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MERRILL LYNCH VARIABLE
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SERIES FUNDS, INC.
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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
- -Global Bond Focus Fund
- -Global Strategy Focus Fund
- -Global Utility Focus Fund
- -Government Bond Fund
- -High Current Income Fund
- -Index 500 Fund
- -International Equity Focus Fund
- -Natural Resources Focus Fund
- -Prime Bond Fund
- -Quality Equity Fund
- -Reserve Assets Fund
INVESTMENT PORTFOLIOS
AVAILABLE WITH THE PORTFOLIO
PLUS VARIABLE ANNUITY:
- -American Balanced Fund
- -Equity Growth 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
- -Equity Growth Fund
- -Global Bond Focus Fund
- -Global Utility Focus Fund
- -International Equity Focus Fund
INVESTMENT PORTFOLIOS AVAILABLE
WITH PRIME PLAN I, II, III, IV, V,
VI, 7, PRIME PLAN INVESTOR, DIRECTED
LIFE AND DIRECTED LIFE 2 VARIABLE LIFE
INSURANCE POLICIES:
- -Basic Value Focus Fund
- -Developing Capital Markets Focus Fund
- -Equity Growth Fund
- -Global Utility Focus Fund
- -International Equity Focus Fund
Annual Report
December 31, 1996
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MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
ANNUAL REPORT--DECEMBER 31, 1996
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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 tables on pages 31 to 43 of this report to shareholders.
AMERICAN BALANCED FUND
As of December 31, 1996, the asset allocation of American Balanced Fund was:
US bonds, 56% of net assets; US equities, 42%; and cash reserves, 2%.
During much of the fiscal year ended December 31, 1996, the Fund's cash
position was a relatively small portion of portfolio assets. Consequently, cash
reserves held down the return to a much lesser extent than was the case in 1995.
The US equity commitments in sectors such as technology, financial services and
consumer staples continued to have a positive impact on overall Fund returns.
The maintenance of US equities at close to the 50% maximum allowable level (as
described in the Fund's prospectus) for much of 1996 proved a positive influence
on performance. Returns on US bonds were well below those of US equities, so the
fixed income representation held down the overall return of the Fund.
In the United States, we became more cautious as the stock market advanced
during the latter part of 1996. Our concern was that US equities could be
vulnerable to earnings disappointments during 1997. Given this outlook, we
accepted profits in a number of positions which had performed exceptionally well
and no longer seemed to offer above-average appreciation potential. Equities
which were liquidated on this basis included Microsoft Corp., Procter & Gamble
Co. and The Coca-Cola Company.
In order to seek to further reduce risk, we established positions in several
areas which appeared unexploited. These sectors included electric utilities
through Edison International, Inc. and real estate through Prentiss Properties
Trust. After the cutback in the US equity position, the largest proportion of US
equity assets remained allocated to areas that are likely to benefit from
strength in capital spending in the United States and abroad. These commitments
included companies involved in technology, such as International Business
Machines Corp., and companies in defense and aerospace, as exemplified by
Northrop Grumman Corporation.
We enlarged our position in US bonds during the second half of 1996. Initially
the position was comprised of long duration securities. We reduced the average
duration to approximately five years in late 1996 as the market rallied. Our
expectation is for bond yields to remain in a relatively narrow range in 1997 in
response to a stable rate of moderate economic growth in the United States.
BASIC VALUE FOCUS FUND
1996 turned out to be much the same as 1995. For the second straight year, low
interest rates, modest inflation and modest economic growth propelled the US
stock market to record highs. The so-called "Goldilocks" economy (not too cold,
not too hot) of slow growth and low interest rates created an environment more
favorable to stable growth stocks than to economically sensitive companies.
Stocks of cyclical companies did not fare well, as earnings are tied to the
economic cycle and were thought to be at risk. Against this backdrop, the Fund
underperformed the broad stock market indexes in the fiscal year ended December
31, 1996 as a result of the portfolio's value emphasis which has dictated a
large commitment to economically sensitive equities. However, our 20.7% return
for the year was quite good compared to the average US domestic equity mutual
fund.
Although economic activity slowed from the first half's rapid pace, by no
means does a full-fledged recession appear imminent. Recent activity in the
stock market led to an even wider disparity between valuation levels of cyclical
and non-cyclical securities. We believe much of the underperformance in groups
such as auto, copper, paper and steel stocks was overdone, and many of these
stocks are discounting dire economic circumstances which we believe are unlikely
to occur. In this environment, valuations of economically sensitive equities
declined to levels not seen in years, while defensive and stable growth stock
valuations were bid up to premium price/ earnings ratios. We remain committed to
out-of-favor securities such as Ford Motor Co. (selling at 6.3 times 1997
expected per share earnings), General Motors Corp. (7.3 times), USX-U.S. Steel
Group (12.5 times) and Phelps Dodge Corporation (10.5 times). We believe these
stocks will do better once investors become convinced that a slower-growth
environment does not portend a recession. Conventional wisdom seems to suggest
that the "Goldilocks" economy is going to last indefinitely. However,
conventional wisdom often has proven to be wrong in the past. Current stock
market valuations are at historically high levels. The Standard & Poor's 500
Index (S&P 500) dividend yield of 2.1% is the lowest in this century; the S&P
500 price/book value per share ratio of over 4.0 is the highest ever; and the US
stock market has a greater value than
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US gross domestic product (GDP) for the first time ever.
It is possible to argue that current valuations in the US stock market already
discount the favorable US economic conditions. We have little conviction that
the present bull market will continue at its current pace. We expect increased
volatility in 1997 as the economy and interest rates sort themselves out. We
will continue to seek out-of-favor companies whose stock valuations fit our
strict parameters of low price/book and price/ earnings ratios. However, there
are currently less of these opportunities, resulting in our cash level
increasing to 17% of net assets.
In the last six months of the year ended December 31, 1996, we added 11 new
companies to the portfolio: Black & Decker Corporation, GTE Corporation,
Hechinger Company, Humana, Inc., ITT Industries Inc., Kmart Corporation, ITT
Corporation, Mentor Graphics Corporation, Mesa Airlines, Inc., Phelps Dodge
Corporation and Transitional Hospitals Co. We added Black & Decker Corporation,
our second-largest purchase during the period, following a disappointing
earnings forecast for the fourth quarter. A delayed plant start-up in Brazil,
slower sales in Europe and Australia and a 10%-15% price decline for Black &
Decker's corded power tools all contributed to the disappointment. The recent
quarterly report was the first time Black & Decker's earnings fell below
expectations in three years, and we believe investors overreacted. Although the
stock fell out of favor, we believe the company's prospects suggest the
potential for a higher stock price in upcoming quarters as it expands its strong
brand franchise throughout the Far East and Latin America. At its current price,
Black & Decker trades at one-half the S&P 500 on a price/book ratio and two-
thirds the market multiple on a price/earnings ratio basis.
We completed 11 sales during the six months ended December 31, 1996, including
ADT Ltd., Burlington Industries, Inc., Camden Property Trust, Deere & Co.,
Fingerhut Companies Inc., Giddings & Lewis, Inc., John Q. Hammons Hotels, Inc.,
Klamath First Bancorp, Inc., Lone Star Technologies, Inc., TETRA Technologies,
Inc. and Washington Mutual Savings Bank. In the case of ADT Ltd., the stock was
sold with a substantial gain following the proposed take-over of the company by
Western Resources, Inc.
DEVELOPING CAPITAL MARKETS FOCUS FUND
During the 12-month period ended December 31, 1996, the total return for
Developing Capital Markets Focus Fund, Inc.'s Shares was +10.59%. The unmanaged
Morgan Stanley Capital International Emerging Markets Free Index rose 6.03%
during the same period. The Fund's outperformance is attributable to its
overweighted positions in Argentina, Hungary, Mexico and Zimbabwe, whose markets
rose 20.27%, 107.21%, 18.70% and 57.54%, respectively, over the 12-month period.
Also benefiting performance was the Fund's underweighted positions in Chile and
South Africa, whose markets declined 13.54% and 18.06%, respectively.
Latin American markets continued their recovery during the six-month period
ended December 31, 1996, led mainly by Brazil (+10.97%) and Venezuela (+47.81%).
In both markets, relatively easy monetary conditions and the anticipation of
privatizations were the drivers. Furthermore, in Brazil's case, companies such
as Telecomunicacoes Brasileria S.A.-Telebras, whose shares we own, posted
excellent earnings results. The high price of oil coupled with record high
Venezuelan oil production and the inflow of investor capital, drove the
Venezuelan stock market and its currency, the bolivar, higher. The Mexican stock
market rose only 2.59% as political concerns resurfaced. The Fund's allocation
in Latin American markets declined slightly as we took profits in Brazil.
The emerging European markets of Hungary and Portugal rose 17.43% and 9.46%,
respectively, during the past six months. Good earnings results, and the
possibility of interest rate declines, were the driving forces. One of our
holdings in Hungary is Gedeon Richter Ltd., a manufacturer and distributor of
pharmaceutical products. With 67% of its revenues coming from exports, Gedeon
obtains hard currency returns on a low-cost, soft currency cost base. Export
growth could be further supported by a recovery in Russia's economy, which we
anticipate in 1997. We increased our investments in Russia as we anticipated
favorable developments in the capital markets. Foremost among these was our
participation in the international offering of RAO Gazprom, which owns 22% of
the world's natural gas reserves. The privatization of this company is an
indication of Russia's commitment to developing a free-market economy.
Several of the Asian stock markets in which we invest were weak as a result of
investor concerns regarding slowing economic growth and deteriorating external
balances. Thailand declined 36.34%, as a result of problems in the banking
sector tied to real estate lending; a downgrade by Moody's Investors Service
Inc. of Thailand's sovereign risk rating; and, investor perceptions that the
government's measures to address the macroeconomic concerns were insufficient.
During the year ended December 31, 1996, we increased our investments in Hong
Kong by purchasing shares of China Overseas Land and Investment, and took
profits in our main South
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Korean holding, Korea Mobile Telecommunications Corp.
The Middle Eastern and African stock markets were mixed. The strongest
performance was in the Egyptian stock market, which rose 43.91% during the past
six months. Privatizations and the issuance of shares internationally drew the
attention and capital of foreign investors to this emerging market. The South
African market declined 11.76% in US dollar terms, although it declined only
4.69% in rand terms. The ongoing weakness in the rand derives from investors'
loss of confidence in the government's policies, such as those on capital
controls. We believe that a lot of negative prospects were already discounted
and with a long-term horizon, stock valuations of well-managed companies are
reasonable. An example is South African Breweries, one of the largest beer
producers in the world, which is sourcing its growth increasingly from its
operations in Zimbabwe, Poland and China.
DOMESTIC MONEY MARKET FUND
For the six-month period ended December 31, 1996, the Domestic Money Market
Fund's net annualized yield was 5.02%.* The Fund's 7-day yield as of December
31, 1996 was 5.05%*. The average portfolio maturity was 73 days at December 31,
1996, compared to 54 days at June 30, 1996.
The Fund's composition at the end of December and as of our last report is
detailed below:
<TABLE>
<CAPTION>
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Issue 12/31/96 6/30/96
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<S> <C> <C>
Bank Notes......................................... 1.3% --
Certificates of Deposit............................ 1.8 --
Commercial Paper................................... 46.9 45.4%
Corporate Notes.................................... 7.6 8.0
Funding Agreements................................. 1.8 1.8
Master Notes....................................... 1.1 1.1
Medium-Term Notes.................................. -- 2.9
Repurchase Agreements.............................. 2.1 --
US Government Agency & Instrumentality
Obligations-- Discount............................ 0.2 1.5
US Government Agency & Instrumentality
Obligations-- Non-Discount........................ 38.7 39.2
Other Assets Less Liabilities/Liabilities in Excess
of Other Assets................................... (1.5) 0.1
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Total.............................................. 100.0% 100.0%
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</TABLE>
EQUITY GROWTH FUND
After a stellar 1995 (+45.9% total return), the Equity Growth Fund lagged
during rising market periods in 1996. The strongest market performance during
1996 came from high relative price/earnings, strong momentum stocks. Equity
Growth Fund invests in growth at a price, or growth with a value tilt; we do not
chase momentum stocks, and we resist paying ratios of high price/earnings
multiples. Since we endeavor to maintain the same disciplines utilized since the
end of 1990 (since then, returns have compounded annually at over 16%), the
market conditions experienced this year will cause our style of investing to
lag. In the severe market downturn of June-July 1996, the Fund held its own
relative to peers and benchmarks, as a result of both our style of investing and
the defensive position in which the Fund was invested.
The Fund generally maintained significant weightings (15%-20%) in technology
and healthcare; energy was a 10% position during the year, while cash fluctuated
between 5% and the maximum allowed 20%. The only negative sector performance
during the year came from technology. The greatest contributor to performance
was the industrial sector, which averaged 13% of the Fund through the year.
Energy and healthcare were the next significant contributors. Several of the
best-performing stocks in the Fund were in the energy sector, showing the
importance of sector analysis and the ability to select the most attractive
stocks within a sector. Among the worst-performing stocks, technology and
healthcare dominated, indicating the higher risks associated with these sectors,
and general market concerns about the healthcare industry leading up to the
November presidential election. We plan to continue with our buy/sell
disciplines, our stock selection models and our sector work to allocate assets
which have produced successful long-term results.
We recognize that there has not been a meaningful correction (of at least 10%)
for over six years. Also, we expect a slow-growth, low-inflation environment for
1997, a setting which has historically seen the small-cap segment of the market
lag large caps about 80% of the time. A continuation of the record level of
initial public offerings in 1996 would be another likely negative for the
small-cap segment, as the constant supply of new issues (more than 800 in 1996)
pulls demand away from existing small-cap names.
A positive factor for emerging growth stocks is the recent strength of the US
dollar, which creates appeal for small-cap and mid-cap growth companies, since
revenues tend to be less sensitive to currency fluctuations. Also, relative
small-cap valuation levels are well below historical averages, and measures such
as relative price/book and relative price/earnings ratios are close to the lows
reached in the fourth quarter of 1990.
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* 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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In response to this mixed outlook, we moved the median capitalization of the
Fund higher and reduced the number of companies in the portfolio. A significant
sector increase was in the consumer sector (from 12.9% of net assets to 17.1%).
Significant sector decreases were in technology (from 21.2% of net assets to
17.3%) and healthcare (from 20.6% of net assets to 17.4%). The consumer area
became more attractive during the summer sell-off as many stocks declined
dramatically from their earlier peaks. We added holdings in the casual dining
industry (Boston Chicken, Inc. and Rainforest Cafe, Inc.) and in the specialty
retail area (Rite Aid Corporation, Revco D.S., Inc. and Barnes and Noble, Inc.).
Although technology indexes advanced nearly 30% in 1996, this rise masked
turmoil beneath the surface. The average technology stock was essentially
unchanged during 1996. The indexes performance came mostly from a handful of
large companies such as Microsoft Corp., International Business Machines, Corp.,
cisco Systems, Inc., and Intel Corp. Smaller technology stocks were extremely
volatile. During the third quarter, many stocks declined 10% or more even after
meeting consensus earnings estimates. This volatility led us to sell some of the
smaller-capitalized technology holdings such as Pinnacle Systems, Inc. and
System Software Associates, Inc. In the healthcare sector, we sold some
smaller-cap medical device companies such as UroMed Corp. and Technical
Chemicals & Products, Inc., as it became apparent that investors were not
willing to pay for certain development-stage companies that offered large
potential rewards in two to three years.
The portfolio's characteristics at December 31, 1996 included a median market
capitalization of $709 million, with 27% of holdings (27 of 99) having a
capitalization of under $250 million and 35% (35 of 99) with a capitalization
over $1 billion. Comparable information for June 30, 1996 reflected a median
market capitalization of $545 million, with 30% of holdings (29 of 98) having a
market capitalization of under $250 million and 29% (28 of 98) with a
capitalization over $1 billion.
1996 proved to be much more challenging for stock-pickers than the previous
year. We expect 1997 to be a challenging year as well. The market has become
more volatile, as evidenced by the record number of initial public offerings and
the spike in the National Association of Securities Dealers and Automated
Quotations trading volume relative to the New York Stock Exchange. This
increased volatility in the equity markets has led us to seek areas where
earnings are more predictable. For example, we maintain significant weightings
in the energy and financial sectors. Another example of our efforts at
volatility dampening include four rapidly growing real estate investment trusts
(REITs): Brandywine Realty Trust, Cali Realty Corp., National Golf Properties,
Inc. and National Health Investors, Inc.
We will make new portfolio commitments where we believe enticing growth
prospects can be purchased at reasonable valuations. We regularly examine and
reevaluate our holdings, as well as target prices and sector allocations, to
ensure adherence to our investment strategy, which is to invest in growth issues
at reasonable valuations. We expect to maintain significant holdings (15%-25%)
in both the technology and healthcare sectors. Reductions will be made
selectively where individual issues have achieved their target prices or where
sector fundamentals are unfavorably impacted by economic conditions. At this
time, we anticipate maintaining cash levels at approximately 10% of net assets.
GLOBAL BOND FOCUS FUND
Since the reorganization of the Fund on December 9, 1996, through the merger
of International Bond Fund into World Income Focus Fund and the Fund's name
change to Global Bond Focus Fund, we have been restructuring the Fund in line
with its new prospectus guidelines. This restructuring was completed after the
close of the fiscal year in mid-January 1997.
Global economic activity converged during the latter part of the year as the
US economy slowed sharply and Europe's economies continued to firm. GDP growth
in the second half of 1996 appears to have eased to 2.25% compared to the rapid
4.7% pace posted in the second quarter. In addition, the composition of GDP was
relatively weak as final sales rose only 0.5%. News about inflation continued to
be generally positive. While overall inflation accelerated to 3.3% related to
rises in food and energy prices, core inflation slowed.
The Federal Reserve Board's tightening bias (adopted July 2, 1996) was
unchanged at its November Federal Open Market Committee meeting (FOMC), and
maintained at the December FOMC meeting. In Europe, Bundesbank officials
strongly suggested further interest rate declines are not imminent, given the
strong economy in the third quarter along with the likelihood that money supply
will not fall back within target bands before year-end. However, since then,
industrial production and manufacturing orders for September and October's labor
report were soft enough to suggest a sharp pause in fourth quarter economic
activity.
Arctic-type weather in Europe in December is likely to have caused a weak
fourth quarter and a slow start to the new year. The United Kingdom shocked
investors by raising interest rates 25 basis
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points (0.25%) following September's strong inflation report. Further interest
rate hikes in the near term cannot be ruled out, but are less likely since 1996
ended with a sharp rise in the currency and the strong possibility inflation
will drift lower in the first quarter. Italy, Spain and Sweden cut interest
rates further as inflation continued to post positive surprises. The Reserve
Bank of Australia reduced interest rates by 50 basis points to 6%, based on
additional signs of labor weakness coupled with improved inflationary
expectations. The Bank of Canada continued lowering interest rates due to
further currency strength and continued weak economic activity.
During October and November, ten-year bond yields declined. In addition, weak
US third-quarter economic growth provided a positive backdrop for inflation
fundamentals in Australia, Canada, Italy, Spain and Sweden to fuel even larger
declines in interest rates. During December, interest rates rose sharply in the
United States following sobering comments from Federal Reserve Board Chairman
Greenspan and strong signs of economic growth reported in the last week of 1996.
This rise in interest rates had a negative effect on most of the world's other
major bond markets. Chairman Greenspan raised the profile of financial asset
prices in setting monetary policy, thereby suggesting further strong gains could
provide a basis for raising interest rates in the new year. The US dollar was
generally unchanged versus the European currencies except for the pound
sterling, which rose over 9% following the Bank of England's surprise interest
rate hike. The Canadian and Australian dollars were also unchanged, although
they rose sharply during the November quarter, but faded as a result of low
and/or declining interest rate support. During the period ended December 31,
1996, the unmanaged JP Morgan Global Government Index generated a total return
of about +2.8% in US dollar terms, and the unmanaged Merrill Lynch High Yield
Master Index gained 3.9%.
During the past three months, the global fixed-income markets faced the
possibility of a tightening by the Federal Reserve Board. The US economy paused
in the second half of 1996, as the German economy probably did in the fourth
quarter. Given the weakness in the United States during the third quarter, the
jumping-off point for the fourth quarter is quite low, making it unlikely that
above-trend growth will be achieved in the second half. The critical issue is
whether the US consumer, armed with confidence, rising income and a solid
balance sheet, will start spending.
Europe's economy slowed toward the end of 1996 as cold weather, strikes and a
tax-induced collapse in French auto sales (all temporary drags) negatively
impacted activity following the strong spring and summer. The substantial easing
in monetary conditions should continue to spur consumer spending, and rising
global demand is boosting exports. The expansion should continue to move
forward, although stresses in the labor market and tighter fiscal policy will be
constraining factors which will ensure continued growth-supportive monetary
policies. European bond markets are likely to continue to outperform in this
environment, although the richer valuations and the less-clear outlook for the
United States cast some uncertainty on this view. The outlook for emerging
markets remains positive, given the continuation of fundamental and political
improvements in the domestic economies and the longevity of the current global
liquidity cycle.
Regarding currency movements, the wide spread between US short-term interest
rates and those of Germany and Japan should keep a solid floor under the US
dollar, leaving the upside largely a function of relative economic growth and
monetary policy expectations. With the satisfactory conclusion of the European
Monetary Union (EMU) summit in December, the timetable for the EMU was
reinforced, which should maintain support for the US dollar during the first
half of 1997.
Overall, the investment strategies employed in 1996 favorably impacted the
Fund's performance. Specifically, during the first half of the year we greatly
de-emphasized the US bond market, maintained a constant overweighting in the US
high-yield, convertible and high-yield European markets, and converted the
emerging markets exposure to all Brady bonds, which significantly outperformed
the Latin Eurobond market. While the Fund was relatively defensive in the first
half, we raised the average maturity in the late summer, thereby allowing us to
capture most of the September-November rally. The rise in the US dollar relative
to the European currencies negatively impacted the Fund's return, although a
much greater negative impact was avoided by active management of the Fund's
currency exposure.
GLOBAL STRATEGY FOCUS FUND
As of December 31, 1996, the portfolio reflected the reorganization of the
Flexible Strategy Fund into Global Strategy Focus Fund, which became effective
on December 9, 1996. The reorganization took place with minimal disruption to
the portfolio since the equity and fixed-income commitments in the two Funds
were similar prior to the merger.
As was the case in 1995, US equities were a positive net contributor to
overall Fund returns during the fiscal year ended December 31, 1996.
Particularly strong returns were exhibited by the technology,
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financial services and consumer staple commitments, which were well represented
in the portfolio. While the overall return on foreign equities lagged that of
the United States by a significant margin, the decision to underweight Japan and
overweight a number of markets in the Americas and Europe reduced the negative
impact of the foreign equity representation during the year. Similarly, while
bond returns were also well below those of US equities, a number of markets
represented in the portfolio during much of the year, including Canada, the
United Kingdom and Sweden, made a positive contribution to performance. The cash
position, which was relatively small during much of 1996, held down the return
to a much lesser extent than was the case in 1995.
As of December 31, 1996, the asset allocation for Global Strategy Focus Fund
was: foreign equities, 49% of net assets; US equities, 33%; foreign bonds, 10%;
US bonds, 5%; and cash reserves, 3%.
The major change in the equity sector during the second half of 1996 involved
shifting assets from US equities and foreign bonds into foreign equities. We
increased the representation in foreign equity markets by expanding existing
commitments. New positions were concentrated in Europe. The majority were in the
UK market and included British Steel PLC, Glaxo Wellcome PLC, Grand Metropolitan
PLC, Boots Company PLC, National Westminster PLC and Vodafone Group PLC. Other
new commitments included SGS Thomson Microelectronics NV in France and Color
Lines ASA in Norway. Significant positions were maintained in Latin America and
Canada, given the comparatively favorable outlook for the Canadian and Latin
American economies and markets. The commitment in Japanese equities remained at
the reduced levels achieved earlier in 1996.
In the United States, we became more cautious as the stock market advanced
strongly during the latter part of 1996. We were concerned that US equities
could be vulnerable to earnings disappointments during 1997. In reducing US
equities, we accepted profits in a number of positions which had performed
exceptionally well and no longer seemed to offer above-average appreciation
potential. Equities which were liquidated on this basis included Microsoft
Corp., Procter & Gamble Co. and The Coca-Cola Company.
We restored positions in the United States and Canadian bond markets during
the second half of 1996. The positions initially were of long duration, which
was reduced during late 1996 through the sale of the long-term Canadian bonds
and the purchase of additional US Treasury obligations of intermediate
maturities. In Europe, the commitment to higher-yielding markets was reduced
through the sale of Spanish bonds and a portion of the commitment in Sweden in
favor of positions in Denmark and the United Kingdom.
GLOBAL UTILITY FOCUS FUND
Global Utility Focus Fund outperformed the broad global utility benchmark for
the 12-month period ended December 31, 1996. During this period, the unmanaged
Financial Times/S&P-Actuaries World Utilities Index had a total return of +8.41%
versus a total return of +12.96% for the Fund.
For the fiscal year ended December 31, 1996, the Fund's relative
outperformance was driven primarily by its European equity utility holdings. As
of December 31, 1996, the Fund's European utility holdings accounted for
approximately 25.7% of net assets. The two best-performing European utility
markets were Italy and Spain, according to the Financial Times/Standard &
Poor's-Actuaries World Utilities Index. These were also the two largest non-US
markets for the Fund's investment during the year. Also making a positive
contribution to the Fund's total 12-month return was an underweighting in the
worst-performing region, the Pacific Basin.
The US-based utility market remained a substantial contributor to the Fund's
performance during the year. Of the approximately 52% of the Fund's net assets
invested in the United States, about 9% was in telecommunications, 14% in
natural gas, 27% in electrics, 1% in water and just under 1% in independent
power producers. According to the performance results of the S&P Utility Index
for the 12 months ended December 31, 1996, the worst-performing sectors were
telecommunications followed by electrics. Natural gas was the only sector which
had positive results, and outperformed the unmanaged broad-based S&P 500 index.
Several timely investment actions were taken during the course of the year.
For example, we reduced our exposure to the US-based telecommunications sector
through the partial and complete sale of several holdings because of regulatory
uncertainties and the implementation of the rules set forth in the 1996
Telecommunications Act. We did not completely eliminate our weighting in the
domestic telecommunications sector because the overall valuation level for the
group remained modestly attractive compared to historical levels. In addition to
reducing our US-based telecommunications holdings, we increased our natural gas
holdings through the purchase of AGL Resources Inc. The natural gas sector
strengthened during the 12-month period as a result of several factors: cold
weather, below normal storage levels, and increased merger/acquisition activity
with the electric utility industry. Finally, we eliminated our positions during
the year in two troubled domestic electric utility companies, North-
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east Utilities Co. and Pacific Gas & Electric Company.
Regarding the international side of the Fund's portfolio, we significantly
increased our holding in the Brazilian telephone company, Telecomunicacoes
Brasileiras S. A.-Telebras. The fundamental outlook for the company and sector
in Brazil remained very attractive during the year as it does for 1997. On a
secondary stock offering, we increased our holding in Portugal through the
purchase of additional shares in Portugal Telecom, S.A. Telefonica del Peru S.A.
also had a stock offering in 1996 that we participated in, given the attractive
growth prospects for the company.
While this is not an all-inclusive list of transactions that took place in the
Fund's portfolio during 1996, it does highlight some of the trends we expect to
continue into 1997. Uncertainty still surrounds the domestic telephone sector.
The fundamentals and merger/acquisition activity continues to be strong in the
natural gas sector. The outlook for several domestic electric utility companies
is improving, as regulators sort out industry issues in a less severe manner
than was the case in 1995/1996.
Moreover, while country selection was critical in 1996 for international
investments, and the Fund benefited from this factor, we believe that in the
upcoming months this should continue and play an important part in overall
performance. As of year-end 1996, the Fund's portfolio was invested in 24
countries outside of the United States spread across 45 corporations. While
Europe is the dominant region for the Fund at the present time, we also have
holdings in several emerging markets in both South America and the Asia/Pacific
region. The latter two regions may grow in terms of Fund investments in 1997,
particularly as new stocks come to the market as a result of further
privatizations.
As always, we will continue to weight the risk/ reward ratios for new
investments and for our current holdings if valuations continue to rise. This is
consistent with the Fund's investment objective of obtaining capital
appreciation and current income while primarily investing in the
telecommunications, natural gas, water and electric utility businesses.
GOVERNMENT BOND FUND
The acceleration of job creation, which became evident in February, adversely
impacted interest rates throughout the first half of the year. By June, job
growth averaged 233,000 jobs per month for the first six months of 1996 compared
with an average monthly gain of only 144,000 during the same period in 1995.
Combined with surprising strength in the wage and salary index, this caused
concern that the favorable inflation climate may be drawing to a close. The rise
in bond prices, which occurred in 1995, began to reverse in the first quarter of
1996. Bond prices fluctuated during the spring and summer months in a swirl of
speculation about the course of inflation. This volatility was caused by the
release of economic data which seemed inconclusive with regard to future
economic growth prospects. Bond prices remained steady until the Federal Reserve
Board's decision in late September not to raise short-term interest rates. This
was interpreted by investors as a sign that the economy was slowing enough in
the third quarter so that inflation would not be a problem. Bond prices began to
rise as the third-quarter data were released. However, Federal Reserve Board
Chairman Alan Greenspan's comment that there was an "irrational exuberance" in
US financial markets sent a shudder through the investment system because it
implied that the levels of both stock and bond prices were not consistent with
the economic data. Within two weeks after his remarks, the stock market dropped
over 200 points and there was a corresponding increase of 20 basis points in the
bellwether US Treasury long-term bond.
A review of the underlying economic and political conditions that normally
influence the behavior of stock and bond prices seems to justify market optimism
that prevailed in the fall. For example, the Federal Reserve Board's monetary
policy remained unchanged during the period, contrary to widespread expectations
during the summer that there would be a tightening. This did not occur because
it became apparent that the economy was slowing on its own from the torrid pace
of the second quarter, when the GDP jumped to 4.7% from the 2% pace of the first
quarter. Third-quarter GDP dropped back to 2.1%. Meanwhile, inflation remained
subdued. In addition, the US dollar gained in value, implying less inflation and
continued foreign investment in US securities. Stock and bond prices improved by
year-end, but without the enthusiasm that had characterized the fall.
We extended the duration of the portfolio very modestly during the year ended
December 31, 1996, because of the strength of the market. We reduced cash and
made several trades which lengthened the maturity of several issues. Lengthening
the maturity gave us a greater exposure to the increase in bond prices which
occurred in the fall and led to higher returns for the Fund. Looking ahead, we
believe that markets have a way of self-correcting. Although inflation remains
at a low level, we believe that the current level of bond prices fully reflects
the positive factors which characterized the economy in the last quarter.
Without significant additional good news, we believe that the bond market is in
a trading range which justifies a conservative strategy.
7
<PAGE> 9
================================================================================
HIGH CURRENT INCOME FUND
The high-yield debt market continued its upward momentum through December,
outperforming US Treasury securities and high-grade bonds for the month, the
last quarter and the year. Yield spreads versus Treasury securities remained
compressed, causing high-yield bonds to sell at record high levels relative to
the historical norm. An exception to the general narrowing of spreads was the
CCC-rated category, which widened 113 basis points (1.13%) for the year. This is
an indication that despite a very low incidence of defaults during 1996, credit
problems adversely impacted the performance of the lowest credit quality
securities.
The high-yield market benefited from positive corporate and refinancing
events, a benign credit environment-the default rate was only 0.58% versus the
historic average of 1.97%-and a vibrant equity market. Continuous cash inflows
helped absorb record new issuance ($78 billion) and led to less differentiation
among yields, credits and risk. The tendency in 1996 was to take on more risk to
outperform.
For the fiscal year ended December 31, 1996, the Fund's total return was
11.27%, while the total return for the unmanaged Merrill Lynch High Yield Master
Index was +11.06%. Our performance over the course of the year was aided by a
modest overweighting in bonds rated below BB. Lower-quality issues in the
aggregate outperformed, benefiting Fund returns. Announced mergers, acquisitions
and refinancings also impacted returns positively. The benefiting sectors
included communications, paper and utilities. Among those credits affected were
PanAm Satellite, New World Holdings, Repap Enterprises and Beaver
Valley/Cleveland Electric, which are all portfolio holdings. Results were
impacted negatively by higher cash balances and high exposure to the cable and
broadcasting industry, which underperformed all other sectors and the Index.
Given the relatively full valuation of the high-yield market, particularly
among securities in the lower-quality end of the spectrum, we intend to remain
cautious. Our strategy seeks to reduce risk through gradually upgrading quality
to B+ and retaining lower-yielding credits such as Bell Cablemedia PLC and NWCG
Holdings Corp. which are likely to be called or tendered within 18 months. Among
B+ rated investments made during the six-month period ended December 31, 1996
were Foodmaker Inc., AES China Generating Co. Ltd., Quest Diagnostic Inc.,
Olympus Communications LP and Newport News Ship.
At December 31, 1996, our cash position was 9.2% of net assets. Major
industries in the portfolio included: broadcasting/cable, 11.3% of net assets;
communications, 8.7%; energy, 6.2%; and consumer products, 5.7%.
INDEX 500 FUND
Index 500 Fund was launched on December 13, 1996 with an initial cash
investment of $10,000,000. At the close of trading on that date, these assets
were invested primarily in a fully replicating portfolio of all 500 stocks in
the Index. In addition, we purchased two S&P 500 March 1997 futures contracts
with the intention of equitizing the remaining assets not included in the equity
portfolio. The purpose of this technique is to provide sufficient cash for the
purchase of necessary quantities of newly added companies to the S&P Index, as
well as the purchase of incremental shares of existing Index constituents as the
need arises. These purchases are financed by the cash not spent on the equity
portfolio, and we gain the appropriate market exposure through the investment in
S&P 500 futures contracts.
Our general philosophy in managing the Fund is to keep most of the Fund's
assets in a fully replicating portfolio of all 500 stocks weighted closely to
the weights in the underlying Index. Liquidity will be provided by our
investment in futures, options or other investments designed to provide returns
closely matching those of the S&P 500 Index, with the resulting cash balances
invested in a variety of highly rated commercial paper obligations. This
combination allows the overall portfolio to provide returns substantially
similar to the S&P 500 Index, while maintaining a sufficient level of liquidity
for redemptions and stock purchase activity.
Index changes occurred at an extremely high level during 1996, reflecting the
record amount of merger and acquisition activity by US corporations during the
year. Such changes often involve constituents of the S&P 500 Index, and we
typically look to reflect such changes in our portfolio at the time that they
occur. Since our initial investment on December 13, 1996, there were five
composition changes to the Index, with three occurring on December 31, 1996. In
addition, there were also five major share changes reflecting merger or
acquisition activity of Index constituents. Among these latter changes was the
Worldcom, Inc. acquisition of MFS Communications, Inc., the Hilton Hotels Corp.
takeover of Bally Entertainment, Inc., the Gillette Co. buyout of Duracell,
Inc., the Westinghouse Electric Corp. takeover of Infinity Broadcasting, Inc.,
and the NationsBank Corp. acquisition of Boatmen's Bancshares, Inc.
During the last two years, the US equity market has provided investors with
far above-average returns, fueled by a positive inflationary outlook
8
<PAGE> 10
================================================================================
combined with generally solid growth in corporate earnings. During 1995 and
1996, the total returns of the S&P 500 Index were +37.55% and +22.97%,
respectively. Investors in index funds benefited fully from these extraordinary
returns, as these funds outperformed about 80% of all actively managed mutual
funds in the United States. This is partially attributable to the nature of
index funds, in that they strive to continually be 100% invested.
INTERNATIONAL EQUITY FOCUS FUND
Many international equity markets rallied significantly during 1996. However,
the total return of the unmanaged Financial Times/S&P-Actuaries World (Ex-US)
Index was only +6.50%, in US dollar terms, during the year, which contrasts
significantly with the US S&P 500 Composite Index total return of +22.97%. The
underperformance of international markets reflects mainly the poor performance
of the Japanese equity market.
For the year ended December 31, 1996, the total return for International
Equity Focus Fund's Shares was +6.62%, which was broadly in line with the
benchmark. Performance during the year was negatively affected by the Fund's
underweighting in European markets which generally performed well. For example,
according to the FT/S&P-Actuaries Europe (Ex-UK) Index, continental European
equity total returns were +20.20%, in US dollar terms, for the year ended
December 31, 1996. However, over the same period, the International Finance
Corporation's Investibles Index (an unmanaged broad emerging markets index) only
rose by 8.3%. Our decision to retain an 18%-20% US dollar bloc exposure
benefited performance, as the US dollar bloc was generally strong. Our decision
to remain underweighted in Japanese stocks also benefited performance, as
Japanese equities' total return was -16.06% during the 12-month period ended
December 31, 1996 in US dollar terms.
We reduced the Fund's effective equity exposure during the year, reflecting
our more defensive strategy. The Fund's effective cash balance at the end of
1996 represented approximately 19% of net assets. During the last quarter of
1996, we tactically added to positions in Europe and Australia, while further
reducing exposure in Japan.
In Europe, we increased exposure in Spain as equities appeared undervalued,
given improving confidence in progress toward forming the European Monetary
Union (EMU). Our investments in Spain included Corporacion Bancaria de Espana
S.A. (Argentaria), Telefonica de Espana, S.A. and Empresa Nacional de
Electricidad, S.A. (Endesa). In Australia, we reduced the Fund's holding in
Coca-Cola Amatil, Ltd., following that stock's sharp appreciation. At the same
time, we purchased index futures on the Australian All Ordinaries (an index
basket of major Australian stocks). Furthermore, we made significant purchases
in Australia of particular stocks such as Lend Lease Corp. The Fund's exposure
to Australian equities rose to 6.7% by year-end. In Japan, we reduced the Fund's
exposure in smaller, illiquid companies such as Chukyo Coca-Cola Bottling Co.
Ltd., Sanyo Coca-Cola Bottling Co. Ltd. and Kinki Coca-Cola Bottling Co. Ltd.
Other significant sales included Kinden Corp. and Nichido Fire and Marine
Insurance Co. Ltd.,. Overall, the Fund's Japanese equity position declined from
about 36.7% of net assets at the end of the third quarter to 29.4% at December
31, 1996.
We believe that global economic activity will remain relatively robust. The
Organization for Economic Cooperation and Development (OECD), a leading
indicator of production has continued to rise, and monetary policies generally
remain supportive of improving economic growth. Specifically, in Germany, GDP
growth picked up in the past two quarters, supported by a significant easing in
the Deutschemark and the impact of lower German interest rates. However,
European indicators remain mixed. Consumer spending is weak, reflecting in part
a continued rise in unemployment. Throughout continental Europe, unemployment
trends remained a significant impediment to an improvement in demand conditions.
In contrast, economic activity and business and consumer confidence reports in
the United Kingdom continued to strengthen, and now suggest the strong
likelihood of above-trend growth being sustained well into 1997. In response to
the further strengthening of UK demand, and early signs of wage and price
inflation, the UK Chancellor of the Exchequer increased interest rates during
December by 0.25% to 6.00%. The rise in interest rates was associated with a
sharp appreciation of the British pound against both the US dollar and the
Deutschemark.
In the United States and Japan, economic growth appears to have remained firm.
Leading business confidence surveys, such as the monthly National Association of
Purchasing Managers reports for the United States and the quarterly Bank of
Japan Tankan report, show activity levels improving. The outlook for Japanese
economic growth remained encouraging. Industrial production data now show a 4%
gain year-on-year, and inventory levels are low. Private capital expenditures
appear to have recovered, while export orders and output continue to rise,
especially in the auto sector. In non-Japan Asia, eight of the ten major
countries in the region experienced further export growth in the last quarter
and, with inventory reduction nearing an end, a
9
<PAGE> 11
================================================================================
turning point in Asian industrial production seems likely.
Against this improving cyclical demand backdrop, global interest rates and
bond yields declined further. Much of the impetus for lower interest rates came
from three sources. First, the December period was marked by a surge in investor
confidence regarding the prospects for a successful introduction of a common
currency in Europe by 1999. This resulted in interest rate and bond yield
spreads in peripheral countries such as Spain, Italy and Sweden declining
sharply against Germany. Second, German interest rates declined as investors
expect the Bundesbank to maintain a looser monetary policy in the face of
continued high unemployment and the prospect of a significant further tightening
in fiscal policies across Europe. Third, although Japanese activity growth is
improving, the Japanese financial system remains weak, and Japanese interest
rates are likely to remain lower for longer than investors previously
anticipated. As a result, Japanese institutions continue to diversify their bond
holdings by purchasing higher-yielding foreign securities, and foreigners
continue to borrow in yen to fund long positions in other currencies.
At some stage, the effect of these three factors on the global bond markets
will end. We believe that evidence of stronger economic activity, such as the
overall improvement in the OECD leading indicators, will encourage investors to
become more cautious as real global yields could approach 3%, in our opinion.
Overall, however, we remain cautious on equity markets.
The Institutional Broker Estimate Service consensus of earnings forecasts
reflects a deterioration in earnings growth expectations for 1997 in nine of 12
developed countries, while emerging markets earnings expectations showed a
slight improvement. Against the background of deteriorating earnings growth
prospects, and our expectation that global bond yields have fallen below fair
value, we became more cautious about international stock markets. However, we
remain constructive on the outlook for most emerging markets and, within the
developed countries universe, for those markets that offer attractive
medium-term valuations, such as Australia.
We believe equity markets, such as those in Hong Kong and many interest
rate-sensitive markets in Europe, may experience greater volatility in 1997. As
a result, we are in the process of decreasing the Fund's exposure to these
markets, which generally became overvalued, and increasing exposure to markets
which we believe offer medium-term value, such as Australia, India, Italy,
Korea, and Thailand. We may increase the Fund's exposure to the United Kingdom
should the equity market decline, as investors appear to have increasingly
discounted the likely impact of further increases in interest rates.
The near-term outlook for international equity markets is constrained by
downgrades to profits expectations and the potential for a rise in bond yields.
Thus, our near-term strategy remains defensive. Since our cash exposure is
currently in US dollars, we maintain an overweighted stance in the US dollar. We
expect that these cash reserves will become invested in equities, should a stock
market correction occur. Looking ahead to 1997, we believe that the Fund is
well-positioned, with its focus on emerging markets and Pacific Basin markets
together with a cyclical and value bias in Europe.
NATURAL RESOURCES FOCUS FUND
The environment for investments in the natural resource sector was mixed
during the 12-month period ended December 31, 1996. Returns from
resource-related stocks were generally positive. Except for energy-related
stocks, share price gains generally lagged the returns of the broad global stock
market averages. Investor sentiment toward commodity cyclical companies was
cautious as investors remained concerned about the sustainability of economic
activity, particularly in the United States. In addition, economic statistics
released in Japan and Europe suggested that the pace of any economic recovery in
these markets would remain slow. In spite of these concerns about economic
activity, commodity prices generally moved higher over the period as
supply/demand fundamentals in most commodity areas strengthened. Oil and natural
gas prices soared; base metal prices, led by copper, recovered sharply from
their losses during the summer; and, lumber prices remained in a firm uptrend.
There were also some price increases announced by companies in the steel and
paper products areas, but it is still uncertain if these will be accepted.
Conversely, gold prices moved lower on concerns about possible increases in the
supply of gold to the marketplace.
During the year ended December 31, 1996, Fund returns were enhanced by our
large exposure to the energy sector, with particular emphasis on exploration and
production companies. Share prices of exploration and production companies and
oil service companies benefited from stronger-than-expected oil and natural gas
prices. Oil prices rallied sharply during the period ended December 31, 1996,
driven by strong demand and low inventories of crude oil and oil products,
particularly in the United States. These strong industry fundamentals have, thus
far, left the oil markets relatively unaffected by the recent approval of Iraqi
oil exports for humanitarian aid. The effects of this will have to be monitored
closely in the future. The price of natural gas was more volatile
10
<PAGE> 12
================================================================================
during the December period. Natural gas prices retreated sharply during the
summer months because of relatively mild weather in the United States, which
reduced electricity demand for air conditioning. This reduced demand enabled
natural gas inventories to be rebuilt at a greater-than-expected pace during the
summer in preparation for this winter's heating season. However, despite this
strong rebuild, natural gas inventories are about 10% below last year's levels.
As we approach the season of peak demand, this tight inventory situation fueled
a strong rally in natural gas prices.
In addition, Fund returns were hurt by our exposure to gold mining stocks,
which fell sharply in response to weaker gold prices. Gold prices suffered from
a number of concerns about possible increases in the supply of gold to the
marketplace, including the potential for gold sales by the International
Monetary Fund, further selling of gold by European central banks and increased
forward selling of gold by producers. Inflationary pressures remained moderate
in the world's major economies, thereby limiting the investment demand for gold.
However, we believe that the physical demand for gold remains strong, driven by
increasing jewelry demand in the world's emerging economies. In addition, this
physical demand is expected to significantly exceed the newly mined supply of
gold. This should keep the supply/demand balance for gold tight, and could
support a more positive gold price environment, despite the supply concerns
mentioned above. In the portfolio, investments in the gold sector focused on
companies with low production costs and strong production and reserves growth
potential.
Our exposure to the Japanese market also contributed negatively to Fund
returns as stocks in Japan suffered from economic, political and currency
uncertainties. We continue to believe that the Japanese economy is experiencing
a moderate economic recovery which, combined with the recent weakening of the
Japanese yen, could set the stage for an increase in corporate profitability.
Investments in Japan are focused on companies in the steel, chemical and
non-ferrous metals sectors, which should be prime beneficiaries of this improved
economic scenario.
During the year ended December 31, 1996, there were no significant geographic
or industry allocation changes made in the portfolio. The Fund's largest
exposure continued to be to the energy sector at about 32% of net assets. We did
use the strength in the energy sector as an opportunity to realize profits in
several exploration and production company holdings that had reached our price
targets. The proceeds from these sales were generally invested back into the
energy sector in companies which offered better value, in our opinion. New
positions established during the year included ENI Societa per Azioni, an
Italian-based integrated oil company, and Northrock Resources Ltd., a
fast-growing Canadian-based exploration and production company. In addition, we
added several new positions in the oil service sector, including Transocean
Offshore Inc., a worldwide offshore drilling company which is experiencing sharp
increases in the prices charged for the use of their drilling rigs, and
Petroleum Geo-Services ASA, a Norwegian-based company that acquires, processes
and markets three-dimensional marine seismic data which are increasingly being
used in the exploration and development efforts of oil and gas companies.
We also maintained a significant exposure to the industrial side of our
universe, including base metals and forest product companies. Base metals shares
generally should be among the prime beneficiaries of an increase in global
economic activity. Despite the uncertainty surrounding the copper trading losses
at Sumitomo Corp., supply/demand fundamentals in the base metals industries
remain tight. This could lead to higher base metals prices if economic growth
continues to expand worldwide, as we expect. In the paper and forest products
industry, lumber prices moved sharply higher in response to strong housing
activity, particularly in the United States. In addition, there is some evidence
that paper inventories are being worked down and that order levels are
increasing in some grades, which could give the industry greater pricing
flexibility going forward. Despite the risk of a near-term slowdown in earnings
momentum in some of these areas resulting from sluggish industrial commodity
prices, we remain positive on the intermediate-term outlook for these
industries. In our opinion, the emerging trend of stronger worldwide economic
growth should keep the demand for these industrial commodities on an upward
trend, and should provide support for underlying commodity prices.
Looking ahead, we continue to be optimistic about the outlook for the natural
resource sector. There continues to be uncertainty over the sustainability of
recent advances in economic growth, and much debate over the implications of
this growth for the financial markets. We remain encouraged by recent positive
economic trends, and believe we may be moving toward a period of synchronized
growth in both the industrialized and developing economies. We expect this to
keep the demand for most basic commodities on an upward trend, and to strengthen
fundamental supply/demand prospects for most natural resource-related industries
which, in turn, should have positive implications for the earnings of many
resource-related companies. The Fund remains fairly fully invested, with cash
levels in the Fund at 3.0% of net assets at December 31, 1996.
11
<PAGE> 13
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PRIME BOND FUND
The acceleration of job creation, which became evident in February, adversely
impacted interest rates throughout the first half of the year. Job growth
averaged 233,000 jobs per month in the first six months of 1996, compared with
an average monthly gain of only 144,000 in the same period in 1995. Combined
with surprising strength in the wage and salary index, these data caused concern
that the favorable inflation climate may be drawing to a close. The rise in bond
prices which occurred in 1995 began to reverse in the first quarter of 1996.
Bond prices fluctuated during the spring and summer months in a swirl of
speculation about the course of inflation. This volatility was caused by the
release of economic data which seemed inconclusive with regard to future growth
prospects. Bond prices remained volatile until the Federal Reserve Board's
decision in late September not to raise short-term interest rates. This was
interpreted by investors as a sign that the economy was slowing down enough on
its own in the third quarter so that inflation would not be a problem. Bond
prices began to rise as the third quarter data were released. However, Federal
Reserve Board Chairman Alan Greenspan touched a nerve on December 5 when he
suggested that there was an "irrational exuberance" in US financial markets.
This comment sent a shudder through the investment system because of its
implication that the levels of both stock and bond prices were not consistent
with the economic data. Within two weeks after his remarks, the stock market
dropped over 200 points and there was a corresponding increase of 20 basis
points in the bellwether Treasury long bond.
Yet a review of the underlying economic and political conditions that normally
influence the behavior of stock and bond prices seems to justify the investor
optimism that prevailed in the fall. For example, the Federal Reserve Board's
monetary policy remained unchanged during the period, contrary to widespread
expectations during the summer that there would be a tightening. This did not
occur because it became apparent that the economy was slowing on its own from
the torrid pace of the second quarter, when the GDP jumped to 4.7% from the 2%
pace of the first quarter. Third-quarter GDP dropped back to 2.1%. Meanwhile,
inflation remained subdued. In addition, the US dollar gained in value, implying
less inflation and continued foreign investment in US securities. Stock and bond
prices improved by year-end, but without the enthusiasm that had characterized
the fall.
We strengthened our performance from February through the middle of the summer
by moving the Fund into an ever-increasing conservative position. This was done
by shortening the average life from 11.5 years to 8.9 years. We accomplished
this by increasing the percentage of Treasury issues held by the Fund and by
trading down the yield curve which reduced maturity. In the fall, we began to
purchase more industrial and utility issues and a selection of trust preferreds
which offered an attractive yield which benefited the Fund's overall
performance.
QUALITY EQUITY FUND
During much of the fiscal year ended December 31, 1996, we held the Fund's
cash position to a relatively small portion of net assets. Consequently, cash
held down returns to a much lesser extent than was the case in 1995. In the US
equity sector, large-capitalization stocks in sectors such as technology,
financial services and consumer staples continued to positively impact overall
Fund returns. As was the case in 1995, foreign equities as a group provided
returns below those of US equities. As of December 31, 1996, the allocation of
Quality Equity Fund was: US equities, 84% of net assets; foreign equities, 11%;
and cash reserves, 5%.
In the United States, we became more cautious as the stock market advanced
during the latter part of 1996. We were concerned that US equities could be
vulnerable to earnings disappointments during 1997. In reducing US equities, we
accepted profits in a number of positions which performed exceptionally well and
no longer seemed to offer above-average appreciation potential. Equities which
were liquidated on this basis included Microsoft Corp., Procter & Gamble Co. and
The Coca-Cola Co.
In order to seek to further reduce risk, we established positions in several
areas which appeared unexploited. These sectors included electric utilities
through the purchase of Edison International and real estate through the
addition of Prentiss Properties Trust. After the cutback in the US equity
position, the largest proportion of US equity assets remains allocated to areas
that are likely to benefit from strength in capital spending in the United
States and abroad. These commitments included companies involved in technology,
such as International Business Machines Corp., and companies in defense and
aerospace, as exemplified by Northrop Grumman Corp.
In the foreign sector, new positions were concentrated in the United Kingdom
and included the American Depositary Receipts of British Steel PLC, Glaxo
Wellcome PLC, Grand Metropolitan PLC, National Westminster Bank PLC, and
Vodafone Group PLC. We also established a position in the ADRs of SGS Thompson
Microelectronics N.V. in France.
12
<PAGE> 14
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RESERVE ASSETS FUND
For the six-month period ended December 31, 1996, the Reserve Assets Fund's
net annualized yield was 5.02%.* The Fund's 7-day yield as of December 31, 1996
was 5.01%*. The average portfolio maturity was 70 days at December 31, 1996
compared to 55 days at June 30, 1996.
The Fund's composition at the end of December and as of our last report is
detailed below:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
Issue 12/31/96 6/30/96
- ----------------------------------------------------------------------------
<S> <C> <C>
Bank Notes......................................... 1.3% --
Certificates of Deposit............................ 2.2 --
Commercial Paper................................... 43.5 43.9%
Corporate Notes.................................... 8.7 10.6
Funding Agreements................................. 4.4 4.3
Master Notes....................................... 4.4 4.3
Medium-Term Notes.................................. -- 1.1
US Government Agency & Instrumentality
Obligations -- Discount........................... 5.6 8.3
US Government Agency & Instrumentality
Obligations -- Non-Discount....................... 30.7 27.5
Liabilities in Excess of Other Assets.............. (0.8) --
----- -----
Total.............................................. 100.0% 100.0%
===== =====
</TABLE>
- ---------------
* Based on a constant investment throughout the period, with dividends
compounded daily, and reflecting a net return to the investor after all
expenses.
IN CONCLUSION
We appreciate your investment in Merrill Lynch Variable Series Funds, Inc.,
and we look forward to sharing our investment outlook and strategies with you in
our June semi-annual report to shareholders.
Sincerely,
/s/ ARTHUR ZEIKEL
Arthur Zeikel
President
February 6, 1997
13
<PAGE> 15
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--AMERICAN BALANCED FUND
PROXY RESULTS
- --------------------------------------------------------------------------------
During the six-month period ended December 31, 1996, Merrill Lynch Variable
Series Funds, Inc. American Balanced Fund shareholders voted on the following
proposals. The proposals were approved at a shareholders' meeting on October 11,
1996. The description of each proposal and number of shares voted are as
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
SHARES VOTED SHARES VOTED
FOR WITHOUT AUTHORITY
- ------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
1. To elect the Fund's Board of Directors:
Joe Grills 13,707,781 401,552
Walter Mintz 13,707,781 401,552
Robert S. Salomon Jr. 13,707,781 401,552
Melvin R. Seiden 13,707,781 401,552
Stephen B. Swensrud 13,707,781 401,552
Arthur Zeikel 13,707,781 401,552
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VOTED SHARES VOTED SHARES VOTED
FOR AGAINST ABSTAIN
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
2. To consider and act upon a proposal to ratify the
selection of Deloitte & Touche LLP as the Fund's
independent auditors for the current fiscal year. 13,031,247 117,914 960,172
- -----------------------------------------------------------------------------------------------------------------
3. To consider and act upon a proposal to amend the
investment restrictions applicable to all of the
Company's Funds other than Domestic Money Market
Fund and Reserve Assets Fund. (Only holders of
shares of the Company's Funds other than the
Domestic Money Market Fund and the Reserve Assets
Fund were permitted to vote on this matter.) 11,643,912 529,054 1,936,367
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 16
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--BASIC VALUE FOCUS FUND
PROXY RESULTS
- --------------------------------------------------------------------------------
During the six-month period ended December 31, 1996, Merrill Lynch Variable
Series Funds, Inc. Basic Value Focus Fund shareholders voted on the following
proposals. The proposals were approved at a shareholders' meeting on October 11,
1996. The description of each proposal and number of shares voted are as
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
SHARES VOTED SHARES VOTED
FOR WITHOUT AUTHORITY
- ------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
1. To elect the Fund's Board of Directors:
Joe Grills 29,827,286 866,223
Walter Mintz 29,827,286 866,223
Robert S. Salomon Jr. 29,827,286 866,223
Melvin R. Seiden 29,827,286 866,223
Stephen B. Swensrud 29,827,286 866,223
Arthur Zeikel 29,827,286 866,223
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VOTED SHARES VOTED SHARES VOTED
FOR AGAINST ABSTAIN
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
2. To consider and act upon a proposal to ratify the
selection of Deloitte & Touche LLP as the Fund's
independent auditors for the current fiscal year. 29,127,772 176,109 1,389,628
- -----------------------------------------------------------------------------------------------------------------
3. To consider and act upon a proposal to amend the
investment restrictions applicable to all of the
Company's Funds other than Domestic Money Market
Fund and Reserve Assets Fund. (Only holders of
shares of the Company's Funds other than the
Domestic Money Market Fund and the Reserve Assets
Fund were permitted to vote on this matter.) 25,957,896 921,626 3,813,987
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE> 17
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--DEVELOPING CAPITAL MARKETS FOCUS FUND
PROXY RESULTS
- --------------------------------------------------------------------------------
During the six-month period ended December 31, 1996, Merrill Lynch Variable
Series Funds, Inc. Developing Capital Markets Focus Fund shareholders voted on
the following proposals. The proposals were approved at a shareholders' meeting
on October 11, 1996. The description of each proposal and number of shares voted
are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
SHARES VOTED SHARES VOTED
FOR WITHOUT AUTHORITY
- ------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
1. To elect the Fund's Board of Directors:
Joe Grills 7,922,623 320,216
Walter Mintz 7,922,623 320,216
Robert S. Salomon Jr. 7,922,623 320,216
Melvin R. Seiden 7,922,623 320,216
Stephen B. Swensrud 7,922,623 320,216
Arthur Zeikel 7,922,623 320,216
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VOTED SHARES VOTED SHARES VOTED
FOR AGAINST ABSTAIN
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
2. To consider and act upon a proposal to ratify the
selection of Deloitte & Touche LLP as the Fund's
independent auditors for the current fiscal year. 7,482,866 227,258 532,715
- -----------------------------------------------------------------------------------------------------------------
3. To consider and act upon a proposal to amend the
investment restrictions applicable to all of the
Company's Funds other than Domestic Money Market
Fund and Reserve Assets Fund. (Only holders of
shares of the Company's Funds other than the
Domestic Money Market Fund and the Reserve Assets
Fund were permitted to vote on this matter.) 6,946,633 231,187 1,065,019
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 18
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--DOMESTIC MONEY MARKET FUND
PROXY RESULTS
- --------------------------------------------------------------------------------
During the six-month period ended December 31, 1996, Merrill Lynch Variable
Series Funds, Inc. Domestic Money Market Fund shareholders voted on the
following proposals. The proposals were approved at a shareholders' meeting on
October 11, 1996. The description of each proposal and number of shares voted
are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
SHARES VOTED SHARES VOTED
FOR WITHOUT AUTHORITY
- ------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
1. To elect the Fund's Board of Directors:
Joe Grills 264,586,574 4,890,970
Walter Mintz 264,586,574 4,890,970
Robert S. Salomon Jr. 264,586,574 4,890,970
Melvin R. Seiden 264,586,574 4,890,970
Stephen B. Swensrud 264,586,574 4,890,970
Arthur Zeikel 264,586,574 4,890,970
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VOTED SHARES VOTED SHARES VOTED
FOR AGAINST ABSTAIN
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
2. To consider and act upon a proposal to ratify the
selection of Deloitte & Touche LLP as the Fund's
independent auditors for the current fiscal year. 253,650,660 1,883,466 13,943,418
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 19
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--EQUITY GROWTH FUND
PROXY RESULTS
- --------------------------------------------------------------------------------
During the six-month period ended December 31, 1996, Merrill Lynch Variable
Series Funds, Inc. Equity Growth Fund shareholders voted on the following
proposals. The proposals were approved at a shareholders' meeting on October 11,
1996. The description of each proposal and number of shares voted are as
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
SHARES VOTED SHARES VOTED
FOR WITHOUT AUTHORITY
- ------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
1. To elect the Fund's Board of Directors:
Joe Grills 15,942,626 423,352
Walter Mintz 15,942,626 423,352
Robert S. Salomon Jr. 15,942,626 423,352
Melvin R. Seiden 15,942,626 423,352
Stephen B. Swensrud 15,942,626 423,352
Arthur Zeikel 15,942,626 423,352
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VOTED SHARES VOTED SHARES VOTED
FOR AGAINST ABSTAIN
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
2. To consider and act upon a proposal to ratify the
selection of Deloitte & Touche LLP as the Fund's
independent auditors for the current fiscal year. 15,322,521 124,594 918,863
- -----------------------------------------------------------------------------------------------------------------
3. To consider and act upon a proposal to amend the
investment restrictions applicable to all of the
Company's Funds other than Domestic Money Market
Fund and Reserve Assets Fund. (Only holders of
shares of the Company's Funds other than the
Domestic Money Market Fund and the Reserve Assets
Fund were permitted to vote on this matter.) 13,651,239 585,798 2,128,941
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 20
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--FLEXIBLE STRATEGY FUND
PROXY RESULTS
- --------------------------------------------------------------------------------
During the six-month period ended December 31, 1996, Merrill Lynch Variable
Series Funds, Inc. Flexible Strategy Fund shareholders voted on the following
proposals. The proposals were approved at a shareholders' meeting on October 11,
1996. The description of each proposal and number of shares voted are as
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
SHARES VOTED SHARES VOTED
FOR WITHOUT AUTHORITY
- ------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
1. To elect the Fund's Board of Directors:
Joe Grills 20,144,023 531,009
Walter Mintz 20,144,023 531,009
Robert S. Salomon Jr. 20,144,023 531,009
Melvin R. Seiden 20,144,023 531,009
Stephen B. Swensrud 20,144,023 531,009
Arthur Zeikel 20,144,023 531,009
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VOTED SHARES VOTED SHARES VOTED
FOR AGAINST ABSTAIN
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
2. To consider and act upon a proposal to ratify the
selection of Deloitte & Touche LLP as the Fund's
independent auditors for the current fiscal year. 19,459,037 188,042 1,027,953
- -----------------------------------------------------------------------------------------------------------------
3. To consider and act upon a proposal to amend the
investment restrictions applicable to all of the
Company's Funds other than Domestic Money Market
Fund and Reserve Assets Fund. (Only holders of
shares of the Company's Funds other than the
Domestic Money Market Fund and the Reserve Assets
Fund were permitted to vote on this matter.) 17,223,613 929,027 2,522,392
- -----------------------------------------------------------------------------------------------------------------
4. To consider and act upon a proposal to approve the
Agreement and the Plan of Reorganization between the
Company's Flexible Strategy Fund and Global Strategy
Focus Fund and Articles of Amendment to the
Company's charter in connection therewith. (Only
holders of shares of the Company's Flexible Strategy
Fund were permitted to vote on this matter.) 17,118,759 1,070,426 2,485,847
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 21
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--GLOBAL STRATEGY FOCUS FUND
PROXY RESULTS
- --------------------------------------------------------------------------------
During the six-month period ended December 31, 1996, Merrill Lynch Variable
Series Funds, Inc. Global Strategy Fund shareholders voted on the following
proposals. The proposals were approved at a shareholders' meeting on October 11,
1996. The description of each proposal and number of shares voted are as
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
SHARES VOTED
SHARES VOTED WITHOUT AUTHORITY
FOR
- ------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
1. To elect the Fund's Board of Directors:
Joe Grills 40,951,670 1,052,511
Walter Mintz 40,951,670 1,052,511
Robert S. Salomon Jr. 40,951,670 1,052,511
Melvin R. Seiden 40,951,670 1,052,511
Stephen B. Swensrud 40,951,670 1,052,511
Arthur Zeikel 40,951,670 1,052,511
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VOTED SHARES VOTED SHARES VOTED
FOR AGAINST ABSTAIN
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
2. To consider and act upon a proposal to ratify the
selection of Deloitte & Touche LLP as the Fund's
independent auditors for the current fiscal year. 39,399,430 371,260 2,233,491
- -----------------------------------------------------------------------------------------------------------------
3. To consider and act upon a proposal to amend the
investment restrictions applicable to all of the
Company's Funds other than Domestic Money Market
Fund and Reserve Assets Fund. (Only holders of
shares of the Company's Funds other than the
Domestic Money Market Fund and the Reserve Assets
Fund were permitted to vote on this matter.) 34,863,908 1,333,589 5,806,684
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE> 22
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--GLOBAL UTILITY FOCUS FUND
PROXY RESULTS
- --------------------------------------------------------------------------------
During the six-month period ended December 31, 1996, Merrill Lynch Variable
Series Funds, Inc. Global Utility Focus Fund shareholders voted on the following
proposals. The proposals were approved at a shareholders' meeting on October 11,
1996. The description of each proposal and number of shares voted are as
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
SHARES VOTED
SHARES VOTED WITHOUT AUTHORITY
FOR
- ------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
1. To elect the Fund's Board of Directors:
Joe Grills 12,195,216 385,117
Walter Mintz 12,195,216 385,117
Robert S. Salomon Jr. 12,195,216 385,117
Melvin R. Seiden 12,195,216 385,117
Stephen B. Swensrud 12,195,216 385,117
Arthur Zeikel 12,195,216 385,117
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VOTED SHARES VOTED SHARES VOTED
FOR AGAINST ABSTAIN
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
2. To consider and act upon a proposal to ratify the
selection of Deloitte & Touche LLP as the Fund's
independent auditors for the current fiscal year. 11,712,465 125,924 741,944
- -----------------------------------------------------------------------------------------------------------------
3. To consider and act upon a proposal to amend the
investment restrictions applicable to all of the
Company's Funds other than Domestic Money Market
Fund and Reserve Assets Fund. (Only holders of
shares of the Company's Funds other than the
Domestic Money Market Fund and the Reserve Assets
Fund were permitted to vote on this matter.) 10,463,533 330,732 1,786,068
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 23
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--HIGH CURRENT INCOME FUND
PROXY RESULTS
- --------------------------------------------------------------------------------
During the six-month period ended December 31, 1996, Merrill Lynch Variable
Series Funds, Inc. High Current Income Fund shareholders voted on the following
proposals. The proposals were approved at a shareholders' meeting on October 11,
1996. The description of each proposal and number of shares voted are as
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
SHARES VOTED
SHARES VOTED WITHOUT AUTHORITY
FOR
- ------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
1. To elect the Fund's Board of Directors:
Joe Grills 34,328,264 668,597
Walter Mintz 34,328,264 668,597
Robert S. Salomon Jr. 34,328,264 668,597
Melvin R. Seiden 34,328,264 668,597
Stephen B. Swensrud 34,328,264 668,597
Arthur Zeikel 34,328,264 668,597
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VOTED SHARES VOTED SHARES VOTED
FOR AGAINST ABSTAIN
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
2. To consider and act upon a proposal to ratify the
selection of Deloitte & Touche LLP as the Fund's
independent auditors for the current fiscal year. 33,249,294 236,080 1,511,487
- -----------------------------------------------------------------------------------------------------------------
3. To consider and act upon a proposal to amend the
investment restrictions applicable to all of the
Company's Funds other than Domestic Money Market
Fund and Reserve Assets Fund. (Only holders of
shares of the Company's Funds other than the
Domestic Money Market Fund and the Reserve Assets
Fund were permitted to vote on this matter.) 29,656,202 761,046 4,579,613
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 24
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INTERMEDIATE GOVERNMENT BOND FUND
PROXY RESULTS
- --------------------------------------------------------------------------------
During the six-month period ended December 31, 1996, Merrill Lynch Variable
Series Funds, Inc. Intermediate Government Bond Fund shareholders voted on the
following proposals. The proposals were approved at a shareholders' meeting on
October 11, 1996. The description of each proposal and number of shares voted
are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
SHARES VOTED
SHARES VOTED WITHOUT AUTHORITY
FOR
- ------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
1. To elect the Fund's Board of Directors:
Joe Grills 6,016,178 146,533
Walter Mintz 6,016,178 146,533
Robert S. Salomon Jr. 6,016,178 146,533
Melvin R. Seiden 6,016,178 146,533
Stephen B. Swensrud 6,016,178 146,533
Arthur Zeikel 6,016,178 146,533
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VOTED SHARES VOTED SHARES VOTED
FOR AGAINST ABSTAIN
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
2. To consider and act upon a proposal to ratify the
selection of Deloitte & Touche LLP as the Fund's
independent auditors for the current fiscal year. 5,740,606 60,621 361,485
- -----------------------------------------------------------------------------------------------------------------
3. To consider and act upon a proposal to amend the
investment restrictions applicable to all of the
Company's Funds other than Domestic Money Market
Fund and Reserve Assets Fund. (Only holders of
shares of the Company's Funds other than the
Domestic Money Market Fund and the Reserve Assets
Fund were permitted to vote on this matter.) 5,320,992 132,506 709,214
- -----------------------------------------------------------------------------------------------------------------
4. To consider and act upon a proposal to approve a
change in the investment objective of the Company's
Intermediate Government Bond Fund and to rename that
Fund as the "Government Bond Fund." (Only holders of
shares of the Company's Intermediate Government Bond
Fund were permitted to vote on this matter.) 5,269,984 179,274 713,454
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE> 25
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INTERNATIONAL BOND FUND
PROXY RESULTS
- --------------------------------------------------------------------------------
During the six-month period ended December 31, 1996, Merrill Lynch Variable
Series Funds, Inc. International Bond Fund shareholders voted on the following
proposals. The proposals were approved at a shareholders' meeting on October 11,
1996. The description of each proposal and number of shares voted are as
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
SHARES VOTED
SHARES VOTED WITHOUT AUTHORITY
FOR
- ------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
1. To elect the Fund's Board of Directors:
Joe Grills 1,761,153 24,600
Walter Mintz 1,761,153 24,600
Robert S. Salomon Jr. 1,761,153 24,600
Melvin R. Seiden 1,761,153 24,600
Stephen B. Swensrud 1,761,153 24,600
Arthur Zeikel 1,761,153 24,600
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VOTED SHARES VOTED SHARES VOTED
FOR AGAINST ABSTAIN
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
2. To consider and act upon a proposal to ratify the
selection of Deloitte & Touche LLP as the Fund's
independent auditors for the current fiscal year. 1,732,741 8,654 44,358
- -----------------------------------------------------------------------------------------------------------------
3. To consider and act upon a proposal to amend the
investment restrictions applicable to all of the
Company's Funds other than Domestic Money Market
Fund and Reserve Assets Fund. (Only holders of
shares of the Company's Funds other than the
Domestic Money Market Fund and the Reserve Assets
Fund were permitted to vote on this matter.) 1,688,458 19,553 77,742
- -----------------------------------------------------------------------------------------------------------------
4. To consider and act upon a proposal to approve the
Agreement and the Plan of Reorganization between the
Company's International Bond Fund and World Income
Focus Fund and the Articles of Amendment to the
Company's Articles of Incorporation in connection
therewith. (Only holders of shares of the Company's
International Bond Fund were permitted to vote on
this matter.) 1,642,282 19,341 124,130
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE> 26
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INTERNATIONAL EQUITY FOCUS FUND
PROXY RESULTS
- --------------------------------------------------------------------------------
During the six-month period ended December 31, 1996, Merrill Lynch Variable
Series Funds, Inc. International Equity Focus Fund shareholders voted on the
following proposals. The proposals were approved at a shareholders' meeting on
October 11, 1996. The description of each proposal and number of shares voted
are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
SHARES VOTED
SHARES VOTED WITHOUT AUTHORITY
FOR
- ------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
1. To elect the Fund's Board of Directors:
Joe Grills 27,157,228 980,113
Walter Mintz 27,157,228 980,113
Robert S. Salomon Jr. 27,157,228 980,113
Melvin R. Seiden 27,157,228 980,113
Stephen B. Swensrud 27,157,228 980,113
Arthur Zeikel 27,157,228 980,113
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VOTED SHARES VOTED SHARES VOTED
FOR AGAINST ABSTAIN
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
2. To consider and act upon a proposal to ratify the
selection of Deloitte & Touche LLP as the Fund's
independent auditors for the current fiscal year. 26,340,375 258,837 1,538,129
- -----------------------------------------------------------------------------------------------------------------
3. To consider and act upon a proposal to amend the
investment restrictions applicable to all of the
Company's Funds other than Domestic Money Market
Fund and Reserve Assets Fund. (Only holders of
shares of the Company's Funds other than the
Domestic Money Market Fund and the Reserve Assets
Fund were permitted to vote on this matter.) 23,427,253 844,987 3,865,101
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE> 27
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--NATURAL RESOURCES FOCUS FUND
PROXY RESULTS
- --------------------------------------------------------------------------------
During the six-month period ended December 31, 1996, Merrill Lynch Variable
Series Funds, Inc. Natural Resources Focus Fund shareholders voted on the
following proposals. The proposals were approved at a shareholders' meeting on
October 11, 1996. The description of each proposal and number of shares voted
are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
SHARES VOTED
SHARES VOTED WITHOUT AUTHORITY
FOR
- ------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
1. To elect the Fund's Board of Directors:
Joe Grills 3,536,297 77,093
Walter Mintz 3,536,297 77,093
Robert S. Salomon Jr. 3,536,297 77,093
Melvin R. Seiden 3,536,297 77,093
Stephen B. Swensrud 3,536,297 77,093
Arthur Zeikel 3,536,297 77,093
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VOTED SHARES VOTED SHARES VOTED
FOR AGAINST ABSTAIN
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
2. To consider and act upon a proposal to ratify the
selection of Deloitte & Touche LLP as the Fund's
independent auditors for the current fiscal year. 3,399,733 16,601 197,056
- -----------------------------------------------------------------------------------------------------------------
3. To consider and act upon a proposal to amend the
investment restrictions applicable to all of the
Company's Funds other than Domestic Money Market
Fund and Reserve Assets Fund. (Only holders of
shares of the Company's Funds other than the
Domestic Money Market Fund and the Reserve Assets
Fund were permitted to vote on this matter.) 3,001,601 126,115 485,674
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE> 28
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--PRIME BOND FUND
PROXY RESULTS
- --------------------------------------------------------------------------------
During the six-month period ended December 31, 1996, Merrill Lynch Variable
Series Funds, Inc. Prime Bond Fund shareholders voted on the following
proposals. The proposals were approved at a shareholders' meeting on October 11,
1996. The description of each proposal and number of shares voted are as
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
SHARES VOTED
SHARES VOTED WITHOUT AUTHORITY
FOR
- ------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
1. To elect the Fund's Board of Directors:
Joe Grills 41,331,257 878,097
Walter Mintz 41,331,257 878,097
Robert S. Salomon Jr. 41,331,257 878,097
Melvin R. Seiden 41,331,257 878,097
Stephen B. Swensrud 41,331,257 878,097
Arthur Zeikel 41,331,257 878,097
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VOTED SHARES VOTED SHARES VOTED
FOR AGAINST ABSTAIN
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
2. To consider and act upon a proposal to ratify the
selection of Deloitte & Touche LLP as the Fund's
independent auditors for the current fiscal year. 39,727,822 231,237 2,250,295
- -----------------------------------------------------------------------------------------------------------------
3. To consider and act upon a proposal to amend the
investment restrictions applicable to all of the
Company's Funds other than Domestic Money Market
Fund and Reserve Assets Fund. (Only holders of
shares of the Company's Funds other than the
Domestic Money Market Fund and the Reserve Assets
Fund were permitted to vote on this matter.) 35,657,124 1,098,771 5,453,459
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE> 29
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--QUALITY EQUITY FUND
PROXY RESULTS
- --------------------------------------------------------------------------------
During the six-month period ended December 31, 1996, Merrill Lynch Variable
Series Funds, Inc. Quality Equity Fund shareholders voted on the following
proposals. The proposals were approved at a shareholders' meeting on October 11,
1996. The description of each proposal and number of shares voted are as
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
SHARES VOTED
SHARES VOTED WITHOUT AUTHORITY
FOR
- ------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
1. To elect the Fund's Board of Directors:
Joe Grills 23,031,077 499,332
Walter Mintz 23,031,077 499,332
Robert S. Salomon Jr. 23,031,077 499,332
Melvin R. Seiden 23,031,077 499,332
Stephen B. Swensrud 23,031,077 499,332
Arthur Zeikel 23,031,077 499,332
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VOTED SHARES VOTED SHARES VOTED
FOR AGAINST ABSTAIN
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
2. To consider and act upon a proposal to ratify the
selection of Deloitte & Touche LLP as the Fund's
independent auditors for the current fiscal year. 22,209,261 162,772 1,158,375
- -----------------------------------------------------------------------------------------------------------------
3. To consider and act upon a proposal to amend the
investment restrictions applicable to all of the
Company's Funds other than Domestic Money Market
Fund and Reserve Assets Fund. (Only holders of
shares of the Company's Funds other than the
Domestic Money Market Fund and the Reserve Assets
Fund were permitted to vote on this matter.) 19,967,754 673,505 2,889,150
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE> 30
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--RESERVE ASSETS FUND
PROXY RESULTS
- --------------------------------------------------------------------------------
During the six-month period ended December 31, 1996, Merrill Lynch Variable
Series Funds, Inc. Reserve Assets Fund shareholders voted on the following
proposals. The proposals were approved at a shareholders' meeting on October 11,
1996. The description of each proposal and number of shares voted are as
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
SHARES VOTED
SHARES VOTED WITHOUT AUTHORITY
FOR
- ------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
1. To elect the Fund's Board of Directors:
Joe Grills 21,949,747 1,009,839
Walter Mintz 21,949,747 1,009,839
Robert S. Salomon Jr. 21,949,747 1,009,839
Melvin R. Seiden 21,949,747 1,009,839
Stephen B. Swensrud 21,949,747 1,009,839
Arthur Zeikel 21,949,747 1,009,839
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VOTED SHARES VOTED SHARES VOTED
FOR AGAINST ABSTAIN
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
2. To consider and act upon a proposal to ratify the
selection of Deloitte & Touche LLP as the Fund's
independent auditors for the current fiscal year. 21,851,520 606,262 501,804
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE> 31
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--WORLD INCOME FOCUS FUND
PROXY RESULTS
- --------------------------------------------------------------------------------
During the six-month period ended December 31, 1996, Merrill Lynch Variable
Series Funds, Inc. World Income Focus Fund shareholders voted on the following
proposals. The proposals were approved at a shareholders' meeting on October 11,
1996. The description of each proposal and number of shares voted are as
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
SHARES VOTED SHARES VOTED
FOR WITHOUT AUTHORITY
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. To elect the Fund's Board of Directors:
Joe Grills 8,558,297 141,775
Walter Mintz 8,558,297 141,775
Robert S. Salomon Jr. 8,558,297 141,775
Melvin R. Seiden 8,558,297 141,775
Stephen B. Swensrud 8,558,297 141,775
Arthur Zeikel 8,558,297 141,775
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VOTED SHARES VOTED SHARES VOTED
FOR AGAINST ABSTAIN
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2. To consider and act upon a proposal to ratify the
selection of Deloitte & Touche LLP as the Fund's
independent auditors for the current fiscal year. 8,158,982 49,744 491,346
- -----------------------------------------------------------------------------------------------------------------
3. To consider and act upon a proposal to amend the
investment restrictions applicable to all of the
Company's Funds other than Domestic Money Market
Fund and Reserve Assets Fund. (Only holders of
shares of the Company's Funds other than the
Domestic Money Market Fund and the Reserve Assets
Fund were permitted to vote on this matter.) 7,323,863 259,767 1,116,442
- -----------------------------------------------------------------------------------------------------------------
4. To consider and act upon a proposal to approve the
change in the investment objective of the Company's
World Income Focus Fund and to change the name of
that Fund to the "Global Bond Focus Fund." (Only
holders of shares of the Company's World Income Fund
were permitted to vote on this matter.) 7,149,163 230,974 1,319,935
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE> 32
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
TOTAL RETURNS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
12 MONTH 6 MONTH
12/31/96 6/30/96 12/31/95 % CHANGE % CHANGE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AMERICAN BALANCED FUND $16.01 $15.22 $15.17 + 9.73%(1) + 7.08%(2)
- --------------------------------------------------------------------------------------------------------------------
BASIC VALUE FOCUS FUND 14.74 13.64 13.10 +20.69(3) + 8.70(4)
- --------------------------------------------------------------------------------------------------------------------
DEVELOPING CAPITAL MARKETS FOCUS FUND 10.05 10.15 9.32 +10.59(5) -0.99
- --------------------------------------------------------------------------------------------------------------------
EQUITY GROWTH FUND 26.22 25.62 27.98 + 8.11(6) + 2.50(7)
- --------------------------------------------------------------------------------------------------------------------
GLOBAL BOND FOCUS FUND++ 9.76 9.63 9.79 + 8.02(8) + 5.33(9)
- --------------------------------------------------------------------------------------------------------------------
GLOBAL STRATEGY FOCUS FUND+ 13.87 12.75 12.55 +13.17(10) + 8.78
- --------------------------------------------------------------------------------------------------------------------
GLOBAL UTILITY FOCUS FUND 12.19 11.73 11.30 +12.96(11) + 6.23(12)
- --------------------------------------------------------------------------------------------------------------------
GOVERNMENT BOND FUND+++ 10.40 10.25 10.79 + 2.86(13) + 4.57(14)
- --------------------------------------------------------------------------------------------------------------------
HIGH CURRENT INCOME FUND 11.39 11.13 11.25 +11.27(15) + 7.27(16)
- --------------------------------------------------------------------------------------------------------------------
INDEX 500 FUND 10.17 10.00 # -- -- + 1.70 #
- --------------------------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY FOCUS FUND 11.63 11.73 11.06 + 6.62(17) -0.85
- --------------------------------------------------------------------------------------------------------------------
NATURAL RESOURCES FOCUS FUND 13.12 12.52 11.95 +13.52(18) + 5.76(19)
- --------------------------------------------------------------------------------------------------------------------
PRIME BOND FUND 11.91 11.74 12.45 + 2.21(20) + 4.85(21)
- --------------------------------------------------------------------------------------------------------------------
QUALITY EQUITY FUND 32.83 29.86 32.76 +17.90(22) +11.28(23)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Percent change includes reinvestment of $0.560 per share ordinary income
dividends and $0.023 per share capital gains distributions.
(2) Percent change includes reinvestment of $0.264 per share ordinary income
dividends.
(3) Percent change includes reinvestment of $0.635 per share ordinary income
dividends and $0.265 per share capital gains distributions.
(4) Percent change includes reinvestment of $0.079 per share ordinary income
dividends.
(5) Percent change includes reinvestment of $0.234 per share ordinary income
dividends.
(6) Percent change includes reinvestment of $2.909 per share ordinary income
dividends and $0.820 per share capital gains distributions.
(7) Percent change includes reinvestment of $0.038 per share ordinary income
dividends.
(8) Percent change includes reinvestment of $0.778 per share ordinary income
dividends.
(9) Percent change includes reinvestment of $0.374 per share ordinary income
dividends.
(10) Percent change includes reinvestment of $0.295 per share ordinary income
dividends.
(11) Percent change includes reinvestment of $0.524 per share ordinary income
dividends.
(12) Percent change includes reinvestment of $0.252 per share ordinary income
dividends.
(13) Percent change includes reinvestment of $0.676 per share ordinary income
dividends.
(14) Percent change includes reinvestment of $0.311 per share ordinary income
dividends.
(15) Percent change includes reinvestment of $1.061 per share ordinary income
dividends.
(16) Percent change includes reinvestment of $0.527 per share ordinary income
dividends.
(17) Percent change includes reinvestment of $0.153 per share ordinary income
dividends.
(18) Percent change includes reinvestment of $0.233 per share ordinary income
dividends and $0.171 per share capital gains distributions.
(19) Percent change includes reinvestment of $0.115 per share ordinary income
dividends.
(20) Percent change includes reinvestment of $0.789 per share ordinary income
dividends.
(21) Percent change includes reinvestment of $0.389 per share ordinary income
dividends.
(22) Percent change includes reinvestment of $1.923 per share ordinary income
dividends and $3.019 per share capital gains distributions.
(23) Percent change includes reinvestment of $0.350 per share ordinary income
dividends.
+ Flexible Strategy Fund merged into Global Strategy Focus Fund on December 9,
1996.
++ International Bond Fund merged into World Income Focus Fund on December 9,
1996 and was renamed Global Bond Focus Fund.
+++ Intermediate Government Bond Fund's name changed as of December 9, 1996 to
Government Bond Fund.
# The Fund commenced operations on December 13, 1996. Net asset value and
total returns are since inception.
31
<PAGE> 33
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR FIVE YEARS TEN YEARS SINCE
ENDED ENDED ENDED INCEPTION
12/31/96 12/31/96 12/31/96 TO 12/31/96
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AMERICAN BALANCED FUND + 9.73% + 8.79% -- +10.12%+
- ---------------------------------------------------------------------------------------------------------------------
BASIC VALUE FOCUS FUND +20.69 -- -- +16.32++
- ---------------------------------------------------------------------------------------------------------------------
DEVELOPING CAPITAL MARKETS FOCUS FUND +10.59 -- -- + 1.49+++
- ---------------------------------------------------------------------------------------------------------------------
EQUITY GROWTH FUND + 8.11 +11.38 + 7.83% --
- ---------------------------------------------------------------------------------------------------------------------
GLOBAL BOND FOCUS FUND** + 8.02 -- -- + 7.27++
- ---------------------------------------------------------------------------------------------------------------------
GLOBAL STRATEGY FOCUS FUND* +13.17 -- -- + 9.21++++
- ---------------------------------------------------------------------------------------------------------------------
GLOBAL UTILITY FOCUS FUND +12.96 -- -- + 9.47++
- ---------------------------------------------------------------------------------------------------------------------
GOVERNMENT BOND FUND*** + 2.86 -- -- + 7.15+++
- ---------------------------------------------------------------------------------------------------------------------
HIGH CURRENT INCOME FUND +11.27 +12.21 +11.42 --
- ---------------------------------------------------------------------------------------------------------------------
INDEX 500 FUND -- -- -- + 1.70#
- ---------------------------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY FOCUS FUND + 6.62 -- -- + 6.51++
- ---------------------------------------------------------------------------------------------------------------------
NATURAL RESOURCES FOCUS FUND +13.52 + 7.76 -- + 5.35+
- ---------------------------------------------------------------------------------------------------------------------
PRIME BOND FUND + 2.21 + 7.04 + 7.68 --
- ---------------------------------------------------------------------------------------------------------------------
QUALITY EQUITY FUND +17.90 +10.94 +12.50 --
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* Flexible Strategy Fund merged into Global Strategy Focus Fund on December
9, 1996.
** International Bond Fund merged into World Income Focus Fund on December 9,
1996 and was renamed Global Bond Focus Fund.
*** Intermediate Government Bond Fund's name changed as of December 9, 1996 to
Government Bond Fund.
# The aggregate total return is shown as the Fund commenced operations on
December 13, 1996.
+ 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 2/28/92.
32
<PAGE> 34
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT AVERAGE ANNUAL TOTAL RETURNS*
- --------------------------------------------------------------------------------
RETIREMENT PLUS VARIABLE ANNUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR FIVE YEARS TEN YEARS SINCE
ENDED ENDED ENDED INCEPTION
12/31/96 12/31/96 12/31/96 TO 12/31/96
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AMERICAN BALANCED FUND + 1.10% + 6.77% -- + 8.53%+
- ---------------------------------------------------------------------------------------------------------------------
BASIC VALUE FOCUS FUND +11.05 -- -- +13.81++
- ---------------------------------------------------------------------------------------------------------------------
DEVELOPING CAPITAL MARKETS FOCUS FUND + 1.27 -- -- - 1.89+++
- ---------------------------------------------------------------------------------------------------------------------
EQUITY GROWTH FUND - 0.20 + 9.35 + 6.26% --
- ---------------------------------------------------------------------------------------------------------------------
GLOBAL BOND FOCUS FUND*** - 0.52 -- -- + 4.71++
- ---------------------------------------------------------------------------------------------------------------------
GLOBAL STRATEGY FOCUS FUND** + 4.33 -- -- + 7.14++++
- ---------------------------------------------------------------------------------------------------------------------
GLOBAL UTILITY FOCUS FUND + 3.50 -- -- + 6.93++
- ---------------------------------------------------------------------------------------------------------------------
GOVERNMENT BOND FUND**** - 5.00 -- -- + 3.90+++
- ---------------------------------------------------------------------------------------------------------------------
HIGH CURRENT INCOME FUND + 2.60 +10.19 + 9.81 --
- ---------------------------------------------------------------------------------------------------------------------
INDEX 500 FUND -- -- -- - 5.24#
- ---------------------------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY FOCUS FUND - 2.12 -- -- + 3.94++
- ---------------------------------------------------------------------------------------------------------------------
NATURAL RESOURCES FOCUS FUND + 3.70 + 5.73 -- + 3.85+
- ---------------------------------------------------------------------------------------------------------------------
PRIME BOND FUND - 5.56 + 5.00 + 6.12 --
- ---------------------------------------------------------------------------------------------------------------------
QUALITY EQUITY FUND + 8.77 + 8.91 +10.87 --
- ---------------------------------------------------------------------------------------------------------------------
</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
Fund operating expenses, 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 periods shown, and an
annual contract maintenance charge of $40 are reflected. All charges and
fees are described in the product prospectuses. See those prospectuses for
more complete information.
** Flexible Strategy Fund merged into Global Strategy Focus Fund on
December 9, 1996.
*** International Bond Fund merged into World Income Focus Fund on December 9,
1996 and was renamed Global Bond Focus Fund.
**** Intermediate Government Bond Fund's name changed as of December 9, 1996
to Government Bond Fund.
# The Fund commenced operations on 12/13/96. Average Annual Total Returns
for periods of six months or less are calculated on a cumulative basis,
rather than an annual basis, as permitted by regulation.
+ 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 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.
33
<PAGE> 35
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT AVERAGE ANNUAL TOTAL RETURNS*
- --------------------------------------------------------------------------------
PORTFOLIO PLUS VARIABLE ANNUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR FIVE YEARS TEN YEARS SINCE
ENDED ENDED ENDED INCEPTION
12/31/96 12/31/96 12/31/96 TO 12/31/96
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AMERICAN BALANCED FUND + 3.52% + 6.60% -- +8.60%+
- ---------------------------------------------------------------------------------------------------------------------
EQUITY GROWTH FUND + 2.12 + 9.21 + 6.34% --
- ---------------------------------------------------------------------------------------------------------------------
HIGH CURRENT INCOME FUND + 5.13 +10.05 + 9.88 --
- ---------------------------------------------------------------------------------------------------------------------
NATURAL RESOURCES FOCUS FUND + 6.26 + 5.55 -- +3.89+
- ---------------------------------------------------------------------------------------------------------------------
PRIME BOND FUND - 3.64 + 4.82 + 6.19 --
- ---------------------------------------------------------------------------------------------------------------------
QUALITY EQUITY FUND +11.34 + 8.77 +10.94 --
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* Returns are calculated as if the contract were surrendered at the end of the
periods shown. They reflect Fund operating expenses, Separate Account charges
deducted daily at an annual rate of 1.25% mortality and expense risk charge,
and a 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 an annual 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.
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.
34
<PAGE> 36
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT AVERAGE ANNUALIZED RETURNS*
- --------------------------------------------------------------------------------
VARIABLE LIFE INSURANCE POLICIES (EXCEPT ESTATE INVESTOR I & II)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FROM DATE
YEAR MADE
ENDED AVAILABLE
12/31/96 TO 12/31/96
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BASIC VALUE FOCUS FUND +10.60% +15.10%+
- ---------------------------------------------------------------------------------------------------------------------
DEVELOPING CAPITAL MARKETS FOCUS FUND + 0.58 - 2.91+
- ---------------------------------------------------------------------------------------------------------------------
EQUITY GROWTH FUND -- - 16.80++
- ---------------------------------------------------------------------------------------------------------------------
GLOBAL BOND FOCUS FUND+++ - 1.96 + 4.74+
- ---------------------------------------------------------------------------------------------------------------------
GLOBAL UTILITY FOCUS FUND + 2.94 + 7.95+
- ---------------------------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY FOCUS FUND - 3.35 - 0.47+
- ---------------------------------------------------------------------------------------------------------------------
</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 in force during the periods shown. They reflect Fund operating
expenses, a Separate Account mortality and expense risk charge deducted
daily at an annual rate at the beginning of the year 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 underwriting class of the
insured, and by each contract's net amount at risk. Some contract owners
have lower mortality and expense risk charges and/or lower deferred contract
loads than those reflected above. Returns for those contract owners would,
therefore, be higher than the returns shown above. Some contract owners pay
administrative fees that could have the effect of reducing the returns shown
above. All charges and fees are described in the product prospectuses.
Certain Funds are not available to all variable life insurance products. Not
all Funds were made available to all products on the same date. See those
prospectuses for more complete information.
+ Investment option was made available 5/01/94.
++ Investment option was made available 5/01/96.
+++ International Bond Fund merged into World Income Focus Fund on December 9,
1996 and was renamed Global Bond Focus Fund.
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.
35
<PAGE> 37
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT AVERAGE ANNUALIZED RETURNS*
- --------------------------------------------------------------------------------
ESTATE INVESTOR I & II VARIABLE LIFE INSURANCE POLICIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FROM DATE
YEAR MADE
ENDED AVAILABLE
12/31/96 TO 12/31/96
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BASIC VALUE FOCUS FUND +19.60% +17.83%+
- ---------------------------------------------------------------------------------------------------------------------
DEVELOPING CAPITAL MARKETS FOCUS FUND + 9.58 + 0.58+
- ---------------------------------------------------------------------------------------------------------------------
EQUITY GROWTH FUND -- - 3.82++
- ---------------------------------------------------------------------------------------------------------------------
GLOBAL BOND FOCUS FUND+++ + 7.04 + 7.85+
- ---------------------------------------------------------------------------------------------------------------------
GLOBAL UTILITY FOCUS FUND +11.94 + 10.97+
- ---------------------------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY FOCUS FUND + 5.65 + 2.88+
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* Returns assume the Separate Account had been in existence and a contract had
been in force during the periods shown. They reflect Fund operating
expenses, a Separate Account mortality and expense risk charge deducted
daily at an annual rate at the beginning of the year of 0.90%. Returns do
not reflect contract loading or quarterly cost of insurance, which can vary
by age, sex and underwriting class of the insured and the contract's net
amount of 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 From Date
Made Available, respectively, would be: Basic Value Focus, -40.20%, N/A,
-9.12%; Developing Capital Markets Focus, -45.21%, N/A, 22.43%; Global Bond
Focus, -46.48%, N/A, -16.82%; Global Utility Focus, -44.03%, N/A, -14.42%;
International Equity Focus, -47.17%, N/A, -20.66%; Equity Growth, N/A, N/A,
-65.90%.
+ Investment option was made available 5/01/94.
++ Investment option was made available 5/01/96.
+++ International Bond Fund merged into World Income Focus Fund on December 9,
1996 and was renamed Global Bond Focus Fund.
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.
36
<PAGE> 38
- --------------------------------------------------------------------------------
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:
<TABLE>
<CAPTION>
6/01/88** 12/96
--------- -----
<S> <C> <C>
American Balanced Fund*+ $10,000 $22,883
Standard & Poor's 500 Index++ $10,000 $36,551
Weighted Index+++ $10,000 $23,837
</TABLE>
* 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 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:
<TABLE>
<CAPTION>
7/01/93** 12/96
--------- -----
<S> <C> <C>
Basic Value Focus Fund*+ $10,000 $16,976
S&P 500 Index++ $10,000 $18,046
</TABLE>
* 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.
37
<PAGE> 39
- --------------------------------------------------------------------------------
DEVELOPING CAPITAL MARKETS FOCUS FUND
TOTAL RETURN BASED ON A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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** 12/96
--------- -----
<S> <C> <C>
Developing Capital Markets
Focus Fund*+ $10,000 $10,403
Morgan Stanley Capital
International EAFE Index++ $10,000 $11,782
</TABLE>
* Assuming transaction costs and other operating expenses, including advisory
fees. Does not include insurance-related fees and expenses.
** Commencement of Operations.
+ Developing Capital Market 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
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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:
12/86 12/96
----- -----
<S> <C> <C>
Equity Growth Fund*+ $10,000 $21,245
Russell 1000 Growth Index++ $10,000 $42,012
Russell 2000 Growth Index+++ $10,000 $28,100
</TABLE>
* 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.
38
<PAGE> 40
- --------------------------------------------------------------------------------
GLOBAL BOND FOCUS FUND***
TOTAL RETURN BASED ON A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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:
7/01/93** 12/96
--------- -----
<S> <C> <C>
Global Bond Focus Fund*+ $10,000 $12,787
Merrill Lynch G5A0 Index++ $10,000 $11,987
Weighted Index+++ $10,000 $13,673
</TABLE>
* Assuming transaction costs and other operating expenses, including advisory
fees. Does not include insurance-related fees and expenses.
** Commencement of Operations.
*** International Bond Fund merged into World Income Focus Fund on December
9, 1996 and was renamed as Global Bond Focus Fund.
+ Global Bond 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 MLJOAO and 60%
JP Morgan Global Government Bond index excluding Japan.
Past performance is not predictive of future performance.
- --------------------------------------------------------------------------------
GLOBAL STRATEGY FOCUS FUND***
TOTAL RETURN BASED ON A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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** 12/96
--------- -----
<S> <C> <C>
Global Strategy
Focus Fund*+ $10,000 $15,320
Morgan Stanley Capital
International World Index++ $10,000 $17,336
Weighted Index $10,000 $15,407
</TABLE>
* Assuming transaction costs and other operating expenses, including
advisory fees. Does not include insurance-related fees and expenses.
** Commencement of Operations.
*** Flexible Strategy Fund merged into Global Strategy Focus Fund on
December 9, 1996.
+ 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.
39
<PAGE> 41
- --------------------------------------------------------------------------------
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/Standard & Poor's--Actuaries
World Index and the Financial Times/Standard & Poor's--Actuaries World Utility
Index. Beginning and ending values are:
<TABLE>
<CAPTION>
7/01/93** 12/96
--------- -------
<S> <C> <C>
Global Utility
Focus Fund*+ $10,000 $13,729
Financial Times/S&P--Actuaries
World Index++ $10,000 $15,209
Financial Times/S&P--Actuaries
World Utility Index $10,000 $12,914
</TABLE>
* 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/Standard & Poor's-Actuaries World Index.
Past performance is not predictive of future performance.
- --------------------------------------------------------------------------------
GOVERNMENT 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 G402 Index. Beginning and ending
values are:
<TABLE>
<CAPTION>
5/02/94** 12/96
--------- -------
<S> <C> <C>
Government Bond Fund*+ $10,000 $12,023
Merrill Lynch G402 Index++ $10,000 $12,477
</TABLE>
* Assuming transaction costs and other operating expenses, including advisory
fees. Does not include insurance-related fees and expenses.
** Commencement of Operations.
*** Intermediate Government Bond's name changed as of December 9, 1996 to
Government Bond Fund.
+ 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.
40
<PAGE> 42
- --------------------------------------------------------------------------------
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:
<TABLE>
<CAPTION>
12/84 12/96
----- -----
<S> <C> <C>
High Current Income Fund *+ $10,000 $29,482
First Boston High Yield Index++ $10,000 $29,652
</TABLE>
* 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 catergories of the established rating
services or in unrated securities of comparable quality.
++ This unmanaged market-weighted Index is of high-yield debt securities is
comprised of 423 securities rated BBB or lower
Past performance is not predictive of future performance.
- --------------------------------------------------------------------------------
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 the
growth of an investment in the Financial Times/Standard & Poor's--Actuaries
World Ex-US Index. Beginning and ending values are:
<TABLE>
<CAPTION>
7/01/93** 12/96
--------- -----
<S> <C> <C>
International Equity
Focus Fund*+ $10,000 $12,472
Financial Times/S&P--Actuaries
World Ex-US Index++ $10,000 $13,660
</TABLE>
* 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.
41
<PAGE> 43
- --------------------------------------------------------------------------------
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 Standard & Poor's Industrials Index, the
Lipper Natural Resources Average and the Consumer Price Index. Beginning
and ending values are:
<TABLE>
<CAPTION> 6/01/88** 12/96
--------- -----
<S> <C> <C>
Natural Resources Focus Fund*+ $l0,000 $15,641
S&P Industrials Index++ $10,000 $35,979
Lipper Natural Resources
Average+++ $10,000 $23,655
Consumer Price Index++++ $10,000 $13,529
</TABLE>
* 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.
- --------------------------------------------------------------------------------
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:
<TABLE>
<CAPTION> 12/86 12/96
----- -----
<S> <C> <C>
Prime Bond Fund*+ $10,000 $20,951
Merrill Lynch C0A0 Index++ $10,000 $24,133
</TABLE>
* 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.
42
<PAGE> 44
- --------------------------------------------------------------------------------
QUALITY EQUITY FUND
TOTAL RETURN BASED ON A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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:
12/86 12/96
----- -----
<S> <C> <C>
Quality Equity Fund*+ $10,000 $32,464
S&P 500 Index++ $10,000 $41,541
</TABLE>
* 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 common stocks.
Past performance is not predictive of future performance.
43
<PAGE> 45
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--AMERICAN BALANCED FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE PERCENT OF
INDUSTRY HELD COMMON STOCKS COST (NOTE 1a) NET ASSETS
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AEROSPACE 24,000 Northrop Grumman Corp. ..... $ 1,590,745 $ 1,986,000 0.9%
22,460 United Technologies
Corp. .................... 721,552 1,482,360 0.7
------------ ------------ ------
2,312,297 3,468,360 1.6
- ---------------------------------------------------------------------------------------------------------------------
AUTO & TRUCK 26,000 General Motors Corp. ....... 1,421,298 1,449,500 0.7
- ---------------------------------------------------------------------------------------------------------------------
AUTOMOBILE PARTS 61,000 +Lear Corporation........... 2,043,500 2,081,625 1.0
- ---------------------------------------------------------------------------------------------------------------------
BANKING 58,500 Bank of New York, Co.,
Inc. ..................... 1,383,399 1,974,375 0.9
8,500 BankAmerica Corporation..... 869,637 847,875 0.4
18,800 Citicorp.................... 1,441,474 1,936,400 0.9
------------ ------------ ------
3,694,510 4,758,650 2.2
- ---------------------------------------------------------------------------------------------------------------------
BUILDING & CONSTRUCTION 35,900 Oakwood Homes Corp. ........ 817,893 821,213 0.4
- ---------------------------------------------------------------------------------------------------------------------
BUILDING PRODUCTS 59,500 Spieker Properties, Inc. ... 1,580,921 2,142,000 1.0
- ---------------------------------------------------------------------------------------------------------------------
CHEMICALS 25,000 +FMC Corporation............ 1,771,815 1,753,125 0.8
33,000 PPG Industries, Inc. ....... 1,634,499 1,852,125 0.9
------------ ------------ ------
3,406,314 3,605,250 1.7
- ---------------------------------------------------------------------------------------------------------------------
COMPUTER 24,000 +Compaq Computer
Corporation............... 1,774,301 1,782,000 0.8
- ---------------------------------------------------------------------------------------------------------------------
COMPUTER SERVICES 29,000 +cisco Systems, Inc. ....... 1,300,503 1,845,125 0.9
12,000 International Business
Machines Corp. ........... 1,318,751 1,812,000 0.8
------------ ------------ ------
2,619,254 3,657,125 1.7
- ---------------------------------------------------------------------------------------------------------------------
COMPUTER SOFTWARE 39,750 +Oracle Corp. .............. 1,251,044 1,654,594 0.8
- ---------------------------------------------------------------------------------------------------------------------
COMPUTER TECHNOLOGY 41,000 +Gulfstream Aerospace
Corporation............... 1,012,865 994,250 0.5
- ---------------------------------------------------------------------------------------------------------------------
CONGOLOMERATES 12,000 AlliedSignal Inc. .......... 882,039 804,000 0.4
- ---------------------------------------------------------------------------------------------------------------------
CONSUMER GOODS 12,000 Philip Morris Companies,
Inc. ..................... 1,190,498 1,351,500 0.6
- ---------------------------------------------------------------------------------------------------------------------
DIVERSIFIED 43,500 Corning, Inc. .............. 1,231,615 2,011,875 0.9
- ---------------------------------------------------------------------------------------------------------------------
ELECTRIC & GAS 83,100 Edison International........ 1,548,607 1,651,612 0.8
- ---------------------------------------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT 15,000 General Electric Co. ....... 1,161,154 1,483,125 0.7
9,400 Linear Technology
Corporation............... 385,494 411,250 0.2
------------ ------------ ------
1,546,648 1,894,375 0.9
- ---------------------------------------------------------------------------------------------------------------------
ENGINEERING & CONSTRUCTION 42,400 Foster Wheeler Corp. ....... 1,786,990 1,574,100 0.7
- ---------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES 36,500 American Express Company.... 1,707,587 2,062,250 1.0
49,000 First Data Corp. ........... 1,732,206 1,788,500 0.8
------------ ------------ ------
3,439,793 3,850,750 1.8
- ---------------------------------------------------------------------------------------------------------------------
FOOD 52,000 Heinz (H.J.) Company........ 1,702,574 1,859,000 0.9
- ---------------------------------------------------------------------------------------------------------------------
HOSPITAL MANAGEMENT 62,600 +Health Management
Associates, Inc. (Class
A)........................ 1,414,154 1,408,500 0.7
- ---------------------------------------------------------------------------------------------------------------------
INDUSTRIAL EQUIPMENT 34,000 +American Standard
Companies, Inc. .......... 1,109,533 1,300,500 0.6
- ---------------------------------------------------------------------------------------------------------------------
INSURANCE 16,000 Aetna Inc. ................. 1,190,736 1,280,000 0.6
33,300 Allstate Corp. ............. 1,363,042 1,927,238 0.9
28,000 UNUM Corporation............ 1,787,306 2,023,000 1.0
------------ ------------ ------
4,341,084 5,230,238 2.5
- ---------------------------------------------------------------------------------------------------------------------
LEISURE/TOURISM 64,000 Brunswick Corporation....... 1,583,557 1,536,000 0.7
11,105 TCI Pacific Communications
(Convertible Preferred)... 1,054,744 1,007,779 0.5
------------ ------------ ------
2,638,301 2,543,779 1.2
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
44
<PAGE> 46
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--AMERICAN BALANCED FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE PERCENT OF
INDUSTRY HELD COMMON STOCKS COST (NOTE 1a) NET ASSETS
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MACHINERY 49,900 Deere & Co. ................ $ 2,076,934 $ 2,027,188 1.0%
- ---------------------------------------------------------------------------------------------------------------------
NATURAL GAS 44,000 Enron Corp. ................ 1,698,696 1,897,500 0.9
- ---------------------------------------------------------------------------------------------------------------------
NATURAL GAS PIPELINES 22,000 IMC Global, Inc............. 852,715 860,750 0.4
- ---------------------------------------------------------------------------------------------------------------------
OIL SERVICES 60,300 Dresser Industries, Inc..... 1,197,521 1,869,300 0.9
- ---------------------------------------------------------------------------------------------------------------------
PAPER 20,300 Kimberly-Clark
Corporation............... 1,560,117 1,933,575 0.9
- ---------------------------------------------------------------------------------------------------------------------
PETROLEUM 35,400 Pennzoil Co................. 1,462,787 2,000,100 0.9
49,000 Unocal Corp. ............... 1,649,549 1,990,625 0.9
------------ ------------ ------
3,112,336 3,990,725 1.8
- ---------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS 34,900 Abbott Laboratories......... 1,110,169 1,771,175 0.8
23,900 Merck & Co., Inc. .......... 734,284 1,894,075 0.9
------------ ------------ ------
1,844,453 3,665,250 1.7
- ---------------------------------------------------------------------------------------------------------------------
RAILROADS 18,500 Burlington Northern Santa Fe
Inc....................... 1,499,672 1,597,937 0.8
- ---------------------------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST 41,300 Prentiss Properties Trust... 844,062 1,032,500 0.5
- ---------------------------------------------------------------------------------------------------------------------
RECREATION 58,746 +Viacom, Inc. (Class B)..... 2,151,340 2,048,767 1.0
- ---------------------------------------------------------------------------------------------------------------------
RETAIL 48,000 Sears, Roebuck & Co. ....... 2,003,303 2,214,000 1.0
- ---------------------------------------------------------------------------------------------------------------------
RETAIL--DRUG STORES 32,760 Rite Aid Corporation........ 976,203 1,302,210 0.6
- ---------------------------------------------------------------------------------------------------------------------
RETAIL SPECIALTY 67,500 +Toys 'R' Us, Inc. ......... 2,100,037 2,025,000 1.0
- ---------------------------------------------------------------------------------------------------------------------
SCIENTIFIC EQUIPMENT 25,000 Fisher Scientific
International, Inc. ...... 783,673 1,178,125 0.6
- ---------------------------------------------------------------------------------------------------------------------
SOFTWARE--COMPUTER 45,000 +BMC Software, Inc. ........ 1,677,378 1,861,875 0.9
- ---------------------------------------------------------------------------------------------------------------------
STEEL 52,000 AK Steel Holding Corp. ..... 2,145,624 2,060,500 1.0
- ---------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS 75,000 +AirTouch Communications,
Inc. ..................... 2,147,192 1,893,750 0.9
20,000 Bell Atlantic Corp. ........ 1,043,470 1,295,000 0.6
------------ ------------ ------
3,190,662 3,188,750 1.5
- ---------------------------------------------------------------------------------------------------------------------
TRAVEL & LODGING 60,000 Carnival Corp. (Class A).... 1,697,029 1,980,000 0.9
- ---------------------------------------------------------------------------------------------------------------------
UTILITIES--GAS 18,000 El Paso Natural Gas
Company................... 882,267 909,000 0.4
- ---------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS 77,060,055 89,537,748 42.2
- ---------------------------------------------------------------------------------------------------------------------
FACE
AMOUNT US GOVERNMENT & AGENCY OBLIGATIONS
---------------------------------------------------------------------------------------------------------------------
US GOVERNMENT & Federal National
AGENCY OBLIGATIONS Mortgage Association:
$ 4,352,547 6.00% due 6/01/2001......... 4,309,022 4,299,500 2.0
9,546,755 6.00% due 6/06/2001......... 9,449,796 9,416,979 4.5
5,818,867 6.00% due 2/01/2004......... 5,749,767 5,729,765 2.7
US Treasury Notes:
18,550,000 5.00% due 1/31/1998......... 18,386,238 18,419,593 8.7
24,225,000 6.25% due 4/30/2001......... 24,540,891 24,278,053 11.4
30,000,000 7.25% due 5/15/2004......... 31,727,344 31,565,700 14.9
24,075,000 7.00% due 7/15/2006......... 25,060,930 25,011,758 11.8
- ---------------------------------------------------------------------------------------------------------------------
TOTAL US GOVERNMENT & AGENCY
OBLIGATIONS 119,223,988 118,721,348 56.0
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
45
<PAGE> 47
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--AMERICAN BALANCED FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996 (CONCLUDED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE VALUE PERCENT OF
AMOUNT SHORT-TERM SECURITIES COST (NOTE 1a) NET ASSETS
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMMERCIAL PAPER* $ 262,000 General Motors Acceptance
Corp., 7.50% due
1/02/1997................. $ 261,891 $ 261,891 0.1%
2,029,000 Preferred Receivable Funding
Corp., 5.65% due
1/15/1997................. 2,024,223 2,024,223 1.0
- ---------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM SECURITIES 2,286,114 2,286,114 1.1
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS........... $198,570,157 210,545,210 99.3
============
OTHER ASSETS LESS
LIABILITIES............... 1,501,804 0.7
------------ ------
NET ASSETS.................. $212,047,014 100.0%
============ ======
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* 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.
+ Non-income producing security.
See Notes to Financial Statements.
46
<PAGE> 48
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--BASIC VALUE FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE PERCENT OF
INDUSTRY HELD STOCKS COST (NOTE 1a) NET ASSETS
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
LOW PRICE TO BOOK VALUE
- ---------------------------------------------------------------------------------------------------------------------
METALS--NON FERROUS 375,000 ASARCO Inc. ................ $ 10,204,510 $ 9,328,125 1.8%
SOFTWARE--COMPUTER 400,000 +Advanced Micro Devices,
Inc....................... 5,528,488 10,300,000 2.0
BANKING 125,000 Bankers Trust New York
Corp. .................... 7,946,060 10,781,250 2.0
HOME--BUILDERS 350,000 +Beazer Homes USA, Inc.
(b)....................... 5,392,282 6,475,000 1.2
RETAIL 1,700,000 +Charming Shoppes, Inc. .... 7,011,954 8,500,000 1.6
SAVINGS & LOANS 753,100 Greater N.Y. Savings
Bank (b).................. 7,674,112 10,072,713 1.9
CONGLOMERATES 808,200 Hanson PLC (ADR) (a)........ 6,795,411 5,455,350 1.0
RETAIL 1,200,000 Hechinger Company
(Class A)................. 5,038,275 2,400,000 0.5
ENTERTAINMENT 105,900 +ITT Corporation............ 4,710,982 4,593,412 0.9
SOFTWARE 622,700 +Mentor Graphics
Corporation............... 6,403,414 6,071,325 1.2
AIRLINES 800,000 +Mesa Airlines, Inc. ....... 6,790,323 5,400,000 1.0
TECHNOLOGY 1,150,000 +Micronics Computers,
Inc. (b).................. 4,168,442 2,228,125 0.4
CHEMICALS 297,700 +Millennium Chemicals
Inc. ..................... 6,093,804 5,284,175 1.0
SAVINGS AND LOANS 500,000 +PFF Bancorp, Inc. ......... 5,715,000 7,312,500 1.4
METALS--NON FERROUS 116,000 Phelps Dodge Corporation.... 6,867,280 7,830,000 1.5
COMPUTER SERVICES 801,800 Scitex Corp. Ltd. (ADR)
(a)....................... 11,364,879 7,617,100 1.4
BEVERAGE & ENTERTAINMENT 200,000 Seagram Company
Ltd. (The)................ 6,791,149 7,750,000 1.5
TECHNOLOGY 150,000 +Storage Technology
Corp. .................... 5,098,314 7,143,750 1.4
OIL--REFINERS 700,000 Total Petroleum Ltd. ....... 7,941,281 7,262,500 1.4
HEALTHCARE 900,000 +Transitional Hospitals
Co. ...................... 7,924,083 8,662,500 1.6
STEEL 809,300 +WHX Corp................... 8,623,208 7,182,537 1.4
------------ ------------ ------
144,083,251 147,650,362 28.1
- ---------------------------------------------------------------------------------------------------------------------
BELOW-AVERAGE PRICE/EARNINGS RATIO
- ---------------------------------------------------------------------------------------------------------------------
OIL--DOMESTIC 450,000 +American Exploration
Co. ...................... 5,028,426 7,200,000 1.4
TECHNOLOGY 950,000 +Computervision Corp. ...... 9,196,567 8,787,500 1.7
RETAIL 300,000 Dillard Department Stores
Inc. ..................... 9,320,727 9,262,500 1.8
AUTOMOTIVE 200,000 General Motors Corp. ....... 9,267,984 11,150,000 2.1
BANKING 650,000 Hibernia Corporation (Class
A)........................ 7,468,466 8,612,500 1.6
MACHINERY 300,000 ITT Industries Inc. ........ 6,899,739 7,350,000 1.4
FOREST PRODUCTS & PAPER 220,000 International Paper Co. .... 8,418,780 8,882,500 1.7
ELECTRONICS 200,000 Micron Technology, Inc. .... 4,888,098 5,825,000 1.1
AUTO-RELATED 581,000 National Auto Credit,
Inc. ..................... 5,918,046 6,972,000 1.3
ATHLETIC FOOTWEAR 175,000 Reebok International
Ltd. ..................... 4,847,939 7,350,000 1.4
INFORMATION PROCESSING 900,000 +Tandem Computers, Inc...... 10,279,044 12,375,000 2.4
STEEL 350,000 +USX-US Steel Group......... 10,551,925 10,981,250 2.1
------------ ------------ ------
92,085,741 104,748,250 20.0
- ---------------------------------------------------------------------------------------------------------------------
ABOVE-AVERAGE YIELD
- ---------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS 70,000 Bristol-Myers Squibb Co. ... 5,315,433 7,612,500 1.4
REAL ESTATE INVESTMENT TRUST 253,500 Evans Withycombe
Residential, Inc. ........ 5,128,207 5,323,500 1.0
AUTOMOTIVE 275,000 Ford Motor Co. ............. 8,244,320 8,765,625 1.7
TELECOMMUNICATIONS 150,000 GTE Corporation............. 6,366,750 6,825,000 1.3
RETAIL 800,000 +Kmart Corporation.......... 8,463,269 8,300,000 1.6
FOREST PRODUCTS & PAPER 300,000 Louisiana-Pacific Corp. .... 7,657,924 6,337,500 1.2
OIL--DOMESTIC 450,000 Occidental Petroleum
Corp. .................... 9,447,997 10,518,750 2.0
FINANCIAL SERVICES 90,000 Student Loan Marketing
Association............... 4,439,450 8,381,250 1.6
OIL--INTERNATIONAL 450,000 Yacimientos Petroliferos
Fiscales S.A. (ADR)(a).... 8,832,840 11,362,500 2.2
------------ ------------ ------
63,896,190 73,426,625 14.0
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
47
<PAGE> 49
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--BASIC VALUE FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996 (CONCLUDED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE PERCENT OF
INDUSTRY HELD STOCKS COST (NOTE 1A) NET ASSETS
---------------------------------------------------------------------------------------------------------------------
SPECIAL SITUATIONS
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ENVIRONMENTAL SERVICES 1,025,000 +Allwaste, Inc. ............ $ 5,187,397 $ 5,253,125 1.0%
INFORMATION PROCESSING 500,000 +Apple Computer, Inc. ...... 11,412,685 10,375,000 2.0
HOUSEHOLD PRODUCTS 400,000 Black & Decker Corporation
(The)..................... 13,217,404 12,050,000 2.3
PHOTOGRAPHY 80,000 Eastman Kodak Co. .......... 4,672,300 6,420,000 1.2
TECHNOLOGY 500,000 +Exabyte Corp. ............. 6,796,977 6,687,500 1.3
HEALTH MAINTENANCE
ORGANIZATION 375,000 +Humana, Inc. .............. 7,062,358 7,171,875 1.4
INFORMATION PROCESSING 70,000 International Business
Machines Corp............. 6,661,756 10,570,000 2.0
SEMICONDUCTORS 350,000 +National Semiconductor
Corp. .................... 6,214,269 8,531,250 1.6
MEDICAL SERVICES 450,000 +Pharmaceutical Product
Development, Inc. ........ 7,292,590 11,250,000 2.1
ELECTRONICS 150,000 Texas Instruments Inc. ..... 7,316,356 9,562,500 1.8
TELECOMMUNICATIONS 450,000 +US West Media Group,
Inc. ..................... 7,815,940 8,325,000 1.6
RETAIL 500,000 +Woolworth Corp. ........... 6,339,630 10,937,500 2.1
------------ ------------ ----------
89,989,662 107,133,750 20.4
- ---------------------------------------------------------------------------------------------------------------------
TOTAL STOCKS 390,054,844 432,958,987 82.5
- ---------------------------------------------------------------------------------------------------------------------
FACE
AMOUNT SHORT-TERM SECURITIES
---------------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER* $10,000,000 Eureka Securitization, Inc.,
5.38% due 1/30/1997....... 9,955,167 9,955,167 1.9
20,045,000 General Electric Capital
Corp., 7.10% due
1/02/1997................. 20,037,093 20,037,093 3.8
10,000,000 Lehman Brothers Holdings,
Inc., 5.45% due
2/14/1997................. 9,931,875 9,931,875 1.9
10,000,000 Three Rivers Funding, Corp.,
5.60% due 1/15/1997....... 9,976,667 9,976,667 1.9
------------ ------------ ----------
49,900,802 49,900,802 9.5
- ---------------------------------------------------------------------------------------------------------------------
US GOVERNMENT & 7,000,000 Federal Home Loan Bank,
AGENCY OBLIGATIONS* 5.22% due 1/09/1997....... 6,990,865 6,990,865 1.3
Federal National Mortgage
Association:
10,000,000 5.24% due 2/03/1997....... 9,950,511 9,950,511 1.9
23,000,000 5.26% due 2/10/1997....... 22,862,217 22,862,217 4.4
------------ ------------ ----------
39,803,593 39,803,593 7.6
- ---------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM SECURITIES 89,704,395 89,704,395 17.1
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS........... $479,759,239 522,663,382 99.6
=============
OTHER ASSETS LESS
LIABILITIES............... 2,266,782 0.4
------------ ----------
NET ASSETS.................. $524,930,164 100.0%
============= ===========
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Non-income producing security.
* 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).
(b) 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>
---------------------------------------------------------------------------------------------------------------------
NET SHARE NET DIVIDEND
INDUSTRY AFFILIATE ACTIVITY COST INCOME
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HOME--BUILDERS Beazer Homes USA, Inc. .............................. 50,000 $ 665,558 --
SAVINGS & LOANS Greater N.Y. Savings Bank............................ 328,100 3,770,476 $37,500
TECHNOLOGY Micronics Computers, Inc. ........................... 257,500 206,942 --
- ---------------------------------------------------------------------------------------------------------------------
TOTAL $4,642,976
==========
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
48
<PAGE> 50
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--DEVELOPING CAPITAL MARKETS FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996 (IN US DOLLARS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE PERCENT OF
AFRICA INDUSTRIES HELD INVESTMENTS COST (NOTE 1A) NET ASSETS
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MOROCCO BANKING 7,050 Wafa Bank................... $ 337,444 $ 445,329 0.4%
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN MOROCCO 337,444 445,329 0.4
- ---------------------------------------------------------------------------------------------------------------------
SOUTH AFRICA BEVERAGE & TOBACCO 15,241 South African Breweries
Ltd....................... 352,755 386,240 0.4
14,688 South African Breweries Ltd.
(ADR) (a)................. 467,719 370,872 0.4
----------- ------
820,474 757,112 0.8
------------------------------------------------------------------------------------------------------
COAL 120,300 Ingwe Coal Corporation
Ltd....................... 909,851 861,858 0.9
------------------------------------------------------------------------------------------------------
ENTERTAINMENT 574,700 Sun International, Ltd. .... 789,589 460,891 0.5
------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES 6,200 Anglo American Corp. of
South Africa, Ltd. (ADR)
(a)....................... 389,005 336,350 0.3
39,785 Nedcor Ltd. (Ordinary)...... 483,190 544,534 0.6
----------- ------
872,195 880,884 0.9
------------------------------------------------------------------------------------------------------
MINING 78,700 Beatrix Mines Ltd........... 679,625 492,296 0.5
23,300 De Beers Centenary AG....... 619,984 667,707 0.7
4,687 Vaal Reefs Exploration &
Mining Co. Ltd............ 403,774 300,706 0.3
24,238 +Western Areas Gold Mining
Company Ltd............... 384,854 334,335 0.4
----------- ------
2,088,237 1,795,044 1.9
------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SOUTH
AFRICA 5,480,346 4,755,789 5.0
- ---------------------------------------------------------------------------------------------------------------------
ZIMBABWE BEVERAGE & TOBACCO 327,843 Delta Corporation Ltd....... 781,291 1,152,988 1.2
------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
ZIMBABWE 781,291 1,152,988 1.2
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN AFRICA 6,599,081 6,354,106 6.6
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
EUROPE
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CZECH REPUBLIC BROADCAST--MEDIA 17,500 +Central European Media
Enterprises Ltd. (Class
A)(GDR) (b)............... 481,250 546,875 0.6
------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN THE
CZECH REPUBLIC 481,250 546,875 0.6
- ---------------------------------------------------------------------------------------------------------------------
FRANCE UTILITIES--WATER 14,700 Compagnie Generale des Eaux
S.A....................... 1,607,353 1,821,916 1.9
------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN FRANCE 1,607,353 1,821,916 1.9
- ---------------------------------------------------------------------------------------------------------------------
GREECE BANKING 13,680 Ergo Bank S.A. (Ordinary)... 611,797 694,102 0.7
------------------------------------------------------------------------------------------------------
BEVERAGE 11,010 Hellenic Bottling Co.
S.A....................... 215,402 353,137 0.4
------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS 23,400 Hellenic Telecommunication
Organization S.A.......... 387,013 400,191 0.4
------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN GREECE 1,214,212 1,447,430 1.5
- ---------------------------------------------------------------------------------------------------------------------
HUNGARY HEALTH/PERSONAL 31,600 Gedeon Richter Ltd. (GDR)
CARE (b)....................... 724,600 1,832,800 1.9
1,000 Gedeon Richter Ltd. (GDR)
(b)(e).................... 40,875 58,000 0.1
----------- ------
765,475 1,890,800 2.0
------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS 1,100 +Magyar TarKozlesi
Reszvenytarsasag
(Ordinary) (e)............ 174,885 238,243 0.2
------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN HUNGARY 940,360 2,129,043 2.2
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
49
<PAGE> 51
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES, INC.--DEVELOPING CAPITAL MARKETS FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996 (CONTINUED) (IN US DOLLARS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EUROPE SHARES VALUE PERCENT OF
(CONCLUDED) INDUSTRIES HELD INVESTMENTS COST (NOTE 1a) NET ASSETS
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ITALY AUTOMOBILES 300,000 Fiat S.p.A.................. $ 884,110 $ 906,965 0.9%
------------------------------------------------------------------------------------------------------
BROADCAST--MEDIA 168,000 Mediaset S.p.A.............. 805,116 774,576 0.8
------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN ITALY 1,689,226 1,681,541 1.7
- ---------------------------------------------------------------------------------------------------------------------
NETHERLANDS ELECTRONICS 11,250 Philips Electronics N.V..... 457,905 456,257 0.5
11,250 Philips Electronics N.V. (NY
Registered Shares)........ 438,600 450,000 0.4
------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN THE
NETHERLANDS 896,505 906,257 0.9
- ---------------------------------------------------------------------------------------------------------------------
POLAND AUTOMOTIVE 10,000 +T.C. Debica S.A............ 211,943 223,339 0.2
------------------------------------------------------------------------------------------------------
BANKING 58,118 Wielkopolsky Bank Kredytowy
S.A....................... 350,009 393,457 0.4
------------------------------------------------------------------------------------------------------
ELECTRICAL & 4,400 Elektrim Towarzystow
ELECTRONICS Handlowe S.A.............. 25,742 39,922 0.1
------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES 9,207 Bank Rozwoju Eksportu S.A.
(BRE)..................... 247,903 276,313 0.3
------------------------------------------------------------------------------------------------------
MULTI-INDUSTRY 114,551 Mostostal-Export S.A........ 302,975 271,827 0.3
------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN POLAND 1,138,572 1,204,858 1.3
- ---------------------------------------------------------------------------------------------------------------------
PORTUGAL BUILDING PRODUCTS 45,000 Cimpor-Cimentos de Portugal
S.A....................... 916,303 969,097 1.0
------------------------------------------------------------------------------------------------------
MULTI-INDUSTRY 35,100 Sonae Investimentos-SGPS
S.A....................... 866,343 1,111,877 1.2
------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
PORTUGAL 1,782,646 2,080,974 2.2
- ---------------------------------------------------------------------------------------------------------------------
RUSSIA ENERGY SOURCES 56,100 A.O. Mosenergo (ADR) (a).... 1,567,968 1,697,025 1.8
1,980,000 +Irkutskenergo (GDR) (b).... 249,592 261,360 0.2
----------- ------ -----
1,817,560 1,958,385 2.0
------------------------------------------------------------------------------------------------------
MULTI-INDUSTRY 7,600 Templeton Russia Fund,
Inc....................... 115,344 167,200 0.2
------------------------------------------------------------------------------------------------------
NATURAL GAS 27,000 +RAO Gazprom (ADR) (a)(e)... 425,250 479,250 0.5
------------------------------------------------------------------------------------------------------
OIL & RELATED 8,000 Lukoil Oil Company (ADR)
(a)....................... 331,050 368,000 0.4
------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS 16,500 +Vimpel-Communications (ADR)
(a)....................... 395,943 389,813 0.4
------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN RUSSIA 3,085,147 3,362,648 3.5
- ---------------------------------------------------------------------------------------------------------------------
TURKEY METAL FABRICATING 7,800,000 Eregli Demir Ve Celik
Fabrikalari T.A.S......... 983,792 936,288 1.0
------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN TURKEY 983,792 936,288 1.0
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN EUROPE 13,819,063 16,117,830 16.9
- ---------------------------------------------------------------------------------------------------------------------
LATIN AMERICA
---------------------------------------------------------------------------------------------------------------------
ARGENTINA BANKING 64,384 Banco Frances del Rio de la
Plata S.A. (ADR) (a)...... 1,346,566 1,770,557 1.8
60,500 +Bansud S.A. (Class B)...... 710,916 724,935 0.8
----------- ------ -----
2,057,482 2,495,492 2.6
------------------------------------------------------------------------------------------------------
OIL & RELATED 236,390 Companhia Naviera Perez
Companc S.A.C.F.I.M.F.A.
(Class B)................. 1,156,335 1,662,154 1.7
------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS 17,354 Telefonica de Argentina S.A.
(Class B) (ADR) (a)....... 497,806 449,035 0.5
------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
ARGENTINA 3,711,623 4,606,681 4.8
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
50
<PAGE> 52
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES, INC.--DEVELOPING CAPITAL MARKETS FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996 (CONTINUED) (IN US DOLLARS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LATIN AMERICA SHARES VALUE PERCENT OF
(CONTINUED) INDUSTRIES HELD INVESTMENTS COST (NOTE 1a) NET ASSETS
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BRAZIL BANKING 103,086,523 Banco Bradesco S.A.
(Preferred)............... $ 696,489 $ 747,176 0.8%
------------------------------------------------------------------------------------------------------
BEVERAGE 2,452,525 Companhia Cervejaria Brahma
S.A. PN (Preferred)....... 993,758 1,340,874 1.4
------------------------------------------------------------------------------------------------------
MINING 10,296 Companhia Vale do Rio Doce
S.A. (Preferred).......... 227,523 198,210 0.2
------------------------------------------------------------------------------------------------------
OIL & RELATED 11,658,000 Petroleo Brasileiro S.A.
(Preferred)............... 1,641,531 1,857,156 2.0
------------------------------------------------------------------------------------------------------
STEEL 8,410,000 Companhia Siderurgica
Nacional S.A.............. 202,969 238,805 0.2
1,256,100,000 Usinas Siderurgicas de Minas
Gerais - Usiminas S.A.
(Preferred)............... 1,313,468 1,281,611 1.4
----------- --------- -----
1,516,437 1,520,416 1.6
------------------------------------------------------------------------------------------------------
TELECOMMUNI- 29,685 Telecomunicacoes Brasileiras
CATIONS S.A.--Telebras PN
(ADR)(a).................. 1,629,450 2,270,903 2.4
13,972,227 Telecomunicacoes Brasileiras
S.A.--Telebras PN
(Preferred)............... 737,840 1,075,925 1.1
7,227,925 Telecomunicacoes de Minas
Gerais S.A.--TELEMIG
(Class B) (Preferred)..... 652,510 894,011 0.9
----------- --------- -----
3,019,800 4,240,839 4.4
------------------------------------------------------------------------------------------------------
UTILITIES--ELECTRICAL 1,060,000 Centrais Eletricas
& GAS Brasileiras
S.A.--Eletrobras.......... 367,723 379,555 0.4
155,000 Centrais Eletricas
Brasileiras
S.A.--Eletrobras 'B'
(Preferred)............... 54,645 57,590 0.1
7,513 Companhia Energetica de
Minas Gerais S.A. (CEMIG)
(ADR)(a).................. 169,798 253,564 0.2
20,000 Companhia Energetica de
Minas Gerais S.A. (CEMIG)
(ADR)(a)(e)............... 426,315 675,000 0.7
----------- --------- -----
1,018,481 1,365,709 1.4
------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN BRAZIL 9,114,019 11,270,380 11.8
- ---------------------------------------------------------------------------------------------------------------------
MEXICO BANKING 10,650 Grupo Financiero Banamex
--Accival, S.A. de C.V.
(BANACCI)
(Class L)................. 18,179 20,973 0.0
------------------------------------------------------------------------------------------------------
BEVERAGE & TOBACCO 16,100 Panamerican Beverages, Inc.
(Class A)................. 644,974 754,687 0.8
------------------------------------------------------------------------------------------------------
BUILDING & 126,000 Apasco, S.A. de C.V......... 458,715 864,439 0.9
CONSTRUCTION
------------------------------------------------------------------------------------------------------
BUILDING MATERIALS 154,000 Cementos Mexicanos, S.A. de
C.V....................... 665,660 600,661 0.6
------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES 77,000 +Banca Quadrum, S.A. de C.V.
(ADR)(a).................. 510,125 279,125 0.3
355,000 Banco Nacional de Mexico,
S.A. de C.V. (Class B)
(BANAMEX)................. 660,134 749,600 0.8
----------- --------- -----
1,170,259 1,028,725 1.1
------------------------------------------------------------------------------------------------------
HEALTH/PERSONAL 100,000 Kimberly-Clark de Mexico,
CARE S.A. de C.V............... 1,333,327 1,975,607 2.1
------------------------------------------------------------------------------------------------------
LEISURE 445,787 Grupo Carso, S.A. de C.V.
'A1'...................... 2,700,380 2,350,421 2.5
------------------------------------------------------------------------------------------------------
</TABLE>
51
<PAGE> 53
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES, INC.--DEVELOPING CAPITAL MARKETS FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996 (CONTINUED) (IN US DOLLARS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LATIN
AMERICA SHARES VALUE PERCENT OF
(CONCLUDED) INDUSTRIES HELD INVESTMENTS COST (NOTE 1a) NET ASSETS
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MEXICO RETAIL 30,000 +Cifra, S.A. de C.V. 'B'
(CONCLUDED) (ADR)(a).................. $ 40,599 $ 35,400 0.0%
996,200 +Cifra, S.A. de C.V. 'C'.... 1,558,437 1,215,032 1.3
----------- --------- -----
1,599,036 1,250,432 1.3
------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS 35,979 Telefonos de Mexico, S.A. de
C.V. (ADR) (a)............ 1,145,507 1,187,307 1.2
------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN MEXICO 9,736,037 10,033,252 10.5
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN LATIN
AMERICA 22,561,679 25,910,313 27.1
- ---------------------------------------------------------------------------------------------------------------------
MIDDLE EAST
---------------------------------------------------------------------------------------------------------------------
EGYPT BANKING 2,962 +Commercial International
Bank (Egypt) S.A.E........ 350,673 447,622 0.5
------------------------------------------------------------------------------------------------------
CEMENT 7,375 Tora Portland Cement Co..... 149,085 149,111 0.1
------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN EGYPT 499,758 596,733 0.6
- ---------------------------------------------------------------------------------------------------------------------
ISRAEL BANKING 6,000 +Bank Hapoalim Ltd. ........ 8,651 9,518 0.0
653,600 +Bank Leumi Israel.......... 894,162 899,625 0.9
----------- --------- -----
902,813 909,143 0.9
------------------------------------------------------------------------------------------------------
MERCHANDISING 72,000 +Blue Square Chain Stores
Properties & Investments
Ltd. ..................... 522,937 564,392 0.6
4,800 +Blue Square Chain Stores
Properties & Investments
Ltd. (ADR)(a)............. 66,380 68,400 0.1
----------- --------- -----
589,317 632,792 0.7
------------------------------------------------------------------------------------------------------
MULTI-INDUSTRY 10,578 Koor Industries Ltd. ....... 968,604 922,812 1.0
3,500 Koor Industries Ltd.
(ADR)(a).................. 67,069 59,500 0.1
----------- --------- -----
1,035,673 982,312 1.1
------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN ISRAEL 2,527,803 2,524,247 2.7
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN THE
MIDDLE EAST 3,027,561 3,120,980 3.3
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
PACIFIC
BASIN/ASIA
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AUSTRALIA MERCHANDISING 19,740 Amway Asia Pacific Ltd.(GDR)
(b)....................... 690,260 836,482 0.9
------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
AUSTRALIA 690,260 836,482 0.9
- ---------------------------------------------------------------------------------------------------------------------
CHINA TELECOMMUNICATIONS 622,000 +Eastern Communications Co.,
Ltd. (Class B)............ 502,576 553,580 0.6
------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN CHINA 502,576 553,580 0.6
- ---------------------------------------------------------------------------------------------------------------------
HONG KONG AUTOMOTIVE 377,000 Sime Darby (Hong Kong)
Ltd. ..................... 448,773 475,272 0.5
------------------------------------------------------------------------------------------------------
BANKING 440,000 JCG Holdings, Ltd. ......... 400,979 429,532 0.4
65,000 +Wing Hang Bank Ltd......... 239,973 294,996 0.3
----------- --------- -----
640,952 724,528 0.7
------------------------------------------------------------------------------------------------------
FOOD 2,659,000 C.P. Pokphand Co. Ltd.
(Ordinary)................ 1,024,250 1,040,015 1.1
7,991,000 +Tingyi (Cayman Islands)
Holdings Co............... 2,041,042 2,092,291 2.2
----------- --------- -----
3,065,292 3,132,306 3.3
------------------------------------------------------------------------------------------------------
INDUSTRIAL 5,066,000 Sinocan Holdings Ltd. ...... 1,328,338 2,489,113 2.6
------------------------------------------------------------------------------------------------------
REAL ESTATE 3,699,000 China Overseas Land &
Investment................ 1,047,051 1,877,240 2.0
------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN HONG
KONG 6,530,406 8,698,459 9.1
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
52
<PAGE> 54
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES, INC.--DEVELOPING CAPITAL MARKETS FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996 (CONTINUED) (IN US DOLLARS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PACIFIC
BASIN/ASIA SHARES HELD/ VALUE PERCENT OF
(CONTINUED) INDUSTRIES FACE AMOUNT INVESTMENTS COST (NOTE 1A) NET ASSETS
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INDIA AUTOMOTIVE 89,000 Ashok Leyland Ltd.
(GDR)(b).................. $ 947,250 $ 825,475 0.8%
39,000 Ashok Leyland Ltd.
(GDR)(b)(e)............... 532,185 361,725 0.4
----------- ----------- ----------
1,479,435 1,187,200 1.2
------------------------------------------------------------------------------------------------------
BUILDING MATERIALS 71,600 Larsen & Toubro Ltd.
(GDR)(b)(e)............... 1,124,562 1,031,040 1.1
------------------------------------------------------------------------------------------------------
ENERGY SOURCES 37,900 Bombay Suburban Electric
Supply Co. Ltd.(GDR)(b)... 694,175 776,950 0.8
------------------------------------------------------------------------------------------------------
LEISURE 51,800 East India Hotels Ltd.
(GDR)(b)(e)............... 820,294 1,217,300 1.3
------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN INDIA 4,118,466 4,212,490 4.4
- ---------------------------------------------------------------------------------------------------------------------
INDONESIA BROADCASTING & US$ 750,000 P.T. Surya Citra Television,
PUBLISHING 4% due 7/01/1997
(Convertible)............. 785,697 750,452 0.8
US$ 15,000 P.T. Surya Citra Television,
4% due 7/01/1997
(Convertible)(e).......... 15,000 15,009 0.0
----------- ----------- ----------
800,697 765,461 0.8
------------------------------------------------------------------------------------------------------
FOOD 208,000 P.T. Indofood Sukses
Makmur.................... 434,008 414,062 0.4
------------------------------------------------------------------------------------------------------
MULTI--INDUSTRY 632,000 P.T. Bimantara Citra........ 822,513 843,202 0.9
------------------------------------------------------------------------------------------------------
REAL ESTATE 1,008,000 P.T. Ciputra Development.... 899,550 1,045,997 1.1
------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS 164,000 P.T. Telekomunikasi
Indonesia................. 246,872 283,058 0.3
4,000 P.T. Telekomunikasi
Indonesia (ADR)(a)........ 126,560 138,000 0.1
----------- ----------- ----------
373,432 421,058 0.4
------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS 21,000 P.T. Kabelmetal Indonesia
& EQUIPMENT (Rights)(d)............... 0 0 0.0
------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
INDONESIA 3,330,200 3,489,780 3.6
- ---------------------------------------------------------------------------------------------------------------------
MALAYSIA AIRLINES 151,000 Malaysian Airline System
BHD....................... 426,861 391,703 0.4
------------------------------------------------------------------------------------------------------
BANKING 66,000 Commerce Asset Holdings
BHD....................... 422,451 496,634 0.5
360,000 Public Bank BHD 'Foreign'... 507,714 762,772 0.8
----------- ----------- ----------
930,165 1,259,406 1.3
------------------------------------------------------------------------------------------------------
BROADCASTING & 110,000 New Straits Times Press
PUBLISHING BHD....................... 579,672 636,040 0.7
134,000 Sistem Televisyen Malaysia
BHD (Class A)............. 195,771 248,364 0.2
----------- ----------- ----------
775,443 884,404 0.9
------------------------------------------------------------------------------------------------------
BUILDING MATERIALS US$ 455,000 Aokam Perdana BHD, 3.50% due
6/13/2004 (Convertible)... 365,816 277,550 0.3
82,000 Hume Industries (Malaysia)
BHD (Class A)............. 435,693 516,356 0.5
----------- ----------- -------
801,509 793,906 0.8
------------------------------------------------------------------------------------------------------
CHEMICALS 135,000 Nylex (Malaysia) BHD........ 354,841 304,752 0.3
------------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS & 8,500 +Amway (Malaysia) Holdings
SERVICES BHD (GDR)(b).............. 50,682 48,139 0.1
------------------------------------------------------------------------------------------------------
DIVERSIFIED 42,300 OYL Industries BHD.......... 438,242 443,941 0.5
HOLDINGS
------------------------------------------------------------------------------------------------------
ENGINEERING & 125,000 Malaysian Resources Corp.
CONSTRUCTION BHD....................... 437,809 492,574 0.5
------------------------------------------------------------------------------------------------------
FOOD 54,000 Nestle (Malaysia) BHD....... 420,759 434,139 0.5
------------------------------------------------------------------------------------------------------
</TABLE>
53
<PAGE> 55
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES, INC.--DEVELOPING CAPITAL MARKETS FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996 (CONTINUED) (IN US DOLLARS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PACIFIC
BASIN/ASIA SHARES HELD/ VALUE PERCENT OF
(CONTINUED) INDUSTRIES FACE AMOUNT INVESTMENTS COST (NOTE 1a) NET ASSETS
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MALAYSIA MULTI-INDUSTRY 96,000 Ekran BHD................... $ 429,945 $ 403,010 0.4%
(CONCLUDED) 427,000 Renong BHD.................. 723,102 757,608 0.8
130,000 Sime Darby BHD.............. 432,179 512,277 0.6
98,000 Sungei Way Holdings BHD..... 255,634 291,089 0.3
----------- --------- -----
1,840,860 1,963,984 2.1
------------------------------------------------------------------------------------------------------
NATURAL GAS 103,000 Petronas Gas BHD............ 425,739 428,317 0.4
------------------------------------------------------------------------------------------------------
OIL & RELATED 78,000 Petronas Dagangan BHD....... 227,916 200,792 0.2
------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS 341,400 +Technology Resources
Industries BHD (TRI)...... 1,233,355 673,335 0.7
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
MALAYSIA 8,364,181 8,319,392 8.7
- ---------------------------------------------------------------------------------------------------------------------
PAKISTAN CHEMICALS--FERTILIZERS 15,000 Fauji Fertilizer Co.
Ltd. ..................... 31,246 25,262 0.0
------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS 2,800 +Pakistan Telecommunications
Corp...................... 258,800 175,350 0.2
------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
PAKISTAN 290,046 200,612 0.2
- ---------------------------------------------------------------------------------------------------------------------
PHILIPPINES INTERNATIONAL TRADE 637,500 International Container
Terminal Services, Inc.... 278,784 333,801 0.3
------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN THE
PHILIPPINES 278,784 333,801 0.3
- ---------------------------------------------------------------------------------------------------------------------
SOUTH KOREA AUTOMOTIVE 6,940 +Dong Ah Tire Industries.... 581,436 485,182 0.5
------------------------------------------------------------------------------------------------------
BANKING 69,330 Cho Hung Bank Co. Ltd....... 746,446 559,413 0.6
2,740 Shinhan Bank................ 50,472 44,881 0.1
----------- --------- -----
796,918 604,294 0.7
------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS 127,967 Korea Mobile Telecom-
munications
Corp.(ADR)(a)(e).......... 1,993,680 1,641,179 1.7
------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SOUTH
KOREA 3,372,034 2,730,655 2.9
- ---------------------------------------------------------------------------------------------------------------------
THAILAND BANKING 132,000 Krung Thai Bank Public Co.
Ltd....................... 623,254 254,767 0.3
93,400 Phatra Thanakit Public Co.
Ltd....................... 893,341 265,848 0.3
11,000 Siam Commercial Bank Public
Co. Ltd. "Foreign"........ 175,656 79,775 0.1
140,000 +Thai Farmers Bank Co.,
Ltd....................... 1,521,890 873,396 0.9
17,500 Thai Farmers Bank Co., Ltd.
"Foreign" (Warrants)(c)... 17,292 16,547 0.0
----------- --------- -----
3,231,433 1,490,333 1.6
------------------------------------------------------------------------------------------------------
FINANCE 148,400 Finance One Public Company
Ltd. "Foreign"............ 1,045,477 300,885 0.3
------------------------------------------------------------------------------------------------------
MERCHANDISING 19,300 Siam Makro Public Co.
Ltd....................... 92,578 81,273 0.1
------------------------------------------------------------------------------------------------------
REAL ESTATE Chf 1,300,000 Bangkok Land Public Co.
Ltd., 3.125% due 3/31/2001
(Convertible)............. 456,864 388,408 0.4
US$ 184,000 Bangkok Land Public Co.,
Ltd., 4.50% due 10/13/2003
(Convertible)............. 135,825 115,920 0.1
US$ 433,000 Hemaraj Land and Development
Public Co., Ltd., 3.50%
due 9/09/2003............. 425,104 441,660 0.5
US$ 163,000 Tanayong Public Co. Ltd.,
3.50% due 3/01/2004
(Convertible)............. 148,167 145,477 0.1
----------- --------- -----
1,165,960 1,091,465 1.1
------------------------------------------------------------------------------------------------------
</TABLE>
54
<PAGE> 56
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES, INC.--DEVELOPING CAPITAL MARKETS FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996 (CONCLUDED) (IN US DOLLARS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PACIFIC
BASIN/ASIA SHARES VALUE PERCENT OF
(CONCLUDED) INDUSTRIES HELD INVESTMENTS COST (NOTE 1a) NET ASSETS
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
THAILAND TELECOMMUNICATIONS 62,900 Advanced Info Service Public
(CONCLUDED) Company Ltd. 'Foreign'.... $ 1,150,003 $ 534,651 0.6%
454,000 +TelecomAsia Corporation
Public Company Ltd.
'Foreign'................. 859,481 947,050 1.0
----------- ----------- ----------
2,009,484 1,481,701 1.6
------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
THAILAND 7,544,932 4,445,657 4.7
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN THE
PACIFIC BASIN/ASIA 35,021,885 33,820,908 35.4
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT SHORT-TERM SECURITIES
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
COMMERCIAL US$1,000,000 American Brands, Inc., 5.30%
PAPER* due 1/06/1997............. 999,117 999,117 1.0
2,884,000 General Motors Acceptance
Corp., 7.50% due
1/02/1997................. 2,882,798 2,882,798 3.0
3,000,000 Riverwoods Funding Corp.,
5.40% due 1/15/1997....... 2,993,250 2,993,250 3.2
----------- ----------- ----------
6,875,165 6,875,165 7.2
- ---------------------------------------------------------------------------------------------------------------------
US GOVERNMENT & 2,000,000 Federal Home Loan Mortgage
AGENCY Corp., 5.60% due
OBLIGATIONS* 1/07/1997................. 1,997,822 1,997,822 2.1
2,000,000 Federal National Mortgage
Association, 5.55% due
1/16/1997................. 1,995,067 1,995,067 2.1
----------- ----------- ----------
3,992,889 3,992,889 4.2
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SHORT-
TERM SECURITIES 10,868,054 10,868,054 11.4
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS........... $91,897,323 96,192,191 100.6
===========
LIABILITIES IN EXCESS OF
OTHER ASSETS.............. (593,289) (0.6)
----------- ----------
NET ASSETS.................. $95,598,902 100.0
=========== ===========
- ---------------------------------------------------------------------------------------------------------------------
</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 of the Fund.
+ Non-income producing security.
(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 the number of shares are subject to
adjustment under certain conditions until the expiration date.
(d) The rights may be exercised until 2/14/1997.
(e) Restricted security as to resale. The value of the Fund's investment in
restricted securities was approximately $5,717,000 representing 6.0% of net
assets.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACQUISITION VALUE
ISSUE DATE(S) COST (NOTE 1a)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Ashok Leyland Ltd. (GDR)............................................. 3/09/1995-5/22/1996 $ 532,185 $ 361,725
Companhia Energetica de Minas Gerais S.A. (CEMIG) (ADR).............. 7/20/1995-8/01/1995 426,315 675,000
East India Hotels Ltd. (GDR)......................................... 12/12/1994-7/10/1995 820,294 1,217,300
RAO Gazprom (ADR).................................................... 10/21/1996 425,250 479,250
Gedeon Richter Ltd. (GDR)............................................ 7/03/1996 40,875 58,000
Korea Mobile Telecommunications Corp.(ADR)........................... 1/18/1996 1,993,680 1,641,179
Larsen & Toubro Ltd. (GDR)........................................... 3/22/1996-3/26/1996 1,124,562 1,031,040
Magyar TarKozlesi Reszvenytarsasag (Ordinary)........................ 12/01/1995 174,885 238,243
P.T. Surya Citra Television, 4% due 7/01/1997 (Convertible).......... 6/24/1994 15,000 15,009
- ---------------------------------------------------------------------------------------------------------------------
TOTAL $5,553,046 $5,716,746
========== ==========
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
55
<PAGE> 57
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--DOMESTIC MONEY MARKET FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE INTEREST MATURITY VALUE
AMOUNT ISSUE RATE* DATE (NOTE 1A)
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CERTIFICATE OF DEPOSIT--1.8% $ 5,000,000 Chase Manhattan Bank USA (Delaware)... 5.60% 4/01/97 $ 5,001,002
- ---------------------------------------------------------------------------------------------------------------------
TOTAL CERTIFICATE OF DEPOSIT (COST--$5,000,000) 5,001,002
- ---------------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER--46.9% 6,338,000 Allomon Funding Corp. ................ 5.31 2/10/97 6,301,094
7,691,000 Bear Stearns Companies, Inc. ......... 5.35 1/31/97 7,657,699
5,000,000 Beta Finance Inc. .................... 5.44 3/28/97 4,936,014
4,500,000 Beta Finance Inc. .................... 5.32 5/01/97 4,419,675
4,649,000 CSW Credit, Inc. ..................... 5.35 1/22/97 4,635,311
5,000,000 CSW Credit, Inc. ..................... 5.45 3/14/97 4,946,553
5,000,000 Eureka Securitization Inc. ........... 5.33 1/17/97 4,988,958
4,188,000 Eureka Securitization Inc. ........... 5.35 1/28/97 4,171,969
7,815,000 Finova Capital Corp. ................. 5.38 2/24/97 7,752,756
5,096,000 Finova Capital Corp. ................. 5.48 3/20/97 5,036,923
10,000,000 Ford Motor Credit Co. ................ 5.30 2/07/97 9,946,250
4,000,000 General Electric Capital Corp. ....... 5.55 1/10/97 3,995,271
2,000,000 General Electric Capital Corp. ....... 5.50 3/03/97 1,981,933
6,665,000 General Electric Capital Corp. ....... 5.64 3/05/97 6,602,786
426,000 General Motors Acceptance Corp. ...... 5.33 1/13/97 425,310
4,600,000 General Motors Acceptance Corp. ...... 5.34 1/23/97 4,585,778
5,402,000 General Motors Acceptance Corp. ...... 5.32 2/05/97 5,374,577
2,000,000 General Motors Acceptance Corp. ...... 5.34 5/14/97 1,960,400
2,500,000 Goldman Sachs Group, L.P. ........... 5.68 1/06/97 2,498,522
1,857,000 International Securitization Corp. ... 5.35 1/29/97 1,849,514
5,000,000 International Securitization Corp. ... 5.58 2/28/97 4,957,171
7,000,000 Lehman Brothers Holdings Inc. ........ 5.75 1/31/97 6,967,576
4,000,000 Lehman Brothers Holdings Inc. ........ 5.40 3/03/97 3,963,867
2,000,000 Morgan Stanley Group, Inc. ........... 5.41 1/27/97 1,992,639
6,000,000 New Center Asset Trust................ 5.43 1/29/97 5,975,813
7,000,000 New Center Asset Trust................ 5.40 2/07/97 6,962,375
4,000,000 Transamerica Finance Corp. ........... 5.60 3/11/97 3,959,049
- ---------------------------------------------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER (COST--$128,841,542) 128,845,783
- ---------------------------------------------------------------------------------------------------------------------
BANK NOTES--1.3% 3,500,000 Bank of America, Illinois............. 5.63 12/30/97 3,498,247
- ---------------------------------------------------------------------------------------------------------------------
TOTAL BANK NOTES (COST--$3,499,667) 3,498,247
- ---------------------------------------------------------------------------------------------------------------------
CORPORATE NOTES--7.6% 7,000,000 Asset Backed Securities Investment
Trust 1996-M+....................... 5.605 10/15/97 7,000,000
5,000,000 CIT Group Holdings, Inc. (The)+....... 5.36 10/27/97 4,997,158
9,000,000 SMM Trust 1995-Q+..................... 5.605 1/08/97 9,000,000
- ---------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE NOTES (COST--$20,997,144) 20,997,158
- ---------------------------------------------------------------------------------------------------------------------
FUNDING AGREEMENTS--1.8% 5,000,000 Jackson National Life Insurance
Co.+................................ 5.41 4/08/97 5,000,000
- ---------------------------------------------------------------------------------------------------------------------
TOTAL FUNDING AGREEMENTS (COST--$5,000,000) 5,000,000
- ---------------------------------------------------------------------------------------------------------------------
MASTER NOTES--1.1% 3,000,000 Goldman Sachs Group L.P.+............. 5.88 8/01/97 3,000,000
- ---------------------------------------------------------------------------------------------------------------------
TOTAL MASTER NOTES (COST--$3,000,000) 3,000,000
- ---------------------------------------------------------------------------------------------------------------------
US GOVERNMENT, AGENCY & 32,000 Federal Home Loan Mortgage Corp. ..... 5.35 2/03/97 31,851
INSTRUMENTALITY OBLIGATIONS-- 115,000 Federal National Mortgage
DISCOUNT--0.2% Association......................... 5.35 2/11/97 114,332
380,000 Federal National Mortgage
Association......................... 5.33 3/27/97 375,239
- ---------------------------------------------------------------------------------------------------------------------
TOTAL US GOVERNMENT, AGENCY & INSTRUMENTALITY
OBLIGATIONS--DISCOUNT (COST--$521,438) 521,422
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
56
<PAGE> 58
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--DOMESTIC MONEY MARKET FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996 (CONCLUDED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE INTEREST MATURITY VALUE
AMOUNT ISSUE RATE* DATE (NOTE 1a)
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
US GOVERNMENT, AGENCY & $ 1,500,000 Federal Farm Credit Bank.............. 5.85% 10/01/97 $ 1,502,580
INSTRUMENTALITY OBLIGATIONS-- 5,000,000 Federal Farm Credit Bank+............. 5.38 11/25/97 4,999,062
NON-DISCOUNT--38.7% 4,000,000 Federal Home Loan Bank+............... 5.41 12/10/97 3,998,191
1,040,000 Federal Home Loan Bank+............... 5.60 1/26/98 1,040,299
1,500,000 Federal Home Loan Bank................ 6.12 4/15/98 1,499,530
1,000,000 Federal Home Loan Bank................ 6.17 11/06/98 999,375
5,000,000 Federal National Mortgage
Association+........................ 5.85 2/14/97 5,002,473
12,000,000 Federal National Mortgage
Association+........................ 5.44 2/21/97 12,000,000
2,000,000 Federal National Mortgage
Association+........................ 5.385 5/14/97 1,999,365
9,500,000 Federal National Mortgage
Association+........................ 5.521 5/22/97 9,497,525
5,000,000 Federal National Mortgage
Association+........................ 5.40 7/16/97 4,998,194
2,000,000 Federal National Mortgage
Association+........................ 5.42 8/01/97 1,999,497
2,000,000 Federal National Mortgage
Association+........................ 5.405 9/03/97 1,999,022
1,000,000 Federal National Mortgage
Association+........................ 5.41 9/09/97 999,533
1,000,000 Federal National Mortgage
Association+........................ 5.41 9/29/97 999,559
3,200,000 Federal National Mortgage
Association*........................ 5.47 12/30/97 3,196,016
2,000,000 Federal National Mortgage
Association*........................ 5.19 1/08/98 1,991,380
5,500,000 Federal National Mortgage
Association+........................ 5.46 4/24/98 5,497,250
5,000,000 Student Loan Marketing Association+... 5.62 1/23/97 5,000,249
2,000,000 Student Loan Marketing Association+... 5.54 3/03/97 2,000,038
6,500,000 Student Loan Marketing Association+... 5.57 10/30/97 6,501,136
2,000,000 US Treasury Notes..................... 6.625 3/31/97 2,005,624
2,000,000 US Treasury Notes..................... 8.50 4/15/97 2,017,186
1,750,000 US Treasury Notes..................... 6.50 4/30/97 1,756,563
1,750,000 US Treasury Notes..................... 6.50 5/15/97 1,757,109
1,500,000 US Treasury Notes..................... 6.125 5/31/97 1,503,750
1,800,000 US Treasury Notes..................... 6.00 8/31/97 1,805,062
4,800,000 US Treasury Notes..................... 5.75 9/30/97 4,808,621
3,500,000 US Treasury Notes..................... 5.625 10/31/97 3,502,188
3,800,000 US Treasury Notes..................... 5.375 11/30/97 3,792,278
2,200,000 US Treasury Notes..................... 5.25 12/31/97 2,192,951
1,170,000 US Treasury Notes..................... 5.00 1/31/98 1,161,773
1,200,000 US Treasury Notes..................... 5.625 11/30/98 1,194,937
1,000,000 US Treasury Notes..................... 5.75 12/31/98 998,359
- ---------------------------------------------------------------------------------------------------------------------
TOTAL US GOVERNMENT, AGENCY & INSTRUMENTALITY
OBLIGATIONS--NON-DISCOUNT (COST--$106,239,960) 106,216,675
- ---------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS**--2.1% 5,780,000 Lehman Brothers Inc., purchased on
12/31/1996 to yield 7.10% to
1/02/1997........................... 5,780,000
- ---------------------------------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT (COST--$5,780,000) 5,780,000
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (COST--
$278,879,751)--101.5%................. 278,860,287
LIABILITIES IN EXCESS OF OTHER
ASSETS--(1.5%)........................ (4,104,273)
------------
NET ASSETS--100.0%.................... $274,756,014
============
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* 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,
1996.
** Repurchase Agreements are fully collateralized by US Government Obligations.
+ Variable Rate Notes.
See Notes to Financial Statements.
57
<PAGE> 59
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--EQUITY GROWTH FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE PERCENT OF
INDUSTRY HELD COMMON STOCKS COST (NOTE 1a) NET ASSETS
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ADVERTISING 75,000 +Outdoor Systems Inc. ...... $ 1,725,000 $ 2,100,000 0.5%
50,000 +Universal Outdoor Holdings
Inc. ..................... 1,850,000 1,150,000 0.2
------------ ------------ ------
3,575,000 3,250,000 0.7
- ---------------------------------------------------------------------------------------------------------------------
AUTOMOTIVE 57,000 +United Auto Group, Inc. ... 1,710,000 1,467,750 0.3
- ---------------------------------------------------------------------------------------------------------------------
BANKING 159,300 TCF Financial Corp. ........ 4,274,782 6,929,550 1.5
- ---------------------------------------------------------------------------------------------------------------------
BIOTECHNOLOGY 75,000 +CN Biosciences Inc. ....... 937,500 1,368,750 0.3
350,000 +COR Therapeutics Inc. ..... 3,820,630 3,456,250 0.8
320,000 +Neoprobe Corp. ............ 5,810,262 4,800,000 1.0
------------ ------------ ------
10,568,392 9,625,000 2.1
- ---------------------------------------------------------------------------------------------------------------------
BROADCAST, RADIO & TV 197,000 +Jacor Communications, Inc.
......................... 5,516,000 5,392,875 1.2
- ---------------------------------------------------------------------------------------------------------------------
BUILDING MATERIALS 150,000 Apogee Enterprises, Inc.
......................... 2,153,512 5,925,000 1.3
265,000 Ply-Gem Industries, Inc. ... 4,750,765 3,279,375 0.7
------------ ------------ ------
6,904,277 9,204,375 2.0
- ---------------------------------------------------------------------------------------------------------------------
BUSINESS SERVICES 240,000 +Accustaff, Inc. ........... 6,340,514 5,070,000 1.1
244,000 Reynolds & Reynolds Co.
(The) (Class A)........... 3,386,946 6,344,000 1.4
------------ ------------ ------
9,727,460 11,414,000 2.5
- ---------------------------------------------------------------------------------------------------------------------
CHEMICALS 255,000 Crompton & Knowles Corp. ... 4,062,361 4,908,750 1.1
- ---------------------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES 155,000 Rollins Inc. ............... 3,898,215 3,100,000 0.7
- ---------------------------------------------------------------------------------------------------------------------
COMPUTER SOFTWARE 265,000 +Activision Inc. ........... 3,858,754 3,312,500 0.7
- ---------------------------------------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS 112,500 +3d Systems Corp. .......... 1,988,750 1,434,375 0.3
100,000 +Adtran, Inc. .............. 4,873,162 4,150,000 0.9
90,000 +Cabletron Systems, Inc. ... 2,882,223 2,992,500 0.7
262,500 +MicroAge Inc. ............. 2,860,757 5,217,187 1.1
100,000 +SCI Systems, Inc. ......... 4,467,211 4,462,500 1.0
50,000 +U.S. Robotics Corp. ....... 3,213,125 3,600,000 0.8
------------ ------------ ------
20,285,228 21,856,562 4.8
- ---------------------------------------------------------------------------------------------------------------------
DIVERSIFIED 75,400 Harsco Corp. ............... 4,007,056 5,164,900 1.2
150,000 Lancaster Colony Corp. ..... 5,148,124 6,825,000 1.5
------------ ------------ ------
9,155,180 11,989,900 2.7
- ---------------------------------------------------------------------------------------------------------------------
DRUG STORES 100,000 +Revco D.S., Inc. .......... 2,555,874 3,700,000 0.8
185,000 Rite Aid Corporation ....... 5,592,412 7,353,750 1.6
------------ ------------ ------
8,148,286 11,053,750 2.4
- ---------------------------------------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT 190,000 Belden, Inc. ............... 5,864,294 7,030,000 1.6
217,500 Methode Electronics Inc.
(Class A)................. 2,705,417 4,295,625 0.9
200,750 +Vishay Intertechnology,
Inc. ..................... 5,506,140 4,692,531 1.0
------------ ------------ ------
14,075,851 16,018,156 3.5
- ---------------------------------------------------------------------------------------------------------------------
ELECTRONIC/INSTRUMENTS 250,500 BMC Industries, Inc. ....... 2,162,900 7,890,750 1.8
- ---------------------------------------------------------------------------------------------------------------------
ELECTRONICS 170,000 Fisher Scientific International
Inc. ..................... 5,111,731 8,011,250 1.8
133,300 +ITI Technologies, Inc. .... 3,796,760 1,999,500 0.4
200,000 +Kemet Corp. ............... 4,131,252 4,575,000 1.0
200,000 +Semitool Inc. ............. 3,381,041 1,900,000 0.4
------------ ------------ ------
16,420,784 16,485,750 3.6
- ---------------------------------------------------------------------------------------------------------------------
ENVIRONMENTAL 186,718 +TETRA Technologies, Inc. .. 2,121,250 3,641,001 0.8
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
58
<PAGE> 60
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--EQUITY GROWTH FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE PERCENT OF
INDUSTRY HELD COMMON STOCKS COST (NOTE 1a) NET ASSETS
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FINANCIAL SERVICES 115,000 FINOVA Group, Inc. ......... $ 4,281,177 $ 7,388,750 1.6%
200,000 +Imperial Credit Industries,
Inc. ..................... 2,581,376 4,175,000 0.9
240,000 +National Auto Credit,
Inc. ..................... 2,690,561 2,880,000 0.7
130,000 +Southern Pacific Funding
Corp. .................... 2,266,125 4,046,250 0.9
------------ ------------ ------
11,819,239 18,490,000 4.1
- ---------------------------------------------------------------------------------------------------------------------
HEALTHCARE-- 110,000 +Thermedics, Inc. .......... 1,535,333 1,993,750 0.4
PRODUCTS & SERVICES
- ---------------------------------------------------------------------------------------------------------------------
HOSPITAL MANAGEMENT 170,000 +Emcare Holdings Inc........ 4,693,754 3,846,250 0.9
190,500 +Health Care & Retirement
Corp. .................... 4,001,067 5,453,063 1.2
185,000 +OrNda Health Corp. ........ 3,182,121 5,411,250 1.2
------------ ------------ ------
11,876,942 14,710,563 3.3
- ---------------------------------------------------------------------------------------------------------------------
HOTELS 200,000 +Extended Stay America
Inc. ..................... 3,567,050 4,000,000 0.9
200,000 La Quinta Inns, Inc. ....... 3,919,340 3,825,000 0.8
------------ ------------ ------
7,486,390 7,825,000 1.7
- ---------------------------------------------------------------------------------------------------------------------
LEISURE 167,500 Royal Caribbean Cruises
Ltd. ..................... 3,905,376 3,915,313 0.9
- ---------------------------------------------------------------------------------------------------------------------
MANUFACTURED HOUSING 312,812 Clayton Homes, Inc. ........ 3,590,402 4,222,962 0.9
175,000 Oakwood Homes Corporation... 3,867,933 4,003,125 0.9
------------ ------------ ------
7,458,335 8,226,087 1.8
- ---------------------------------------------------------------------------------------------------------------------
MEDICAL 200,000 +Paracelsus Healthcare
Corp. .................... 1,700,000 725,000 0.2
- ---------------------------------------------------------------------------------------------------------------------
MEDICAL EQUIPMENT 435,000 +Angeion Corp. ............. 2,509,688 1,495,313 0.3
175,000 +Physio-Control
International Corp. ...... 3,710,000 3,850,000 0.9
------------ ------------ ------
6,219,688 5,345,313 1.2
- ---------------------------------------------------------------------------------------------------------------------
MEDICAL SERVICES 100,000 +Collaborative Clinical
Research, Inc. .......... 1,414,250 1,075,000 0.2
330,000 +Mariner Health Group,
Inc. ..................... 4,886,250 2,722,500 0.6
250,000 +Medpartners/Mullikin
Inc. ..................... 4,971,078 5,250,000 1.2
465,000 +North American Biologicals,
Inc. ..................... 4,211,875 4,068,750 0.9
------------ ------------ ------
15,483,453 13,116,250 2.9
- ---------------------------------------------------------------------------------------------------------------------
MEDICAL SUPPLIES 285,000 +ATS Medical, Inc. ......... 1,845,625 2,208,750 0.5
170,000 Beckman Instruments, Inc. .. 4,949,331 6,523,750 1.5
250,000 +Cholestech Corp. .......... 1,250,000 1,375,000 0.3
165,000 Dentsply International,
Inc. ..................... 6,162,500 7,837,500 1.7
320,000 +Healthdyne Technologies
Inc. ..................... 3,805,625 2,840,000 0.6
130,000 Meridan Diagnostics,
Inc. ..................... 1,315,875 1,690,000 0.4
85,300 +Urologix, Inc. ............ 1,281,050 1,364,800 0.3
------------ ------------ ------
20,610,006 23,839,800 5.3
- ---------------------------------------------------------------------------------------------------------------------
METAL FABRICATING 112,500 Valmont Industries, Inc. ... 2,398,750 4,584,375 1.0
- ---------------------------------------------------------------------------------------------------------------------
OFFICE EQUIPMENT 145,000 Danka Business Systems PLC
(ADR)*.................... 5,003,689 5,129,375 1.1
- ---------------------------------------------------------------------------------------------------------------------
OIL & GAS 135,000 Vintage Petroleum, Inc. .... 3,056,706 4,657,500 1.0
- ---------------------------------------------------------------------------------------------------------------------
OIL & GAS PRODUCERS 175,000 +Barrett Resources Corp. ... 4,132,342 7,459,375 1.7
200,000 +Belden & Blake Energy
Co. ...................... 3,248,647 5,100,000 1.1
125,000 NICOR Inc. ................. 3,068,051 4,468,750 1.0
150,000 +Seagull Energy Corp. ...... 2,956,364 3,300,000 0.7
------------ ------------ ------
13,405,404 20,328,125 4.5
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
59
<PAGE> 61
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--EQUITY GROWTH FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE PERCENT OF
INDUSTRY HELD COMMON STOCKS COST (NOTE 1a) NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OIL/GAS-- EQUIPMENT & SERVICES 300,000 +Pride Petroleum Services,
Inc. ..................... $ 2,347,880 $ 6,900,000 1.5%
100,000 +Trico Marine Services,
Inc. ..................... 1,600,000 4,800,000 1.1
156,000 +Weatherford Enterra,
Inc. ..................... 4,362,012 4,680,000 1.0
------------ ------------ ------
8,309,892 16,380,000 3.6
- -----------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS 95,000 +Flamel Technologies
S.A.(ADR)*................ 1,140,000 688,750 0.2
310,000 Mylan Laboratories Inc. .... 5,551,352 5,192,500 1.2
290,000 +NeXstar Pharmaceuticals,
Inc. ..................... 6,138,688 4,241,250 0.9
100,000 +Sano Corporation........... 1,356,875 1,475,000 0.3
------------ ------------ ------
14,186,915 11,597,500 2.6
- -----------------------------------------------------------------------------------------------------------------------
PRINTING & PUBLISHING 122,000 Banta Corp. ................ 2,822,042 2,745,000 0.6
- -----------------------------------------------------------------------------------------------------------------------
RAILROADS 68,000 +Genesee & Wyoming Inc.
(Class A)................. 1,209,749 2,227,000 0.5
- -----------------------------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS 175,000 Brandywine Realty Trust..... 3,010,862 3,412,500 0.8
162,000 Cali Realty Corp. .......... 3,928,250 5,001,750 1.1
115,000 National Golf Properties
Inc. ..................... 2,565,430 3,636,875 0.8
120,450 National Health Investors,
Inc. ..................... 3,561,600 4,562,044 1.0
------------ ------------ ------
13,066,142 16,613,169 3.7
- -----------------------------------------------------------------------------------------------------------------------
RESTAURANTS 150,000 Apple South, Inc. .......... 2,079,375 1,968,750 0.4
260,000 Applebee's International,
Inc. ..................... 5,459,375 7,085,000 1.5
100,000 +Boston Chicken, Inc. ...... 3,114,250 3,575,000 0.8
170,000 +Outback Steakhouse,
Inc. ..................... 4,681,565 4,505,000 1.0
50,000 +Rainforest Cafe, Inc. ..... 1,741,250 1,175,000 0.3
------------ ------------ ------
17,075,815 18,308,750 4.0
- -----------------------------------------------------------------------------------------------------------------------
RETAIL SPECIALTY 220,000 +Discount Auto Parts,
Inc. ..................... 5,463,948 5,142,500 1.1
135,000 +Moovies, Inc. ............. 1,552,500 700,312 0.2
150,000 +Movie Gallery, Inc. ....... 3,620,623 1,950,000 0.4
------------ ------------ ------
10,637,071 7,792,812 1.7
- -----------------------------------------------------------------------------------------------------------------------
RETAIL STORES 180,800 +Barnes & Noble, Inc. ...... 6,046,946 4,881,600 1.1
- -----------------------------------------------------------------------------------------------------------------------
SEMICONDUCTORS 130,000 +Asyst Technologies,
Inc. ..................... 4,072,189 2,177,500 0.5
100,000 +Electro Scientific
Industries, Inc. ......... 2,437,502 2,600,000 0.6
110,000 +Lattice Semiconductor
Corp. .................... 3,002,906 5,032,500 1.1
70,000 +Microchip Technology,
Inc. ..................... 1,984,438 3,552,500 0.8
------------ ------------ ------
11,497,035 13,362,500 3.0
- -----------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS 50,000 +LCC International, Inc.
(Class A)................. 800,000 881,250 0.2
- -----------------------------------------------------------------------------------------------------------------------
TEXTILES 138,800 +Galey & Lord, Inc. ........ 1,688,953 2,064,650 0.5
185,000 Unifi, Inc. ................ 4,347,516 5,943,125 1.3
------------ ------------ ------
6,036,469 8,007,775 1.8
- -----------------------------------------------------------------------------------------------------------------------
TOYS 140,000 +Galoob Toys, Inc. ......... 3,752,652 1,960,000 0.4
- -----------------------------------------------------------------------------------------------------------------------
UTILITIES--GAS 150,000 MCN Corp. .................. 3,004,324 4,331,250 1.0
- -----------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS 336,869,083 389,515,726 86.0
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT CORPORATE BONDS
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ENVIRONMENTAL $ 3,500,000 Sanifill, Inc., 5% due
3/01/2006................. 3,500,000 4,410,000 0.9
- -----------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS 3,500,000 4,410,000 0.9
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
60
<PAGE> 62
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--EQUITY GROWTH FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996 (CONCLUDED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE VALUE PERCENT OF
AMOUNT SHORT-TERM SECURITIES COST (NOTE 1A) NET ASSETS
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMMERCIAL PAPER** $10,275,000 General Motors Acceptance
Corp., 7.50% due
1/02/1997................. $ 10,270,719 $ 10,270,719 2.3%
15,000,000 Xerox Credit Corporation,
5.28% due 1/10/1997....... 14,978,000 14,978,000 3.3
------------ ------------ ----------
25,248,719 25,248,719 5.6
- ---------------------------------------------------------------------------------------------------------------------
US GOVERNMENT & 12,755,000 Federal Home Loan Bank:
AGENCY OBLIGATIONS** 5.20% due 1/08/1997....... 12,740,261 12,740,261 2.8
Federal National Mortgage
Association:
10,000,000 5.24% due 2/03/1997....... 9,950,511 9,950,511 2.2
10,000,000 5.26% due 2/10/1997....... 9,940,094 9,940,094 2.2
------------ ------------ ----------
32,630,866 32,630,866 7.2
- ---------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM SECURITIES 57,879,585 57,879,585 12.8
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS........... $398,248,668 451,805,311 99.7
=============
OTHER ASSETS LESS
LIABILITIES............... 1,223,954 0.3
------------ ----------
NET ASSETS.................. $453,029,265 100.0%
============= ===========
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* American Depositary Receipts (ADR).
** Commercial Paper and certain US Government & Agency Obligations are traded
on a discount basis; the interest rates shown are the discount rates paid at
the time of purchase by the Fund.
+ Non-income producing security.
See Notes to Financial Statements.
61
<PAGE> 63
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--GLOBAL BOND FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996 (IN US DOLLARS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE VALUE PERCENT OF
NORTH AMERICA INDUSTRY AMOUNT FIXED-INCOME INVESTMENTS COST (NOTE 1A) NET ASSETS
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CANADA FOREIGN Canadian Government Bonds:
GOVERNMENT
OBLIGATIONS C$ 550,000 7% due 9/01/2001........... $ 408,652 $ 426,752 0.5%
350,000 7% due 12/01/2006.......... 248,559 266,843 0.3
5,000,000 8% due 6/01/2023........... 4,080,888 4,072,993 4.3
------------------------------------------------------------------------------------------------------
TOTAL FIXED-INCOME
INVESTMENTS IN CANADA 4,738,099 4,766,588 5.1
- ---------------------------------------------------------------------------------------------------------------------
UNITED STATES BROADCASTING/ US$ 1,011,242 American Telecasting Inc.,
CABLE 12.59%* due
6/15/2004(c)............. 729,105 414,609 0.4
1,000,000 Bell Cablemedia PLC,
12.03%* due 9/15/2005.... 646,110 802,500 0.9
1,000,000 Videotron Holdings PLC,
11.05%* due 7/01/2004.... 731,219 870,000 0.9
------------ ----------- ------
2,106,434 2,087,109 2.2
------------------------------------------------------------------------------------------------------
COMMUNICATIONS 1,375,000 PanAmSat L.P., 11.35%* due
8/01/2003................ 1,108,623 1,278,750 1.4
------------------------------------------------------------------------------------------------------
ENERGY 250,000 Consolidated-Hydro Inc.,
16.05%* due 7/15/2003.... 209,492 80,000 0.1
------------------------------------------------------------------------------------------------------
GAMING 1,100,000 Greate Bay Properties,
Inc., 10.875% due
1/15/2004................ 990,750 924,000 1.0
500,000 +Harrah's Jazz Company,
14.25% due 11/15/2001.... 482,500 245,625 0.2
------------ ----------- ------
1,473,250 1,169,625 1.2
------------------------------------------------------------------------------------------------------
SPECIALTY 500,000 +Bradlees Inc., 11% due
RETAILING 8/01/2002................ 489,375 52,500 0.1
------------------------------------------------------------------------------------------------------
US GOVERNMENT 2,000,000 US Treasury Notes, 6.50%
OBLIGATIONS due 10/15/2006........... 2,031,875 2,010,940 2.2
------------------------------------------------------------------------------------------------------
UTILITIES 233,382 ++Tucson Electric Power
Co., 10.732% due
1/01/2013................ 223,464 228,713 0.2
------------------------------------------------------------------------------------------------------
TOTAL FIXED-INCOME
INVESTMENTS IN THE UNITED
STATES 7,642,513 6,907,637 7.4
- ---------------------------------------------------------------------------------------------------------------------
SHARES
HELD STOCKS & WARRANTS
- ---------------------------------------------------------------------------------------------------------------------
UNITED STATES BROADCASTING & 1 K-III Communications Corp.
PUBLISHING (Non-Convertible
Preferred)............... 79 80 0.0
9,608 On Command Corporation..... 279,101 152,527 0.2
3,057 On Command Corporation
(Warrants)(a)............ 24,456 20,635 0.0
------------ ----------- ------
303,636 173,242 0.2
------------------------------------------------------------------------------------------------------
BROADCASTING/CABLE 4,700 American Telecasting Inc.
(Warrants)(a)............ 11,222 10,575 0.0
------------------------------------------------------------------------------------------------------
ENTERTAINMENT 13 Time Warner Inc. (Non-
Convertible Preferred)
(Series M)............... 13,650 14,105 0.0
------------------------------------------------------------------------------------------------------
SUPERMARKETS 17,674 Grand Union Co............. 917,438 86,161 0.1
- ---------------------------------------------------------------------------------------------------------------------
TOTAL STOCKS & WARRANTS IN
THE UNITED STATES 1,245,946 284,083 0.3
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN NORTH
AMERICA 13,626,558 11,958,308 12.8
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
62
<PAGE> 64
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES, INC.--GLOBAL BOND FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996 (CONTINUED) (IN US DOLLARS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE VALUE PERCENT OF
PACIFIC BASIN INDUSTRY AMOUNT FIXED-INCOME INVESTMENTS COST (NOTE 1A) NET ASSETS
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AUSTRALIA FOREIGN Australian Government
GOVERNMENT Bonds:
OBLIGATIONS A$ 6,000,000 9.75% due 3/15/2002...... $ 5,435,527 $ 5,318,773 5.7%
353,000 9.50% due 8/15/2003...... 298,116 313,588 0.3
4,200,000 9% due 9/15/2004......... 3,633,191 3,662,566 3.9
3,000,000 Queensland Treasury Corp.,
8% due 8/14/2001......... 2,479,656 2,472,162 2.7
------------------------------------------------------------------------------------------------------
TOTAL FIXED-INCOME
INVESTMENTS IN AUSTRALIA 11,846,490 11,767,089 12.6
- ---------------------------------------------------------------------------------------------------------------------
JAPAN BANKING (yen) 65,000,000 Asian Development Bank,
5.625% due 2/18/2002..... 750,697 662,349 0.7
50,000,000 Export Import Bank of
Japan, 4.375% due
10/01/2003............... 503,455 486,399 0.5
225,000,000 IBRD World Bank, 4.75% due
12/20/2004............... 2,336,316 2,258,938 2.4
112,000,000 World Bank, 4.50% due
3/20/2003................ 1,137,254 1,100,850 1.2
------------ ----------- ----------
4,727,722 4,508,536 4.8
------------------------------------------------------------------------------------------------------
FOREIGN 90,000,000 Federal National Mortgage
GOVERNMENT Association, 2% due
OBLIGATIONS 12/20/1999............... 844,636 798,964 0.8
82,600,000 Japanese Government Bond,
3% due 9/20/2005......... 756,992 735,126 0.8
60,000,000 Republic of Finland, 6% due
1/29/2002................ 654,914 619,689 0.7
------------ ----------- ----------
2,256,542 2,153,779 2.3
------------------------------------------------------------------------------------------------------
TOTAL FIXED-INCOME
INVESTMENTS IN JAPAN 6,984,264 6,662,315 7.1
- ---------------------------------------------------------------------------------------------------------------------
NEW ZEALAND FOREIGN NZ$ 6,200,000 New Zealand Government
GOVERNMENT Bond, 8% due 2/15/2001... 4,523,325 4,536,150 4.8
OBLIGATIONS
- ---------------------------------------------------------------------------------------------------------------------
TOTAL FIXED-INCOME
INVESTMENTS IN NEW ZEALAND 4,523,325 4,536,150 4.8
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN THE
PACIFIC BASIN 23,354,079 22,965,554 24.5
- ---------------------------------------------------------------------------------------------------------------------
WESTERN EUROPE
- ---------------------------------------------------------------------------------------------------------------------
DENMARK FINANCE Dkr 15,940,000 Nykredit, 6% due
10/01/2026............... 2,306,331 2,348,839 2.5
------------------------------------------------------------------------------------------------------
FOREIGN Denmark Government Bonds:
GOVERNMENT
OBLIGATIONS 2,800,000 8% due 5/15/2003......... 516,582 526,953 0.6
33,200,000 8% due 3/15/2006......... 6,119,857 6,201,919 6.6
------------ ----------- ----------
6,636,439 6,728,872 7.2
------------------------------------------------------------------------------------------------------
TOTAL FIXED-INCOME
INVESTMENTS IN DENMARK 8,942,770 9,077,711 9.7
- ---------------------------------------------------------------------------------------------------------------------
FRANCE FOREIGN Frf 2,000,000 French Government 'B-Tan',
GOVERNMENT 7% due 10/12/2000........ 420,453 422,205 0.5
OBLIGATIONS 2,300,000 French OAT, 7.25% due
4/25/2006................ 483,739 490,279 0.5
------------------------------------------------------------------------------------------------------
TOTAL FIXED-INCOME
INVESTMENTS IN FRANCE 904,192 912,484 1.0
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
63
<PAGE> 65
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES, INC.--GLOBAL BOND FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996 (CONTINUED) (IN US DOLLARS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
WESTERN EUROPE FACE VALUE PERCENT OF
(CONCLUDED) INDUSTRY AMOUNT FIXED-INCOME INVESTMENTS COST (NOTE 1A) NET ASSETS
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
GERMANY FINANCE DM 2,450,000 KFW International Finance
Inc., 6.25% due
10/15/2003............... $ 1,644,147 $ 1,660,936 1.8%
------------------------------------------------------------------------------------------------------
FOREIGN Bundesrepublik Deutschland:
GOVERNMENT 625,000 7.50% due 11/11/2004..... 452,947 453,729 0.5
OBLIGATIONS 500,000 6.25% due 4/26/2006...... 337,334 335,912 0.3
2,000,000 Deutschland Republic, 6.75%
due 4/22/2003............ 1,385,871 1,401,365 1.5
1,900,000 German Unity Fund,
8% due 1/21/2002......... 1,416,586 1,404,407 1.5
------------ ----------- ----------
3,592,738 3,595,413 3.8
------------------------------------------------------------------------------------------------------
TOTAL FIXED-INCOME
INVESTMENTS IN GERMANY 5,236,885 5,256,349 5.6
- ---------------------------------------------------------------------------------------------------------------------
ITALY FOREIGN Skr Buoni Poliennali del Tesoro
GOVERNMENT (Italian Government
OBLIGATIONS Bonds):
Lit 4,000,000,000 9.50% due 5/01/2001...... 2,857,054 2,912,827 3.1
4,000,000,000 8.75% due 7/01/2006...... 2,841,855 2,870,673 3.1
Government of Italy:
2,200,000,000 10.50% due 7/15/2000..... 1,456,374 1,624,080 1.7
750,000,000 8.50% due 4/01/2004...... 515,391 529,261 0.6
------------------------------------------------------------------------------------------------------
TOTAL FIXED-INCOME
INVESTMENTS IN ITALY 7,670,674 7,936,841 8.5
- ---------------------------------------------------------------------------------------------------------------------
SPAIN FOREIGN Government of Spain:
GOVERNMENT Pta 75,000,000 10.10% due 2/28/2001..... 650,217 664,414 0.7
OBLIGATIONS 290,000,000 10.50% due 10/30/2003.... 2,694,264 2,713,544 2.9
135,000,000 8% due 5/30/2004......... 1,094,423 1,127,339 1.2
------------------------------------------------------------------------------------------------------
TOTAL FIXED-INCOME
INVESTMENTS IN SPAIN 4,438,904 4,505,297 4.8
- ---------------------------------------------------------------------------------------------------------------------
SWEDEN FINANCE (pound) 4,300,000 Swedish Export Credit
Corp., 7.625% due
12/27/2001............... 7,148,129 7,366,739 7.8
------------------------------------------------------------------------------------------------------
FOREIGN Government of Sweden:
GOVERNMENT Skr 8,500,000 10.25% due 5/05/2000..... 1,411,881 1,438,926 1.5
OBLIGATIONS 17,500,000 6% due 2/09/2005......... 2,407,211 2,489,545 2.7
18,100,000 8% due 8/15/2007......... 2,854,379 2,899,028 3.1
------------ ----------- ----------
6,673,471 6,827,499 7.3
------------------------------------------------------------------------------------------------------
TOTAL FIXED-INCOME
INVESTMENTS IN SWEDEN 13,821,600 14,194,238 15.1
- ---------------------------------------------------------------------------------------------------------------------
UNITED KINGDOM FOREIGN United Kingdom Treasury
GOVERNMENT Gilt:
OBLIGATIONS (pound) 2,000,000 8% due 12/07/2000........ 3,344,163 3,516,763 3.7
2,500,000 7% due 11/06/2001........ 4,113,200 4,230,220 4.5
300,000 8% due 6/10/2003......... 490,794 529,279 0.6
530,000 8.50% due 12/07/2005..... 945,081 965,661 1.0
150,000 9% due 7/12/2011......... 252,238 286,693 0.3
------------------------------------------------------------------------------------------------------
TOTAL FIXED-INCOME
INVESTMENTS IN THE UNITED
KINGDOM 9,145,476 9,528,616 10.1
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
WESTERN EUROPE 50,160,501 51,411,536 54.8
- ---------------------------------------------------------------------------------------------------------------------
SHORT-TERM SECURITIES
- ---------------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER** US$ 4,161,000 General Electric Capital
Corp., 7.10% due
1/02/1997................ 4,160,179 4,160,179 4.4
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
64
<PAGE> 66
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--GLOBAL BOND FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996 (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> <C>
US GOVERNMENT & Federal Home Loan Mortgage
AGENCY OBLIGATIONS** Corp.:
US$1,000,000 6.50% due 1/02/1997........ $ 999,819 $ 999,819 1.1%
4,545,000 5.33% due 1/06/1997........ 4,541,635 4,541,635 4.8
Federal National Mortgage
Association:
1,000,000 5.25% due 1/10/1997........ 998,688 998,688 1.1
3,000,000 5.37% due 1/22/1997........ 2,990,603 2,990,603 3.2
United States Treasury
Bills(b):
125,000 4.82% due 3/13/1997........ 123,812 123,793 0.1
200,000 5.27% due 3/13/1997........ 197,921 198,068 0.2
------------ ----------- ----------
9,852,478 9,852,606 10.5
- -----------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
SHORT-TERM SECURITIES 14,012,657 14,012,785 14.9
- -----------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS................................ $101,153,795 100,348,183 107.0
=============
VARIATION MARGIN ON FINANCIAL FUTURES
CONTRACTS***..................................... (17,464) 0.0
UNREALIZED DEPRECIATION ON FORWARD FOREIGN
EXCHANGE CONTRACTS****........................... (78,492) (0.1)
LIABILITIES IN EXCESS OF OTHER ASSETS............ (6,462,317) (6.9)
----------- ----------
NET ASSETS....................................... $93,789,910 100.0%
=========== ===========
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(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
adjustments under certain conditions until the expiration date.
(b) Security held as collateral in connection with open financial futures
contracts.
(c) Subject to principal paydowns.
* 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.
*** Financial futures contracts sold as of December 31, 1996 were as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
NUMBER OF EXPIRATION (NOTES 1a &
CONTRACTS ISSUE EXCHANGE DATE 1b)
- ------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
15 Italian BTP LIFFE March 1997 $2,556,891
70 UK Gilt LIFFE March 1997 6,582,838
- ------------------------------------------------------------------------------------------
TOTAL FINANCIAL FUTURES CONTRACTS SOLD (TOTAL CONTRACT PRICE-$9,069,181) $9,139,729
==========
- ------------------------------------------------------------------------------------------
</TABLE>
****Forward foreign exchange contracts as of December 31, 1996 were as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNREALIZED
DEPRECIATION
FOREIGN CURRENCY SOLD EXPIRATION DATE (NOTE 1B)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Dkr 10,000,000...................................................... January 1997 $(16,909)
DM 5,436,386...................................................... January 1997 (35,279)
(pound) 4,000,000...................................................... January 1997 (24,948)
(Yen) 500,000,000...................................................... January 1997 (1,356)
- -----------------------------------------------------------------------------------------------------------------------
TOTAL UNREALIZED DEPRECIATION--NET ON FORWARD FOREIGN EXCHANGE CONTRACTS
(US$ COMMITMENT--$16,323,461) $(78,492)
========
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Non-income producing security.
++ Restricted security as to resale. The value of the Fund's investment in
restricted securities was approximately $229,000, representing 0.2% of net
assets.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
ISSUE ACQUISITION DATE COST (NOTE 1A)
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tucson Electric Power Co., 10.732% due 1/01/2013........................ 8/19/1993 $223,464 $228,713
- -----------------------------------------------------------------------------------------------------------------------
TOTAL $223,464 $228,713
======== ========
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
65
<PAGE> 67
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--GLOBAL STRATEGY FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996 (IN US DOLLARS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE PERCENT OF
INDUSTRY HELD US STOCKS & WARRANTS COST (NOTE 1a) NET ASSETS
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AEROSPACE 64,500 Northrop Grumman Corp......... $ 4,288,238 $ 5,337,375 0.6%
55,000 United Technologies Corp...... 2,256,982 3,630,000 0.4
------------ ------------ --------
6,545,220 8,967,375 1.0
- -------------------------------------------------------------------------------------------------------------------------
AUTO & TRUCK 70,000 General Motors Corp........... 3,775,240 3,902,500 0.4
- -------------------------------------------------------------------------------------------------------------------------
AUTOMOBILE PARTS 173,500 +Lear Corporation............. 5,812,250 5,920,688 0.7
- -------------------------------------------------------------------------------------------------------------------------
BANKING 38,000 Bank of New York Co., Inc.
(Warrants)(a)............... 285,875 2,816,750 0.3
115,000 Bank of New York, Co., Inc.... 2,904,748 3,881,250 0.4
28,000 BankAmerica Corp.............. 2,864,806 2,793,000 0.3
57,000 Citicorp...................... 4,452,439 5,871,000 0.7
------------ ------------ -------
10,507,868 15,362,000 1.7
- ------------------------------------------------------------------------------------------------------------------------
BUILDING PRODUCTS 15,700 Spieker Properties, Inc....... 432,692 565,200 0.1
- ------------------------------------------------------------------------------------------------------------------------
BUILDING & CONSTRUCTION 134,500 Oakwood Homes Corporation..... 3,064,418 3,076,688 0.4
- ------------------------------------------------------------------------------------------------------------------------
BUSINESS SERVICES 110,375 +Oracle Corp.................. 3,621,396 4,594,359 0.5
- ------------------------------------------------------------------------------------------------------------------------
CHEMICALS 92,000 +FMC Corporation.............. 6,520,585 6,451,500 0.7
107,000 PPG Industries, Inc........... 5,294,623 6,005,375 0.7
------------ ------------ -------
11,815,208 12,456,875 1.4
- ------------------------------------------------------------------------------------------------------------------------
COMPUTER SERVICES 97,000 +cisco Systems, Inc........... 4,376,411 6,171,625 0.7
142,200 First Data Corp............... 5,031,267 5,190,300 0.6
------------ ------------ -------
9,407,678 11,361,925 1.3
- ------------------------------------------------------------------------------------------------------------------------
COMPUTER TECHNOLOGY 152,000 +Gulfstream Aerospace
Corporation................. 3,756,241 3,686,000 0.4
- ------------------------------------------------------------------------------------------------------------------------
COMPUTERS 81,000 +Compaq Computer Corp......... 6,008,178 6,014,250 0.7
38,500 International Business
Machines Corp............... 4,230,992 5,813,500 0.7
------------ ------------ -------
10,239,170 11,827,750 1.4
- ------------------------------------------------------------------------------------------------------------------------
CONGLOMERATES 45,800 AlliedSignal Inc.............. 3,366,507 3,068,600 0.4
- ------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED 137,500 Corning, Inc.................. 4,183,441 6,359,375 0.7
- ------------------------------------------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT 28,300 Linear Technology
Corporation................. 1,160,935 1,238,125 0.1
- ------------------------------------------------------------------------------------------------------------------------
ELECTRONICS 42,000 General Electric Co. ......... 3,325,769 4,152,750 0.5
- ------------------------------------------------------------------------------------------------------------------------
ENGINEERING & CONSTRUCTION 155,900 Foster Wheeler Corp. ......... 6,680,398 5,787,788 0.7
- ------------------------------------------------------------------------------------------------------------------------
ENTERTAINMENT 162,399 +Viacom, Inc. (Class B)....... 5,963,826 5,663,665 0.7
- ------------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES 102,500 American Express Company...... 4,852,027 5,791,250 0.7
- ------------------------------------------------------------------------------------------------------------------------
FOODS 146,000 Heinz (H.J.) Company.......... 4,731,138 5,219,500 0.6
- ------------------------------------------------------------------------------------------------------------------------
HOSPITAL MANAGEMENT 234,000 +Health Management Associates,
Inc. (Class A).............. 5,276,847 5,265,000 0.6
- ------------------------------------------------------------------------------------------------------------------------
INSURANCE 58,000 Aetna Inc. ................... 4,082,043 4,640,000 0.5
220,000 +Airtouch Communications,
Inc. ....................... 6,292,837 5,555,000 0.7
91,200 Allstate Corp. ............... 3,747,599 5,278,200 0.6
81,000 UNUM Corporation.............. 5,157,613 5,852,250 0.7
------------ ------------ -------
19,280,092 21,325,450 2.5
- ------------------------------------------------------------------------------------------------------------------------
LEISURE 240,000 Brunswick Corporation......... 5,938,252 5,760,000 0.7
- ------------------------------------------------------------------------------------------------------------------------
LEISURE & ENTERTAINMENT 10,500 +Imax Corporation............. 324,543 322,875 0.0
- ------------------------------------------------------------------------------------------------------------------------
LEISURE & TOURISM 69,177 TCI Pacific Communications
(Convertible Preferred)..... 6,473,121 6,277,813 0.7
- ------------------------------------------------------------------------------------------------------------------------
MACHINERY 126,000 +American Standard Companies,
Inc. ....................... 4,111,697 4,819,500 0.6
136,200 Deere & Co. .................. 5,770,935 5,533,125 0.6
------------ ------------ -------
9,882,632 10,352,625 1.2
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
66
<PAGE> 68
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--GLOBAL STRATEGY FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996 (CONTINUED) (IN US DOLLARS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE PERCENT OF
INDUSTRY HELD US STOCKS & WARRANTS COST (NOTE 1a) NET ASSETS
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NATURAL GAS 144,000 Enron Corp.................... $ 5,443,166 $ 6,210,000 0.7%
- -----------------------------------------------------------------------------------------------------------------------
NATURAL GAS PIPELINES 65,000 IMC Global, Inc. ............. 2,519,391 2,543,125 0.3
- -----------------------------------------------------------------------------------------------------------------------
OIL SERVICES 196,000 Dresser Industries, Inc. ..... 4,324,082 6,076,000 0.7
50,000 Schlumberger Ltd. ............ 4,053,012 4,993,750 0.6
------------ ------------ --------
8,377,094 11,069,750 1.3
- -----------------------------------------------------------------------------------------------------------------------
PAPER 64,500 Kimberly-Clark Corp. ......... 4,955,548 6,143,625 0.7
- -----------------------------------------------------------------------------------------------------------------------
PETROLEUM 108,100 Pennzoil Co. ................. 4,485,180 6,107,650 0.7
143,000 Unocal Corp. ................. 4,802,812 5,809,375 0.7
------------ ------------ --------
9,287,992 11,917,025 1.4
- -----------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS 85,700 Abbott Laboratories........... 3,516,941 4,349,275 0.5
59,000 Merck & Co., Inc. ............ 3,072,725 4,675,750 0.5
------------ ------------ --------
6,589,666 9,025,025 1.0
- -----------------------------------------------------------------------------------------------------------------------
RAILROADS 69,000 Burlington Northern Santa Fe
Inc. ....................... 5,638,407 5,959,875 0.7
- -----------------------------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST 156,000 Prentiss Properties Trust..... 3,189,080 3,900,000 0.4
83,700 Starwood Lodging Trust........ 3,280,230 4,613,962 0.5
------------ ------------ --------
6,469,310 8,513,962 0.9
- -----------------------------------------------------------------------------------------------------------------------
RETAIL 126,000 Sears, Roebuck & Co. ......... 5,464,285 5,811,750 0.7
- -----------------------------------------------------------------------------------------------------------------------
RETAIL--DRUG STORES 157,105 Rite Aid Corp. ............... 4,914,258 6,244,924 0.7
- -----------------------------------------------------------------------------------------------------------------------
RETAIL SPECIALTY 190,000 +Toys 'R' Us, Inc. ........... 5,934,584 5,700,000 0.7
- -----------------------------------------------------------------------------------------------------------------------
SCIENTIFIC INSTRUMENTS 110,000 Fisher Scientific
International, Inc. ........ 3,579,430 5,183,750 0.6
- -----------------------------------------------------------------------------------------------------------------------
SOFTWARE--COMPUTER 147,500 BMC Software, Inc. ........... 5,509,418 6,102,812 0.7
- -----------------------------------------------------------------------------------------------------------------------
STEEL 110,000 AK Steel Holding Corp. ....... 4,459,883 4,358,750 0.5
- -----------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS 95,800 Bell Atlantic Corporation..... 5,396,243 6,203,050 0.7
- -----------------------------------------------------------------------------------------------------------------------
TOBACCO 44,000 Philip Morris Companies,
Inc. ....................... 4,329,124 4,955,500 0.6
- -----------------------------------------------------------------------------------------------------------------------
TRAVEL & LODGING 185,100 Carnival Corp. (Class A)...... 5,310,160 6,108,300 0.7
- -----------------------------------------------------------------------------------------------------------------------
UTILITIES--COMMUNICATIONS 260,300 Edison International.......... 4,944,918 5,173,462 0.6
- -----------------------------------------------------------------------------------------------------------------------
UTILITIES--GAS 54,000 El Paso Natural Gas Co. ...... 2,646,557 2,727,000 0.3
- -----------------------------------------------------------------------------------------------------------------------
TOTAL US STOCKS & WARRANTS 252,186,343 288,257,861 33.2
- -----------------------------------------------------------------------------------------------------------------------
COUNTRY FOREIGN STOCKS++
- -----------------------------------------------------------------------------------------------------------------------
ARGENTINA 373,772 Banco de Galicia y Buenos
Aires S.A. (ADR)* (3)....... 6,990,318 9,017,249 1.0
305,933 Banco Frances del Rio de la
Plata S.A.(ADR)* (3)........ 7,017,779 8,413,144 1.0
355,900 Yacimientos Petroliferos Fis-
cales S.A.(ADR)* (21)....... 8,033,094 8,986,475 1.0
------------ ------------ --------
22,041,191 26,416,868 3.0
- -----------------------------------------------------------------------------------------------------------------------
BRAZIL 13,950,000 Companhia Cervejaria Brahma
S.A. PN (Preferred) (34).... 7,955,613 7,626,913 0.9
58,400,000 Petroleo Brasileiro S.A.--
Petrobras (Preferred)
(46)........................ 7,234,138 9,303,302 1.1
108,700 Telecomunicacoes Brasileiras
S.A.--Telebras (ADR)* (27).. 6,472,073 8,315,550 0.9
------------ ------------ --------
21,661,824 25,245,765 2.9
- -----------------------------------------------------------------------------------------------------------------------
CANADA 318,600 Canadian Pacific, Ltd.
(52) ....................... 6,091,881 8,442,900 1.0
147,800 Magna International Inc.
(Class A) (1)............... 6,830,595 8,239,850 0.9
100,100 Potash Corp. of Saskatchewan,
Inc. (35)................... 7,437,257 8,508,500 1.0
------------ ------------ --------
20,359,733 25,191,250 2.9
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
C 67
<PAGE> 69
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--GLOBAL STRATEGY FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996 (CONTINUED) (IN US DOLLARS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE PERCENT OF
COUNTRY HELD FOREIGN STOCKS++ COST (NOTE 1a) NET ASSETS
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FINLAND 132,000 Finnlines OY (36)............. $ 2,486,828 $ 3,241,129 0.4%
121,500 Nokia Corp. (ADR)* (37)....... 4,287,533 7,001,437 0.8
409,900 +UPM-Kymmene OY (38).......... 8,516,525 8,461,463 1.0
------------ ------------ ------
15,290,886 18,704,029 2.2
- -------------------------------------------------------------------------------------------------------------------------
FRANCE 130,600 Michelin (C.G.D.E.) S.A.
(Class B) (47).............. 5,794,743 7,051,091 0.8
126,500 +SGS-Thomson Microelectronics
N.V. (NY Registered Shares)
(51)........................ 4,655,571 8,855,000 1.0
236,000 Scor S.A. (16)................ 8,948,438 8,301,850 1.0
545,000 Usinor-Sacilor S.A. (40)...... 8,643,115 7,931,284 0.9
------------ ------------ ------
28,041,867 32,139,225 3.7
- -------------------------------------------------------------------------------------------------------------------------
GERMANY 13,500 +Henkel KGaA (9).............. 600,048 647,579 0.1
121,500 Henkel KGaA (Preferred) (9)... 5,163,053 6,104,615 0.7
16,900 Mannesmann AG (17)............ 4,620,775 7,326,812 0.8
35,800 +Puma AG (48)................. 1,176,806 1,214,664 0.1
176,500 Siemens AG (12)............... 8,419,829 8,317,355 1.0
------------ ------------ ------
19,980,511 23,611,025 2.7
- -------------------------------------------------------------------------------------------------------------------------
HONG KONG 404,600 HSBC Holdings PLC (3)......... 6,668,545 8,658,042 1.0
4,873,200 Hong Kong Telecommunications,
Ltd. (27)................... 8,569,151 7,844,756 0.9
------------ ------------ ------
15,237,696 16,502,798 1.9
- -------------------------------------------------------------------------------------------------------------------------
INDONESIA 313,380 P.T. Indonesian Satellite
Corp. (ADR)* (27)........... 9,998,585 8,578,777 1.0
- -------------------------------------------------------------------------------------------------------------------------
ITALY 1,161,800 Danieli & Company (17)........ 4,276,177 4,859,167 0.5
1,659,000 Societa Finanziara Telefonica
S.p.A. (STET) (27).......... 4,931,175 7,539,667 0.9
------------ ------------ ------
9,207,352 12,398,834 1.4
- -------------------------------------------------------------------------------------------------------------------------
JAPAN 424,000 Bridgestone Corporation
(47)........................ 7,463,165 8,055,268 0.9
314,000 Canon, Inc. (12).............. 5,242,498 6,941,623 0.8
424,000 Eisai Co., Ltd. (22).......... 7,787,610 8,348,187 1.0
803,000 Maeda Corp. (4)............... 7,177,535 5,942,755 0.7
370,000 Matsushita Electric
Industries, Ltd. (12)....... 5,646,070 6,038,860 0.7
1,395,000 Mitsubishi Electric Corp.
(11)........................ 9,130,689 8,312,176 0.9
1,061,000 Mitsubishi Heavy Industry,
Ltd. (8).................... 7,818,945 8,429,361 1.0
809,000 Mitsui-Soko Co., Ltd. (42).... 6,794,019 5,288,541 0.6
512,000 Nomura Securities Co., Ltd.
(33)........................ 9,448,726 7,693,264 0.9
906,000 Okumura Corp. (4)............. 6,730,420 5,507,979 0.6
124,000 Rohm Company Ltd. (12)........ 7,059,616 8,138,169 0.9
808,000 Tokio Marine and Fire
Insurance Co., Ltd. (16).... 9,454,210 7,605,527 0.9
1,011,000 Toray Industries Ltd. (28).... 6,794,999 6,242,358 0.7
------------ ------------ ------
96,548,502 92,544,068 10.6
- -------------------------------------------------------------------------------------------------------------------------
MEXICO 411,400 Carso Global Telecom, S.A. de
C.V. (ADR)*(27)............. 1,954,150 1,851,300 0.2
375,400 Grupo Carso, S.A. de C.V.
(ADR)*(18).................. 5,559,251 3,894,775 0.4
5,741 Grupo Financiero Inbursa, S.A.
de C.V. (ADR)*(18).......... 115,192 97,597 0.0
436,300 Kimberly-Clark de Mexico, S.A.
de C.V. (38)................ 8,018,361 8,619,572 1.0
171,000 Panamerican Beverages, Inc.
(Class A) (34).............. 7,114,640 8,015,625 0.9
------------ ------------ ------
22,761,594 22,478,869 2.5
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
68
<PAGE> 70
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--GLOBAL STRATEGY FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996 (CONTINUED) (IN US DOLLARS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE PERCENT OF
COUNTRY HELD FOREIGN STOCKS++ COST (NOTE 1A) NET ASSETS
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NETHERLANDS 136,000 ABN-AMRO Holdings (3)......... $ 7,835,801 $ 8,856,547 1.0%
466 ABN-AMRO Holdings N.V.
(Convertible Preferred)
(3)......................... 15,383 28,916 0.0
------------ ------------ ----------
7,851,184 8,885,463 1.0
- ---------------------------------------------------------------------------------------------------------------------
NORWAY 641,000 Color Line ASA (36)........... 2,499,223 2,984,125 0.4
- ---------------------------------------------------------------------------------------------------------------------
PHILIPPINES 1,650,000 San Miguel Corp. (Class B)
(34)........................ 5,521,217 7,288,652 0.8
- ---------------------------------------------------------------------------------------------------------------------
SOUTH KOREA 180,600 +Hyundai Engineering &
Construction Co., Ltd.
(GDR)** (44)+++............. 2,353,218 1,128,750 0.1
- ---------------------------------------------------------------------------------------------------------------------
SPAIN 238,000 Repsol S.A.(ADR)* (21)........ 7,749,030 9,073,750 1.0
- ---------------------------------------------------------------------------------------------------------------------
SWEDEN 454,100 Bure Investment Aktiebolaget
(45)........................ 3,955,365 5,397,227 0.6
278,000 Sparbanken Sverige AB (Class
A) (3)...................... 3,575,154 4,772,707 0.6
------------ ------------ ----------
7,530,519 10,169,934 1.2
- ---------------------------------------------------------------------------------------------------------------------
SWITZERLAND 5,200 BBC Brown Boveri & Cie AG
(11)........................ 4,633,631 6,466,985 0.8
7,000 +Novartis AG (22)............. 6,960,585 8,015,387 0.9
------------ ------------ ----------
11,594,216 14,482,372 1.7
- ---------------------------------------------------------------------------------------------------------------------
UNITED KINGDOM 801,000 Boots Company PLC (49)........ 7,746,777 8,256,364 0.9
3,085,000 British Steel PLC (50)........ 8,295,968 8,497,287 1.0
1,302,000 General Electric PLC
(Ordinary) (12)............. 7,044,453 8,531,178 1.0
517,500 Glaxo Wellcome PLC (22)....... 7,417,612 8,393,014 1.0
1,012,400 Grand Metropolitan PLC (34)... 7,201,806 7,967,264 0.9
783,900 Imperial Chemical Industries
PLC (43).................... 10,154,513 10,306,324 1.2
720,500 National Westminster Bank PLC
(3)......................... 7,832,617 8,455,851 1.0
2,085,000 Vodafone Group PLC (27)....... 7,541,528 8,810,534 1.0
------------ ------------ ----------
63,235,274 69,217,816 8.0
- ---------------------------------------------------------------------------------------------------------------------
TOTAL FOREIGN STOCKS 389,463,622 427,042,370 49.0
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT FOREIGN BONDS++
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DENMARK Dkr 66,250,000 Government of Denmark,
8% due 3/15/2006(15)........ 12,133,252 12,375,817 1.4
- ---------------------------------------------------------------------------------------------------------------------
GERMANY DM 6,500,000 Bundesrepublik Deutschland,
7.125% due 12/20/2002(15)... 4,514,124 4,638,934 0.6
- ---------------------------------------------------------------------------------------------------------------------
ITALY Lit 27,470,000,000 Buoni Poliennali del Tesoro
(Italian Government Bonds),
8.50% due 1/01/2004 (15).... 19,448,018 19,380,531 2.2
- ---------------------------------------------------------------------------------------------------------------------
SWEDEN
Government of Sweden (15):
Skr 41,300,000 10.25% due 5/05/2000........ 7,052,190 6,991,487 0.8
163,000,000 8% due 8/15/2007............ 25,654,854 26,107,266 3.0
------------ ------------ ----------
32,707,044 33,098,753 3.8
- ---------------------------------------------------------------------------------------------------------------------
UNITED KINGDOM
United Kingdom Treasury Gilt
(15):
L 4,000,000 7% due 11/06/2001........... 6,592,392 6,768,352 0.8
7,475,000 7.50% due 12/07/2006........ 12,576,320 12,772,245 1.5
------------ ------------ ----------
19,168,712 19,540,597 2.3
- ---------------------------------------------------------------------------------------------------------------------
TOTAL FOREIGN BONDS 87,971,150 89,034,632 10.3
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
69
<PAGE> 71
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--GLOBAL STRATEGY FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996 (CONTINUED) (IN US DOLLARS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
FACE VALUE NET
AMOUNT US GOVERNMENT OBLIGATIONS COST (NOTE 1a) ASSETS
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
US Treasury Notes:
US$ 16,250,000 6.25% due 4/30/2001.................. $ 16,463,906 $ 16,285,587 1.9%
29,750,000 7% due 7/15/2006..................... 31,584,492 30,907,572 3.5
- ---------------------------------------------------------------------------------------------------------------------
TOTAL US GOVERNMENT OBLIGATIONS 48,048,398 47,193,159 5.4
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
SHORT-TERM SECURITIES
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
US GOVERNMENT & 15,755,000 Federal Home Loan Mortgage
AGENCY
OBLIGATIONS*** Corp. 5.41% due 1/24/1997............ 15,700,545 15,700,545 1.8
- ---------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM SECURITIES 15,700,545 15,700,545 1.8
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS.......................................... $793,370,058 867,228,567 99.7
=============
UNREALIZED DEPRECIATION ON FORWARD FOREIGN
EXCHANGE CONTRACTS# .............................. (2,598,413) (0.3)
OTHER ASSETS LESS LIABILITIES.............................. 5,572,664 0.6
------------ ----------
NET ASSETS................................................. $870,202,818 100.0%
============= ===========
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* American Depositary Receipts (ADR).
** Global Depositary Receipts (GDR).
*** 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.
+ Non-income producing security.
++ Corresponding industry groups for foreign stocks and bonds:
<TABLE>
<S> <C>
(1) Automobile--Parts (27) Telecommunications
(2) Automotive Equipment (28) Textiles
(3) Banking (29) Toys
(4) Building & Construction (30) Trading
(5) Building Materials (31) Utilities
(6) Business & Public Service (32) Utilities--Electric
(7) Business Publishing (33) Financial Services
(8) Capital Goods (34) Beverages
(9) Chemicals (35) Mining
(10) Diversified (36) Transportation
(11) Electrical Equipment (37) Communications Equipment
(12) Electronics (38) Paper & Forest Products
(13) Food (39) Industrial Components
(14) Glass (40) Metals
(15) Government (Bonds) (41) Photography
(16) Insurance (42) Warehouse & Storage
(17) Machinery & Equipment (43) Oil--Integrated
(18) Multi--Industry (44) Engineering & Construction
(19) Natural Gas (45) Investment Management
(20) Packaging (46) Oil & Related
(21) Petroleum (47) Tire & Rubber
(22) Pharmaceutical (48) Consumer--Goods
(23) Printing & Publishing (49) Merchandising
(24) Real Estate (50) Steel
(25) Retail Stores (51) Semiconductor Capital Equipment
(26) Shipping (52) Natural Resources
</TABLE>
70
<PAGE> 72
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--GLOBAL STRATEGY FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996 (CONCLUDED) (IN US DOLLARS)
- --------------------------------------------------------------------------------
+++ Restricted security as to resale. The value of the Fund's investment in
restricted securities was approximately $1,129,000, representing 0.1% of
net assets.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACQUISITION VALUE
ISSUE DATE COST (NOTE 1A)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Hyundai Engineering & Construction Co., Ltd.(GDR)....................... 3/19/1996 $2,353,218 $1,128,750
- ---------------------------------------------------------------------------------------------------------------------
TOTAL $2,353,218 $1,128,750
========== ==========
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
# Forward foreign exchange contracts as of December 31, 1996 were as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
UNREALIZED
FOREIGN EXPIRATION DEPRECIATION
CURRENCY SOLD DATE (NOTE 1B)
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CHF 16,000,000 ................................................... January 1997 $ 246,564
DM 63,822,188 ................................................... February 1997 554,813
Frf 90,000,000 ................................................... January 1997 (106,255)
(pound) 39,555,000 ................................................... January 1997 (3,135,589)
(yen) 10,670,000,000 ................................................... February 1997 (157,946)
- ---------------------------------------------------------------------------------------------------------------------
TOTAL UNREALIZED DEPRECIATION ON FORWARD
FOREIGN EXCHANGE CONTRACTS (US$ COMMITMENT--$228,531,727) $(2,598,413)
============
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
71
<PAGE> 73
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--GLOBAL UTILITY FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996 (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)*(a)............ $ 261,847 $ 238,975 0.2%
25,600 Telecom Argentina STET
S.A. (ADR)*.......... 1,160,819 1,033,600 0.7
44,800 Telefonica de Argentina
S.A. (ADR)*.......... 1,173,168 1,159,200 0.8
----------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
IN ARGENTINA 2,595,834 2,431,775 1.7
- --------------------------------------------------------------------------------------------------------------------------
AUSTRALIA UTILITIES--GAS 434,496 Australian Gas & Light
Co., Ltd............. 1,238,060 2,470,749 1.8
----------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
IN AUSTRALIA 1,238,060 2,470,749 1.8
- --------------------------------------------------------------------------------------------------------------------------
AUSTRIA UTILITIES--GAS 13,560 Energie-Versorgung
Niederoesterreich AG
(EVN).................. 1,388,213 2,041,452 1.4
----------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
IN AUSTRIA 1,388,213 2,041,452 1.4
- --------------------------------------------------------------------------------------------------------------------------
BRAZIL TELECOMMUNICATIONS 30,000 Telecomunicacoes
Brasileiras S.A.--
Telebras (ADR)*...... 1,523,979 2,295,000 1.6
----------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
IN BRAZIL 1,523,979 2,295,000 1.6
- --------------------------------------------------------------------------------------------------------------------------
CANADA TELECOMMUNICATIONS 56,000 BC Telecom, Inc........ 1,052,989 1,211,971 0.8
----------------------------------------------------------------------------------------------------------
UTILITIES--GAS 70,100 Transcanada Pipeline
Co., Ltd. (ADR)*..... 1,045,275 1,226,750 0.9
----------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
IN CANADA 2,098,264 2,438,721 1.7
- --------------------------------------------------------------------------------------------------------------------------
CHILE TELECOMMUNICATIONS 14,400 Compania de Telefonos
de Chile S.A.
(ADR)*............... 1,254,995 1,456,200 1.0
----------------------------------------------------------------------------------------------------------
UTILITIES--ELECTRIC 20,000 Chilgener S.A. (ADR)*.. 460,000 417,500 0.3
35,100 Distribuidora Chilectra
Metropolitana,
S.A. (ADR)*(a)....... 1,098,338 1,860,300 1.3
48,300 Enersis S.A. (ADR)*.... 1,026,061 1,340,325 1.0
----------- --------- ------
2,584,399 3,618,125 2.6
----------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
IN CHILE 3,839,394 5,074,325 3.6
- --------------------------------------------------------------------------------------------------------------------------
DENMARK TELECOMMUNICATIONS 77,000 Tele Danmark A/S
(ADR)*............... 1,826,433 2,098,250 1.5
----------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
IN DENMARK 1,826,433 2,098,250 1.5
- --------------------------------------------------------------------------------------------------------------------------
FRANCE UTILITIES--WATER 16,731 Generale des Eaux...... 1,907,473 2,073,638 1.4
7,265 Lyonnaise des Eaux-
Dumez................ 736,741 676,228 0.5
----------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
IN FRANCE 2,644,214 2,749,866 1.9
- --------------------------------------------------------------------------------------------------------------------------
GERMANY TELECOMMUNICATIONS 8,100 +Deutsche Telekom AG... 154,054 170,845 0.1
----------------------------------------------------------------------------------------------------------
UTILITIES--ELECTRIC 40,000 Veba AG................ 1,305,397 2,313,942 1.6
----------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
IN GERMANY 1,459,451 2,484,787 1.7
- --------------------------------------------------------------------------------------------------------------------------
HONG KONG UTILITIES--GAS 568,512 The Hong Kong & China
Gas Co., Ltd......... 755,615 1,098,947 0.8
----------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
IN HONG KONG 755,615 1,098,947 0.8
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
72
<PAGE> 74
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES, INC.--GLOBAL UTILITY FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996 (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 1,000 Tata Electric Companies
(GDR)**(a)........... $ 710,000 $ 300,000 0.2%
----------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
IN INDIA 710,000 300,000 0.2
- --------------------------------------------------------------------------------------------------------------------------
INDONESIA TELECOMMUNICATIONS 1,110 P.T. Indonesian
Satellite Corp.
(ADR)*............... 35,575 30,386 0.0
8,000 P.T. Telekomunikasi
Indonesia
(PERSERO) (ADR)*....... 144,000 276,000 0.2
----------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
IN INDONESIA 179,575 306,386 0.2
- --------------------------------------------------------------------------------------------------------------------------
ITALY TELECOMMUNICATIONS 761,900 Societa Finanziara
Telefonica S.p.A.
(STET)................. 1,629,934 2,571,867 1.8
729,600 Telecom Italia Mobile
S.p.A................ 684,328 1,842,922 1.3
729,600 Telecom Italia
S.p.A................ 950,865 1,893,380 1.3
----------- --------- ------
3,265,127 6,308,169 4.4
----------------------------------------------------------------------------------------------------------
UTILITIES--GAS 513,400 Italgas Torino......... 1,581,576 2,142,196 1.5
----------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
IN ITALY 4,846,703 8,450,365 5.9
- --------------------------------------------------------------------------------------------------------------------------
MALAYSIA TELECOMMUNICATIONS 139,000 Telekom Malaysia BHD... 962,438 1,238,614 0.9
----------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
IN MALAYSIA 962,438 1,238,614 0.9
- --------------------------------------------------------------------------------------------------------------------------
MEXICO TELECOMMUNICATIONS 29,000 Telefonos de Mexico,
S.A. de C.V.
(Telemex) (ADR)*..... 1,706,306 957,000 0.7
----------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
IN MEXICO 1,706,306 957,000 0.7
- --------------------------------------------------------------------------------------------------------------------------
NEW ZEALAND TELECOMMUNICATIONS 36,800 Telecom Corporation of
New Zealand Ltd.
(ADR)*............... 1,680,030 2,980,800 2.1
----------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
IN NEW ZEALAND 1,680,030 2,980,800 2.1
- --------------------------------------------------------------------------------------------------------------------------
PERU TELECOMMUNICATIONS 73,000 Telefonica del Peru,
S.A. (ADR)*.......... 1,496,500 1,377,875 1.0
----------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
IN PERU 1,496,500 1,377,875 1.0
- --------------------------------------------------------------------------------------------------------------------------
PHILIPPINES TELECOMMUNICATIONS 21,800 Philippine Long Distance
Telephone Co.
(ADR)*............... 1,270,791 1,111,800 0.8
----------------------------------------------------------------------------------------------------------
UTILITIES--ELECTRIC 74,100 Manila Electric Co.
(MERALCO) 'B'........ 518,117 606,683 0.4
----------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
IN THE PHILIPPINES 1,788,908 1,718,483 1.2
- --------------------------------------------------------------------------------------------------------------------------
PORTUGAL TELECOMMUNICATIONS 65,720 Portugal Telecom, S.A.
(ADR)*............... 1,417,539 1,856,590 1.3
----------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
IN PORTUGAL 1,417,539 1,856,590 1.3
- --------------------------------------------------------------------------------------------------------------------------
SOUTH KOREA UTILITIES--ELECTRIC 40,800 Korea Electric Power
Corp. (ADR)*......... 821,100 836,400 0.6
----------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
IN SOUTH KOREA 821,100 836,400 0.6
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
73
<PAGE> 75
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES, INC.--GLOBAL UTILITY FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996 (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>
SPAIN TELECOMMUNICATIONS 50,700 Telefonica de Espana
S.A. (ADR)*.......... $ 1,942,165 $ 3,510,975 2.5%
----------------------------------------------------------------------------------------------------------
UTILITIES--ELECTRIC 36,400 Empresa Nacional de
Electricidad, S.A.
(Endesa) (ADR)*........ 1,634,684 2,548,000 1.8
15,000 HidroCantabrico,
S.A.................. 503,484 572,303 0.4
131,000 Iberdrola I S.A. ...... 879,896 1,856,010 1.3
----------- --------- ------
3,018,064 4,976,313 3.5
----------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
IN SPAIN 4,960,229 8,487,288 6.0
- --------------------------------------------------------------------------------------------------------------------------
SWITZERLAND UTILITIES--ELECTRIC 1,500 Elektrowatt AG......... 588,618 597,177 0.4
----------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
IN SWITZERLAND 588,618 597,177 0.4
- --------------------------------------------------------------------------------------------------------------------------
THAILAND TELECOMMUNICATIONS 2,000 +TelecomAsia
Corporation Public
Co., Ltd. (ADR)*..... 43,740 40,000 0.0
----------------------------------------------------------------------------------------------------------
UTILITIES--ELECTRIC 68,000 Electricity Generating
Company of Thailand
(EGCOMP)............. 60,715 185,597 0.1
----------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
IN THAILAND 104,455 225,597 0.1
- --------------------------------------------------------------------------------------------------------------------------
UNITED TELECOMMUNICATIONS 57,000 British Telecom-
KINGDOM munications PLC...... 406,712 385,187 0.3
10,000 British Telecommun-
ications PLC (ADR)*.. 741,450 686,250 0.5
87,000 Vodafone Group PLC
(ADR)*............... 2,549,289 3,599,625 2.5
----------- --------- ------
3,697,451 4,671,062 3.3
----------------------------------------------------------------------------------------------------------
UTILITIES--ELECTRIC 73,714 London Electricity
PLC.................. 860,944 858,178 0.6
167,500 National Power PLC..... 1,238,839 1,401,274 1.0
92,690 PowerGen PLC........... 678,633 910,215 0.6
----------- --------- ------
2,778,416 3,169,667 2.2
----------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
IN THE UNITED KINGDOM 6,475,867 7,840,729 5.5
- --------------------------------------------------------------------------------------------------------------------------
UNITED INDEPENDENT POWER 40,000 Enron Global Power &
STATES PRODUCERS Pipelines L.L.C. .... 930,101 1,080,000 0.8
----------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS 10,000 AT&T Corp. ............ 405,165 435,000 0.3
36,400 +AirTouch
Communications,
Inc.................. 879,157 919,100 0.6
25,800 Ameritech Corp. ....... 1,030,404 1,564,125 1.1
8,000 Bell Atlantic Corp. ... 447,000 518,000 0.4
37,400 BellSouth Corp. ....... 1,138,507 1,510,025 1.1
42,000 Frontier Corp. ........ 969,520 950,250 0.7
33,500 GTE Corp. ............. 1,124,815 1,524,250 1.1
3,240 Lucent Technologies.... 159,185 149,850 0.1
20,000 MCI Communications
Corp. ............... 602,500 652,500 0.4
31,000 NYNEX Corp. ........... 1,184,107 1,491,875 1.0
29,300 SBC Communications,
Inc.................. 1,233,299 1,516,275 1.1
30,000 Sprint Corp............ 864,273 1,196,250 0.8
24,900 U S West Com-
munications Group.... 606,619 803,025 0.6
----------- ---------- ------
10,644,551 13,230,525 9.3
----------------------------------------------------------------------------------------------------------
UTILITIES--ELECTRIC 65,600 Allegheny Power System,
Inc.................. 1,689,846 1,992,600 1.4
25,000 American Electric Power
Company, Inc......... 1,092,125 1,028,125 0.7
72,500 Boston Edison Co....... 2,012,799 1,948,437 1.4
84,192 CINergy Corp........... 2,052,668 2,809,908 2.0
</TABLE>
74
<PAGE> 76
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES, INC.--GLOBAL UTILITY FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996 (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>
UNITED UTILITIES-- 49,300 Consolidated Edison
STATES ELECTRIC Co. of New York........ $ 1,597,050 $ 1,442,025 1.0%
(CONCLUDED) (CONCLUDED) 31,500 DTE Energy............. 989,953 1,019,812 0.7
26,400 Dominion Resources,
Inc.................. 1,242,516 1,016,400 0.7
31,000 Duke Power Co.......... 1,172,492 1,433,750 1.0
97,000 Edison International... 1,800,212 1,927,875 1.3
50,000 Enova Corporation
Holding Co........... 1,184,750 1,137,500 0.8
54,300 Entergy Corp........... 1,905,240 1,506,825 1.1
30,000 FPL Group, Inc......... 1,374,501 1,380,000 1.0
85,200 GPU, Inc............... 2,559,840 2,864,850 2.0
146,200 Houston Industries,
Inc.................. 3,215,466 3,307,775 2.3
56,000 NIPSCO Industries,
Inc.................. 1,787,890 2,219,000 1.5
50,700 New York State Electric
& Gas Corp........... 1,537,761 1,096,387 0.8
93,800 PECO Energy Co......... 2,719,313 2,368,450 1.7
72,800 PacifiCorp............. 1,401,416 1,492,400 1.0
44,000 Public Service Co. of
Colorado............. 1,312,146 1,710,500 1.2
86,200 Southern Co............ 1,846,654 1,950,275 1.4
55,000 Texas Utilities Co..... 2,237,675 2,241,250 1.6
----------- --------- ------
36,732,313 37,894,144 26.6
----------------------------------------------------------------------------------------------------------
UTILITIES--GAS 33,100 AGL Resources Inc...... 619,896 699,237 0.5
33,000 The Brooklyn Union Gas
Co................... 855,855 994,125 0.7
52,000 The Coastal Corp....... 1,509,758 2,541,500 1.8
24,800 El Paso Natural Gas
Co................... 895,148 1,252,400 0.9
55,000 MDU Resources Group,
Inc.................. 1,171,945 1,265,000 0.9
26,100 National Fuel Gas
Company.............. 788,314 1,076,625 0.7
25,000 New Jersey Resources
Corp................. 656,623 731,250 0.5
53,500 Questar Corp........... 1,908,628 1,966,125 1.4
72,200 Sonat, Inc............. 2,342,585 3,718,300 2.6
49,800 Washington Gas Light
Co................... 1,046,197 1,126,725 0.8
117,900 Williams Co., Inc...... 2,298,643 4,421,250 3.1
----------- ---------- ------
14,093,592 19,792,537 13.9
----------------------------------------------------------------------------------------------------------
UTILITIES--WATER 38,000 American Water Works
Co., Inc............. 714,875 783,750 0.5
----------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
IN THE UNITED STATES 63,115,432 72,780,956 51.1
- --------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
COMMON STOCKS 110,223,157 135,138,132 94.9
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
75
<PAGE> 77
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES, INC.--GLOBAL UTILITY FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996 (CONCLUDED) (IN US DOLLARS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE FIXED-INCOME VALUE PERCENT OF
COUNTRY INDUSTRY AMOUNT SECURITIES COST (NOTE 1a) NET ASSETS
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AUSTRALIA TELECOMMUNICATIONS US$1,040,000 Telstra Corp. Ltd.,
6.50% due
7/31/2003(a)....... $ 1,084,062 $ 1,020,240 0.7%
------------------------------------------------------------------------------------------------------
TOTAL FIXED-INCOME
SECURITIES IN
AUSTRALIA 1,084,062 1,020,240 0.7
- ---------------------------------------------------------------------------------------------------------------------
KOREA UTILITIES--ELECTRIC 1,000,000 Korea Electric Power
Corp., 6.375% due
12/01/2003......... 985,510 971,750 0.7
------------------------------------------------------------------------------------------------------
TOTAL FIXED-INCOME
SECURITIES IN KOREA 985,510 971,750 0.7
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
FIXED-INCOME
SECURITIES 2,069,572 1,991,990 1.4
- ---------------------------------------------------------------------------------------------------------------------
SHORT-TERM SECURITIES
---------------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER*** 5,049,000 General Electric
Capital Corp.,
7.10% due
1/02/1997.......... 5,047,008 5,047,008 3.5
------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
SHORT-TERM SECURITIES 5,047,008 5,047,008 3.5
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS.... $117,339,737 142,177,130 99.8
=============
OTHER ASSETS LESS
LIABILITIES........ 260,671 0.2
------------ ----------
NET ASSETS........... $142,437,801 100.0%
============= ===========
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* American Depositary Receipts (ADR).
** Global Depositary Receipts (GDR).
*** 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.
+ Non-income producing security.
(a) Restricted security as to resale. The value of the Fund's investment in
restricted securities was approximately $3,420,000, representing 2.4% of net
assets.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
ISSUE ACQUISITION DATE(S) COST (NOTE 1a)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Central Costanera S.A. (ADR)........................................ 12/17/1993 $ 261,847 $ 238,975
Distribuidora Chilectra Metropolitana, S.A. (ADR)................... 8/06/1993-12/21/1993 1,098,338 1,860,300
Tata Electric Companies (GDR)....................................... 2/22/1994 710,000 300,000
Telestra Corp. Ltd., 6.50% due 7/31/2003............................ 7/26/1993-9/29/1993 1,084,062 1,020,240
- ---------------------------------------------------------------------------------------------------------------------
TOTAL $3,154,247 $3,419,515
========== ==========
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
76
<PAGE> 78
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--GOVERNMENT BOND FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT ISSUE COST (NOTE 1A)
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
US GOVERNMENT & AGENCY OBLIGATIONS
- ---------------------------------------------------------------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE $ 3,000,000 Federal Home Loan Mortgage Corp.,
CORPORATION--3.4% 7.14% due 9/13/2006.......................... $ 3,064,440 $ 3,082,019
- ---------------------------------------------------------------------------------------------------------------------
TOTAL FEDERAL HOME LOAN MORTGAGE CORP. 3,064,440 3,082,019
- ---------------------------------------------------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE Federal National Mortgage Association:
ASSOCIATION--14.8% 2,000,000 8.90% due 6/12/2000........................ 2,171,480 2,161,880
1,045,000 7.50% due 2/11/2002........................ 1,088,232 1,093,007
4,000,000 7.40% due 7/01/2004........................ 4,157,540 4,191,880
500,000 7.85% due 9/10/2004........................ 499,297 511,720
2,000,000 7.65% due 3/10/2005........................ 2,091,140 2,125,320
3,000,000 7.375% due 3/28/2005....................... 3,158,430 3,138,750
- ---------------------------------------------------------------------------------------------------------------------
TOTAL FEDERAL NATIONAL MORTGAGE ASSOCIATION 13,166,119 13,222,557
- ---------------------------------------------------------------------------------------------------------------------
US TREASURY NOTES--72.4% US Treasury Notes:
2,000,000 7.125% due 2/29/2000....................... 2,004,375 2,059,060
1,000,000 6.875% due 3/31/2000....................... 1,019,375 1,022,500
5,000,000 7.50% due 11/15/2001....................... 5,140,469 5,263,300
11,500,000 6.375% due 8/15/2002....................... 11,488,545 11,575,440
2,000,000 6.25% due 2/15/2003........................ 1,992,656 1,997,500
3,000,000 5.75% due 8/15/2003........................ 2,835,781 2,910,000
12,000,000 7.25% due 5/15/2004........................ 12,468,047 12,626,280
3,000,000 7.25% due 8/15/2004........................ 3,219,375 3,157,500
4,000,000 7.875% due 11/15/2004...................... 4,440,000 4,365,000
8,000,000 6.50% due 5/15/2005........................ 7,732,480 8,053,760
3,000,000 6.875% due 5/15/2006....................... 3,082,187 3,091,410
6,000,000 7.00% due 7/15/2006........................ 6,079,687 6,233,460
2,500,000 6.50% due 10/15/2006....................... 2,488,359 2,513,675
- ---------------------------------------------------------------------------------------------------------------------
TOTAL US TREASURY NOTES 63,991,336 64,868,885
- ---------------------------------------------------------------------------------------------------------------------
TOTAL US GOVERNMENT & AGENCY
OBLIGATIONS--90.6% 80,221,895 81,173,461
- ---------------------------------------------------------------------------------------------------------------------
SHORT-TERM SECURITIES
- ---------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS*--5.2% 4,661,000 UBS Securities Funding, Inc. purchased on
12/31/1996 to yield 6.75% to 1/02/1997..... 4,661,000 4,661,000
- ---------------------------------------------------------------------------------------------------------------------
US GOVERNMENT US Treasury Bills:
OBLIGATIONS**--2.2% 1,000,000 4.55% due 1/09/1997........................ 998,863 998,863
1,000,000 4.60% due 1/16/1997........................ 997,956 997,956
-----------
1,996,819 1,996,819
- ---------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM SECURITIES 6,657,819 6,657,819
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS--98.0%..................... $86,879,714 87,831,280
===========
OTHER ASSETS LESS LIABILITIES--2.0%.......... 1,749,512
NET ASSETS--100.0%........................... $89,580,792
</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.
See Notes to Financial Statements.
77
<PAGE> 79
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--HIGH CURRENT INCOME FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
S&P MOODY'S FACE VALUE
INDUSTRY RATINGS RATINGS AMOUNT ISSUE COST (NOTE 1a)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AIRLINES--1.0% B+ B1 $4,000,000 USAir, Inc., 10.375% due
3/01/2013.................... $ 3,935,000 $ 4,180,000
- --------------------------------------------------------------------------------------------------------------------------
AUTOMOTIVE--0.9% B B3 2,000,000 Collins & Aikman Corp., 11.50%
due 4/15/2006................ 2,000,000 2,180,000
B B2 2,000,000 Exide Corp., 11.64% due
12/15/2004(d)................ 1,817,902 1,840,000
------------ ------------
3,817,902 4,020,000
- --------------------------------------------------------------------------------------------------------------------------
BROADCASTING & BB Ba3 4,000,000 Grupo Televisa S.A., 11.375%
PUBLISHING--4.4% due 5/15/2003................ 4,025,000 4,295,000
BB- B1 5,000,000 Hollinger, International Inc.,
9.25% due 2/01/2006.......... 4,961,250 4,950,000
BB- Ba3 1,000,000 K-III Communications Corp.,
10.25% due 6/01/2004......... 995,000 1,040,000
B Caa 4,300,000 NWCG Holding Corp., 13.50% due
6/15/1999(d)................. 3,121,269 3,547,500
Sinclair Broadcasting Group
Inc.:
B B2 2,500,000 10% due 12/15/2003........... 2,436,250 2,537,500
B B2 2,000,000 10% due 9/30/2005............ 1,993,750 2,030,000
------------ ------------
17,532,519 18,400,000
- --------------------------------------------------------------------------------------------------------------------------
BROADCASTING/ CCC+ Caa 5,023,939 American Telecasting, Inc.,
CABLE--11.3% 14.38% due 6/15/2004(d)(e)... 3,531,401 2,059,815
B- B2 1,500,000 Argyle Television Inc., 9.75%
due 11/01/2005............... 1,447,500 1,522,500
CCC+ Caa 8,000,000 Australis Media Ltd., 14.59%
due 5/15/2003(d)............. 4,978,793 4,200,000
BB- B2 9,000,000 Bell Cablemedia PLC, 11.74% due
9/15/2005(d)................. 5,917,159 7,222,500
BB- Ba3 3,000,000 Century Communications Corp.,
9.50% due 3/01/2005.......... 2,953,750 3,075,000
CCC+ Caa 5,500,000 Echostar Satellite
Broadcasting, 13.15% due
3/15/2004(d)................. 3,654,874 4,207,500
NR* NR* 2,000,000 #Globo Communicacoes
Participacoes, 10.50% due
12/20/2006................... 2,006,250 2,012,500
B B2 4,000,000 #Intermedia Capital Partners,
11.25% due 8/01/2006......... 3,997,500 4,160,000
BB+ Ba3 5,000,000 Lenfest Communications, Inc.,
8.375% due 11/01/2005........ 4,627,500 4,831,250
B B1 4,000,000 #Olympus Communications L.P.,
10.625% due 11/15/2006....... 4,000,000 4,095,000
B- B3 2,000,000 SFX Broadcasting Inc., 10.75%
due 5/15/2006................ 1,990,000 2,110,000
Videotron Holdings PLC:
B+ B3 5,500,000 11.77% due 7/01/2004(d)...... 4,029,842 4,785,000
BB+ Ba3 2,500,000 10.625% due 2/15/2005........ 2,559,375 2,750,000
------------ ------------
45,693,944 47,031,065
- --------------------------------------------------------------------------------------------------------------------------
BUILDING BB B1 2,500,000 #Cemex S.A., 12.75% due
MATERIALS--1.5% 7/15/2006.................... 2,500,000 2,793,750
B B3 3,340,000 Pacific Lumber Co., 10.50% due
3/01/2003.................... 3,252,088 3,390,100
------------ ------------
5,752,088 6,183,850
- --------------------------------------------------------------------------------------------------------------------------
CAPITAL GOODS--1.6% B+ B1 1,660,000 Essex Group, Inc., 10% due
5/01/2003.................... 1,668,925 1,701,500
B- B3 4,500,000 International Wire Group Inc.,
11.75% due 6/01/2005......... 4,490,625 4,815,000
------------ ------------
6,159,550 6,516,500
- --------------------------------------------------------------------------------------------------------------------------
CHEMICALS -- 1.9% B+ Ba3 4,100,000 Agricultural Minerals &
Chemicals Co., L.P., 10.75%
due 9/30/2003................ 4,123,188 4,458,750
B+ Ba3 3,500,000 #ISP Holdings Inc., 9.75% due
2/15/2002.................... 3,500,000 3,587,500
------------ ------------
7,623,188 8,046,250
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
78
<PAGE> 80
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES, INC.--HIGH CURRENT INCOME FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996 (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-- NR* NR* $3,000,000 #Comtel Brasileira Ltd., 10.75%
8.7% due 9/26/2004................ $ 3,000,000 $ 3,082,500
B- B3 8,000,000 Millicom International Celular
S.A., 13.31% due
6/01/2006(d)................. 4,555,660 4,960,000
CCC- B3 6,000,000 Nextel Communications, Inc.,
14.11% due 8/15/2004(d)...... 3,722,677 4,095,000
B B2 3,000,000 #Paging Network, Inc., 10% due
10/15/2008................... 3,003,750 3,041,250
B B3 3,000,000 Panamsat L.P., 12.16% due
8/01/2003(d)................. 2,413,727 2,790,000
BB- B2 3,000,000 Rogers Communications Inc.,
10.875% due 4/15/2004........ 3,042,500 3,150,000
BB- B1 4,000,000 Telefonica de Argentina S.A.,
11.875% due 11/01/2004....... 3,917,780 4,420,000
BB B1 7,000,000 TeleWest Communications PLC,
11.45% due 10/01/2007(d)..... 4,520,553 4,882,500
B- B2 3,000,000 USA Mobile Communications
Holdings, Inc., 9.50% due
2/01/2004.................... 2,710,000 2,850,000
B+ B1 1,500,000 Vanguard Cellular Systems,
9.375% due 4/15/2006......... 1,500,000 1,522,500
B- B3 1,000,000 Western Wireless Corp., 10.50%
due 2/01/2007................ 990,000 1,046,250
------------ ------------
33,376,647 35,840,000
- --------------------------------------------------------------------------------------------------------------------------
COMPUTER SERVICES-- B- B3 3,000,000 Dictaphone Corp., 11.75% due
0.7% 8/01/2005.................... 2,943,750 2,760,000
- --------------------------------------------------------------------------------------------------------------------------
CONGOLOMERATES-- CCC+ B3 2,125,000 Interlake Corp., 12.125% due
2.0% 3/01/2002.................... 2,000,750 2,199,375
B+ B2 2,000,000 JB Poindexter & Co., 12.50% due
5/15/2004.................... 2,000,000 1,950,000
NR* NR* 890,000 MacAndrews & Forbes Group,
Inc.,13% due 3/01/1999....... 868,373 890,000
Sequa Corp.:
B+ B1 750,000 9.625% due 10/15/1999........ 740,625 772,500
B+ B3 2,500,000 9.375% due 12/15/2003........ 2,512,813 2,550,000
------------ ------------
8,122,561 8,361,875
- --------------------------------------------------------------------------------------------------------------------------
CONSUMER-- B NR* 5,000,000 Coleman Holdings, Inc.,
PRODUCTS--5.7% 11.39% due 5/27/1998(d)...... 4,254,825 4,150,000
B+ Ba3 1,250,000 Coty Inc., 10.25% due
5/01/2005.................... 1,250,000 1,356,250
B+ Ba2 7,000,000 International Semi-Tech
Microelectronics, Inc.,
13.13% due 8/15/2003(d)...... 4,229,935 4,515,000
B- B2 3,619,000 Polymer Group Inc., 12.25% due
7/15/2002.................... 3,678,048 3,953,758
B- B2 4,500,000 Samsonite Corp., 11.125% due
7/15/2005.................... 4,348,750 4,927,500
B+ B1 4,500,000 Sealy Corp., 9.50% due
5/01/2003.................... 4,453,125 4,545,000
------------ ------------
22,214,683 23,447,508
- --------------------------------------------------------------------------------------------------------------------------
DEFENSE--0.7% B+ B1 3,000,000 #Newport News Ship, 9.25% due
12/01/2006................... 3,000,000 3,090,000
- --------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED--0.6% Foamex L.P.:
B+ B1 530,000 9.50% due 6/01/2000.......... 517,413 537,950
B B1 1,950,000 11.25% due 10/01/2002........ 1,936,375 2,067,000
------------ ------------
2,453,788 2,604,950
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
79
<PAGE> 81
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES, INC.--HIGH CURRENT INCOME FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996 (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% B B2 $4,500,000 Benton Oil & Gas Co, 11.625%
due 05/01/2003............... $ 4,500,000 $ 4,983,750
B+ B1 1,750,000 #Parker Drilling Co., 9.75% due
11/15/2006................... 1,758,750 1,846,250
NR* NR* 3,000,000 #Petroleo Brasileiro S.A.--
Petrobras, 10% due
10/17/2006................... 3,000,313 3,033,750
NR* NR* 4,000,000 #Transamerican Exploration
Corp., 14% due 9/19/1998..... 3,960,000 4,040,000
CCC+ Caa 3,400,000 Transamerican Refining Corp.,
19.11% due 2/15/2002(d)...... 2,731,372 2,805,000
BB- B2 4,500,000 TransTexas Gas Corp., 11.50%
due 6/15/2002................ 4,498,750 4,860,000
BB- B1 4,500,000 Yacimientos Petroliferos
Fiscales S.A., 8% due
2/15/2004.................... 3,694,375 4,342,500
------------ ------------
24,143,560 25,911,250
- --------------------------------------------------------------------------------------------------------------------------
ENTERTAINMENT--1.1% B B2 5,000,000 Six Flags Theme Parks Corp.,
12.25% due 6/15/2005(d)...... 4,237,019 4,700,000
- --------------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES--1.0% BB- B1 4,000,000 Reliance Group Holdings Inc.,
9.75% due 11/15/2003......... 3,898,750 4,160,000
- --------------------------------------------------------------------------------------------------------------------------
FOOD & B+ B1 4,500,000 Chiquita Brands International
BEVERAGE--3.5% Inc., 9.125% due 3/01/2004..... 4,448,750 4,545,000
NR* NR* 1,893,000 Cumberland Farms, Inc., 10.50%
due 10/01/2003............... 1,852,774 1,807,815
CCC+ Caa 2,500,000 Del Monte Corp., 10% due
5/01/2003.................... 2,310,000 2,387,500
B- B3 1,500,000 Envirodyne Industries, Inc.,
10.25% due 12/01/2001........ 1,528,125 1,436,250
B B3 4,500,000 Specialty Foods Corp., 11.125%
due 10/01/2002............... 4,444,375 4,275,000
------------ ------------
14,584,024 14,451,565
- --------------------------------------------------------------------------------------------------------------------------
FOREIGN GOVERNMENT BB- B1 4,000,000 Republic of Argentina, 8.375%
OBLIGATIONS--0.9% due 12/20/2003............... 3,175,000 3,765,000
- --------------------------------------------------------------------------------------------------------------------------
GAMING--2.5% B B3 4,000,000 Greate Bay Properties, Inc.,
10.875% due 1/15/2004........ 3,590,000 3,360,000
D Caa 4,500,000 Harrah's Jazz Company, 14.25%
due 11/15/2001(c)............ 4,468,750 2,210,625
BB- B1 5,000,000 Trump Atlantic City
Association, 11.25% due
5/01/2006.................... 4,961,250 4,950,000
------------ ------------
13,020,000 10,520,625
- --------------------------------------------------------------------------------------------------------------------------
HEALTH SERVICES--2.1% B+ B1 4,000,000 Beverly Enterprises, Inc., 9%
due 2/15/2006................ 3,740,000 4,020,000
B+ B2 3,000,000 Quest Diagnostic Inc., 10.75%
due 12/15/2006............... 3,000,000 3,150,000
B B3 2,000,000 Unilab Corp., 11% due
4/01/2006.................... 1,995,000 1,350,000
------------ ------------
8,735,000 8,520,000
- --------------------------------------------------------------------------------------------------------------------------
HOME-BUILDERS--0.6% B- B2 2,500,000 Del Webb Corporation, 9% due
2/15/2006.................... 2,497,500 2,437,500
- --------------------------------------------------------------------------------------------------------------------------
HOTELS--1.1% BB- Ba3 4,500,000 HMC Acquisition Properties, 9%
due 12/15/2007............... 4,202,500 4,567,500
- --------------------------------------------------------------------------------------------------------------------------
INDEPENDENT POWER BB- Ba3 2,750,000 AES China Generating Co. Ltd.
PRODUCERS--2.1% (Class A), 10.125% due
12/15/2006................... 2,747,360 2,860,000
BB B2 2,500,000 California Energy Company,
Inc., 9.875% due 6/30/2003... 2,518,750 2,625,000
NR* NR* 1,500,000 Consolidated Hydro, Inc.,
11.80% due 7/15/2003(d)...... 1,256,950 480,000
Midland Cogeneration Venture
L.P.:
BB Ba3 2,327,454 10.33% due 7/23/2002(e)........ 2,367,215 2,478,739
B- B2 250,000 11.75% due 7/23/2005........... 250,000 276,790
------------ ------------
9,140,275 8,720,529
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
80
<PAGE> 82
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES, INC.--HIGH CURRENT INCOME FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
S&P MOODY'S FACE VALUE
INDUSTRY RATINGS RATINGS AMOUNT ISSUE COST (NOTE 1A)
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
METALS & MINING-- B- B2 $4,500,000 Kaiser Aluminum Corp., 12.75%
1.8% due 2/01/2003................ $ 4,770,000 $ 4,837,500
B- B3 3,000,000 Maxxam Group, Inc., 12.25% due
8/01/2003(d)................. 2,484,169 2,557,500
------------ ------------
7,254,169 7,395,000
- ---------------------------------------------------------------------------------------------------------------------
PACKAGING--2.1% Owens-Illinois, Inc.:
B+ B2 2,000,000 10% due 8/01/2002............ 2,000,000 2,090,000
BB Ba3 2,000,000 11% due 12/01/2003........... 2,145,312 2,225,000
B B2 4,000,000 Portola Packaging Inc., 10.75%
due 10/01/2005............... 4,000,000 4,170,000
------------ ------------
8,145,312 8,485,000
- ---------------------------------------------------------------------------------------------------------------------
PAPER--4.6% B B3 4,000,000 Crown Paper Co., 11% due
9/01/2005.................... 3,663,750 3,760,000
B B2 3,000,000 Fort Howard Corp., 9% due
2/01/2006.................... 2,895,000 3,030,000
BB- B2 3,000,000 Repap Wisconsin Finance, Inc.,
9.25% due 2/01/2002.......... 2,760,000 3,022,500
B B3 4,000,000 Riverwood International Corp.,
10.875% due 4/01/2008........ 3,978,750 3,700,000
B+ B1 2,000,000 S.D. Warren Co., 12% due
12/15/2004................... 2,000,000 2,160,000
Stone Container Corp.:
B+ B1 1,950,000 9.875% due 2/01/2001......... 1,869,375 1,969,500
BB- B1 1,300,000 10.75% due 10/01/2002........ 1,287,000 1,369,875
------------ ------------
18,453,875 19,011,875
- ---------------------------------------------------------------------------------------------------------------------
REAL ESTATE--0.5% NR* NR* 3,000,000 Rockefeller Center Properties,
11.09% Inc., due 12/31/2000
(Convertible)(d)............. 1,965,742 1,852,500
- ---------------------------------------------------------------------------------------------------------------------
RESTAURANTS--1.5% Foodmaker, Inc.:
B B1 4,000,000 9.25% due 3/01/1999.......... 4,010,000 4,090,000
CCC+ B1 2,000,000 9.75% due 11/01/2003......... 1,972,075 1,965,000
------------ ------------
5,982,075 6,055,000
- ---------------------------------------------------------------------------------------------------------------------
RETAIL SPECIALTY--0.1% D Caa 4,500,000 Bradlees, Inc., 11% due
8/01/2002(c)................. 4,466,562 472,500
- ---------------------------------------------------------------------------------------------------------------------
STEEL--0.8% B B2 3,500,000 Weirton Steel Corp., 10.75% due
6/01/2005.................... 3,346,250 3,430,000
- ---------------------------------------------------------------------------------------------------------------------
SUPERMARKETS--1.5% B B2 3,500,000 Penn Traffic American Corp.,
8.625% due 12/15/2003........ 2,888,750 2,878,750
B B1 1,000,000 Ralph's Grocery Co., 10.45% due
6/15/2004.................... 962,500 1,063,750
B B1 2,000,000 Ralph's Grocery Co. (New),
10.45% due 6/15/2004......... 1,897,358 2,125,000
------------ ------------
5,748,608 6,067,500
- ---------------------------------------------------------------------------------------------------------------------
TEXTILES--2.3% B- Caa 3,000,000 Decorative Home Accents, Inc.
(Class F), 13% due
6/30/2002.................... 2,977,008 1,950,000
BB- Ba3 3,500,000 Tultex Corp., 10.625% due
3/15/2005.................... 3,500,000 3,815,000
B+ B2 3,500,000 Westpoint Stevens Industries,
Inc., 9.375% due 12/15/2005.. 3,291,250 3,605,000
------------ ------------
9,768,258 9,370,000
- ---------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--2.5% BB- B1 4,000,000 Sea Containers Ltd., 12.50% due
12/01/2004................... 4,380,000 4,400,000
B- B3 3,700,000 Transtar Holdings Inc., 11.02%
due 12/15/2003(d)............ 2,720,132 2,960,000
BB Ba2 3,000,000 Viking Star Shipping Co.,
9.625% due 7/15/2003......... 2,905,937 3,138,750
------------ ------------
10,006,069 10,498,750
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
81
<PAGE> 83
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES, INC.--HIGH CURRENT INCOME FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
S&P MOODY'S FACE VALUE
INDUSTRY RATINGS RATINGS AMOUNT ISSUE COST (NOTE 1A)
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
UTILITIES--4.8% B+ B1 $3,453,000 Beaver Valley Funding Corp., 9%
due 6/01/2017................ $ 3,252,225 $ 3,297,580
CTC Mansfield Funding Corp.:
B+ Ba3 995,000 10.25% due 3/30/2003......... 978,850 1,009,686
B+ Ba3 2,300,000 11.125% due 9/30/2016........ 2,402,500 2,426,500
BB Ba2 2,000,000 Cleveland Electric Illuminating
Co., 9.50% due 5/15/2005..... 1,996,160 2,108,760
BB- B1 4,000,000 Metrogas S.A., 12% due
8/15/2000.................... 3,935,000 4,390,000
BBB- NR* 3,000,000 +Trans Gas de Occidente S.A.,
9.79% due 11/01/2010......... 3,000,000 3,105,000
+Tucson Electric & Power Co.:
NR* NR* 3,070,687 10.21% due 1/01/2009......... 2,948,074 2,990,357
NR* NR* 500,000 10.732% due 1/01/2013........ 461,050 489,995
------------ ------------
18,973,859 19,817,878
- ---------------------------------------------------------------------------------------------------------------------
WASTE D Ca 3,500,000 Mid-American Waste Systems,
MANAGEMENT--0.3% Inc., 12.25% due 2/15/2003... 3,555,000 1,225,000
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN CORPORATE
BONDS--84.9% 347,925,027 351,916,970
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
SHARES
HELD PREFERRED STOCKS
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BROADCASTING & 15,259 K-III Communications Corp.
PUBLISHING--1.8% (Series B)(a)................ 1,513,108 1,533,622
5,375 Time Warner Inc. (Series
M)(a)........................ 5,376,812 5,831,875
------------ ------------
6,889,920 7,365,497
- ---------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS--0.7% 3,000 +Paxson Communications(a)...... 2,835,000 2,857,500
- ---------------------------------------------------------------------------------------------------------------------
INDUSTRIALS--0.7% 30,000 Cablevision Systems Corp.,
(Series M)(a)................ 2,617,500 2,760,000
- ---------------------------------------------------------------------------------------------------------------------
PACKAGING--0.6% 2,578 +Silgan Holdings Inc.(a)....... 2,581,120 2,758,460
- ---------------------------------------------------------------------------------------------------------------------
STEEL--0.7% 120,000 USX Capital Corp............... 3,000,000 3,045,000
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN PREFERRED
STOCKS--4.5% 17,923,540 18,786,457
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
COMMON STOCKS
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BROADCASTING & 93,747 On Command Corporation (c)..... 2,744,654 1,488,234
PUBLISHING--0.3%
- ---------------------------------------------------------------------------------------------------------------------
FOOD & BEVERAGE--0.0% 4,300 FoodBrands America, Inc.(c).... 240,909 59,125
- ---------------------------------------------------------------------------------------------------------------------
GAMING--0.0% 2,500 Goldriver Hotel & Casino
Finance Corp. (Class B) (c).. 18,603 0
- ---------------------------------------------------------------------------------------------------------------------
HOTEL--0.0% 107 Buckhead America Corp.(c)...... 575 642
- ---------------------------------------------------------------------------------------------------------------------
INDUSTRIAL SERVICES--0.0% 311 Thermadyne Industries,
Inc.(c)...................... 4,495 8,242
- ---------------------------------------------------------------------------------------------------------------------
SUPERMARKETS--0.1% 53,022 Grand Union Co.(c)............. 3,090,000 258,482
- ---------------------------------------------------------------------------------------------------------------------
TEXTILES--0.0% 3,000 +Decorative Home Accents, Inc.
(Class F)(c)................. 22,992 16,500
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN COMMON
STOCKS--0.4% 6,122,228 1,831,225
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
TRUSTS AND WARRANTS
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BROADCASTING & 29,830 On Command Corporation
PUBLISHING--0.1% (Warrants)(b)................ 238,640 201,353
- ---------------------------------------------------------------------------------------------------------------------
BROADCASTING/CABLE--0.0% 23,350 American Telecasting, Inc.
(Warrants)(b)................ 4,776 52,537
- ---------------------------------------------------------------------------------------------------------------------
ENERGY--0.0% 42,733 Transamerican Refining Corp.
(Warrants) (b)............... 99,622 85,466
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
82
<PAGE> 84
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--HIGH CURRENT INCOME FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996 (CONCLUDED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
INDUSTRY HELD TRUSTS AND WARRANTS COST (NOTE 1A)
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
GAMING--0.0% 250 +Goldriver Hotel & Casino
Finance Corp., (Liquidating
Trust)(c)................... $ 6,000 $ 2,141
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN TRUSTS
AND WARRANTS--0.1% 349,038 341,497
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT SHORT-TERM SECURITIES
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
COMMERCIAL PAPER**--3.5% $14,421,000 General Electric Capital
Corp., 7.10% due
1/02/1997................... 14,415,312 14,415,312
- ---------------------------------------------------------------------------------------------------------------------
US GOVERNMENT & AGENCY Federal Home Loan Bank:
OBLIGATIONS**--5.7% 8,000,000 5.21% due 1/02/1997......... 7,997,684 7,997,684
8,000,000 5.49% due 1/23/1997......... 7,971,940 7,971,940
2,618,000 Federal Home Loan Mortgage
Corp., 6.50% due 1/02/1997.. 2,617,055 2,617,055
5,000,000 Federal National Mortgage
Association, 5.45% due
1/14/1997................... 4,989,403 4,989,403
------------ ------------
23,576,082 23,576,082
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SHORT-
TERM SECURITIES--9.2% 37,991,394 37,991,394
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS--99.1%...... $410,311,227 410,867,543
=============
OTHER ASSETS LESS
LIABILITIES--0.9%........... 3,747,375
------------
NET ASSETS--100.0%............ $414,614,918
=============
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* Not Rated.
** 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) Represents a pay-in-kind security which may pay interest/dividend in
additional face/shares.
(b) Warrants entitle the portfolio 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.
(e) Subject to principal paydowns.
+ Restricted security as to resale. The value of the Fund's investment in
restricted securities was approximately $47,002,000, representing 11.3% of
net assets.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
VALUE
ISSUE ACQUISITION DATE(S) COST (NOTE 1A)
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cemex S.A., 12.75% due 7/15/2006....................... 7/16/1996 $ 2,500,000 $ 2,793,750
Comtel Brasileira Ltd., 10.75% due 9/26/2004........... 9/18/1996 3,000,000 3,082,500
Decorative Home Accents, Inc. (Class F)................ 6/30/1995-9/21/1995 22,992 16,500
Globo Communicacoes Participacoes, 10.50% due
12/20/2006........................................... 12/10/1996-12/12/1996 2,006,250 2,012,500
Goldriver Hotel & Casino Finance Corp. (Liquidating
Trust)............................................... 8/31/1992 6,000 2,141
ISP Holdings Inc., 9.75% due 2/15/2002................. 10/21/1996 3,500,000 3,587,500
Intermedia Capital Partners, 11.25% due 8/01/2006...... 10/30/1996-11/20/1996 3,997,500 4,160,000
Newport News Ship, 9.25% due 12/01/2006................ 11/21/1996 3,000,000 3,090,000
Olympus Communications L.P. 10.625% due 11/15/2006..... 11/06/1996 4,000,000 4,095,000
Paging Network, Inc., 10% due 10/15/2008............... 11/25/1996-1/26/1996 3,003,750 3,041,250
Parker Drilling Co., 9.75% due 11/15/2006.............. 11/6/1996 1,758,750 1,846,250
Paxson Communications.................................. 12/19/1996 2,835,000 2,857,500
Petroleo Brasileiro S.A. -- Petrobras,
10% due 10/17/2006................................... 10/21/1996-11/25/1996 3,000,313 3,033,750
Silgan Holdings Inc. .................................. 7/17/1996-10/3/1996 2,581,120 2,758,460
Trans Gas de Occidente S.A., 9.79% due 11/01/2010...... 11/02/1995 3,000,000 3,105,000
Transamerican Exploration Corp., 14% due 9/19/1998..... 9/19/1996 3,960,000 4,040,000
Tucson Electric & Power Co., 10.21% due 1/01/2009...... 6/16/1993-4/01/1996 2,948,074 2,990,357
Tucson Electric & Power Co., 10.732% due 1/01/2013..... 3/01/1993 461,050 489,995
-----------------------------------------------------------------------------------------------------------------
TOTAL $45,580,799 $47,002,453
=========== ===========
-----------------------------------------------------------------------------------------------------------------
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
</TABLE>
See Notes to Financial Statements.
83
<PAGE> 85
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INDEX 500 FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
COMMON STOCKS HELD (NOTE 1a)
-------------------------------------------------------
<S> <C> <C>
General Electric Co.++ ...... 2,758 $ 272,697
Coca-Cola Co................. 4,168 219,341
Exxon Corp................... 2,080 203,840
Intel Corp. ................. 1,375 179,953
+Microsoft Corporation....... 2,000 165,250
Merck & Co., Inc. ........... 2,019 160,006
Philip Morris Companies,
Inc. ...................... 1,364 153,620
Royal Dutch Petroleum Co. ... 898 153,333
International Business
Machines Corp. ............ 867 130,917
Procter & Gamble Co. ........ 1,143 122,872
American Telephone &
Telegraph Co. ............. 2,714 118,059
Johnson & Johnson Co. ....... 2,231 110,992
Bristol-Myers Squibb Co. .... 839 91,241
Pfizer, Inc. ................ 1,080 89,505
duPont (E.I.) de Nemours &
Co. ....................... 943 88,996
Wal-Mart Companies, Inc. .... 3,843 87,909
Hewlett-Packard Co. ......... 1,703 85,576
American International
Group, Inc. ............... 787 85,193
Citicorp..................... 788 81,164
Mobil Corp. ................. 660 80,685
Disney (Walt) Company
(The) ..................... 1,136 79,094
PepsiCo, Inc. ............... 2,603 76,138
GTE Corp. ................... 1,611 73,301
Gillette Co. ................ 927 72,074
Chevron Corp. ............... 1,093 71,045
General Motors Corp. ........ 1,266 70,580
+cisco Systems, Inc. ........ 1,100 69,988
Federal National Mortgage
Association................ 1,829 68,130
Lilly (Eli) & Co. ........... 924 67,452
BellSouth Corp. ............. 1,664 67,184
Amoco Corp. ................. 833 67,057
Abbott Laboratories.......... 1,301 66,026
Chase Manhattan Corp. ....... 735 65,599
Boeing Co. .................. 600 63,825
Ford Motor Co. .............. 1,986 63,304
American Home Products
Corp. ..................... 1,070 62,729
Motorola, Inc. .............. 993 60,945
BankAmerica Corp. ........... 601 59,950
Minnesota Mining &
Manufacturing Co........... 700 58,012
Ameritech Corporation........ 920 55,775
McDonald's Corp. ............ 1,169 52,897
SBC Communications, Inc. .... 1,011 52,319
Lucent Technologies, Inc. ... 1,067 49,349
Travelers Corporation........ 1,073 48,687
Bell Atlantic Corp. ......... 733 47,462
NationsBank Corp. ........... 482 47,115
Unilever N.V. ............... 268 46,967
Columbia/HCA Healthcare
Corp. ..................... 1,125 45,844
+Oracle Corporation.......... 1,100 45,787
Kimberly-Clark Corp. ........ 473 45,053
American Express Co. ........ 794 44,861
Eastman Kodak Co. ........... 558 44,780
Texaco Inc. ................. 443 43,469
Allstate Corporation ........ 745 43,117
SHARES VALUE
COMMON STOCKS HELD (NOTE 1a)
-------------------------------------------------------
Wells Fargo & Co. ........... 155 $ 41,811
Schlumberger, Ltd. .......... 413 41,248
Home Depot, Inc. ............ 805 40,351
Chrysler Corp................ 1,221 40,293
Schering-Plough Corp. ....... 619 40,080
Monsanto Co. ................ 985 38,292
MCI Communications Corp. .... 1,150 37,519
+WorldCom, Inc. ............. 1,435 37,310
Emerson Electric Co. ........ 376 36,378
Time Warner, Inc. ........... 953 35,737
Atlantic Richfield Co. ...... 269 35,643
NYNEX Corp. ................. 737 35,468
First Union Corp. ........... 475 35,150
Warner-Lambert Co. .......... 454 34,050
Pharmacia & Upjohn Inc. ..... 851 33,721
+Compaq Computer Corp. ...... 454 33,710
Anheuser-Busch
Companies, Inc. ........... 837 33,480
Federal Home Loan Mortgage
Corp. ..................... 300 33,038
Dow Chemical Co. ............ 407 31,899
AlliedSignal Inc. ........... 474 31,758
Campbell Soup Co. ........... 392 31,458
BancOne Corp. ............... 716 30,788
Morgan (J.P.) & Co., Inc. ... 312 30,459
Computer Associates
International, Inc. ....... 611 30,397
Sears, Roebuck & Co. ........ 656 30,258
Sara Lee Corporation......... 811 30,210
Lockheed Martin Corp. ....... 323 29,554
Nike, Inc. (Class B) ........ 483 28,859
Sprint Corp. ................ 721 28,750
First Chicago Corp. ......... 534 28,702
Xerox Corp. ................. 544 28,628
First Data Corporation....... 750 27,375
Medtronic, Inc. ............. 401 27,268
Norwest Corp. ............... 620 26,970
Northern Telecom Ltd. ....... 433 26,792
United Technologies Corp. ... 403 26,598
WMX Technologies, Inc. ...... 813 26,524
Pacific Telesis Group........ 718 26,386
US West Communications
Group...................... 800 25,800
Southern Co. ................ 1,129 25,544
Union Pacific Corp. ......... 410 24,651
+Amgen, Inc. ................ 450 24,469
Seagram Co. Ltd. ............ 625 24,219
Caterpillar, Inc. ........... 321 24,155
Kellogg Co. ................. 353 23,166
McDonnell Douglas Corp. ..... 355 22,720
Colgate-Palmolive Co. ....... 246 22,694
Merrill Lynch & Co., Inc. ... 276 22,494
+Rockwell International
Corp. ..................... 366 22,280
Bank of New York Co.,
Inc. ...................... 657 22,174
Burlington Northern Santa Fe
Inc. ...................... 256 22,112
Heinz (H.J.) Company......... 616 22,022
+3Com Corp. ................. 300 21,975
Fleet Financial Group,
Inc. ...................... 439 21,895
General Re Corp. ............ 138 21,770
PNC Bank Corp. .............. 571 21,484
</TABLE>
84
<PAGE> 86
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INDEX 500 FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
COMMON STOCKS HELD (NOTE 1a)
-------------------------------------------------------
<S> <C> <C>
+Airtouch Communications,
Inc. ...................... 840 $ 21,210
Automatic Data
Processing, Inc............ 486 20,837
Westinghouse Electric
Corp....................... 1,046 20,789
+Viacom, Inc. (Class B)...... 593 20,681
International Paper Co. ..... 503 20,309
Texas Instruments, Inc. ..... 318 20,272
Aetna Inc. .................. 252 20,160
ConAgra, Inc. ............... 403 20,049
Archer-Daniels-Midland
Co. ....................... 911 20,042
May Department Stores Co. ... 422 19,728
Phillips Petroleum Co. ...... 441 19,514
+US West Media Group,
Inc. ...................... 1,046 19,351
CoreStates Financial
Corp. ..................... 373 19,349
KeyCorp...................... 378 19,089
Raytheon Co. ................ 395 19,009
Penney (J.C.) Co. ........... 387 18,866
Baxter International,
Inc. ...................... 457 18,737
CPC International, Inc. ..... 241 18,678
Aluminum Co. of America...... 291 18,551
Sun Trust Banks, Inc. ....... 374 18,419
Norfolk & Southern Corp. .... 210 18,375
Enron Corp. ................. 426 18,371
Loews Corporation............ 193 18,190
+Boston Scientific Corp. .... 298 17,880
Dean Witter, Discover &
Co. ....................... 269 17,821
Corning, Inc. ............... 385 17,806
Gannett Co., Inc. ........... 236 17,671
Deere & Co. ................. 433 17,591
PPG Industries, Inc. ........ 307 17,230
CIGNA Corp. ................. 126 17,215
Barrick Gold Corporation..... 598 17,193
Unocal Corp. ................ 420 17,062
National City Corporation.... 372 16,693
General Mills, Inc. ......... 263 16,668
+Seagate Technology, Inc. ... 420 16,590
Illinois Tool Works Inc. .... 207 16,534
Walgreen Co. ................ 412 16,480
Bank of Boston Corp. ........ 256 16,448
Boatmen's Bancshares,
Inc. ...................... 250 16,094
+Dell Computer Corp. ........ 300 15,938
Weyerhaeuser Co. ............ 332 15,728
Chubb Corp. ................. 292 15,695
+CUC International, Inc. .... 659 15,651
Wachovia Corp. .............. 277 15,650
Duke Power Company........... 338 15,633
MBNA Corp. .................. 373 15,479
Mellon Bank Corp. ........... 217 15,407
+Sun Microsystems, Inc. ..... 600 15,375
First Bank Systems, Inc. .... 225 15,356
CSX Corp. ................... 363 15,337
Texas Utilities Company...... 376 15,322
Albertson's, Inc. ........... 422 15,034
Household International,
Inc. ...................... 162 14,945
Morgan Stanley Group,
Inc. ...................... 255 14,567
Pacific Gas and Electric
Co. ....................... 691 14,511
Edison International......... 726 14,429
Gap, Inc. ................... 475 14,309
+TCI Communications, Inc.
(Class A).................. 1,100 14,300
SHARES VALUE
COMMON STOCKS HELD (NOTE 1a)
-------------------------------------------------------
Dayton Hudson Corporation
(Class A).................. 363 $ 14,248
American Brands, Inc. ....... 285 14,143
AMP, Inc. ................... 368 14,122
FPL Group, Inc. ............. 307 14,122
Honeywell, Inc. ............. 212 13,939
American General Corp. ...... 341 13,938
United Healthcare
Corporation................ 308 13,860
Tyco International, Ltd. .... 262 13,853
+Toys 'R' Us, Inc. .......... 459 13,770
Pitney Bowes, Inc. .......... 249 13,570
Barnett Banks, Inc. ......... 327 13,448
+AMR Corp. .................. 152 13,395
Goodyear Tire & Rubber
Co. ....................... 260 13,357
Conrail, Inc. ............... 134 13,350
ITT Hartford Group Inc. ..... 197 13,297
Textron Inc. ................ 139 13,101
Ralston Purina Co. .......... 177 12,987
Air Products and Chemicals,
Inc. ...................... 187 12,926
+EMC Corporation............. 390 12,919
American Electric Power
Company, Inc. ............. 314 12,913
+HFS Inc. ................... 216 12,906
+Tenneco, Inc. .............. 286 12,906
Occidental Petroleum
Corp. ..................... 551 12,880
Alcan Aluminium, Ltd. ....... 379 12,744
Avon Products, Inc. ......... 223 12,739
Halliburton Co. ............. 210 12,653
Mattel, Inc. ................ 455 12,626
Fifth Third Bank............. 200 12,550
Marsh & McLennan Companies,
Inc. ...................... 120 12,480
Union Pacific Resources
Group...................... 418 12,226
Praxair, Inc. ............... 262 12,085
+Federated Department
Stores, Inc. .............. 348 11,876
Marriott International,
Inc. ...................... 214 11,823
Bankers Trust New York
Corp. ..................... 137 11,816
Crown Company, Inc. ......... 215 11,691
Dominion Resources, Inc. .... 302 11,627
Consolidated Edison Company
of New York................ 394 11,525
USX Marathon Group, Inc. .... 482 11,508
Panenergy Corporation........ 253 11,385
+Tellabs, Inc. .............. 300 11,287
Alco Standard Corp. ......... 218 11,254
Aon Corporation.............. 181 11,245
Hershey Foods Corporation.... 257 11,244
USBANCORP., Inc. ............ 250 11,219
Service Corporation.......... 395 11,060
International Georgia-Pacific
Corp. ..................... 153 11,016
Wrigley (WM) Jr. Co. (Class
B)......................... 195 10,969
Public Service Enterprise
Group, Inc. ............... 399 10,873
Hilton Hotels Corporation.... 414 10,816
+Applied Materials, Inc. .... 300 10,763
Entergy Corp. ............... 387 10,739
TRW Inc. .................... 213 10,543
</TABLE>
85
<PAGE> 87
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INDEX 500 FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
COMMON STOCKS HELD (NOTE 1a)
-------------------------------------------------------
<S> <C> <C>
Burlington Resources Inc. ... 209 $ 10,528
+Computer Sciences
Corporation................ 127 10,430
Thermo Electron
Corporation................ 249 10,271
Lowe's Companies, Inc. ...... 289 10,259
Micron Technology, Inc. ..... 350 10,194
PacifiCorp................... 494 10,127
UST, Inc. ................... 312 10,101
ALLTEL Corp. ................ 318 9,977
American Stores Company...... 244 9,974
Williams Companies, Inc. .... 262 9,844
+Kroger Co. ................. 211 9,811
Unicom Corp. ................ 361 9,792
Sysco Corp. ................. 300 9,787
Comcast Corp.--Special
(Class A).................. 550 9,763
Morton International,
Inc. ...................... 239 9,739
Masco Corporation............ 269 9,684
Freeport-McMoRan Copper &
Gold Inc. (Class B)........ 324 9,680
Pioneer Hi-Bred
International, Inc......... 138 9,660
Cognizant Corporation........ 287 9,471
Dover Corp. ................. 188 9,447
Comerica Inc. ............... 180 9,428
+Digital Equipment
Corporation................ 259 9,421
Peco Energy Co. ............. 373 9,418
Browning Ferris Industries,
Inc. ...................... 356 9,345
Carolina Power & Light
Company.................... 254 9,271
Lincoln National Corp. ...... 175 9,187
Dresser Industries, Inc. .... 294 9,114
Becton, Dickinson and
Company.................... 209 9,065
Central and South West
Corp. ..................... 353 9,046
Amerada Hess Corporation..... 156 9,029
Eaton Corp. ................. 129 8,998
Genuine Parts Company........ 202 8,989
Inco Ltd. ................... 282 8,989
Houston Industries Inc. ..... 393 8,892
UNUM Corporation............. 123 8,887
Greentree Financial Corp. ... 230 8,884
Delta Air Lines, Inc. ....... 125 8,859
CINergy Corporation ......... 264 8,811
+Price/Costco, Inc. ......... 350 8,794
Consolidated Natural
Gas Co. ................... 159 8,785
Fluor Corporation............ 140 8,785
Transamerica Corporation..... 111 8,769
Rohm & Haas Co. ............. 107 8,734
Placer Dome Inc. ............ 401 8,722
+Cabletron Systems, Inc. .... 262 8,712
Union Carbide Corp. ......... 213 8,706
Quaker Oats Company.......... 228 8,692
Clorox Company............... 86 8,632
Salomon Inc. ................ 183 8,624
Coastal Corp. ............... 176 8,602
+Federal Express Corp. ...... 191 8,500
+ITT Corp. .................. 195 8,458
+K Mart Corp. ............... 811 8,414
Newell Co. .................. 266 8,379
SHARES VALUE
COMMON STOCKS HELD (NOTE 1a)
-------------------------------------------------------
Baker Hughes, Inc. .......... 242 $ 8,349
Limited, Inc. (The).......... 454 8,342
International Flavors &
Fragrances, Inc. .......... 185 8,325
Times Mirror Co. ............ 166 8,258
Rite Aid Corporation......... 205 8,149
St. Paul Companies, Inc. .... 139 8,149
Ingersoll-Rand Company....... 183 8,144
Tribune Co. ................. 103 8,124
Providian Corporation........ 157 8,066
Sherwin-Williams Company..... 144 8,064
Northrop Grumman Corp. ...... 97 8,027
Winn-Dixie Stores, Inc. ..... 253 8,001
+Tenet Healthcare Corp. ..... 364 7,962
Donnelley (R.R.) & Sons
Co. ....................... 252 7,907
DTE Energy Holdings
Company.................... 243 7,867
SAFECO Corporation........... 200 7,850
Grace (W.R.) & Co. .......... 149 7,711
McGraw-Hill, Inc. ........... 167 7,703
Cooper Industries, Inc. ..... 181 7,625
Republic New York
Corporation................ 93 7,591
MGIC Investment Corp. ....... 99 7,524
Nucor Corporation............ 147 7,497
General Dynamics
Corporation................ 106 7,473
Newmont Mining Corporation... 167 7,473
+Silicon Graphics, Inc. ..... 293 7,471
Sonat, Inc. ................. 145 7,467
Hercules Inc. ............... 171 7,396
Phelps Dodge Corporation..... 109 7,357
CVS Corporation.............. 177 7,323
MBIA, Inc. .................. 72 7,290
VF Corp. .................... 107 7,222
Eastman Chemical Co. ........ 130 7,183
Grainger (W.W.) Inc. ........ 89 7,142
Guidant Corp. ............... 124 7,068
Willamette Industries,
Inc. ...................... 100 6,962
Champion International
Corp. ..................... 160 6,920
+Autozone, Inc. ............. 250 6,875
General Public Utilities Corp 202 6,792
+Bay Networks Inc. .......... 325 6,784
Dun & Bradstreet Corp. ...... 285 6,769
Jefferson Pilot Corp. ....... 119 6,738
Allegheny Teledyne Inc. ..... 292 6,716
Case Corp. .................. 123 6,704
Great Western Financial
Corp. ..................... 231 6,699
Baltimore Gas &
Electric Company........... 247 6,607
Union Electric Company....... 171 6,583
Interpublic Group of
Companies, Inc. ........... 136 6,460
+Western Atlas, Inc. ........ 90 6,379
PP&L Resources Inc. ......... 272 6,256
Frontier Corp. .............. 273 6,177
TJX Companies Inc. .......... 130 6,159
New York Times Co. .......... 162 6,156
Avery Dennison Corp. ........ 174 6,155
Golden West Financial
Corporation................ 96 6,060
Laidlaw Inc. ................ 526 6,049
</TABLE>
86
<PAGE> 88
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INDEX 500 FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
COMMON STOCKS HELD (NOTE 1a)
-------------------------------------------------------
<S> <C> <C>
Reynolds Metals Co. ......... 107 $ 6,032
Raychem Corp. ............... 75 6,009
Knight-Ridder, Inc. ......... 157 6,005
Torchmark Corp. ............. 118 5,959
+Advanced Micro Devices, Inc. 229 5,897
Dillard Department
Stores Inc. ............... 190 5,866
Columbia Gas System, Inc. ... 92 5,854
Kerr-McGee Corp. ............ 81 5,832
Whirlpool Corp. ............. 125 5,828
Ohio Edison Company.......... 256 5,824
+St. Jude Medical, Inc. ..... 136 5,797
+LSI Logic Corporation....... 216 5,778
Ahmanson (H.F) & Co. ........ 177 5,753
Johnson Controls, Inc. ...... 69 5,718
Rubbermaid Inc. ............. 251 5,710
Beneficial Corp. ............ 90 5,704
+National Semiconductor
Corp. ..................... 232 5,655
Hasbro, Inc. ................ 144 5,598
Union Camp Corp. ............ 117 5,587
Dana Corp. .................. 171 5,579
Tupperware Corporation....... 104 5,577
Harcourt General Inc. ....... 119 5,489
Dow Jones & Co. , Inc. ...... 162 5,488
Mallinckrodt Group Inc. ..... 124 5,471
+Novell, Inc. ............... 575 5,427
Southwest Airlines Co. ...... 243 5,376
Northern States Power Co. ... 116 5,321
Brown-Forman Corp.
(Class B).................. 116 5,307
Nordstrom, Inc. ............. 150 5,306
+Andrew Corp. ............... 100 5,300
+Humana, Inc. ............... 272 5,202
Mead Corp. .................. 88 5,115
PACCAR Inc. ................. 75 5,081
Block (H & R), Inc. ......... 174 5,046
Temple-Inland Inc. .......... 93 5,034
Great Lakes Chemical
Corporation................ 106 4,956
+General Instrument Corp. ... 229 4,952
Circuit City Stores, Inc. ... 164 4,941
Pall Corp. .................. 193 4,921
Westvaco Corp. .............. 171 4,916
+Woolworth Corp. ............ 224 4,900
+Fruit of the Loom, Inc. .... 129 4,886
ITT Industries Inc. ......... 198 4,851
Parker Hannifin Corp. ....... 125 4,844
Armstrong World
Industries, Inc. .......... 69 4,796
James River Corp. of
Virginia................... 144 4,770
Ashland Oil Inc. ............ 108 4,739
+Ceridian Corp. ............. 116 4,698
Sigma-Aldrich Corp. ......... 75 4,678
Liz Claiborne, Inc. ......... 120 4,635
Engelhard Corporation........ 241 4,609
Deluxe Corporation........... 138 4,520
Harris Corp. ................ 65 4,461
Wendy's International,
Inc. ...................... 217 4,448
Black & Decker Corporation... 147 4,428
USX-US Steel Group, Inc...... 141 4,424
Pennzoil Co. ................ 78 4,407
SHARES VALUE
COMMON STOCKS HELD (NOTE 1a)
-------------------------------------------------------
+Oryx Energy Co. ............ 176 $ 4,356
+FMC Corporation............. 62 4,348
Pacific Enterprises.......... 142 4,313
Tandy Corp. ................. 98 4,312
Perkin-Elmer Corporation..... 72 4,239
+Apple Computer, Inc. ....... 200 4,150
United States Surgical
Corp. ..................... 105 4,134
Nalco Chemical Company....... 113 4,082
Ecolab Inc. ................. 108 4,064
USF&G Corp. ................. 194 4,050
Stanley Works................ 149 4,023
Whitman Corp. ............... 174 3,980
Brunswick Corp. ............. 165 3,960
Thomas & Betts Corp. ........ 89 3,949
Harnischfeger Industries,
Inc. ...................... 82 3,946
Allergan, Inc. .............. 110 3,919
Reebok International Ltd. ... 93 3,906
Ryder System, Inc. .......... 137 3,853
Louisiana-Pacific Corp. ..... 182 3,845
+ALZA Corp. ................. 142 3,674
Owens-Corning Fiberglass
Corp. ..................... 86 3,666
Cyprus Amax Minerals Co. .... 156 3,647
Goodrich (B.F.) Co. ......... 90 3,645
Snap-On, Inc. ............... 102 3,634
General Signal Corporation... 84 3,591
+DSC Communications Corp. ... 200 3,575
American Greetings Corp.
(Class A).................. 125 3,547
Noram Energy Corp. .......... 230 3,536
Homestake Mining Company..... 246 3,506
Giant Food, Inc. (Class A)... 100 3,450
+Harrah's Entertainment,
Inc. ...................... 172 3,419
Moore Corp. Ltd. ............ 167 3,403
Santa Fe Pacific Gold
Corp. ..................... 220 3,382
Maytag Corp. ................ 168 3,318
Polaroid Corp. .............. 76 3,306
Echlin Inc. ................. 104 3,289
Bausch & Lomb, Inc. ......... 93 3,255
Bemis Company, Inc. ......... 88 3,245
+Rowan Companies, Inc. ...... 143 3,235
Pep Boys--Manny, Moe &
Jack....................... 105 3,229
Super Valu, Inc. ............ 113 3,206
Mercantile Stores
Company, Inc. ............. 62 3,061
Louisiana Land &
Exploration Co. ........... 57 3,057
Cummins Engine
Company, Inc. ............. 66 3,036
Biomet, Inc. ................ 200 3,025
National Service
Industries, Inc. .......... 80 2,990
Millipore Corp. ............. 72 2,979
Sun Company, Inc. ........... 122 2,974
NICOR Inc. .................. 83 2,967
Manor Care, Inc. ............ 105 2,835
Tektronix, Inc. ............. 55 2,819
Cooper Tire & Rubber Co. .... 138 2,726
+Tandem Computers, Inc. ..... 198 2,722
Worthington Industries,
Inc. ...................... 150 2,719
ENSERCH Corporation.......... 117 2,691
</TABLE>
87
<PAGE> 89
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INDEX 500 FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996 (CONCLUDED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
COMMON STOCKS HELD (NOTE 1a)
-------------------------------------------------------
<S> <C> <C>
Bard (C.R.), Inc. ........... 96 $ 2,688
Battle Mountain Gold
Company.................... 376 2,585
Boise Cascade Corp. ......... 81 2,572
Foster Wheeler Corp. ........ 68 2,525
+USAir Group, Inc. .......... 108 2,524
Stone Container Corp. ....... 166 2,469
+Amdahl Corp. ............... 203 2,461
Shared Medical Systems
Corp. ..................... 50 2,456
+Niagara Mohawk Power
Corp. ..................... 242 2,390
Timken Co. .................. 52 2,385
Meredith Corp. .............. 45 2,374
+King World Productions,
Inc. ...................... 63 2,323
Darden Restaurants, Inc. .... 264 2,310
Alberto-Culver Company (Class
B)......................... 47 2,256
Crane Co. ................... 77 2,233
Helmerich & Payne, Inc. ..... 42 2,189
+Beverly Enterprises,
Inc. ...................... 166 2,117
Briggs & Stratton Corp. ..... 48 2,112
+Santa Fe Energy
Resources, Inc. ........... 152 2,109
Autodesk, Inc. .............. 75 2,100
Potlatch Corp. .............. 48 2,064
Great Atlantic & Pacific Tea
Co., Inc. ................. 64 2,040
Peoples Energy Corp. ........ 59 1,999
+Unisys Corp. ............... 293 1,978
Scientific-Atlanta, Inc. .... 130 1,950
USLIFE Corp. ................ 58 1,928
Russell Corp. ............... 64 1,904
Centex Acceptance Corp. ..... 48 1,806
ASARCO, Inc. ................ 72 1,791
Harland John H. Company...... 52 1,716
Trinova Corp. ............... 47 1,710
+Bethlehem Steel Corp. ...... 187 1,683
Fleetwood Enterprises,
Inc. ...................... 60 1,650
Inland Steel Co. ............ 82 1,640
Longs Drug Stores Corp. ..... 33 1,621
Safety-Kleen Corp. .......... 98 1,605
EG&G, Inc. .................. 79 1,590
Echo Bay Mines Ltd. ......... 233 1,544
SHARES VALUE
COMMON STOCKS HELD (NOTE 1a)
-------------------------------------------------------
McDermott International,
Inc. ...................... 92 $ 1,529
Cincinnati Milacron, Inc. ... 67 1,466
Springs Industries, Inc. .... 34 1,462
ONEOK, Inc. ................. 46 1,380
Jostens, Inc. ............... 65 1,373
Ball Corp. .................. 51 1,326
Alexander & Alexander
Services, Inc. ............ 76 1,321
Caliber Systems, Inc. ....... 66 1,271
Eastern Enterprises.......... 34 1,203
Pulte Corp. ................. 39 1,199
+Navistar International
Corp. ..................... 123 1,122
Fleming Companies, Inc. ..... 63 1,087
+Data General Corp. ......... 66 957
Coors (Adolph) Co. (Class
B)......................... 50 950
+Charming Shoppes, Inc. ..... 175 875
Kaufman and Broad Home
Corp. ..................... 65 837
Stride Rite Corp. ........... 83 830
Nacco Industries, Inc. (Class
A)......................... 15 802
+Intergraph Corp. ........... 75 769
+Armco, Inc. ................ 179 738
Giddings & Lewis, Inc. ...... 50 644
- -------------------------------------------------------
TOTAL COMMON STOCKS
(COST--$9,340,272)--88.3%.... 9,488,361
- -------------------------------------------------------
SHORT-TERM OBLIGATIONS--
US GOVERNMENT AGENCY FACE
OBLIGATIONS* AMOUNT
- -------------------------------------------------------
Federal Home Loan
Mortgage Corp., 6.50% due
1/02/1997.................. $1,356,000 1,355,755
- -------------------------------------------------------
TOTAL SHORT-TERM OBLIGATIONS
(COST--$1,355,755)--12.6%.... 1,355,755
- -------------------------------------------------------
TOTAL INVESTMENTS
(COST--$10,696,027)--100.9%.. 10,844,116
VARIATION MARGIN ON STOCK
INDEX FUTURES
CONTRACTS**--(0.3%)........ (29,200)
LIABILITIES IN EXCESS OF
OTHER ASSETS--(0.6%)....... (63,076)
-----------
NET ASSETS--100.0%........... $10,751,840
===========
</TABLE>
- --------------------------------------------------------------------------------
+ Non-income producing security.
++ Portion of holdings pledged as collateral for stock index futures contracts.
* Certain US Government Agency Obligations are traded on a discount basis; the
interest rate shown is the discount rate paid at the time of purchase by the
Fund.
** Stock index futures contracts purchased as of December 31, 1996 were as
follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
NUMBER OF EXPIRATION VALUE
CONTRACTS ISSUE DATE (NOTE 1B)
- ----------------------------------------------------------------
<C> <S> <C> <C>
4 S&P 500 Stock Index March 1997 $ 1,489,000
- ----------------------------------------------------------------
TOTAL STOCK INDEX FUTURES CONTRACTS PURCHASED
(CONTRACT PRICE--$1,483,955).................... $ 1,489,000
===========
- ----------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
88
<PAGE> 90
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INTERNATIONAL EQUITY FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996 (IN US DOLLARS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE PERCENT OF
AFRICA INDUSTRY HELD INVESTMENTS COST (NOTE 1A) NET ASSETS
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SOUTH AFRICA BANKING 14,500 Nedcor Ltd. (ADR)(a)(d).. $ 210,250 $ 194,010 0.1%
102,858 Nedcor Ltd. (GDR)(b)(e).. 1,097,188 1,376,240 0.4
10,072 Nedcor Ltd. (Ordinary)... 148,818 137,855 0.0
----------- ------------ ------
1,456,256 1,708,105 0.5
-----------------------------------------------------------------------------------------------------
BEVERAGES 138,736 South African Breweries,
Ltd.................... 3,702,680 3,515,872 1.0
-----------------------------------------------------------------------------------------------------
ENTERTAINMENT 496,000 Sun International (South
Africa), Ltd........... 613,843 397,776 0.1
-----------------------------------------------------------------------------------------------------
MINING 5,150 Anglo American Corp. of
South Africa, Ltd...... 347,236 283,602 0.1
23,800 Anglo American Corp. of
South Africa, Ltd.
(ADR)(a)............... 1,522,851 1,291,150 0.4
47,300 Evander Gold Mines Ltd... 511,564 404,619 0.1
----------- ---------- ------
2,381,651 1,979,371 0.6
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
AFRICA 8,154,430 7,601,124 2.2
- ---------------------------------------------------------------------------------------------------------------------
LATIN AMERICA
---------------------------------------------------------------------------------------------------------------------
ARGENTINA BANKING 60,853 Banco Frances del Rio de
la Plata S.A.
(ADR)(a)............... 1,345,168 1,673,458 0.5
-----------------------------------------------------------------------------------------------------
OIL & RELATED 246,594 Companhia Naviera Perez
Companc
S.A.C.F.I.M.F.A.
(Class B)............. 1,604,857 1,733,903 0.5
-----------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS 14,300 Telefonica de Argentina
S.A. (Class B)
(ADR)(a)............... 351,750 370,013 0.1
-----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
ARGENTINA 3,301,775 3,777,374 1.1
- ---------------------------------------------------------------------------------------------------------------------
BRAZIL BANKING 139,240,000 Banco Bradesco S.A. PN
(Preferred)............ 1,075,689 1,009,219 0.3
-----------------------------------------------------------------------------------------------------
BEVERAGES 3,270,000 Companhia Cervejaria
Brahma S.A. PN
(Preferred)............ 1,637,606 1,787,814 0.5
-----------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS 75,755 Telecomunicacoes
Brasileiras S.A.-
Telebras (ADR)(a)...... 3,897,541 5,795,258 1.7
-----------------------------------------------------------------------------------------------------
UTILITIES 41,000 Companhia Energetica de
Minas Gerais S.A.
(CEMIG) (ADR)(a)....... 1,253,624 1,383,750 0.4
-----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
BRAZIL 7,864,460 9,976,041 2.9
- ---------------------------------------------------------------------------------------------------------------------
CHILE TELECOMMUNICATIONS 18,100 Compania de
Telecomunicaciones de
Chile S.A. (ADR)(a).... 1,410,403 1,830,363 0.5
-----------------------------------------------------------------------------------------------------
UTILITIES 20,480 Enersis S.A. (ADR)(a).... 530,086 568,320 0.2
-----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
CHILE 1,940,489 2,398,683 0.7
- ---------------------------------------------------------------------------------------------------------------------
MEXICO BEVERAGES 35,970 Panamerican Beverages,
Inc. (Class A)......... 1,640,662 1,686,094 0.5
-----------------------------------------------------------------------------------------------------
BROADCAST--MEDIA 19,000 Grupo Televisa, S.A. de
C.V. (GDR)(b)(d)....... 530,765 486,875 0.1
-----------------------------------------------------------------------------------------------------
BUILDING & 264,950 Apasco, S.A. de C.V.
CONSTRUCTION 'A'.................... 1,593,376 1,817,723 0.5
-----------------------------------------------------------------------------------------------------
HEALTH & PERSONAL 65,885 Kimberly-Clark de Mexico,
S.A. de C.V. (ADR)(a).. 2,460,495 2,520,101 0.7
-----------------------------------------------------------------------------------------------------
</TABLE>
89
<PAGE> 91
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES, INC.--INTERNATIONAL EQUITY FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996 (CONTINUED) (IN US DOLLARS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LATIN AMERICA SHARES VALUE PERCENT OF
(CONCLUDED) INDUSTRY HELD INVESTMENTS COST (NOTE 1a) NET ASSETS
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MEXICO MULTI-INDUSTRY 269,200 Grupo Carso, S.A. de C.V.
(CONCLUDED) 'A1'................... $ 2,259,825 $ 1,419,362 0.4%
-----------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS 269,200 Carso Global Telecom,
S.A. de C.V. 'A1'
(d).................... 709,354 625,887 0.2
-----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
MEXICO 9,194,477 8,556,042 2.4
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
LATIN AMERICA 22,301,201 24,708,140 7.1
- ---------------------------------------------------------------------------------------------------------------------
PACIFIC
BASIN
---------------------------------------------------------------------------------------------------------------------
AUSTRALIA FOOD & BEVERAGE 192,019 Coca-Cola Amatil, Ltd.
(Ordinary)............. 1,289,134 2,051,145 0.6
-----------------------------------------------------------------------------------------------------
MEDIA 89,939 The News Corp., Ltd.
(Ordinary)............. 431,743 474,292 0.1
52,364 The News Corp., Ltd.
(Preferred)............ 222,611 232,890 0.1
------------ ------------ ----------
654,354 707,182 0.2
-----------------------------------------------------------------------------------------------------
MERCHANDISING 18,700 Amway Asia Pacific
Ltd.(ADR)(a)........... 725,368 792,413 0.2
-----------------------------------------------------------------------------------------------------
NATURAL GAS 37,943 Broken Hill Proprietary
PIPELINES Co. ................... 452,087 540,007 0.1
-----------------------------------------------------------------------------------------------------
PROPERTY 371,927 Lend Lease Corp. ........ 4,978,452 7,207,380 2.1
-----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
AUSTRALIA 8,099,395 11,298,127 3.2
- ---------------------------------------------------------------------------------------------------------------------
HONG KONG BANKING 354,242 HSBC Holdings PLC........ 4,447,990 7,580,431 2.2
34,000 J.C.G. Holdings Ltd...... 32,167 33,191 0.0
------------ ------------ ----------
4,480,157 7,613,622 2.2
-----------------------------------------------------------------------------------------------------
DIVERSIFIED 854,140 Hutchison Whampoa Ltd. .. 4,945,751 6,709,207 1.9
-----------------------------------------------------------------------------------------------------
FOODS 3,166,000 C.P. Pokphand Co.,
Ltd. .................. 1,084,557 1,238,318 0.4
4,224,000 Tingyi (Cayman Islands)
Holdings Co. (d)....... 1,113,725 1,105,974 0.3
------------ ------------ ----------
2,198,282 2,344,292 0.7
-----------------------------------------------------------------------------------------------------
INSURANCE 176,000 National Mutual Asia
Ltd. .................. 184,973 167,261 0.0
-----------------------------------------------------------------------------------------------------
MULTI-INDUSTRY 399,000 Swire Pacific Ltd. (Class
A)..................... 2,742,209 3,804,791 1.1
-----------------------------------------------------------------------------------------------------
PROPERTY 527,000 Cheung Kong (Holdings)
Ltd. .................. 3,684,755 4,684,672 1.4
4,192,000 China Overseas Land &
Investment............. 1,182,026 2,127,437 0.6
------------ ------------ ----------
4,866,781 6,812,109 2.0
-----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN HONG
KONG 19,418,153 27,451,282 7.9
- ---------------------------------------------------------------------------------------------------------------------
JAPAN AUTOMOBILES 440,000 Suzuki Motor Corp.
(Ordinary)............. 4,988,943 4,027,634 1.2
-----------------------------------------------------------------------------------------------------
CAPITAL GOODS 911,000 Mitsubishi Heavy
Industries, Ltd........ 7,221,146 7,237,651 2.1
-----------------------------------------------------------------------------------------------------
CHEMICALS 347,000 Shin-Etsu Chemical Co.,
Ltd. (Ordinary)........ 6,674,107 6,322,712 1.8
-----------------------------------------------------------------------------------------------------
ELECTRICAL 84,000 Chudenko Corp.
CONSTRUCTION (Ordinary)............. 2,961,934 2,422,798 0.7
61,000 Taihei Dengyo Kaisha,
Ltd. .................. 1,103,158 605,786 0.2
------------ ------------ ----------
4,065,092 3,028,584 0.9
-----------------------------------------------------------------------------------------------------
ELECTRICAL 219,000 Murata Manufacturing Co.,
EQUIPMENT Ltd. .................. 8,117,559 7,281,088 2.1
515,000 NEC Corp. ............... 6,701,653 6,226,252 1.8
118,000 Rohm Co., Ltd. .......... 4,979,943 7,744,387 2.2
261,000 Sharp Corporation........ 4,076,502 3,718,912 1.0
------------ ------------ ----------
23,875,657 24,970,639 7.1
-----------------------------------------------------------------------------------------------------
</TABLE>
90
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- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES, INC.--INTERNATIONAL EQUITY FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996 (CONTINUED) (IN US DOLLARS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PACIFIC
BASIN SHARES VALUE PERCENT OF
(CONTINUED) INDUSTRY HELD INVESTMENTS COST (NOTE 1a) NET ASSETS
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
JAPAN INSURANCE 365,000 Dai-Tokyo Fire & Marine
(CONCLUDED) Insurance Co., Ltd. ... $ 2,575,006 $ 1,938,472 0.5%
187,000 Koa Fire & Marine
Insurance Co., Ltd. ... 1,281,743 907,548 0.3
166,000 Mitsui Fire & Marine
Insurance Co., Ltd. ... 1,353,118 893,074 0.2
118,000 Nichido Fire & Marine
Insurance Co., Ltd. ... 917,801 672,539 0.2
152,000 Nippon Fire & Marine
Insurance Co., Ltd. ... 1,069,498 689,119 0.2
498,000 Sumitomo Marine & Fire
Insurance Co., Ltd. ... 4,176,958 3,096,373 0.9
330,000 Tokio Marine & Fire
Insurance Co., Ltd.
(Ordinary)............. 3,890,208 3,106,218 0.9
268,000 Yasuda Marine & Fire
Insurance Co., Ltd. ... 2,004,769 1,393,230 0.4
------------ ------------ ----------
17,269,101 12,696,573 3.6
-----------------------------------------------------------------------------------------------------
OFFICE EQUIPMENT 408,000 Canon, Inc. (Ordinary)... 7,392,805 9,019,689 2.6
-----------------------------------------------------------------------------------------------------
PACKAGING 194,000 Toyo Seikan Kaisha, Ltd.
(Ordinary)............. 6,036,561 4,674,093 1.3
-----------------------------------------------------------------------------------------------------
PHARMACEUTICALS 197,000 Sankyo Co., Ltd.
(Ordinary)............. 4,452,652 5,579,965 1.6
140,000 Taisho Pharmaceutical
Co., Ltd. (Ordinary)... 2,828,042 3,300,518 0.9
------------ ------------ ----------
7,280,694 8,880,483 2.5
-----------------------------------------------------------------------------------------------------
RETAILING 127,000 Ito Yokado Co., Ltd.
(Ordinary)............. 7,163,905 5,527,461 1.6
-----------------------------------------------------------------------------------------------------
TIRE & RUBBER 197,000 Bridgestone Corp......... 3,447,899 3,742,660 1.1
-----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
JAPAN 95,415,910 90,128,179 25.8
- ---------------------------------------------------------------------------------------------------------------------
MALAYSIA AIRLINES 351,000 Malaysian Airline System
BHD.................... 895,065 910,515 0.3
-----------------------------------------------------------------------------------------------------
BANKING 247,000 Arab-Malaysian Merchant
Bank Holding BHD....... 1,760,803 2,073,822 0.6
257,000 Malayan Banking BHD...... 2,320,535 2,849,901 0.8
598,666 Public Bank (Malaysia)
BHD 'Foreign'.......... 1,055,118 1,268,461 0.4
------------ ------------ ----------
5,136,456 6,192,184 1.8
-----------------------------------------------------------------------------------------------------
BUILDING PRODUCTS 300,500 Hume Industries (Malay-
sia) BHD............... 1,773,006 1,892,257 0.5
-----------------------------------------------------------------------------------------------------
DIVERSIFIED 690,000 Renong Berhad............ 1,129,538 1,224,238 0.3
HOLDINGS
-----------------------------------------------------------------------------------------------------
PRINTING/PUBLISHING 232,000 The New Straits Times
Press BHD (Malaysia)... 1,308,148 1,341,465 0.4
-----------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS 568,000 Technology Resources
Industries BHD (d)..... 1,803,275 1,120,253 0.3
8,000 Telekom Malaysia BHD
(d).................... 69,490 71,287 0.0
------------ ------------ ----------
1,872,765 1,191,540 0.3
-----------------------------------------------------------------------------------------------------
UTILITIES--ELECTRIC 114,000 Tenaga Nasional BHD...... 523,137 546,297 0.2
-----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
MALAYSIA 12,638,115 13,298,496 3.8
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
91
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MERRILL LYNCH VARIABLE SERIES, INC.--INTERNATIONAL EQUITY FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996 (CONTINUED) (IN US DOLLARS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PACIFIC
BASIN SHARES VALUE PERCENT OF
(CONCLUDED) INDUSTRY HELD INVESTMENTS COST (NOTE 1a) NET ASSETS
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NEW ZEALAND CHEMICALS 10,000 Fernz Corporation
Ltd. .................. $ 27,213 $ 34,319 0.0%
-----------------------------------------------------------------------------------------------------
ELECTRONICS 17,000 PDL Holdings Ltd. ....... 82,587 92,023 0.0
-----------------------------------------------------------------------------------------------------
FOODS 548,600 Wrightson Ltd. .......... 418,731 477,473 0.2
-----------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS 60,000 Telecom Corporation of
New Zealand............ 256,371 306,532 0.1
-----------------------------------------------------------------------------------------------------
TEXTILES 93,450 Lane Walker Rudkin
Industries, Ltd. ...... 109,531 112,413 0.0
-----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN NEW
ZEALAND 894,433 1,022,760 0.3
- ---------------------------------------------------------------------------------------------------------------------
SOUTH KOREA TELECOMMUNICATIONS 79,207 Korea Mobile Telecommu-
nications Corp.
(ADR)(a)............... 986,349 1,019,790 0.3
-----------------------------------------------------------------------------------------------------
UTILITIES 17,580 Korea Electric Power
Corp. ................. 752,967 513,315 0.1
-----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
SOUTH KOREA 1,739,316 1,533,105 0.4
- ---------------------------------------------------------------------------------------------------------------------
THAILAND BANKING 108,500 Finance One Public Co.,
Ltd 'Foreign'.......... 856,748 219,987 0.1
430,500 Krung Thai Bank Public
Co., Ltd. ............. 2,013,799 830,887 0.3
410,800 Phatra Thanakit Public
Co., Ltd. 'Foreign'.... 2,925,216 1,169,275 0.3
------------ ------------ ----------
5,795,763 2,220,149 0.7
-----------------------------------------------------------------------------------------------------
UTILITIES-- 518,000 TelecomAsia Corporation
COMMUNICATIONS Public Company Ltd.
'Foreign' (d).......... 990,931 1,080,555 0.3
-----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
THAILAND 6,786,694 3,300,704 1.0
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN THE
PACIFIC BASIN 144,992,016 148,032,653 42.4
- ---------------------------------------------------------------------------------------------------------------------
SOUTHEAST ASIA
---------------------------------------------------------------------------------------------------------------------
INDIA AUTOMOBILES 26,300 Ashok Leyland Ltd.
(GDR)(b)............... 302,506 243,933 0.1
20,000 Ashok Leyland Ltd.
(GDR)(b)(e)............ 255,800 185,500 0.0
------------ ------------ ----------
558,306 429,433 0.1
-----------------------------------------------------------------------------------------------------
HOTELS 14,700 East India Hotels Ltd.
(GDR)(b)(d)(e)......... 404,100 345,450 0.1
13,300 Indian Hotels Co., Ltd.
(GDR)(b)(e)............ 299,250 339,150 0.1
------------ ------------ ----------
703,350 684,600 0.2
-----------------------------------------------------------------------------------------------------
MACHINERY & 49,500 Larsen & Toubro Ltd.
ENGINEERING (GDR)(b)(e)............ 888,875 712,800 0.2
-----------------------------------------------------------------------------------------------------
UTILITIES 103,750 BSES Ltd.(GDR)(b)........ 2,025,897 2,126,875 0.6
-----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
INDIA 4,176,428 3,953,708 1.1
- ---------------------------------------------------------------------------------------------------------------------
INDONESIA BUILDING MATERIALS 305,000 PT Semen Gresik.......... 992,608 981,787 0.3
-----------------------------------------------------------------------------------------------------
FOOD & HOUSEHOLD 614,000 PT Wicaksana Overseas
PRODUCTS International.......... 574,396 702,160 0.2
-----------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS 50,000 P.T. Kabelmetal Indonesia
(Rights)++............. 0 0 0.0
24,100 P.T. Telekomunikasi
Indonesia (ADR)(a)..... 786,702 831,450 0.2
------------ ------------ ----------
786,702 831,450 0.2
-----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
INDONESIA 2,353,706 2,515,397 0.7
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
SOUTHEAST ASIA 6,530,134 6,469,105 1.8
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
92
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- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES, INC.--INTERNATIONAL EQUITY FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996 (CONTINUED) (IN US DOLLARS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE PERCENT OF
WESTERN EUROPE INDUSTRY HELD INVESTMENTS COST (NOTE 1a) NET ASSETS
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CZECH REPUBLIC BROADCAST--MEDIA 10,000 Central European Media
Enterprises Ltd. (Class
A) (d)................. $ 275,000 $ 312,500 0.1%
-----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN THE
CZECH REPUBLIC 275,000 312,500 0.1
- ---------------------------------------------------------------------------------------------------------------------
FINLAND DIVERSIFIED 24,500 Outokumpu OY............. 412,272 417,907 0.1
-----------------------------------------------------------------------------------------------------
PAPER & FOREST 154,100 Enso-Gutzeit OY (Class A)
PRODUCTS (d).................... 1,154,546 1,248,980 0.4
149,200 Metsa Serla OY (Class
B)..................... 1,124,023 1,118,489 0.3
73,900 UPM-Kymmene OY (d)....... 1,409,376 1,525,499 0.4
------------ ------------ ----------
3,687,945 3,892,968 1.1
-----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
FINLAND 4,100,217 4,310,875 1.2
- ---------------------------------------------------------------------------------------------------------------------
FRANCE AUTOMOBILES 6,027 Peugeot S.A.............. 792,975 678,444 0.2
-----------------------------------------------------------------------------------------------------
BANKING 15,900 Compagnie Financiere de
Paribas (Ordinary)..... 867,231 1,075,426 0.3
18,900 Compangie Financiere de
Suez (Ordinary)........ 743,625 803,651 0.2
6,050 Societe Generale de
Surveillance S.A.
(Class A) (Ordinary)... 634,340 654,212 0.2
------------ ------------ ----------
2,245,196 2,533,289 0.7
-----------------------------------------------------------------------------------------------------
BUILDING & 8,777 Bouygues S.A............. 908,125 910,182 0.3
CONSTRUCTION
-----------------------------------------------------------------------------------------------------
COMMUNICATION 10,027 Alcatel Alsthom Cie
EQUIPMENT Generale d'Electricite
S.A.................... 932,571 805,562 0.2
-----------------------------------------------------------------------------------------------------
FOODS 4,300 Groupe Danone S.A........ 683,124 599,248 0.2
-----------------------------------------------------------------------------------------------------
INSURANCE 16,340 Assurances Generales de
France S.A. (AGF)...... 416,753 527,554 0.2
-----------------------------------------------------------------------------------------------------
MULTI-INDUSTRY 2,969 EuraFrance S.A........... 918,349 1,283,057 0.4
-----------------------------------------------------------------------------------------------------
OIL & RELATED 13,220 Societe Nationale Elf
Aquitaine.............. 967,228 1,203,509 0.3
-----------------------------------------------------------------------------------------------------
SEMICONDUCTOR 5,650 SGS-Thomson
Microelectronics N.V.
(d).................... 259,759 399,682 0.1
-----------------------------------------------------------------------------------------------------
STEEL 75,498 Usinor-Sacilor S.A....... 1,116,040 1,098,708 0.3
-----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
FRANCE 9,240,120 10,039,235 2.9
- ---------------------------------------------------------------------------------------------------------------------
GERMANY AUTOMOBILES 3,418 Volkswagen AG............ 1,285,442 1,421,852 0.4
-----------------------------------------------------------------------------------------------------
BANKING 29,610 Commerzbank AG........... 700,836 752,519 0.2
3,100 Deutsche Bank AG
(Ordinary)............. 151,032 144,875 0.0
19,800 Deutsche Bank AG
(Warrants)(c).......... 169,779 111,966 0.0
------------ ------------ ----------
1,021,647 1,009,360 0.2
-----------------------------------------------------------------------------------------------------
CHEMICALS 4,199 Henkel KGaA (d).......... 180,333 201,421 0.1
42,527 Henkel KGaA (Preferred).. 1,764,347 2,136,716 0.6
------------ ------------ ----------
1,944,680 2,338,137 0.7
-----------------------------------------------------------------------------------------------------
ENGINEERING & 1,800 Philipp Holzmann AG (d).. 688,665 421,190 0.1
CONSTRUCTION
-----------------------------------------------------------------------------------------------------
MACHINERY 17,250 Kloeckner Werke AG (d)... 1,232,262 801,674 0.2
-----------------------------------------------------------------------------------------------------
MACHINERY & 3,511 Thyssen AG (Ordinary).... 652,027 623,011 0.2
EQUIPMENT
-----------------------------------------------------------------------------------------------------
METALS 1,290 Degussa AG............... 462,391 584,001 0.2
-----------------------------------------------------------------------------------------------------
</TABLE>
93
<PAGE> 95
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES, INC.--INTERNATIONAL EQUITY FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996 (CONTINUED) (IN US DOLLARS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
WESTERN SHARES
EUROPE HELD/ VALUE PERCENT OF
(CONTINUED) INDUSTRY FACE AMOUNT INVESTMENTS COST (NOTE 1a) NET ASSETS
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
GERMANY RETAIL 1,940 Karstadt AG.............. $ 757,073 $ 655,704 0.2%
(CONCLUDED) -----------------------------------------------------------------------------------------------------
RETAIL SPECIALTY 5,500 Moebel Walther........... 306,369 296,718 0.1
-----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
GERMANY 8,350,556 8,151,647 2.3
- ---------------------------------------------------------------------------------------------------------------------
GREECE BANKING 10,850 Ergo Bank S.A.
(Registered)........... 471,469 550,512 0.2
-----------------------------------------------------------------------------------------------------
BEVERAGES 44,109 Hellenic Bottling Co.
S.A.................... 1,176,157 1,414,760 0.4
-----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
GREECE 1,647,626 1,965,272 0.6
- ---------------------------------------------------------------------------------------------------------------------
HUNGARY TELECOMMUNICATIONS 5,500 Magyar TarKozlesi
Reszvenytarsasag
(Ordinary) (d)(e)...... 910,789 1,191,213 0.4
-----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
HUNGARY 910,789 1,191,213 0.4
- ---------------------------------------------------------------------------------------------------------------------
IRELAND INSURANCE 157,000 Irish Life PLC........... 526,948 727,894 0.2
-----------------------------------------------------------------------------------------------------
PACKAGING & 297,800 Jefferson Smurfit Group
CONTAINERS PLC (Ordinary)......... 888,436 858,467 0.3
-----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
IRELAND 1,415,384 1,586,361 0.5
- ---------------------------------------------------------------------------------------------------------------------
ITALY BUILDING MATERIALS 109,418 Italcementi S.p.A........ 607,540 612,582 0.2
-----------------------------------------------------------------------------------------------------
CHEMICALS 2,243,560 Montedison S.p.A. (d).... 1,966,796 1,527,970 0.4
-----------------------------------------------------------------------------------------------------
DIVERSIFIED 1,411,500 Compagnie Industrial
Riunite S.p.A. (CIR)
(d).................... 1,306,203 869,259 0.3
335,500 Compagnie Industrial
Riunite S.p.A. (CIR)
(NC Savings) (d)....... 157,313 109,163 0.0
------------ ------------ ----------
1,463,516 978,422 0.3
-----------------------------------------------------------------------------------------------------
INSURANCE 60,500 Assicurazioni Generali
S.p.A.................. 1,392,767 1,145,645 0.3
713,560 Istituto Nazionale della
Assicurazioni (INA)
S.p.A.................. 1,027,949 928,697 0.3
------------ ------------ ----------
2,420,716 2,074,342 0.6
-----------------------------------------------------------------------------------------------------
OIL & RELATED 264,000 Ente Nazionale
Idrocarburi S.p.A.
(ENI).................. 1,102,238 1,353,690 0.4
-----------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS 643,016 Stet Societa Finanziaria
Telefonica S.p.A....... 1,452,678 2,170,563 0.6
-----------------------------------------------------------------------------------------------------
TIRE & RUBBER Lit 967,974,800 Pirelli S.p.A. 5% due
12/31/1998............. 681,998 706,097 0.2
-----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
ITALY 9,695,482 9,423,666 2.7
- ---------------------------------------------------------------------------------------------------------------------
NETHERLANDS CHEMICALS 6,660 Akzo Nobel N.V........... 823,170 910,637 0.3
24,770 European Vinyls
Corporation
International N.V...... 1,064,893 786,440 0.2
------------ ------------ ----------
1,888,063 1,697,077 0.5
-----------------------------------------------------------------------------------------------------
ELECTRICAL 29,250 Philips Electronics
EQUIPMENT N.V.................... 1,055,864 1,186,269 0.3
-----------------------------------------------------------------------------------------------------
ENGINEERING & 8,550 Kondor Wessels Groep NV.. 301,062 346,260 0.1
CONSTRUCTION
-----------------------------------------------------------------------------------------------------
HOLDING COMPANY 13,600 Internatio-Muller NV..... 300,713 341,970 0.1
-----------------------------------------------------------------------------------------------------
INSURANCE 56,055 Internationale Nederlanden
Groep N.V.............. 1,629,332 2,020,059 0.6
-----------------------------------------------------------------------------------------------------
</TABLE>
94
<PAGE> 96
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES, INC.--INTERNATIONAL EQUITY FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996 (CONTINUED) (IN US DOLLARS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
WESTERN
EUROPE SHARES VALUE PERCENT OF
(CONTINUED) INDUSTRY HELD INVESTMENTS COST (NOTE 1a) NET ASSETS
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NETHERLANDS TELECOMMUNICATIONS 25,700 Koninklijke PTT Nederland
(CONCLUDED) N.V.................... $ 600,608 $ 561,350 0.1%
-----------------------------------------------------------------------------------------------------
TRANSPORTATION 22,350 KLM Royal Dutch Airlines
N.V.................... 655,652 629,322 0.2
-----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN THE
NETHERLANDS 6,431,294 6,782,307 1.9
- ---------------------------------------------------------------------------------------------------------------------
NORWAY CONSUMER GOODS 17,618 Orkla A.S. (Class A)..... 918,190 1,216,618 0.3
-----------------------------------------------------------------------------------------------------
OIL & GAS PRODUCERS 36,005 Saga Petroleum A.S.
(Class B).............. 396,180 558,728 0.2
-----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
NORWAY 1,314,370 1,775,346 0.5
- ---------------------------------------------------------------------------------------------------------------------
POLAND AUTOMOTIVE & 19,000 T.C. Debica S.A. (d)..... 299,311 424,344 0.1
EQUIPMENT
-----------------------------------------------------------------------------------------------------
BANKING 17,078 Wielkopolsky Bank
Kredytowy S.A.......... 108,118 115,617 0.1
-----------------------------------------------------------------------------------------------------
ENGINEERING & 188,300 Mostostal-Export S.A..... 512,705 446,831 0.1
CONSTRUCTION
-----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
POLAND 920,134 986,792 0.3
- ---------------------------------------------------------------------------------------------------------------------
PORTUGAL FOREST PRODUCTS 38,273 Sonae Investimentos --
SGPS S.A............... 880,494 1,212,390 0.3
-----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
PORTUGAL 880,494 1,212,390 0.3
- ---------------------------------------------------------------------------------------------------------------------
RUSSIA NATURAL GAS 36,194 RAO Gazprom
(ADR)(a)(d)(e)......... 622,839 642,444 0.2
-----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
RUSSIA 622,839 642,444 0.2
- ---------------------------------------------------------------------------------------------------------------------
SPAIN ENGINEERING & 3,500 Fomento de Construciones Y
CONSTRUCTION Contratas S.A.......... 289,804 326,095 0.1
-----------------------------------------------------------------------------------------------------
FINANCIAL SERVICES 16,500 Argentaria Corp. Bancaria
de Espana.............. 704,967 738,161 0.2
-----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
SPAIN 994,771 1,064,256 0.3
- ---------------------------------------------------------------------------------------------------------------------
SWEDEN APPLIANCES 20,481 Electrolux AB............ 1,002,283 1,190,092 0.3
-----------------------------------------------------------------------------------------------------
BANKING 7,549 Sparbanken Sverige AB
(Class A).............. 93,787 129,601 0.0
-----------------------------------------------------------------------------------------------------
BUILDING RELATED 47,531 Svedala Industry AB...... 690,761 805,551 0.2
-----------------------------------------------------------------------------------------------------
ENGINEERING 27,400 SKF AB 'A'............... 496,206 629,215 0.2
-----------------------------------------------------------------------------------------------------
FOREST PRODUCTS 37,800 Mo Och Domsjo AB-'B'
Free................... 962,403 1,064,945 0.3
432,300 Rottneros Bruks AB....... 666,730 548,701 0.2
91,500 Stora Kopparbergs
Bergslags AB........... 1,152,700 1,262,069 0.4
------------ ------------ ----------
2,781,833 2,875,715 0.9
-----------------------------------------------------------------------------------------------------
INSURANCE 50,335 Forsakrings AB Skandia... 1,198,333 1,425,481 0.4
-----------------------------------------------------------------------------------------------------
METALS & MINING 46,553 Avesta Sheffield AB...... 411,954 502,076 0.1
-----------------------------------------------------------------------------------------------------
PHARMACEUTICAL-- 19,005 Astra 'A' Fria........... 833,308 939,792 0.3
PRESCRIPTION
-----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
SWEDEN 7,508,465 8,497,523 2.4
- ---------------------------------------------------------------------------------------------------------------------
SWITZERLAND BANKING 10,360 CS Holding AG
(Registered)........... 1,060,531 1,064,013 0.3
-----------------------------------------------------------------------------------------------------
CHEMICALS 1,375 Clariant AG
(Registered)........... 449,723 588,493 0.2
-----------------------------------------------------------------------------------------------------
</TABLE>
95
<PAGE> 97
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES, INC.--INTERNATIONAL EQUITY FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996 (CONTINUED) (IN US DOLLARS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
WESTERN
EUROPE SHARES VALUE PERCENT OF
(CONCLUDED) INDUSTRY HELD INVESTMENTS COST (NOTE 1a) NET ASSETS
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SWITZERLAND DIVERSIFIED 13,805 Oerlikon-Buehrle Holdings
(CONCLUDED) AG (d)................. $ 1,459,291 $ 1,361,114 0.4%
-----------------------------------------------------------------------------------------------------
JEWELRY 4,738 SMH AG (Societe Suisse pour
la Microelectronique et
l'Horlogerie).......... 673,901 675,947 0.2
-----------------------------------------------------------------------------------------------------
LEISURE 798 Fotolabo S.A............. 331,433 309,949 0.1
-----------------------------------------------------------------------------------------------------
MACHINERY 417 Saurer AG (d)............ 181,527 180,654 0.0
-----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
SWITZERLAND 4,156,406 4,180,170 1.2
- ---------------------------------------------------------------------------------------------------------------------
TURKEY BEVERAGES 7,915,658 Erciyas Biracilik Ve Malt
Sanayii A.S............ 1,131,316 858,809 0.2
-----------------------------------------------------------------------------------------------------
METAL FABRICATING 7,949,486 Eregli Demir Ve Celik
Fabrikalari T.A.S...... 941,635 954,232 0.3
-----------------------------------------------------------------------------------------------------
RETAIL STORES 1,398,387 Migros Turk A.S.......... 997,813 1,710,861 0.5
-----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
TURKEY 3,070,764 3,523,902 1.0
- ---------------------------------------------------------------------------------------------------------------------
UNITED KINGDOM BEVERAGES 151,140 Grand Metropolitan PLC
(Ordinary) (d)......... 958,951 1,189,423 0.3
42,433 Matthew Clark PLC........ 411,176 188,745 0.1
------------ ------------ ----------
1,370,127 1,378,168 0.4
-----------------------------------------------------------------------------------------------------
CHEMICALS 94,500 Inspec Group PLC......... 285,567 342,742 0.1
6,183 Millennium Chemicals Inc.
(d).................... 177,414 109,748 0.0
------------ ------------ ----------
462,981 452,490 0.1
-----------------------------------------------------------------------------------------------------
COMPUTER SERVICES 26,190 Misys PLC................ 323,536 497,793 0.1
-----------------------------------------------------------------------------------------------------
CONGOLOMERATES 432,825 Hanson PLC (Ordinary).... 734,719 607,191 0.2
-----------------------------------------------------------------------------------------------------
DIVERSIFIED 100,000 Peninsular & Oriental
Steam Navigation Co.
(The).................. 802,965 1,009,372 0.3
-----------------------------------------------------------------------------------------------------
FOOD & HOUSEHOLD 85,336 Cadbury Schweppes PLC.... 679,109 719,015 0.2
PRODUCTS
-----------------------------------------------------------------------------------------------------
FOOD MANUFACTURING 62,660 Unilever PLC............. 1,180,687 1,518,470 0.4
-----------------------------------------------------------------------------------------------------
INDUSTRIAL--OTHER 134,000 Tomkins PLC (d).......... 461,257 618,967 0.2
-----------------------------------------------------------------------------------------------------
INSURANCE 110,150 Prudential Corp. PLC..... 588,540 926,205 0.3
-----------------------------------------------------------------------------------------------------
PHARMACEUTICALS 51,700 Glaxo Holdings PLC....... 679,333 838,490 0.2
-----------------------------------------------------------------------------------------------------
REAL ESTATE 60,000 Land Securities PLC...... 593,293 766,781 0.2
-----------------------------------------------------------------------------------------------------
RETAIL 196,500 Tesco PLC (Ordinary)..... 901,348 1,193,411 0.3
-----------------------------------------------------------------------------------------------------
RETAIL TRADE 389,160 ASDA Group PLC........... 716,019 818,903 0.2
-----------------------------------------------------------------------------------------------------
TOBACCO 43,282 Imperial Tobacco Group
PLC (d)................ 301,618 279,897 0.1
-----------------------------------------------------------------------------------------------------
UTILITIES 60,000 Anglian Water PLC........ 491,821 605,623 0.2
60,000 Severn Trent PLC......... 514,675 683,636 0.2
115,500 United Utilities PLC..... 1,024,248 1,227,080 0.4
50,000 Yorkshire Water PLC...... 482,984 603,057 0.2
------------ ------------ ----------
2,513,728 3,119,396 1.0
-----------------------------------------------------------------------------------------------------
UTILITIES-- 104,623 Cable & Wireless PLC..... 698,024 868,992 0.3
COMMUNICATIONS
-----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN THE
UNITED KINGDOM 13,007,284 15,613,541 4.5
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
WESTERN EUROPE 74,541,995 81,259,440 23.3
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
96
<PAGE> 98
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES, INC.--INTERNATIONAL EQUITY FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996 (CONTINUED) (IN US DOLLARS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHORT-TERM FACE VALUE PERCENT OF
SECURITIES AMOUNT SHORT-TERM SECURITIES COST (NOTE 1A) NET ASSETS
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
COMMERCIAL PAPER* US$5,000,000 Alpine Securitization
Co., 5.33% due
1/16/1997.............. $ 4,988,156 $ 4,988,156 1.4%
7,000,000 Dean Witter, Discover &
Co., 5.45% due
1/15/1997.............. 6,984,104 6,984,104 2.0
16,682,000 General Motors Accept-
ance Corp., 7.50% due
1/02/1997.............. 16,675,049 16,675,049 4.8
------------ ------------ ----------
28,647,309 28,647,309 8.2
-----------------------------------------------------------------------------------------------------
COMMERCIAL A$10,660,744 Westpac Banking Corp.,
PAPER -- FOREIGN* 6.17% due 5/15/1997.... 8,238,547 8,288,961 2.4
-----------------------------------------------------------------------------------------------------
FOREIGN GOVERNMENT L 4,250,000 UK Treasury Bill, 6.11%
OBLIGATIONS* due 2/17/1997.......... 6,996,929 7,217,474 2.0
-----------------------------------------------------------------------------------------------------
US GOVERNMENT & Federal National
AGENCY Mortgage Association:
OBLIGATIONS* US$5,000,000 5.23% due 1/07/1997.... 4,994,915 4,994,915 1.4
5,000,000 5.49% due 1/24/1997.... 4,981,700 4,981,700 1.4
United States Treasury
Bills+:
11,000,000 4.93% due 1/09/1997.... 10,986,443 10,989,660 3.2
12,000,000 4.98% due 1/09/1997.... 11,985,060 11,988,720 3.5
350,000 4.94% due 1/30/1997.... 348,559 348,681 0.1
1,600,000 4.99% due 1/30/1997.... 1,593,347 1,593,968 0.5
10,000 4.75% due 2/27/1997.... 9,923 9,923 0.0
30,000 4.81% due 2/27/1997.... 29,768 29,768 0.0
90,000 4.82% due 2/27/1997.... 89,301 89,305 0.0
150,000 5% due 2/27/1997....... 148,792 148,842 0.0
320,000 5.01% due 2/27/1997.... 317,417 317,530 0.1
------------ ------------ ----------
35,485,225 35,493,012 10.2
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
SHORT-TERM SECURITIES 79,368,010 79,646,756 22.8
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
NOMINAL
VALUE/NUMBER
OF CONTRACTS
OPTIONS COVERED BY PREMIUMS
PURCHASED OPTIONS ISSUE PAID
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CALL OPTIONS 348 Nikkei, expiring June
PURCHASED 1997 at 22,000......... 106,592 57,556 0.0
-----------------------------------------------------------------------------------------------------
CURRENCY PUT 5,600,000 German Deutschemark,
OPTIONS PURCHASED expiring July 1997 at
DM1.55................. 64,848 94,640 0.0
1,600,000 Japanese Yen, expiring
February 1997 at Y115... 9,040 22,997 0.0
17,000,000 Japanese Yen, expiring
July 1997 at Y115.5.... 237,575 306,000 0.1
4,600,000 Swiss Franc, expiring
July 1997 at
Chf1.285............... 62,100 194,120 0.1
------------ ------------ ----------
373,563 617,757 0.2
-----------------------------------------------------------------------------------------------------
PUT OPTIONS 35 Bovespa, expiring Febru-
PURCHASED ary 1997 at 64,469..... 117,250 29,962 0.0
-----------------------------------------------------------------------------------------------------
TOTAL OPTIONS PURCHASED 597,405 705,275 0.2
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS 336,485,191 348,422,493 99.8
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
97
<PAGE> 99
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--INTERNATIONAL EQUITY FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996 (CONCLUDED) (IN US DOLLARS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NOMINAL
VALUE/NUMBER
OF CONTRACTS
COVERED BY PREMIUMS VALUE PERCENT OF
OPTIONS WRITTEN OPTIONS ISSUE RECEIVED (NOTE 1a) NET ASSETS
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CALL OPTIONS 35 Bovespa, expiring
WRITTEN February 1997 at
64,469................. $ (117,250) $ (154,869) 0.0%
-----------------------------------------------------------------------------------------------------
TOTAL OPTIONS WRITTEN (117,250) (154,869) 0.0
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, NET OF OPTIONS WRITTEN................... $336,367,941 348,267,624 99.8
=============
VARIATION MARGIN ON STOCK INDEX FUTURES CONTRACTS**......... 51,556 0.0
UNREALIZED DEPRECIATION ON FORWARD FOREIGN EXCHANGE
CONTRACTS***................................................ (305) 0.0
OTHER ASSETS LESS LIABILITIES............................... 760,954 0.2
------------ ----------
NET ASSETS.................................................. $349,079,829 100.0%
============= ===========
- ---------------------------------------------------------------------------------------------------------------------
</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 the number of shares are subject to
adjustment under certain conditions until the expiration date.
(d) Non-income producing security.
(e) Restricted security as to resale. The value of the Fund's investment in
restricted securities was approximately $4,793,000 representing 1.4% of net
assets.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACQUISITION VALUE
ISSUE DATE(S) COST (NOTE 1a)
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Ashok Leyland Ltd. (GDR).................................................... 3/09/1995 $ 255,800 $ 185,500
East India Hotels Ltd. (GDR)................................................ 4/23/1996- 404,100 345,450
4/24/1996
Indian Hotels Co., Ltd. (GDR)............................................... 3/08/1996 299,250 339,150
Larsen & Toubro (GDR)....................................................... 3/06/1996- 888,875 712,800
4/23/1996
Magyar Tar Kozlesi Reszvenytarsasag (Ordinary).............................. 2/15/1995- 910,789 1,191,213
12/01/1995
Nedcor Ltd. (GDR)........................................................... 5/23/1995- 1,097,188 1,376,240
5/22/1996
RAO Gazprom (ADR)........................................................... 10/21/1996- 622,839 642,444
12/06/1996
- ---------------------------------------------------------------------------------------------------------------------
TOTAL $4,478,841 $4,792,797
========== ==========
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commercial Paper, Commercial Paper -- Foreign 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.
** Stock index futures contracts purchased as of December 31, 1996 were as
follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION VALUE
CONTRACTS ISSUE EXCHANGE DATE (NOTE 1a & 1b)
---------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
250 All Ordinaries..............................................
SFE March 1997 $12,156,224
36 Nikkei 225..................................................
SIMEX March 1997 3,006,995
61 TOPIX.......................................................
TSE March 1997 7,754,059
---------------------------------------------------------------------------------------------------------------------
TOTAL STOCK INDEX FUTURES CONTRACTS PURCHASED (TOTAL CONTRACT PRICE--$22,724,370) $22,917,278
---------------------------------------------------------------------------------------------------------------------
</TABLE>
Stock index futures contracts sold as of December 31, 1996 were as
follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
NUMBER OF EXPIRATION VALUE
CONTRACTS ISSUE EXCHANGE DATE (NOTE 1a & 1b)
---------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
42 FTSE 100....................................................
LIFFE March 1997 $ 7,408,106
17 Hang Seng...................................................
HKFE January 1997 1,479,312
---------------------------------------------------------------------------------------------------------------------
TOTAL STOCK INDEX FUTURES CONTRACTS SOLD (TOTAL CONTRACT PRICE--$8,607,499) $ 8,887,418
---------------------------------------------------------------------------------------------------------------------
</TABLE>
***Forward foreign exchange contracts as of December 31, 1996 were as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
UNREALIZED
EXPIRATION DEPRECIATION
FOREIGN CURRENCY PURCHASED DATE (NOTE 1B)
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
DM15,978,060 ......................................................................
January 1997 $ (305)
---------------------------------------------------------------------------------------------------------------------
TOTAL (US$ COMMITMENT--10,400,000) $ (305)
---------------------------------------------------------------------------------------------------------------------
</TABLE>
++ The rights may be exercised until February 18, 1997.
+ Securities held as collateral in connection with open futures contracts.
See Notes to Financial Statements.
98
<PAGE> 100
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--NATURAL RESOURCES FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<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 $ 504,375 1.1%
7,600 +Alumax, Inc. ................ 250,293 253,650 0.6
4,300 Aluminum Co. of America....... 224,399 274,125 0.6
------------ ------------ ------
788,867 1,032,150 2.3
- ---------------------------------------------------------------------------------------------------------------------
CHEMICALS 4,300 Air Products & Chemicals,
Inc. ....................... 245,939 297,238 0.7
72,000 Asahi Chemical Industry Co.,
Ltd. ....................... 530,650 407,876 0.9
17,000 BASF AG....................... 407,600 655,028 1.4
10,400 Dow Chemical Co. ............. 646,664 815,100 1.8
6,700 duPont (E.I.) de Nemours &
Co. ........................ 323,847 632,313 1.4
------------ ------------ ------
2,154,700 2,807,555 6.2
- ---------------------------------------------------------------------------------------------------------------------
DIVERSIFIED RESOURCES 20,000 Asahi Glass Co., Ltd. ........ 240,000 188,256 0.4
COMPANIES 12,800 Canadian Pacific, Ltd. ....... 197,224 339,200 0.7
5,100 Coastal Corp. ................ 137,570 249,263 0.6
33,000 Cyprus Amax Minerals Co. ..... 921,470 771,375 1.7
25,500 Norcen Energy Resources
Ltd. ....................... 378,524 565,839 1.3
20,000 Occidental Petroleum Corp. ... 391,200 467,500 1.0
52,300 RGC Ltd. ..................... 206,473 232,190 0.5
------------ ------------ ------
2,472,461 2,813,623 6.2
- ---------------------------------------------------------------------------------------------------------------------
GOLD 122,000 +Acacia Resources Ltd. ....... 250,570 237,386 0.5
43,700 +Amax Gold, Inc. ............. 259,987 278,588 0.6
17,500 Ashanti Goldfields Co. Ltd.
(GDR)***.................... 434,367 216,563 0.5
23,500 Cambior Inc. ................. 315,479 346,496 0.8
173,300 +Delta Gold N.L. ............. 333,170 324,818 0.7
30,600 Driefontein Consolidated
Ltd. ....................... 477,914 322,295 0.7
133,000 Great Central Mines N.L. ..... 411,933 378,150 0.8
51,600 +Miramar Mining Corporation... 268,637 225,985 0.5
45,000 Newcrest Mining Ltd. ......... 192,990 178,695 0.4
20,864 Newmont Mining Corp. ......... 828,080 933,664 2.1
45,000 Placer Dome Inc. ............. 1,018,177 978,750 2.2
24,800 Prime Resources Group,
Inc. ....................... 242,631 175,591 0.4
42,900 Santa Fe Pacific Gold
Corp. ...................... 535,350 659,588 1.5
22,000 +TVX Gold, Inc. .............. 179,135 170,500 0.4
------------ ------------ ------
5,748,420 5,427,069 12.1
- ---------------------------------------------------------------------------------------------------------------------
INTEGRATED OIL 12,300 Amerada Hess Corp. ........... 646,044 711,863 1.6
COMPANIES 10,500 Amoco Corp. .................. 554,378 845,250 1.9
5,200 British Petroleum, Co. PLC
(ADR)*...................... 396,812 735,150 1.6
14,000 ENI Societa per Azioni
(ADR)*...................... 654,500 722,750 1.6
2,000 OMV AG........................ 214,068 225,547 0.5
25,000 Petro-Canada (Installment
Receipts)(c)................ 195,677 271,875 0.6
7,300 Repsol, S.A. ................. 210,174 279,926 0.6
3,000 Repsol, S.A. (ADR)* .......... 86,490 114,375 0.2
17,800 Societe Nationale Elf
Aquitaine (ADR)* ........... 645,343 805,450 1.8
12,000 Total, S.A. (Class B)......... 728,842 976,099 2.2
19,700 Yacimientos Petroliferos
Fiscales, S.A. (ADR)*....... 427,078 497,425 1.1
------------ ------------ ------
4,759,406 6,185,710 13.7
- ---------------------------------------------------------------------------------------------------------------------
METALS & MINING 10,800 ASARCO Inc. .................. 305,116 268,650 0.6
259,000 +Centaur Mining & Exploration
Ltd. ....................... 390,350 401,111 0.9
25,600 Falconbridge Ltd. (Installment
Receipts) (a)............... 384,069 366,248 0.8
7,400 Inco Ltd...................... 244,911 235,875 0.5
51,300 Industrias Penoles, S.A. de
C.V. ....................... 230,560 181,841 0.4
465,000 M.I.M. Holdings Ltd. ......... 867,286 649,973 1.4
34,370 Minsur S.A. (T Shares)........ 111,555 119,542 0.3
</TABLE>
99
<PAGE> 101
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--NATURAL RESOURCES FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE PERCENT OF
INDUSTRY HELD COMMON STOCKS COST (NOTE 1a) NET ASSETS
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
METALS & MINING 91,000 Mitsubishi Materials Corp. ... $ 461,572 $ 367,772 0.8%
(CONCLUDED) 32,400 Noranda Inc. ................. 600,505 722,496 1.6
25,500 Outokumpu OY.................. 455,626 434,964 1.0
9,400 ++P.T. Tambang Timah
(GDR)***.................... 115,742 169,905 0.4
144,400 Pasminco Ltd. ................ 195,275 227,071 0.5
6,700 Phelps Dodge Corp. ........... 382,311 452,250 1.0
108,000 QNI Ltd. ..................... 216,381 217,007 0.5
52,400 (The) RTZ Corp. PLC .......... 680,570 840,879 1.9
28,000 Resolute Ltd. ................ 60,351 58,263 0.1
6,000 Rio Algom Ltd. ............... 116,616 134,015 0.3
410,000 Savage Resources Ltd. ........ 313,412 449,358 1.0
41,000 Savage Resources Ltd.
(Warrants) (b).............. 5,506 10,420 0.0
46,000 Sumitomo Metal Mining Co.
Ltd. ....................... 383,546 310,242 0.7
34,000 Trelleborg 'B' Fria........... 454,495 451,504 1.0
23,000 +Westmin Resources, Inc. ..... 120,329 111,642 0.2
164,900 WMC Ltd. ..................... 964,809 1,038,541 2.3
------------ ------------ ------
8,060,893 8,219,569 18.2
- ---------------------------------------------------------------------------------------------------------------------
OIL & GAS PRODUCERS 21,400 Apache Corp. ................. 573,935 757,025 1.7
37,000 +Chauvco Resources Ltd. ...... 437,096 380,803 0.8
10,200 +Chieftain International, Inc.
(f) ........................ 227,716 265,200 0.6
23,100 Enserch Exploration Inc. ..... 230,541 271,425 0.6
68,300 Enterprise Oil PLC............ 449,045 753,667 1.7
37,300 +Gulf Canada Resources,
Ltd. ....................... 264,784 272,263 0.6
7,300 Louisiana Land and Exploration
Co. (The)................... 283,067 391,463 0.9
21,400 Mitchell Energy & Development
Corp. (Class B)............. 374,226 473,475 1.0
28,600 +Northrock Resources Ltd. .... 227,905 256,774 0.6
13,000 +Oryx Energy Co. ............. 216,739 321,750 0.7
4,000 PanCanadian Petroleum Ltd. ... 152,305 157,956 0.4
93,000 Ranger Oil Ltd. .............. 625,617 918,375 2.0
8,200 Sonat, Inc. .................. 269,737 422,300 0.9
9,800 Vastar Resources, Inc. ....... 268,604 372,400 0.8
------------ ------------ ------
4,601,317 6,014,876 13.3
- ---------------------------------------------------------------------------------------------------------------------
OIL SERVICES 12,500 +Coflexip Stena Offshore, Inc.
(ADR)*...................... 259,460 326,562 0.7
9,800 IHC Caland N.V. .............. 214,018 560,406 1.3
10,600 +Petroleum Geo-Services ASA
(ADR)*...................... 309,952 412,075 0.9
6,400 Schlumberger Ltd. ............ 382,287 639,200 1.4
10,300 +Smedvig ASA (ADR)*........... 218,875 207,288 0.5
7,200 Transocean Offshore Inc.
(d)......................... 440,451 450,900 1.0
------------ ------------ ------
1,825,043 2,596,431 5.8
- ---------------------------------------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS 24,533 Aracruz Celulose S.A.
(ADR)*...................... 196,788 202,397 0.5
31,400 Avenor Inc. .................. 611,175 465,270 1.0
15,800 Empresa Nacional de Celulosas,
S.A. ....................... 233,184 189,181 0.4
8,700 Georgia-Pacific Corp. ........ 615,783 626,400 1.4
14,800 International Paper Co. ...... 497,368 597,550 1.3
57,500 Metsa Serla OY 'B'............ 499,397 431,053 1.0
16,800 Mo Och Domsjo AB 'B' Co. ..... 373,697 473,309 1.0
52,000 Slocan Forest Products
Ltd. ....................... 523,964 588,321 1.3
9,520 +UPM-Kymmene OY (e)........... 169,172 196,519 0.4
17,200 Weyerhaeuser Co. ............. 687,415 814,850 1.8
9,000 Willamette Industries,
Inc. ....................... 376,875 626,625 1.4
------------ ------------ ------
4,784,818 5,211,475 11.5
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
100
<PAGE> 102
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--NATURAL RESOURCES FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996 (CONCLUDED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE PERCENT OF
INDUSTRY HELD COMMON STOCKS COST (NOTE 1a) NET ASSETS
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PLANTATIONS 136,000 Golden Hope Plantations BHD... $ 240,608 $ 231,604 0.5%
90,000 Kuala Lumpur Kepong BHD....... 120,553 228,119 0.5
------------ ------------ ------
361,161 459,723 1.0
- ---------------------------------------------------------------------------------------------------------------------
REFINING 45,300 Total Petroleum (North
America), Ltd. (ADR)*....... 579,947 469,987 1.0
- ---------------------------------------------------------------------------------------------------------------------
STEEL 83,000 British Steel PLC............. 218,182 228,614 0.5
135,000 +Kobe Steel, Ltd. ............ 390,945 284,456 0.6
12,800 Koninklijke Nederlandsche
Hoogovens en Staalfabrienken
N.V. ....................... 529,034 533,951 1.2
148,000 Nippon Steel Corp. ........... 501,972 437,098 1.0
244,000 Sumitomo Metal Industries,
Ltd. ....................... 773,176 600,518 1.3
------------ ------------ ------
2,413,309 2,084,637 4.6
- ---------------------------------------------------------------------------------------------------------------------
WOOD PRODUCTS 18,400 Louisiana-Pacific Corp. ...... 467,929 388,700 0.8
26,800 Riverside Forest Products
Ltd......................... 352,710 348,204 0.8
------------ ------------ ------
820,639 736,904 1.6
- ---------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS 39,370,981 44,059,709 97.5
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT SHORT-TERM INVESTMENTS
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMMERCIAL PAPER** $1,352,000 General Electric Capital
Corp., 7.10% due
1/02/1997................... 1,351,467 1,351,467 3.0
- ---------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS 1,351,467 1,351,467 3.0
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS............. $ 40,722,448 45,411,176 100.5
============
LIABILITIES IN EXCESS OF OTHER
ASSETS...................... (214,181) (0.5)
------------ ------
NET ASSETS.................... $ 45,196,995 100.0%
============ ======
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Receipts evidence payment by the Fund of 67% of the purchase price common
stock of Falconbridge Ltd. The Fund is obligated to pay the remaining 33%,
approximately $360,000, over the next year.
(b) 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.
(c) Receipts evidence payment by the Fund of 71% of the purchase price common
stock of Petro-Canada. The Fund is obligated to pay the remaining 29%,
approximately $189,000, over the next year.
(d) Created as a result of the merger of Sonat Offshore and Transocean.
(e) Created as a result of the merger of Kymmene Corporation and Repola Ltd.
(f) 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) were as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET SHARE NET DIVIDEND
INDUSTRY AFFILIATE ACTIVITY COST INCOME
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Oil & Gas Producers Chieftain International, Inc. ..................... 10,200 $227,716 --
- ---------------------------------------------------------------------------------------------------------------------
TOTAL $227,716
=======
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* American Depositary Receipts (ADR).
** 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.
*** Global Depositary Receipts (GDR).
+ Non-income producing security.
++ Restricted security as to resale. The value of the Fund's investment in
restricted securities was approximately $170,000, representing 0.4% of net
assets.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACQUISITION VALUE
ISSUE DATE COST (NOTE 1a)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
P.T. Tambang Timah (GDR)......................................................... 10/06/1995 $115,742 $169,905
- ---------------------------------------------------------------------------------------------------------------------
TOTAL $115,742 $169,905
======== ========
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
101
<PAGE> 103
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--PRIME BOND FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<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>
ASSET-BACKED AAA Aaa $ 9,000,000 Banc One Credit Card Master
SECURITIES++--3.3% Trust (Series B),
7.55% due 12/15/1999............. $ 9,171,523 $ 9,129,330
AAA Aaa 4,000,000 Citibank, Credit Card Master Trust
I, 5.62% due 12/10/2008.......... 3,998,440 3,996,240
AAA Aaa 4,462,458 Fifth Third Auto Grantor Trust,
6.45% due 3/15/2002.............. 4,460,715 4,480,575
------------ ------------
17,630,678 17,606,145
- ---------------------------------------------------------------------------------------------------------------------
BANKS & THRIFTS--12.0% Bank of New York Co., Inc.:
A- A2 4,000,000 7.625% due 7/15/2002............. 4,306,000 4,159,160
A- A2 2,000,000 7.875% due 11/15/2002............ 2,213,400 2,106,200
BankAmerica Corp.:
A A2 7,000,000 8.375% due 3/15/2002............. 7,361,550 7,499,310
A+ A1 1,000,000 7.125% due 5/12/2005............. 985,500 1,007,540
BBB+ A2 2,000,000 First Interestate Bancorp, 11.25%
due 3/27/2001.................... 2,354,060 2,303,520
BBB+ A1 5,000,000 +First Union Capital Corp., 7.85%
due 1/01/2027.................... 4,991,300 4,991,300
A- A2 1,500,000 First Union Corp., 7.50% due
7/15/2006........................ 1,500,690 1,539,720
A- A3 2,000,000 Golden West Financial Corp., 9.15%
due 5/23/1998.................... 2,271,480 2,075,860
BBB+ A3 1,000,000 +HSBC Americas Inc., 7.808% due
12/15/2026....................... 988,460 966,100
AA- Aa2 3,000,000 JPM Capital Trust, 7.54% due
1/15/2027........................ 3,000,000 2,931,870
NationsBank Corp.:
A A2 2,000,000 7.50% due 2/15/1997.............. 1,998,280 2,003,740
A- A3 5,000,000 6.50% due 8/15/2003.............. 4,755,150 4,887,850
Norwest Corp.:
AA- Aa3 5,000,000 6.25% due 4/15/1999.............. 4,983,600 5,004,000
AA- Aa3 2,500,000 6.75% due 5/12/2000.............. 2,529,975 2,528,250
A A2 12,950,000 US Bancorp, 6.95% due 11/28/1997... 13,048,032 13,082,738
AA+ Aa2 3,000,000 Wachovia Corp., 6.55% due
6/09/1997........................ 2,997,810 3,012,780
BBB A1 4,500,000 Wells Fargo Capital I, 7.96% due
12/15/2026....................... 4,421,515 4,498,065
------------ ------------
64,706,802 64,598,003
- ---------------------------------------------------------------------------------------------------------------------
CANADIAN Province of Quebec (Canada) (2):
PROVINCE*--2.4% A+ A2 3,500,000 8.80% due 4/15/2003.............. 3,944,780 3,852,135
A+ A2 9,500,000 7.125% due 2/09/2024............. 7,990,800 9,123,230
------------ ------------
11,935,580 12,975,365
- ---------------------------------------------------------------------------------------------------------------------
FEDERAL AAA Aaa 3,000,000 Federal Home Loan Banks, 6.65%
AGENCIES--1.9% due 11/13/2001................... 2,997,656 2,992,020
AAA Aaa 7,000,000 Federal National Mortgage
Association, 7.85% due
9/10/2004........................ 6,925,569 7,164,080
------------ ------------
9,923,225 10,156,100
- ---------------------------------------------------------------------------------------------------------------------
FINANCE--4.5% Associates Corp. of North America:
AA- Aa3 5,000,000 8.375% due 1/15/1998............. 5,016,100 5,115,700
AA- Aa3 1,500,000 5.25% due 9/01/1998.............. 1,454,385 1,478,085
AA- Aa3 1,000,000 7.25% due 9/01/1999.............. 987,620 1,021,960
A+ Aa3 5,500,000 CIT Group Holdings, Inc., 7% due
9/30/1997........................ 5,547,490 5,545,705
Commercial Credit Co.:
A+ A1 3,250,000 10.00% due 5/01/1999............. 3,626,350 3,506,393
A+ A1 3,000,000 6.70% due 8/01/1999.............. 3,022,580 3,018,030
AAA Aaa 3,245,000 General Electric Capital Corp.,
8.125% due 5/15/2012............. 3,449,052 3,587,347
A+ A2 1,000,000 Transamerica Financial Corp., 6.80%
due 3/15/1999.................... 999,730 1,010,520
------------ ------------
24,103,307 24,283,740
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
102
<PAGE> 104
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--PRIME BOND FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996 (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>
FINANCE-- Bear Stearns Companies
OTHER--14.4% Inc.(The):
A A2 $10,000,000 6.75% due 8/15/2000.............. $ 9,936,500 $ 10,059,900
A A2 1,000,000 6.70% due 8/01/2003.............. 1,002,800 983,990
Dean Witter, Discover & Co.:
A A2 3,500,000 6.75% due 8/15/2000.............. 3,486,805 3,525,375
A A2 4,000,000 6.30% due 1/15/2006.............. 3,982,400 3,778,688
A A2 3,500,000 6.75% due 1/01/2016.............. 3,500,000 3,222,170
A+ A2 4,000,000 Equitable Cos. Inc., 9% due
12/15/2004....................... 4,416,200 4,478,800
Equitable Life Assurance Society:
A A2 4,355,000 +6.95% due 12/01/2005............. 4,110,249 4,272,168
A A2 3,500,000 +7.70% due 12/01/2015............. 3,476,060 3,498,530
A Baa1 10,000,000 Lehman Brothers Holdings, Inc.,
7.375% due 8/15/1997............. 9,987,000 10,065,300
BBB+ A3 5,000,000 MBNA Corporation, 5.681% due
9/14/1998........................ 5,000,000 5,001,980
AA- A2 6,100,000 +Pacific Mutual Life Insurance
Company, 7.90% due 12/30/2023.... 5,999,655 6,242,496
PaineWebber Group, Inc.:
BBB+ Baa1 3,000,000 9.25% due 12/15/2001............. 3,501,570 3,288,240
BBB+ Baa1 2,000,000 8.875% due 3/15/2005............. 2,012,540 2,169,240
Smith Barney Holdings, Inc.:
A- A2 2,000,000 5.875% due 2/01/2001............. 1,993,680 1,943,496
A- A2 4,000,000 6.50% due 10/15/2002............. 3,980,560 3,933,680
A- A2 2,000,000 6.625% due 11/15/2003............ 1,988,320 1,969,380
A A1 2,000,000 Travelers Capital II, 7.75% due
12/01/2036....................... 2,003,400 1,923,120
Travelers Corp. (The):
A+ A1 1,000,000 9.50% due 3/01/2002.............. 1,084,200 1,119,190
A+ A1 6,000,000 7.875% due 5/15/2025............. 6,053,840 6,266,940
------------ ------------
77,515,779 77,742,683
- ---------------------------------------------------------------------------------------------------------------------
INDUSTRIAL-- Anheuser-Busch Cos., Inc.:
CONSUMER AA- A1 2,500,000 8.75% due 12/01/1999............. 2,839,090 2,656,250
GOODS--3.8% AA- A1 5,000,000 7.375% due 7/01/2023............. 5,127,300 4,947,100
A- A3 7,000,000 IBP, Inc., 6.125% due 2/01/2006.... 6,431,460 6,600,510
AA Aa2 2,000,000 Kimberly-Clark Corporation, 7.875%
due 2/01/2023.................... 2,033,960 2,082,080
A A2 4,000,000 Philip Morris Companies, Inc., 9%
due 1/01/2001.................... 4,071,540 4,303,480
------------ ------------
20,503,350 20,589,420
- ---------------------------------------------------------------------------------------------------------------------
INDUSTRIAL-- AA Aa3 2,000,000 BP America Inc., 9.375% due
ENERGY--2.6% 11/01/2000....................... 2,204,960 2,200,980
AA- A1 7,000,000 Consolidated Natural Gas Co., 8.75%
due 6/01/1999.................... 7,448,861 7,361,900
A- A1 3,000,000 Dresser Industries, Inc., 7.60% due
8/15/2096........................ 2,991,270 3,062,790
A+ A1 1,500,000 Texaco Capital Inc., 9% due
12/15/1999....................... 1,731,670 1,606,110
------------ ------------
14,376,761 14,231,780
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
103
<PAGE> 105
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--PRIME BOND FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996 (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-- A- A3 $ 6,500,000 Chrysler Finance Corporation
MANUFACTURING--8.2% 10.95% due 8/01/2017............. $ 7,380,520 $ 7,007,260
AA- Aa3 2,950,000 du Pont (E.I.) de Nemours & Co.,
8.25% due 1/15/2022.............. 3,066,304 3,102,751
Ford Motor Credit Company:
A+ A1 3,000,000 7% due 9/25/2001................. 2,988,060 3,044,730
A+ A1 5,000,000 7.50% due 6/15/2004.............. 5,140,200 5,147,300
A+ A1 2,500,000 7.75% due 3/15/2005.............. 2,497,725 2,603,625
General Motors Acceptance Corp.:
A- A3 3,000,000 7.125% due 5/11/1998............. 3,033,840 3,045,660
A- A3 4,000,000 7.70% due 4/15/2016.............. 3,967,000 4,136,920
A- A3 3,500,000 7.40% due 9/01/2025.............. 3,471,790 3,461,290
Lockheed Martin Corp.:
BBB+ A3 7,000,000 6.625% due 6/15/1998............. 6,999,090 7,053,970
BBB+ A3 2,500,000 6.55% due 5/15/1999.............. 2,498,800 2,511,675
A- Baa2 3,000,000 McDonnell Douglas Corporation,
8.625% due 4/01/1997............. 3,050,010 3,019,710
------------ ------------
44,093,339 44,134,891
- ---------------------------------------------------------------------------------------------------------------------
INDUSTRIAL-- A+ A1 2,500,000 Bass America, Inc., 8.125% due
SERVICES--11.1% 3/31/2002........................ 2,668,930 2,656,825
A A2 4,000,000 Carnival Cruise Lines, Inc., 7.70%
due 7/15/2004.................... 4,208,480 4,159,680
Columbia/HCA Healthcare Corp.:
A- A2 5,000,000 6.41% due 6/15/2000.............. 4,997,000 4,987,400
A- A2 1,845,000 7.05% due 12/01/2027............. 1,729,946 1,756,643
A- A2 3,000,000 7.75% due 7/15/2036.............. 2,976,840 3,058,500
Dillard Department Stores, Inc.:
A+ A2 5,000,000 7.375% due 6/15/1999............. 5,305,840 5,089,200
A+ A2 3,000,000 9.125% due 8/01/2011............. 3,240,150 3,465,210
A A2 2,000,000 +Disney Enterprises Inc., 6.85% due
1/10/2007........................ 1,998,660 1,998,580
A+ A1 7,000,000 +Electronic Data Systems Corp.,
6.85% due 5/15/2000.............. 6,994,470 7,085,547
A A3 5,000,000 Hertz Corp., 6% due 1/15/2003...... 4,823,600 4,804,800
AAA Aaa 3,000,000 Johnson & Johnson Co., 8.72% due
11/01/2024....................... 3,000,000 3,338,040
A A2 2,000,000 May Department Stores Company,
10.625% due 11/01/2010........... 2,419,800 2,588,400
A- A2 7,000,000 Sears, Roebuck & Co., 6.82% due
10/17/2002....................... 7,014,280 7,009,520
AA A2 7,000,000 Wal-Mart Stores, Inc., 8.50% due
9/15/2024........................ 7,036,810 7,490,350
------------ ------------
58,414,806 59,488,695
- ---------------------------------------------------------------------------------------------------------------------
INDUSTRIAL AA A1 9,500,000 Boeing Co., 6.35% due 6/15/2003.... 8,549,905 9,348,760
TRANSPORTATION-- Southwest Airlines, Inc.:
3.4% A- A3 3,500,000 9.40% due 7/01/2001.............. 4,021,990 3,804,500
A- A3 4,000,000 8% due 3/01/2005................. 3,980,450 4,231,480
A- A3 1,000,000 7.875% due 9/01/2007............. 992,600 1,032,790
------------ ------------
17,544,945 18,417,530
- ---------------------------------------------------------------------------------------------------------------------
SUPRANATIONAL--
0.6% AAA Aaa 1,000,000 Asian Development Bank, 10.75%
due 6/01/1997...................... 1,084,890 1,019,170
AAA Aaa 2,000,000 Inter-American Development Bank
Co., 8.875% due 6/01/2009........ 2,481,700 2,330,520
------------ ------------
3,566,590 3,349,690
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
104
<PAGE> 106
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--PRIME BOND FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996 (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>
UTILITIES-- GTE Corp.:
COMMUNICATIONS-- BBB+ A3 $ 1,000,000 8.85% due 3/01/1998.............. $ 1,143,360 $ 1,031,020
2.5% BBB+ A3 1,500,000 9.375% due 12/01/2000............ 1,647,090 1,648,305
BBB+ A3 3,500,000 9.10% due 6/01/2003.............. 3,965,330 3,904,215
BBB+ A3 2,000,000 10.30% due 11/15/2017............ 2,187,020 2,164,900
AAA Aaa 2,500,000 Indiana Bell Telephone Co. Inc.,
7.30% due 8/15/2026.............. 2,495,725 2,537,100
Southwestern Bell Telcommunications
Corp.:
AA Aa3 1,000,000 6.125% due 3/01/2000............. 1,005,000 993,580
AA Aa3 1,000,000 6.625% due 4/01/2005............. 958,450 989,450
------------ ------------
13,401,975 13,268,570
- ---------------------------------------------------------------------------------------------------------------------
UTILITIES-- AA- Aa2 7,000,000 Duke Power Co., 8% due
ELECTRIC--3.8% 11/01/1999....................... 6,966,520 7,288,190
A+ A1 3,000,000 Georgia Power Co., 6.125% due
9/01/1999........................ 2,892,720 2,983,140
AA- A1 2,000,000 Northern States Power Company,
7.125% due 7/01/2025............. 2,122,360 1,960,120
A A2 7,500,000 Virginia Electric & Power Co.,
8.625% due 10/01/2024............ 7,416,540 8,114,235
------------ ------------
19,398,140 20,345,685
- ---------------------------------------------------------------------------------------------------------------------
YANKEE ABN AMRO Bank (1):
CORPORATES*-- AA- Aa2 1,500,000 7.55% due 6/28/2006.............. 1,499,790 1,553,055
10.9% AA- Aa2 1,000,000 7.30% due 12/01/2026............. 977,900 950,800
A+ A1 6,000,000 Australia & New Zealand Banking
Group Ltd., 7.55% due 9/15/2006
(1).............................. 5,990,880 6,176,640
AA- Aa3 6,500,000 CRA Finance Ltd., 6.50% due
12/01/2003 (1)................... 6,509,920 6,333,535
A A3 2,000,000 China Light & Power Co., Ltd.,
7.50% due 4/15/2006 (5).......... 1,987,260 2,016,640
AA+ Aa1 1,000,000 Deutsche Bank Financial Inc., 6.70%
due 12/13/2006 (1)............... 996,910 981,360
Enersis S.A.(4):
A- Baa1 8,000,000 6.90% due 12/01/2006............. 7,979,360 7,807,920
A- Baa1 2,000,000 7.40% due 12/01/2016............. 1,989,440 1,940,480
A+ A1 2,000,000 Ford Capital, B.V., 9.50% due
6/01/2010 (1).................... 2,217,880 2,375,320
Grand Metropolitan Investment Corp.
(1):
A+ A2 5,500,000 6.50% due 9/15/1999.............. 5,615,810 5,503,190
A+ A2 1,000,000 8.625% due 8/15/2001............. 1,049,910 1,079,190
BBB+ A3 3,000,000 HSBC Americas Inc., 7% due
11/01/2006 (1)................... 2,974,800 2,961,600
AA- A1 6,000,000 Korea Electric Power Corporation,
8% due 7/01/2002 (5)............. 6,312,060 6,330,780
A+ A1 1,000,000 +Petronas Corp., 6.875% due
7/01/2003 (4).................... 986,480 1,001,430
BBB+ A3 3,000,000 Philips Electronics N.V., 7.20% due
6/01/2026 (4).................... 2,993,220 3,041,250
Pohang Iron & Steel Co., Ltd. (3):
A+ A2 4,500,000 7.375% due 5/15/2005............. 4,581,720 4,561,695
A+ A2 4,000,000 7.125% due 11/01/2006............ 3,995,480 3,989,080
------------ ------------
58,658,820 58,603,965
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
105
<PAGE> 107
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--PRIME BOND FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996 (CONCLUDED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
S&P MOODY'S FACE VALUE
RATINGS RATINGS AMOUNT CORPORATE BONDS & NOTES COST (NOTE 1A)
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
YANKEE AAA Aaa $ 2,000,000 Export-Import Bank of Japan, 8.35%
SOVEREIGN*--2.7% due 12/01/1999 (1)............... $ 2,113,320 $ 2,107,060
AA- A1 3,000,000 Korea Development Bank, 6.625% due
11/21/2003 (2)................... 3,011,060 2,970,000
Metropolis of Tokyo (Japan) (2):
AAA Aaa 3,000,000 8.70% due 10/05/1999............. 3,469,410 3,184,290
AAA Aaa 250,000 9.25% due 11/08/2000............. 268,427 273,657
BBB A3 6,000,000 People's Republic of China, 6.625%
due 1/15/2003 (2)................ 5,970,960 5,839,254
------------ ------------
14,833,177 14,374,261
- ---------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS &
NOTES--88.1%....................... 470,607,274 474,166,523
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
US GOVERNMENT OBLIGATIONS
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
US Treasury Notes
AAA Aaa 2,500,000 5.875% due 6/30/2000............. 2,502,025 2,481,250
AAA Aaa 2,500,000 8.75% due 8/15/2000.............. 2,976,172 2,709,375
AAA Aaa 1,000,000 6.25% due 2/15/2003.............. 982,500 998,750
AAA Aaa 5,500,000 5.75% due 8/15/2003.............. 5,371,953 5,335,000
AAA Aaa 11,000,000 6.50% due 5/15/2005.............. 10,668,276 11,073,920
AAA Aaa 3,000,000 6.50% due 10/15/2006............. 2,985,469 3,016,410
- ---------------------------------------------------------------------------------------------------------------------
TOTAL US GOVERNMENT
OBLIGATIONS--4.7% 25,486,395 25,614,705
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
SHORT-TERM SECURITIES
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
COMMERCIAL PAPER**--0.9% 5,000,000 General Electric Capital Corp., 6%
due 1/03/1997.................... 4,997,500 4,997,500
- ---------------------------------------------------------------------------------------------------------------------
REPURCHASE 24,932,000 Lehman Brothers Inc., purchased on
AGREEMENTS***--4.7% 12/31/96 to yield 7.10% to
1/02/97.......................... 24,932,000 24,932,000
- ---------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM SECURITIES--5.6% 29,929,500 29,929,500
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS--98.4%........... $526,023,169 529,710,728
============
OTHER ASSETS LESS
LIABILITIES--1.6%.................. 8,683,000
------------
NET ASSETS--100.0%................. $538,393,728
============
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* Corresponding industry groups for foreign securities, which are denominated
in US dollars.
(1) Financial Institution (4) Industrial
(2) Government Entity (5) Utility
(3) Industrial Mining and Metals
** 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 security as to resale. The value of the Fund's investment in
restricted securities was approximately $30,056,000, representing 5.6% of
net assets.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACQUISITION VALUE
ISSUE DATE COST (NOTE 1A)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Disney Enterprises Inc., 6.85% due 1/10/2007.................................. 12/18/1996 $ 1,998,660 $ 1,998,580
Electronic Data Systems, Corp., 6.85% due 5/15/2000 .......................... 5/26/1995 6,994,470 7,085,547
Equitable Life Assurance Society, 6.95% due 12/01/2005........................ 6/11/1996 4,110,249 4,272,168
Equitable Life Assurance Society, 7.70% due 12/01/2015........................ 10/17/1996 3,476,060 3,498,530
First Union Capital Corp., 7.85% due 1/01/2027................................ 12/27/1996 4,991,300 4,991,300
HSBC Americas Inc., 7.808% due 12/15/2026..................................... 12/04/1996 988,460 966,100
Pacific Mutual Life Insurance Company, 7.90% due 12/30/2023................... 9/24/1996 5,999,655 6,242,496
Petronas Corp., 6.875% due 7/01/2003.......................................... 8/10/1995 986,480 1,001,430
- ---------------------------------------------------------------------------------------------------------------------
TOTAL $29,545,334 $30,056,151
=========== ===========
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
++ Subject to principal paydowns.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
106
<PAGE> 108
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--QUALITY EQUITY FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE PERCENT OF
INDUSTRY HELD STOCKS & WARRANTS COST (NOTE 1a) NET ASSETS
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AEROSPACE 176,000 Northrop Grumman Corp. ..... $ 11,530,816 $ 14,564,000 1.8%
190,000 United Technologies
Corp. .................... 7,831,355 12,540,000 1.6
------------ ------------ ------
19,362,171 27,104,000 3.4
- ---------------------------------------------------------------------------------------------------------------------
AUTOMOBILE 205,000 General Motors Corp. ....... 10,846,146 11,428,750 1.4
- ---------------------------------------------------------------------------------------------------------------------
AUTOMOBILE PARTS 338,000 +Lear Corporation........... 11,323,000 11,534,250 1.5
- ---------------------------------------------------------------------------------------------------------------------
BANKING 320,000 Bank of New York Co.,
Inc....................... 6,531,925 10,800,000 1.3
60,000 Bank of New York Co., Inc.
(Warrants) (c)............ 433,750 4,447,500 0.6
67,100 BankAmerica Corporation .... 6,865,310 6,693,225 0.8
121,000 Citicorp.................... 8,956,427 12,463,000 1.6
------------ ------------ ------
22,787,412 34,403,725 4.3
- ---------------------------------------------------------------------------------------------------------------------
BUILDING & CONSTRUCTION 277,800 Oakwood Homes Corp.......... 6,329,367 6,354,675 0.8
- ---------------------------------------------------------------------------------------------------------------------
CHEMICALS 163,000 +FMC Corporation............ 11,552,704 11,430,375 1.4
240,000 PPG Industries Inc. ........ 11,911,956 13,470,000 1.7
------------ ------------ ------
23,464,660 24,900,375 3.1
- ---------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS 96,834 TCI Pacific Communications
(Convertible Preferred)... 9,353,653 8,787,686 1.1
- ---------------------------------------------------------------------------------------------------------------------
COMPUTER SERVICES 215,000 cisco Systems, Inc. ........ 10,373,567 13,679,375 1.7
255,000 Electronic Data Systems
Corp. .................... 11,193,379 11,028,750 1.4
86,000 International Business
Machines Corp. ........... 9,370,635 12,986,000 1.6
------------ ------------ ------
30,937,581 37,694,125 4.7
- ---------------------------------------------------------------------------------------------------------------------
COMPUTER TECHNOLOGY 295,500 +Gulfstream Aerospace
Corp...................... 7,274,816 7,165,875 0.9
- ---------------------------------------------------------------------------------------------------------------------
COMPUTERS 203,000 +Compaq Computer Corp. ..... 15,028,761 15,072,750 1.9
- ---------------------------------------------------------------------------------------------------------------------
CONGOLOMERATES 100,200 AlliedSignal Inc. .......... 7,365,309 6,713,400 0.9
- ---------------------------------------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT 114,000 General Electric Co. ....... 8,855,064 11,271,750 1.4
80,300 Linear Technology
Corporation............... 3,295,002 3,513,125 0.5
------------ ------------ ------
12,150,066 14,784,875 1.9
- ---------------------------------------------------------------------------------------------------------------------
ELECTRONICS/INSTRUMENTS 387,500 Corning Inc. ............... 11,485,244 17,921,875 2.3
- ---------------------------------------------------------------------------------------------------------------------
ENERGY & RELATED 690,300 Edison International........ 13,122,844 13,719,712 1.7
- ---------------------------------------------------------------------------------------------------------------------
ENGINEERING & CONSTRUCTION 274,400 Foster Wheeler
Corporation............... 11,706,877 10,187,100 1.3
- ---------------------------------------------------------------------------------------------------------------------
ENTERTAINMENT 245,351 Viacom, Inc. (Class B)...... 9,184,077 8,556,616 1.1
- ---------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES 307,000 American Express Company.... 14,499,680 17,345,500 2.2
302,800 First Data Corp............. 10,714,914 11,052,200 1.4
------------ ------------ ------
25,214,594 28,397,700 3.6
- ---------------------------------------------------------------------------------------------------------------------
FOODS 362,000 Heinz (H.J.) Company........ 11,901,557 12,941,500 1.6
- ---------------------------------------------------------------------------------------------------------------------
FOREIGN--ARGENTINA* 255,000 Yacimientos Petroliferos
Fiscales S.A. (ADR)
(a)(1).................... 5,330,905 6,438,750 0.8
- ---------------------------------------------------------------------------------------------------------------------
FOREIGN--CANADA* 240,000 Canadian Pacific, Ltd.(2)... 4,915,307 6,360,000 0.8
118,400 Magna International, Inc.
(Class A)(3).............. 5,437,021 6,600,800 0.8
73,900 Potash Corp. of Saskatchewan
Inc.(4) .................. 5,014,349 6,281,500 0.8
------------ ------------ ------
15,366,677 19,242,300 2.4
- ---------------------------------------------------------------------------------------------------------------------
FOREIGN--FRANCE* 130,000 Scor SA (ADR) (a)(5)........ 4,959,500 4,468,750 0.5
111,100 +SGS-Thompson
Microelectronics N.V. (NY
Registered Shares)(6)..... 4,089,372 7,777,000 1.0
------------ ------------ ------
9,048,872 12,245,750 1.5
- ---------------------------------------------------------------------------------------------------------------------
FOREIGN--MEXICO* 140,000 Panamerican Beverages, Inc.
(Class A) (7)............. 5,529,885 6,562,500 0.8
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
107
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- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--QUALITY EQUITY FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE PERCENT OF
INDUSTRY HELD STOCKS & WARRANTS COST (NOTE 1a) NET ASSETS
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOREIGN--SOUTH KOREA* 175,700 Hyundai Engineering &
Construction Co., Ltd.
(GDR) (b)(8)++............ $ 2,289,371 $ 1,098,125 0.1%
- ---------------------------------------------------------------------------------------------------------------------
FOREIGN--SWITZERLAND* 113,000 +Novartis AG (ADR) (a)(9)... 4,932,475 6,313,875 0.8
- ---------------------------------------------------------------------------------------------------------------------
FOREIGN--UNITED KINGDOM* 208,000 British Steel PLC (ADR)
(a)(10)................... 5,476,712 5,720,000 0.7
205,000 Glaxo Wellcome PLC (ADR)
(a)(9).................... 5,547,641 6,508,750 0.8
197,000 Grand Metropolitan PLC (ADR)
(a)(7).................... 5,337,393 6,230,125 0.8
47,000 Imperial Chemical Industries
PLC (ADR) (a)(11)......... 2,416,395 2,444,000 0.3
88,600 National Westminster Bank
PLC (ADR) (a)(12)......... 5,587,192 6,157,700 0.8
147,000 Vodafone Group PLC (ADR)
(a)(13)................... 5,117,125 6,082,125 0.8
------------ ------------ ------
29,482,458 33,142,700 4.2
- ---------------------------------------------------------------------------------------------------------------------
HOSPITAL MANAGEMENT 417,000 +Health Management
Associates, Inc. (Class
A)........................ 9,396,499 9,382,500 1.2
- ---------------------------------------------------------------------------------------------------------------------
HOSPITAL SUPPLIES 305,000 Abbott Laboratories......... 12,470,021 15,478,750 2.0
- ---------------------------------------------------------------------------------------------------------------------
INSURANCE 103,000 Aetna Inc. ................. 6,648,424 8,240,000 1.0
285,000 Allstate Corp. ............. 9,378,920 16,494,375 2.1
196,000 UNUM Corporation............ 12,508,249 14,161,000 1.8
------------ ------------ ------
28,535,593 38,895,375 4.9
- ---------------------------------------------------------------------------------------------------------------------
LEISURE 426,000 Brunswick Corporation....... 10,541,056 10,224,000 1.3
- ---------------------------------------------------------------------------------------------------------------------
MACHINERY 206,000 +American Standard
Companies, Inc. .......... 6,825,765 7,879,500 1.0
300,000 Deere & Co. ................ 12,310,813 12,187,500 1.5
------------ ------------ ------
19,136,578 20,067,000 2.5
- ---------------------------------------------------------------------------------------------------------------------
MANUFACTURING 200,000 Fisher Scientific
International, Inc. ...... 6,606,669 9,425,000 1.2
- ---------------------------------------------------------------------------------------------------------------------
NATURAL GAS 330,000 Enron Corp. ................ 12,657,402 14,231,250 1.8
- ---------------------------------------------------------------------------------------------------------------------
NATURAL GAS PIPELINES 170,000 IMC Global, Inc. ........... 6,589,268 6,651,250 0.8
- ---------------------------------------------------------------------------------------------------------------------
OIL SERVICE 350,000 Dresser Industries, Inc. ... 8,202,968 10,850,000 1.4
78,000 Schlumberger Ltd. .......... 6,580,141 7,790,250 1.0
------------ ------------ ------
14,783,109 18,640,250 2.4
- ---------------------------------------------------------------------------------------------------------------------
PAPER 146,000 Kimberly-Clark
Corporation .............. 11,227,298 13,906,500 1.8
- ---------------------------------------------------------------------------------------------------------------------
PETROLEUM 261,600 Pennzoil Co. ............... 10,752,129 14,780,400 1.9
357,000 Unocal Corp. ............... 12,002,947 14,503,125 1.8
------------ ------------ ------
22,755,076 29,283,525 3.7
- ---------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS 195,000 Merck & Co., Inc. .......... 11,792,491 15,453,750 1.9
- ---------------------------------------------------------------------------------------------------------------------
RAILROADS 154,000 Burlington Northern Santa Fe
Inc. ..................... 12,636,886 13,301,750 1.7
- ---------------------------------------------------------------------------------------------------------------------
REAL ESTATE 279,000 Prentiss Properties Trust... 5,708,700 6,975,000 0.8
INVESTMENT TRUSTS 137,700 Starwood Lodging Trust...... 5,396,590 7,590,712 1.0
------------ ------------ ------
11,105,290 14,565,712 1.8
- ---------------------------------------------------------------------------------------------------------------------
RETAIL 591,400 Limited, Inc. (The)......... 12,739,046 10,866,975 1.4
260,000 Sears, Roebuck & Co. ....... 10,339,207 11,992,500 1.5
------------ ------------ ------
23,078,253 22,859,475 2.9
- ---------------------------------------------------------------------------------------------------------------------
RETAIL SPECIALTY 347,100 Rite Aid Corporation........ 11,147,442 13,797,225 1.7
426,000 +Toys 'R' Us, Inc. ......... 13,238,973 12,780,000 1.6
------------ ------------ ------
24,386,415 26,577,225 3.3
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
108
<PAGE> 110
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--QUALITY EQUITY FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996 (CONCLUDED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE PERCENT OF
INDUSTRY HELD STOCKS & WARRANTS COST (NOTE 1a) NET ASSETS
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SOFTWARE--COMPUTER 311,600 BMC Software, Inc. ......... $ 11,552,980 $ 12,892,450 1.6%
302,750 Oracle Corp. ............... 10,052,946 12,601,969 1.6
------------ ------------ ------
21,605,926 25,494,419 3.2
- ---------------------------------------------------------------------------------------------------------------------
STEEL 267,000 AK Steel Holding Corp. ..... 11,024,039 10,579,875 1.3
- ---------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS 478,000 +Airtouch Communications,
Inc. ..................... 13,584,871 12,069,500 1.5
220,000 Bell Atlantic Corp.......... 13,554,148 14,245,000 1.8
------------ ------------ ------
27,139,019 26,314,500 3.3
- ---------------------------------------------------------------------------------------------------------------------
TOBACCO 71,000 Philip Morris Companies,
Inc. ..................... 6,752,180 7,996,375 1.0
- ---------------------------------------------------------------------------------------------------------------------
TRAVEL & LODGING 453,300 Carnival Corp. (Class A).... 13,364,651 14,958,900 1.9
- ---------------------------------------------------------------------------------------------------------------------
UTILITIES--GAS 140,000 El Paso Natural Gas
Company .................. 6,860,804 7,070,000 0.9
- ---------------------------------------------------------------------------------------------------------------------
TOTAL STOCKS & WARRANTS 655,263,301 754,070,370 94.9
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT SHORT-TERM SECURITIES
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMMERCIAL PAPER** $ 5,000,000 Clipper Receivables Corp.,
5.42% due 1/09/1997....... 4,993,225 4,993,225 0.6
8,511,000 General Motors Acceptance
Corp., 7.50% due
1/02/1997................. 8,507,454 8,507,454 1.1
10,000,000 Goldman Sachs Group, L.P.,
5.42% due 1/06/1997....... 9,990,966 9,990,966 1.2
7,000,000 International Securitization
Corp., 5.75% due
1/21/1997................. 6,976,521 6,976,521 0.9
------------ ------------ ------
30,468,166 30,468,166 3.8
- ---------------------------------------------------------------------------------------------------------------------
US GOVERNMENT AGENCY 10,000,000 Federal Home Loan Mortgage
OBLIGATIONS** Corp., 5.40% due
1/03/1997................. 9,995,500 9,995,500 1.3
- ---------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM SECURITIES 40,463,666 40,463,666 5.1
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS........... $695,726,967 794,534,036 100.0
============
LIABILITIES IN EXCESS OF
OTHER ASSETS.............. (258,808) 0.0
------------ ------
NET ASSETS.................. $794,275,228 100.0%
============ ======
- ---------------------------------------------------------------------------------------------------------------------
</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.
* Corresponding industry groups for foreign securities:
<TABLE>
<S> <C> <C>
(1) Petroleum (6) Semiconductors (11) Chemicals
(2) Natural Resources (7) Beverages (12) Banking
(3) Automobile Parts (8) Engineering & Construction (13) Communications
(4) Natural Gas Pipelines (9) Pharmaceuticals
(5) Insurance (10) Steel
</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.
++ Restricted security as to resale, the value of the Fund's investment in
restricted securities was approximately $1,098,000, representing 0.1% of net
assets.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
ACQUISITION VALUE
ISSUE DATE COST (NOTE 1a)
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Hyundai Engineering & Construction Co., Ltd. (GDR).................. 3/19/1996 $2,289,371 $1,098,125
-----------------------------------------------------------------------------------------------------------------
TOTAL $2,289,371 $1,098,125
========== ===========
-----------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
109
<PAGE> 111
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--RESERVE ASSETS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE INTEREST MATURITY VALUE
AMOUNT ISSUE RATE* DATE (NOTE 1a)
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BANK NOTES--1.3% $ 300,000 Bank of America, Illinois...................... 5.63% 12/30/97 $ 299,850
- ---------------------------------------------------------------------------------------------------------------------
TOTAL BANK NOTES (COST--$299,971) 299,850
- ---------------------------------------------------------------------------------------------------------------------
CERTIFICATES OF 500,000 Chase Manhattan Bank USA, Delaware............. 5.60 4/01/97 500,100
DEPOSIT--2.2%
- ---------------------------------------------------------------------------------------------------------------------
TOTAL CERTIFICATES OF DEPOSIT (COST--$500,000) 500,100
- ---------------------------------------------------------------------------------------------------------------------
COMMERCIAL 282,000 Allomon Funding Corp........................... 5.35 1/17/97 281,377
PAPER--43.5% 587,000 Allomon Funding Corp........................... 5.33 1/21/97 585,358
364,000 Bear Stearns Companies, Inc. (The)............. 5.35 1/31/97 362,424
800,000 Beta Finance Inc............................... 5.35 4/07/97 788,558
750,000 Caisse des Depots et Consignations............. 5.30 2/03/97 746,417
500,000 Finova Capital Corp............................ 5.48 3/20/97 494,204
500,000 General Electric Capital Corp.................. 5.50 3/03/97 495,483
333,000 General Electric Capital Corp.................. 5.64 3/05/97 329,892
300,000 General Electric Capital Corp.................. 5.45 3/25/97 296,296
720,000 General Motors Acceptance Corp................. 5.34 1/23/97 717,774
400,000 General Motors Acceptance Corp................. 5.33 6/02/97 390,940
502,000 Greenwich Funding Corporation.................. 5.33 1/28/97 500,078
526,000 Korea Development Bank......................... 5.32 1/23/97 524,374
87,000 Korea Development Bank......................... 5.35 1/23/97 86,731
1,000,000 National Fleet Funding Corp.................... 5.34 1/15/97 998,072
500,000 New Center Asset Trust......................... 5.43 1/29/97 497,984
600,000 New Center Asset Trust......................... 5.50 2/25/97 595,131
500,000 Toshiba International Finance (UK) PLC......... 5.35 1/17/97 498,896
58,000 Toshiba International Finance (UK) PLC......... 5.37 1/27/97 57,787
712,000 Windmill Funding Corp.......................... 5.35 1/24/97 709,694
- ---------------------------------------------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER (COST--$9,957,326) 9,957,470
- ---------------------------------------------------------------------------------------------------------------------
CORPORATE NOTES--8.7% 1,000,000 LABS Trust Series 1996-C Senior Notes+......... 5.625 12/29/97 1,000,000
1,000,000 Short-Term Card Account Trust (1995-1)+........ 5.615 1/15/97 1,000,000
- ---------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE NOTES (COST--$1,999,996) 2,000,000
- ---------------------------------------------------------------------------------------------------------------------
FUNDING 1,000,000 Jackson National Life Insurance Co.+........... 5.41 4/08/97 1,000,000
AGREEMENTS--4.4%
- ---------------------------------------------------------------------------------------------------------------------
TOTAL FUNDING AGREEMENTS (COST--$1,000,000) 1,000,000
- ---------------------------------------------------------------------------------------------------------------------
MASTER NOTES--4.4% 1,000,000 Goldman Sachs Group, L.P.+..................... 5.88 8/01/97 1,000,000
- ---------------------------------------------------------------------------------------------------------------------
TOTAL MASTER NOTES (COST--$1,000,000) 1,000,000
- ---------------------------------------------------------------------------------------------------------------------
US GOVERNMENT, AGENCY 70,000 Federal Farm Credit Bank....................... 5.52 1/21/97 69,796
& INSTRUMENTALITY 90,000 Federal Farm Credit Bank....................... 5.50 2/13/97 89,451
OBLIGATIONS-- 120,000 Federal Home Loan Bank......................... 5.62 5/05/97 117,823
DISCOUNT--5.6% 40,000 Federal National Mortgage Association.......... 5.35 3/13/97 39,582
110,000 Federal National Mortgage Association.......... 5.41 3/13/97 108,851
165,000 Federal National Mortgage Association.......... 5.38 3/14/97 163,253
300,000 Federal National Mortgage Association.......... 5.30 3/17/97 296,689
110,000 Federal National Mortgage Association.......... 5.34 3/18/97 108,769
50,000 Federal National Mortgage Association.......... 5.40 3/24/97 49,396
20,000 Federal National Mortgage Association.......... 5.28 4/03/97 19,731
15,000 Federal National Mortgage Association.......... 5.26 4/10/97 14,782
210,000 International Bank for Reconstruction and
Development.................................... 5.54 2/20/97 208,482
- ---------------------------------------------------------------------------------------------------------------------
TOTAL US GOVERNMENT, AGENCY & INSTRUMENTALITY
OBLIGATIONS--DISCOUNT (COST--$1,286,426) 1,286,605
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
110
<PAGE> 112
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--RESERVE ASSETS FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1996 (CONCLUDED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE INTEREST MATURITY VALUE
AMOUNT ISSUE RATE* DATE (NOTE 1a)
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
US GOVERNMENT, AGENCY $ 105,000 Federal Home Loan Bank......................... 6.12% 4/15/98 $ 104,967
& INSTRUMENTALITY 1,000,000 Federal National Mortgage Association+......... 5.85 2/14/97 1,000,494
OBLIGATIONS-- 1,000,000 Federal National Mortgage Association+......... 5.70 5/19/97 1,000,000
NON-DISCOUNT--30.7% 500,000 Federal National Mortgage Association+......... 5.521 5/22/97 499,870
300,000 Federal National Mortgage Association.......... 5.47 12/30/97 299,541
500,000 Federal National Mortgage Association+......... 5.46 4/24/98 499,750
1,000,000 Federal National Mortgage Association+......... 5.75 5/14/98 1,000,000
365,000 Student Loan Marketing Association+............ 5.62 1/23/97 365,018
200,000 US Treasury Notes.............................. 6.125 5/31/97 200,500
400,000 US Treasury Notes.............................. 8.50 7/15/97 406,437
200,000 US Treasury Notes.............................. 6.00 8/31/97 200,562
250,000 US Treasury Notes.............................. 5.75 9/30/97 250,449
650,000 US Treasury Notes.............................. 5.625 10/31/97 650,406
200,000 US Treasury Notes.............................. 5.375 11/30/97 199,594
150,000 US Treasury Notes.............................. 5.25 12/31/97 149,519
200,000 US Treasury Notes.............................. 5.625 11/30/98 199,156
- ---------------------------------------------------------------------------------------------------------------------
TOTAL US GOVERNMENT, AGENCY &
INSTRUMENTALITY OBLIGATIONS--
NON-DISCOUNT (COST--$7,026,821) 7,026,263
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST--$23,070,540)--100.8%.................... 23,070,288
LIABILITIES IN EXCESS OF OTHER
ASSETS--(0.8%)................................. (184,917)
-----------
NET ASSETS--100.0%............................. $22,885,371
===========
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* 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 rates 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, 1996.
+ Variable Rate Notes.
See Notes to Financial Statements.
111
<PAGE> 113
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
STATEMENTS OF ASSETS AND LIABILITIES AS OF DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BASIC DEVELOPING DOMESTIC
AMERICAN VALUE CAPITAL MONEY
BALANCED FOCUS MARKETS MARKET
FUND FUND FOCUS FUND FUND
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value* (Note 1a)........................... $210,545,210 $522,663,382 $ 96,192,191 $ 278,860,287
Cash....................................................... 993 -- 71 10,370
Foreign cash (Note 1c)..................................... -- -- 724,487 --
Receivable for securities sold............................. -- 3,242,613 435,288 --
Interest receivable........................................ 1,786,475 -- 40,392 1,069,959
Receivable for capital shares sold......................... -- 936,960 971,206 --
Dividends receivable....................................... 151,604 519,497 68,281 --
Deferred organization expenses (Note 1f)................... -- 1,440 -- --
Prepaid registration fees and other assets (Note 1f)....... 3,441 1,794 27,135 2,392
------------ ------------ ----------- ------------
Total assets............................................. 212,487,723 527,365,686 98,459,051 279,943,008
------------ ------------ ----------- ------------
- ---------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased........................... 166,848 1,672,743 2,753,565 3,197,475
Payable for capital shares redeemed........................ 135,085 322,896 26 1,832,621
Payable to investment adviser (Note 2)..................... 103,518 273,971 27,327 114,211
Accrued expenses and other liabilities..................... 35,258 165,912 79,231 42,687
------------ ------------ ----------- ------------
Total liabilities........................................ 440,709 2,435,522 2,860,149 5,186,994
------------ ------------ ----------- ------------
- ---------------------------------------------------------------------------------------------------------------------
NET ASSETS................................................. $212,047,014 $524,930,164 $ 95,598,902 $ 274,756,014
============ ============ =========== ============
- ---------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Common Stock, $0.10 par value+............................. $ 1,324,286 $ 3,562,243 $ 950,806 $ 27,477,548
Paid-in capital in excess of par........................... 174,548,138 422,337,791 92,662,419 247,297,930
Undistributed investment income--net....................... 3,604,288 3,224,622 1,752,408 --
Undistributed (accumulated) realized capital gains (losses)
on investments and foreign currency transactions--net
(Note 5)................................................. 20,595,249 52,901,365 (4,054,029) --
Unrealized appreciation (depreciation) on investments and
foreign currency transactions--net....................... 11,975,053 42,904,143 4,287,298 (19,464)
------------ ------------ ----------- ------------
NET ASSETS................................................. $212,047,014 $524,930,164 $ 95,598,902 $ 274,756,014
============ ============ =========== ============
- ---------------------------------------------------------------------------------------------------------------------
CAPITAL SHARES OUTSTANDING................................. 13,242,862 35,622,430 9,508,063 274,775,478
============ ============ =========== ============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE... $ 16.01 $ 14.74 $ 10.05 $ 1.00
============ ============ =========== ============
- ---------------------------------------------------------------------------------------------------------------------
* Identified cost.......................................... $198,570,157 $479,759,239 $ 91,897,323 $ 278,879,751
============ ============ =========== ============
+ Authorized shares........................................ 100,000,000 100,000,000 100,000,000 1,300,000,000
============ ============ =========== ============
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
112
<PAGE> 114
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
STATEMENTS OF ASSETS AND LIABILITIES AS OF DECEMBER 31, 1996 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GLOBAL GLOBAL GLOBAL
EQUITY BOND STRATEGY UTILITY
GROWTH FOCUS FOCUS FOCUS
FUND FUND++ FUND FUND
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value* (Note 1a)............................ $451,805,311 $100,348,183 $867,228,567 $142,177,130
Cash........................................................ 608 10,072 194,752 25,262
Foreign cash (Note 1c)...................................... -- 60,267 15,583,973 340
Interest receivable......................................... 58,494 2,094,950 3,816,480 33,360
Receivable for forward foreign exchange contracts (Note
1b)....................................................... -- 141,607 3,709,150 --
Receivable for securities sold.............................. 1,151,250 2,666,378 -- --
Dividends receivable........................................ 312,385 -- 1,082,249 430,750
Receivable for capital shares sold.......................... 703,607 779 414 78,173
Deferred organization expenses (Note 1f).................... -- 2,367 -- 2,414
Prepaid registration fees and other assets (Note 1f)........ 2,555 642 3,600 918
------------ ------------ ------------ ------------
Total assets.............................................. 454,034,210 105,325,245 891,619,185 142,748,347
------------ ------------ ------------ ------------
- ---------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Unrealized depreciation on forward foreign exchange
contracts (Note 1b)....................................... -- 78,492 2,598,413 --
Payable for securities purchased............................ 561,675 11,126,689 16,114,249 --
Payable for capital shares redeemed......................... 48,793 104,824 691,642 177,446
Payable to investment adviser (Note 2)...................... 293,221 43,076 496,049 74,269
Accrued expenses and other liabilities...................... 101,256 164,790 1,434,257 58,831
Payable for forward foreign exchange contracts (Note 1b).... -- -- 81,757 --
Variation margin on stock index futures contracts (Note
1b)....................................................... -- 17,464 -- --
------------ ------------ ------------ ------------
Total liabilities......................................... 1,004,945 11,535,335 21,416,367 310,546
------------ ------------ ------------ ------------
- ---------------------------------------------------------------------------------------------------------------------
NET ASSETS.................................................. $453,029,265 $ 93,789,910 $870,202,818 $142,437,801
============ ============ ============ ============
- ---------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Common Stock, $0.10 par value+.............................. $ 1,727,480 $ 960,915 $ 6,272,330 $ 1,168,693
Paid-in capital in excess of par............................ 374,280,783 94,976,976 746,052,734 117,927,335
Undistributed investment income--net........................ 1,422,632 118,851 20,579,673 1,132,021
Undistributed (accumulated) realized capital gains (losses) on
investments and foreign currency transactions--net (Note
5)........................................................ 22,041,727 (1,230,690) 26,215,075 (2,628,376)
Unrealized appreciation (depreciation) on investments and
foreign currency transactions--net........................ 53,556,643 (1,036,142) 71,083,006 24,838,128
------------ ------------ ------------ ------------
NET ASSETS.................................................. $453,029,265 $ 93,789,910 $870,202,818 $142,437,801
============ ============ ============ ============
- ---------------------------------------------------------------------------------------------------------------------
CAPITAL SHARES OUTSTANDING.................................. 17,274,795 9,609,151 62,723,303 11,686,930
============ ============ ============ ============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE.... $ 26.22 $ 9.76 $ 13.87 $ 12.19
============ ============ ============ ============
- ---------------------------------------------------------------------------------------------------------------------
* Identified cost........................................... $398,248,668 $101,153,795 $793,370,058 $117,339,737
============ ============ ============ ============
+ Authorized shares......................................... 100,000,000 100,000,000 200,000,000 100,000,000
============ ============ ============ ============
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
++ International Bond Fund was acquired by World Income Focus Fund. Subsequent
to the acquisition, World Income Focus Fund changed its name to Global Bond
Focus Fund.
See Notes to Financial Statements.
113
<PAGE> 115
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
STATEMENTS OF ASSETS AND LIABILITIES AS OF DECEMBER 31, 1996 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HIGH
GOVERNMENT CURRENT INTERNATIONAL
BOND INCOME INDEX 500 EQUITY FOCUS
FUND++ FUND FUND++++ FUND
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value* (Note 1a)............................ $ 87,831,280 $410,867,543 $ 10,844,116 $ 347,717,218
Options purchased, at value (premiums paid-$597,405) (Notes
1a & 1b).................................................. -- -- -- 705,275
Variation margin on stock index futures contracts (Note
1b)....................................................... -- -- -- 51,556
Cash........................................................ 776 -- -- 11,007
Foreign cash (Note 1c)...................................... -- -- -- 814,905
Receivable for options written.............................. -- -- -- 26,960
Interest receivable......................................... 1,419,180 6,689,392 -- 210
Receivable for capital shares sold.......................... 365,988 2,353 -- 287,014
Dividends receivable........................................ -- -- 7,216 306,875
Receivable for securities sold.............................. -- -- 1,881 294,641
Receivable for forward foreign exchange contracts (Note
1b)....................................................... -- -- -- 217,542
Receivable from investment adviser (Note 2)................. -- -- 1,651 --
Receivable for loaned securities (Note 6)................... 83 -- -- --
Deferred organization expenses (Note 1f).................... -- -- 14,852 --
Prepaid registration fees and other assets (Note 1f)........ 717 5,893 -- 3,416
------------ ------------ ------------ ------------
Total assets.............................................. 89,618,024 417,565,181 10,869,716 350,436,619
------------ ------------ ------------ ------------
- ---------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Options written, at value (premiums received-$117,250)
(Notes 1a & 1b)........................................... -- -- -- 154,869
Unrealized depreciation on forward foreign exchange
contracts (Note 1b)....................................... -- -- -- 305
Payable for custodian bank (Note 1h)........................ -- 2,604,491 -- --
Payable for securities purchased............................ -- -- 63,798 604,180
Payable to investment adviser (Note 2)...................... 12,244 172,193 -- 225,798
Payable for capital shares redeemed......................... -- 83,294 22 8,823
Variation margin on stock index futures contracts (Note
1b)....................................................... -- -- 29,200 --
Accrued expenses and other liabilities...................... 24,988 90,285 24,856 362,815
------------ ------------ ------------ ------------
Total liabilities......................................... 37,232 2,950,263 117,876 1,356,790
------------ ------------ ------------ ------------
- ---------------------------------------------------------------------------------------------------------------------
NET ASSETS.................................................. $ 89,580,792 $414,614,918 $ 10,751,840 $ 349,079,829
============ ============ ============ ============
- ---------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Common Stock, $0.10 par value+.............................. $ 861,700 $ 3,638,978 $ 105,735 $ 3,002,760
Paid-in capital in excess of par............................ 87,437,337 412,111,475 10,476,301 329,573,888
Undistributed investment income--net........................ 484,603 3,786,391 16,863 4,510,300
Undistributed (accumulated) realized capital gains (losses)
on investments and foreign currency
transactions--net (Note 5)................................ (154,414) (5,478,242) (193) 192,008
Unrealized appreciation on investments and foreign currency
transactions--net......................................... 951,566 556,316 153,134 11,800,873
------------ ------------ ------------ ------------
NET ASSETS.................................................. $ 89,580,792 $414,614,918 $ 10,751,840 $ 349,079,829
============ ============ ============ ============
- ---------------------------------------------------------------------------------------------------------------------
CAPITAL SHARES OUTSTANDING.................................. 8,617,002 36,389,781 1,057,347 30,027,594
============ ============ ============ ============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE.... $ 10.40 $ 11.39 $ 10.17 $ 11.63
============ ============ ============ ============
- ---------------------------------------------------------------------------------------------------------------------
* Identified cost........................................... $ 86,879,714 $410,311,227 $ 10,696,027 $ 335,887,786
============ ============ ============ ============
+ Authorized shares......................................... 100,000,000 100,000,000 100,000,000 100,000,000
============ ============ ============ ============
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
++ Formerly known as Intermediate Government Bond Fund.
++++ The Fund commenced operations on December 13, 1996.
See Notes to Financial Statements.
114
<PAGE> 116
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
STATEMENTS OF ASSETS AND LIABILITIES AS OF DECEMBER 31, 1996 (CONCLUDED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NATURAL
RESOURCES PRIME QUALITY RESERVE
FOCUS BOND EQUITY ASSETS
FUND FUND FUND FUND
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value* (Note 1a)............................ $ 45,411,176 $529,710,728 $794,534,036 $ 23,070,288
Cash........................................................ 507 654 85 6,098
Interest receivable......................................... -- 8,433,549 -- 88,796
Receivable for securities sold.............................. 39,532 5,093,200 -- --
Dividends receivable........................................ 59,829 -- 1,227,381 --
Receivable for capital shares sold.......................... -- 498,018 365,270 39,787
Receivable for loaned securities (Note 6)................... -- 610 -- --
Prepaid registration fees and other assets (Note 1f)........ 403 7,494 5,695 2,561
------------ ------------ ------------ ------------
Total assets.............................................. 45,511,447 543,744,253 796,132,467 23,207,530
------------ ------------ ------------ ------------
- ---------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased............................ 220,652 4,996,751 1,289,280 299,763
Payable to investment adviser (Note 2)...................... 25,855 201,657 304,791 9,534
Payable for capital shares redeemed......................... 50,989 54,060 110,758 820
Accrued expenses and other liabilities...................... 16,956 98,057 152,410 12,042
------------ ------------ ------------ ------------
Total liabilities......................................... 314,452 5,350,525 1,857,239 322,159
------------ ------------ ------------ ------------
- ---------------------------------------------------------------------------------------------------------------------
NET ASSETS.................................................. $ 45,196,995 $538,393,728 $794,275,228 $ 22,885,371
============ ============ ============ ============
- ---------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Common Stock, $0.10 par value+.............................. $ 344,378 $ 4,521,158 $ 2,419,424 $ 2,288,562
Paid-in capital in excess of par............................ 36,969,567 542,786,415 651,091,058 20,597,061
Undistributed investment income--net........................ 221,415 3,129,844 5,217,038 --
Undistributed (accumulated) realized capital gains (losses) on
investments and foreign currency transactions--net (Note
5)........................................................ 2,970,842 (15,731,248) 36,740,639 --
Unrealized appreciation (depreciation) on investments and
foreign currency transactions--net........................ 4,690,793 3,687,559 98,807,069 (252)
------------ ------------ ------------ ------------
NET ASSETS.................................................. $ 45,196,995 $538,393,728 $794,275,228 $ 22,885,371
============ ============ ============ ============
- ---------------------------------------------------------------------------------------------------------------------
CAPITAL SHARES OUTSTANDING.................................. 3,443,783 45,211,583 24,194,244 22,885,622
============ ============ ============ ============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE.... $ 13.12 $ 11.91 $ 32.83 $ 1.00
============ ============ ============ ============
- ---------------------------------------------------------------------------------------------------------------------
* Identified cost........................................... $ 40,722,448 $526,023,169 $695,726,967 $ 23,070,540
============ ============ ============ ============
+ Authorized shares......................................... 100,000,000 100,000,000 100,000,000 500,000,000
============ ============ ============ ============
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
115
<PAGE> 117
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BASIC DEVELOPING DOMESTIC
AMERICAN VALUE CAPITAL MONEY
BALANCED FOCUS MARKETS MARKET
FUND FUND FOCUS FUND FUND
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (NOTES 1d & 1e):
Interest and discount earned...................................... $ 6,807,063 $ 2,321,975 $ 557,486 $15,317,537
Dividends*........................................................ 1,833,183 5,869,178 2,257,621 --
----------- ----------- ---------- -----------
Total income...................................................... 8,640,246 8,191,153 2,815,107 15,317,537
----------- ----------- ---------- -----------
- ---------------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2)................................. 1,186,936 2,414,605 765,718 1,386,726
Custodian fees.................................................... 27,739 39,578 192,342 17,641
Accounting services (Note 2)...................................... 47,193 94,151 17,633 49,358
Professional fees................................................. 20,794 27,988 8,370 29,810
Registration fees (Note 1f)....................................... 2,869 62,939 10,191 24
Directors' fees and expenses...................................... 5,004 7,451 1,383 6,723
Transfer agent fees (Note 2)...................................... 5,006 4,958 5,007 5,020
Pricing services.................................................. 685 232 6,224 --
Amortization of organization expenses (Note 1f)................... -- 720 2,667 1,340
Other............................................................. 4,250 5,250 -- 10,742
----------- ----------- ---------- -----------
Total expenses before reimbursement............................... 1,300,476 2,657,872 1,009,535 1,507,384
Reimbursement of expenses (Note 2)................................ -- -- (52,388) --
----------- ----------- ---------- -----------
Total expenses after reimbursement................................ 1,300,476 2,657,872 957,147 1,507,384
----------- ----------- ---------- -----------
Investment income--net............................................ 7,339,770 5,533,281 1,857,960 13,810,153
----------- ----------- ---------- -----------
- ---------------------------------------------------------------------------------------------------------------------
REALIZED & UNREALIZED GAIN (LOSS) ON INVESTMENTS & FOREIGN
CURRENCY TRANSACTIONS--NET (NOTES 1b, 1c, 1e & 3):
Realized gain (loss) on investments--net.......................... 21,869,723 56,406,548 (51,709) 12,359
Realized loss on foreign currency transactions--net............... -- -- (105,274) --
Change in unrealized appreciation/depreciation on
investments--net................................................ (9,430,963) 13,550,612 4,837,024 (157,747)
Change in unrealized appreciation/depreciation on foreign currency
transactions.................................................... -- -- (7,883) --
----------- ----------- ---------- -----------
Total realized and unrealized gain (loss) on investments and
foreign currency transactions--net.............................. 12,438,760 69,957,160 4,672,158 (145,388)
----------- ----------- ---------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............. $19,778,530 $75,490,441 $6,530,118 $13,664,765
=========== =========== ========== ===========
- ---------------------------------------------------------------------------------------------------------------------
* Net of withholding tax on dividends............................. $ 873 $ 159,174 $ 103,221 --
=========== =========== ========== ===========
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
116
<PAGE> 118
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GLOBAL GLOBAL GLOBAL
EQUITY BOND STRATEGY UTILITY
GROWTH FOCUS FOCUS FOCUS
FUND FUND FUND FUND
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (NOTES 1d & 1e):
Interest and discount earned*.................................. $ 2,906,699 $7,362,977 $ 11,236,222 $ 659,024
Dividends**.................................................... 2,359,527 68,036 8,177,095 6,059,957
Other income................................................... -- 42,863 4,675 --
----------- ---------- ------------ -----------
Total income................................................... 5,266,226 7,473,876 19,417,992 6,718,981
----------- ---------- ------------ -----------
- ---------------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2).............................. 3,010,613 518,022 3,715,122 880,959
Custodian fees................................................. 42,130 30,154 165,186 29,004
Accounting services (Note 2)................................... 90,851 18,069 107,351 31,814
Professional fees.............................................. 29,504 11,372 50,835 15,356
Registration fees (Note 1f).................................... 49,227 562 -- 19
Directors' fees and expenses................................... 8,142 1,898 12,226 3,283
Transfer agent fees (Note 2)................................... 5,002 5,002 5,006 5,007
Pricing services............................................... -- 5,093 3,930 --
Amortization of organization expenses (Note 1f)................ -- 1,578 -- 863
Other.......................................................... 5,389 2,016 17,599 4,391
----------- ---------- ------------ -----------
Total expenses................................................. 3,240,858 593,766 4,077,255 970,696
----------- ---------- ------------ -----------
Investment income--net......................................... 2,025,368 6,880,110 15,340,737 5,748,285
----------- ---------- ------------ -----------
- ---------------------------------------------------------------------------------------------------------------------
REALIZED & UNREALIZED GAIN (LOSS) ON INVESTMENTS & FOREIGN
CURRENCY TRANSACTIONS--NET (NOTES 1b, 1c, 1e & 3):
Realized gain on investments--net.............................. 22,199,518 905,735 45,320,331 1,243,231
Realized gain (loss) on foreign currency transactions--net..... -- (75,020) 15,637,082 (46,439)
Change in unrealized appreciation/depreciation on
investments--net............................................. 5,970,999 (531,602) 37,056,845 10,440,233
Change in unrealized appreciation/depreciation on foreign
currency transactions........................................ -- (174,496) (12,458,193) (9,723)
----------- ---------- ------------ -----------
Total realized and unrealized gain on investments and foreign
currency transactions--net................................... 28,170,517 124,617 85,556,065 11,627,302
----------- ---------- ------------ -----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........... $30,195,885 $7,004,727 $100,896,802 $17,375,587
=========== ========== ============ ===========
- ---------------------------------------------------------------------------------------------------------------------
* Net of withholding tax on interest.......................... $ -- $ 32,711 $ 80,349 $ --
=========== ========== ============ ===========
** Net of withholding tax on dividends......................... $ 3,500 $ -- $ 462,853 $ 350,006
=========== ========== ============ ===========
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
117
<PAGE> 119
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HIGH INTERNATIONAL
GOVERNMENT CURRENT EQUITY
BOND INCOME INDEX 500 FOCUS
FUND FUND FUND+ FUND
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (NOTES 1d & 1e):
Interest and discount earned*..................................... $3,898,013 $37,867,841 $ 9,587 $ 3,616,175
Dividends**....................................................... -- 883,127 7,276 5,353,531
Other income...................................................... 7,464 254,493 -- --
----------- ----------- -------- -----------
Total income...................................................... 3,905,477 39,005,461 16,863 8,969,706
----------- ----------- -------- -----------
- ---------------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2)................................. 297,926 1,881,541 1,638 2,358,140
Custodian fees.................................................... 12,035 38,264 500 278,327
Accounting services (Note 2)...................................... 13,454 85,714 120 68,951
Professional fees................................................. 7,193 35,064 -- 26,860
Registration fees (Note 1f)....................................... 14,717 26,617 441 27,017
Pricing services.................................................. 1,264 9,274 25 22,351
Directors' fees and expenses...................................... 1,009 8,229 -- 6,266
Transfer agent fees (Note 2)...................................... 4,991 4,960 417 4,589
Amortization of organization expenses (Note 1f)................... -- -- 148 1,383
Other............................................................. 1,191 6,439 -- 9,054
----------- ----------- -------- -----------
Total expenses before reimbursement............................... 353,780 2,096,102 3,289 2,802,938
Reimbursement of expenses (Note 2)................................ (264,214) -- (3,289) --
----------- ----------- -------- -----------
Expenses after reimbursement...................................... 89,566 2,096,102 -- 2,802,938
----------- ----------- -------- -----------
Investment income--net............................................ 3,815,911 36,909,359 16,863 6,166,768
----------- ----------- -------- -----------
- ---------------------------------------------------------------------------------------------------------------------
REALIZED & UNREALIZED GAIN (LOSS) ON INVESTMENTS & FOREIGN
CURRENCY TRANSACTIONS--NET (NOTES 1b, 1c, 1e & 3):
Realized gain (loss) on investments--net.......................... (154,413) (3,777,610) (193) 9,049,271
Realized gain on foreign currency transactions--net............... -- -- -- 889,867
Change in unrealized appreciation/depreciation on
investments--net................................................ (1,012,273) 8,565,962 153,134 3,256,180
Change in unrealized appreciation/depreciation on foreign currency
transactions.................................................... -- -- -- (745,643)
----------- ----------- -------- -----------
Total realized and unrealized gain (loss) on investments and
foreign currency transactions--net.............................. (1,166,686) 4,788,352 152,941 12,449,675
----------- ----------- -------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............. $2,649,225 $41,697,711 $169,804 $18,616,443
=========== =========== ======== ===========
- ---------------------------------------------------------------------------------------------------------------------
* Net of withholding tax on interest............................. $ -- $ -- $ -- $ 977
=========== =========== ======== ===========
** Net of withholding tax on dividends............................ $ -- $ -- $ -- $ 555,297
=========== =========== ======== ===========
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
+The Fund commenced operations on December 13, 1996.
See Notes to Financial Statements.
118
<PAGE> 120
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 (CONCLUDED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NATURAL
RESOURCES PRIME QUALITY RESERVE
FOCUS BOND EQUITY ASSETS
FUND FUND FUND FUND
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (NOTES 1d & 1e):
Interest and discount earned................................ $ 75,317 $ 35,506,054 $ 5,883,776 $ 1,323,908
Dividends*.................................................. 939,896 -- 11,052,176 --
Other income................................................ -- 58,223 3,074 --
---------- ----------- ------------ ----------
Total income................................................ 1,015,213 35,564,277 16,939,026 1,323,908
---------- ----------- ------------ ----------
- ---------------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2)........................... 297,742 2,160,063 3,136,852 118,827
Accounting services (Note 2)................................ 10,026 107,314 158,146 3,830
Custodian fees.............................................. 31,761 45,793 60,419 10,988
Professional fees........................................... 7,148 42,418 56,245 6,043
Registration fees (Note 1f)................................. 16 29,647 52,190 --
Directors' fees and expenses................................ 1,018 10,976 14,937 --
Transfer agent fees (Note 2)................................ 5,002 5,005 4,982 4,997
Pricing services............................................ 4,735 8,819 214 --
Other....................................................... 1,434 8,811 11,246 --
---------- ----------- ------------ ----------
Total expenses.............................................. 358,882 2,418,846 3,495,231 144,685
---------- ----------- ------------ ----------
Investment income--net...................................... 656,331 33,145,431 13,443,795 1,179,223
---------- ----------- ------------ ----------
- ---------------------------------------------------------------------------------------------------------------------
REALIZED & UNREALIZED GAIN (LOSS) ON INVESTMENTS & FOREIGN
CURRENCY TRANSACTIONS--NET (NOTES 1b, 1c, 1e & 3):
Realized gain on investments--net........................... 2,970,830 215,210 36,740,673 3,049
Realized gain (loss) on foreign currency
transactions--net......................................... (13,371) -- 147 --
Change in unrealized appreciation/depreciation on
investments--net.......................................... 2,055,840 (21,044,224) 67,969,744 (14,201)
Change in unrealized appreciation/depreciation on foreign
currency transactions..................................... 2,033 -- -- --
---------- ----------- ------------ ----------
Total realized and unrealized gain (loss) on investments and
foreign currency transactions--net........................ 5,015,332 (20,829,014) 104,710,564 (11,152)
---------- ----------- ------------ ----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ 5,671,663 $ 12,316,417 $118,154,359 $ 1,168,071
========== =========== ============ ==========
- ---------------------------------------------------------------------------------------------------------------------
* Net of withholding tax on dividends....................... $ 75,184 $ -- $ 262,454 $ --
========== =========== ============ ==========
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
119
<PAGE> 121
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMERICAN BALANCED FUND
----------------------------------
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------
INCREASE (DECREASE) IN NET ASSETS: 1996 1995
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Investment income--net......................................................... $ 7,339,770 $ 8,022,508
Realized gain (loss) on investments--net....................................... 21,869,723 (311,392)
Change in unrealized appreciation/depreciation on investments--net............. (9,430,963) 27,587,655
------------ ------------
Net increase in net assets resulting from operations........................... 19,778,530 35,298,771
------------ ------------
- ---------------------------------------------------------------------------------------------------------------------
DIVIDENDS & DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1g):
Investment income--net......................................................... (7,882,096) (7,173,644)
Realized gain on investments--net.............................................. (328,715) --
------------ ------------
Net decrease in net assets resulting from dividends and distributions to
shareholders................................................................... (8,210,811) (7,173,644)
------------ ------------
- ---------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 4):
Net increase (decrease) in net assets derived from capital share
transactions................................................................. (12,432,919) 25,836,347
------------ ------------
- ---------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Total increase (decrease) in net assets........................................ (865,200) 53,961,474
Beginning of year.............................................................. 212,912,214 158,950,740
------------ ------------
End of year*................................................................... $212,047,014 $212,912,214
============ ============
- ---------------------------------------------------------------------------------------------------------------------
*Undistributed investment income--net.......................................... $ 3,604,288 $ 4,146,614
============ ============
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
120
<PAGE> 122
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BASIC VALUE FOCUS FUND
- ----------------------------------
<S> <C>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------
<CAPTION>
1996 1995
- ----------------------------------
<S> <C>
$ 5,533,281 $ 3,967,636
56,406,548 13,595,994
13,550,612 34,077,480
- ------------ ------------
75,490,441 51,641,110
- ------------ ------------
- ----------------------------------
(4,571,085) (3,296,595)
(16,947,347) (7,106,929)
- ------------ ------------
(21,518,432) (10,403,524)
- ------------ ------------
- ----------------------------------
164,495,262 100,918,588
- ------------ ------------
- ----------------------------------
218,467,271 142,156,174
306,462,893 164,306,719
- ------------ ------------
$524,930,164 $306,462,893
============ ============
- ----------------------------------
$ 3,224,622 $ 2,262,426
============ ============
- ----------------------------------
</TABLE>
121
<PAGE> 123
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DEVELOPING CAPITAL
MARKETS FOCUS FUND
--------------------------------
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
INCREASE (DECREASE) IN NET ASSETS: 1996 1995
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Investment income--net.......................................................... $ 1,857,960 $ 1,186,414
Realized gain (loss) on investments and foreign currency transactions--net...... (156,983) (3,129,641)
Change in unrealized appreciation/depreciation on investments and foreign
currency transactions--net...................................................... 4,829,141 1,803,333
----------- -----------
Net increase (decrease) in net assets resulting from operations................. 6,530,118 (139,894)
----------- -----------
- ---------------------------------------------------------------------------------------------------------------------
DIVIDENDS & DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1g):
Investment income--net.......................................................... (1,385,673) (332,002)
Realized gain on investments--net............................................... -- --
----------- -----------
Net decrease in net assets resulting from dividends and distributions to
shareholders.................................................................... (1,385,673) (332,002)
----------- -----------
- ---------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 4):
Net increase (decrease) in net assets derived from capital share transactions... 35,245,827 19,004,774
----------- -----------
- ---------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Total increase (decrease) in net assets......................................... 40,390,272 18,532,878
Beginning of year............................................................... 55,208,630 36,675,752
----------- -----------
End of year*.................................................................... $95,598,902 $55,208,630
=========== ===========
- ---------------------------------------------------------------------------------------------------------------------
*Undistributed investment income--net (Note 1i)................................. $ 1,752,408 $ 1,184,973
=========== ===========
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
122
<PAGE> 124
================================================================================
<TABLE>
<CAPTION>
DOMESTIC MONEY
MARKET FUND
- -----------------------------------
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995
- -----------------------------------
<S> <C>
$ 13,810,153 $ 17,526,423
12,359 44,778
(157,747) 334,598
- ------------ ------------
13,664,765 17,905,799
- ------------ ------------
- -----------------------------------
(13,810,153) (17,526,423)
(12,359) (44,778)
- ------------ ------------
(13,822,512) (17,571,201)
- ------------- ------------
- ----------------------------------
(28,998,068) (59,621,869)
- ------------ ------------
- -----------------------------------
(29,155,815) (59,287,271)
303,911,829 363,199,100
- ------------ ------------
$274,756,014 $303,911,829
============ ============
- -----------------------------------
$ -- $ --
============ ============
- -----------------------------------
</TABLE>
123
<PAGE> 125
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EQUITY GROWTH FUND
---------------------------------
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------
INCREASE (DECREASE) IN NET ASSETS: 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Investment income--net......................................................... $ 2,025,368 $ 1,785,602
Realized gain on investments and foreign currency transactions--net............ 22,199,518 45,385,878
Change in unrealized appreciation/depreciation on investments and foreign
currency transactions--net..................................................... 5,970,999 44,941,516
------------ ------------
Net increase in net assets resulting from operations........................... 30,195,885 92,112,996
------------ ------------
- ---------------------------------------------------------------------------------------------------------------------
DIVIDENDS & DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1g):
Investment income--net......................................................... (1,882,603) (889,063)
Realized gain on investments--net.............................................. (43,561,906) --
------------ ------------
Net decrease in net assets resulting from dividends and distributions to
shareholders................................................................... (45,444,509) (889,063)
------------ ------------
- ---------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 4):
Net proceeds from issuance of capital shares................................... 128,356,735 78,653,598
Net proceeds from issuance of capital shares resulting from reorganization..... -- --
------------ ------------
Net increase in net assets derived from capital share transactions............. 128,356,735 78,653,598
------------ ------------
- ---------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Total increase in net assets................................................... 113,108,111 169,877,531
Beginning of year.............................................................. 339,921,154 170,043,623
------------ ------------
End of year*................................................................... $453,029,265 $339,921,154
============ ============
- ---------------------------------------------------------------------------------------------------------------------
*Undistributed investment income--net (Note 1i)................................ $ 1,422,632 $ 1,279,867
============ ============
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
124
<PAGE> 126
================================================================================
<TABLE>
<CAPTION>
GLOBAL BOND FOCUS FUND
--------------------------------
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
1996 1995
--------------------------------
<S> <C>
$ 6,880,110 $ 6,952,991
830,715 510,287
(706,098) 4,502,738
- ----------- ------------
7,004,727 11,966,016
- ----------- ------------
- --------------------------------
(6,810,949) (6,851,555)
-- --
- ----------- ------------
(6,810,949) (6,851,555)
- ----------- ------------
- --------------------------------
(6,069,072) 1,580,255
17,820,572 --
- ----------- ------------
11,751,500 1,580,255
- ----------- ------------
- --------------------------------
11,945,278 6,694,716
81,844,632 75,149,916
- ----------- ------------
$93,789,910 $81,844,632
=========== ============
- --------------------------------
$ 118,851 $ 765,308
=========== ============
- --------------------------------
</TABLE>
125
<PAGE> 127
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GLOBAL STRATEGY FOCUS FUND
----------------------------------
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------
INCREASE (DECREASE) IN NET ASSETS: 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Investment income--net......................................................... $ 15,340,737 $ 17,146,054
Realized gain (loss) on investments and foreign currency transactions--net..... 60,957,413 (23,380,052)
Change in unrealized appreciation/depreciation on investments and foreign
currency transactions--net..................................................... 24,598,652 58,162,628
------------ ------------
Net increase in net assets resulting from operations........................... 100,896,802 51,928,630
------------ ------------
- ---------------------------------------------------------------------------------------------------------------------
DIVIDENDS & DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1g):
Investment income--net......................................................... (12,699,527) (16,913,134)
In excess of realized gains on investments--net................................ -- (199,509)
------------ ------------
Net decrease in net assets resulting from dividends and distributions to
shareholders................................................................... (12,699,527) (17,112,643)
------------ ------------
- ---------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 4):
Net redemptions from capital shares............................................ (52,564,882) (9,981,690)
Net proceeds from issuance of capital shares resulting from reorganization..... 294,328,812 --
------------ ------------
Net increase (decrease) in net assets derived from capital share
transactions................................................................. 241,763,930 (9,981,690)
------------ ------------
- ---------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Total increase (decrease) in net assets........................................ 329,961,205 24,834,297
Beginning of year.............................................................. 540,241,613 515,407,316
------------ ------------
End of year*................................................................... $870,202,818 $540,241,613
============ ============
- ---------------------------------------------------------------------------------------------------------------------
*Undistributed investment income--net (Note 1i)................................ $ 20,579,673 $ 7,489,615
============ ============
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
126
<PAGE> 128
================================================================================
<TABLE>
<CAPTION>
GLOBAL UTILITY FOCUS FUND
- ----------------------------------
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995
- ----------------------------------
<S> <C>
$ 5,748,285 $ 5,942,408
1,196,792 (2,380,178)
10,430,510 26,090,740
- ------------ ------------
17,375,587 29,652,970
- ------------ ------------
- ----------------------------------
(6,739,387) (5,144,108)
-- --
- ------------ ------------
(6,739,387) (5,144,108)
- ------------ ------------
- ----------------------------------
16,423,676 2,526,392
-- --
- ------------ ------------
(16,423,676) (2,526,392)
- ------------ ------------
- ----------------------------------
(5,787,476) 21,982,470
148,225,277 126,242,807
- ------------ ------------
$142,437,801 $148,225,277
============ ============
- ----------------------------------
$ 1,132,021 $ 2,159,534
============ ============
- ----------------------------------
</TABLE>
127
<PAGE> 129
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOVERNMENT
BOND FUND
--------------------------------
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
INCREASE (DECREASE) IN NET ASSETS: 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Investment income--net.......................................................... $ 3,815,911 $ 1,796,464
Realized gain (loss) on investments--net........................................ (154,413) 192,982
Change in unrealized appreciation/depreciation on investments--net.............. (1,012,273) 2,024,581
----------- -----------
Net increase in net assets resulting from operations............................ 2,649,225 4,014,027
----------- -----------
- ---------------------------------------------------------------------------------------------------------------------
DIVIDENDS & DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1g):
Investment income--net.......................................................... (3,530,361) (1,670,786)
Realized gain on investments--net............................................... (137,668) --
----------- -----------
Net decrease in net assets resulting from dividends and distributions to
shareholders.................................................................... (3,668,029) (1,670,786)
----------- -----------
- ---------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 4):
Net increase in net assets derived from capital share transactions.............. 49,603,169 20,842,535
----------- -----------
- ---------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Total increase in net assets.................................................... 48,584,365 23,185,776
Beginning of year............................................................... 40,996,427 17,810,651
----------- -----------
End of year*.................................................................... $89,580,792 $40,996,427
=========== ===========
- ---------------------------------------------------------------------------------------------------------------------
*Undistributed investment income--net (Note 1i)................................. $ 484,603 $ 199,053
=========== ===========
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
128
<PAGE> 130
================================================================================
<TABLE>
<CAPTION>
HIGH CURRENT
INCOME FUND
- ----------------------------------
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995
- ----------------------------------
<S> <C>
$ 36,909,359 $ 30,889,361
(3,777,610) 589,358
8,565,962 16,336,511
- ------------ ------------
41,697,711 47,815,230
- ------------ ------------
- ----------------------------------
(36,130,450) (30,645,264)
-- --
- ------------ ------------
(36,130,450) (30,645,264)
- ------------ ------------
- ----------------------------------
52,695,717 83,463,234
- ------------ ------------
- ----------------------------------
58,262,978 100,633,200
356,351,940 255,718,740
- ------------ ------------
$414,614,918 $356,351,940
============ ============
- ----------------------------------
$ 3,786,391 $ 2,822,298
============ ============
- ----------------------------------
</TABLE>
129
<PAGE> 131
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDEX 500
FUND
---------------
FOR THE PERIOD
DEC. 13, 1996+
INCREASE (DECREASE) IN NET ASSETS: TO DEC. 31, 1996
---------------------------------------------------------------------------------------------------------------------
<S> <C>
OPERATIONS:
Investment income--net........................................................................... $ 16,863
Realized gain (loss) on investments and foreign currency transactions--net....................... (193)
Change in unrealized appreciation/depreciation on investments and foreign currency
transactions--net................................................................................ 153,134
-----------
Net increase in net assets resulting from operations............................................. 169,804
-----------
- ---------------------------------------------------------------------------------------------------------------------
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 in net assets derived from capital share transactions............................... 582,036
-----------
- ---------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Total increase in net assets..................................................................... 751,840
Beginning of period.............................................................................. 10,000,000
-----------
End of period*................................................................................... $ 10,751,840
===========
- ---------------------------------------------------------------------------------------------------------------------
*Undistributed investment income--net (Note 1i).................................................. $ 16,863
===========
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Commencement of Operations.
See Notes to Financial Statements.
130
<PAGE> 132
================================================================================
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY
FOCUS FUND
- ----------------------------------
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995
- ----------------------------------
<S> <C>
$ 6,166,768 $ 4,728,612
9,939,138 (7,417,463)
2,510,537 15,585,541
- ------------ ------------
18,616,443 12,896,690
- ------------ ------------
- ----------------------------------
(3,669,329) (151,930)
-- (3,904,078)
-- (5,275,618)
- ------------ ------------
(3,669,329) (9,331,626)
- ------------ ------------
- ----------------------------------
68,530,474 14,153,402
- ------------ ------------
- ----------------------------------
83,477,588 17,718,466
265,602,241 247,883,775
- ------------ ------------
$349,079,829 $265,602,241
============ ============
- ----------------------------------
$ 4,510,300 $ 4,974,839
============ ============
- ----------------------------------
</TABLE>
131
<PAGE> 133
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NATURAL RESOURCES
FOCUS FUND
--------------------------------
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
INCREASE (DECREASE) IN NET ASSETS: 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Investment income--net.......................................................... $ 656,331 $ 745,572
Realized gain on investments and foreign currency transactions--net............. 2,957,459 789,560
Change in unrealized appreciation/depreciation on investments and foreign
currency transactions--net...................................................... 2,057,873 3,506,951
----------- -----------
Net increase in net assets resulting from operations............................ 5,671,663 5,042,083
----------- -----------
- ---------------------------------------------------------------------------------------------------------------------
DIVIDENDS & DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1g):
Investment income--net.......................................................... (722,544) (719,125)
Realized gain on investments--net............................................... (740,711) (116,046)
----------- -----------
Net decrease in net assets resulting from dividends and distributions to
shareholders.................................................................... (1,463,255) (835,171)
----------- -----------
- ---------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 4):
Net increase (decrease) in net assets derived from capital share transactions... (2,113,764) (819,422)
----------- -----------
- ---------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Total increase in net assets.................................................... 2,094,644 3,387,490
Beginning of year............................................................... 43,102,351 39,714,861
----------- -----------
End of year*.................................................................... $45,196,995 $43,102,351
=========== ===========
- ---------------------------------------------------------------------------------------------------------------------
*Undistributed investment income-net (Note 1i).................................. $ 221,415 $ 315,714
=========== ===========
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
132
<PAGE> 134
================================================================================
<TABLE>
<CAPTION>
PRIME BOND FUND
- ----------------------------------
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995
- ----------------------------------
<S> <C>
$ 33,145,431 $ 30,681,580
215,210 2,850,926
(21,044,224) 46,631,310
- ------------ ------------
12,316,417 80,163,816
- ------------ ------------
- ----------------------------------
(32,511,472) (30,585,478)
-- --
- ------------ ------------
(32,511,472) (30,585,478)
- ------------ ------------
- ----------------------------------
68,750,815 49,025,455
- ------------ ------------
- ----------------------------------
48,555,760 98,603,793
489,837,968 391,234,175
- ------------ ------------
$538,393,728 $489,837,968
============ ============
- ----------------------------------
$ 3,129,844 $ 2,495,885
============ ============
- ----------------------------------
</TABLE>
133
<PAGE> 135
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS (CONCLUDED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
QUALITY EQUITY FUND
----------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------
INCREASE (DECREASE) IN NET ASSETS: 1996 1995
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Investment income--net.................................................... $ 13,443,795 $ 10,721,106
Realized gain on investments and foreign currency transactions--net....... 36,740,820 84,589,225
Change in unrealized appreciation/depreciation on investments and foreign
currency transactions--net................................................ 67,969,744 17,627,851
------------ ------------
Net increase in net assets resulting from operations...................... 118,154,359 112,938,182
------------ ------------
- ---------------------------------------------------------------------------------------------------------------------
DIVIDENDS & DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1g):
Investment income--net.................................................... (14,235,069) (8,042,730)
Realized gain on investments--net......................................... (84,325,410) (9,959,874)
------------ ------------
Net decrease in net assets resulting from dividends and distributions to
shareholders.............................................................. (98,560,479) (18,002,604)
------------ ------------
- ---------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 4):
Net increase (decrease) in net assets derived from capital share
transactions............................................................ 130,130,747 85,255,141
------------ ------------
- ---------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Total increase (decrease) in net assets................................... 149,724,627 180,190,719
Beginning of year......................................................... 644,550,601 464,359,882
------------ ------------
End of year*.............................................................. $ 794,275,228 $ 644,550,601
============ ============
- ---------------------------------------------------------------------------------------------------------------------
*Undistributed investment income--net (Note 1i)........................... $ 5,217,038 $ 6,008,129
============ ============
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
134
<PAGE> 136
================================================================================
<TABLE>
<CAPTION>
RESERVE ASSETS FUND
- ------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
- ------------------------------------
1996 1995
- ------------------------------------
<S> <C>
$ 1,179,223 $ 1,572,494
3,049 10,309
(14,201) 41,873
- ------------- ------------
1,168,071 1,624,676
- ------------- ------------
- ------------------------------------
(1,179,223) (1,572,494)
(3,049) (10,309)
- ------------- ------------
(1,182,272) (1,582,803)
- ------------- ------------
- ------------------------------------
(2,650,297) (6,688,035)
- ------------- ------------
- ------------------------------------
(2,664,498) (6,646,162)
25,549,869 32,196,031
- ------------- ------------
$ 22,885,371 $ 25,549,869
============= ============
- ------------------------------------
$ -- $ --
============= ============
- ------------------------------------
</TABLE>
135
<PAGE> 137
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMERICAN BALANCED FUND
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE BEEN -----------------------------------------------------------
DERIVED FROM INFORMATION PROVIDED IN THE FINANCIAL FOR THE YEAR ENDED DECEMBER 31,
STATEMENTS. -----------------------------------------------------------
INCREASE (DECREASE) IN NET ASSET VALUE: 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year...................... $ 15.17 $ 13.08 $ 14.08 $ 12.85 $ 12.82
-------- -------- -------- -------- -------
Investment income--net.................................. .53 .59 .48 .32 .31
Realized and unrealized gain (loss) on
investments--net...................................... .89 2.06 (1.06) 1.37 .37
-------- -------- -------- -------- -------
Total from investment operations........................ 1.42 2.65 (.58) 1.69 .68
-------- -------- -------- -------- -------
Less dividends and distributions:
Investment income--net................................ (.56) (.56) (.37) (.34) (.37)
Realized gain on investments--net..................... (.02) -- -- (.12) (.28)
In excess of realized gain on investments--net........ -- -- (.05) -- --
-------- -------- -------- -------- -------
Total dividends and distributions....................... (.58) (.56) (.42) (.46) (.65)
-------- -------- -------- -------- -------
Net asset value, end of year............................ $ 16.01 $ 15.17 $ 13.08 $ 14.08 $ 12.85
======== ======== ======== ======== =======
- ------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:*
Based on net asset value per share...................... 9.73% 20.81% (4.19%) 13.49% 5.72%
======== ======== ======== ======== =======
- ------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses................................................ .60% .61% .63% .70% .97%
======== ======== ======== ======== =======
Investment income--net.................................. 3.39% 4.22% 3.95% 3.20% 3.71%
======== ======== ======== ======== =======
- ------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of year (in thousands).................. $212,047 $212,912 $158,951 $115,420 $24,918
======== ======== ======== ======== =======
Portfolio turnover...................................... 236.50% 38.40% 35.36% 12.55% 36.34%
======== ======== ======== ======== =======
Average commission rate paid**.......................... $ .0610 -- -- -- --
======== ======== ======== ======== =======
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Total investment returns exclude insurance-related fees and expenses.
** For the fiscal years beginning on or after September 1, 1995, the Fund is
required to disclose its average commission rate per share for purchases and
sales of equity securities.
See Notes to Financial Statements.
136
<PAGE> 138
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BASIC VALUE FOCUS FUND
------------------------------------------------------
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE BEEN DERIVED FROM FOR THE YEAR ENDED FOR THE PERIOD
INFORMATION PROVIDED IN THE FINANCIAL STATEMENTS. DECEMBER 31, JULY 1, 1993+ TO
---------------------------------- DECEMBER 31,
INCREASE (DECREASE) IN NET ASSET VALUE: 1996 1995 1994 1993
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......................... $ 13.10 $ 11.10 $ 10.95 $ 10.00
-------- -------- -------- -------
Investment income--net........................................ .17 .18 .17 .04
Realized and unrealized gain on investments--net.............. 2.37 2.49 .08 .91
-------- -------- -------- -------
Total from investment operations.............................. 2.54 2.67 .25 .95
-------- -------- -------- -------
Less dividends and distributions:
Investment income--net...................................... (.18) (.19) (.10) --
Realized gain on investments--net........................... (.72) (.48) -- --
-------- -------- -------- -------
Total dividends and distributions............................. (.90) (.67) (.10) --
-------- -------- -------- -------
Net asset value, end of period................................ $ 14.74 $ 13.10 $ 11.10 $ 10.95
======== ======== ======== =======
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:**
Based on net asset value per share............................ 20.69% 25.49% 2.36% 9.50%++
======== ======== ======== =======
- ---------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses...................................................... .66% .66% .72% .86%*
======== ======== ======== =======
Investment income--net........................................ 1.37% 1.68% 2.08% 1.69%*
======== ======== ======== =======
- ---------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)...................... $524,930 $306,463 $164,307 $ 47,207
======== ======== ======== =======
Portfolio turnover............................................ 68.41% 74.10% 60.55% 30.86%
======== ======== ======== =======
Average commission rate paid++++.............................. $ .0549 -- -- --
======== ======== ======== =======
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Total investment returns exclude insurance-related fees and expenses.
+ Commencement of Operations.
++ Aggregate total investment return.
++++ For the fiscal years beginning on or after September 1, 1995, the Fund is
required to disclose its average commission rate per share for purchases
and sales of equity securities.
See Notes to Financial Statements.
137
<PAGE> 139
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DEVELOPING CAPITAL
MARKETS FOCUS FUND
--------------------------------------------
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE BEEN DERIVED FROM FOR THE YEAR ENDED FOR THE PERIOD
INFORMATION PROVIDED IN THE FINANCIAL STATEMENTS. DECEMBER 31, MAY 2, 1994+ TO
---------------------------------- DECEMBER 31,
1996 1995 1994
INCREASE (DECREASE) IN NET ASSET VALUE:
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................................. $ 9.32 $ 9.51 $ 10.00
-------- -------- --------
Investment income--net............................................... .20 .20 .09
Realized and unrealized gain (loss) on investments and foreign
currency transactions--net......................................... .76 (.30) (.58)
-------- -------- --------
Total from investment operations..................................... .96 (.10) (.49)
-------- -------- --------
Less dividends from investment income--net........................... (.23) (.09) --
-------- -------- --------
Net asset value, end of period....................................... $ 10.05 $ 9.32 $ 9.51
======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:**
Based on net asset value per share................................... 10.59% (1.08%) (4.90%)+++
======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses, net of reimbursement....................................... 1.25% 1.25% 1.29%*
======== ======== ========
Expenses............................................................. 1.31% 1.36% 1.35%*
======== ======== ========
Investment income--net............................................... 2.42% 2.73% 2.18%*
======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)............................. $ 95,599 $55,209 $ 36,676
======== ======== ========
Portfolio turnover................................................... 87.33% 62.53% 29.79%
======== ======== ========
Average commission rate paid++....................................... $ 0.0003 $ -- $ --
======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Total investment returns exclude insurance-related fees and expenses.
+ Commencement of Operations.
++ For the fiscal years beginning on or after September 1, 1995, the Fund is
required to disclose its average commission rate per share for purchases and
sales of equity securities. The "Average Commission Rate Paid" includes
commissions paid in foreign currencies, which have been converted into US
dollars using the prevailing exchange rate on the date of the transaction.
Such conversions may significantly affect the rate shown.
+++ Aggregate total investment return.
See Notes to Financial Statements.
138
<PAGE> 140
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DOMESTIC MONEY MARKET FUND
----------------------------------------------------------
FOR THE YEAR ENDED
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE BEEN DERIVED DECEMBER 31, FOR THE PERIOD
FROM INFORMATION PROVIDED IN THE FINANCIAL STATEMENTS. ----------------------------------------- FEB. 20, 1992+
TO DEC. 31,
INCREASE (DECREASE) IN NET ASSET VALUE: 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period...................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Investment income--net.................................... .0504 .0547 .0386 .0302 .0302
Realized and unrealized gain (loss) on investments--net... (.0005) .0012 (.0007) .0005 .0013
-------- -------- -------- -------- --------
Total from investment operations.......................... .0499 .0559 .0379 .0307 .0315
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net.................................. (.0504) (.0547) (.0386) (.0302) (.0302)
Realized gain on investments--net....................... (.0001) (.0002) -- (.0005) (.0010)
-------- -------- -------- -------- --------
Total dividends and distributions......................... (.0505) (.0549) (.0386) (.0307) (.0312)
-------- -------- -------- -------- --------
Net asset value, end of period............................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:**
Based on net asset value per share........................ 5.13% 5.64% 3.93% 3.10% 3.65%*
======== ======== ======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses, net of reimbursement............................ .54% .55% .50% .36% .32%*
======== ======== ======== ======== ========
Expenses.................................................. .54% .55% .57% .63% .88%*
======== ======== ======== ======== ========
Investment income--net, and realized gain on
investments--net........................................ 4.97% 5.50% 4.02% 3.03% 3.48%*
======== ======== ======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands).................. $274,756 $303,912 $363,199 $170,531 $ 41,128
======== ======== ======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Total investment returns exclude insurance-related fees and expenses.
+ Commencement of Operations.
See Notes to Financial Statements.
139
<PAGE> 141
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EQUITY GROWTH FUND+
--------------------------------------------------------
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE BEEN DERIVED FOR THE YEAR ENDED
FROM INFORMATION PROVIDED IN THE FINANCIAL STATEMENTS. DECEMBER 31,
--------------------------------------------------------
INCREASE (DECREASE) IN NET ASSET VALUE: 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year......................... $ 27.98 $ 19.26 $ 20.96 $ 17.80 $ 17.96
-------- -------- -------- -------- -------
Investment income (loss)--net.............................. .13 .17 .05 (.01) .01
Realized and unrealized gain (loss) on investments--net.... 1.84 8.64 (1.56) 3.17 (.10)
-------- -------- -------- -------- -------
Total from investment operations........................... 1.97 8.81 (1.51) 3.16 (.09)
-------- -------- -------- -------- -------
Less dividends and distributions:
Investment income--net................................... (.14) (.09) -- --++ (.07)
Realized gain on investments--net........................ (3.59) -- (.19) -- --
-------- -------- -------- -------- -------
Total dividends and distributions.......................... (3.73) (.09) (.19) -- (.07)
-------- -------- -------- -------- -------
Net asset value, end of year............................... $ 26.22 $ 27.98 $ 19.26 $ 20.96 $ 17.80
======== ======== ======== ======== =======
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:*
Based on net asset value per share......................... 8.11% 45.90% (7.27%) 17.78% (.53%)
======== ======== ======== ======== =======
- ---------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses................................................... .81% .81% .83% .96% 1.18%
======== ======== ======== ======== =======
Investment income (loss)--net.............................. .50% .72% .27% (.05%) .04%
======== ======== ======== ======== =======
- ---------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of year (in thousands)..................... $453,029 $339,921 $170,044 $ 98,976 $23,167
======== ======== ======== ======== =======
Portfolio turnover......................................... 80.84% 96.79% 88.48% 131.75% 98.64%
======== ======== ======== ======== =======
Average commission rate paid+++............................ $ .0598 $ -- $ -- $ -- $ --
======== ======== ======== ======== =======
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* Total investment returns exclude insurance-related fees and expenses.
+ Based on average shares outstanding during the year.
++ Amount is less than $.01 per share.
+++ For the fiscal years beginning on or after September 1, 1995, the Fund is
required to disclose its average commission rate per share for purchases
and sales of equity securities.
See Notes to Financial Statements.
140
<PAGE> 142
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GLOBAL BOND FOCUS FUND
----------------------------------------------------
FOR THE YEAR ENDED
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE BEEN DERIVED DECEMBER 31, FOR THE PERIOD
FROM INFORMATION PROVIDED IN THE FINANCIAL STATEMENTS. ---------------------------------- JULY 1, 1993+ TO
DECEMBER 31,
INCREASE (DECREASE) IN NET ASSET VALUE: 1996++ 1995++ 1994 1993
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................ $ 9.79 $ 9.17 $ 10.38 $ 10.00
-------- -------- -------- -------
Investment income--net...................................... .78 .85 .76 .25
Realized and unrealized gain (loss) on investments and
foreign currency transactions--net........................ (.03) .61 (1.19) .33
-------- -------- -------- -------
Total from investment operations............................ .75 1.46 (.43) .58
-------- -------- -------- -------
Less dividends and distributions:
Investment income--net.................................... (.78) (.84) (.76) (.20)
In excess of realized gain on investments--net............ -- -- (.02) --
-------- -------- -------- -------
Total dividends and distributions........................... (.78) (.84) (.78) (.20)
-------- -------- -------- -------
Net asset value, end of period.............................. $ 9.76 $ 9.79 $ 9.17 $ 10.38
======== ======== ======== =======
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:**
Based on net asset value per share.......................... 8.02% 16.69% (4.21%) 5.90%+++
======== ======== ======== =======
- ---------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... .69% .68% .75% .94%*
======== ======== ======== =======
Investment income--net...................................... 7.95% 8.99% 8.01% 6.20%*
======== ======== ======== =======
- ---------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands).................... $ 93,790 $ 81,845 $ 75,150 $ 50,737
======== ======== ======== =======
Portfolio turnover.......................................... 267.13% 132.57% 117.58% 54.80%
======== ======== ======== =======
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Total investment returns exclude insurance-related fees and expenses.
+ Commencement of Operations.
++ Based on average shares outstanding during the year.
+++ Aggregate total investment return.
See Notes to Financial Statements.
141
<PAGE> 143
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GLOBAL STRATEGY FOCUS FUND
--------------------------------------------------------------
FOR THE YEAR ENDED
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE BEEN DECEMBER 31, FOR THE PERIOD
DERIVED FROM INFORMATION PROVIDED IN THE FINANCIAL --------------------------------------------- FEB. 28, 1992+ TO
STATEMENTS. DECEMBER 31,
INCREASE (DECREASE) IN NET ASSET VALUE: 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............... $ 12.55 $ 11.73 $ 12.17 $ 10.22 $ 10.00
------- ------- ------- ------- -------
Investment income--net............................. .28 .39 .30 .16 .13
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net........... 1.33 .82 (.48) 1.96 .13
------- ------- ------- ------- -------
Total from investment operations................... 1.61 1.21 (.18) 2.12 .26
------- ------- ------- ------- -------
Less dividends and distributions:
Investment income--net........................... (.29) (.39) (.21) (.17) (.04)
Realized gain on investments--net................ -- --++ (.04) -- --
In excess of realized gain on investments--net... -- -- (.01)
------- ------- ------- ------- -------
Total dividends and distributions.................. (.29) (.39) (.26) (.17) (.04)
------- ------- ------- ------- -------
Net asset value, end of period..................... $ 13.87 $ 12.55 $ 11.73 $ 12.17 $ 10.22
======= ======= ======= ======= =======
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:**
Based on net asset value per share................. 13.17% 10.60% (1.46%) 21.03% 2.62%++++
======= ======= ======= ======= =====
- ---------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses, net of reimbursement..................... .71% .72% .77% .88% 1.25%*
======= ======= ======= ======= =====
Expenses........................................... .71% .72% .77% .88% 1.35%*
======= ======= ======= ======= =====
Investment income--net............................. 2.68% 3.33% 2.85% 2.41% 2.66%*
======= ======= ======= ======= =====
- ---------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)........... $870,203 $540,242 $515,407 $269,627 $15,527
======= ======= ======= ======= =======
Portfolio turnover................................. 173.44% 27.23% 21.03% 17.07% 14.47%
======= ======= ======= ======= =======
Average commission rate paid+++.................... $ .0143 $ -- $ -- $ -- $ --
======= ======= ======= ======= =======
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Total investment returns exclude insurance-related fees and expenses.
+ Commencement of Operations.
++ Amount is less than $.01 per share.
+++ For the fiscal years beginning on or after September 1, 1995, the Fund is
required to disclose its average commission rate per share for purchases
and sales of equity securities. The "Average Commission Rate Paid" includes
commissions paid in foreign currencies, which have been converted into US
dollars using the prevailing exchange rate on the date of the transaction.
Such conversions may significantly affect the rate shown.
++++ Aggregate total investment return.
See Notes to Financial Statements.
142
<PAGE> 144
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GLOBAL UTILITY FOCUS FUND
-----------------------------------------------------
FOR THE YEAR ENDED
DECEMBER 31, FOR THE PERIOD
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE BEEN DERIVED ---------------------------------- JULY 1, 1993+ TO
FROM INFORMATION PROVIDED IN THE FINANCIAL STATEMENTS. DECEMBER 31,
INCREASE (DECREASE) IN NET ASSET VALUE: 1996 1995 1994 1993
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................ $ 11.30 $ 9.45 $ 10.66 $ 10.00
-------- -------- -------- --------
Investment income--net...................................... .46 .45 .35 .04
Realized and unrealized gain (loss) on investments and
foreign currency transactions--net........................ .95 1.79 (1.25) .64
-------- -------- -------- --------
Total from investment operations............................ 1.41 2.24 (.90) .68
-------- -------- -------- --------
Less dividends and distributions:
Investment income--net.................................... (.52) (.39) (.29) (.02)
In excess of realized gain on investments--net............ -- -- (.02) --
-------- -------- -------- --------
Total dividends and distributions........................... (.52) (.39) (.31) (.02)
-------- -------- -------- --------
Net asset value, end of period.............................. $ 12.19 $ 11.30 $ 9.45 $ 10.66
======== ======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:**
Based on net asset value per share.......................... 12.96% 24.33% (8.51%) 6.85%+++
======== ======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... .66% .66% .73% .89%*
======== ======== ======== ========
Investment income--net...................................... 3.90% 4.44% 3.68% 2.84%*
======== ======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands).................... $142,438 $148,225 $126,243 $104,517
======== ======== ======== ========
Portfolio turnover.......................................... 11.39% 11.05% 9.52% 1.72%
======== ======== ======== ========
Average commission rate paid++.............................. $ .0522 $ -- $ -- $ --
======== ======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Total investment returns exclude insurance-related fees and expenses.
+ Commencement of Operations.
++ For the fiscal years beginning on or after September 1, 1995, the Fund is
required to disclose its average commission rate per share for purchases and
sales of equity securities. The "Average Commission Rate Paid" includes
commissions paid in foreign currencies, which have been converted into US
dollars using the prevailing exchange rate on the date of the transaction.
Such conversions may significantly affect the rate shown.
+++ Aggregate total investment return.
See Notes to Financial Statements.
143
<PAGE> 145
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOVERNMENT BOND FUND
---------------------------------------------
FOR THE YEAR ENDED
DECEMBER 31, FOR THE PERIOD
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE BEEN DERIVED FROM ------------------------- MAY 2, 1994+ TO
INFORMATION PROVIDED IN THE FINANCIAL STATEMENTS. DECEMBER 31,
INCREASE (DECREASE) IN NET ASSET VALUE: 1996 1995 1994
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................................ $ 10.79 $ 9.97 $ 10.00
-------- -------- --------
Investment income--net.............................................. .65 .62 .25
Realized and unrealized gain (loss) on investments--net............. (.36) .81 (.07)
-------- -------- --------
Total from investment operations.................................... .29 1.43 .18
-------- -------- --------
Less dividends and distributions:
Investment income--net............................................ (.64) (.61) (.21)
Realized gain on investments--net................................. (.04) -- --
-------- -------- --------
Total dividends and distributions................................... (.68) (.61) (.21)
-------- -------- --------
Net asset value, end of period...................................... $ 10.40 $ 10.79 $ 9.97
======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:**
Based on net asset value per share.................................. 2.86% 14.83% 1.79%++
======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses, net of reimbursement...................................... .15% .00% .00%*
======== ======== ========
Expenses............................................................ .59% .66% .80%*
======== ======== ========
Investment income--net.............................................. 6.39% 6.28% 4.66%*
======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)............................ $ 89,581 $ 40,996 $ 17,811
======== ======== ========
Portfolio turnover.................................................. 21.23% 45.39% 103.03%
======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Total investment returns exclude insurance-related fees and expenses.
+ Commencement of Operations.
++ Aggregate total investment return.
See Notes to Financial Statements.
144
<PAGE> 146
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HIGH CURRENT INCOME FUND
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE BEEN -----------------------------------------------------------
DERIVED FROM INFORMATION PROVIDED IN THE FINANCIAL FOR THE YEAR ENDED DECEMBER 31,
STATEMENTS. -----------------------------------------------------------
INCREASE (DECREASE) IN NET ASSET VALUE: 1996+ 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year...................... $ 11.25 $ 10.61 $ 12.06 $ 11.13 $ 10.23
-------- -------- -------- -------- -------
Investment income--net.................................. 1.08 1.09 1.05 .95 1.07
Realized and unrealized gain (loss) on
investments--net...................................... .12 .65 (1.47) .95 .90
-------- -------- -------- -------- -------
Total from investment operations........................ 1.20 1.74 (.42) 1.90 1.97
-------- -------- -------- -------- -------
Less dividends from investment income--net.............. (1.06) (1.10) (1.03) (.97) (1.07)
-------- -------- -------- -------- -------
Net asset value, end of year............................ $ 11.39 $ 11.25 $ 10.61 $ 12.06 $ 11.13
======== ======== ======== ======== =======
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:*
Based on net asset value per share...................... 11.27% 17.21% (3.59%) 17.84% 20.05%
======== ======== ======== ======== =======
- ---------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses................................................ .54% .55% .61% .72% .89%
======== ======== ======== ======== =======
Investment income--net.................................. 9.50% 9.92% 9.73% 8.62% 10.06%
======== ======== ======== ======== =======
- ---------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of year (in thousands).................. $414,615 $356,352 $255,719 $163,428 $26,343
======== ======== ======== ======== =======
Portfolio turnover...................................... 48.92% 41.60% 51.88% 35.67% 28.21%
======== ======== ======== ======== =======
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* Total investment returns exclude insurance-related fees and expenses.
+ Based on average shares outstanding during the year.
See Notes to Financial Statements.
145
<PAGE> 147
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDEX 500
FUND
-----------------
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE BEEN DERIVED FROM INFORMATION FOR THE PERIOD
PROVIDED IN THE FINANCIAL STATEMENTS. DEC. 13, 1996+ TO
INCREASE (DECREASE) IN NET ASSET VALUE: DEC. 31, 1996
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................................................... $ 10.00
--------
Investment income--net......................................................................... .02
Realized and unrealized gain on investments--net............................................... .15
--------
Total from investment operations............................................................... .17
--------
Net asset value, end of period................................................................. $ 10.17
========
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:**
Based on net asset value per share............................................................. 1.70%++
========
- ---------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses, net of reimbursement................................................................. .00%*
========
Expenses....................................................................................... .60%*
========
Investment income--net......................................................................... 3.08%*
========
- ---------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)....................................................... $ 10,752
========
Portfolio turnover............................................................................. .04%
========
Average commission rate paid................................................................... $ .0120
========
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
** Total investment returns exclude insurance-related fees and expenses.
+ Commencement of Operations.
++ Aggregate total investment return.
See Notes to Financial Statements.
146
<PAGE> 148
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FOCUS FUND
----------------------------------------------------
FOR THE YEAR ENDED
DECEMBER 31, FOR THE PERIOD
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE BEEN DERIVED FROM -------------------------------- JULY 1, 1993+ TO
INFORMATION PROVIDED IN THE FINANCIAL STATEMENTS. DECEMBER 31,
INCREASE (DECREASE) IN NET ASSET VALUE: 1996++ 1995 1994 1993
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............................ $ 11.06 $ 10.90 $ 11.03 $ 10.00
-------- -------- -------- -------
Investment income--net.......................................... .23 .20 .19 .01
Realized and unrealized gain (loss) on investments and foreign
currency transactions--net.................................... .49 .37 (.13) 1.02
-------- -------- -------- -------
Total from investment operations................................ .72 .57 .06 1.03
-------- -------- -------- -------
Less dividends and distributions:
Investment income--net........................................ (.15) (.01) (.18) --
Realized gain on investments--net............................. -- (.17) (.01) --
In excess of realized gain on investments--net................ -- (.23) -- --
-------- -------- -------- -------
Total dividends and distributions............................... (.15) (.41) (.19) --
-------- -------- -------- -------
Net asset value, end of period.................................. $ 11.63 $ 11.06 $ 10.90 $ 11.03
======== ======== ======== =======
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:**
Based on net asset value per share.............................. 6.62% 5.48% .55% 10.30%+++
======== ======== ======== =======
- ---------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses........................................................ .89% .89% .97% 1.14%*
======== ======== ======== =======
Investment income--net.......................................... 1.96% 1.95% 1.09% .30%*
======== ======== ======== =======
- ---------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)........................ $349,080 $265,602 $247,884 $76,906
======== ======== ======== =======
Portfolio turnover.............................................. 49.87% 100.02% 58.84% 17.39%
======== ======== ======== =======
Average commission rate paid***................................. $ .0004 $ -- $ -- $ --
======== ======== ======== =======
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Total investment returns exclude insurance-related fees and expenses.
*** For the fiscal years beginning on or after September 1, 1995, the Fund is
required to disclose its average commission rate per share for purchases and
sales of equity securities. The "Average Commission Rate Paid" includes
commissions paid in foreign currencies, which have been converted into US
dollars using the prevailing exchange rate on the date of the transaction.
Such conversions may significantly affect the rate shown.
+ Commencement of Operations.
++ Based on average shares outstanding during the period.
+++ Aggregate total investment return.
See Notes to Financial Statements.
147
<PAGE> 149
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NATURAL RESOURCES FOCUS FUND
-------------------------------------------------------
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE BEEN DERIVED FOR THE YEAR ENDED DECEMBER 31,
FROM INFORMATION PROVIDED IN THE FINANCIAL STATEMENTS. -------------------------------------------------------
INCREASE (DECREASE) IN NET ASSET VALUE: 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year........................ $ 11.95 $ 10.82 $ 10.82 $ 9.84 $ 10.06
------- ------- ------- ------- -------
Investment income--net.................................... .18 .20 .17 .11 .18
Realized and unrealized gain (loss) on investments and
foreign currency transactions--net...................... 1.40 1.15 (.02) .92 (.05)
------- ------- ------- ------- -------
Total from investment operations.......................... 1.58 1.35 .15 1.03 .13
------- ------- ------- ------- -------
Less dividends and distributions:
Investment income--net.................................. (.20) (.19) (.15) (.05) (.29)
Realized gain on investments--net....................... (.21) (.03) -- -- (.06)
------- ------- ------- ------- -------
Total dividends and distributions......................... (.41) (.22) (.15) (.05) (.35)
------- ------- ------- ------- -------
Net asset value, end of year.............................. $ 13.12 $ 11.95 $ 10.82 $ 10.82 $ 9.84
======= ======= ======= ======= =======
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:*
Based on net asset value per share........................ 13.52% 12.65% 1.44% 10.47% 1.36%
======= ======= ======= ======= =======
- ---------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses, net of reimbursement............................ .78% .78% .87% 1.13% 1.25%
======= ======= ======= ======= =======
Expenses.................................................. .78% .78% .87% 1.13% 1.27%
======= ======= ======= ======= =======
Investment income--net.................................... 1.43% 1.75% 1.91% 1.34% 2.00%
======= ======= ======= ======= =======
- ---------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of year (in thousands).................... $45,197 $43,102 $39,715 $14,778 $ 4,144
======= ======= ======= ======= =======
Portfolio turnover........................................ 31.11% 30.15% 10.94% 58.44% 22.88%
======= ======= ======= ======= =======
Average commission rate paid**............................ $ .0225 -- -- -- --
======= ======= ======= ======= =======
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* Total investment returns exclude insurance-related fees and expenses.
**For fiscal years beginning on or after September 1, 1995, the Fund is required
to disclose its average commission rate per share for purchases and sales of
equity securities. The "Average Commission Rate Paid" includes commissions
paid in foreign currencies, which have been converted into US dollars using
the prevailing exchange rate on the date of the transaction. Such conversions
may significantly affect the rate shown.
See Notes to Financial Statements.
148
<PAGE> 150
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRIME BOND FUND
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE BEEN -----------------------------------------------------------
DERIVED FROM INFORMATION PROVIDED IN THE FINANCIAL FOR THE YEAR ENDED DECEMBER 31,
STATEMENTS. -----------------------------------------------------------
INCREASE (DECREASE) IN NET ASSET VALUE: 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year...................... $ 12.45 $ 11.12 $ 12.64 $ 12.04 $ 12.02
-------- -------- -------- -------- -------
Investment income--net.................................. .80 .82 .77 .70 .79
Realized and unrealized gain (loss) on
investments--net...................................... (.55) 1.34 (1.36) .71 .04
-------- -------- -------- -------- -------
Total from investment operations........................ .25 2.16 (.59) 1.41 .83
-------- -------- -------- -------- -------
Less dividends and distributions:
Investment income--net................................ (.79) (.83) (.76) (.70) (.81)
Realized gain on investments--net..................... -- -- -- (.11) --
In excess of realized gain on investments--net........ -- -- (.17) -- --
-------- -------- -------- -------- -------
Total dividends and distributions....................... (.79) (.83) (.93) (.81) (.81)
-------- -------- -------- -------- -------
Net asset value, end of year............................ $ 11.91 $ 12.45 $ 11.12 $ 12.64 $ 12.04
======== ======== ======== ======== =======
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:*
Based on net asset value per share...................... 2.21% 20.14% (4.80%) 12.02% 7.27%
======== ======== ======== ======== =======
- ---------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses................................................ .49% .50% .54% .63% .78%
======== ======== ======== ======== =======
Investment income--net.................................. 6.67% 7.00% 6.74% 5.86% 6.76%
======== ======== ======== ======== =======
- ---------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of year (in thousands).................. $538,394 $489,838 $391,234 $314,091 $84,810
======== ======== ======== ======== =======
Portfolio turnover...................................... 91.88% 90.12% 139.89% 115.26% 82.74%
======== ======== ======== ======== =======
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* Total investment returns exclude insurance-related fees and expenses.
See Notes to Financial Statements.
149
<PAGE> 151
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
QUALITY EQUITY FUND
-------------------------------------------------------
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE BEEN DERIVED FOR THE YEAR ENDED DECEMBER 31,
FROM INFORMATION PROVIDED IN THE FINANCIAL STATEMENTS. -------------------------------------------------------
INCREASE (DECREASE) IN NET ASSET VALUE: 1996+ 1995+ 1994+ 1993 1992
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year.......................... $ 32.76 $ 27.74 $ 29.02 $ 25.48 $ 26.35
-------- -------- -------- -------- -------
Investment income--net...................................... .58 .58 .38 .24 .34
Realized and unrealized gain (loss) on investments and
foreign currency transactions--net........................ 4.44 5.48 (.74) 3.46 .32
-------- -------- -------- -------- -------
Total from investment operations............................ 5.02 6.06 (.36) 3.70 .66
-------- -------- -------- -------- -------
Less dividends and distributions:
Investment income--net.................................... (.66) (.45) (.25) (.12) (.58)
Realized gain on investments--net......................... (4.29) (.59) (.67) (.04) (.95)
-------- -------- -------- -------- -------
Total dividends and distributions........................... (4.95) (1.04) (.92) (.16) (1.53)
-------- -------- -------- -------- -------
Net asset value, end of year................................ $ 32.83 $ 32.76 $ 27.74 $ 29.02 $ 25.48
======== ======== ======== ======== =======
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:*
Based on net asset value per share.......................... 17.90% 22.61% (1.20%) 14.57% 2.69%
======== ======== ======== ======== =======
- ---------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... .49% .51% .54% .62% .74%
======== ======== ======== ======== =======
Investment income--net...................................... 1.89% 1.94% 1.39% 1.07% 1.54%
======== ======== ======== ======== =======
- ---------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of year (in thousands)...................... $794,275 $644,551 $464,360 $309,420 $87,977
======== ======== ======== ======== =======
Portfolio turnover.......................................... 88.30% 140.32% 60.57% 88.25% 62.54%
======== ======== ======== ======== =======
Average commission rate paid++.............................. $ .0615 -- -- -- --
======== ======== ======== ======== =======
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* Total investment returns exclude insurance-related fees and expenses.
+ Based on average shares outstanding during the period.
++ For fiscal years beginning on or after September 1, 1995, the Fund is
required to disclose its average commission rate per share for purchases and
sales of equity securities. The "Average Commission Rate Paid" includes
commissions paid in foreign currencies, which have been converted into US
dollars using the prevailing exchange rate on the date of the transaction.
Such conversions may significantly affect the rate shown.
See Notes to Financial Statements.
150
<PAGE> 152
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS (CONCLUDED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RESERVE ASSETS FUND
---------------------------------------------------
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE BEEN DERIVED FROM FOR THE YEAR ENDED DECEMBER 31,
INFORMATION PROVIDED IN THE FINANCIAL STATEMENTS. ---------------------------------------------------
INCREASE (DECREASE) IN NET ASSET VALUE: 1996 1995 1994 1993 1992
<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........................................... .0501 .0543 .0371 .0268 .0320
Realized and unrealized gain (loss) on investments--net.......... (.0005) .0018 (.0009) .0005 .0007
-------- -------- -------- -------- -------
Total from investment operations................................. .0496 .0561 .0362 .0273 .0327
-------- -------- -------- -------- -------
Less dividends and distributions:
Investment income--net......................................... (.0501) (.0543) (.0362) (.0268) (.0320)
Realized gain on investments--net.............................. (.0001) (.0004) -- (.0005) (.0005)
-------- -------- -------- -------- -------
Total dividends and distributions................................ (.0502) (.0547) (.0362) (.0273) (.0325)
-------- -------- -------- -------- -------
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............................... 5.13% 5.61% 3.79% 2.77% 3.29%
======== ======== ======== ======== =======
- ---------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses......................................................... .61% .61% .65% .70% .79%
======== ======== ======== ======== =======
Investment income--net, and realized gain on investments--net.... 4.96% 5.47% 3.75% 2.73% 3.36%
======== ======== ======== ======== =======
- ---------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of year (in thousands)........................... $22,885 $25,550 $32,196 $30,168 $26,767
======== ======== ======== ======== =======
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* Total investment returns exclude insurance-related fees and expenses.
See Notes to Financial Statements.
151
<PAGE> 153
- --------------------------------------------------------------------------------
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 16 separate funds ("Funds"
or "Fund") offering 16 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 other insurance
companies, which are 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, Global Bond Focus Fund, Global
Strategy Focus Fund, and Natural Resources 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 last available bid price prior to the
time of valuation. 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--Certain Funds 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 pur-
152
<PAGE> 154
- --------------------------------------------------------------------------------
pose of hedging the market risk on existing securities or the intended purchase
of securities. Futures contracts are contracts for delayed delivery of
securities at a specific future date and at a specific price or yield. Upon
entering into a contract, the Fund deposits and maintains as collateral such
initial margin as required by the exchange on which the transaction is effected.
Pursuant to the contract, the Fund agrees to receive from or pay to the broker
an amount of cash equal to the daily fluctuation in value of the contract. Such
receipts or payments are known as variation margin and are recorded by the Fund
as unrealized gains or losses. When the contract is closed, the Fund records a
realized gain or loss equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed.
- - Foreign currency options and futures--Certain Funds may also purchase or sell
listed or over-the-counter foreign currency options, foreign currency futures
and related options on foreign currency futures as a short or long hedge against
possible variations in foreign exchange rates. Such transactions may be effected
with respect to hedges on non-US dollar denominated securities owned by the
Fund, sold by the Fund but not yet delivered, or committed or anticipated to be
purchased by the Fund.
(c) Foreign currency transactions--
Transactions denominated in foreign currencies are recorded at the exchange rate
prevailing when recognized. Assets and liabilities denominated in foreign
currencies are valued at the exchange rate at the end of the period. Foreign
currency transactions are the result of settling (realized) or valuing
(unrealized) assets and liabilities expressed in foreign currencies into US
dollars. Realized and unrealized gains or losses from investments include the
effects of foreign exchange rates on investments.
(d) Income taxes--It is the 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. Dividends from foreign
securities where the ex-dividend date may have passed are subsequently recorded
when the Fund has determined the ex-dividend date. Interest income (including
amortization of premium and discount) is recognized on the accrual basis.
Realized gains and losses on security transactions are determined on the
identified cost basis.
(f) 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 adjusted to reflect permanent differences
between financial and tax reporting. These reclassifications have no effect on
net assets or net asset value per share.
2. INVESTMENT ADVISORY AGREEMENT AND TRANSACTIONS WITH AFFILIATES:
The Company has entered into an Investment Advisory Agreement with Merrill
Lynch 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 Funds' net assets at the following annual rates: 0.65% of the
average daily net assets of each of the 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 Government Bond Fund, 0.60% of the average daily net
assets of each of the Basic Value Focus Fund, Global Bond Focus Fund and Global
Utility Focus Fund, 0.75% of the average daily net assets of each of the Equity
Growth Fund and the International Equity Focus Fund, 0.30% of the average daily
net assets of the Index 500 Fund, 1.00% of the average daily net assets of the
Developing Capital Markets Focus
153
<PAGE> 155
- --------------------------------------------------------------------------------
Fund, and at the following annual rates with respect to the other Funds:
RESERVE ASSETS FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Portion of average daily value of net assets of the Fund:
- --------------------------------------------------------------------------
ADVISORY
FEE
- --------------------------------------------------------------------------
<S> <C>
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%
- --------------------------------------------------------------------------
</TABLE>
QUALITY EQUITY FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Portion of average daily value of net assets of the Fund:
- --------------------------------------------------------------------------
ADVISORY
FEE
- --------------------------------------------------------------------------
<S> <C>
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%
- -------------------------------------------------------
</TABLE>
HIGH CURRENT INCOME FUND AND PRIME BOND FUND
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
Portion of aggregate average daily value of net
assets of both Funds: Advisory Fee
- -------------------------------------------------------------------------
High Current Prime
Income Bond
Fund Fund
- -------------------------------------------------------------------------
<S> <C> <C>
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
then $750 million................................. 0.45% 0.40%
In excess of $750 million.......................... 0.40% 0.35%
- -------------------------------------------------------
</TABLE>
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 the Fund by MLAM which, in turn, will be reimbursed
by MLLA.
For the year ended December 31, 1996, MLAM earned fees of $765,718 for the
Developing Capital Markets Fund of which $52,388 was waived, $297,926 for the
Government Bond Fund of which $264,214 was voluntarily waived, and $1,638 for
the Index 500 Fund, all of which was voluntarily waived. In addition, MLAM has
also reimbursed the Index 500 Fund $1,651 in additional expenses.
For the year ended December 31, 1996, Merrill Lynch, Pierce, Fenner & Smith
Inc. ("MLPF&S"), an affiliate of MLAM, earned commissions on the execution of
portfolio security transactions as follows:
<TABLE>
<S> <C>
- --------------------------------------------------------------------------
American Balanced Fund........................................... $ 5,808
Basic Value Focus Fund........................................... 24,040
Developing Capital Markets Focus Fund............................ 45,365
Equity Growth Fund............................................... 1,500
Global Bond Focus Fund........................................... 625
Global Strategy Focus Fund....................................... 51,412
Global Utility Focus Fund........................................ 6,780
High Current Income Fund......................................... 3,750
International Equity Focus Fund.................................. 55,842
Natural Resources Focus Fund..................................... 3,285
Quality Equity Fund.............................................. 67,998
- --------------------------------------------------------------------------
</TABLE>
Accounting services are provided to the Company by MLAM at cost.
For the year ended December 31, 1996, Merrill Lynch Security Pricing Service,
an affiliate of MLPF&S, earned fees for providing security price quotations to
compute the Fund's net asset values as follows:
<TABLE>
<S> <C>
- --------------------------------------------------------------------------
American Balanced Fund........................................... $ 278
Global Bond Focus Fund........................................... 3,020
Global Strategy Focus Fund....................................... 175
Global Utility Focus Fund........................................ 77
Government Bond Fund............................................. 822
High Current Income Fund......................................... 7,269
Prime Bond Fund.................................................. 5,884
- --------------------------------------------------------------------------
</TABLE>
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 Funds' distributor, and/or
ML & Co.
154
<PAGE> 156
- --------------------------------------------------------------------------------
3. INVESTMENTS:
Purchases and sales of investments, excluding short-term securities, for the
year ended December 31, 1996 were as follows:
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Purchases Sales
- -------------------------------------------------------------------------------
<S> <C> <C>
American Balanced Fund........................ $ 468,212,355 $448,976,551
Basic Value Focus Fund........................ 324,382,250 244,338,802
Developing Capital Markets Focus Fund......... 97,734,651 60,019,618
Domestic Money Market Fund.................... -- --
Equity Growth Fund............................ 363,579,751 282,977,363
Global Bond Focus Fund........................ 204,794,563 211,818,050
Global Strategy Focus Fund.................... 994,958,721 869,964,495
Global Utility Focus Fund..................... 15,474,733 22,987,878
Government Bond Fund.......................... 59,565,793 11,232,578
High Current Income Fund...................... 202,112,872 171,527,776
Index 500 Fund................................ 9,342,346 1,881
International Equity Focus Fund............... 181,926,488 121,558,312
Natural Resources Focus Fund.................. 13,662,240 15,112,240
Prime Bond Fund............................... 488,860,103 421,701,849
Quality Equity Fund........................... 826,913,708 523,148,231
Reserve Assets Fund........................... -- --
- -------------------------------------------------------------------------------
</TABLE>
Transactions in options written for the year ended December 31, 1996, were as
follows:
INTERNATIONAL EQUITY FOCUS FUND
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nominal Value/
Number of Contracts
Covered by Premiums
Call Options Written Written Options Received
- ------------------------------------------------------------------------------
<S> <C> <C>
Outstanding call options written, beginning
of year................................... 6,800 $ 54,253
Options written............................ 9,004 685,805
Options expired............................ (15,769) (622,808)
-------- --------
Outstanding call options written, end of
year...................................... 35 $ 117,250
======== ========
- ----------------------------------------------------------------------------
</TABLE>
INTERNATIONAL EQUITY FOCUS FUND
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nominal Value/
Number of Contracts
Covered by Premiums
Put Options Written Written Options Received
- ----------------------------------------------------------------------------
<S> <C> <C>
Outstanding put options written, beginning
of year.................................... 914 $ 21,437
Options written............................. 1,240,000 8,866
Options expired............................. (1,240,914) (30,303)
---------- -------
Outstanding put options written, end of
year....................................... -- $ --
========== =======
- ----------------------------------------------------------------------------
</TABLE>
GLOBAL BOND FOCUS FUND
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nominal Value/
Number of Contracts
Covered by Premiums
Call Options Written Written Options Received
- ---------------------------------------------------------------------------
<S> <C> <C>
Outstanding call options written, beginning
of year................................... -- --
Options written............................ 17,530,792 $ 203,117
Options expired............................ (4,782,042) (84,608)
Options closed............................. (12,748,750) (118,509)
-------- --------
Outstanding call options written, end of
year...................................... -- $ --
======== ========
- ----------------------------------------------------------------------------
</TABLE>
At December 31, 1996, net unrealized appreciation (depreciation) and aggregate
cost for Federal income tax purposes were as follows:
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Basic Developing Domestic
American Value Capital Money
Balanced Focus Markets Market
Fund Fund Focus Fund Fund
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Appreciated
securities......... $ 13,527,140 $ 61,508,505 $11,560,298 $ 26,805
Depreciated
securities......... (1,612,879) (19,839,815) (7,410,808) (46,269)
------------ ------------- ----------- ------------
Net unrealized
appreciation
(depreciation)..... $ 11,914,261 $ 41,668,690 $ 4,149,490 $ (19,464)
============ ============= =========== ============
Cost for Federal
income tax
purposes........... $198,630,949 $ 480,994,692 $92,042,701 $278,879,751
============ ============= =========== ============
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Global Global Global
Equity Bond Strategy Utility
Growth Focus Focus Focus
Fund Fund Fund Fund
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Appreciated
securities........ $ 83,280,830 $ 1,830,484 $ 94,154,461 $ 28,483,400
Depreciated
securities........ (29,835,984) (2,656,113) (20,709,668) (3,646,007)
------------ ------------- ----------- ------------
Net unrealized
appreciation
(depreciation).... $ 53,444,846 $ (825,629) $ 73,444,793 $ 24,837,393
============ ============= =========== ============
Cost for Federal
income tax
purposes.......... $398,360,465 $ 101,173,812 $793,783,774 $117,339,737
============ ============= =========== ============
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
High International
Government Current Index Equity
Bond Income 500 Focus
Fund Fund Fund Fund
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Appreciated
securities......... $ 1,117,721 $ 19,337,378 $ 229,986 $ 33,699,478
Depreciated
securities......... (166,155) (19,093,901) (81,897) (22,707,701)
---------- ------------ ----------- ------------
Net unrealized
appreciation....... $ 951,566 $ 243,477 $ 148,089 $ 10,991,777
========== ============ =========== ============
Cost for Federal
income tax
purposes*.......... $ 86,879,714 $ 410,624,066 $10,696,027 $336,658,090
========== ============ =========== ============
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Natural
Resources Prime Quality Reserve
Focus Bond Equity Assets
Fund Fund Fund Fund
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Appreciated
securities........ $ 7,011,676 $ 8,898,661 $109,167,111 $ 2,247
Depreciated
securities........ (2,329,143) (5,291,507) (10,826,689) (2,499)
------------ ------------ ------------ ------------
Net unrealized
appreciation
(depreciation).... $ 4,682,533 $ 3,607,154 $ 98,340,422 $ (252)
============ ============ ============ ============
Cost for Federal
income tax
purposes.......... $ 40,728,643 $ 526,103,574 $696,193,614 $ 23,070,540
============ ============ ============ ============
- -------------------------------------------------------------------------------
*Net of premiums received on options written.
</TABLE>
155
<PAGE> 157
- --------------------------------------------------------------------------------
At December 31, 1996, net realized and unrealized gains (losses) were as
follows:
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMERICAN
BALANCED FUND BASIC VALUE
-------------------------- FOCUS FUND
Realized -------------------------
Gains Unrealized Realized Unrealized
(Losses) Gains Gains Gains
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Long-term investments.. $21,874,118 $ 11,975,053 $56,406,548 $42,904,143
Short-term
investments........... (4,395) -- -- --
----------- ----------- ----------- -----------
$21,869,723 $ 11,975,053 $56,406,548 $42,904,143
=========== =========== =========== ===========
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DEVELOPING CAPITAL
MARKETS FUND DOMESTIC MONEY
---------------------- MARKET FUND
Realized Unrealized ------------------
Gains Gains Realized Unrealized
(Losses) (Losses) Gains Losses
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Long-term investments............ $ (51,802) $4,294,868 -- --
Short-term investments........... 93 -- $12,359 $(19,464)
Foreign currency transactions.... (105,274) (7,570) -- --
--------- ---------- ------- --------
$(156,983) $4,287,298 $12,359 $(19,464)
========= ========== ======= ========
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
EQUITY GROWTH GLOBAL BOND
FUND FOCUS FUND
------------------------- ------------------------
Realized Realized Unrealized
Gains Unrealized Gains Gains
(Losses) Gains (Losses) (Losses)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Long-term investments.... $22,199,566 $53,556,643 $1,224,648 $ (805,740)
Short-term investments... (48) -- 168 128
Financial futures
contracts............... -- -- (321,503) (70,548)
Options written.......... -- -- 2,422 --
Currency options
purchased............... -- -- (59,398) --
Currency options
written................. -- -- (119,980) --
Foreign currency
transactions............ -- -- 483,430 (81,490)
Forward foreign exchange
contracts............... -- -- (379,072) (78,492)
----------- ----------- --------- -----------
$22,199,518 $53,556,643 $ 830,715 $(1,036,142)
=========== =========== ========= ===========
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
GLOBAL STRATEGY GLOBAL UTILITY
FOCUS FUND FOCUS FUND
------------------------- ------------------------
Realized Unrealized Realized
Gains Gains Gains Unrealized
(Losses) (Losses) (Losses) Gains
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Long-term investments.... $45,325,716 $73,858,509 $1,243,303 $24,837,393
Short-term investments... (5,385) -- (72) --
Foreign currency
transactions............ 105,281 (177,090) (46,439) 735
Forward foreign exchange
contracts............... 15,531,801 (2,598,413) -- --
----------- ----------- --------- -----------
$60,957,413 $71,083,006 $1,196,792 $24,838,128
=========== =========== ========= ===========
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
GOVERNMENT
BOND FUND HIGH CURRENT
-------------------- INCOME FUND
Realized ----------------------
Gains Unrealized Realized Unrealized
(Losses) Gains Losses Gains
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Long-term investments.......... $(155,827) $951,566 $(3,777,593) $556,316
Short-term investments......... 1,414 -- (17) --
--------- -------- ----------- --------
$(154,413) $951,566 $(3,777,610) $556,316
========= ======== =========== ========
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
INTERNATIONAL EQUITY
INDEX 500 FOCUS FUND
FUND ------------------------
------------------- Realized Unrealized
Realized Unrealized Gains Gains
Losses Gains (Losses) (Losses)
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Long-term investments.......... $(193) $148,089 $6,741,641 $11,550,686
Short-term investments......... -- -- 9,058 278,746
Stock index futures
contracts..................... -- 5,045 2,000,430 (87,011)
Options purchased.............. -- -- (71,729) (136,324)
Options written................ -- -- 104,705 (37,619)
Foreign currency
transactions.................. -- -- (170,376) (11,494)
Forward foreign exchange
contracts..................... -- -- 89,755 (305)
Currency options written....... -- -- 8,866 --
Currency options purchased..... -- -- 1,226,788 244,194
---- -------- ---------- -----------
$(193) $153,134 $9,939,138 $11,800,873
===== ======== ========== ===========
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NATURAL RESOURCES
FOCUS FUND
----------------------- PRIME BOND FUND
Realized -----------------------
Gains Unrealized Realized Unrealized
(Losses) Gains Gains Gains
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Long-term investments....... $2,970,799 $4,688,728 $ 215,210 $3,687,559
Short-term investments...... 31 -- -- --
Foreign currency
transactions............... (13,371) 2,065 -- --
--------- ---------- ------- --------
$2,957,459 $4,690,793 $ 215,210 $3,687,559
========= ========== ======= ========
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
QUALITY EQUITY FUND
------------------------- RESERVE ASSETS FUND
Realized ----------------------
Gains Unrealized Realized Unrealized
(Losses) Gains Gains Losses
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Long-term investments...... $36,744,079 $98,807,069 -- --
Short-term investments..... (3,406) -- $3,049 $ (252)
Foreign currency
transactions.............. 147 -- -- --
----------- ----------- ------ -----
$36,740,820 $98,807,069 $3,049 $ (252)
=========== =========== ====== =====
- -------------------------------------------------------------------------------
</TABLE>
4. CAPITAL SHARE TRANSACTIONS:
Transactions in capital shares were as follows:
AMERICAN BALANCED FUND
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended Dollar
December 31, 1996 Shares Amount
- -----------------------------------------------------------------------------
<S> <C> <C>
Shares sold..................................... 578,134 $ 8,724,352
Shares issued to shareholders in reinvestment of
dividends and distributions.................... 554,530 8,210,811
---------- ------------
Total issued.................................... 1,132,664 16,935,163
Shares redeemed................................. (1,921,234) (29,368,082)
---------- ------------
Net decrease.................................... (788,570) $(12,432,919)
========== ============
- -----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
For the Year Ended Dollar
December 31, 1995 Shares Amount
- -----------------------------------------------------------------------------
<S> <C> <C>
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
========= ============
- -----------------------------------------------------------------------------
</TABLE>
BASIC VALUE FOCUS FUND
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended Dollar
December 31, 1996 Shares Amount
- -----------------------------------------------------------------------------
<S> <C> <C>
Shares sold..................................... 11,000,199 $149,832,843
Shares issued to shareholders in reinvestment of
dividends and distributions.................... 1,724,353 21,518,432
---------- ------------
Total issued.................................... 12,724,552 171,351,275
Shares redeemed................................. (493,551) (6,856,013)
---------- ------------
Net increase.................................... 12,231,001 $164,495,262
========== ============
- -----------------------------------------------------------------------------
</TABLE>
156
<PAGE> 158
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------
For the Year Ended Dollar
December 31, 1995 Shares Amount
---------------------------------------------------------
<S> <C> <C>
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
========= ============
---------------------------------------------------------
</TABLE>
DEVELOPING CAPITAL MARKETS FOCUS FUND
- ---------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended Dollar
December 31, 1996 Shares Amount
---------------------------------------------------------
<S> <C> <C>
Shares sold....................................... 4,462,492 $ 44,124,402
Shares issued to shareholders in reinvestment of
dividends........................................ 151,274 1,385,673
----------- ------------
Total issued...................................... 4,613,766 45,510,075
Shares redeemed................................... (1,027,712) (10,264,248)
----------- ------------
Net increase...................................... 3,586,054 $ 35,245,827
=========== ============
---------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------
For the Year Ended Dollar
December 31, 1995 Shares Amount
---------------------------------------------------------
<S> <C> <C>
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
=========== ============
---------------------------------------------------------
</TABLE>
DOMESTIC MONEY MARKET FUND
- ---------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended Dollar
December 31, 1996 Shares Amount
---------------------------------------------------------
<S> <C> <C>
Shares sold.................................... 103,681,145 $ 103,681,145
Shares issued to shareholders in reinvestment
of dividends and distributions................ 13,824,990 13,824,990
------------ -------------
Total issued................................... 117,506,135 117,506,135
Shares redeemed................................ (146,504,203) (146,504,203)
------------ -------------
Net decrease................................... (28,998,068) $ (28,998,068)
============ =============
---------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------
For the Year Ended Dollar
December 31, 1995 Shares Amount
---------------------------------------------------------
<S> <C> <C>
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)
============ ============
---------------------------------------------------------
</TABLE>
EQUITY GROWTH FUND
- ---------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended Dollar
December 31, 1996 Shares Amount
---------------------------------------------------------
<S> <C> <C>
Shares sold........................................ 3,897,758 $ 99,038,352
Shares issued to shareholders in reinvestment of
dividends and distributions....................... 1,870,190 45,444,509
--------- ------------
Total issued....................................... 5,767,948 144,482,861
Shares redeemed.................................... (639,891) (16,126,126)
--------- ------------
Net increase....................................... 5,128,057 $128,356,735
========= ============
---------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------
For the Year Ended Dollar
December 31, 1995 Shares Amount
---------------------------------------------------------
<S> <C> <C>
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
============ ============
---------------------------------------------------------
</TABLE>
GLOBAL BOND FOCUS FUND
- ---------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended Dollar
December 31, 1996 Shares Amount
---------------------------------------------------------
<S> <C> <C>
Shares sold..................................... 844,095 $ 8,236,250
Shares issued to shareholders in reinvestment of
dividends...................................... 704,764 6,810,949
Shares issued resulting from reorganization..... 1,883,889 17,820,572
---------- ------------
Total issued.................................... 3,432,748 32,867,771
Shares redeemed................................. (2,183,963) (21,116,271)
---------- ------------
Net increase.................................... 1,248,785 $ 11,751,500
========== ============
---------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------
For the Year Ended Dollar
December 31, 1995 Shares Amount
---------------------------------------------------------
<S> <C> <C>
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>
GLOBAL STRATEGY FOCUS FUND
- ---------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended Dollar
December 31, 1996 Shares Amount
---------------------------------------------------------
<S> <C> <C>
- ---------------------------------------------------------
Shares sold....................................... 1,190,964 $ 14,964,723
Shares issued to shareholders in reinvestment of
dividends........................................ 1,034,164 12,699,527
Shares issued resulting from reorganization....... 23,634,508 294,328,812
---------- ------------
Total issued...................................... 25,859,636 321,993,062
Shares redeemed................................... (6,200,613) (80,229,132)
---------- ------------
Net increase...................................... 19,659,023 $241,763,930
========== ============
---------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------
For the Year Ended Dollar
December 31, 1995 Shares Amount
---------------------------------------------------------
<S> <C> <C>
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)
========== ============
---------------------------------------------------------
</TABLE>
GLOBAL UTILITY FOCUS FUND
- ---------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended Dollar
December 31, 1996 Shares Amount
---------------------------------------------------------
<S> <C> <C>
Shares sold....................................... 858,704 $ 9,800,413
Shares issued to shareholders in reinvestment of
dividends........................................ 595,856 6,739,387
---------- ------------
Total issued...................................... 1,454,560 16,539,800
Shares redeemed................................... (2,881,155) (32,963,476)
---------- ------------
Net decrease...................................... (1,426,595) $(16,423,676)
========== ============
---------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------
For the Year Ended Dollar
December 31, 1995 Shares Amount
---------------------------------------------------------
<S> <C> <C>
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)
========== ============
---------------------------------------------------------
</TABLE>
157
<PAGE> 159
- --------------------------------------------------------------------------------
GOVERNMENT BOND FUND
- ---------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended Dollar
December 31, 1996 Shares Amount
---------------------------------------------------------
<S> <C> <C>
Shares sold......................................... 4,677,811 $48,169,342
Shares issued to shareholders in reinvestment of
dividends and distributions........................ 354,243 3,668,029
--------- -----------
Total issued........................................ 5,032,054 51,837,371
Shares redeemed..................................... (215,188) (2,234,202)
--------- -----------
Net increase........................................ 4,816,866 $49,603,169
========= ===========
---------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------
For the Year Ended Dollar
December 31, 1995 Shares Amount
---------------------------------------------------------
<S> <C> <C>
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
========= ===========
---------------------------------------------------------
</TABLE>
HIGH CURRENT INCOME FUND
- ---------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended Dollar
December 31, 1996 Shares Amount
---------------------------------------------------------
<S> <C> <C>
Shares sold....................................... 3,441,094 $ 38,643,510
Shares issued to shareholders in reinvestment of
dividends........................................ 3,229,888 36,130,450
---------- ------------
Total issued...................................... 6,670,982 74,773,960
Shares redeemed................................... (1,968,366) (22,078,243)
---------- ------------
Net increase...................................... 4,702,616 $ 52,695,717
========== ============
---------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------
For the Year Ended Dollar
December 31, 1995 Shares Amount
---------------------------------------------------------
<S> <C> <C>
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
=========== ============
---------------------------------------------------------
</TABLE>
INDEX 500 FUND
---------------------------------------------------------
<TABLE>
<CAPTION>
For the Period December 13, 1996+ Dollar
to December 31, 1996 Shares Amount
---------------------------------------------------------
<S> <C> <C>
Shares sold......................................... 57,357 $ 582,138
Shares redeemed..................................... (10) (102)
----------- ------------
Net increase........................................ 57,347 $ 582,036
=========== ============
---------------------------------------------------------
</TABLE>
+Prior to December 13, 1996 (commencement of operations), the Fund issued
1,000,000 shares to MLLA for $10,000,000.
INTERNATIONAL EQUITY FOCUS FUND
- ---------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended Dollar
December 31, 1996 Shares Amount
---------------------------------------------------------
<S> <C> <C>
Shares sold.................................. 6,562,205 $ 75,036,616
Shares issued to shareholders in reinvestment
of dividends................................ 334,488 3,669,329
--------- ------------
Total issued................................. 6,896,693 78,705,945
Shares redeemed.............................. (886,963) (10,175,471)
--------- ------------
Net increase................................. 6,009,730 $ 68,530,474
========= ============
---------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------
For the Year Ended Dollar
December 31, 1995 Shares Amount
---------------------------------------------------------
<S> <C> <C>
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>
NATURAL RESOURCES FOCUS FUND
- ---------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended Dollar
December 31, 1996 Shares Amount
---------------------------------------------------------
<S> <C> <C>
Shares sold.................................... 450,602 $ 5,663,127
Shares issued to shareholders in reinvestment
of dividends and distributions................ 122,221 1,463,255
------- ---------
Total issued................................... 572,823 7,126,382
Shares redeemed................................ (737,357) (9,240,146)
------- ---------
Net decrease................................... (164,534) $ (2,113,764)
============
---------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------
For the Year Ended Dollar
December 31, 1995 Shares Amount
---------------------------------------------------------
<S> <C> <C>
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>
PRIME BOND FUND
- ---------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended Dollar
December 31, 1996 Shares Amount
---------------------------------------------------------
<S> <C> <C>
Shares sold........................................ 5,521,436 $65,068,417
Shares issued to shareholders in reinvestment of
dividends......................................... 2,739,002 32,511,472
---------- ------------
Total issued....................................... 8,260,439 97,579,889
Shares redeemed.................................... (2,399,918) (28,829,074)
---------- ------------
Net increase....................................... 5,860,520 $68,750,815
========== ============
---------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------
For the Year Ended Dollar
December 31, 1995 Shares Amount
---------------------------------------------------------
<S> <C> <C>
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
========== ============
---------------------------------------------------------
</TABLE>
QUALITY EQUITY FUND
- ---------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended Dollar
December 31, 1996 Shares Amount
---------------------------------------------------------
<S> <C> <C>
Shares sold........................................ 1,934,738 $ 58,210,337
Shares issued to shareholders in reinvestment of
dividends and distributions....................... 3,478,605 98,560,479
--------- ------------
Total issued....................................... 5,413,343 156,770,816
Shares redeemed.................................... (895,337) (26,640,069)
--------- ------------
Net increase....................................... 4,518,006 $130,130,747
========= ============
---------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------
For the Year Ended Dollar
December 31, 1995 Shares Amount
---------------------------------------------------------
<S> <C> <C>
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
========= ============
---------------------------------------------------------
</TABLE>
RESERVE ASSETS FUND
- ---------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended Dollar
December 31, 1996 Shares Amount
---------------------------------------------------------
<S> <C> <C>
Shares sold...................................... 6,967,844 $ 6,967,844
Shares issued to shareholders in reinvestment of
dividends and distributions..................... 1,182,349 1,182,349
----------- -----------
Total issued..................................... 8,150,193 8,150,193
Shares redeemed.................................. (10,800,490) (10,800,490)
----------- -----------
Net decrease..................................... (2,650,297) $ (2,650,297)
=========== ===========
---------------------------------------------------------
</TABLE>
158
<PAGE> 160
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------
For the Year Ended Dollar
December 31, 1995 Shares Amount
---------------------------------------------------------
<S> <C> <C>
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)
=========== ===========
---------------------------------------------------------
</TABLE>
5. CAPITAL LOSS CARRYFORWARD:
At December 31, 1996, the Company had net capital loss carryforwards of
approximately $3,909,000 in the Developing Capital Markets Focus Fund, of which
$91,000 expires in 2003 , $3,728,000 expires in 2003 and $90,000 expires in
2004; $514,000 in the Global Bond Focus Fund, all of which expires in 2002;
$2,331,000 in the Global Utility Focus Fund, of which $121,000 expires in 2002
and $2,210,000 expires in 2003; $71,000 in the Government Bond Fund, all of
which expires in 2004; $295,000 in the High Current Income Fund, all of which
expires in 2003; $15,651,000 in the Prime Bond Fund, of which $14,796,000
expires in 2002 and $855,000 expires in 2003. These amounts will be available to
offset like amounts of any future taxable gains.
6. LOANED SECURITIES:
At December 31, 1996, the Government Bond Fund, the Prime Bond Fund and the
Quality Equity Fund held US Treasury bonds having aggregate values of
approximately $2,600,000, $6,798,000 and $6,514,000, respectively, as collateral
for portfolio securities loaned having market values of approximately
$2,514,000, $6,515,000 and $6,579,000, respectively.
7. COMMITMENTS:
At December 31, 1996, 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>
- ---------------------------------------------------------
Purchase Sell
---------------------------------------------------------
<S> <C> <C>
Development Capital Markets.......... $1,282,000 $ 79,000
Global Bond Focus Fund............... 4,107,000 2,659,000
International Equity Focus Fund...... -- 298,000
Natural Resources Focus Fund......... 222,000 39,000
---------------------------------------------------------
</TABLE>
8. ACQUISITION OF FLEXIBLE STRATEGY FUND
AND INTERNATIONAL BOND FUND:
On December 9, 1996, Global Strategy Focus Fund acquired all the net assets of
Flexible Strategy Fund pursuant to a plan of reorganization. The acquisition was
accomplished by a tax-free exchange of 23,634,508 Common Stock shares of Global
Strategy Focus Fund for 20,765,107 Common Stock shares of Flexible Strategy
Fund. Flexible Strategy Fund's net assets on that date of $325,430,454,
including $30,966,642 of unrealized appreciation, were combined with those of
Global Strategy Focus Fund. The aggregate net assets of Global Strategy Focus
Fund after the acquisition amounted to $874,098,755.
On December 9, 1996, World Income Focus Fund acquired all the net assets of
International Bond Fund pursuant to a plan of reorganization. The acquisition
was accomplished by a tax-free exchange of 1,883,889 Common Stock shares of
World Income Focus Fund for 1,788,555 Common Stock shares of International Bond
Fund. International Bond Fund's net assets on that date of $18,188,183,
including $232,608 of unrealized appreciation, were combined with those of World
Income Focus Fund. The aggregate net assets of World Income Focus Fund after the
acquisition amounted to $97,534,880. Subsequent to the acquisition, World Income
Focus Fund changed its name to Global Bond Focus Fund.
9. SUBSEQUENT EVENT:
On January 2, 1997, the Board of Directors declared ordinary income dividends
and capital gains distributions per share payable on January 9, 1997 to
shareholders of record as of December 31, 1996 as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Ordinary Capital
Fund Income Gains
---------------------------------------------------------
<S> <C> <C>
American Balanced Fund.......................... $ .603285 $1.228672
Basic Value Focus Fund.......................... .665501 .943093
Developing Capital Markets Focus Fund........... .182600 --
Equity Growth Fund.............................. .533168 .831606
Global Strategy Focus Fund...................... .432947 .289873
Global Utility Focus Fund....................... .096870 --
Index 500 Fund.................................. .017480 .002863
International Equity Focus Fund................. .214967 .087059
Natural Resources Focus Fund.................... .205662 .723589
Quality Equity Fund............................. 1.195788 .557701
---------------------------------------------------------
</TABLE>
159
<PAGE> 161
- --------------------------------------------------------------------------------
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, Global
Bond Focus, Global Strategy Focus, Global Utility Focus, Government Bond, High
Current Income, Index 500, International Equity Focus, Natural Resources Focus,
Prime Bond, Quality Equity, and Reserve Assets Funds of Merrill Lynch Variable
Series Funds, Inc. as of December 31, 1996, the related statements of operations
for the periods 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, 1996, by correspondence with the custodians and brokers or other alternative
procedures. 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, Global Bond Focus, Global Strategy Focus, Global Utility Focus,
Government Bond, High Current Income, Index 500, International Equity Focus,
Natural Resources Focus, Prime Bond, Quality Equity, and Reserve Assets Funds of
Merrill Lynch Variable Series Funds, Inc. as of December 31, 1996, 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 21, 1997
160
<PAGE> 162
- ---------------------------------------------------------
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
110 Washington Street
New York, NY 10286
For Developing Capital Markets Focus Fund:
Chase Manhattan Bank N.A.
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
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 Ira P. Shapiro
Vice President Secretary
161
<PAGE> 163
- --------------------------------------------------------------------------------
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
#16897-12/96
