . . . . . . . . . . . . . $ 254,720,309
Options purchased, at value (premiums paid-$996,495)
(Notes 1a & 1b). . . . . . . . . . . . . . . . . . . . . . . . . . 2,400,647
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,029,991
Foreign cash (Note 1c). . . . . . . . . . . . . . . . . . . . . . 9,364,676
Interest receivable. . . . . . . . . . . . . . . . . . . . . . . . 18,902
Receivable for capital shares sold. . . . . . . . . . . . . . . . 179,722
Receivable for securities sold. . . . . . . . . . . . . . . . . . 141,791
Dividends receivable. . . . . . . . . . . . . . . . . . . . . . . 221,152
Receivable from investment adviser (Note 2). . . . . . . . . . . . --
Receivable for forward foreign exchange contracts (Note 1b). . . . 4,386
Deferred organization expenses (Note 1f). . . . . . . . . . . . . --
Prepaid registration fees and other assets (Note 1f). . . . . . .
22,919
----------------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . .
268,104,495
------------------
-
- ------------------------------------------------------------------- ------------------
LIABILITIES:
Options written, at value (premiums received-$75,690)
(Notes 1a & 1b). . . . . . . . . . . . . . . . . . . . . . . . . . 40,020
Unrealized depreciation on forward foreign exchange
contracts (Note 1b). . . . . . . . . . . . . . . . . . . . . . . . 267,385
Payable for securities purchased. . . . . . . . . . . . . . . . . 853,100
Payable to investment adviser (Note 2). . . . . . . . . . . . . . 155,439
Payable for capital shares redeemed. . . . . . . . . . . . . . . . 44,985
Payable for variation margin on stock index futures
contracts (Note 1b). . . . . . . . . . . . . . . . . . . . . . . .
49,882
Accrued expenses and other liabilities. . . . . . . . . . . . . .
1,091,443
----------------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . .
2,502,254
----------------
-
- ------------------------------------------------------------------- ----------------
NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 265,602,241
------------------
------------------
- --------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Common Stock, $0.10 par value+. . . . . . . . . . . . . . . . . . $ 2,401,786
Paid-in capital in excess of par. . . . . . . . . . . . . . . . . 261,644,387
Undistributed investment income--net. . . . . . . . . . . . . . . 4,974,839
Undistributed (accumulated) realized capital gains (losses) on
investments and foreign currency transactions--net (Note 5). . . . (7,433,489)
Accumulated distributions in excess of realized capital gains--net (5,275,618)
Unrealized appreciation (depreciation) on investments and foreign
currency transactions--net. . . . . . . . . . . . . . . . . . . .
9,290,336
----------------
NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 265,602,241
------------------
------------------
- --------------------------------------------------------------------------------------
CAPITAL SHARES OUTSTANDING. . . . . . . . . . . . . . . . . . . . 24,017,864
----------------
----------------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE. . . . . $ 11.06
------------------
------------------
- --------------------------------------------------------------------------------------
* Identified cost. . . . . . . . . . . . . . . . . . . . . . . . . $ 248,123,206
------------------
------------------
+ Authorized shares. . . . . . . . . . . . . . . . . . . . . . . . 100,000,000
----------------
----------------
- -------------------------------------------------------------------
-----------------
</TABLE>
94
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
STATEMENTS OF ASSETS AND LIABILITIES AS OF DECEMBER 31, 1995 (CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
NATURAL
RESOURCES PRIME QUALITY
FOCUS BOND EQUITY
- -------------------------------------------------------------- FUND FUND FUND
----------------------------------------------
ASSETS:
Investments, at value* (Note 1a). . . . . . . . . . . . . . . $ 43,137,003 $ 480,885,744 $ 647,081,906
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,054 7,136 495,853
Interest receivable. . . . . . . . . . . . . . . . . . . . . -- 8,564,673 --
Receivable for capital shares sold. . . . . . . . . . . . . . 20,061 599,533 469,435
Dividends receivable. . . . . . . . . . . . . . . . . . . . . 53,178 -- 459,458
Receivable for securities sold. . . . . . . . . . . . . . . . 200,782 -- --
Receivable for loaned securities (Note 6). . . . . . . . . . -- 1,716 --
Prepaid registration fees and other assets (Note 1f). . . . . 3,285 41,602 47,820
------------- -------------- --------------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . 43,419,363 490,100,404 648,554,472
----------------------------------------------
- -------------------------------------------------------------- ------------- -------------- --------------
LIABILITIES:
Payable for securities purchased. . . . . . . . . . . . . . . 268,643 -- 3,515,656
Payable to investment adviser (Note 2). . . . . . . . . . . . 22,050 169,087 226,353
Payable for capital shares redeemed. . . . . . .. . . . . . . 12,852 19,959 152,688
Accrued expenses and other liabilities. . . . . . . . . . . . 13,467 73,390 109,174
------------- -------------- --------------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . 317,012 262,436 4,003,871
----------------------------------------------
- -------------------------------------------------------------- ------------- -------------- --------------
NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . $ 43,102,351 $ 489,837,968 $ 644,550,601
------------- -------------- --------------
------------- -------------- --------------
- ------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Common Stock, $0.10 par value+. . . . . . . . . . . . . . . . $ 360,832 $ 3,935,106 $ 1,967,624
Paid-in capital in excess of par. . . . . . . . . . . . . . . 39,066,877 474,621,652 521,412,111
Undistributed investment income--net. . . . . . . . . . . . . 315,714 2,495,885 6,008,129
Undistributed (accumulated) realized capital gains (losses) on
investments and foreign currency transactions--net (Note 5). 726,008 (15,946,458) 84,325,412
Unrealized appreciation on investments and foreign
currency transactions--net. . . . . . . . . . . . . . . . . . 2,632,920 24,731,783 30,837,325
------------- -------------- --------------
NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . $ 43,102,351 $ 489,837,968 $ 644,550,601
------------- -------------- --------------
------------- -------------- --------------
- ------------------------------------------------------------------------------------------------------------
CAPITAL SHARES OUTSTANDING. . . . . . . . . . . . . . . . . . 3,608,317 39,351,063 19,676,238
------------- -------------- --------------
------------- -------------- --------------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE. . . $ 11.95 $ 12.45 $ 32.76
------------- -------------- --------------
------------- -------------- --------------
- ------------------------------------------------------------------------------------------------------------
* Identified cost. . . . . . . . . . . . . . . . . . . . . . $ 40,504,115 $ 456,153,961 $ 616,244,581
------------- -------------- --------------
------------- -------------- --------------
+ Authorized shares. . . . . . . . . . . . . . . . . . . . . 100,000,000 100,000,000 100,000,000
------------- -------------- --------------
------------- -------------- --------------
- --------------------------------------------------------------
----------------------------------------------
</TABLE>
95
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
STATEMENTS OF ASSETS AND LIABILITIES AS OF DECEMBER 31, 1995 (CONCLUDED)
<TABLE>
<CAPTION>
<S> <C> <C>
WORLD
RESERVE INCOME
ASSETS FOCUS
- --------------------------------------------------------------------------------------------- FUND FUND
------------------------------
ASSETS:
Investments, at value* (Note 1a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 25,889,963 $ 79,448,018
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,463 13,497
Interest receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127,827 2,445,075
Receivable for capital shares sold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 17,699
Deferred organization expenses (Note 1f). . . . . . . . . . . . . . . . . . . . . . . . . . -- 3,944
Prepaid registration fees and other assets (Note 1f). . . . . . . . . . . . . . . . . . . . 6,647 6,032
------------- -------------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,026,900 81,934,265
- ---------------------------------------------------------------------------------------------------------------------------
------------- ---------------
LIABILITIES:
Unrealized depreciation on forward foreign exchange contracts (Note 1b). . . . . . . . . . . -- 5,151
Payable for securities purchased. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 450,402 --
Payable to investment adviser (Note 2). . . . . . . . . . . . . . . . . . . . . . . . . . . 10,326 38,386
Payable for capital shares redeemed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 28,906
Accrued expenses and other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . 16,303 17,190
------------- -------------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 477,031 89,633
- -------------------------------------------------------------------------------------------------------------------------
------------- -------------
NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 25,549,869 $ 81,844,632
------------- ---------------
------------- ---------------
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Common Stock, $0.10 par value+. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,553,592 $ 836,037
Paid-in capital in excess of par. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,982,328 83,350,355
Undistributed investment income--net. . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 765,308
Accumulated realized capital losses on investments and foreign currency
transactions--net (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (2,777,024)
Unrealized appreciation (depreciation) on investments and foreign currency transactions--net 13,949 (330,044)
------------- -------------
NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 25,549,869 $ 81,844,632
------------- ---------------
------------- ---------------
- ---------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARES OUTSTANDING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,535,919 8,360,366
------------- -------------
------------- -------------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE. . . . . . . . . . . . . . . . . . $ 1.00 $ 9.79
------------- ---------------
------------- ---------------
- ---------------------------------------------------------------------------------------------------------------------------
* Identified cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 25,876,014 $ 79,792,576
------------- ---------------
------------- ---------------
+ Authorized shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500,000,000 100,000,000
------------- -------------
------------- -------------
- ---------------------------------------------------------------------------------------------
----------------------------
</TABLE>
96
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
DEVELOPING
BASIC CAPITAL DOMESTIC
AMERICAN VALUE MARKETS MONEY
BALANCED FOCUS FOCUS MARKET
FUND FUND FUND FUND
<S> <C> <C> <C> <C>
INVESTMENT INCOME (NOTES 1D & 1E):
Interest and discount earned*. . . . . . . . . . . . . . . . . . . $ 7,031,460 $ 1,154,160 $ 1,080,022 $19,295,095
Dividends**. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,141,936 4,379,125 649,244 --
Other income. . . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- -- 102
----------- ------------- ------------- -------------
Total income. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,173,396 5,533,285 1,729,266 19,295,197
----------- ------------- ------------- -------------
- --------------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2). . . . . . . . . . . . . . . . . 1,045,146 1,414,380 434,062 1,598,551
Accounting services (Note 2). . . . . . . . . . . . . . . . . . . . 41,190 57,905 13,359 86,535
Custodian fees. . . . . . . . . . . . . . . . . . . . . . . . . . . 21,196 29,519 108,500 21,423
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . 19,957 17,625 7,788 37,201
Registration fees (Note 1f). . . . . . . . . . . . . . . . . . . . 5,318 29,048 5,957 5,090
Transfer agent fees (Note 2). . . . . . . . . . . . . . . . . . . . 5,006 5,031 5,006 5,005
Directors' fees and expenses. . . . . . . . . . . . . . . . . . . . 4,229 4,108 -- 8,337
Pricing services. . . . . . . . . . . . . . . . . . . . . . . . . . 642 229 5,393 --
Amortization of organization expenses (Note 1f). . . . . . . . . . -- 720 -- 1,340
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,204 7,084 12,264 5,292
----------- ------------- ------------- -------------
Total expenses before reimbursement. . . . . . . . . . . . . . . . 1,150,888 1,565,649 592,329 1,768,774
Reimbursement of expenses (Note 2). . . . . . . . . . . . . . . . . -- -- (49,477) --
----------- ------------- ------------- -------------
Expenses after reimbursement. . . . . . . . . . . . . . . . . . . . 1,150,888 1,565,649 542,852 1,768,774
----------- ------------- ------------- -------------
Investment income--net. . . . . . . . . . . . . . . . . . . . . . . 8,022,508 3,967,636 1,186,414 17,526,423
----------- ------------- ------------- -------------
- --------------------------------------------------------------------------------------------------------------------------------
REALIZED & UNREALIZED GAIN (LOSS) ON INVESTMENTS & FOREIGN
CURRENCY TRANSACTIONS--NET (NOTES 1B, 1C, 1E & 3):
Realized gain (loss) on investments--net. . . . . . . . . . . . . . (311,392) 13,595,994 (3,328,623) 44,778
Realized gain on foreign currency transactions--net. . . . . . . . -- -- 198,982 --
Change in unrealized appreciation/depreciation on investments--net. 27,587,655 34,077,480 1,803,393 334,598
Change in unrealized appreciation/depreciation on foreign currency
transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- (60) --
----------- ------------- ------------- -------------
Total realized and unrealized gain (loss) on investments and foreign
currency transactions--net. . . . . . . . . . . . . . . . . . . . . 27,276,263 47,673,474 (1,326,308) 379,376
----------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,298,771 51,641,110 (139,894) 17,905,799
----------- ------------- ------------- -------------
----------- ------------- ------------- -------------
- --------------------------------------------------------------------------------------------------------------------------------
*Net of withholding tax on interest. . . . . . . . . . . . . . . . $ -- $ -- $ -- $ --
----------- ------------- ------------- -------------
----------- ------------- ------------- -------------
**Net of withholding tax on dividends. . . . . . . . . . . . . . .
$ -- $ 14,182 $ 59,140 $ --
----------- ------------- ------------- -------------
----------- ------------- ------------- -------------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
97
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995 (CONTINUED)
<TABLE>
<CAPTION>
GLOBAL GLOBAL
EQUITY FLEXIBLE STRATEGY UTILITY
GROWTH STRATEGY FOCUS FOCUS
FUND FUND FUND FUND
<S> <C> <C> <C> <C>
INVESTMENT INCOME (NOTES 1D & 1E):
Interest and discount earned*. . . . . . . . . . . . . . . . . . . $ 1,754,524 $ 8,453,860 $ 14,006,863 $ 612,220
Dividends**. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,038,745 2,824,136 6,858,616 6,220,288
Other income. . . . . . . . . . . . . . . . . . . . . . . . . . . -- 17,632 -- --
----------- ------------- -------------- -------------
Total income. . . . . . . . . . . . . . . . . . . . . . . . . . . 3,793,269 11,295,628 20,865,479 6,832,508
----------- ------------- -------------- -------------
- ---------------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2). . . . . . . . . . . . . . . . . 1,852,641 1,941,598 3,348,535 803,260
Custodian fees. . . . . . . . . . . . . . . . . . . . . . . . . . 34,750 62,945 161,121 44,871
Accounting services (Note 2). . . . . . . . . . . . . . . . . . . 61,209 68,096 121,656 20,432
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . 20,382 30,654 51,124 9,425
Directors' fees and expenses. . . . . . . . . . . . . . . . . . . 4,303 6,749 12,679 3,086
Registration fees (Note 1f). . . . . . . . . . . . . . . . . . . . 20,246 -- -- --
Transfer agent fees (Note 2). . . . . . . . . . . . . . . . . . . 5,008 4,952 4,956 4,709
Pricing services. . . . . . . . . . . . . . . . . . . . . . . . . -- 5,283 7,426 3,454
Amortization of organization expenses (Note 1f). . . . . . . . . . -- -- 2,680 863
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,128 8,648 9,248 --
----------- ------------- -------------- -------------
Total expenses. . . . . . . . . . . . . . . . . . . . . . . . . . 2,007,667 2,128,925 3,719,425 890,100
----------- ------------- -------------- -------------
Investment income--net. . . . . . . . . . . . . . . . . . . . . . 1,785,602 9,166,703 17,146,054 5,942,408
----------- ------------- -------------- -------------
- ---------------------------------------------------------------------------------------------------------------------------------
REALIZED & UNREALIZED GAIN ON INVESTMENTS & FOREIGN
CURRENCY TRANSACTIONS--NET (NOTES 1B, 1C, 1E & 3):
Realized gain (loss) on investments--net. . . . . . . . . . . . . 45,385,878 25,472,110 (19,049,909) (2,381,425)
Realized gain (loss) on foreign currency transactions--net. . . . -- 1,579,908 (4,330,143) 1,247
Change in unrealized appreciation/depreciation on investments--net 44,941,516 11,829,508 49,029,900 26,080,420
Change in unrealized appreciation/depreciation on foreign currency
transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . -- (6,929) 9,132,728 10,320
----------- ------------- -------------- -------------
Total realized and unrealized gain on investments and foreign
currency transactions--net. . . . . . . . . . . . . . . . . . . . 90,327,394 38,874,597 34,782,576 23,710,562
----------- ------------- -------------- -------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . $92,112,996 $48,041,300 $ 51,928,630 $29,652,970
----------- ------------- -------------- -------------
----------- ------------- -------------- -------------
- ---------------------------------------------------------------------------------------------------------------------------------
*Net of withholding tax on interest. . . . . . . . . . . . . . . . $ -- $ -- $ 50,929 $ --
----------- ------------- -------------- -------------
----------- ------------- -------------- -------------
**Net of withholding tax on dividends. . . . . . . . . . . . . . .
$ -- $ 84,307 $ 535,933 $ 293,663
----------- ------------- -------------- -------------
----------- ------------- -------------- -------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
98
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995 (CONTINUED)
<TABLE>
<CAPTION>
HIGH INTERMEDIATE
CURRENT GOVERNMENT INTERNATIONAL
INCOME BOND BOND
FUND FUND FUND
<S> <C> <C> <C>
INVESTMENT INCOME (NOTES 1D & 1E):
Interest and discount earned*. . . . . . . . . . . . . . . . . . . $31,843,555 $ 1,796,464 $ 829,012
Dividends**. . . . . . . . . . . . . . . . . . . . . . . . . . . . 402,769 -- --
Other income. . . . . . . . . . . . . . . . . . . . . . . . . . . 370,896 -- --
----------- -------------- ----------------
Total income. . . . . . . . . . . . . . . . . . . . . . . . . . . 32,617,220 1,796,464 829,012
----------- -------------- ----------------
- ---------------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2). . . . . . . . . . . . . . . . . 1,551,098 143,117 70,573
Custodian fees. . . . . . . . . . . . . . . . . . . . . . . . . . 31,881 12,551 15,491
Accounting services (Note 2). . . . . . . . . . . . . . . . . . . 71,607 8,115 5,246
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . 28,860 5,368 7,829
Registration fees (Note 1f). . . . . . . . . . . . . . . . . . . . 15,984 8,606 1,233
Transfer agent fees (Note 2). . . . . . . . . . . . . . . . . . . 5,052 5,022 5,006
Pricing services. . . . . . . . . . . . . . . . . . . . . . . . . 8,781 454 --
Directors' fees and expenses. . . . . . . . . . . . . . . . . . . 6,296 -- --
Amortization of organization expenses (Note 1f). . . . . . . . . . -- -- 800
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,300 6,772 6,083
----------- -------------- ----------------
Total expenses before reimbursement. . . . . . . . . . . . . . . . 1,727,859 190,005 112,261
Reimbursement of expenses (Note 2). . . . . . . . . . . . . . . . -- (190,005) (112,261)
----------- -------------- ----------------
Expenses after reimbursement. . . . . . . . . . . . . . . . . . . 1,727,859 -- --
----------- -------------- ----------------
Investment income--net. . . . . . . . . . . . . . . . . . . . . . 30,889,361 1,796,464 829,012
----------- -------------- ----------------
- ---------------------------------------------------------------------------------------------------------------------
REALIZED & UNREALIZED GAIN (LOSS) ON INVESTMENTS & FOREIGN
CURRENCY TRANSACTIONS--NET (NOTES 1B, 1C, 1E & 3):
Realized gain (loss) on investments--net. . . . . . . . . . . . . 589,358 192,982 333,867
Realized loss on foreign currency transactions--net. . . . . . . . -- -- (132,668)
Change in unrealized appreciation/depreciation on investments--net 16,336,511 2,024,581 667,859
Change in unrealized appreciation/depreciation on foreign currency
transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 67,361
----------- ---------- -----------
Total realized and unrealized gain on investments and foreign
currency transactions--net. . . . . . . . . . . . . . . . . . . . 16,925,869 2,217,563 936,419
----------- -------------- ----------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . $47,815,230 $ 4,014,027 $ 1,765,431
----------- -------------- ----------------
----------- -------------- ----------------
- ---------------------------------------------------------------------------------------------------------------------
*Net of withholding tax on interest. . . . . . . . . . . . . . . . $ -- $ -- $ 3,338
----------- -------------- ----------------
----------- -------------- ----------------
**Net of withholding tax on dividends. . . . . . . . . . . . . . .
$ -- $ -- $ --
----------- -------------- ----------------
----------- -------------- ----------------
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
INTERNATIONAL
EQUITY
FOCUS
FUND
<S> <C>
INVESTMENT INCOME (NOTES 1D & 1E):
Interest and discount earned*. . . . . . . . . . . . . . . . . . . $ 3,641,750
Dividends**. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,247,788
Other income. . . . . . . . . . . . . . . . . . . . . . . . . . . 2,110
---------------
Total income. . . . . . . . . . . . . . . . . . . . . . . . . . . 6,891,648
---------------
- -------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2). . . . . . . . . . . . . . . . . 1,817,721
Custodian fees. . . . . . . . . . . . . . . . . . . . . . . . . . 240,690
Accounting services (Note 2). . . . . . . . . . . . . . . . . . . 54,687
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . 22,282
Registration fees (Note 1f). . . . . . . . . . . . . . . . . . . . --
Transfer agent fees (Note 2). . . . . . . . . . . . . . . . . . . 4,987
Pricing services. . . . . . . . . . . . . . . . . . . . . . . . . 9,410
Directors' fees and expenses. . . . . . . . . . . . . . . . . . . 5,734
Amortization of organization expenses (Note 1f). . . . . . . . . . 1,383
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,142
---------------
Total expenses before reimbursement. . . . . . . . . . . . . . . . 2,163,036
Reimbursement of expenses (Note 2). . . . . . . . . . . . . . . . --
---------------
Expenses after reimbursement. . . . . . . . . . . . . . . . . . . 2,163,036
---------------
Investment income--net. . . . . . . . . . . . . . . . . . . . . . 4,728,612
---------------
- -------------------------------------------------------------------------------------
REALIZED & UNREALIZED GAIN (LOSS) ON INVESTMENTS & FOREIGN
CURRENCY TRANSACTIONS--NET (NOTES 1B, 1C, 1E & 3):
Realized gain (loss) on investments--net. . . . . . . . . . . . . (7,381,797)
Realized loss on foreign currency transactions--net. . . . . . . . (35,666)
Change in unrealized appreciation/depreciation on investments--net 15,123,591
Change in unrealized appreciation/depreciation on foreign currency
transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . 461,950
-----------
Total realized and unrealized gain on investments and foreign
currency transactions--net. . . . . . . . . . . . . . . . . . . . 8,168,078
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,896,690
---------------
---------------
- -------------------------------------------------------------------------------------
*Net of withholding tax on interest. . . . . . . . . . . . . . . . $ --
---------------
---------------
**Net of withholding tax on dividends. . . . . . . . . . . . . . .
$ 412,462
---------------
---------------
- -------------------------------------------------------------------------------------
</TABLE>
99
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995 (CONTINUED)
<TABLE>
<CAPTION>
NATURAL
RESOURCES PRIME QUALITY
FOCUS BOND EQUITY
FUND FUND FUND
<S> <C> <C> <C>
INVESTMENT INCOME (NOTES 1D & 1E):
Interest and discount earned. . . . . . . . . . . . . . . . . . . $ 242,595 $32,558,262 $ 5,420,683
Dividends**. . . . . . . . . . . . . . . . . . . . . . . . . . . . 838,050 -- 8,088,307
Other income. . . . . . . . . . . . . . . . . . . . . . . . . . . -- 311,307 --
------------ ------------- --------------
Total income. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,080,645 32,869,569 13,508,990
------------ ------------- --------------
- ------------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2). . . . . . . . . . . . . . . . . 277,494 1,964,869 2,505,030
Accounting services (Note 2). . . . . . . . . . . . . . . . . . . 6,986 97,176 126,438
Custodian fees. . . . . . . . . . . . . . . . . . . . . . . . . . 23,939 45,235 54,907
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . 7,496 43,392 47,862
Registration fees (Note 1f). . . . . . . . . . . . . . . . . . . . 586 6,275 27,220
Directors' fees and expenses. . . . . . . . . . . . . . . . . . . 563 9,670 11,597
Transfer agent fees (Note 2). . . . . . . . . . . . . . . . . . . 5,004 5,005 4,931
Pricing services. . . . . . . . . . . . . . . . . . . . . . . . . 5,422 6,805 225
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,583 9,562 9,674
------------ ------------- --------------
Total expenses. . . . . . . . . . . . . . . . . . . . . . . . . . 335,073 2,187,989 2,787,884
------------ ------------- --------------
Investment income--net. . . . . . . . . . . . . . . . . . . . . . 745,572 30,681,580 10,721,106
------------ ------------- --------------
- ------------------------------------------------------------------------------------------------------------------
REALIZED & UNREALIZED GAIN (LOSS) ON INVESTMENTS & FOREIGN
CURRENCY TRANSACTIONS--NET (NOTES 1B, 1C, 1E & 3):
Realized gain on investments--net. . . . . . . . . . . . . . . . . 797,739 2,850,926 84,589,225
Realized loss on foreign currency transactions--net. . . . . . . . (8,179) -- --
Change in unrealized appreciation/depreciation on investments--net 3,506,869 46,631,310 17,627,851
Change in unrealized appreciation/depreciation on foreign currency
transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . 82 -- --
------------ ------------- --------------
Total realized and unrealized gain on investments and foreign
currency transactions--net. . . . . . . . . . . . . . . . . . . . 4,296,511 49,482,236 102,217,076
------------ ------------- --------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS. . . . . . . $ 5,042,083 $80,163,816 112,938,182
------------ ------------- --------------
------------ ------------- --------------
- ------------------------------------------------------------------------------------------------------------------
**Net of withholding tax on dividends. . . . . . . . . . . . . . . $ 58,820 $ -- $ 111,328
------------ ------------- --------------
------------ ------------- --------------
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
100
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995 (CONCLUDED)
<TABLE>
<CAPTION>
WORLD
RESERVE INCOME
ASSETS FOCUS
FUND FUND
<S> <C> <C>
INVESTMENT INCOME (NOTES 1D & 1E):
Interest and discount earned*. . . . . . . . . . . . . . . . . . . $1,748,915 $ 7,350,623
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 26,246
Other income. . . . . . . . . . . . . . . . . . . . . . . . . . . -- 103,874
---------- -------------
Total income. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,748,915 7,480,743
---------- -------------
- ------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2). . . . . . . . . . . . . . . . . 144,618 464,049
Custodian fees. . . . . . . . . . . . . . . . . . . . . . . . . . 12,967 23,244
Accounting services (Note 2). . . . . . . . . . . . . . . . . . . 738 11,786
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . 5,439 6,781
Transfer agent fees (Note 2). . . . . . . . . . . . . . . . . . . 4,848 4,911
Pricing services. . . . . . . . . . . . . . . . . . . . . . . . . -- 7,712
Directors' fees and expenses. . . . . . . . . . . . . . . . . . . 613 1,494
Amortization of organization expenses (Note 1f). . . . . . . . . . -- 1,578
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,198 6,197
---------- -------------
Total expenses. . . . . . . . . . . . . . . . . . . . . . . . . . 176,421 527,752
---------- -------------
Investment income--net. . . . . . . . . . . . . . . . . . . . . . 1,572,494 6,952,991
---------- -------------
- ------------------------------------------------------------------------------------------------
REALIZED & UNREALIZED GAIN (LOSS) ON INVESTMENTS & FOREIGN
CURRENCY TRANSACTIONS--NET (NOTES 1B, 1C, 1E & 3):
Realized gain on investments--net. . . . . . . . . . . . . . . . . 10,309 846,540
Realized loss on foreign currency transactions--net. . . . . . . . -- (336,253
Change in unrealized appreciation/depreciation on investments--net 41,873 4,273,121
Change in unrealized appreciation/depreciation on foreign currency
transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . -- 229,617
---------- -------------
Total realized and unrealized gain on investments and foreign
currency transactions--net. . . . . . . . . . . . . . . . . . . . 52,182 5,013,025
---------- -------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,624,676 $11,966,016
---------- -------------
---------- -------------
- ------------------------------------------------------------------------------------------------
*Net of withholding tax on interest. . . . . . . . . . . . . . . . $ -- $ 60,326
---------- -------------
---------- -------------
- ------------------------------------------------------------------------------------------------
</TABLE>
101
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
AMERICAN BALANCED FUND
-------------------------------------------
FOR THE YEAR ENDED
DECEMBER 31,
-------------------------------------------
INCREASE (DECREASE) IN NET ASSETS: 1995 1994
- ----------------------------------------------------------------------------------------------------------------
OPERATIONS:
Investment income--net. . . . . . . . . . . . . . . . . . . . . . $ 8,022,508 $ 5,743,492
Realized gain (loss) on investments and foreign currency (311,392) (634,222)
transactions--net. . . . . . . . . . . . . . . . . . . . . . . . .
Change in unrealized appreciation/depreciation on investments and
foreign currency transactions--net. . . . . . . . . . . . . . . . 27,587,655 (11,011,500)
------- --------------- -- ----------
Net increase (decrease) in net assets resulting from operations. . 35,298,771 (5,902,230)
------- --------------- -- ----------
- ----------------------------------------------------------------------------------------------------------------
DIVIDENDS & DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1G):
Investment income--net. . . . . . . . . . . . . . . . . . . . . . (7,173,644) (3,724,806)
Realized gain on investments--net. . . . . . . . . . . . . . . . . -- --
In excess of realized gain on investments--net. . . . . . . . . . -- (382,403)
------- --------------- -- ----------
Net decrease in net assets resulting from dividends and
distributions to shareholders. . . . . . . . . . . . . . . . . . . (7,173,644) (4,107,209)
------- --------------- -- ----------
- ----------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 4):
Net increase in net assets derived from capital share transactions 25,836,347 53,540,259
------- --------------- -- ----------
- ----------------------------------------------------------------------------------------------------------------
NET ASSETS:
Total increase in net assets. . . . . . . . . . . . . . . . . . . 53,961,474 43,530,820
Beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . 158,950,740 115,419,920
------- --------------- -- ----------
End of year*. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 212,912,214 $ 158,950,740
------------------------ --------------
------------------------ --------------
- ----------------------------------------------------------------------------------------------------------------
*Undistributed investment income--net. . . . . . . . . . . . . . . $ 4,146,614 $ 3,297,750
------------------------ --------------
------------------------ --------------
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C>
BASIC VALUE FOCUS FUND
-------------------------------------------
FOR THE YEAR ENDED
DECEMBER 31,
--------------------------------------------
INCREASE (DECREASE) IN NET ASSETS: 1995 1994
- ----------------------------------------------------------------------------------------------------------------
OPERATIONS:
Investment income--net. . . . . . . . . . . . . . . . . . . . . . $ 3,967,636 $ 2,366,053
Realized gain (loss) on investments and foreign currency 13,595,994 7,037,711
transactions--net. . . . . . . . . . . . . . . . . . . . . . . . .
Change in unrealized appreciation/depreciation on investments and
foreign currency transactions--net. . . . . . . . . . . . . . . . 34,077,480 (6,328,115)
------- --------------- -- ----------
Net increase (decrease) in net assets resulting from operations. . 51,641,110 3,075,649
------- --------------- -- ----------
- ----------------------------------------------------------------------------------------------------------------
DIVIDENDS & DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1G):
Investment income--net. . . . . . . . . . . . . . . . . . . . . . (3,296,595) (928,253)
Realized gain on investments--net. . . . . . . . . . . . . . . . . (7,106,929) --
In excess of realized gain on investments--net. . . . . . . . . . -- --
------- --------------- -- ----------
Net decrease in net assets resulting from dividends and
distributions to shareholders. . . . . . . . . . . . . . . . . . . (10,403,524) (928,253)
------- --------------- -- ----------
- ----------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 4):
Net increase in net assets derived from capital share transactions 100,918,588 114,952,060
------- --------------- -- ----------
- ----------------------------------------------------------------------------------------------------------------
NET ASSETS:
Total increase in net assets. . . . . . . . . . . . . . . . . . . 142,156,174 117,099,456
Beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . 164,306,719 47,207,263
------- --------------- -- ----------
End of year*. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 306,462,893 $ 164,306,719
------------------------ --------------
------------------------ --------------
- ----------------------------------------------------------------------------------------------------------------
*Undistributed investment income--net. . . . . . . . . . . . . . . $ 2,262,426 $ 1,591,385
------------------------ --------------
------------------------ --------------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
102 103
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C>
DEVELOPING CAPITAL
MARKETS FOCUS FUND
---------------------------------------------
FOR THE YEAR FOR THE PERIOD
ENDED MAY 2, 1994+
DEC. 31, 1995 TO DEC. 31, 1994
-----
INCREASE (DECREASE) IN NET ASSETS:
- ---------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Investment income--net. . . . . . . . . . . . . . . . . . . . . . . . $ 1,186,414 $ 330,561
Realized gain (loss) on investments and foreign currency (3,129,641) (672,256)
transactions--net. . . . . . . . . . . . . . . . . . . . . . . . . .
Change in unrealized appreciation/depreciation on investments and
foreign currency transactions--net. . . . . . . . . . . . . . . . . . 1,803,333 (2,345,177)
------ ------------- ---- -----------
Net increase (decrease) in net assets resulting from operations. . . (139,894) (2,686,872)
------ ------------- ---- -----------
- ---------------------------------------------------------------------------------------------------------------------
DIVIDENDS & DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1G):
Investment income--net. . . . . . . . . . . . . . . . . . . . . . . . (332,002) --
Realized gain on investments--net. . . . . . . . . . . . . . . . . . -- --
------ ------------- ---- -----------
Net decrease in net assets resulting from dividends and distributions
to shareholders. . . . . . . . . . . . . . . . . . . . . . . . . . . (332,002) --
------ ------------- ---- -----------
- ---------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 4):
Net increase (decrease) in net assets derived from capital share 19,004,774 31,362,624
transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . ------ ------------- ---- -----------
- ---------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Total increase (decrease) in net assets. . . . . . . . . . . . . . . 18,532,878 28,675,752
Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . 36,675,752 8,000,000
------ ------------- ---- -----------
End of period*. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 55,208,630 $ 36,675,752
--------------------- -----------------
--------------------- -----------------
- ---------------------------------------------------------------------------------------------------------------------
*Undistributed investment income--net. . . . . . . . . . . . . . . . $ 1,184,973 $ 330,561
--------------------- -----------------
--------------------- -----------------
- ---------------------------------------------------------------------------------------------------------------------
+ Commencement of Operations.
<CAPTION>
<S> <C> <C>
DOMESTIC MONEY
MARKET FUND
----------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS: 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Investment income--net. . . . . . . . . . . . . . . . . . . . . . . . $ 17,526,423 $ 11,419,926
Realized gain (loss) on investments and foreign currency 44,778 5,347
transactions--net. . . . . . . . . . . . . . . . . . . . . . . . . .
Change in unrealized appreciation/depreciation on investments and
foreign currency transactions--net. . . . . . . . . . . . . . . . . . 334,598 (199,049)
------------ -------------------- -- ----------
Net increase (decrease) in net assets resulting from operations. . . 17,905,799 11,226,224
------------ -------------------- -- ----------
- ------------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS & DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1G):
Investment income--net. . . . . . . . . . . . . . . . . . . . . . . . (17,526,423) (11,419,926)
Realized gain on investments--net. . . . . . . . . . . . . . . . . . (44,778) (5,347)
------------ -------------------- -- ----------
Net decrease in net assets resulting from dividends and distributions
to shareholders. . . . . . . . . . . . . . . . . . . . . . . . . . . (17,571,201) (11,425,273)
------------ -------------------- -- ----------
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 4):
Net increase (decrease) in net assets derived from capital share (59,621,869) 192,866,796
transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . ------------ -------------------- -- ----------
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Total increase (decrease) in net assets. . . . . . . . . . . . . . . (59,287,271) 192,667,747
Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . 363,199,100 170,531,353
------------ -------------------- -- ----------
End of period*. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 303,911,829 $ 363,199,100
---------------------------------- --------------
---------------------------------- --------------
- ------------------------------------------------------------------------------------------------------------------------------------
*Undistributed investment income--net. . . . . . . . . . . . . . . . $ -- $ --
---------------------------------- --------------
---------------------------------- --------------
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of Operations.
<CAPTION>
<S> <C> <C>
EQUITY GROWTH FUND
----------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS: 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Investment income--net. . . . . . . . . . . . . . . . . . . . . . . . $ 1,785,602 $ 383,328
Realized gain (loss) on investments and foreign currency 45,385,878 (1,981,763)
transactions--net. . . . . . . . . . . . . . . . . . . . . . . . . .
Change in unrealized appreciation/depreciation on investments and
foreign currency transactions--net. . . . . . . . . . . . . . . . . . 44,941,516 (8,755,921)
------------ -------------------- -- ----------
Net increase (decrease) in net assets resulting from operations. . . 92,112,996 (10,354,356)
------------ -------------------- -- ----------
- -----------------------------------------------------------------------------------------------------------------------------
DIVIDENDS & DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1G):
Investment income--net. . . . . . . . . . . . . . . . . . . . . . . . (889,063) --
Realized gain on investments--net. . . . . . . . . . . . . . . . . . -- (895,916)
------------ -------------------- -- ----------
Net decrease in net assets resulting from dividends and distributions
to shareholders. . . . . . . . . . . . . . . . . . . . . . . . . . . (889,063) (895,916)
------------ -------------------- -- ----------
- -----------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 4):
Net increase (decrease) in net assets derived from capital share 78,653,598 82,317,471
transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . ------------ -------------------- -- ----------
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Total increase (decrease) in net assets. . . . . . . . . . . . . . . 169,877,531 71,067,199
Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . 170,043,623 98,976,424
------------ -------------------- -- ----------
End of period*. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 339,921,154 $ 170,043,623
---------------------------------- --------------
---------------------------------- --------------
- -----------------------------------------------------------------------------------------------------------------------------
*Undistributed investment income--net. . . . . . . . . . . . . . . . $ 1,279,867 $ 383,328
---------------------------------- --------------
---------------------------------- --------------
- -----------------------------------------------------------------------------------------------------------------------------
+ Commencement of Operations.
</TABLE>
104 105
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C>
FLEXIBLE STRATEGY FUND
-----------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS: 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Investment income--net. . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,166,703 $ 6,185,965
Realized gain (loss) on investments and foreign currency transactions--net 27,052,018 4,744,740
Change in unrealized appreciation/depreciation on investments and foreign
currency transactions--net. . . . . . . . . . . . . . . . . . . . . . . . 11,822,579 (21,104,289)
------------ -------------------- -- ----------
Net increase (decrease) in net assets resulting from operations. . . . . . 48,041,300 (10,173,584)
------------ -------------------- -- ----------
- ----------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS & DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1G):
Investment income--net. . . . . . . . . . . . . . . . . . . . . . . . . . (8,045,358) (4,296,790)
Realized gain on investments--net. . . . . . . . . . . . . . . . . . . . . (5,055,924) (6,450,353)
In excess of realized gain on investments--net. . . . . . . . . . . . . . -- --
------------ -------------------- -- ----------
Net decrease in net assets resulting from dividends and distributions to
shareholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13,101,282) (10,747,143)
------------ -------------------- -- ----------
- ----------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 4):
Net increase (decrease) in net assets derived from capital share 10,795,379 100,642,477
transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ------------ -------------------- -- ----------
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Total increase in net assets. . . . . . . . . . . . . . . . . . . . . . . 45,735,397 79,721,750
Beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 274,498,266 194,776,516
------------ -------------------- -- ----------
End of year*. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 320,233,663 $ 274,498,266
---------------------------------- --------------
---------------------------------- --------------
- ----------------------------------------------------------------------------------------------------------------------------------
*Undistributed investment income--net (Note 1i). . . . . . . . . . . . . . $ 4,603,408 $ 3,474,388
---------------------------------- --------------
---------------------------------- --------------
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C>
GLOBAL STRATEGY FOCUS FUND
----------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS: 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Investment income--net. . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,146,054 $ 12,299,420
Realized gain (loss) on investments and foreign currency transactions--net (23,380,052) (202,960)
Change in unrealized appreciation/depreciation on investments and foreign
currency transactions--net. . . . . . . . . . . . . . . . . . . . . . . . 58,162,628 (23,383,348)
------------ -------------------- -- ----------
Net increase (decrease) in net assets resulting from operations. . . . . . 51,928,630 (11,286,888)
------------ -------------------- -- ----------
- ------------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS & DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1G):
Investment income--net. . . . . . . . . . . . . . . . . . . . . . . . . . (16,913,134) (6,805,684)
Realized gain on investments--net. . . . . . . . . . . . . . . . . . . . . -- (1,046,779)
In excess of realized gain on investments--net. . . . . . . . . . . . . . (199,509) (169,671)
------------ -------------------- -- ----------
Net decrease in net assets resulting from dividends and distributions to
shareholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (17,112,643) (8,022,134)
------------ -------------------- -- ----------
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 4):
Net increase (decrease) in net assets derived from capital share (9,981,690) 265,089,157
transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ------------ -------------------- -- ----------
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Total increase in net assets. . . . . . . . . . . . . . . . . . . . . . . 24,834,297 245,780,135
Beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 515,407,316 269,627,181
------------ -------------------- -- ----------
End of year*. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 540,241,613 $ 515,407,316
---------------------------------- --------------
---------------------------------- --------------
- ----------------------------------------------------------------------------------------------------------------------------------
*Undistributed investment income--net (Note 1i). . . . . . . . . . . . . . $ 7,489,615 $ 7,256,695
---------------------------------- --------------
---------------------------------- --------------
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C>
GLOBAL UTILITY FOCUS FUND
----------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS: 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Investment income--net. . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,942,408 $ 4,762,634
Realized gain (loss) on investments and foreign currency transactions--net (2,380,178) (1,481,987)
Change in unrealized appreciation/depreciation on investments and foreign
currency transactions--net. . . . . . . . . . . . . . . . . . . . . . . . 26,090,740 (14,255,796)
------------ -------------------- -- ----------
Net increase (decrease) in net assets resulting from operations. . . . . . 29,652,970 (10,975,149)
------------ -------------------- -- ----------
- -----------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS & DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1G):
Investment income--net. . . . . . . . . . . . . . . . . . . . . . . . . . (5,144,108) (3,959,983)
Realized gain on investments--net. . . . . . . . . . . . . . . . . . . . . -- --
In excess of realized gain on investments--net. . . . . . . . . . . . . . -- (33,522)
------------ -------------------- -- ----------
Net decrease in net assets resulting from dividends and distributions to
shareholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,144,108) (3,993,505)
------------ -------------------- -- ----------
- -----------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 4):
Net increase (decrease) in net assets derived from capital share (2,526,392) 36,694,148
transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ------------ -------------------- -- ----------
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Total increase in net assets. . . . . . . . . . . . . . . . . . . . . . . 21,982,470 21,725,494
Beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126,242,807 104,517,313
------------ -------------------- -- ----------
End of year*. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 148,225,277 $ 126,242,807
---------------------------------- --------------
---------------------------------- --------------
- -----------------------------------------------------------------------------------------------------------------------------------
*Undistributed investment income--net (Note 1i). . . . . . . . . . . . . . $ 2,159,534 $ 1,361,234
---------------------------------- --------------
---------------------------------- --------------
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------------------
OPERATIONS:
Investment income--net. . . . . . . . . . . . . . . . . . . . . . . . . .
Realized gain (loss) on investments and foreign currency transactions--net
Change in unrealized appreciation/depreciation on investments and foreign
currency transactions--net. . . . . . . . . . . . . . . . . . . . . . . .
Net increase (decrease) in net assets resulting from operations. . . . . .
- ----------------------------------------------------------------------------
DIVIDENDS & DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1G):
Investment income--net. . . . . . . . . . . . . . . . . . . . . . . . . .
Realized gain on investments--net. . . . . . . . . . . . . . . . . . . . .
In excess of realized gain on investments--net. . . . . . . . . . . . . .
Net decrease in net assets resulting from dividends and distributions to
shareholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- ----------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 4):
Net increase (decrease) in net assets derived from capital share
transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- ----------------------------------------------------------------------------
NET ASSETS:
Total increase in net assets. . . . . . . . . . . . . . . . . . . . . . .
Beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
End of year*. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- ----------------------------------------------------------------------------
*Undistributed investment income--net (Note 1i). . . . . . . . . . . . . .
- ----------------------------------------------------------------------------
</TABLE>
106 107
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C>
------------------------------------------
HIGH CURRENT INCOME FUND
-----------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS: 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Investment income--net. . . . . . . . . . . . . . . . . . . . . . . . . . $ 30,889,361 $ 21,977,178
Realized gain (loss) on investments and foreign currency transactions--net 589,358 (1,918,504)
Change in unrealized appreciation/depreciation on investments and foreign
currency transactions--net. . . . . . . . . . . . . . . . . . . . . . . . 16,336,511 (28,517,478)
----- ------------- ----- -------------
Net increase (decrease) in net assets resulting from operations. . . . . 47,815,230 (8,458,804)
----- ------------- ----- -------------
- ----------------------------------------------------------------------------------------------------------------------------
DIVIDENDS TO SHAREHOLDERS (NOTE 1G):
Investment income--net. . . . . . . . . . . . . . . . . . . . . . . . . . (30,645,264) (20,563,966)
----- ------------- ----- -------------
Net decrease in net assets resulting from dividends to shareholders. . . (30,645,264) (20,563,966)
----- ------------- ----- -------------
- ---------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 4):
Net increase in net assets derived from capital share transactions. . . . 83,463,234 121,313,338
----- ------------- ----- -------------
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Total increase in net assets. . . . . . . . . . . . . . . . . . . . . . . 100,633,200 92,290,568
Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . 255,718,740 163,428,172
----- ------------- ----- -------------
End of period*. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 356,351,940 $ 255,718,740
-------------------- --------------------
-------------------- --------------------
- ----------------------------------------------------------------------------------------------------------------------------
*Undistributed investment income--net (Note 1i). . . . . . . . . . . . . $ 2,822,298 $ 2,509,684
-------------------- --------------------
-------------------- --------------------
- ----------------------------------------------------------------------------------------------------------------------------
+ Commencement of Operations.
<CAPTION>
<S> <C> <C>
INTERMEDIATE
GOVERNMENT BOND FUND
--------------------------------------------
FOR THE YEAR FOR THE PERIOD
ENDED MAY 2, 1994+ TO
INCREASE (DECREASE) IN NET ASSETS: DEC. 31, 1995 ----- DEC. 31, 1994 -----------
- -------------------------------------------------------------------------------------------------- -----------------
OPERATIONS:
Investment income--net. . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,796,464 $ 295,427
Realized gain (loss) on investments and foreign currency transactions--net 192,982 (55,316)
Change in unrealized appreciation/depreciation on investments and foreign
currency transactions--net. . . . . . . . . . . . . . . . . . . . . . . . 2,024,581 (60,742)
------- -------------- ---- -----------
Net increase (decrease) in net assets resulting from operations. . . . . 4,014,027 179,369
------- -------------- ---- -----------
- -----------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS TO SHAREHOLDERS (NOTE 1G):
Investment income--net. . . . . . . . . . . . . . . . . . . . . . . . . . (1,670,786) (222,052)
------- -------------- ---- -----------
Net decrease in net assets resulting from dividends to shareholders. . . (1,670,786) (222,052)
------- -------------- ---- -----------
- -----------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 4):
Net increase in net assets derived from capital share transactions. . . . 20,842,535 15,853,334
------- -------------- ---- -----------
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Total increase in net assets. . . . . . . . . . . . . . . . . . . . . . . 23,185,776 15,810,651
Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . 17,810,651 2,000,000
------- -------------- ---- -----------
End of period*. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 40,996,427 $ 17,810,651
----------------------- -----------------
----------------------- -----------------
- -----------------------------------------------------------------------------------------------------------------------------------
*Undistributed investment income--net (Note 1i). . . . . . . . . . . . . $ 199,053 $ 73,375
----------------------- -----------------
----------------------- -----------------
- -----------------------------------------------------------------------------------------------------------------------------------
+ Commencement of Operations.
<CAPTION>
<S> <C> <C>
INTERNATIONAL BOND FUND
-----------------------------------------------
FOR THE YEAR FOR THE PERIOD
ENDED MAY 2, 1994+ TO
INCREASE (DECREASE) IN NET ASSETS: DEC. 31, 1995 ----- DEC. 31, 1994
- ---------------------------------------------------------------------------------------------------- ------------------
OPERATIONS:
Investment income--net. . . . . . . . . . . . . . . . . . . . . . . . . . $ 829,012 $ 325,753
Realized gain (loss) on investments and foreign currency transactions--net 201,199 (98,691)
Change in unrealized appreciation/depreciation on investments and foreign
currency transactions--net. . . . . . . . . . . . . . . . . . . . . . . . 735,220 (163,684)
-------- --------------- ----- -----------
Net increase (decrease) in net assets resulting from operations. . . . . 1,765,431 63,378
-------- --------------- ----- -----------
- ----------------------------------------------------------------------------------------------------------------------------
DIVIDENDS TO SHAREHOLDERS (NOTE 1G):
Investment income--net. . . . . . . . . . . . . . . . . . . . . . . . . . (795,220) (271,353)
-------- --------------- ----- -----------
Net decrease in net assets resulting from dividends to shareholders. . . (795,220) (271,353)
-------- --------------- ----- -----------
- ----------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 4):
Net increase in net assets derived from capital share transactions. . . . 7,217,039 5,141,269
-------- --------------- ----- -----------
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Total increase in net assets. . . . . . . . . . . . . . . . . . . . . . . 8,187,250 4,933,294
Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . 9,933,294 5,000,000
-------- --------------- ----- -----------
End of period*. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 18,120,544 $ 9,933,294
------------------------- ------------------
------------------------- ------------------
- ---------------------------------------------------------------------------------------------------------------------------
*Undistributed investment income--net (Note 1i). . . . . . . . . . . . . $ 88,192 $ 54,400
------------------------- ------------------
------------------------- ------------------
- ----------------------------------------------------------------------------------------------------------------------------
+ Commencement of Operations.
</TABLE>
108 109
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C>
INTERNATIONAL EQUITY
FOCUS FUND
-----------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS: 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Investment income--net. . . . . . . . . . . . . . . . . . . . . . . . $ 4,728,612 $ 1,973,400
Realized gain (loss) on investments and foreign currency (7,417,463) 3,850,217
transactions--net. . . . . . . . . . . . . . . . . . . . . . . . . .
Change in unrealized appreciation/depreciation on investments and
foreign currency transactions--net. . . . . . . . . . . . . . . . . . 15,585,541 (10,680,341)
------------ -------------------- -- ----------
Net increase (decrease) in net assets resulting from operations. . . 12,896,690 (4,856,724)
------------ -------------------- -- ----------
- -----------------------------------------------------------------------------------------------------------------------------
DIVIDENDS & DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1G):
Investment income--net. . . . . . . . . . . . . . . . . . . . . . . . (151,930) (1,644,756)
Realized gain on investments--net. . . . . . . . . . . . . . . . . . (3,904,078) (61,190)
In excess of realized gain on investments--net. . . . . . . . . . . . (5,275,618) --
------------ -------------------- -- ----------
Net decrease in net assets resulting from dividends and distributions
to shareholders. . . . . . . . . . . . . . . . . . . . . . . . . . . (9,331,626) (1,705,946)
------------ -------------------- -- ----------
- -----------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 4):
Net increase (decrease) in net assets derived from capital share 14,153,402 177,540,023
transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . ------------ -------------------- -- ----------
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Total increase in net assets. . . . . . . . . . . . . . . . . . . . . 17,718,466 170,977,353
Beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . . 247,883,775 76,906,422
------------ -------------------- -- ----------
End of year*. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 265,602,241 $ 247,883,775
---------------------------------- --------------
---------------------------------- --------------
- -----------------------------------------------------------------------------------------------------------------------------
*Undistributed investment income--net (Note 1i). . . . . . . . . . . $ 4,974,839 $ 382,131
---------------------------------- --------------
---------------------------------- --------------
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C>
NATURAL RESOURCES
FOCUS FUND
-----------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS: 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Investment income--net. . . . . . . . . . . . . . . . . . . . . . . . $ 745,572 $ 526,129
Realized gain (loss) on investments and foreign currency 789,560 102,053
transactions--net. . . . . . . . . . . . . . . . . . . . . . . . . .
Change in unrealized appreciation/depreciation on investments and
foreign currency transactions--net. . . . . . . . . . . . . . . . . . 3,506,951 (810,365)
------------ ------------------- --- ----------
Net increase (decrease) in net assets resulting from operations. . . 5,042,083 (182,183)
------------ ------------------- --- ----------
- -----------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS & DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1G):
Investment income--net. . . . . . . . . . . . . . . . . . . . . . . . (719,125) (319,496)
Realized gain on investments--net. . . . . . . . . . . . . . . . . . (116,046) --
In excess of realized gain on investments--net. . . . . . . . . . . . -- --
------------ ------------------- --- ----------
Net decrease in net assets resulting from dividends and distributions
to shareholders. . . . . . . . . . . . . . . . . . . . . . . . . . . (835,171) (319,496)
------------ ------------------- --- ----------
- -----------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 4):
Net increase (decrease) in net assets derived from capital share (819,422) 25,438,978
transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . ------------ ------------------- --- ----------
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Total increase in net assets. . . . . . . . . . . . . . . . . . . . . 3,387,490 24,937,299
Beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . . 39,714,861 14,777,562
------------ ------------------- --- ----------
End of year*. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 43,102,351 $ 39,714,861
--------------------------------- ---------------
--------------------------------- ---------------
- -----------------------------------------------------------------------------------------------------------------------------------
*Undistributed investment income--net (Note 1i). . . . . . . . . . . $ 315,714 $ 289,267
--------------------------------- ---------------
--------------------------------- ---------------
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C>
PRIME BOND FUND
----------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS: 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Investment income--net. . . . . . . . . . . . . . . . . . . . . . . . $ 30,681,580 $ 24,851,838
Realized gain (loss) on investments and foreign currency 2,850,926 (18,783,776)
transactions--net. . . . . . . . . . . . . . . . . . . . . . . . . .
Change in unrealized appreciation/depreciation on investments and
foreign currency transactions--net. . . . . . . . . . . . . . . . . . 46,631,310 (23,383,983)
------------ -------------------- -- ----------
Net increase (decrease) in net assets resulting from operations. . . 80,163,816 (17,315,921)
------------ -------------------- -- ----------
- -----------------------------------------------------------------------------------------------------------------------------
DIVIDENDS & DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1G):
Investment income--net. . . . . . . . . . . . . . . . . . . . . . . . (30,585,478) (23,986,615)
Realized gain on investments--net. . . . . . . . . . . . . . . . . . -- --
In excess of realized gain on investments--net. . . . . . . . . . . . -- (4,204,953)
------------ -------------------- -- ----------
Net decrease in net assets resulting from dividends and distributions
to shareholders. . . . . . . . . . . . . . . . . . . . . . . . . . . (30,585,478) (28,191,568)
------------ -------------------- -- ----------
- -----------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 4):
Net increase (decrease) in net assets derived from capital share 49,025,455 122,650,200
transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . ------------ -------------------- -- ----------
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Total increase in net assets. . . . . . . . . . . . . . . . . . . . . 98,603,793 77,142,711
Beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . . 391,234,175 314,091,464
------------ -------------------- -- ----------
End of year*. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 489,837,968 $ 391,234,175
---------------------------------- --------------
---------------------------------- --------------
- -----------------------------------------------------------------------------------------------------------------------------
*Undistributed investment income--net (Note 1i). . . . . . . . . . . $ 2,495,885 $ 2,399,783
---------------------------------- --------------
---------------------------------- --------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
110 111
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS (CONCLUDED)
<TABLE>
<CAPTION>
<S> <C> <C>
QUALITY EQUITY FUND
-----------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS: 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Investment income--net. . . . . . . . . . . . . . . . . . . . . . . $ 10,721,106 $ 5,564,058
Realized gain (loss) on investments and foreign currency 84,589,225 10,329,187
transactions--net. . . . . . . . . . . . . . . . . . . . . . . . . .
Change in unrealized appreciation/depreciation on investments and
foreign currency transactions--net. . . . . . . . . . . . . . . . . 17,627,851 (20,646,284)
------------ -------------------- -- ----------
Net increase (decrease) in net assets resulting from operations. . . 112,938,182 (4,753,039)
------------ -------------------- -- ----------
- ----------------------------------------------------------------------------------------------------------------------------
DIVIDENDS & DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1G):
Investment income--net. . . . . . . . . . . . . . . . . . . . . . . (8,042,730) (3,345,688)
Realized gain on investments--net. . . . . . . . . . . . . . . . . . (9,959,874) (7,187,525)
In excess of realized gain on investments--net. . . . . . . . . . . -- --
------------ -------------------- -- ----------
Net decrease in net assets resulting from dividends and distributions
to shareholders. . . . . . . . . . . . . . . . . . . . . . . . . . . (18,002,604) (10,533,213)
------------ -------------------- -- ----------
- ----------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 4):
Net increase (decrease) in net assets derived from capital share 85,255,141 170,226,497
transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . ------------ -------------------- -- ----------
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Total increase (decrease) in net assets. . . . . . . . . . . . . . . 180,190,719 154,940,245
Beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . . 464,359,882 309,419,637
------------ -------------------- -- ----------
End of year*. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 644,550,601 $ 464,359,882
---------------------------------- --------------
---------------------------------- --------------
- ----------------------------------------------------------------------------------------------------------------------------
*Undistributed investment income--net. . . . . . . . . . . . . . . . $ 6,008,129 $ 3,329,753
---------------------------------- --------------
---------------------------------- --------------
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C>
RESERVE ASSETS FUND
-----------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------
--------
INCREASE (DECREASE) IN NET ASSETS: 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Investment income--net. . . . . . . . . . . . . . . . . . . . . . . $ 1,572,494 $ 1,248,878
Realized gain (loss) on investments and foreign currency 10,309 1,901
transactions--net. . . . . . . . . . . . . . . . . . . . . . . . . .
Change in unrealized appreciation/depreciation on investments and
foreign currency transactions--net. . . . . . . . . . . . . . . . . 41,873 (35,001)
------------ ------------------- --- ----------
Net increase (decrease) in net assets resulting from operations. . . 1,624,676 1,215,778
------------ ------------------- --- ----------
- ------------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS & DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1G):
Investment income--net. . . . . . . . . . . . . . . . . . . . . . . (1,572,494) (1,248,878)
Realized gain on investments--net. . . . . . . . . . . . . . . . . . (10,309) (1,901)
In excess of realized gain on investments--net. . . . . . . . . . . -- --
------------ ------------------- --- ----------
Net decrease in net assets resulting from dividends and distributions
to shareholders. . . . . . . . . . . . . . . . . . . . . . . . . . . (1,582,803) (1,250,779)
------------ ------------------- --- ----------
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 4):
Net increase (decrease) in net assets derived from capital share (6,688,035) 2,063,127
transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . ------------ ------------------- --- ----------
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Total increase (decrease) in net assets. . . . . . . . . . . . . . . (6,646,162) 2,028,126
Beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . . 32,196,031 30,167,905
------------ ------------------- --- ----------
End of year*. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 25,549,869 $ 32,196,031
--------------------------------- ---------------
--------------------------------- ---------------
- ------------------------------------------------------------------------------------------------------------------------------------
*Undistributed investment income--net. . . . . . . . . . . . . . . . $ -- $ --
--------------------------------- ---------------
--------------------------------- ---------------
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C>
WORLD INCOME FOCUS FUND
-----------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS: 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Investment income--net. . . . . . . . . . . . . . . . . . . . . . . $ 6,952,991 $ 5,733,672
Realized gain (loss) on investments and foreign currency 510,287 (3,236,703)
transactions--net. . . . . . . . . . . . . . . . . . . . . . . . . .
Change in unrealized appreciation/depreciation on investments and
foreign currency transactions--net. . . . . . . . . . . . . . . . . 4,502,738 (5,553,092)
------------ ------------------- --- ----------
Net increase (decrease) in net assets resulting from operations. . . 11,966,016 (3,056,123)
------------ ------------------- --- ----------
- -----------------------------------------------------------------------------------------------------------------------------
DIVIDENDS & DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1G):
Investment income--net. . . . . . . . . . . . . . . . . . . . . . . (6,851,555) (5,598,199)
Realized gain on investments--net. . . . . . . . . . . . . . . . . . -- --
In excess of realized gain on investments--net. . . . . . . . . . . -- (101,589)
------------ ------------------- --- ----------
Net decrease in net assets resulting from dividends and distributions
to shareholders. . . . . . . . . . . . . . . . . . . . . . . . . . . (6,851,555) (5,699,788)
------------ ------------------- --- ----------
- -----------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 4):
Net increase (decrease) in net assets derived from capital share 1,580,255 33,168,379
transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . ------------ ------------------- --- ----------
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Total increase (decrease) in net assets. . . . . . . . . . . . . . . 6,694,716 24,412,468
Beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . . 75,149,916 50,737,448
------------ ------------------- --- ----------
End of year*. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 81,844,632 $ 75,149,916
--------------------------------- ---------------
--------------------------------- ---------------
- -----------------------------------------------------------------------------------------------------------------------------
*Undistributed investment income--net. . . . . . . . . . . . . . . . $ 619,777 $ 409,286
--------------------------------- ---------------
--------------------------------- ---------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
112 113
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE BEEN DERIVED
FROM INFORMATION PROVIDED IN THE FINANCIAL STATEMENTS. AMERICAN BALANCED FUND
-----------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
INCREASE (DECREASE) IN NET ASSET VALUE: 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 13.08 $ 14.08 $ 12.85 $ 12.82 $ 11.26
-------- ---------- ---------- --------- ---------
Investment income--net .59 .48 .32 .31 .47
Realized and unrealized gain (loss) on investments and foreign
currency transactions--net 2.06 (1.06) 1.37 .37 1.76
-------- ---------- ---------- --------- ---------
Total from investment operations 2.65 (.58) 1.69 .68 2.23
-------- ---------- ---------- --------- ---------
Less dividends and distributions:
Investment income--net (.56) (.37) (.34) (.37) (.49)
Realized gain on investments--net -- --) (.12) (.28) (.18)
In excess of realized gain on investments--net -- (.05 -- -- --
-------- ---------- ---------- --------- ---------
Total dividends and distributions (.56) (.42) (.46) (.65) (.67)
-------- ---------- ---------- --------- ---------
Net asset value, end of year $ 15.17 $ 13.08 $ 14.08 $ 12.85 $ 12.82
- ------ -- ------ -- ------ -- ----- -- -----
-------- ---------- ---------- --------- ---------
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:*
Based on net asset value per share 20.81% (4.19%) 13.49% 5.72% 20.65%
- ------ -- ------ -- ------ -- ----- -- -----
-------- ---------- ---------- --------- ---------
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses .61% .63% .70% .97% 1.20%
- ------ -- ------ -- ------ -- ----- -- -----
-------- ---------- ---------- --------- ---------
Investment income--net 4.22% 3.95% 3.20% 3.71% 4.16%
- ------ -- ------ -- ------ -- ----- -- -----
-------- ---------- ---------- --------- ---------
- ---------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of year (in thousands) $212,912 $158,951 $115,420 $24,918 $ 7,937
- ------ -- ------ -- ------ -- ----- -- -----
-------- ---------- ---------- --------- ---------
Portfolio turnover 38.40% 35.36% 12.55% 36.34% 50.82%
- ------ -- ------ -- ------ -- ----- -- -----
-------- ---------- ---------- --------- ---------
- ---------------------------------------------------------------------------------------------------------------------------
*Total investment returns exclude insurance-related fees and expenses.
</TABLE>
See Notes to Financial Statements.
114
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
BASIC VALUE FOCUS FUND
------------------------------------------------
--------------------------------------------------
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE BEEN FOR THE YEAR ENDED
DERIVED FROM INFORMATION PROVIDED IN THE FINANCIAL DECEMBER 31,
STATEMENTS. ---------------------------- FOR THE PERIOD
JULY 1, 1993+ TO
DECEMBER 31,
1993
INCREASE (DECREASE) IN NET ASSET VALUE: 1995 1994
- ----------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 11.10 $ 10.95 $ 10.00
-------- ---------- ---------
--------------------------------------------------
Investment income--net .18 .17 .04
Realized and unrealized gain on investments and foreign
currency transactions--net 2.49 .08 .91
-------- ---------- ---------
--------------------------------------------------
Total from investment operations 2.67 .25 .95
-------- ---------- ---------
Less dividends and distributions:
Investment income--net (.19) (.10) --
Realized gain on investments--net (.48) -- --
-------- ---------- ---------
--------------------------------------------------
Total dividends and distributions (.67) (.10) --
-------- ---------- ---------
Net asset value, end of period $ 13.10 $ 11.10 $ 10.95
- ------ -- ------ - ------
-------- ---------- ---------
- ----------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:**
Based on net asset value per share 25.49% 2.36% 9.50%++
- ------ -- ------ - ------
-------- ---------- ---------
- ----------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses .66% .72% .86%*
- ------ -- ------ - ------
-------- ---------- ---------
Investment income--net 1.68% 2.08% 1.69%*
- ------ -- ------ - ------
-------- ---------- ---------
- ----------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of year (in thousands) $306,463 $164,307 $ 47,207
- ------ -- ------ - ------
-------- ---------- ---------
------------------ --
Portfolio turnover 74.10% 60.55% 30.86%
- ------ -- ------ - ------
-------- ---------- ---------
- ----------------------------------------------------------------------------------------------------------
* Annualized.
** Total investment returns exclude insurance-related fees and expenses.
+ Commencement of Operations.
++ Aggregate total investment return.
</TABLE>
See Notes to Financial Statements.
115
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C>
DEVELOPING CAPITAL
MARKETS FOCUS FUND
-----------------------------------------
-------------------------------------------
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE BEEN DERIVED
FROM INFORMATION PROVIDED IN THE FINANCIAL STATEMENTS. FOR THE FOR THE PERIOD
YEAR ENDED MAY 2, 1994+ TO
INCREASE (DECREASE) IN NET ASSET VALUE: DEC. 31, 1995 DEC. 31, 1994
- --------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period. . . . . . . . . . . . . . . . . . $ 9.51 $ 10.00
------------ ---------
-------------------------------------------
Investment income--net. . . . . . . . . . . . . . . . . . . . . . . . . .20 .09
Realized and unrealized loss on investments and foreign currency
transactions--net. . . . . . . . . . . . . . . . . . . . . . . . . . . (.30) (.58)
------------ ---------
-------------------------------------------
Total from investment operations. . . . . . . . . . . . . . . . . . . . (.10) (.49)
------------ ---------
Less dividends and distributions:
Investment income--net. . . . . . . . . . . . . . . . . . . . . . . . . (.09) --
Realized gain on investments--net. . . . . . . . . . . . . . . . . . . --
-- ---------
------------
-------------------------------------------
Total dividends and distributions. . . . . . . . . . . . . . . . . . . (.09) --
------------ ---------
Net asset value, end of period. . . . . . . . . . . . . . . . . . . . . $ 9.32 $ 9.51
-- -------- - ------
------------ ---------
- --------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:**
Based on net asset value per share. . . . . . . . . . . . . . . . . . . (1.08%) (4.90%)++
-- -------- - ------
------------ ---------
- --------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses, net of reimbursement. . . . . . . . . . . . . . . . . . . . . 1.25% 1.29%*
-- -------- - ------
------------ ---------
Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.36% 1.35%*
-- -------- - ------
------------ ---------
Investment income--net. . . . . . . . . . . . . . . . . . . . . . . . . 2.73% 2.18%*
-- -------- - ------
------------ ---------
- --------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of year (in thousands). . . . . . . . . . . . . . . . . $ 55,209 $ 36,676
-- -------- - ------
------------ ---------
------------------------ --
Portfolio turnover. . . . . . . . . . . . . . . . . . . . . . . . . . . 62.53% 29.79%
-- -------- - ------
------------ ---------
- --------------------------------------------------------------------------------------------------------------------
*Annualized.
** Total investment returns exclude insurance-related fees and expenses.
+Commencement of Operations.
++ Aggregate total investment return.
</TABLE>
See Notes to Financial Statements.
116
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
DOMESTIC MONEY MARKET FUND
------------------------------------------------------------------
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE BEEN FOR THE YEAR ENDED
DERIVED DECEMBER 31,
FROM INFORMATION PROVIDED IN THE FINANCIAL STATEMENTS. ---------------------------------------------------------
FOR THE PERIOD
INCREASE (DECREASE) IN NET ASSET VALUE: FEB. 20, 1992+
TO DEC. 31,
1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------------------- ---------- ---------- ---------
Investment income--net .0547 .0386 .0302 .0302
Realized and unrealized gain (loss) on investments and
foreign currency transactions--net .0012 (.0007) .0005 .0013
---------------------- ---------- ---------- ---------
Total from investment operations .0559 .0379 .0307 .0315
---------------------- ---------- ---------- ---------
Less dividends and distributions:
Investment income--net (.0547) (.0386) (.0302) (.0302)
Realized gain on investments--net (.0002) -- (.0005) (.0010)
---------------------- ---------- ---------- ---------
Total dividends and distributions (.0549) (.0386) (.0307) (.0312)
---------------------- ---------- ---------- ---------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ------------ -- ------ -- ------ - ------
---------------------- ---------- ---------- ---------
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:**
Based on net asset value per share 5.64% 3.94% 3.10% 3.65%*
-------- ------------ -- ------ -- ------ - ------
---------------------- ---------- ---------- ---------
- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses, net of reimbursement .55% .50% .36% .32%*
-------- ------------ -- ------ -- ------ - ------
---------------------- ---------- ---------- ---------
Expenses .55% .57% .63% .88%*
-------- ------------ -- ------ -- ------ - ------
---------------------- ---------- ---------- ---------
Investment income--net, and realized gain on 5.50% 4.02% 3.03% 3.48%*
investments--net -------- ------------ -- ------ -- ------ - ------
---------------------- ---------- ---------- ---------
- -----------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $ 303,912 $363,199 $170,531 $ 41,128
-------- ------------ -- ------ -- ------ - ------
---------------------- ---------- ---------- ---------
- -----------------------------------------------------------------------------------------------------------------------------------
* Annualized.
** Total investment returns exclude insurance-related fees and expenses.
+ Commencement of Operations.
</TABLE>
See Notes to Financial Statements.
117
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE BEEN DERIVED FROM
INFORMATION PROVIDED IN THE FINANCIAL STATEMENTS. EQUITY GROWTH FUND
-----------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
INCREASE (DECREASE) IN NET ASSET VALUE: 1995+ 1994+ 1993+ 1992+ 1991
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 19.26 $ 20.96 $ 17.80 $ 17.96 $ 11.98
-------- ---------- --------- --------- ---------
Investment income (loss)--net .17 .05 (.01) .01 .09
Realized and unrealized gain (loss) on investments and foreign currency
transactions--net 8.64 (1.56) 3.17 (.10) 5.91
-------- ---------- --------- --------- ---------
Total from investment operations 8.81 (1.51) 3.16 (.09) 6.00
-------- ---------- --------- --------- ---------
Less dividends and distributions:
Investment income--net (.09) -- --++ (.07) (.02)
Realized gain on investments--net -- (.19) -- -- --
-------- ---------- --------- --------- ---------
Total dividends and distributions (.09) (.19) -- (.07) (.02)
-------- ---------- --------- --------- ---------
Net asset value, end of year $ 27.98 $ 19.26 $ 20.96 $ 17.80 $ 17.96
- ------ -- ------ -- ----- -- ----- -- -----
-------- ---------- --------- --------- ---------
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:*
Based on net asset value per share 45.90% (7.27%) 17.78% (.53%) 50.10%
- ------ -- ------ -- ----- -- ----- -- -----
-------- ---------- --------- --------- ---------
- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses, net of reimbursement .81% .83% .96% 1.18% 1.25%
- ------ -- ------ -- ----- -- ----- -- -----
-------- ---------- --------- --------- ---------
Expenses .81% .83% .96% 1.18% 1.28%
- ------ -- ------ -- ----- -- ----- -- -----
-------- ---------- --------- --------- ---------
Investment income (loss)--net .72% .27% (.05%) .04% .51%
- ------ -- ------ -- ----- -- ----- -- -----
-------- ---------- --------- --------- ---------
- -----------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of year (in thousands) $339,921 $170,044 $98,976 $23,167 $11,318
- ------ -- ------ -- ----- -- ----- -- -----
-------- ---------- --------- --------- ---------
Portfolio turnover 96.79% 88.48% 131.75% 98.64% 79.10%
- ------ --------- -------- -- ----- --------
-------- ---------- --------- --------- ---------
- -----------------------------------------------------------------------------------------------------------------------------------
* Total investment returns exclude insurance-related fees and expenses.
+ Based on average shares outstanding during the period.
++ Amount is less than $.01 per share.
</TABLE>
See Notes to Financial Statements.
118
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE BEEN DERIVED
FROM INFORMATION PROVIDED IN THE FINANCIAL STATEMENTS. FLEXIBLE STRATEGY FUND
-------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSET VALUE: 1995+ 1994+ 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 14.70 $ 16.19 $ 14.15 $ 14.79 $ 12.55
---------- ---------- ---------- --------- ---------
Investment income--net .47 .37 .28 .33 .47
Realized and unrealized gain (loss) on investments and foreign
currency transactions--net 1.99 (1.02) 1.94 .25 2.52
---------- ---------- ---------- --------- ---------
Total from investment operations 2.46 (.65) 2.22 .58 2.99
---------- ---------- ---------- --------- ---------
Less dividends and distributions:
Investment income--net (.42) (.30) (.15) (.54) (.66)
Realized gain on investments--net (.27) (.54) (.03) (.68) (.09)
---------- ---------- ---------- --------- ---------
Total dividends and distributions (.69) (.84) (.18) (1.22) (.75)
---------- ---------- ---------- --------- ---------
Net asset value, end of year $ 16.47 $ 14.70 $ 16.19 $ 14.15 $ 14.79
- ------- -- ------ -- ------ -- ----- -- -----
---------- ---------- ---------- --------- ---------
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:*
Based on net asset value per share 17.40% (4.20%) 15.80% 4.25% 24.98%
- ------- -- ------ -- ------ -- ----- -- -----
---------- ---------- ---------- --------- ---------
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses .71% .73% .80% .90% .96%
- ------- -- ------ -- ------ -- ----- -- -----
---------- ---------- ---------- --------- ---------
Investment income--net 3.07% 2.52% 2.26% 2.62% 3.51%
- ------- -- ------ -- ------ -- ----- -- -----
---------- ---------- ---------- --------- ---------
- -----------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of year (in thousands) $ 320,234 $274,498 $194,777 $82,549 $55,221
- ------- -- ------ -- ------ -- ----- -- -----
---------- ---------- ---------- --------- ---------
Portfolio turnover 135.83% 65.54% 56.42% 55.25% 67.13%
--------- --------- -- ------ -- ----- --------
---------- ---------- ---------- --------- ---------
- -----------------------------------------------------------------------------------------------------------------------------
* Total investment returns exclude insurance-related fees and expenses.
+ Based on average shares outstanding during the period.
</TABLE>
See Notes to Financial Statements.
119
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
GLOBAL STRATEGY FOCUS FUND
--------------------------------------------------------------
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE BEEN DERIVED
FROM INFORMATION PROVIDED IN THE FINANCIAL STATEMENTS.
FOR THE YEAR ENDED
DECEMBER 31,
---------------------------------------
FOR THE PERIOD
INCREASE (DECREASE) IN NET ASSET VALUE: FEB. 28, 1992+ TO
1995 1994 1993 DECEMBER 31,1992
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 11.73 $ 12.17 $ 10.22 $ 10.00
-------- ---------- ---------- -----------
Investment income--net .39 .30 .16 .13
Realized and unrealized gain (loss) on investments and foreign
currency transactions--net .82 (.48) 1.96 .13
-------- ---------- ---------- -----------
Total from investment operations 1.21 (.18) 2.12 .26
-------- ---------- ---------- -----------
Less dividends and distributions:
Investment income--net (.39) (.21) (.17) (.04)
Realized gain on investments--net -- (.04) -- --
In excess of realized gain on investments--net --++ (.01) -- --
-------- ---------- ---------- -----------
Total dividends and distributions (.39) (.26) (.17) (.04)
-------- ---------- ---------- -----------
Net asset value, end of period $ 12.55 $ 11.73 $ 12.17 $ 10.22
- ------ -- ------ -- ------ -- -------
-------- ---------- ---------- -----------
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:**
Based on net asset value per share 10.60% (1.46%) 21.03% 2.62%++
- ------ -- ------ -- ------ -- -------
-------- ---------- ---------- -----------
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses, net of reimbursement .72% .77% .88% 1.25%*
- ------ -- ------ -- ------ -- -------
-------- ---------- ---------- -----------
Expenses .72% .77% .88% 1.35%*
- ------ -- ------ -- ------ -- -------
-------- ---------- ---------- -----------
Investment income--net 3.33% 2.85% 2.41% 2.66%*
- ------ -- ------ -- ------ -- -------
-------- ---------- ---------- -----------
- ------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $540,242 $515,407 $269,627 $ 15,527
- ------ -- ------ -- ------ -- -------
-------- ---------- ---------- -----------
Portfolio turnover 27.23% 21.03% 17.07% 14.47%
- ------ -- ------ -- ------ -- -------
-------- ---------- ---------- -----------
- ------------------------------------------------------------------------------------------------------------------------------
* Annualized.
** Total investment returns exclude insurance-related fees and expenses.
+ Commencement of Operations.
++ Amount is less than $.01 per share.
++ Aggregate total investment return.
</TABLE>
See Notes to Financial Statements.
120
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
GLOBAL UTILITY FOCUS FUND
------------------------------------------------
------------------------------------------------
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE BEEN DERIVED
FROM INFORMATION PROVIDED IN THE FINANCIAL STATEMENTS.
-- FOR THEYEAR ENDED
DECEMBER 31,
------------------------------ ----------------
FOR THE PERIOD
1994 JULY 1, 1993+ TO
1995 DECEMBER 31,1993
INCREASE (DECREASE) IN NET ASSET VALUE: --------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 9.45 $ 10.66 $ 10.00
-------- ---------- ----------
--------------------------------------------------
Investment income--net .45 .35 .04
Realized and unrealized gain (loss) on investments and
foreign currency transactions--net 1.79 (1.25) .64
-------- ---------- ----------
--------------------------------------------------
Total from investment operations 2.24 (.90) .68
-------- ---------- ----------
Less dividends and distributions:
Investment income--net (.39) (.29) (.02)
In excess of realized gain on investments--net -- (.02) --
-------- ---------- ----------
--------------------------------------------------
Total dividends and distributions (.39) (.31) (.02)
-------- ---------- ----------
Net asset value, end of period $ 11.30 $ 9.45 $ 10.66
- ------ -- ------ - -------
-------- ---------- ----------
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:**
Based on net asset value per share 24.33% (8.51%) 6.85%++
- ------ -- ------ - -------
-------- ---------- ----------
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses .66% .73% .89%*
- ------ -- ------ - -------
-------- ---------- ----------
Investment income--net 4.44% 3.68% 2.84%*
- ------ -- ------ - -------
-------- ---------- ----------
- ---------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $148,225 $126,243 $ 104,517
- ------ -- ------ - -------
-------- ---------- ----------
----------------- --
Portfolio turnover 11.05% 9.52% 1.72%
- ------ -- ------ - -------
-------- ---------- ----------
- ---------------------------------------------------------------------------------------------------------------------------
* Annualized.
** Total investment returns exclude insurance-related fees and expenses.
+ Commencement of Operations.
++ Aggregate total investment return.
</TABLE>
See Notes to Financial Statements.
121
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
HIGH CURRENT INCOME FUND
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE BEEN DERIVED -----------------------------------------------------------
FROM INFORMATION PROVIDED IN THE FINANCIAL STATEMENTS.
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
INCREASE (DECREASE) IN NET ASSET VALUE: 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 10.61 $ 12.06 $ 11.13 $ 10.23 $ 8.14
-------- ---------- ---------- --------- ---------
Investment income--net 1.09 1.05 .95 1.07 1.19
Realized and unrealized gain (loss) on investments and foreign
currency transactions--net .65 (1.47) .95 .90 2.10
-------- ---------- ---------- --------- ---------
Total from investment operations 1.74 (.42) 1.90 1.97 3.29
-------- ---------- ---------- --------- ---------
Less dividends and distributions:
Investment income--net (1.10) (1.03) (.97) (1.07) (1.20)
Realized gain on investments--net -- -- -- -- --
-------- ---------- ---------- --------- ---------
Total dividends and distributions (1.10) (1.03) (.97) (1.07) (1.20)
-------- ---------- ---------- --------- ---------
Net asset value, end of year $ 11.25 $ 10.61 $ 12.06 $ 11.13 $ 10.23
- ------ -- ------ -- ------ -- ----- -- -----
-------- ---------- ---------- --------- ---------
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:*
Based on net asset value per share 17.21% (3.59%) 17.84% 20.05% 43.00%
- ------ -- ------ -- ------ -- ----- -- -----
-------- ---------- ---------- --------- ---------
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses .55% .61% .72% .89% 1.10%
- ------ -- ------ -- ------ -- ----- -- -----
-------- ---------- ---------- --------- ---------
Investment income--net 9.92% 9.73% 8.62% 10.06% 12.49%
- ------ -- ------ -- ------ -- ----- -- -----
-------- ---------- ---------- --------- ---------
- ---------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of year (in thousands) $356,352 $255,719 $163,428 $26,343 $ 9,649
- ------ -- ------ -- ------ -- ----- -- -----
-------- ---------- ---------- --------- ---------
Portfolio turnover 41.60% 51.88% 35.67% 28.21% 51.54%
- ------ --------- -- ------ -- ----- --------
-------- ---------- ---------- --------- ---------
- ---------------------------------------------------------------------------------------------------------------------------
* Total investment returns exclude insurance-related fees and expenses.
</TABLE>
See Notes to Financial Statements.
122
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C>
INTERMEDIATE GOVERNMENT
BOND FUND
-------------------------------------------------
---------------------------------------------------
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE BEEN DERIVED
FROM INFORMATION PROVIDED IN THE FINANCIAL STATEMENTS. FOR THE FOR THE PERIOD
YEAR ENDED MAY 2, 1994+
INCREASE (DECREASE) IN NET ASSET VALUE: DECEMBER 31, 1995 TO DECEMBER 31, 1994
- ----------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period. . . . . . . . . . . . . . . . . $ 9.97 $ 10.00
------------- ------------
---------------------------------------------------
Investment income--net. . . . . . . . . . . . . . . . . . . . . . . . .62 .25
Realized and unrealized gain (loss) on investments and foreign currency
transactions--net. . . . . . . . . . . . . . . . . . . . . . . . . . . .81 (.07)
------------- ------------
---------------------------------------------------
Total from investment operations. . . . . . . . . . . . . . . . . . . 1.43 .18
------------- ------------
Less dividends and distributions:
Investment income--net. . . . . . . . . . . . . . . . . . . . . . . . (.61) (.21)
Realized gain on investments--net. . . . . . . . . . . . . . . . . . . .
-- --
------------- ------------
---------------------------------------------------
Total dividends and distributions. . . . . . . . . . . . . . . . . . . (.61) (.21)
------------- ------------
Net asset value, end of period. . . . . . . . . . . . . . . . . . . . $ 10.79 $ 9.97
--- -------- -- --------
------------- ------------
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:**
Based on net asset value per share. . . . . . . . . . . . . . . . . . 14.83% 1.79%++
--- -------- -- --------
------------- ------------
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses, net of reimbursement. . . . . . . . . . . . . . . . . . . . .00% .00%*
--- -------- -- --------
------------- ------------
Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .66% .80%*
--- -------- -- --------
------------- ------------
Investment income--net. . . . . . . . . . . . . . . . . . . . . . . . 6.28% 4.66%*
--- -------- -- --------
------------- ------------
- ----------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands). . . . . . . . . . . . . . . $ 40,996 $ 17,811
--- -------- -- --------
------------- ------------
---------------------------- --
Portfolio turnover. . . . . . . . . . . . . . . . . . . . . . . . . . 45.39% 103.03%
--- -------- -- --------
------------- ------------
- ----------------------------------------------------------------------------------------------------------------------------
*Annualized.
**Total investment returns exclude insurance-related fees and expenses.
+Commencement of Operations.
++Aggregate total investment return.
</TABLE>
See Notes to Financial Statements.
123
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C>
INTERNATIONAL BOND FUND
--------------------------------------------
----------------------------------------------
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE BEEN DERIVED
FROM INFORMATION PROVIDED IN THE FINANCIAL STATEMENTS. FOR THE FOR THE PERIOD
YEAR ENDED MAY 2, 1994+ TO
INCREASE (DECREASE) IN NET ASSET VALUE: DECEMBER 31, 1995 DECEMBER 31, 1994
- -----------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period. . . . . . . . . . . . . . . . . $ 9.70 $ 10.00
------------- ----------
----------------------------------------------
Investment income--net. . . . . . . . . . . . . . . . . . . . . . . . .72 .38
Realized and unrealized gain (loss) on investments and foreign currency
transactions--net. . . . . . . . . . . . . . . . . . . . . . . . . . . .82 (.35)
------------- ----------
----------------------------------------------
Total from investment operations. . . . . . . . . . . . . . . . . . . 1.54 .03
------------- ----------
Less dividends:
Investment income--net. . . . . . . . . . . . . . . . . . . . . . . . (.72) (.33)
------------- ----------
----------------------------------------------
Total dividends and distributions. . . . . . . . . . . . . . . . . . . (.72) (.33)
------------- ----------
Net asset value, end of period. . . . . . . . . . . . . . . . . . . . $ 10.52 $ 9.70
--- -------- - -------
------------- ----------
- -----------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:**
Based on net asset value per share. . . . . . . . . . . . . . . . . . 16.35% 0.37%++
--- -------- - -------
------------- ----------
- -----------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses, net of reimbursement. . . . . . . . . . . . . . . . . . . . .00% .00%*
--- -------- - -------
------------- ----------
Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .95% 1.08%*
--- -------- - -------
------------- ----------
Investment income--net. . . . . . . . . . . . . . . . . . . . . . . . 7.05% 6.34%*
--- -------- - -------
------------- ----------
- -----------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands). . . . . . . . . . . . . . . $ 18,121 $ 9,933
--- -------- - -------
------------- ----------
--------------------------- --
Portfolio turnover. . . . . . . . . . . . . . . . . . . . . . . . . . 2.23% 152.20%
--- -------- - -------
------------- ----------
- -----------------------------------------------------------------------------------------------------------------------
*Annualized.
**Total investment returns exclude insurance-related fees and expenses.
+Commencement of Operations.
++Aggregate total investment return.
</TABLE>
See Notes to Financial Statements.
124
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INTERNATIONAL EQUITY FOCUS FUND
---------------------------------------------------------
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE BEEN DERIVED ---------------------------------------------------------
FROM INFORMATION PROVIDED IN THE FINANCIAL STATEMENTS.
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------
FOR THE PERIOD
JULY 1, 1993+ TO
1995 1994 DECEMBER 31, 1993
INCREASE (DECREASE) IN NET ASSET VALUE: ---------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 10.90 $ 11.03 $ 10.00
---------- ------------ ---------
---------------------------------------------------------
Investment income--net .20 .19 .01
Realized and unrealized gain (loss) on investments and foreign
currency transactions--net .37 (.13) 1.02
---------- ------------ ---------
---------------------------------------------------------
Total from investment operations .57 .06 1.03
---------- ------------ ---------
Less dividends and distributions:
Investment income--net (.01) (.18) --
Realized gain on investments--net (.17) (.01) --
In excess of realized gain on investments--net (.23) -- --
---------- ------------ ---------
---------------------------------------------------------
Total dividends and distributions (.41) (.19) --
---------- ------------ ---------
Net asset value, end of period $ 11.06 $ 10.90 $ 11.03
- ------- --- ------- - ------
---------- ------------ ---------
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:**
Based on net asset value per share 5.48% .55% 10.30%++
- ------- --- ------- - ------
---------- ------------ ---------
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses .89% .97% 1.14%*
- ------- --- ------- - ------
---------- ------------ ---------
Investment income--net 1.95% 1.09% .30%*
- ------- --- ------- - ------
---------- ------------ ---------
- -----------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $ 265,602 $ 247,884 $ 76,906
- ------- --- ------- - ------
---------- ------------ ---------
----------------------- --
Portfolio turnover 100.02% 58.84% 17.39%
--------- --- ------- - ------
---------- ------------ ---------
- -----------------------------------------------------------------------------------------------------------------------------
* Annualized.
** Total investment returns exclude insurance-related fees and expenses.
+ Commencement of Operations.
++ Aggregate total investment return.
</TABLE>
See Notes to Financial Statements.
125
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE BEEN DERIVED
FROM INFORMATION PROVIDED IN THE FINANCIAL STATEMENTS. NATURAL RESOURCES FOCUS FUND
-------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------
INCREASE (DECREASE) IN NET ASSET VALUE: 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 10.82 $ 10.82 $ 9.84 $ 10.06 $ 10.17
------- --------- --------- --------- --------
Investment income--net .20 .17 .11 .18 .25
Realized and unrealized gain (loss) on investments and foreign
currency transactions--net 1.15 (.02) .92 (.05) (.11)
------- --------- --------- --------- --------
Total from investment operations 1.35 .15 1.03 .13 .14
------- --------- --------- --------- --------
Less dividends and distributions:
Investment income--net (.19) (.15) (.05) (.29) (.25)
Realized gain on investments--net (.03) -- -- (.06) --
------- --------- --------- --------- --------
Total dividends and distributions (.22) (.15) (.05) (.35) (.25)
------- --------- --------- --------- --------
Net asset value, end of year $ 11.95 $ 10.82 $ 10.82 $ 9.84 $10.06
- ----- -- ----- -- ----- -- ----- -- ----
------- --------- --------- --------- --------
- -----------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:*
Based on net asset value per share 12.65% 1.44% 10.47% 1.36% 1.36%
- ----- -- ----- -- ----- -- ----- -- ----
------- --------- --------- --------- --------
- -----------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses, net of reimbursement .78% .87% 1.13% 1.25% 1.25%
------ -- ----- -- ----- -- ----- -- ----
------- --------- --------- --------- --------
Expenses .78% .87% 1.13% 1.27% 1.30%
------ -- ----- -- ----- -- ----- -- ----
------- --------- --------- --------- --------
Investment income--net 1.75% 1.91% 1.34% 2.00% 2.31%
------ -- ----- -- ----- -- ----- -- ----
------- --------- --------- --------- --------
- -----------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of year (in thousands) $43,102 $39,715 $14,778 $ 4,144 $3,084
- ----- -- ----- -- ----- -- ----- -- ----
------- --------- --------- --------- --------
Portfolio turnover 30.15% 10.94% 58.44% 22.88% 31.38%
- ----- -------- -- ----- -- ----- -------
------- --------- --------- --------- --------
- -----------------------------------------------------------------------------------------------------------------------
* Total investment returns exclude insurance-related fees and expenses.
</TABLE>
See Notes to Financial Statements.
126
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE BEEN DERIVED
FROM INFORMATION PROVIDED IN THE FINANCIAL STATEMENTS. PRIME BOND FUND
-----------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
INCREASE (DECREASE) IN NET ASSET VALUE: 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 11.12 $ 12.64 $ 12.04 $ 12.02 $ 11.18
-------- ---------- ---------- --------- ---------
Investment income--net .82 .77 .70 .79 .90
Realized and unrealized gain (loss) on investments and foreign
currency transactions--net 1.34 (1.36) .71 .04 .84
-------- ---------- ---------- --------- ---------
Total from investment operations 2.16 (.59) 1.41 .83 1.74
-------- ---------- ---------- --------- ---------
Less dividends and distributions:
Investment income--net (.83) (.76) (.70) (.81) (.90)
Realized gain on investments--net -- -- (.11) -- --
In excess of realized gain on investments--net -- (.17) -- -- --
-------- ---------- ---------- --------- ---------
Total dividends and distributions (.83) (.93) (.81) (.81) (.90)
-------- ---------- ---------- --------- ---------
Net asset value, end of year $ 12.45 $ 11.12 $ 12.64 $ 12.04 $ 12.02
- ------ -- ------ -- ------ -- ----- -- -----
-------- ---------- ---------- --------- ---------
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:*
Based on net asset value per share 20.14% (4.80%) 12.02% 7.27% 16.41%
- ------ -- ------ -- ------ -- ----- -- -----
-------- ---------- ---------- --------- ---------
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses .50% .54% .63% .78% .78%
- ------ -- ------ -- ------ -- ----- -- -----
-------- ---------- ---------- --------- ---------
Investment income--net 7.00% 6.74% 5.86% 6.76% 7.94%
- ------ -- ------ -- ------ -- ----- -- -----
-------- ---------- ---------- --------- ---------
- ---------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of year (in thousands) $489,838 $391,234 $314,091 $84,810 $39,743
- ------ -- ------ -- ------ -- ----- -- -----
-------- ---------- ---------- --------- ---------
Portfolio turnover 90.12% 139.89% 115.26% 82.74% 152.18%
------- --------- --------- -------- --------
-------- ---------- ---------- --------- ---------
- ---------------------------------------------------------------------------------------------------------------------------
* Total investment returns exclude insurance-related fees and expenses.
</TABLE>
See Notes to Financial Statements.
127
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE BEEN DERIVED
FROM INFORMATION PROVIDED IN THE FINANCIAL STATEMENTS. QUALITY EQUITY FUND
-------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSET VALUE: 1995+ 1994+ 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 27.74 $ 29.02 $ 25.48 $ 26.35 $ 21.72
---------- ---------- ---------- --------- ---------
Investment income--net .58 .38 .24 .34 .43
Realized and unrealized gain (loss) on investments and foreign
currency transactions--net 5.48 (.74) 3.46 .32 5.75
---------- ---------- ---------- --------- ---------
Total from investment operations 6.06 (.36) 3.70 .66 6.18
---------- ---------- ---------- --------- ---------
Less dividends and distributions:
Investment income--net (.45) (.25) (.12) (.58) (.50)
Realized gain on investments--net (.59) (.67) (.04) (.95) (1.05)
---------- ---------- ---------- --------- ---------
Total dividends and distributions (1.04) (.92) (.16) (1.53) (1.55)
---------- ---------- ---------- --------- ---------
Net asset value, end of year $ 32.76 $ 27.74 $ 29.02 $ 25.48 $ 26.35
- ------- -- ------ -- ------ -- ----- -- -----
---------- ---------- ---------- --------- ---------
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:*
Based on net asset value per share 22.61% (1.20%) 14.57% 2.69% 30.18%
- ------- -- ------ -- ------ -- ----- -- -----
---------- ---------- ---------- --------- ---------
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses .51% .54% .62% .74% .79%
- ------- -- ------ -- ------ -- ----- -- -----
---------- ---------- ---------- --------- ---------
Investment income--net 1.94% 1.39% 1.07% 1.54% 1.87%
- ------- -- ------ -- ------ -- ----- -- -----
---------- ---------- ---------- --------- ---------
- -----------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of year (in thousands) $ 644,551 $464,360 $309,420 $87,977 $55,005
- ------- -- ------ -- ------ -- ----- -- -----
---------- ---------- ---------- --------- ---------
Portfolio turnover 140.32% 60.57% 88.25% 62.54% 55.83%
--------- --------- --------- -------- --------
---------- ---------- ---------- --------- ---------
- -----------------------------------------------------------------------------------------------------------------------------
* Total investment returns exclude insurance-related fees and expenses.
+ Based on average shares outstanding during the year.
</TABLE>
See Notes to Financial Statements.
128
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE BEEN DERIVED
FROM INFORMATION PROVIDED IN THE FINANCIAL STATEMENTS. RESERVE ASSETS FUND
---------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------
INCREASE (DECREASE) IN NET ASSET VALUE: 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- --------- --------- --------- ---------
Investment income--net .0543 .0371 .0268 .0320 .0546
Realized and unrealized gain (loss) on investments and foreign
currency transactions--net .0018 (.0009) .0005 .0007 .0014
------- --------- --------- --------- ---------
Total from investment operations .0561 .0362 .0273 .0327 .0560
------- --------- --------- --------- ---------
Less dividends and distributions:
Investment income--net (.0543) (.0362) (.0268) (.0320) (.0546)
Realized gain on investments--net (.0004) -- (.0005) (.0005) (.0014)+
------- --------- --------- --------- ---------
Total dividends and distributions (.0547) (.0362) (.0273) (.0325) (.0560)
------- --------- --------- --------- ---------
Net asset value, end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----- -- ----- -- ----- -- ----- -- -----
------- --------- --------- --------- ---------
- -------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:*
Based on net asset value per share 5.63% 3.80% 2.77% 3.29% 5.68%
- ----- -- ----- -- ----- -- ----- -- -----
------- --------- --------- --------- ---------
- -------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses .61% .65% .70% .79% .79%
- ----- -- ----- -- ----- -- ----- -- -----
------- --------- --------- --------- ---------
Investment income--net, and realized gain (loss)
on investments--net 5.47% 3.75% 2.73% 3.36% 5.64%
- ----- -- ----- -- ----- -- ----- -- -----
------- --------- --------- --------- ---------
- -------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of year (in thousands) $25,550 $32,196 $30,168 $26,767 $34,362
- ----- -- ----- -- ----- -- ----- -- -----
------- --------- --------- --------- ---------
* Total investment returns exclude insurance-related fees and expenses.
+ Includes unrealized gain (loss).
</TABLE>
See Notes to Financial Statements.
129
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
WORLD INCOME FOCUS FUND
------------------------------------------------
--------------------------------------------------
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE BEEN
DERIVED FROM INFORMATION PROVIDED IN THE FINANCIAL
STATEMENTS.
FOR THE YEAR ENDED
DECEMBER 31,
---------------------------- FOR THE PERIOD
JULY 1, 1993+ TO
DECEMBER 31,
1993
INCREASE (DECREASE) IN NET ASSET VALUE: 1995++ 1994
--------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 9.17 $ 10.38 $ 10.00
--------- --------- ---------
--------------------------------------------------
Investment income--net .85 .76 .25
Realized and unrealized gain (loss) on investments and
foreign currency transactions--net .61 (1.19) .33
--------- --------- ---------
--------------------------------------------------
Total from investment operations 1.46 (0.43) .58
--------- --------- ---------
Less dividends and distributions:
Investment income--net (.84) (.76) (.20)
Realized gain on investments--net -- --) --
In excess of realized gain on investments--net -- (.02 --
--------- --------- ---------
--------------------------------------------------
Total dividends and distributions (.84) (.78) (.20)
--------- --------- ---------
Net asset value, end of period $ 9.79 $ 9.17 $ 10.38
- ------ -- ----- - ------
--------- --------- ---------
- ---------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:**
Based on net asset value per share 16.69% (4.21%) 5.90%++
- ------ -- ----- - ------
--------- --------- ---------
- ---------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses .68% .75% .94%*
- ------ -- ----- - ------
--------- --------- ---------
Investment income--net 8.99% 8.01% 6.20%*
- ------ -- ----- - ------
--------- --------- ---------
- ---------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $ 81,845 $75,150 $ 50,737
- ------ -- ----- - ------
--------- --------- ---------
------------------- --
Portfolio turnover 132.57% 117.58% 54.80%
-------- -------- - ------
--------- --------- ---------
- ---------------------------------------------------------------------------------------------------------
* Annualized.
** Total investment returns exclude insurance-related fees and expenses.
+ Commencement of Operations.
++ Based on average shares outstanding during the period.
++ Aggregate total investment return.
</TABLE>
See Notes to Financial Statements.
130
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES:
Merrill Lynch Variable Series Funds, Inc. (the "Company") is an open-end
management investment company, which is comprised of 17 separate funds ("Funds"
or "Fund") offering 17 separate 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 Family Life Insurance
Company (an insurance company not affiliated with ML & Co.) for their separate
accounts to fund benefits under certain variable annuity contracts. Each Fund is
classified as "diversified", as defined in the Investment Company Act of 1940,
except for Developing Capital Markets Focus Fund, International Bond Fund and
the World Income Focus Fund, all of which are classified as "non- diversified".
The following is a summary of significant accounting policies followed by the
Funds.
(a) Valuation of investments-- Money market securities maturing more than sixty
days after the valuation date are valued at the most recent bid price or yield
equivalent as obtained from dealers that make markets in the securities. When
such securities are valued with sixty days or less to maturity, the difference
between the valuation existing on the sixty-first day before maturity and
maturity value is amortized on a straight- line basis to maturity. Investments
maturing within sixty days from their date of acquisition are valued at
amortized cost, which approximates market value.
Portfolio securities which 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 bid price or yield equivalent as
obtained from one or more dealers that make markets in such securities.
Portfolio securities which 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 are valued at the last sale price in
the case of exchange-traded options or, in the case of options traded in the
over-the-counter market, the last asked price. Options purchased are valued at
the last sale price in the case of exchange-traded options or, in the case of
options traded in the over-the-counter market, the last bid price. Futures
contracts are valued at settlement price at the close of the applicable
exchange. Securities 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
strategies to seek to increase its return by hedging its portfolio against
adverse movements in the equity, debt and currency markets. 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--Certain Funds are 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
Funds' records. However, the effect on operations is recorded from the date the
Funds enter into such contracts. Premium or discount is amortized over the life
of the contracts.
- - Options--Certain Funds may write and purchase call and put options. When a
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--Certain Funds may purchase or sell futures
contracts and options on such futures contracts for the purpose of hedging the
market risk on existing securities or the intended purchase of securities.
Futures contracts are contracts for delayed delivery of securities at a specific
future date and at a specific price or yield. Upon entering into a contract, the
Funds deposit and maintain as collateral such initial margin as required by the
exchange on which the transaction is effected. Pursuant to the contract, the
Funds agree 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 Funds as unrealized gains or losses.
When the contract is closed, the Funds record 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--Certain Funds may also purchase or sell
listed or over-the-
131
<PAGE>
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 Funds, sold by the
Funds but not yet delivered, or committed or anticipated to be purchased by the
Funds.
(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 Company'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 except that if the
ex-dividend date has passed, certain dividends from foreign securities are
recorded as soon as the Fund is informed of the ex-dividend date. Interest
income (including amortization of premium and discount) is recognized on the
accrual basis. Realized gains and losses on security transactions are determined
on the identified cost basis.
(f) Deferred organization expenses and prepaid registration fees--Deferred
organization expenses are charged to expense on a straight-line basis over a
five- year period. Prepaid registration fees are charged to expense as the
related shares are issued.
(g) Dividends and distributions--Dividends and distributions paid by the Funds
are recorded on the ex- dividend dates.
(h) Custodian Bank--The Fund recorded an amount payable to the Custodian Bank
reflecting an overnight overdraft which resulted from a failed trade which
settled the next day.
(i) Reclassification--Generally accepted accounting principles require that
certain components of net assets be reclassified to reflect permanent
differences between financial reporting and tax purposes. These
reclassifications have no effect on net assets or net asset values per share.
(i) Reclassification--Generally accepted accounting principles require that
certain components of net assets be reclassified to reflect permanent
differences between financial reporting and tax purposes. These
reclassifications have no effect on net assets or net asset values per share.
2. INVESTMENT ADVISORY AGREEMENT AND
TRANSACTIONS WITH AFFILIATES:
The Company has entered into an Investment Advisory Agreement with Merrill
Lynch Asset Management, L.P. ("MLAM"). The general partner of MLAM is Princeton
Services, Inc. ("PSI"), an indirect, wholly-owned subsidiary of ML & Co., which
is the limited partner. MLAM is responsible for the management of the Company's
portfolios and provides the necessary personnel, facilities, equipment and
certain other services necessary to the operations of the Funds.
For such services, the Company pays a monthly fee based upon the average daily
value of each Fund's net assets at the following annual rates: 0.75% of the
average daily net assets of the Equity Growth Fund and International Equity
Focus Fund, 0.65% of the average daily net assets of each of the Flexible
Strategy Fund, Natural Resources Focus Fund and Global Strategy Focus Fund,
0.55% of the average daily net assets of the American Balanced Fund, 0.50% of
the average daily net assets of each of the Domestic Money Market Fund and
Intermediate Government Bond Fund, 0.60% of the average daily net assets of each
of the Basic Value Focus Fund, International Bond Fund, World Income Focus Fund,
Global Utility Focus Fund, 1.00% of the average daily net assets of the
Developing Capital Markets Focus Fund, and at the following annual rates with
respect to the other Funds:
<TABLE>
<CAPTION>
<S> <C> <C>
RESERVE ASSETS FUND
--------------------------
Portion of average daily value of net assets of the Fund:
- ---------------------------------------------------------------------
ADVISORY
FEE
- ---------------------------------------------------------------------
Not exceeding $500 million. . . . . . . . . . . . . . . 0.500%
In excess of $500 million but not exceeding $750
million. . . . . . . . . . . . . . . . . . . . . . . . . 0.425%
- -----------------------------------------------------------
In excess of $750 million but not exceeding $1 billion. 0.375%
In excess of $1 billion but not exceeding $1.5 billion. 0.350%
In excess of $1.5 billion but not exceeding $2 billion. 0.325%
In excess of $2 billion but not exceeding $2.5 billion. 0.300%
In excess of $2.5 billion. . . . . . . . . . . . . . . . 0.275%
- ---------------------------------------------------------------------
QUALITY EQUITY FUND
- ---------------------------------------------------------------------
Portion of average daily value of net assets of the Fund:
- ---------------------------------------------------------------------
ADVISORY
FEE
- ---------------------------------------------------------------------
Not exceeding $250 million. . . . . . . . . . . . . . . 0.500%
In excess of $250 million but not exceeding $300
million. . . . . . . . . . . . . . . . . . . . . . . . . 0.450%
- -----------------------------------------------------------
In excess of $300 million but not exceeding $400
million. . . . . . . . . . . . . . . . . . . . . . . . . 0.425%
In excess of $400 million. . . . . . . . . . . . . . . . 0.400%
- ---------------------------------------------------------------------
PRIME BOND FUND AND HIGH CURRENT INCOME FUND
- ---------------------------------------------------------------------
Portion of aggregate average daily value of net assets
of both Funds:
- ---------------------------------------------------------------------
ADVISORY FEE
- ---------------------------------------------------------------------
HIGH CURRENT PRIME
INCOME BOND
FUND FUND
- ---------------------------------------------------------------------
Not exceeding $250 million. . . . . . . . 0.55% 0.50%
In excess of $250 million but not more
than $500 million. . . . . . . . . . . . 0.50% 0.45%
- -------------------------------------------
In excess of $500 million but not more
than $750 million. . . . . . . . . . . . 0.45% 0.40%
In excess of $750 million. . . . . . . . 0.40% 0.35%
- ---------------------------------------------------------------------
</TABLE>
132
<PAGE>
The Investment Advisory Agreement obligates MLAM to reimburse the Company, if
in any year the aggregate ordinary operating expenses of any Fund exceed the
most restrictive expense limitations then in effect under any state securities
law or the regulations thereunder. Under the most restrictive state regulations
presently in effect, MLAM would be required to reimburse each Fund for advisory
fees received by it from the Fund, to the extent that such Fund's aggregate
ordinary operating expenses (excluding interest, taxes, brokerage fees and
commissions, and extraordinary items) exceed in any fiscal year 2.5% of each
Fund's first $30 million of average daily net assets, 2.0% of the Fund's next
$70 million of average daily net assets, and 1.5% of average daily net assets in
excess thereof. In addition, MLAM, and Merrill Lynch Life Agency, Inc. ("MLLA")
have entered into an agreement which limits the operating expenses paid by each
Fund to 1.25% of its average daily net assets. Any expenses in excess of 1.25%
of average daily net assets will be reimbursed to each Fund by MLAM which, in
turn, will be reimbursed by MLLA.
For the Developing Capital Markets Focus Fund for the year ended December 31,
1995, MLAM earned fees of $434,062, of which $49,477 was voluntarily waived.
For the Intermediate Government Bond Fund for the year ended December 31, 1995,
MLAM earned fees of $143,117, all of which was voluntarily waived. MLAM has also
reimbursed the Fund $46,888 in additional expenses.
For the International Bond Fund for the year ended December 31, 1995, MLAM
earned fees of $70,573, all of which was voluntarily waived. MLAM has also
reimbursed the Fund for $41,688 in additional expenses.
For the year ended December 31, 1995, Merrill Lynch, Pierce, Fenner & Smith,
Inc. ("MLPF&S"), an affiliate of MLAM, earned commissions on the execution of
portfolio security transactions aggregating $8,555 in the American Balanced
Fund, $19,224 in the Basic Value Focus Fund, $15,316 in the Developing Capital
Markets Focus Fund, $25,801 in the Flexible Strategy Fund, $98,716 in the Global
Strategy Focus Fund, $2,568 in the Global Utility Focus Fund, $2,500 in the High
Current Income Fund, $30,505 in the International Equity Focus Fund, $1,182 in
the Natural Resources Focus Fund, and $60,632 in the Quality Equity Fund.
Accounting services are provided to the Company by MLAM at cost.
For the year ended December 31, 1995, American Balanced Fund, Flexible Strategy
Fund, Global Utility Focus Fund, High Current Income Fund, Intermediate
Government Bond Fund, Prime Bond Fund and World Income Focus Fund paid Merrill
Lynch Security Pricing Service, an affiliate of MLPF&S, $473, $368, $38,
$10,932, $439, $7,041 and $4,613, respectively, for security price quotations to
compute the net asset value of the Funds.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-owned
subsidiary of ML & Co., is the Company's transfer agent.
Certain officers and/or directors of the Company are officers and/or directors
of MLAM, PSI, MLFDS, Merrill Lynch Funds Distributor, Inc., a wholly-owned
subsidiary of Merrill Lynch Group, Inc., which is the Fund's distributor, and/or
ML & Co.
3. INVESTMENTS:
Purchases and sales of investments, excluding short- term securities, for the
year ended December 31, 1995 were as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
PURCHASES SALES
- ---------------------------------------------------------------------
American Balanced Fund. . . . . . . . $ 65,295,830 $ 65,975,700
- --------------------------------------- ------------ ------------
Basic Value Focus Fund. . . . . . . . 245,165,235 160,870,634
Developing Capital Markets Focus Fund 36,531,034 20,370,629
- --------------------------------------- ---------------
Domestic Money Market Fund. . . . . . -- --
Equity Growth Fund. . . . . . . . . . 257,504,664 214,370,372
- --------------------------------------- ---------------
Flexible Strategy Fund. . . . . . . . 312,054,813 423,274,421
Global Strategy Focus Fund. . . . . . 132,976,697 312,046,775
- --------------------------------------- ---------------
Global Utility Focus Fund. . . . . . 13,896,690 22,670,209
High Current Income Fund. . . . . . . 189,555,307 118,831,902
- --------------------------------------- ---------------
Intermediate Government Bond Fund. . 38,570,516 9,311,094
International Bond Focus Fund. . . . 30,310,797 23,635,078
- --------------------------------------- ---------------
International Equity Focus Fund. . . 199,921,987 224,352,372
Natural Resources Focus Fund. . . . . 14,806,417 11,543,043
- --------------------------------------- ---------------
Prime Bond Fund. . . . . . . . . . . 421,783,779 369,712,587
Quality Equity Fund. . . . . . . . . 628,072,841 759,764,651
- --------------------------------------- ---------------
Reserve Assets Fund. . . . . . . . . -- --
World Income Focus Fund. . . . . . . 94,569,249 88,910,273
- ---------------------------------------------------------------------
</TABLE>
133
<PAGE>
Transactions in options written for the year ended December 31, 1995, were as
follows:
<TABLE>
<CAPTION>
<S> <C> <C>
FLEXIBLE STRATEGY FUND
- ----------------------------------------------------------------------------------
SHARES
COVERED BY
WRITTEN PREMIUMS
CALL OPTIONS WRITTEN OPTIONS RECEIVED
- ----------------------------------------------------------------------------------
Outstanding call options written, beginning of year 16,000 $ 20,528
Options written. . . . . . . . . . . . . . . . . . 73,000 94,386
Options closed. . . . . . . . . . . . . . . . . . . (56,000) (62,093)
Options exercised. . . . . . . . . . . . . . . . . (33,000) (52,821)
---------- ------------
Outstanding call options written, end of year. . . -- $ --
---------- ------------
--------- -- --------
- ----------------------------------------------------------------------------------
INTERNATIONAL EQUITY FOCUS FUND
- ----------------------------------------------------------------------------------
NUMBER
OF PREMIUMS
CALL OPTIONS WRITTEN CONTRACTS RECEIVED
- ----------------------------------------------------------------------------------
Outstanding call options written, beginning of year 3 $ 357,100
Options written. . . . . . . . . . . . . . . . . . 13 1,140,031
Options expired. . . . . . . . . . . . . . . . . . (10) (974,231)
(5) (468,647)
Options closed. . . . . . . . . . . . . . . . . . . ---------- ---------
Outstanding call options written, end of year. . . 1 $ 54,253
---------- ------------
--------- -- --------
- ----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
INTERNATIONAL EQUITY FOCUS FUND
- -------------------------------------------------------------------------------
NUMBER OF PREMIUMS
PUT OPTIONS WRITTEN CONTRACTS RECEIVED
- -------------------------------------------------------------------------------
Outstanding put options written, beginning of year. . 3 $ 215,822
Options written. . . . . . . . . . . . . . . . . . . 2 55,738
Options expired. . . . . . . . . . . . . . . . . . . (3) (114,012)
Options exercised. . . . . . . . . . . . . . . . . . (1) (136,111)
--------- -----------
Outstanding put options written, end of year. . . . . 1 $ 21,437
--------- -----------
-------- -- -------
- -------------------------------------------------------------------------------
QUALITY EQUITY FUND
- -------------------------------------------------------------------------------
NUMBER OF
SHARES PREMIUMS
CALL OPTIONS WRITTEN COVERED RECEIVED
- -------------------------------------------------------------------------------
Outstanding call options written, beginning of period 28,700 $ 35,167
Options written. . . . . . . . . . . . . . . . . . . 256,500 461,990
Options expired. . . . . . . . . . . . . . . . . . . (4,400) (5,551)
Options closed. . . . . . . . . . . . . . . . . . . . (106,000) (110,673)
Options exercised. . . . . . . . . . . . . . . . . . (174,800) (380,933)
--------- -----------
Outstanding call options written, end of period. . . -- $ --
--------- -----------
-------- -- -------
- -------------------------------------------------------------------------------
WORLD INCOME FOCUS FUND
- -------------------------------------------------------------------------------
NUMBER OF PREMIUMS
CALL OPTIONS WRITTEN CONTRACTS RECEIVED
- -------------------------------------------------------------------------------
Outstanding call options written, beginning of year. 2 $ 10,100
Options written. . . . . . . . . . . . . . . . . . . 8 63,379
Options expired. . . . . . . . . . . . . . . . . . . (8) (63,834)
(2) (9,645)
Options closed. . . . . . . . . . . . . . . . . . . . --------- -----------
Outstanding call options written, end of year. . . . -- $ --
--------- -----------
-------- -- -------
- -------------------------------------------------------------------------------
NUMBER OF PREMIUMS
PUT OPTIONS WRITTEN CONTRACTS RECEIVED
- -------------------------------------------------------------------------------
Outstanding put options written, beginning of year. . -- $ --
Options written. . . . . . . . . . . . . . . . . . . 6 104,585
Options expired. . . . . . . . . . . . . . . . . . . (1) (43,651)
(5) (60,934)
Options closed. . . . . . . . . . . . . . . . . . . . --------- --------
Outstanding put options written, end of year. . . . . -- $ --
--------- -----------
-------- -- -------
- -------------------------------------------------------------------------------
</TABLE>
At December 31, 1995, net unrealized appreciation/
depreciation and aggregate cost for Federal income tax purposes were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
DEVELOPING
BASIC CAPITAL DOMESTIC
AMERICAN VALUE MARKETS MONEY
BALANCED FOCUS FOCUS MARKET
FUND FUND FUND FUND
- ---------------------------------------------------------------------------------------
Appreciated securities $ 22,263,476 $ 39,327,571 $ 4,311,192 $ 147,439
Depreciated securities (857,460) (10,416,762) (4,933,203) (9,156)
-------------- -------------- ------------- --------------
Net unrealized
appreciation
(depreciation). . . $ 21,406,016 $ 28,910,809 $ (622,011) $ 138,283
-------------- -------------- ------------- --------------
-- ---------- -- ---------- -- --------- -- ----------
Cost for Federal income
tax purposes*. . . . $185,759,935 $279,800,372 $55,427,713 $307,183,519
-------------- -------------- ------------- --------------
-- ---------- -- ---------- -- --------- -- ----------
- ---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
GLOBAL GLOBAL
EQUITY FLEXIBLE STRATEGY UTILITY
GROWTH STRATEGY FOCUS FOCUS
FUND FUND FUND FUND
- -----------------------------------------------------------------------------------------------
Appreciated securities. . . $ 60,814,076 $ 14,855,401 $ 40,662,038 $ 18,532,091
Depreciated securities. . . (13,386,221) (2,274,036) (3,860,374) (4,134,931)
-------------- -------------- -------------- ----------------
Net unrealized appreciation $ 47,427,855 $ 12,581,365 $ 36,801,664 $ 14,397,160
-------------- -------------- -------------- ----------------
-- ---------- -- ---------- -- ---------- --- -----------
Cost for Federal income
tax purposes*. . . . . . . $291,588,043 $308,461,552 $491,055,965 $ 132,394,937
-------------- -------------- -------------- ----------------
-- ---------- -- ---------- -- ---------- --- -----------
- -----------------------------------------------------------------------------------------------
HIGH INTERMEDIATE INTERNATIONAL
CURRENT GOVERNMENT INTERNATIONAL EQUITY
INCOME BOND BOND FOCUS
FUND FUND FUND FUND
- -----------------------------------------------------------------------------------------------
Appreciated securities. . . $ 13,031,721 $ 1,963,839 $ 625,527 $ 17,847,559
Depreciated securities. . . (21,359,277) -- (54,136) (11,513,815)
-------------- -------------- -------------- ----------------
Net unrealized appreciation
(depreciation). . . . . . . $ (8,327,556) $ 1,963,839 $ 571,391 $ 6,333,744
-------------- -------------- -------------- ----------------
-- ---------- -- ---------- -- ---------- --- -----------
Cost for Federal income
tax purposes*. . . . . . . $358,492,202 $ 38,402,603 $ 16,888,004 $ 249,042,053
-------------- -------------- -------------- ----------------
-- ---------- -- ---------- -- ---------- --- -----------
- -----------------------------------------------------------------------------------------------
NATURAL
RESOURCES PRIME QUALITY RESERVE
FOCUS BOND EQUITY ASSETS
FUND FUND FUND FUND
- -----------------------------------------------------------------------------------------------
Appreciated securities. . . $ 4,381,714 $ 26,498,632 $ 37,609,153 $ 14,248
Depreciated securities. . . (1,748,826) (1,833,902) (6,771,828) (299)
-------------- -------------- -------------- ----------------
Net unrealized appreciation $ 2,632,888 $ 24,664,730 $ 30,837,325 $ 13,949
-------------- -------------- -------------- ----------------
-- ---------- -- ---------- -- ---------- --- -----------
Cost for Federal income
tax purposes*. . . . . . . $ 40,504,115 $456,221,014 $616,244,581 $ 25,876,014
-------------- -------------- -------------- ----------------
-- ---------- -- ---------- -- ---------- --- -----------
- -----------------------------------------------------------------------------------------------
WORLD
INCOME
FOCUS
FUND
- -----------------------------------------------------------------------------------------------
Appreciated securities. . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,648,210
Depreciated securities. . . . . . . . . . . . . . . . . . . . . . . . . . (2,992,768)
----------------
Net unrealized depreciation. . . . . . . . . . . . . . . . . . . . . . . . $ (344,558)
----------------
--- -----------
Cost for Federal income tax purposes*. . . . . . . . . . . . . . . . . . . $ 79,792,576
----------------
--- -----------
- -----------------------------------------------------------------------------------------------
</TABLE>
* Net of premiums received on options written.
134
<PAGE>
At December 31, 1995, net realized and unrealized gains (losses) were as
follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
AMERICAN BASIC VALUE
BALANCED FUND FOCUS FUND
------------------------------------ -------------------------------
Realized Unrealized Realized Unrealized
Losses Gains Gains Gains
- ----------------------------------------------------------------------------------------------
Long-term investments. $ (311,135) $21,406,016 $ 13,595,994 $ 29,353,531
Short-term investments (257) -- -- --
--------------------- ------------- ----------------- -------------
$ (311,392) $21,406,016 $ 13,595,994 $ 29,353,531
--------------------- ------------- ----------------- -------------
------ ------------- -- --------- ---- ----------- - ----------
DEVELOPING CAPITAL DOMESTIC MONEY
MARKETS FOCUS FUND MARKET FUND
------------------------------------ -------------------------------
Realized Unrealized
Gains Gains Realized Unrealized
(Losses) (Losses) Gains Gains
- ----------------------------------------------------------------------------------------------
Long-term investments. $ (3,328,515) $ (542,156) -- --
Short-term investments (108) -- $ 44,778 $ 138,283
Foreign currency
transactions. . . . . 198,982 313 -- --
--------------------- ------------- ----------------- -------------
$ (3,129,641) $ (541,843) $ 44,778 $ 138,283
--------------------- ------------- ----------------- -------------
------ ------------- -- --------- ---- ----------- - ----------
- ----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
EQUITY GROWTH FLEXIBLE STRATEGY
FUND FUND
----------------------------------- ---------------------------------------
Realized Realized Unrealized
Gains Unrealized Gains Gains
(Losses) Gains (Losses) (Losses)
- -----------------------------------------------------------------------------------------------------------
Long-term investments. . $ 45,386,271 $47,585,644 $ 25,424,239 $ 12,581,365
Short-term investments. . (393) -- (349) --
Options written. . . . . -- -- 48,220 --
Foreign currency
transactions. . . . . . . -- -- 1,579,908 (379)
-------------------- ------------- ------------------------- -------------
$ 45,385,878 $47,585,644 $ 27,052,018 $ 12,580,986
-------------------- ------------- ------------------------- -------------
----- ------------- -- --------- -------- --------------- - ----------
- -----------------------------------------------------------------------------------------------------------
GLOBAL STRATEGY GLOBAL UTILITY
FOCUS FUND FOCUS FUND
----------------------------------- ---------------------------------------
Realized Realized
Gains Unrealized Gains Unrealized
(Losses) Gains (Losses) Gains
- -----------------------------------------------------------------------------------------------------------
Long-term investments. . $ (19,050,016) $36,801,664 $ (2,381,425) $ 14,397,160
Short-term investments. . 107 -- -- --
Forward foreign exchange
contracts. . . . . . . . (6,045,348) 9,681,629 -- --
Foreign currency
transactions. . . . . . . 1,715,205 1,061 1,247 10,458
-------------------- ------------- ------------------------- -------------
$ (23,380,052) $46,484,354 $ (2,380,178) $ 14,407,618
-------------------- ------------- ------------------------- -------------
----- ------------- -- --------- -------- --------------- - ----------
- -----------------------------------------------------------------------------------------------------------
HIGH CURRENT INTERMEDIATE GOVERNMENT
INCOME FUND BOND FUND
----------------------------------- ---------------------------------------
Realized
Realized Unrealized Gains Unrealized
Gains Losses (Losses) Gains
- -----------------------------------------------------------------------------------------------------------
Long-term investments. . $ 589,358 $(8,009,646) $ 194,164 $ 1,963,839
Short-term investments. . -- -- (1,182) --
-------------- ---------- ---------------- -----------
$ 589,358 $(8,009,646) $ 192,982 $ 1,963,839
-------------------- ------------- ------------------------- -------------
----- ------------- -- --------- -------- --------------- - ----------
- -----------------------------------------------------------------------------------------------------------
INTERNATIONAL BOND INTERNATIONAL EQUITY
FUND FOCUS FUND
----------------------------------- ---------------------------------------
Realized Realized Unrealized
Gains Unrealized Gains Gains
(Losses) Gains (Losses) (Losses)
- -----------------------------------------------------------------------------------------------------------
Long-term investments. . $ 333,743 $ 571,391 $ (6,622,084) $ 6,597,252
Short-term investments. . 124 -- 3,728 (149)
Stock Index futures
contracts. . . . . . . . -- -- (347,201) 1,488,119
Options purchased. . . . -- -- (195,887) 191,405
Options written. . . . . -- -- (220,353) 35,670
Foreign currency
transactions. . . . . . . 134,942 145 79,053 32,677
Forward foreign exchange
contracts. . . . . . . . (267,610) -- (1,444,242) (267,385)
Currency options written. -- -- 1,217,268 --
Currency options
purchased. . . . . . . . -- -- 112,255 1,212,747
-------------------- ------------- ------------------------- -------------
$ 201,199 $ 571,536 $ (7,417,463) $ 9,290,336
-------------------- ------------- ------------------------- -------------
----- ------------- -- --------- -------- --------------- - ----------
- -----------------------------------------------------------------------------------------------------------
NATURAL RESOURCES PRIME BOND
FOCUS FUND FUND
----------------------------------- ---------------------------------------
Realized Realized
Gains Unrealized Gains Unrealized
(Losses) Gains (Losses) Gains
- -----------------------------------------------------------------------------------------------------------
Long-term investments. . $ 797,755 $ 2,632,888 $ 2,851,304 $ 24,731,783
Short-term investments. . (16) -- (378) --
Foreign currency
transactions. . . . . . . (8,179) 32 -- --
-------------------- ------------- ------------------------- -------------
$ 789,560 $ 2,632,920 $ 2,850,926 $ 24,731,783
-------------------- ------------- ------------------------- -------------
----- ------------- -- --------- -------- --------------- - ----------
- -----------------------------------------------------------------------------------------------------------
QUALITY EQUITY RESERVE ASSETS
FUND FUND
----------------------------------- ---------------------------------------
Realized
Gains Unrealized Realized Unrealized
(Losses) Gains Gains Gains
- -----------------------------------------------------------------------------------------------------------
Long-term investments. . $ 84,499,995 $30,837,325 -- --
Short-term investments. . (1,446) -- $ 10,309 $ 13,949
Options written. . . . . 90,676 -- -- --
-------------- ---------- ---------------- -----------
$ 84,589,225 $30,837,325 $ 10,309 $ 13,949
-------------------- ------------- ------------------------- -------------
----- ------------- -- --------- -------- --------------- - ----------
- -----------------------------------------------------------------------------------------------------------
WORLD INCOME
FOCUS FUND
-----------------------------------
Realized Unrealized
Gains Gains
(Losses) (Losses)
- -----------------------------------------------------------------------------------------------------------
Long-term investments. . $ 1,101,384 $ (344,558)
Short-term investments. . 207 --
Financial futures contracts (255,051) --
Currency options written. (5,716) --
Currency options
purchased. . . . . . . . (104,248) --
Foreign currency
transactions. . . . . . . 806,962 19,665
Forward foreign exchange
contracts. . . . . . . . (1,033,251) (5,151)
-------------------- -------------
$ 510,287 $ (330,044)
-------------------- -------------
----- ------------- -- ---------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
135
<PAGE>
4. CAPITAL SHARE TRANSACTIONS:
Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
AMERICAN BALANCED FUND
- ----------------------------------------------------------------------------
For the Year Ended Dollar
December 31, 1995 Shares Amount
- ----------------------------------------------------------------------------
Shares sold. . . . . . . . . . . . . . . . . . 2,201,026 $ 30,814,364
Shares issued to shareholders in reinvestment of
dividends. . . . . . . . . . . . . . . . . . . 529,259 7,173,644
--------- --------------
Total issued. . . . . . . . . . . . . . . . . . 2,730,285 37,988,008
Shares redeemed. . . . . . . . . . . . . . . . (850,020) (12,151,661)
--------- --------------
Net increase. . . . . . . . . . . . . . . . . . 1,880,265 $ 25,836,347
--------- --------------
-------- -- ----------
- ----------------------------------------------------------------------------
For the Year Ended Dollar
December 31, 1994 Shares Amount
- ----------------------------------------------------------------------------
Shares sold. . . . . . . . . . . . . . . . . . 4,208,232 $ 56,940,222
Shares issued to shareholders in reinvestment of
dividends and distributions. . . . . . . . . . 308,791 4,107,209
--------- --------------
Total issued. . . . . . . . . . . . . . . . . . 4,517,023 61,047,431
Shares redeemed. . . . . . . . . . . . . . . . (565,599) (7,507,172)
--------- --------------
Net increase. . . . . . . . . . . . . . . . . . 3,951,424 $ 53,540,259
--------- --------------
-------- -- ----------
- ----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
BASIC VALUE FOCUS FUND
- ----------------------------------------------------------------------------------------
For the Year Ended Dollar
December 31, 1995 Shares Amount
- ----------------------------------------------------------------------------------------
Shares sold. . . . . . . . . . . . . . . . . . . . . . . . 7,762,209 $ 98,591,635
Shares issued to shareholders in reinvestment of
dividends and distributions. . . . . . . . . . . . . . . . 1,538,264 10,403,524
---------- --------------
Total issued. . . . . . . . . . . . . . . . . . . . . . . 9,300,473 108,995,159
Shares redeemed. . . . . . . . . . . . . . . . . . . . . . (711,444) (8,076,571)
---------- --------------
Net increase. . . . . . . . . . . . . . . . . . . . . . . 8,589,029 $ 100,918,588
---------- --------------
--------- -- ----------
- ----------------------------------------------------------------------------------------
For the Year Ended Dollar
December 31, 1994 Shares Amount
- ----------------------------------------------------------------------------------------
Shares sold. . . . . . . . . . . . . . . . . . . . . . . . 10,501,448 $ 115,102,779
Shares issued to shareholders in reinvestment of dividends 87,071 928,253
---------- --------------
Total issued. . . . . . . . . . . . . . . . . . . . . . . 10,588,519 116,031,032
Shares redeemed. . . . . . . . . . . . . . . . . . . . . . (99,204) (1,078,972)
---------- --------------
Net increase. . . . . . . . . . . . . . . . . . . . . . . 10,489,315 $ 114,952,060
---------- --------------
--------- -- ----------
- ----------------------------------------------------------------------------------------
DEVELOPING CAPITAL MARKETS FOCUS FUND
- ----------------------------------------------------------------------------------------
For the Year Ended Dollar
December 31, 1995 Shares Amount
- ----------------------------------------------------------------------------------------
Shares sold. . . . . . . . . . . . . . . . . . . . . . . . 2,555,725 $ 23,265,598
Shares issued to shareholders in reinvestment of
dividends. . . . . . . . . . . . . . . . . . . . . . . . . 36,009 332,002
---------- --------------
Total issued. . . . . . . . . . . . . . . . . . . . . . . 2,591,734 23,597,600
Shares redeemed. . . . . . . . . . . . . . . . . . . . . . (525,636) (4,592,826)
---------- --------------
Net increase. . . . . . . . . . . . . . . . . . . . . . . 2,066,098 $ 19,004,774
---------- --------------
--------- -- ----------
- ----------------------------------------------------------------------------------------
For the Period May 2, 1994+ to Dollar
December 31, 1994 Shares Amount
- ----------------------------------------------------------------------------------------
Shares sold. . . . . . . . . . . . . . . . . . . . . . . . 3,089,579 $ 31,702,122
Shares redeemed. . . . . . . . . . . . . . . . . . . . . . (33,668) (339,498)
---------- --------------
Net increase. . . . . . . . . . . . . . . . . . . . . . . 3,055,911 $ 31,362,624
---------- --------------
--------- -- ----------
- ----------------------------------------------------------------------------------------
</TABLE>
+Prior to May 2, 1994 (commencement of operations), the Fund issued 800,000
shares to MLAM for $8,000,000.
<TABLE>
<CAPTION>
<S> <C> <C>
DOMESTIC MONEY MARKET FUND
- ------------------------------------------------------------------------------------------
For the Year Ended Dollar
December 31, 1995 Shares Amount
- ------------------------------------------------------------------------------------------
Shares sold. . . . . . . . . . . . . . . . . . . . . . . 111,267,159 $ 111,267,159
Shares issued to shareholders in reinvestment of
dividends and distributions. . . . . . . . . . . . . . . 17,571,280 17,571,280
------------ ---------------
Total issued. . . . . . . . . . . . . . . . . . . . . . . 128,838,439 128,838,439
Shares redeemed. . . . . . . . . . . . . . . . . . . . . (188,460,308) (188,460,308)
------------ ---------------
Net decrease. . . . . . . . . . . . . . . . . . . . . . . (59,621,869) $ (59,621,869)
------------ ---------------
----------- -- -----------
- ------------------------------------------------------------------------------------------
For the Year Ended Dollar
December 31, 1994 Shares Amount
- ------------------------------------------------------------------------------------------
Shares sold. . . . . . . . . . . . . . . . . . . . . . . 458,988,915 $ 458,988,915
Shares issued to shareholders in reinvestment of dividends
and distributions. . . . . . . . . . . . . . . . . . . . 11,425,228 11,425,228
------------ ---------------
Total issued. . . . . . . . . . . . . . . . . . . . . . . 470,414,143 470,414,143
Shares redeemed. . . . . . . . . . . . . . . . . . . . . (277,547,347) (277,547,347)
------------ ---------------
Net increase. . . . . . . . . . . . . . . . . . . . . . . 192,866,796 $ 192,866,796
------------ ---------------
----------- -- -----------
- ------------------------------------------------------------------------------------------
EQUITY GROWTH FUND
- ------------------------------------------------------------------------------------------
For the Year Ended Dollar
December 31, 1995 Shares Amount
- ------------------------------------------------------------------------------------------
Shares sold. . . . . . . . . . . . . . . . . . . . . . . 3,628,361 $ 86,301,010
Shares issued to shareholders in reinvestment of
dividends. . . . . . . . . . . . . . . . . . . . . . . . 41,296 889,063
------------ ---------------
Total issued. . . . . . . . . . . . . . . . . . . . . . . 3,669,657 87,190,073
Shares redeemed. . . . . . . . . . . . . . . . . . . . . (353,757) (8,536,475)
------------ ---------------
Net increase. . . . . . . . . . . . . . . . . . . . . . . 3,315,900 $ 78,653,598
------------ ---------------
----------- -- -----------
- ------------------------------------------------------------------------------------------
For the Year Ended Dollar
December 31, 1994 Shares Amount
- ------------------------------------------------------------------------------------------
Shares sold. . . . . . . . . . . . . . . . . . . . . . . 4,244,767 $ 84,908,525
Shares issued to shareholders in reinvestment of
distributions. . . . . . . . . . . . . . . . . . . . . . 43,323 895,916
------------ ---------------
Total issued. . . . . . . . . . . . . . . . . . . . . . . 4,288,090 85,804,441
Shares redeemed. . . . . . . . . . . . . . . . . . . . . (178,315) (3,486,970)
------------ ---------------
Net increase. . . . . . . . . . . . . . . . . . . . . . . 4,109,775 $ 82,317,471
------------ ---------------
----------- -- -----------
- ------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
FLEXIBLE STRATEGY FUND
- --------------------------------------------------------------------------------------------------
For the Year Ended Dollar
December 31, 1995 Shares Amount
- --------------------------------------------------------------------------------------------------
Shares sold. . . . . . . . . . . . . . . . . . . . . . . 1,290,613 $ 19,615,145
Shares issued to shareholders in reinvestment of
dividends and distributions. . . . . . . . . . . . . . . 896,275 13,101,282
----------- ----------------
Total issued. . . . . . . . . . . . . . . . . . . . . . . 2,186,888 32,716,427
Shares redeemed. . . . . . . . . . . . . . . . . . . . . (1,417,547 ) (21,921,048 )
----------- ----------------
Net increase. . . . . . . . . . . . . . . . . . . . . . . 769,341 $ 10,795,379
----------- ----------------
---------- --- -----------
- --------------------------------------------------------------------------------------------------
For the Year Ended Dollar
December 31, 1994 Shares Amount
- --------------------------------------------------------------------------------------------------
Shares sold. . . . . . . . . . . . . . . . . . . . . . . 6,842,583 $ 103,469,524
Shares issued to shareholders in reinvestment of dividends
and distributions. . . . . . . . . . . . . . . . . . . . 708,891 10,747,143
----------- ----------------
Total issued. . . . . . . . . . . . . . . . . . . . . . . 7,551,474 114,216,667
Shares redeemed. . . . . . . . . . . . . . . . . . . . . (904,823 ) (13,574,190 )
----------- ----------------
Net increase. . . . . . . . . . . . . . . . . . . . . . . 6,646,651 $ 100,642,477
----------- ----------------
---------- --- -----------
- --------------------------------------------------------------------------------------------------
</TABLE>
136
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
GLOBAL STRATEGY FOCUS FUND
- --------------------------------------------------------------------------------------------------
For the Year Ended Dollar
December 31, 1995 Shares Amount
- --------------------------------------------------------------------------------------------------
Shares sold. . . . . . . . . . . . . . . . . . . . . . . 2,383,467 $ 28,913,701
Shares issued to shareholders in reinvestment of
dividends and distributions. . . . . . . . . . . . . . . 1,452,481 17,112,643
----------- ----------------
Total issued. . . . . . . . . . . . . . . . . . . . . . . 3,835,948 46,026,344
Shares redeemed. . . . . . . . . . . . . . . . . . . . . (4,725,965 ) (56,008,034 )
----------- ----------------
Net decrease. . . . . . . . . . . . . . . . . . . . . . . (890,017 ) $ (9,981,690 )
----------- ----------------
---------- --- -----------
- --------------------------------------------------------------------------------------------------
For the Year Ended Dollar
December 31, 1994 Shares Amount
- --------------------------------------------------------------------------------------------------
Shares sold. . . . . . . . . . . . . . . . . . . . . . . 22,592,355 $ 274,822,981
Shares issued to shareholders in reinvestment of dividends
and distributions. . . . . . . . . . . . . . . . . . . . 668,929 8,022,134
----------- ----------------
Total issued. . . . . . . . . . . . . . . . . . . . . . . 23,261,284 282,845,115
Shares redeemed. . . . . . . . . . . . . . . . . . . . . (1,462,140 ) (17,755,958 )
----------- ----------------
Net increase. . . . . . . . . . . . . . . . . . . . . . . 21,799,144 $ 265,089,157
----------- ----------------
---------- --- -----------
- --------------------------------------------------------------------------------------------------
GLOBAL UTILITY FOCUS FUND
- --------------------------------------------------------------------------------------------------
For the Year Ended Dollar
December 31, 1995 Shares Amount
- --------------------------------------------------------------------------------------------------
Shares sold. . . . . . . . . . . . . . . . . . . . . . . 782,432 $ 7,896,815
Shares issued to shareholders in reinvestment of
dividends. . . . . . . . . . . . . . . . . . . . . . . . 517,492 5,144,108
----------- ----------------
Total issued. . . . . . . . . . . . . . . . . . . . . . . 1,299,924 13,040,923
Shares redeemed. . . . . . . . . . . . . . . . . . . . . (1,545,955 ) (15,567,315 )
----------- ----------------
Net decrease. . . . . . . . . . . . . . . . . . . . . . . (246,031 ) $ (2,526,392 )
----------- ----------------
---------- --- -----------
- --------------------------------------------------------------------------------------------------
For the Year Ended Dollar
December 31, 1994 Shares Amount
- --------------------------------------------------------------------------------------------------
Shares sold. . . . . . . . . . . . . . . . . . . . . . . 4,446,449 $ 45,407,839
Shares issued to shareholders in reinvestment of dividends
and distributions. . . . . . . . . . . . . . . . . . . . 408,041 3,993,505
----------- ----------------
Total issued. . . . . . . . . . . . . . . . . . . . . . . 4,854,490 49,401,344
Shares redeemed. . . . . . . . . . . . . . . . . . . . . (1,299,696 ) (12,707,196 )
----------- ----------------
Net increase. . . . . . . . . . . . . . . . . . . . . . . 3,554,794 $ 36,694,148
----------- ----------------
---------- --- -----------
- --------------------------------------------------------------------------------------------------
HIGH CURRENT INCOME FUND
- --------------------------------------------------------------------------------------------------
For the Year Ended Dollar
December 31, 1995 Shares Amount
- --------------------------------------------------------------------------------------------------
Shares sold. . . . . . . . . . . . . . . . . . . . . . . 5,980,682 $ 65,910,048
Shares issued to shareholders in reinvestment of
dividends. . . . . . . . . . . . . . . . . . . . . . . . 2,792,967 30,645,264
----------- ----------------
Total issued. . . . . . . . . . . . . . . . . . . . . . . 8,773,649 96,555,312
Shares redeemed. . . . . . . . . . . . . . . . . . . . . (1,184,474 ) (13,092,078 )
----------- ----------------
Net increase. . . . . . . . . . . . . . . . . . . . . . . 7,589,175 $ 83,463,234
----------- ----------------
---------- --- -----------
- --------------------------------------------------------------------------------------------------
For the Year Ended Dollar
December 31, 1994 Shares Amount
- --------------------------------------------------------------------------------------------------
Shares sold. . . . . . . . . . . . . . . . . . . . . . . 10,081,695 $ 116,511,262
Shares issued to shareholders in reinvestment of
dividends. . . . . . . . . . . . . . . . . . . . . . . . 1,840,902 20,563,966
----------- ----------------
Total issued. . . . . . . . . . . . . . . . . . . . . . . 11,922,597 137,075,228
Shares redeemed. . . . . . . . . . . . . . . . . . . . . (1,381,220 ) (15,761,890 )
----------- ----------------
Net increase. . . . . . . . . . . . . . . . . . . . . . . 10,541,377 $ 121,313,338
----------- ----------------
---------- --- -----------
- --------------------------------------------------------------------------------------------------
INTERMEDIATE GOVERNMENT BOND FUND
- --------------------------------------------------------------------------------------------------
For the Year Ended Dollar
December 31, 1995 Shares Amount
- --------------------------------------------------------------------------------------------------
Shares sold. . . . . . . . . . . . . . . . . . . . . . . 2,173,331 $ 22,410,622
Shares issued to shareholders in reinvestment of
dividends. . . . . . . . . . . . . . . . . . . . . . . . 161,544 1,670,786
----------- ----------------
Total issued. . . . . . . . . . . . . . . . . . . . . . . 2,334,875 24,081,408
Shares redeemed. . . . . . . . . . . . . . . . . . . . . (321,060 ) (3,238,873 )
----------- ----------------
Net increase. . . . . . . . . . . . . . . . . . . . . . . 2,013,815 $ 20,842,535
----------- ----------------
---------- --- -----------
- --------------------------------------------------------------------------------------------------
For the Period May 2, 1994+ to Dollar
December 31, 1994 Shares Amount
- --------------------------------------------------------------------------------------------------
Shares sold. . . . . . . . . . . . . . . . . . . . . . . 1,580,746 $ 15,798,020
Shares issued to shareholders in reinvestment of
dividends. . . . . . . . . . . . . . . . . . . . . . . . 22,294 222,052
----------- ----------------
Total issued. . . . . . . . . . . . . . . . . . . . . . . 1,603,040 16,020,072
Shares redeemed. . . . . . . . . . . . . . . . . . . . . (16,719 ) (166,738 )
----------- ----------------
Net increase. . . . . . . . . . . . . . . . . . . . . . . 1,586,321 $ 15,853,334
----------- ----------------
---------- --- -----------
- --------------------------------------------------------------------------------------------------
</TABLE>
+Prior to May 2, 1994 (commencement of operations), the Fund issued 200,000
shares to MLAM for $2,000,000.
<TABLE>
<CAPTION>
<S> <C> <C>
INTERNATIONAL BOND FUND
- -------------------------------------------------------------------------------
For the Year Ended Dollar
December 31, 1995 Shares Amount
- -------------------------------------------------------------------------------
Shares sold. . . . . . . . . . . . . . . . . . . 937,367 $ 9,691,745
Shares issued to shareholders in reinvestment of
dividends. . . . . . . . . . . . . . . . . . . . 77,732 795,218
--------- -------------
Total issued. . . . . . . . . . . . . . . . . . 1,015,099 10,486,963
Shares redeemed. . . . . . . . . . . . . . . . . (317,282) (3,269,924)
--------- -------------
Net increase. . . . . . . . . . . . . . . . . . 697,817 $ 7,217,039
--------- -------------
-------- -- ---------
- -------------------------------------------------------------------------------
For the Period May 2, 1994+ to Dollar
December 31, 1994 Shares Amount
- -------------------------------------------------------------------------------
Shares sold. . . . . . . . . . . . . . . . . . . 532,215 $ 5,218,763
Shares issued to shareholders in reinvestment of
dividends. . . . . . . . . . . . . . . . . . . . 27,759 271,353
--------- -------------
Total issued. . . . . . . . . . . . . . . . . . 559,974 5,490,116
Shares redeemed. . . . . . . . . . . . . . . . . (35,652) (348,847)
--------- -------------
Net increase. . . . . . . . . . . . . . . . . . 524,322 $ 5,141,269
--------- -------------
-------- -- ---------
- -------------------------------------------------------------------------------
</TABLE>
+ Prior to May 2, 1994 (commencement of operations), the Fund issued 500,000
shares to MLAM for $5,000,000.
<TABLE>
<CAPTION>
<S> <C> <C>
INTERNATIONAL EQUITY FOCUS FUND
- ---------------------------------------------------------------------------------------
For the Year Ended Dollar
December 31, 1995 Shares Amount
- ---------------------------------------------------------------------------------------
Shares sold. . . . . . . . . . . . . . . . . . . . . . . 2,540,187 $ 26,767,717
Shares issued to shareholders in reinvestment of dividends
and distributions. . . . . . . . . . . . . . . . . . . . 898,135 9,331,626
---------- --------------
Total issued. . . . . . . . . . . . . . . . . . . . . . . 3,438,322 36,099,343
Shares redeemed. . . . . . . . . . . . . . . . . . . . . (2,161,108) (21,945,941)
---------- --------------
Net increase. . . . . . . . . . . . . . . . . . . . . . . 1,277,214 $ 14,153,402
---------- --------------
--------- -- ----------
- ---------------------------------------------------------------------------------------
</TABLE>
137
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
INTERNATIONAL EQUITY FOCUS FUND
- --------------------------------------------------------------------------------------------------
For the Year Ended Dollar
December 31, 1994 Shares Amount
- --------------------------------------------------------------------------------------------------
Shares sold. . . . . . . . . . . . . . . . . . . . . . . 15,762,751 $ 177,512,550
Shares issued to shareholders in reinvestment of dividends
and distributions. . . . . . . . . . . . . . . . . . . . 155,170 1,705,946
----------- ----------------
Total issued. . . . . . . . . . . . . . . . . . . . . . . 15,917,921 179,218,496
Shares redeemed. . . . . . . . . . . . . . . . . . . . . (149,766 ) (1,678,473 )
----------- ----------------
Net increase. . . . . . . . . . . . . . . . . . . . . . . 15,768,155 $ 177,540,023
----------- ----------------
---------- --- -----------
- --------------------------------------------------------------------------------------------------
NATURAL RESOURCES FOCUS FUND
- --------------------------------------------------------------------------------------------------
For the Year Ended Dollar
December 31, 1995 Shares Amount
- --------------------------------------------------------------------------------------------------
Shares sold. . . . . . . . . . . . . . . . . . . . . . . 474,971 $ 5,198,076
Shares issued to shareholders in reinvestment of dividends
and distributions. . . . . . . . . . . . . . . . . . . . 63,806 835,171
----------- ----------------
Total issued. . . . . . . . . . . . . . . . . . . . . . . 538,777 6,033,247
Shares redeemed. . . . . . . . . . . . . . . . . . . . . (601,388 ) (6,852,669 )
----------- ----------------
Net decrease. . . . . . . . . . . . . . . . . . . . . . . (62,611 ) $ (819,422 )
----------- ----------------
---------- --- -----------
- --------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
For the Year Ended Dollar
December 31, 1994 Shares Amount
- ----------------------------------------------------------------------------------------
Shares sold. . . . . . . . . . . . . . . . . . . . . . . 2,431,502 $ 26,836,585
Shares issued to shareholders in reinvestment of
dividends. . . . . . . . . . . . . . . . . . . . . . . . 7,751 83,948
----------- --------------
Total issued. . . . . . . . . . . . . . . . . . . . . . . 2,439,253 26,920,533
Shares redeemed. . . . . . . . . . . . . . . . . . . . . (134,053) (1,481,555)
----------- --------------
Net increase. . . . . . . . . . . . . . . . . . . . . . . 2,305,200 $ 25,438,978
----------- --------------
---------- -- ----------
- ----------------------------------------------------------------------------------------
PRIME BOND FUND
- ----------------------------------------------------------------------------------------
For the Year Ended Dollar
December 31, 1995 Shares Amount
- ----------------------------------------------------------------------------------------
Shares sold. . . . . . . . . . . . . . . . . . . . . . . 3,880,829 $ 45,621,465
Shares issued to shareholders in reinvestment of
dividends. . . . . . . . . . . . . . . . . . . . . . . . 2,612,921 30,585,478
----------- --------------
Total issued. . . . . . . . . . . . . . . . . . . . . . . 6,493,750 76,206,943
Shares redeemed. . . . . . . . . . . . . . . . . . . . . (2,316,349) (27,181,488)
----------- --------------
Net increase. . . . . . . . . . . . . . . . . . . . . . . 4,177,401 $ 49,025,455
----------- --------------
---------- -- ----------
- ----------------------------------------------------------------------------------------
For the Year Ended Dollar
December 31, 1994 Shares Amount
- ----------------------------------------------------------------------------------------
Shares sold. . . . . . . . . . . . . . . . . . . . . . . 9,962,468 $ 118,092,307
Shares issued to shareholders in reinvestment of dividends
and distributions. . . . . . . . . . . . . . . . . . . . 2,421,862 28,191,568
----------- --------------
Total issued. . . . . . . . . . . . . . . . . . . . . . . 12,384,330 146,283,875
Shares redeemed. . . . . . . . . . . . . . . . . . . . . (2,052,800) (23,633,675)
----------- --------------
Net increase. . . . . . . . . . . . . . . . . . . . . . . 10,331,530 $ 122,650,200
----------- --------------
---------- -- ----------
- ----------------------------------------------------------------------------------------
QUALITY EQUITY FUND
- ----------------------------------------------------------------------------------------
For the Year Ended Dollar
December 31, 1995 Shares Amount
- ----------------------------------------------------------------------------------------
Shares sold. . . . . . . . . . . . . . . . . . . . . . . 2,793,165 $ 82,433,320
Shares issued to shareholders in reinvestment of dividends
and distributions. . . . . . . . . . . . . . . . . . . . 651,881 18,002,604
----------- --------------
Total issued. . . . . . . . . . . . . . . . . . . . . . . 3,445,046 100,435,924
Shares redeemed. . . . . . . . . . . . . . . . . . . . . (509,752) (15,180,783)
----------- --------------
Net increase. . . . . . . . . . . . . . . . . . . . . . . 2,935,294 $ 85,255,141
----------- --------------
---------- -- ----------
- ----------------------------------------------------------------------------------------
For the Year Ended Dollar
December 31, 1994 Shares Amount
- ----------------------------------------------------------------------------------------
Shares sold. . . . . . . . . . . . . . . . . . . . . . . 6,335,594 $ 177,474,655
Shares issued to shareholders in reinvestment of dividends
and distributions. . . . . . . . . . . . . . . . . . . . 218,564 6,013,863
----------- --------------
Total issued. . . . . . . . . . . . . . . . . . . . . . . 6,554,158 183,488,518
Shares redeemed. . . . . . . . . . . . . . . . . . . . . (476,786) (13,262,021)
----------- --------------
Net increase. . . . . . . . . . . . . . . . . . . . . . . 6,077,372 $ 170,226,497
----------- --------------
---------- -- ----------
- ----------------------------------------------------------------------------------------
RESERVE ASSETS FUND
- ----------------------------------------------------------------------------------------
For the Year Ended Dollar
December 31, 1995 Shares Amount
- ----------------------------------------------------------------------------------------
Shares sold. . . . . . . . . . . . . . . . . . . . . . . 6,811,139 $ 6,811,139
Shares issued to shareholders in reinvestment of dividends
and distributions. . . . . . . . . . . . . . . . . . . . 1,582,801 1,582,801
----------- --------------
Total issued. . . . . . . . . . . . . . . . . . . . . . . 8,393,940 8,393,940
Shares redeemed. . . . . . . . . . . . . . . . . . . . . (15,081,975) (15,081,975)
----------- --------------
Net decrease. . . . . . . . . . . . . . . . . . . . . . . (6,688,035) $ (6,688,035)
----------- --------------
---------- -- ----------
- ----------------------------------------------------------------------------------------
For the Year Ended Dollar
December 31, 1994 Shares Amount
- ----------------------------------------------------------------------------------------
Shares sold. . . . . . . . . . . . . . . . . . . . . . . 19,180,364 $ 19,180,364
Shares issued to shareholders in reinvestment of dividends
and distributions. . . . . . . . . . . . . . . . . . . . 1,250,777 1,250,777
----------- --------------
Total issued. . . . . . . . . . . . . . . . . . . . . . . 20,431,141 20,431,141
Shares redeemed. . . . . . . . . . . . . . . . . . . . . (18,368,014) (18,368,014)
----------- --------------
Net increase. . . . . . . . . . . . . . . . . . . . . . . 2,063,127 $ 2,063,127
----------- --------------
---------- -- ----------
- ----------------------------------------------------------------------------------------
WORLD INCOME FOCUS FUND
- ----------------------------------------------------------------------------------------
For the Year Ended Dollar
December 31, 1995 Shares Amount
- ----------------------------------------------------------------------------------------
Shares sold. . . . . . . . . . . . . . . . . . . . . . . 481,318 $ 4,592,255
Shares issued to shareholders in reinvestment of
dividends. . . . . . . . . . . . . . . . . . . . . . . . 727,949 6,851,555
----------- --------------
Total issued. . . . . . . . . . . . . . . . . . . . . . . 1,209,267 11,443,810
Shares redeemed. . . . . . . . . . . . . . . . . . . . . (1,045,651) (9,863,555)
----------- --------------
Net increase. . . . . . . . . . . . . . . . . . . . . . . 163,616 $ 1,580,255
----------- --------------
---------- -- ----------
- ----------------------------------------------------------------------------------------
</TABLE>
138
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
For the Year Ended Dollar
December 31, 1994 Shares Amount
- ------------------------------------------------------------------------------------------------
Shares sold. . . . . . . . . . . . . . . . . . . . . . . 3,613,258 $ 35,765,361
Shares issued to shareholders in reinvestment of dividends
and distributions. . . . . . . . . . . . . . . . . . . . 565,499 5,699,784
---------- ---------------
Total issued. . . . . . . . . . . . . . . . . . . . . . . 4,178,757 41,465,145
Shares redeemed. . . . . . . . . . . . . . . . . . . . . (870,578 ) (8,296,766 )
---------- ---------------
Net increase. . . . . . . . . . . . . . . . . . . . . . . 3,308,179 $ 33,168,379
---------- ---------------
--------- --- ----------
- ------------------------------------------------------------------------------------------------
</TABLE>
5. CAPITAL LOSS CARRYFORWARD:
At December 31, 1995, the Company had net capital loss carryforwards of
approximately $3,818,000 in the Developing Capital Markets Focus Fund, of which
$91,000 expires in 2002 and $3,727,000 expires in 2003; $3,364,000 in the Global
Strategy Focus Fund, all of which expires in 2003; $3,673,000 in the Global
Utility Focus Fund, of which $1,463,000 expires in 2002 and $2,210,000 expires
in 2003; $1,391,000 in the High Current Income Fund, of which $119,000 expires
in 1999 and $301,000 expires in 2002 and $971,000 expires in 2003; $6,977,000 in
the International Equity Focus Fund, all of which expires in 2003; $15,879,000
in the Prime Bond Fund, of which $15,024,000 expires in 2002 and $855,000
expires in 2003; and $1,881,000 in the World Income Focus Fund, all of which
expires in 2002. These amounts will be available to offset like amounts of any
future taxable gains.
6. LOANED SECURITIES:
At December 31, 1995, the Prime Bond Fund held US
Treasury bonds having an aggregate value of
approximately $4,904,000 as collateral for portfolio securities loaned having a
market value of
approximately $4,692,000.
At December 31, 1995, the Prime Bond Fund held US
Treasury bonds having an aggregate value of
approximately $4,904,000 as collateral for portfolio securities loaned having a
market value of
approximately $4,692,000.
7. COMMITMENTS:
At December 31, 1995, the following Portfolios had entered into foreign exchange
contracts, in addition to the contracts listed on the Schedules of Investments,
under which they agreed to purchase and sell various foreign currencies with
values of approximately:
<TABLE>
<CAPTION>
<S> <C> <C>
FUND PURCHASE SELL
- ------------------------------------------------------
Flexible Strategy Fund $ -- $ 119,000
Global Strategy Focus Fund -- 151,000
Global Utility Focus Fund -- 224,000
International Bond Fund -- 1,500
International Equity Focus Fund 796,000 142,000
Natural Resources Focus Fund 267,000 --
- ------------------------------------------------------
</TABLE>
8. SUBSEQUENT EVENT:
On January 2, 1996, the Board of Directors declared net investment income
dividends and a capital gains distributions per share payable on January 2 and
January 9, 1996 to shareholders of record as of December 29, 1995 as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
LONG-TERM
ORDINARY CAPITAL
FUND INCOME-NET GAINS
- -----------------------------------------------------------------
American Balanced Fund. . . . . . . . $ 0.295524 $ 0.023427
Basic Value Focus Fund. . . . . . . . 0.556549 0.264736
Developing Capital Markets Focus Fund 0.233987 --
Domestic Money Market Fund. . . . . . -- --
Equity Growth Fund. . . . . . . . . . 2.871396 0.820277
Flexible Strategy Fund. . . . . . . . 0.727180 0.896948
Global Strategy Focus Fund. . . . . . 0.294897 --
Global Utility Focus Fund. . . . . . 0.165645 --
High Current Income Fund. . . . . . . 0.101166 --
Intermediate Government Bond Fund. . 0.052380 --
International Bond Fund. . . . . . . 0.185368 --
International Equity Focus Fund. . . 0.152775 --
Natural Resources Focus Fund. . . . . 0.118310 0.170782
Prime Bond Fund. . . . . . . . . . . 0.063426 --
Quality Equity Fund. . . . . . . . . 1.573476 3.019036
Reserve Assets Fund. . . . . . . . . -- --
World Income Focus Fund. . . . . . . -- --
- -----------------------------------------------------------------
</TABLE>
139
<PAGE>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND SHAREHOLDERS,
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.:
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of American Balanced, Basic Value Focus,
Developing Capital Markets Focus, Domestic Money Market, Equity Growth, Flexible
Strategy, Global Strategy Focus, Global Utility Focus, High Current Income,
Intermediate Government Bond, International Bond, International Equity Focus,
Natural Resources Focus, Prime Bond, Quality Equity, Reserve Assets, and World
Income Focus Funds of Merrill Lynch Variable Series Funds, Inc. as of December
31, 1995, the related statements of operations for the year then ended and
changes in net assets for each of the periods in the two-year period then ended,
and the financial highlights for each of the periods presented. These financial
statements and the financial highlights are the responsibility of the Funds'
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 generally accepted auditing
standards. 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, 1995, by correspondence with the custodians 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 positions of American Balanced,
Basic Value Focus, Developing Capital Markets Focus, Domestic Money Market,
Equity Growth, Flexible Strategy, Global Strategy Focus, Global Utility Focus,
High Current Income, Intermediate Government Bond, International Bond,
International Equity Focus, Natural Resources Focus, Prime Bond, Quality Equity,
Reserve Assets, and World Income Focus Funds of Merrill Lynch Variable Series
Funds, Inc. as of December 31, 1995, the results of their operations, the
changes in their net assets, and the financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
February 20, 1996
140
<PAGE>
MERRILL LYNCH
VARIABLE SERIES FUNDS, INC.
PRINCIPAL OFFICE OF THE FUNDS
Box 9011
Princeton, NJ 08543-9011
DISTRIBUTOR
Merrill Lynch Funds Distributor, Inc.
CUSTODIAN
For all Funds except Developing Capital
Markets Focus Fund:
The Bank of New York
90 Washington Street
New York, NY 10286
For Developing Capital Markets Focus Fund:
Chase Manhattan Bank
Chase Metro Tech Center
Brooklyn, NY 11245
TRANSFER AGENT
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
<S> <C> <C>
Arthur Zeikel Vincent T. Lathbury III
President Vice President
Joe Grills Peter Lehman
Director Vice President
Walter Mintz Fredric Lutcher
Director Vice President
Robert S. Salomon Jr. Jay C. Harbeck
Director Vice President
Melvin R. Seiden Robert Parish
Director Vice President
Stephen B. Swensrud Grace Pineda
Director Vice President
Terry K. Glenn Kevin Rendino
Executive Vice President Vice President
N. John Hewitt Thomas R. Robinson
Senior Vice President Vice President
Christopher G. Ayoub Walter Rogers
Vice President Vice President
Andrew Bascand Aldona A. Schwartz
Vice President Vice President
Donald C. Burke Stephen Silverman
Vice President Vice President
Joel Heymsfeld Gerald M. Richard
Vice President Treasurer
Adrian Holmes Michael J. Hennewinkel
Vice President Secretary
</TABLE>
141
<PAGE>
This report is not authorized for use as an offer of sale or a solicitation of
an offer to buy shares of the Funds unless accompanied or preceded by the Funds'
current prospectus. 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. For Domestic
Money Market Fund and Reserve Assets Fund, the Funds seek to maintain a
consistent $1.00 net asset value per share, although this cannot be assured. An
investment in the Funds is neither insured nor guaranteed by the US Government.
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
#16897-12/95
<PAGE>
