--------------------------------------------------------------------------------
XXXXXXX XXXXX VARIABLE
-------------------------------------------------------------------------
SERIES FUNDS, INC.
-------------------------------------------------------------------------
PAGE
----
American Balanced Fund................ 1
Balanced Capital Focus Fund........... 15
Basic Value Focus Fund................ 29
Developing Capital Markets Focus
Fund................................ 44
Domestic Money Market Fund............ 64
Focus Twenty Select Fund.............. 76
Fundamental Growth Focus Fund......... 88
Global Bond Focus Fund................ 100
Global Growth Focus Fund.............. 114
Global Strategy Focus Fund............ 128
Government Bond Fund.................. 147
High Current Income Fund.............. 159
Index 500 Fund........................ 177
International Equity Focus Fund....... 194
Natural Resources Focus Fund.......... 215
Prime Bond Fund....................... 229
Quality Equity Fund................... 244
Reserve Assets Fund................... 259
Small Cap Value Focus Fund............ 270
Utilities and Telecommunications Focus
Fund................................ 287
Annual Report
December 31, 2000
--------------------------------------------------------------------------------
XXXXXXX XXXXX VARIABLE SERIES FUNDS, INC.--AMERICAN BALANCED FUND
DECEMBER 31, 2000--ANNUAL REPORT
--------------------------------------------------------------------------------
DEAR SHAREHOLDER:
FISCAL YEAR IN REVIEW
For the year ended December 31, 2000, the Fund's Class A Shares had a total
return of -1.68%. This compared to a return of -9.10% for the unmanaged Standard
& Poor's 500 (S&P 500) Index for the same period.
The performance of the Fund over the past 12 months reflected market
conditions that were virtually opposite of those that existed during 1999. The
Fund's US fixed-income representation, which was expanded throughout the period,
provided a positive return for the year as bonds were viewed as a safe haven
from the tumultuous equity market. The outstanding performance of the Fund's
bond commitments offset much of the negative return from our equity holdings,
resulting in an overall portfolio return that was significantly better than that
provided by the US equity market as measured by the S&P 500 Index. Our
considerable representation in new economy sectors had a negative impact on
performance throughout most of the year. Although these equities experienced
rallies after the first quarter of 2000, they encountered renewed bouts of
weakness late in the year, particularly during November and December.
PORTFOLIO MATTERS
As of December 31, 2000, the Fund's asset allocation was: US bonds, 46% of net
assets; US equities, 53%; and cash reserves, 1%.
We continued to augment the Fund's US bond representation during the second
half of 2000. We increased our fixed-income representation from 40% of net
assets to 46% and maintained a defensive average duration for our US bond
holdings of approximately four years. At the same time, we reduced the Fund's US
equity commitment from 58% of net assets to 53%. We retained substantial assets
in new economy sectors, including technology, since we believe pessimism toward
many companies in this area is overdone.
The prospects for avoiding a hard landing in the US economy have improved
following the reduction of key interest rates by the Federal Reserve Board in
early January 2001. However, since volatility is likely to persist in global
equity markets, we will continue to pursue a high degree of diversification
within the portfolio. Areas outside the new economy where we have maintained a
significant representation include the healthcare, consumer staples and
financial sectors.
IN CONCLUSION
We appreciate your investment in American Balanced Fund of Xxxxxxx Xxxxx
Variable Series Funds, Inc., and we look forward to sharing our investment
outlook and strategies with you in our next report to shareholders.
Sincerely,
/s/ Xxxxx X. Xxxxx
Xxxxx X. Xxxxx
President and Director
/s/ Xxxxxx X. Xxxxxxxx
Xxxxxx X. Xxxxxxxx
Senior Vice President and Portfolio Manager
January 19, 2001
1
--------------------------------------------------------------------------------
XXXXXXX XXXXX VARIABLE SERIES FUNDS, INC.--AMERICAN BALANCED FUND
TOTAL RETURN BASED ON A $10,000 INVESTMENT--CLASS A SHARES
--------------------------------------------------------------------------------
AMERICAN BALANCED STANDARD & POOR'S 500
FUND+--CLASS A SHARES* INDEX++ WEIGHTED INDEX**
---------------------- --------------------- ----------------
12/90 10000.00 10000.00 10000.00
12/91 12065.00 13047.00 11745.00
12/92 12755.00 14041.00 12503.00
12/93 14476.00 15456.00 13515.00
12/94 13869.00 15660.00 13624.00
12/95 16755.00 21554.00 16387.00
12/96 18386.00 26491.00 18056.00
12/97 21532.00 35330.00 20914.00
12/98 24451.00 45426.00 23977.00
12/99 26586.00 54985.00 25829.00
12/00 26139.00 49979.00 26581.00
* Assuming transaction costs and other operating expenses, including advisory
fees. Does not include insurance-related fees and expenses.
+ American Balanced Fund invests in a balanced portfolio of fixed-income and
equity securities.
++ This unmanaged broad-based index is comprised of US common stocks.
+++ This unmanaged index, which is an equally weighted blend of the Three-Month
Treasury Bill Index, the Xxxxxxx Xxxxx US Corporate and Government Master
Index and the S&P 500 Index, is comprised of US Treasury bills maturing in
up to three months, investment-grade bonds and US common stocks.
----------------------------------------------------------------------------
XXXXXXX XXXXX VARIABLE SERIES FUNDS, INC.--AMERICAN BALANCED FUND
AVERAGE ANNUAL TOTAL RETURN--CLASS A SHARES*
----------------------------------------------------------------------------
PERIOD COVERED % RETURN
-----------------------------------------------------------------------------------------
One Year Ended 12/31/00 - 1.68%
-----------------------------------------------------------------------------------------
Five Years Ended 12/31/00 + 9.30
-----------------------------------------------------------------------------------------
Ten Years Ended 12/31/00 +10.09
-----------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
XXXXXXX XXXXX VARIABLE SERIES FUNDS, INC.--AMERICAN BALANCED FUND
RECENT PERFORMANCE RESULTS*
--------------------------------------------------------------------------------
6 MONTH 12 MONTH
AS OF DECEMBER 31, 2000 TOTAL RETURN TOTAL RETURN
-----------------------------------------------------------------------------------------
Class A Shares -4.20% -1.68%
-----------------------------------------------------------------------------------------
*
Total investment returns are based on changes in net asset values for the
periods shown, and assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date. Insurance-related fees
and expenses are not reflected in these returns.
Past results shown should not be considered a representation of future
performance.
2
--------------------------------------------------------------------------------
XXXXXXX XXXXX VARIABLE SERIES FUNDS, INC.--AMERICAN BALANCED FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2000
--------------------------------------------------------------------------------
SHARES PERCENT OF
INDUSTRY HELD COMMON STOCKS VALUE NET ASSETS
----------------------------------------------------------------------------------------------------------------------
AEROSPACE 9,300 General Dynamics Corporation.............. $ 725,400 0.6%
14,245 United Technologies Corporation........... 1,120,013 0.8
------------ -----
1,845,413 1.4
----------------------------------------------------------------------------------------------------------------------
AUTOMOTIVE PRODUCTS 6,900 +General Motors Corporation (Class H)..... 158,700 0.1
----------------------------------------------------------------------------------------------------------------------
BANKING 12,871 Bank of America Corporation............... 590,457 0.4
19,600 The Bank of New York Company, Inc. ....... 1,081,675 0.8
25,750 Bank One Corporation...................... 943,094 0.7
11,250 The Chase Manhattan Corporation........... 511,172 0.4
1,700 Wachovia Corporation...................... 98,813 0.1
------------ -----
3,225,211 2.4
----------------------------------------------------------------------------------------------------------------------
BEVERAGES 19,150 The Coca-Cola Company..................... 1,166,953 0.9
9,050 PepsiCo, Inc. ............................ 448,541 0.3
------------ -----
1,615,494 1.2
----------------------------------------------------------------------------------------------------------------------
BIOTECHNOLOGY 2,000 +Genentech, Inc. ......................... 163,000 0.1
2,000 +Gilead Sciences, Inc. ................... 165,875 0.1
2,800 +Human Genome Sciences, Inc. ............. 194,075 0.2
------------ -----
522,950 0.4
----------------------------------------------------------------------------------------------------------------------
BROADCAST--MEDIA 6,150 Time Warner Inc. ......................... 321,276 0.2
----------------------------------------------------------------------------------------------------------------------
BROADCASTING--CABLE 24,200 +AT&T Corp.--Liberty Media Group (Class
A)...................................... 328,212 0.2
----------------------------------------------------------------------------------------------------------------------
BUILDING PRODUCTS 8,700 +American Tower Corporation (Class A)..... 329,512 0.2
----------------------------------------------------------------------------------------------------------------------
BUSINESS SERVICES 50,850 +Oracle Corporation....................... 1,481,006 1.1
----------------------------------------------------------------------------------------------------------------------
CABLE 9,500 +Adelphia Communications (Class A)........ 490,437 0.3
16,250 +Charter Communications, Inc. (Class A)... 368,672 0.3
------------ -----
859,109 0.6
----------------------------------------------------------------------------------------------------------------------
CAPITAL GOODS 2,700 Minnesota Mining and Manufacturing Company
(3M).................................... 325,350 0.2
----------------------------------------------------------------------------------------------------------------------
CHEMICALS 7,500 The Dow Chemical Company.................. 274,687 0.2
7,100 E.I. du Pont de Nemours and Company....... 343,019 0.2
8,350 Pharmacia Corporation..................... 509,350 0.4
2,500 Rohm and Xxxx Company..................... 90,781 0.1
------------ -----
1,217,837 0.9
----------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS 3,200 +Pegasus Communications Corporation....... 82,400 0.1
----------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT 2,000 +CIENA Corporation........................ 163,000 0.1
10,450 Corning Incorporated...................... 551,891 0.4
------------ -----
714,891 0.5
----------------------------------------------------------------------------------------------------------------------
COMPUTER-RELATED PRODUCTS 3,200 +VERITAS Software Corporation............. 280,000 0.2
----------------------------------------------------------------------------------------------------------------------
COMPUTER SERVICES 35,950 +Cisco Systems, Inc. ..................... 1,375,087 1.1
14,050 Electronic Data Systems Corporation....... 811,388 0.6
1,200 +Juniper Networks, Inc. .................. 151,425 0.1
------------ -----
2,337,900 1.8
----------------------------------------------------------------------------------------------------------------------
COMPUTER SOFTWARE 6,350 +BEA Systems, Inc. ....................... 427,434 0.3
4,200 +Informatica Corporation.................. 165,900 0.1
------------ -----
593,334 0.4
----------------------------------------------------------------------------------------------------------------------
COMPUTER TECHNOLOGY 8,850 +Solectron Corporation.................... 300,015 0.2
----------------------------------------------------------------------------------------------------------------------
COMPUTERS 4,300 +Ariba, Inc. ............................. 230,587 0.2
24,000 Compaq Computer Corporation............... 361,200 0.3
3,500 +Comverse Technology, Inc. ............... 380,187 0.3
13,050 +Dell Computer Corporation................ 227,559 0.2
4,200 +XXX Xxxxxxxxxxx.......................... 279,300 0.2
8,285 International Business Machines
Corporation............................. 704,225 0.5
6,850 +Palm, Inc. .............................. 193,513 0.1
3
--------------------------------------------------------------------------------
XXXXXXX XXXXX VARIABLE SERIES FUNDS, INC.--AMERICAN BALANCED FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2000 (CONTINUED)
--------------------------------------------------------------------------------
SHARES PERCENT OF
INDUSTRY HELD COMMON STOCKS VALUE NET ASSETS
----------------------------------------------------------------------------------------------------------------------
COMPUTERS 6,800 +Sun Microsystems, Inc. .................. $ 189,125 0.1%
(CONCLUDED)
5,500 Symbol Technologies, Inc. ................ 198,000 0.2
------------ -----
2,763,696 2.1
----------------------------------------------------------------------------------------------------------------------
CONSUMER GOODS 9,800 Circuit City Stores--Circuit City Group... 112,700 0.1
----------------------------------------------------------------------------------------------------------------------
CONTAINERS & PACKAGING 2,400 +Sealed Air Corporation................... 73,200 0.1
----------------------------------------------------------------------------------------------------------------------
COSMETICS 13,000 Avon Products, Inc. ...................... 622,375 0.5
11,250 Xxx Xxxxxxxx Xxxxxxx...................... 406,406 0.3
------------ -----
1,028,781 0.8
----------------------------------------------------------------------------------------------------------------------
ELECTRIC & GAS 11,950 +Calpine Corporation...................... 538,497 0.4
6,600 +Southern Energy, Inc. ................... 186,863 0.1
------------ -----
725,360 0.5
----------------------------------------------------------------------------------------------------------------------
ELECTRICAL & ELECTRONICS 3,450 +The AES Corporation...................... 191,044 0.1
----------------------------------------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT 5,300 Edison International...................... 82,812 0.1
----------------------------------------------------------------------------------------------------------------------
ELECTRICAL INSTRUMENTS & 2,950 +Sanmina Corporation...................... 226,044 0.2
CONTROLS
----------------------------------------------------------------------------------------------------------------------
ELECTRONIC COMPONENTS 4,200 +Applied Micro Circuits Corporation....... 316,050 0.3
39,700 General Electric Company.................. 1,903,119 1.4
22,450 Intel Corporation......................... 674,903 0.5
------------ -----
2,894,072 2.2
----------------------------------------------------------------------------------------------------------------------
ELECTRONICS 17,500 Texas Instruments Incorporated............ 829,063 0.6
----------------------------------------------------------------------------------------------------------------------
ENTERTAINMENT 2,200 +Macrovision Corporation.................. 162,800 0.1
----------------------------------------------------------------------------------------------------------------------
FIBER OPTICS 2,650 +Avanex Corporation....................... 157,675 0.1
----------------------------------------------------------------------------------------------------------------------
FINANCE 10,300 Federal Home Loan Mortgage Association.... 709,413 0.5
----------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES 9,600 American Express Company.................. 527,400 0.4
38,350 Citigroup, Inc. .......................... 1,958,247 1.5
26,900 Xxxxx Fargo Company....................... 1,497,994 1.1
------------ -----
3,983,641 3.0
----------------------------------------------------------------------------------------------------------------------
FOOD 2,000 Wm. Xxxxxxx Xx. Company................... 191,625 0.1
----------------------------------------------------------------------------------------------------------------------
HEALTHCARE--PRODUCTS & 32,700 HCA--The Healthcare Corporation........... 1,439,127 1.1
SERVICES
----------------------------------------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS 6,400 The Clorox Company........................ 227,200 0.2
44,500 Colgate-Palmolive Company................. 2,872,475 2.1
13,150 The Procter & Xxxxxx Company.............. 1,031,453 0.8
------------ -----
4,131,128 3.1
----------------------------------------------------------------------------------------------------------------------
INSURANCE 6,100 The Allstate Corporation.................. 265,731 0.2
24,000 American International Group, Inc. ....... 2,365,500 1.8
9,100 ITT Industries, Inc. ..................... 352,625 0.2
2,200 The Progressive Corporation............... 227,975 0.2
------------ -----
3,211,831 2.4
----------------------------------------------------------------------------------------------------------------------
INTERNET SOFTWARE 3,850 +Agile Software Corporation............... 190,094 0.1
3,600 +VeriSign, Inc. .......................... 267,075 0.2
6,950 +WatchGuard Technologies, Inc. ........... 219,359 0.2
------------ -----
676,528 0.5
----------------------------------------------------------------------------------------------------------------------
LASER SYSTEMS & COMPONENTS 5,000 +JDS Uniphase Corporation................. 208,750 0.2
----------------------------------------------------------------------------------------------------------------------
MACHINERY 5,050 Caterpillar, Inc. ........................ 238,928 0.2
----------------------------------------------------------------------------------------------------------------------
MANUFACTURING 4,950 Xxxxxxx Corporation....................... 338,456 0.2
13,650 Tyco International Ltd. .................. 757,575 0.6
------------ -----
1,096,031 0.8
----------------------------------------------------------------------------------------------------------------------
MEDIA & COMMUNICATIONS 23,650 +Metromedia Fiber Network, Inc. (Class
A)...................................... 239,456 0.2
----------------------------------------------------------------------------------------------------------------------
MEDICAL PRODUCTS 1,500 +Affymetrix, Inc. ........................ 111,562 0.1
6,700 Alpharma, Inc. (Class A).................. 293,962 0.2
4,400 +Applera Corporation--Celera Genomics
Group................................... 158,125 0.1
4
--------------------------------------------------------------------------------
XXXXXXX XXXXX VARIABLE SERIES FUNDS, INC.--AMERICAN BALANCED FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2000 (CONTINUED)
--------------------------------------------------------------------------------
SHARES PERCENT OF
INDUSTRY HELD COMMON STOCKS VALUE NET ASSETS
----------------------------------------------------------------------------------------------------------------------
MEDICAL PRODUCTS 8,250 +Immunex Corporation...................... $ 335,156 0.3%
(CONCLUDED)
2,350 +Protein Design Labs, Inc. ............... 201,806 0.1
------------ -----
1,100,611 0.8
----------------------------------------------------------------------------------------------------------------------
MEDICAL SERVICES 11,100 +Manor Care, Inc. ........................ 228,938 0.2
----------------------------------------------------------------------------------------------------------------------
MEDICAL TECHNOLOGY 19,750 Xxxxxxx & Xxxxxxx......................... 2,074,984 1.6
----------------------------------------------------------------------------------------------------------------------
METAL 7,800 Alcoa Inc. ............................... 261,300 0.2
13,200 Xxxxxxx Gold Corporation.................. 216,216 0.1
13,200 Newmont Mining Corporation................ 225,225 0.2
22,800 Placer Dome Inc. ......................... 219,450 0.2
------------ -----
922,191 0.7
----------------------------------------------------------------------------------------------------------------------
MISCELLANEOUS MATERIALS & 3,200 +XXX Xxxxxxxxxxx.......................... 157,200 0.1
COMMODITIES
4,350 The Xxxxxxx-Xxxxxxxx Company.............. 114,459 0.1
------------ -----
271,659 0.2
----------------------------------------------------------------------------------------------------------------------
NATURAL GAS 2,300 El Paso Energy Corporation................ 164,737 0.1
20,100 Enron Corp. .............................. 1,670,813 1.3
------------ -----
1,835,550 1.4
----------------------------------------------------------------------------------------------------------------------
NETWORKING PRODUCTS 3,200 +ONI Systems Corp. ....................... 126,600 0.1
----------------------------------------------------------------------------------------------------------------------
OIL & GAS PRODUCERS 5,100 Conoco Inc. (Class B)..................... 147,581 0.1
9,800 +Xxxxxx Industries, Inc. ................. 579,670 0.4
3,100 +Rowan Companies, Inc. ................... 83,700 0.1
3,300 Santa Fe International Corporation........ 105,806 0.1
4,600 Tosco Corporation......................... 156,113 0.1
------------ -----
1,072,870 0.8
----------------------------------------------------------------------------------------------------------------------
OIL--INTEGRATED 16,273 Exxon Mobil Corporation................... 1,414,734 1.1
----------------------------------------------------------------------------------------------------------------------
OIL SERVICES 6,100 +BJ Services Company...................... 420,137 0.3
6,000 Xxxxx Xxxxxx Incorporated................. 249,375 0.2
5,250 +Global Marine, Inc. ..................... 148,969 0.1
5,950 Schlumberger Limited...................... 475,628 0.4
------------ -----
1,294,109 1.0
----------------------------------------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS 5,900 Georgia-Pacific Group..................... 183,638 0.1
4,500 International Paper Company............... 183,656 0.2
------------ -----
367,294 0.3
----------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS 18,100 American Home Products Corporation........ 1,150,255 0.9
5,200 Xxxxxxx-Xxxxx Squibb Company.............. 384,475 0.3
11,700 Cardinal Health, Inc. .................... 1,165,612 0.9
2,500 Ecolab Inc. .............................. 107,969 0.1
6,600 Xxx Xxxxx and Company..................... 614,213 0.4
19,050 Merck & Co., Inc. ........................ 1,783,556 1.3
1,500 +Millennium Pharmaceuticals, Inc. ........ 92,719 0.1
46,500 Pfizer, Inc. ............................. 2,139,000 1.6
7,500 Schering-Plough Corporation............... 425,625 0.3
------------ -----
7,863,424 5.9
----------------------------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST 4,600 Equity Residential Properties Trust....... 254,438 0.2
----------------------------------------------------------------------------------------------------------------------
RESTAURANTS 7,150 XxXxxxxx'x Corporation.................... 243,100 0.2
----------------------------------------------------------------------------------------------------------------------
RETAIL 11,400 The Home Depot, Inc. ..................... 520,838 0.4
14,400 +The Kroger Co. .......................... 389,700 0.3
20,100 Xxxx'x Companies, Inc. ................... 894,450 0.7
11,100 The May Department Stores Company......... 363,525 0.3
6,100 Nordstrom, Inc. .......................... 110,944 0.1
9,800 +Safeway, Inc. ........................... 612,500 0.4
17,600 Wal-Mart Stores, Inc. .................... 935,000 0.7
------------ -----
3,826,957 2.9
----------------------------------------------------------------------------------------------------------------------
SCIENTIFIC EQUIPMENT 10,050 Millipore Corporation..................... 633,150 0.5
----------------------------------------------------------------------------------------------------------------------
5
--------------------------------------------------------------------------------
XXXXXXX XXXXX VARIABLE SERIES FUNDS, INC.--AMERICAN BALANCED FUND
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2000 (CONCLUDED)
--------------------------------------------------------------------------------
SHARES PERCENT OF
INDUSTRY HELD COMMON STOCKS VALUE NET ASSETS
----------------------------------------------------------------------------------------------------------------------
SOFTWARE 14,200 +Amdocs Limited........................... $ 940,750 0.7%
17,250 +Microsoft Corporation.................... 749,297 0.6
4,400 +RSA Security Inc. ....................... 232,100 0.2
------------ -----
1,922,147 1.5
----------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS 26,000 +McLeodUSA Incorporated (Class A)......... 367,250 0.3
10,000 +Qwest Communications International,
Inc. ................................... 410,000 0.3
23,800 SBC Communications, Inc. ................. 1,136,450 0.8
12,750 Verizon Communications.................... 639,094 0.5
------------ -----
2,552,794 1.9
----------------------------------------------------------------------------------------------------------------------
WIRELESS COMMUNICATIONS-- 10,000 +Nextel Communications, Inc. (Class A).... 246,875 0.2
DOMESTIC PAGING & CELLULAR
----------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST--$64,994,205) 70,164,740 52.7
----------------------------------------------------------------------------------------------------------------------
FACE
AMOUNT FIXED-INCOME INVESTMENTS
----------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES $ 3,000,000 General Electric Capital Corp., 8.75% due
5/21/2007............................... 3,413,940 2.6
----------------------------------------------------------------------------------------------------------------------
US GOVERNMENT AGENCY 1,084,932 Freddie Mac Participation Certificates
MORTGAGE-BACKED OBLIGATIONS* Gold Program #10036, 7.50% due
6/01/2007............................... 1,109,358 0.8
----------------------------------------------------------------------------------------------------------------------
US GOVERNMENT & AGENCY 7,760,000 Xxxxxx Xxx, 5.625% due 3/15/2001.......... 7,751,542 5.8
OBLIGATIONS
US Treasury Bonds:
3,400,000 6.25% due 8/15/2023..................... 3,677,304 2.8
900,000 5.25% due 11/15/2028.................... 861,471 0.7
10,800,000 6.125% due 8/15/2029.................... 11,746,728 8.8
US Treasury Notes:
4,800,000 5% due 4/30/2001........................ 4,786,512 3.6
13,700,000 5.75% due 6/30/2001..................... 13,699,918 10.3
9,500,000 5.50% due 7/31/2001..................... 9,488,125 7.1
4,000,000 5.50% due 8/31/2001..................... 3,995,000 3.0
------------ -----
56,006,600 42.1
----------------------------------------------------------------------------------------------------------------------
TOTAL FIXED-INCOME INVESTMENTS
(COST--$58,537,407) 60,529,898 45.5
----------------------------------------------------------------------------------------------------------------------
SHORT-TERM SECURITIES
----------------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER** 627,000 General Motors Acceptance Corp., 6.75% due
1/02/2001............................... 626,530 0.5
----------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM SECURITIES
(COST--$626,530) 626,530 0.5
----------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (COST--$124,158,142).... 131,321,168 98.7
OTHER ASSETS LESS LIABILITIES............. 1,769,222 1.3
------------ -----
NET ASSETS................................ $133,090,390 100.0%
============ =====
----------------------------------------------------------------------------------------------------------------------
* Mortgage-Backed Obligations are subject to principal paydowns as a result of
prepayments or refinancing of the underlying mortgage instrument. As a result,
the average life may be substantially less than the original maturity.
** Commercial Paper is traded on a discount basis, the interest rate shown
reflects the discount rate paid at the time of purchase by the Fund.
+ Non-income producing security.
See Notes to Financial Statements.
6
--------------------------------------------------------------------------------
XXXXXXX XXXXX VARIABLE SERIES FUNDS, INC.--AMERICAN BALANCED FUND
STATEMENT OF ASSETS AND LIABILITIES AS OF DECEMBER 31, 2000
--------------------------------------------------------------------------------
ASSETS:
Investments, at value (identified cost--$124,158,142)....... $131,321,168
Cash........................................................ 1,574
Receivables:
Interest.................................................. $1,205,065
Securities sold........................................... 1,080,844
Dividends................................................. 28,862
Capital shares sold....................................... 6,766 2,321,537
----------
Prepaid expenses and other assets........................... 27,952
------------
Total assets................................................ 133,672,231
------------
---------------------------------------------------------------------------------------
LIABILITIES:
Payables:
Securities purchased...................................... 409,844
Capital shares redeemed................................... 69,337
Investment adviser........................................ 55,892 535,073
----------
Accrued expenses and other liabilities...................... 46,768
------------
Total liabilities........................................... 581,841
------------
---------------------------------------------------------------------------------------
NET ASSETS.................................................. $133,090,390
============
---------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Class A Shares of Common Stock, $.10 par value, 100,000,000
shares authorized+........................................ $ 1,065,590
Paid-in capital in excess of par............................ 128,221,345
Accumulated distributions in excess of investment
income--net............................................... (11,811)
Accumulated distributions in excess of realized capital
gains on investments--net................................. (3,347,760)
Unrealized appreciation on investments--net................. 7,163,026
------------
NET ASSETS.................................................. $133,090,390
============
---------------------------------------------------------------------------------------
NET ASSET VALUE:
Class A--Based on net assets of $133,090,390 and 10,655,900
shares outstanding........................................ $ 12.49
============
---------------------------------------------------------------------------------------
+ The Fund is also authorized to issue 100,000,000 Class B Shares.
See Notes to Financial Statements.
7
--------------------------------------------------------------------------------
XXXXXXX XXXXX VARIABLE SERIES FUNDS, INC.--AMERICAN BALANCED FUND
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2000
--------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest and discount earned................................ $ 3,852,493
Dividends................................................... 635,038
------------
Total income................................................ 4,487,531
------------
-------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees.................................... $836,447
Accounting services......................................... 36,581
Custodian fees.............................................. 24,402
Professional fees........................................... 20,984
Printing and shareholder reports............................ 16,090
Transfer agent fees......................................... 5,033
Directors' fees and expenses................................ 3,228
Pricing services............................................ 1,713
Other....................................................... 4,486
--------
Total expenses.............................................. 948,964
------------
Investment income--net...................................... 3,538,567
------------
-------------------------------------------------------------------------------------
REALIZED & UNREALIZED GAIN (LOSS) ON INVESTMENTS--NET:
Realized gain on investments--net........................... 11,210,419
Change in unrealized appreciation on investments--net....... (16,554,771)
------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ (1,805,785)
============
-------------------------------------------------------------------------------------
See Notes to Financial Statements.
8
--------------------------------------------------------------------------------
XXXXXXX XXXXX VARIABLE SERIES FUNDS, INC.--AMERICAN BALANCED FUND
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
FOR THE YEAR ENDED
DECEMBER 31,
----------------------------
INCREASE (DECREASE) IN NET ASSETS: 2000 1999
------------------------------------------------------------------------------------------
OPERATIONS:
Investment income--net...................................... $ 3,538,567 $ 4,663,079
Realized gain on investments--net........................... 11,210,419 11,119,754
Change in unrealized appreciation on investments--net....... (16,554,771) (1,634,882)
------------ ------------
Net increase (decrease) in net assets resulting from
operations................................................ (1,805,785) 14,147,951
------------ ------------
------------------------------------------------------------------------------------------
DIVIDENDS & DISTRIBUTIONS TO SHAREHOLDERS:
Investment income--net:
Class A................................................... (3,540,610) (9,159,666)
In excess of investment income--net:
Class A................................................... (6,108) --
Realized gain on investments--net:
Class A................................................... (12,488,700) (25,700,159)
In excess of realized gain on investments--net:
Class A................................................... (3,353,463) --
------------ ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders............................. (19,388,881) (34,859,825)
------------ ------------
------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Net increase (decrease) in net assets derived from capital
share transactions........................................ (12,120,323) 32,782
------------ ------------
------------------------------------------------------------------------------------------
NET ASSETS:
Total decrease in net assets................................ (33,314,989) (20,679,092)
Beginning of year........................................... 166,405,379 187,084,471
------------ ------------
End of year*................................................ $133,090,390 $166,405,379
============ ============
------------------------------------------------------------------------------------------
* Undistributed (accumulated distributions in excess of)
investment income--net.................................... $ (11,811) $ 2,043
============ ============
------------------------------------------------------------------------------------------
See Notes to Financial Statements.
9
--------------------------------------------------------------------------------
XXXXXXX XXXXX VARIABLE SERIES FUNDS, INC.--AMERICAN BALANCED FUND
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE
BEEN DERIVED FROM INFORMATION PROVIDED IN THE CLASS A
FINANCIAL STATEMENTS. -------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------
INCREASE (DECREASE) IN NET ASSET VALUE: 2000+ 1999 1998 1997 1996
--------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year......................... $ 14.80 $ 16.74 $ 16.59 $ 16.01 $ 15.17
-------- -------- -------- -------- --------
Investment income--net..................................... .34 .45 .40 .54 .53
Realized and unrealized gain (loss) on investments--net.... (.58) .83 1.60 1.87 .89
-------- -------- -------- -------- --------
Total from investment operations........................... (.24) 1.28 2.00 2.41 1.42
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net................................... (.38) (.85) (.54) (.27) (.56)
In excess of investment income--net...................... --++ -- -- -- --
Realized gain on investments--net........................ (1.33) (2.37) (1.31) (1.56) (.02)
In excess of realized gain on investments--net........... (.36) -- -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions.......................... (2.07) (3.22) (1.85) (1.83) (.58)
-------- -------- -------- -------- --------
Net asset value, end of year............................... $ 12.49 $ 14.80 $ 16.74 $ 16.59 $ 16.01
======== ======== ======== ======== ========
--------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:*
Based on net asset value per share......................... (1.68%) 8.73% 13.56% 17.11% 9.73%
======== ======== ======== ======== ========
--------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses................................................... .62% .61% .62% .60% .60%
======== ======== ======== ======== ========
Investment income--net..................................... 2.32% 2.70% 2.37% 3.17% 3.39%
======== ======== ======== ======== ========
--------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of year (in thousands)..................... $133,090 $166,405 $187,084 $194,747 $212,047
======== ======== ======== ======== ========
Portfolio turnover......................................... 85.30% 105.48% 102.47% 136.71% 236.50%
======== ======== ======== ======== ========
--------------------------------------------------------------------------------------------------------------------
* Total investment returns exclude insurance-related fees and expenses.
+ Based on average shares outstanding.
++ Amount is less than $.01 per share.
See Notes to Financial Statements.
10
--------------------------------------------------------------------------------
XXXXXXX XXXXX VARIABLE SERIES FUNDS, INC.--AMERICAN BALANCED FUND
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES:
Xxxxxxx Xxxxx Variable Series Funds, Inc. (the "Company") is an open-end
management investment company that is comprised of 20 separate funds. Each fund
offers two classes of shares to the Xxxxxxx Xxxxx Life Insurance Company, ML
Life Insurance Company of New York (indirect, wholly-owned subsidiaries of
Xxxxxxx Xxxxx & Co., Inc. ("ML & Co.")), and other insurance companies that are
not affiliated with ML & Co., for their separate accounts to fund benefits under
certain variable annuity and variable life insurance contracts. Class A and
Class B Shares have equal voting, dividend, liquidation and other rights, except
that only shares of the respective classes are entitled to vote on matters
concerning only that class and Class B Shares bear certain expenses related to
the distribution of such shares. American Balanced Fund (the "Fund") is
classified as "diversified," as defined in the Investment Company Act of 1940.
The Fund's financial statements are prepared in conformity with accounting
principles generally accepted in the United States of America, which may require
the use of management accruals and estimates. The following is a summary of
significant accounting policies followed by the Fund.
(a) Valuation of investments--Portfolio securities that are traded on stock
exchanges are valued at the last sale price as of the close of business on the
day the securities are being valued, or lacking any sales, at the closing bid
price. Securities traded in the over-the-counter market are valued at the last
available bid price prior to the time of valuation. Portfolio securities that
are traded both in the over-the-counter market and on a stock exchange are
valued according to the broadest and most representative market, and it is
expected that for debt securities this ordinarily will be the over-the-counter
market. Options written or purchased are valued at the last sale price in the
case of exchange-traded options. In the case of options traded in the
over-the-counter market, valuation is the last asked price (options written) or
the last bid price (options purchased). Short-term securities are valued at
amortized cost, which approximates market value. Securities and assets for which
market quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Board of Directors of
the Company.
(b) Derivative financial instruments--The Fund may engage in various portfolio
investment strategies to increase or decrease the level of risk to which the
Fund is exposed more quickly and efficiently than transactions in other types of
instruments. Losses may arise due to changes in the value of the contract or if
the counterparty does not perform under the contract.
- Options--The Fund may write covered call options. When the Fund writes an
option, an amount equal to the premium received by the Fund is reflected as an
asset and an equivalent liability. The amount of the liability is subsequently
marked to market to reflect the current market value of the option written. When
a security is purchased or sold through an exercise of an option, the related
premium paid (or received) is added to (or deducted from) the basis of the
security acquired or deducted from (or added to) the proceeds of the security
sold. When an option expires (or the Fund enters into a closing transaction),
the Fund realizes a gain or loss on the option to the extent of the premiums
received or paid (or gain or loss to the extent the cost of the closing
transaction exceeds the premium paid or received).
Written options are non-income producing investments.
(c) Income taxes--It is the Fund's policy to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required. Under the applicable
foreign tax law, a withholding tax may be imposed on interest, dividends, and
capital gains at various rates.
(d) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Dividend income is recorded on the ex-dividend dates. Interest income is
recognized on the accrual basis. Realized gains and losses on security
transactions are determined on the identified cost basis. The Fund will adopt
the provisions of the AICPA Audit and Accounting Guide for Investment Companies,
as revised, effective for fiscal years beginning after December 15, 2000. As
required, the Fund will amortize premiums and discounts on debt securities
effective January 1, 2001. The cumulative effect of this accounting change will
have no impact on the total net assets of the Fund, but will result in a $35,887
increase to cost of securities and a corresponding $35,887 decrease in net
unrealized appreciation, based on securities held as of December 31, 2000.
(e) Dividends and distributions--Dividends and distributions paid by the Fund
are recorded on the ex-dividend dates. Distributions in excess of net investment
income and net realized
11
--------------------------------------------------------------------------------
capital gains are due primarily to differing tax treatments for post-October
losses.
(f) Reclassification--Accounting principles generally accepted in the United
States of America require that certain components of net assets be adjusted to
reflect permanent differences between financial and tax reporting. Accordingly,
the current year's permanent book/ tax differences of $5,703 have been
reclassified between accumulated distributions in excess of net realized capital
gains and accumulated distributions in excess of net investment income. These
reclassifications have no effect on net assets or net asset value per share.
2. INVESTMENT ADVISORY AGREEMENT AND TRANSACTIONS WITH AFFILIATES:
The Company has entered into an Investment Advisory Agreement with Xxxxxxx Xxxxx
Investment Managers, L.P. ("MLIM"). The general partner of MLIM is Princeton
Services, Inc. ("PSI"), an indirect, wholly-owned subsidiary of ML & Co., which
is the limited partner.
MLIM is responsible for the management of the Company's funds and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the funds. For such services, the Fund pays a monthly fee
at the annual rate of .55% of the average daily value of the Fund's net assets.
MLIM and Xxxxxxx Xxxxx Life Agency, Inc. ("MLLA") have entered into an
agreement that limits the operating expenses paid by the Fund, exclusive of any
distribution fees imposed on Class B Shares, to 1.25% of its average daily net
assets. Any such expenses in excess of 1.25% of average daily net assets will be
reimbursed to the Fund by MLIM which, in turn, will be reimbursed by MLLA.
For the year ended December 31, 2000, Xxxxxxx Lynch, Pierce, Xxxxxx & Xxxxx
Incorporated ("MLPF&S"), a subsidiary of ML & Co., earned $20,042 in commissions
on the execution of portfolio security transactions.
For the year ended December 31, 2000, Xxxxxxx Xxxxx Securities Pricing
Service, an affiliate of MLPF&S, earned $720 for providing security price
quotations to compute the Fund's net asset value.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of ML & Co.,
is the Company's transfer agent.
FAM Distributors, Inc., ("FAMD"), which is a wholly-owned subsidiary of
Xxxxxxx Xxxxx Group, Inc., is the Fund's distributor.
Accounting services were provided to the Fund by MLIM.
Certain officers and/or directors of the Company are officers and/or directors
of MLIM, PSI, FDS, FAMD, and/or ML & Co.
3. INVESTMENTS:
Purchases and sales of investments, excluding short-term securities, for the
year ended December 31, 2000 were $123,247,334 and $143,049,224, respectively.
Net realized gains (losses) for the year ended December 31, 2000 and net
unrealized gains as of December 31, 2000 were as follows:
--------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Gains
--------------------------------------------------------------------
Long-term investments.................. $11,210,449 $7,163,026
Short-term investments................. (30) --
----------- ----------
Total.................................. $11,210,419 $7,163,026
=========== ==========
--------------------------------------------------------------------
At December 31, 2000, net unrealized appreciation for Federal income tax
purposes aggregated $5,556,775, of which $13,241,605 related to appreciated
securities and $7,684,830 related to depreciated securities. At December 31,
2000, the aggregate cost of investments for Federal income tax purposes was
$125,764,393.
4. CAPITAL SHARE TRANSACTIONS:
Transactions in capital shares were as follows:
------------------------------------------------------------------
Class A Shares for the Year Ended Dollar
December 31, 2000 Shares Amount
------------------------------------------------------------------
Shares sold............................ 66,660 $ 994,711
Shares issued to shareholders in
reinvestment of dividends and
distributions......................... 1,524,939 19,388,881
---------- ------------
Total issued........................... 1,591,599 20,383,592
Shares redeemed........................ (2,176,942) (32,503,915)
---------- ------------
Net decrease........................... (585,343) $(12,120,323)
========== ============
------------------------------------------------------------------
------------------------------------------------------------------
Class A Shares for the Year Ended Dollar
December 31, 1999 Shares Amount
------------------------------------------------------------------
Shares sold............................ 86,550 $ 1,314,138
Shares issued to shareholders in
reinvestment of dividends and
distributions......................... 2,357,608 34,859,825
---------- ------------
Total issued........................... 2,444,158 36,173,963
Shares redeemed........................ (2,378,305) (36,141,181)
---------- ------------
Net increase........................... 65,853 $ 32,782
========== ============
------------------------------------------------------------------
5. SHORT-TERM BORROWINGS:
On December 1, 2000, the Fund, along with certain other funds managed by MLIM
and its affiliates, renewed and amended a $1,000,000,000 credit agreement with
Bank One, N.A. and certain other lenders. The Fund may borrow under the credit
agreement to fund shareholder redemptions and for other lawful purposes other
than for leverage. The Fund may borrow up to the maximum amount allowable under
the Fund's current prospectus and statement of additional information, subject
to various other legal, regulatory or contractual limits. The Fund pays a
commitment fee of .09% per annum based on the Fund's pro
12
--------------------------------------------------------------------------------
rata share of the unused portion of the facility. Amounts borrowed under the
facility bear interest at a rate equal to, at each fund's election, the Federal
Funds rate plus .50% or a base rate as determined by Bank One, N.A. The Fund did
not borrow under the facility during the year ended December 31, 2000.
6. REORGANIZATION PLAN:
The Company's Board of Directors approved a plan of reorganization, subject to
shareholder approval and certain other conditions, whereby the Fund would
acquire substantially all of the assets and liabilities of the Balanced Capital
Focus Fund, which is another fund of the Company, in exchange for newly issued
shares of the Fund. Both Funds are registered, open-end management investment
companies that have a similar investment objective and are managed by MLIM.
13
--------------------------------------------------------------------------------
XXXXXXX XXXXX VARIABLE SERIES FUNDS, INC.--AMERICAN BALANCED FUND
INDEPENDENT AUDITORS' REPORT
--------------------------------------------------------------------------------
THE BOARD OF DIRECTORS AND SHAREHOLDERS,
AMERICAN BALANCED FUND OF
XXXXXXX XXXXX VARIABLE SERIES FUNDS, INC.:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of American Balanced Fund of Xxxxxxx
Xxxxx Variable Series Funds, Inc. as of December 31, 2000, the related
statements of operations for the year then ended and changes in net assets for
each of the years in the two-year period then ended, and the financial
highlights for each of the years in the five-year period then ended. These
financial statements and the financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned at December 31, 2000 by correspondence with the custodian and
broker. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of American Balanced
Fund of Xxxxxxx Xxxxx Variable Series Funds, Inc. as of December 31, 2000, the
results of its operations, the changes in its net assets, and the financial
highlights for the respective stated periods in conformity with accounting
principles generally accepted in the United States of America.
Deloitte & Touche LLP
Princeton, New Jersey
February 9, 2001
14
---------------------------------------------------------
XXXXXXX XXXXX
VARIABLE SERIES FUNDS, INC.
---------------------------------------------------------
PRINCIPAL OFFICE OF THE FUNDS
Box 9011
Princeton, NJ 08543-9011
CUSTODIAN
For all Funds except Developing Capital
Markets Focus Fund:
The Bank of New York
000 Xxxxxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
For Developing Capital Markets Focus Fund:
Brown Brothers Xxxxxxxx & Co.
00 Xxxxx Xxxxxx
Xxxxxx, XX 00000
TRANSFER AGENT
Financial Data Services, Inc.
0000 Xxxx Xxxx Xxxxx Xxxx
Xxxxxxxxxxxx, XX 00000-0000
(000) 000-0000
---------------------------------------
Xxxxxx Xxxxxx, Director of Xxxxxxx
Xxxxx Variable Series Funds, Inc., has
recently retired. The Funds' Board of
Directors wishes Xx. Xxxxxx well in his
retirement.
---------------------------------------
DIRECTORS AND OFFICERS
Xxxxx X. Xxxxx
President
Xxxxx X. Xxxxxxx
Senior Vice President
Xxx Xxxxxx
Director
Xxxxxx X. Xxxxxxxx
Senior Vice President
Xxxxxx Xxxxx
Director
Xxxxxx X. Xxxxxx
Senior Vice President
Xxxxxx X. Xxxxxxx Xx.
Director
Xxxx Xxxxxxxxxxx
Senior Vice President
Xxxxxx X. Xxxxxx
Director
Xxxxxx X. Xxxxxxx
Senior Vice President
Xxxxxxx X. Xxxxxxxx
Director
Xxxxxx X. Xxxxxx
Senior Vice President
Xxxxxxxxxxx X. Xxxxx
Senior Vice President
Xxxxxx Xxxxxxxx
Vice President
X. Xxxxx Xxxx
Senior Vice President
Xxxxxx X. Xxxxxx
Vice President
Xxxxxx X. Xxxx, Xx.
Senior Vice President
Xxxxxx X. Xxxxxx
Vice President
Xxxxxxxx X. Xxxxxx
Senior Vice President
Xxxxxxxxxx X. Xxxxxx
Vice President
Xxxxxxx X. Xxxxxxxx XXX
Senior Vice President
Xxxxxx X. Xxxxx
Vice President and
Treasurer
Xxxxx X. XxXxxx
Senior Vice President
Xxxxx X. Xxxxx
Secretary
Xxxxx X. XxXxxxx
Senior Vice President
Xxxx X. Xxxxxxxx
Senior Vice President
Xxxxxx X. Xxxxxxx Xx.
Senior Vice President
Xxxxx Xxxxxx
Senior Vice President
--------------------------------------------------------------------------------
This report is only for distribution to shareholders of one of the Funds of
Xxxxxxx Xxxxx Variable Series Funds, Inc. Past performance results shown in this
report should not be considered a representation of future performance.
Investment return and principal value of non-money market fund shares will
fluctuate so that shares, when redeemed, may be worth more or less than their
original cost. Statements and other information herein are as dated and are
subject to change.
Xxxxxxx Xxxxx Variable Series Funds, Inc.
Box 9011
Princeton, NJ
08543-9011
